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Warren Buffett Pessimistic About Newspapers

By Chris V. Thangham     Mar 5, 2007 in Business
Warren Buffett is pessimistic about the newspapers survival and profitability
In his annual letter to his company's shareholders, Warren E. Buffett-- the world's second-richest person and the largest shareholder of The Washington Post Co. -- wrote that "fundamentals are definitely eroding in the newspaper industry" and warned that "the skid will almost certainly continue."
Written in its typical folksy style, the letter is Buffett's 2006 overview of his company, Berkshire Hathaway, and its many holdings, which include Geico insurance, manufacturing units and utilities.
Warren Buffet's company, Berkshire Hathaway, reported a $17 billion gain in net worth, 18% higher in 2006 compared to the previous years, 2004 and 2005. He says, the profit is largely because "Mother Nature, bless her heart, went on vacation,"Buffett wrote. While in the previous years, his company had to pay a large amount because of several hurricanes. However, his newspapers investments are not going too well. He owns 18% of The Post Co., and also owns Buffalo News.
"When Charlie [Munger, Berkshire Hathaway's vice chairman] and I were young, the newspaper business was as easy a way to make huge returns as existed in America," Buffett wrote in the letter, which was released Thursday.
"As one not-too-bright publisher famously said, 'I owe my fortune to two great American institutions: monopoly and nepotism.' No paper in a one-paper city, however bad the product or however inept the management, could avoid gushing profits."
In 1991, he had warned to his newspapers companies, of the looming problems in the industry. Newspapers no longer hold a monopoly on news and information.
Now, he says it is more worse, today, cable and satellite broadcasting and the Internet have a larger say than the newspapers. In fact if cable broadcasting and Internet had come first, newspapers would never have existed.
The average daily newspaper circulation in the United States is declining each year since 1987. At the Washington Post, print advertising decreased 4 percent in 2006 compared to last year.
When told about some newspapers that also have Internet presence and expect some revenues in addition to the daily newspaper subscription, he said, those revenues are only minuscule compared to what existed when there was no competition.
Buffett, in addition to his overview of the newspaper industry, touched on his potential successors. He is planning to phase out of the daily operations from the Berkshire Hathaway group.
I think if the Newspapers have to survive they have to have a presence in the Internet, but it will be difficult with a clutter of news sources available. Is there a remedy for the Newspapers?
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