(BRK.A), (BRK.B)
Before the dawn of the Internet, newspapers were media cash-cows that produced strong, reliable revenue streams from display advertising and classified advertising. They became hot items, and throughout the 1990s they sold at high multiples. For example, the 1993 sale of the Boston Globe to the New York Times Company went for $1.1 billion.
In more recent years, newspapers have been known for declining readerships, and being burdened with high levels of debt.
When the cash-strapped New York Times decided to unload the Boston Globe, it sold for only $70 million–a 93% loss.
Going in the Exit
While everyone has been declaring the death of the American newspaper and running for the exits, one company, Berkshire Hathaway, has been running in the door.
Berkshire’s BH Media Group has assembled a growing empire of 69 newspapers and other publications located in the states of Virginia, North Carolina, South Carolina, Alabama, Florida, Texas, Iowa, Nebraska, Oklahoma and New Jersey.
Warren Buffett has long been a fan of newspapers, all the way back to his 1977 purchase of the Evening News, which serves Buffalo, New York. And, Berkshire had long owned a major share of the Washington Post.
But that was then. Are they still good business today?
EBITDA Comes Down to Earth
The magic word in the newspaper acquisition business is “multiple.” The multiple under consideration is the multiple of annual earnings before interest, taxes, depreciation, and amortization (EBITDA).
In BH Media Group’s case, the great news is that it’s paying reasonable multiples that are within the 4-5 EBITDA range.
Just under a decade ago in 2005, Lee Enterprises bought Pulitzer Inc. for 13 times EBITDA in a deal worth $1.46 billion. In contrast, Berkshire Hathaway spent a mere $143 million in acquiring 60 newspapers from Media General. And, unlike the newspaper empires of the 1990s, BH Media Group’s papers have no debt.
BH Media Group’s Evolving Strategy
BH Media Group originally set its sights on small markets, believing they presented the opportunity for a still healthy business model presenting local interest news that is hard to get from other sources. However, it has seen that larger markets have held up well in both circulation and advertising revenue.
For example, The Richmond Times-Dispatch in Richmond, Virginia, has a daily circulation of 102,258 and serves a population in the Metropolitan Statistical Area (MSA) of 1,231,980. Similarly, the Tulsa World in Tulsa, Oklahoma, has a daily circulation of 88,601 and serves an MSA population of 951,880. Papers in even smaller markets like Winston-Salem, North Carolina, and Roanoke, Virginia still reach sizable populations. The Roanoke Times, for example, has a daily circulation of 64,631, and serves an MSA population of over 312,000.
While print circulation may be fading, digital platforms are playing an ever larger role. For example, the Winston-Salem Journal, which has a daily circulation of 50,090 and serves an MSA population of 647,697, has 3 million page views per month.
Capturing Digital Revenues
Digital revenues come from a combination of online subscribers and online advertising. All the BH Media Group publications use a limited free access paywall system. Readers have proven willing to pay to get unlimited access to in-depth information about their local market. Some articles are available for free, but the number of free articles available per month varies by market depending on competition. BH Media Group is able to reduce the number of free articles in markets where the publications have no competitors.
Sharing Reporting Resources
BH Media Group doesn’t have a national news gathering operation, preferring to use the Associated Press. It knows that today’s reader is gathering national and international news from myriad outlets. Instead, it focuses on in its strength–local and regional reporting–where its reporters can gather far more stories than the local TV or radio stations.
In a market such as Winston-Salem, the Winston-Salem Journal has a newsgathering staff of 50, as compared to the 9 reporters at a local TV station. It’s in regional reporting that BH Media Group finds additional synergies. For example, its 30 print media properties in Virginia all have access to articles created by the collective BH Media Group publications, and can share reportage on state government and other state-wide issues.
Eliminating Crushing Debt Pressure
Over the past decade, newspapers have spent much of their time on debt relief, much of it through cost cutting through staffing cuts that have diminished their newsgathering ability. With Berkshire Hathaway’s deep pockets, BH Media Group’s papers all operate debt free, freeing them up to concentrate on being the most effective media outlets in their markets.
Growth Strategies
As for the future, BH Media Group continues to look aggressively for additional print media properties. It shuns the major markets, with Buffett having shown no interest in bidding for the Washington Post, which went to Amazon’s Jeff Bezos for $250 million in the fall of 2013. Instead, BH Media Group prefers to pick off the smaller markets that collectively having millions of readers and millions in revenues.
Warren Buffett is known for his patience. He is also known for growing his positions over time, and it wouldn’t be surprising if in another decade BH Media Group is the king of regional print media all over the U.S.
All purchased at reasonable multiples.
© 2014 David Mazor
Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.