Former Newspaper Delivery Boy Warren Buffett Says He Wouldn’t Buy A Newspaper At Any Price While Publicis Head Maurice Levy Says Print’s Business Model Is Broken – Notice A Theme There?

Philip M. Stone May 6, 2009

Warren Buffett has a canny way of describing a problem in very understandable language. Thus, here’s his take on why newspapers are in trouble – newspapers are essential to advertisers only as long as they are essential to readers. Lose the reader, you lose the advertiser.

And Maurice Levy, who is the CEO and chairman of Publicis, the world’s fourth largest advertising and communications group, told a London conference Tuesday, “The end of the economic crisis will not be the end of the crisis for the analog (as opposed to digital) media. You are facing a deep, profound structural revolution and you have to be prepared for a new world.”

Well, when the world’s second richest man next to Bill Gates says he won’t touch newspapers (and neither has Bill Gates) and when the head of Publicis warns that circulation and advertising contraction will likely continue through 2011, it makes you want to say “good luck” to those people owning newspapers today, and to those who are actually increasing their newspaper portfolio – Platinum Equity has closed on its purchase of the San Diego Union Tribune at what it admits was an “attractive valuation”.

Buffett is a major shareholder in The Washington Post Company whose flagship newspaper reported a Q1 loss of $53.8 million, and he owns The Buffalo News in New York State. He did not mince words at his Berkshire Hathaway annual meeting last weekend in explaining why he wouldn’t financially go near newspapers today. “Most newspapers in the United States we would not touch at any price. They have the possibility of unending losses. Thirty years ago they were an essential business if you wanted to learn sports scores, news, etc. They were only essential to the advertiser as long as they were essential to the reader. That’s changing. It’s changing every day and I don’t see anything on the horizon that causes that erosion to end.”

And so, as news and sports are found on different platforms and print readership declines, then so, too, does newspaper advertising find its way to other platforms. It’s as simple as that.

Now we know the problem, how to go about fixing it? According to Maurice Levy what the newspaper and magazine industry really need is some creative thinking.

He said it should be taken as a given that the world’s advertising spend will increasingly shift to digital and while advertisers may be called many things the one thing they are not are philanthropists – if print wants their money then print must earn it.

He admits there is no “one-size-fits-all” solution and recent stories in the past few weeks of major newspapers looking at digital models that include both free and paid content is as good a way forward as any. And he urged publishers to exploit the power of their brands far more than they have been.

As for the young he asked, “Who can believe, honestly, that young people, who we call the digital natives, are going to ditch their computers, their iPods, their mobile phones, and go back to print?” In other words, since the young won’t be going to print, then print needs to be going to the young on the various platforms that the young use.

And the key to it all? Again, really, a simple answer. It’s content, whether that content is produced internally, or it’s based on user contribution or combinations thereof – the right content is the key to drawing users.

If there is any company that really understands all of that it has to be News Corp. It releases its fiscal Q3 results on Thursday that analysts believe will see operating profit drop to $7 million compared to the $216 million for the same quarter a year ago. The “real” money comes from his Fox Empire.

But Chairman Rupert Murdoch is still a newspaperman at heart – printers ink really does seem to flow through his veins -- and he is still looking at the long-term for his UK newspapers.  “In London our papers are financially strong even if we don’t make much money for a year or three years … but we will come out of this with our franchises infinitely stronger … we will use our leadership and our strength to gain market share,” he told Brunswick Review produced by the communications company of the same name (the interviewer, David Yelland, used to edit Murdoch’s Sun tabloid).

While Murdoch may be sounding positive about his four London newspapers, results just released put the pre-tax losses for his Times Newspapers from mid 2007 to mid 2008 at £51.3 million (€45.7 million, $34.3 million) -- in other words he is losing around £1 million a week there and the results are 16.7% worse than the year before. But since the company’s fiscal earnings annually end in June that means that the last six months of last year – when things really fell apart – have yet to be reported so there surely must be worse numbers to come.

As Murdoch said in his interview, he knew the economy was bad and getting worse, “but “I never thought it would get this bad.”

Maybe everyone should be turning to Australia to figure out how print still can succeed. The combined ad revenue of all newspapers in Australia declined by just 0.6%in 2008, according to The Newspaper Works trade group. National ad revenue grew by 1.3% and retail was up 2.1%.  Even real estate classifieds grew by 1.5% although employment was down 12.3%.

If only that success could be transplanted elsewhere?