As the newspaper industry navigates a decline in print circulation and advertising revenue, hometown owner Warren Buffett is assigning the fate of his own BH Media Group to an out-of-town company.
Lee Enterprises of Davenport, Iowa, will manage The World-Herald and the 29 other Berkshire Hathaway-owned daily newspapers, the companies announced Tuesday in a five-year agreement that could bring Lee $50 million over five years.
The deal comes as local newspapers struggle to keep up with a changing media landscape, even as their online audiences are growing.
“We’re really confident that we can do this,” said Mary Junck, executive chairwoman of Lee, on managing Buffett’s newspaper chain, which began with the purchase of The World-Herald for $200 million, including debt, in 2011.
After an analysis of BH Media, Junck said, “we see good opportunities in a number of areas” to improve the newspapers’ financial performance, including cost reductions, increased number of subscriptions and more digital revenue. Lee is known for having some of the largest profit margins in the newspaper business.
Berkshire Hathaway doesn’t break out the financial performance of its BH Media properties, though executives have said the newspapers are profitable.
Buffett has tasked Lee with managing the Berkshire newspapers “the same way we manage our own,” Junck said. Berkshire will retain ownership of the papers.
Lee President and Chief Executive Kevin Mowbray said Lee has a five-year plan for added revenue and “cost synergies” and would confer with BH Media managers this week. “It’s coming right out of our playbook.”
As part of the Tuesday announcement, BH Media Chief Executive and World-Herald Publisher Terry Kroeger said he was stepping down from the company.
Starting Monday, Lee will operate the two largest newspapers in Nebraska. Lee owns the Lincoln Journal Star. Editorial decisions for The World-Herald and other BH newspapers will remain with those newspapers, the companies said.
BH Media accounts for a tiny fraction of Berkshire Hathaway’s $242 billion in revenue, but Buffett has said he bought the newspapers because he loves the business and believes in their role in society. BH Media’s holdings also include the Richmond Times-Dispatch in Virginia and the Tulsa World in Oklahoma, along with dailies in North Platte, Kearney and Grand Island.
BH Media’s print circulation has dropped about 15 percent since 2015, and, like most newspapers, it has struggled to build digital subscriptions and advertising as audiences have shifted from print to online.
The efficiencies achieved by Lee could include staff cuts, industry watchers said.
Rick Edmonds, media business analyst for the journalism research center Poynter Institute, said Lee “may well operate the (BH Media) properties less expensively, a little more leanly, possibly with newsroom cuts — although operating lean and cutting the newsroom are not necessarily the same thing.”
Some newspaper chains save money by using “shared services” such as regional desks for copy editing, page design or other functions, he said. Lee has a reputation for cutting news staffs, he said, but it’s not clear whether that would happen at BH Media papers, although Lee executive Mowbray mentioned shared services as a possible savings method.
The agreement allows Lee to reduce staffing without Berkshire Hathaway’s permission. It doesn’t allow Lee to make bigger overhauls, like outsourcing printing or changing days of the week of publication, without Berkshire Hathaway’s OK.
It’s possible that nearby printing plants may be consolidated to save money, Edmonds said. The World-Herald and the Lincoln Journal Star are about 60 miles apart and each has its own printing plant, in addition to separate news staffs.
Lee executive Junck noted that the Omaha and Lincoln newspapers are the only geographic overlap between the two companies’ chains.
Edmonds said the BH Media newspapers were “patched together” by Buffett over the past several years and are somewhat like family-owned newspapers that have been slower to adapt to changes in technology, such as a good computer program to sell digital subscriptions.
Lee may bring that expertise to the BH Media papers, he told The World-Herald.
Raju Narisetti, a former executive for News Corp., the company that owns the Wall Street Journal, said the newspaper business across the U.S. is “quite distressed.”
“Any rational attempt to try and make the business math work is laudable,” Narisetti told The World-Herald.
Had Buffett tried to sell the BH Media newspapers, they would have gone for “fire sale” prices, he said, and Berkshire Hathaway doesn’t exactly need the meager cash they would draw.
