Media General, Warren Buffett agree on paywalls

Warren Buffett, whose Berkshire Hathaway bought most of Media General’s newspapers Thursday, thinks paywalls are one of the few defenses newspapers have against the economic forces that are battering them. In an interview on CNBC in February, Buffett said, “It’s expensive to turn out a paper. You start with trees up in Canada and you end up with a kid throwing it.”

Newspapers “have been giving away their product at the same time they’re selling it,” he said, “and that is not a great business model. When they put papers up on the Internet and you get free, you’re competing with yourself. And throughout the industry you’re seeing a reaction to that problem and an answer to it. … You shouldn’t be giving away a product you’re trying to sell.”

Media General’s 2011 annual report said the company was moving toward paywalls at all of its papers:

In 2011, we made important advances toward being paid for our newspaper content on digital platforms. By the end of 2011, seven of our newspapers were charging for premium online content. By mid April of 2012, we expect to have 11 more newspapers offering digital subscriptions and intend to add more digital subscription sites by the end of 2012 for both daily and weekly newspapers. We know that users are willing to pay a reasonable fee for premium local content and we are adding new digital-only subscribers.

In response, GigaOM’s Mathew Ingram noted that The Washington Post, in which Buffett’s Berkshire Hathaway is a major investor, has steadfastly refused to implement a paywall.

I’m going to side with the Washington Post on this one, and one of the reasons for that is the way that Buffett describes his argument: he says that newspapers are giving away their product while still trying to charge for it. But that assumes the “product” is the news, and that this is what newspapers are charging for — and I don’t think that’s really the case any more. For content companies of all kinds, the product is (and in many ways, always has been) the relationship that you can build with readers around your content. And the monetization of that now comes in many different forms.

Note that The Washington Post Co. reported a brutal first quarter at the beginning of May.

In a post titled “Did Warren Buffett Just Bash the Washington Post’s Strategy?” Forbes’ Jeff Bercovici also noted the dissonance:

While Buffett is no longer on its board of directors, [Washington Post Company chairman and CEO Don] Graham has said he continues to consult closely with him. Yet every time the Post has taken a public stance on the question of free vs. paid, it has always reiterated its commitment to the former, even as its profits continue to plummet. In the fourth quarter, operating income at the paper fell more than 50%, to $7.4 million.

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  • robelroy

    Also keep in mind that Buffett is buying small papers. There is no substitute for these news sources. Also, keep in mind what Facebook is trying to build- community. Thus far they have failed, as most everyone’s Facebook “community” is a tribal mishmash of work and school contacts that find no cohesion beyond that. Small newspapers remain community centers and their readership has exploded, if only in digital. Buffett is investing in community- it’s already there, and will never get built by a company.

  • robelroy

    Let me ask Matt Ingram if the 500k digital subscribers to the NYT and the 50k pure digital subscribers to the Dallas Morning News are paying for the inserts. Or is it the coupons? The full page adverts on A12? Are we so sure that people aren’t buying the news?