Warren Buffett enjoys near universal praise for everything he does. Popularly known as the Oracle of Omaha, Mr. Buffett is widely considered the greatest investor of all time as his holding company, Berkshire Hathaway, has generated eye-popping annualized returns of 25%+ over the past 30 years. Mr. Buffett has shrewdly purchased large interests in blue-chip American companies when other investors were fleeing. He owns huge stakes in Coca Cola, American Express, Wells Fargo, Fruit of the Loom and The Washington Post. Buffett also seems to have a fondness for Buffalo - he is a large shareholder of M&T Bank, his Geico opened a new $40M operations center in Amherst in 2004 and, of course, he owns The Buffalo News and serves as the paper's Chairman.
The Berkshire Hathaway operating model is quite simple - acquire safe, boring businesses that generate excess cash, send the cash to Omaha for Warren to invest in other companies, and watch Berkshire Hathaway's value rise. From the perspective of any investor - and certainly from that of a Berkshire shareholder - the Buffett model has worked flawlessly.
There is, however, a criticism of how Mr. Buffett runs his businesses. He is famously frugal - his 2001 Lincoln cruised around with the vanity plate "Thrifty" - and, when seeking out companies to acquire, he only invests in companies with equally thrifty management. Indeed, Buffett purchased National Indemnity Corporation after one brief meeting with the CEO of the company. Buffett was sold, he said, as soon as the CEO showed up late to their meeting because he was driving around looking for a parking meter with unexpired time. Said Buffett "that was a magic moment for me. I knew then that Jack (the CEO) was going to be my kind of manager." This kind of maniacal money-saving mindset can help a business save precious capital, but it can also jeopardize a business' long-term viability and value.
Which brings us to his ownership of our only local newspaper of record - The Buffalo News. The newspaper industry faces tremendous headwinds as circulation declines and younger people go elsewhere for their news. As a result, advertising revenue declines and a viscous cycle ensures - circulation declines lead to advertising declines and advertising declines lead to circulation declines. It's nothing more than the reverse of the process that made newspapers money-making machines decades ago and led Mr. Buffett to purchase The Buffalo News in 1977. So, of course, newspapers across the country are cutting costs in an attempt to maintain profitability. The Buffalo News, given it's owner and his frugal management style, is likely cutting costs even more. Unfortunately, Berkshire Hathaway only sporadically reveals details about The Buffalo News' operating condition. From annual report filings, we know that employment at the News has fallen from 1005 employees in 2003 to 822 in 2007 - an 18% cut in 4 years. It's difficult to determine which departments have suffered the most losses, but clearly the quality of reporting has to be affected as the News undergoes this transformation. Indeed, when you lose Tom Toles and roll out a new American Idol blog, you might well help Berkshire's bottom line but you surely don't help the readership of the News gain insight into the substantive issues of the day.
Of course, these cost-cutting tactics seem appropriate for a business losing traction and they seem entirely typical for a Berkshire-owned enterprise. But journalism isn't just any business - it's the Fourth Estate. And Buffalo, like almost every other mid-sized city, is a one newspaper town. So this wind-down of our local newspaper isn't like a slowdown at Fruit of the Loom or Dairy Queen - other Berkshire franchises - as it raises far-reaching issues as to how Western New York will deal with our fundamental need for news. Real news. Real insight. Real journalism.
Yes, individual blogs and other citizen journalism efforts can help supplement a primary news-gathering source but they haven't shown the ability to fully replace one.
So what's next for The Buffalo News? Is there a path back to relevancy that actually includes quality journalism?