It hit like a punch to the gut.
Warren Buffett is selling The Buffalo, along with 30 other newspapers, to Lee Enterprises.
I guess I’m not surprised, but it’s still stunning.
The Buffalo News was one of the last outposts for high-quality regional journalism in the nation. It had taken its body blows, but it was still operating around a break-even level.
Since it was owned outright by Buffett (since 1977), it had no debt. It had few layoffs compared to other newspapers. While its nuts and bolts suburban and small-town coverage had largely disappeared (replaced in part by a chain of local weeklies that it started), it’s been trying to focus in high-impact investigative piece and doing a good job. If there was anyplace where regional journalism (i.e. not New York Times, Washington Post) could work, it would be Buffalo.
So if Buffett is saying he doesn’t think The Buffalo News is worth keeping as a stand-alone investment anymore, it means ones of the last true believers in regional and small-town newspapers is throwing in the towel.
It’s true that Buffett does have an ownership share in Lee and is its primary financing source, but he’s reducing his commitment.
As somebody who teaches journalism, that’s terrible news. For years I’ve had to tell my print-oriented students that they’re going to have to reinvent journalism or go into fields where they can use their journalism skills. And that’s what most of them are doing.
But this is perhaps the last nail in the print newspaper coffin for me. The future is going to be digital, with some premium print products still serving the high end audience (New York Times, Wall Street Journal, Washington Post, etc.).
And digital usually means working with fewer resources and lower ad revenue.
So here are a few thoughts as this unfolds.
- There will inevitably be cuts. I’m worried about old friends who are in management. They’re the easiest to cut. The Newspaper Guild, the journalists’ union, will provide some protection to its members. The current contract runs out in 2021, so things will get interesting next year.
- I think it’s very likely the Lee version of The Buffalo News will sell its facility. The property, 1 News Plaza, at the corner of Washington and Scott streets, is worth more than the paper. Lee also owns the St. Louis Post-Dispatch, and it moved its offices last year. The big question is where they would print (unlike St. Louis, the printing facilities are in the same set of buildings as the offices), or perhaps even go totally digital at some point.
- Lee is not the worst of buyers. That would probably be a hedge fund or a company like GateHouse Media. GateHouse bought Gannett last summer, so Rochester is stuck with them.
- For News employees and retirees, it would seem their pensions should be safe. The retirement funds were managed well enough that they were actually overfunded. From what I understand, The News was able to use some of the overage to apply to the bottom line – which meant that even when The News didn’t quite break even in its operations, it was able to not lose money.
- I’m not sure what I think of this. Lee’s statement says “Berkshire Hathaway is providing approximately $576 million in long-term financing to Lee at a 9 percent annual rate.” So what kind of pressure will that put on the papers to make perhaps unrealistic profits? And doesn’t 9 percent seem rather high? People who are more well-versed than me will have to explain how that makes sense.
- Take a look here to see what Lee is saying: https://lee.net/financial/lee-enterprises-to-buy-berkshire-hathaway-newspaper-operations-berkshire-hathaway/article_406cd3d4-428b-11ea-8b89-cbc3dc3a7374.html Apparently they were paying higher rates on their debt before. Lee’s debts were about to come due in 2022, so that apparently was one of the drivers in the deal.
- Lee mentions “approximately $20-25 million of highly achievable annual synergies, including revenue synergies from the management of digital advertising and subscriber programs, and cost synergies, primarily from the reduction of administrative expenses.” One of the keys to how this works will be what that actually means.
- The sale of the Buffalo News and 30 other papers for $140 million is amazingly low. Twenty years ago, The News itself would have been worth perhaps a minimum $500 million on its own (my very loose estimate). That’s a stunning – and depressing – statement on the status of the newspaper industry.
These are shoot-from-the-hip reactions. I guess we’ll soon be finding out how it’s all going to play out.