Jeff Bezos (right) may be the most prominent rich person to buy into the newspaper industry recently, but he’s not the only one. Billionaires have been opening their checkbooks with astonishing frequency lately to invest in an industry that many people think is dying.
Warren Buffett owns more than 60 newspapers and says he’ll buy more. Billionaire Boston Red Sox owner John Henry just ponied up $70 million for the Boston Globe. Serial entrepreneur and multimillionaire Aaron Kushner bought the Orange County Register a year ago and has been plowing money into reporters and circulation. There’s evidence that the strategy is paying off.
What do these savvy investors see that others don’t? I think three things.
Value. At a basic level they see business opportunity. Henry purchased the Globe for just 6% of what the New York Times Co. paid for the newspaper 20 years ago. Media properties are so beaten down right now that value investors see nowhere to go but up. Newspaper subscribers still have some of the best demographics of any audience. More than half earn more than $50,000 a year and 22% earn six figures or more, according to the Newspaper Association of America (NAA).
Although the audience is dwindling, more than 60% of US adults read a newspaper in print or online each week, according to the NAA. There are more ways to monetize that audience than just advertising, and these new investors are the kind of out-of-the-box thinkers who will figure them out.
Market Stability. Mainstream media plays a critical watchdog function that greases the wheels of democracy and commerce. Reporters pounding the beat at city hall and scrutinizing the records of regulators keep public officials honest and playing fields level. They also provide valuable intelligence on competition.
The press corps at some state capitols has been drawn down so much that some legislators have actually complained they miss the repartee with journalists. That has to alarm anybody who has millions invested in the market. Most rich people don’t care who’s in office as long as they know someone’s keeping an eye on them. And by the way, Bezos, Henry and Buffett were avid newspaper readers long before they were media tycoons.
Trust. The great paradox of the newspaper industry bust is that readership of newspaper content is at an all-time high in the U.S. The problem isn’t the product, it’s the business model. Media democratization has been a great thing, but it’s also created a crisis of trust. We are less and less confident in who to believe.
Trusted media brands have a vital role to fulfill in this regard. We trust them to sweat the details and nail down the facts. Misinformation flourishes when everyone is the media, as we saw in the Boston Marathon bombings and Hurricane Sandy. Mainstream media is expected to be accurate, at least most of the time. That’s why we instinctively turn to them when messages conflict.
I don’t want to imply that the actions of these super-rich investors are entirely altruistic, but smart people know a developing crisis when they see it. Trusted media is too important to the functioning of our society to be allowed to just die on the vine. If Jeff Bezos can put up 1% of his net worth to rescue the Post from disaster, he hasn’t sacrificed much.
The newspaper industry has fumbled for a solution to its problems for decades with little to show for it. That’s mainly because the wrong people were in charge. Newspapering has traditionally been a stable, profitable and boring business, characterized by monopoly or duopoly markets, high subscriber loyalty and advertiser lock-in. The people who flourished in that environment where bean counters who knew how to wring costs out of an operation.
When the industry entered walked off the cliff in 2006, these people did what they knew best: Hacked away at expenses. But you don’t cost cut your way out of a fundamental shift in your market. Until just a couple of years ago, newspaper still earned 80% of their revenue from advertising, a business that has been in freefall for years. They’ve done a terrible job of diversifying their revenue streams, although some are beginning to turn the corner.
The Washington Post is a microcosm of the industry’s troubles. The paper was one of the first to go online in the pre-Web days, but it chose to build a proprietary platform that was quickly rendered obsolete. The Post has failed to come up with a workable way to derive more revenue from readers, as The New York Times has done. Many staffers reportedly sneered at The Politico when it launched in 2007. Today, it’s a must-read on Capitol Hill
The Washington Post Co. has diversified its business but failed to invest aggressively in new-media opportunities. The company’s Kaplan education division actually contributes the majority of its revenue and profit, but WaPo has been unable to duplicate that success in other markets.
Its most famous misstep was when CEO Donald Graham failed to pursue a 2005 handshake agreement to invest $6 million in a fledgling social network called Facebook. Accel Partners got the deal instead. Had Graham pressed his advantage, the Post’s stake could be worth $7 billion today, wrote Jeff Bercovici in Forbes.
But why invest? Newspaper owners have never had incentive to be aggressive. The industry has rewarded caution and conservatism, and that’s a big reason why it’s in such a mess today. The good news about the arrival of wealthy entrepreneurs on the scene is that they have nothing invested in the way things used to be done. People like Jeff Bezos are set to break the rules, and that’s exactly what the industry needs.