If a so-called strategic buyer had come along and larded the company up with debt to finance a purchase, then the debt service could have meant severe cuts to the newsrooms, Narisetti said. He now runs the Knight-Bagehot Business Fellowship program at Columbia University.
“By not selling the chain to a vulture owner, Warren Buffett continues to be a better steward of these news assets than many might want to give him credit for this week,” Narisetti said. He noted that the agreement gives Berkshire a say-so on some of the biggest decisions, meaning it could stop Lee from making changes that could undermine the longer-term value of the properties.
In a statement announcing the agreement, Buffett said, “I love our newspapers and am passionate about the vital role they serve in our communities. Although the challenges in publishing are clear, I believe we can benefit by joining efforts.”
Buffett is familiar with Lee, having not long ago lent it $94 million toward refinancing some of its $500 million debt, which came about in large part from buying the St. Louis Post-Dispatch in 2005 in a $1.46 billion transaction.
Junck, Lee’s executive chairwoman, said she shares Buffett’s love of newspapers and has discussed the “joys and responsibilities” of newspapering with him.
BH Media has 30 dailies with 740,000 in Sunday circulation compared with Lee’s 49 dailies and 1.4 million circulation.
Mike Reilly, vice president for news at BH Media and former executive editor of The World-Herald, said Lee has been “a neighbor and industry partner” for years. “I’m hopeful we can learn more from Lee in our shared challenges to deliver great journalism, advertising and customer service for print and digital readers.”
Phil Taylor, president of The World-Herald, said in a letter to employees that the company expects to benefit from Lee’s digital experience but that Lee executives Junck and Mowbray “emphasized this morning that their company expects to learn from us, too. Both companies share the same goal: to thrive as businesses by delivering valuable journalism, advertising solutions and customer service to our customers.”
The agreement does not include Berkshire’s television properties or the Buffalo News in New York, which Berkshire owns outside of BH Media. BH Media had 3,719 employees at the end of 2017, according to Berkshire, down from 4,042 at the end of 2015.
Following disclosure of the management agreement early Tuesday, Lee’s stock price jumped about 20 percent on the New York Stock Exchange, although it’s down by half since March 2014 and down about 95 percent since March 2004.
Lee’s goal is to earn $50 million in fees over the five-year agreement, Junck said. Half of that would come from an annual fixed fee of $5 million a year and the other half from percentages of BH Media profit higher than a benchmark of $34 million per year.
The agreement calls for Lee to receive one-third of the profits over $34 million in the first two years and one-half in the final three years.
The agreement names Mowbray as Lee’s “relationship manager” and Ted Weschler, an investment manager for Berkshire, as the “relationship manager” for BH Media.
Besides The World-Herald, the Berkshire dailies are the Dothan Eagle and the Opelika-Auburn News in Alabama; the Daily Nonpareil in Council Bluffs; the Grand Island Independent, Scottsbluff Star-Herald, North Platte Telegraph, Kearney Hub and York News-Times in Nebraska; The Press of Atlantic City, New Jersey; the Winston-Salem Journal, Greensboro News & Record, The News Herald in Morganton, The McDowell News, Statesville Record and Landmark and Hickory Daily Record in North Carolina; Tulsa World in Oklahoma; the Florence Morning News in South Carolina; the Eagle in Bryan-College Station and the Waco Tribune-Herald in Texas; and, in Virginia, the Richmond Times-Dispatch, the Daily Progress in Charlottesville, the Roanoke Times, Bristol Herald Courier, News & Advance in Lynchburg, Martinsville Bulletin, Danville Register & Bee, the Free Lance-Star in Fredericksburg, Culpeper Star-Exponent, and the News Virginian in Waynesboro.
Lee has daily newspapers and nearly 300 weekly and specialty publications in markets including St. Louis, Missouri; Madison, Wisconsin; Billings, Montana; Bloomington, Illinois; and Tucson, Arizona.