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June 3, 2012
David Warsh, Proprietor


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You Can’t Tell the Unhappy Families Without a Scorecard

There was the bad news on the front page of The New York Times last month, “New Orleans Newspaper Scales Back in Sign of Print Upheaval”:  The Times-Picayune, a much beloved 175-year-old institution that memorably rallied the Crescent City after Hurricane Katrina, “had buckled under the pressures of the modern newspaper market.”

Henceforth The Times-Picayune would be published just three days a week, as would its sister papers in Birmingham, Mobile, and Huntsville. Alabama. “Newsprint sentimentalists are part of a shrinking club,” averred Times columnist David Carr a couple of days later. “We’re Shriners, once a proud, powerful bunch who now meet in little rooms and exchange secret handshakes.”

Never mind the news that just the week before Warren Buffett had bought 25 daily newspapers in the South (and 38 weeklies), including the Richmond Times-Dispatch and the Winston Salem Journal, while seller Media General had kept its Tampa Tribune,  struggling with the Tampa Bay Times in a two-newspaper metropolitan market.  Buffett’s Berkshire Hathaway bought the Omaha World-Herald, his hometown paper, earlier this year. The company for many years has owned the Buffalo News and held a stake in The Washington Post. Buffett has said “we may buy more.”

Don’t be fooled, cautioned Jack Shafer, media columnist for Thomson Reuters.  The deal also involved a $400 million loan that gives Buffett a 20 percent claim on Media General, now mainly a profitable broadcasting company. The was the underlying real estate. Lest the Sage of Omaha lead anyone to think that printed newspapers have a future, Shafer wrote, “All it means is that an old cow that’s still a milker has been moved to a neighboring farm’s pasture, where it will be squeezed until it can give no more and will then be ground into pet food.”

Never mind that a few days later the mayor of New York, Michael Bloomberg, explained to a meeting of digerati why it was he still turned the pages of eight print newspapers every day and read his own Bloomberg BusinessWeek on paper as well.  “What I found was I was four and five weeks behind when it was on my tablet. On the other hand, if it’s piled up beside my bed, the tyranny of that pile has forced me (to read).”

The future of the news business is up for grabs.  Much of what promises to be a very complicated contest for its leadership will be fought –and not just at the national level — among the haves and have-nots over the significance of newsprint editions. In varying degrees, owners of present-day newspapers are struggling. Two huge digital providers, Bloomberg and Thomson Reuters, glistening with success, clearly want in to print. The moral of the story is clear. At every juncture, ask yourself: Why are the authors (of whatever you’re reading) telling me this?

Take columnists Carr and Shafer. They are the two most influential commentators in the business, hard-working and wide-angled in their coverage. But Shafer, who wrote for many years for Slate, last year joined Thomson Reuters.  And Carr, an expert border-crosser, is treated more like a rock star than a Shriner when he turns up in Austin or San Jose. In other words, both  have bet big on the digital future. They wear their hearts on their sleeves. (N.B. I keep tabs on these matters without breaking into a sweat mostly thanks to the exertions of Jim Romenesko.)

What about the editors of the Times?  Their front page is still the most valuable real estate in the news business.  But the New York Times Co. is feeling more financial pressure than most big papers. Sometimes the front office seems to be setting the stage for a mostly digital future.

On the other hand, if you believe, as I do (and Michael Bloomberg and Warren Buffett, too), that newsprint is a superior way to assimilate information (probably for many decades to come), and that density of cities will make it possible to distribute print editions efficiently, then Buffett is your dream investor — patient, deep-pocketed and emotionally committed to the business. “Berkshire buys for keeps,” he wrote in a letter to editors and publishers  after his recent acquisition was announced. “Our only exception to permanent ownership is when a business faces unending losses, a remote possibility for virtually all of our dailies.”

Berkshire’s plan, he elaborated, is to focus on small and mid-sized papers in long-established communities.  “American papers have only failed when one or more of the following factors was present: (1) The town or city had two or more competing dailies; (2) the paper lost its position as the primary source of information important to its readers or (3) the town or city did not have a pervasive self-identity.”

Buffett needn’t buy every big city daily to transform expectations of the industry.  He just has to give capable managers long enough to show how it can be done. At least six major American cities have dailies that more or less fit his description of a potentially valuable franchise: Washington DC, Los Angeles, Chicago, Boston, Philadelphia and Baltimore. (Competing papers cloud the situation in Chicago and Boston). In all but Washington, where the Meyer then Graham family has owned The Washington Post since 1933,  the dominant newspaper was sold only on the way down – before the advent of search advertising in the early ’00s turned a retreat in values into a crash. The purchase of the Philadelphia Inquirer earlier this year for $55 million finally established a floor for the market.  The other four papers – Los Angeles Times, Chicago Tribune, The Boston Globe, The Baltimore Sun – probably will be sold in the next year or so, in all likelihood to investors who view the business as Buffett does.

But what about New Orleans?  What the New York Times story didn’t make clear was that the company that owns the Times Picayune, Advance Publications, is itself a company in crisis – a far cry from the newspaper chain whose growth commenced when Samuel I. Newhouse bought the Staten Island Advance in 1922.  Today Advance is a $8 billion privately-held collection of  disparate assets, from highly profitable cable operations to the glamorous but chancy Condé Nast magazine group to a large collection of newspapers (including the Cleveland Plain Dealer, Newark Star-Ledger and Portland Oregonian, as well as the Times Picayune).

The founder’s two octogenarian sons, S.I. (Si) and Donald still preside over Advance, but control  soon enough will pass to their heirs – hence the kind of succession problem that has torn many families apart. Ordinarily, the Newhouse family might be expected to sell some or all of their newspaper holdings. But as Buffett quietly noted the other day, cocking an eyebrow at the logic of the three-day-a-week plan for New Orleans, “They do not have a history of selling anything.” Advance turned its 174-year-old Ann Arbor News into a website in 2009, citing the demographics of the University of Michigan town. An aging family, unable to part with the enterprises that long ago made its member rich, probably doesn’t point the way to the future of the newspaper business.

Then there is the Times itself. A New York Times Whodunit,  a riveting story in New York magazine, made more clear than ever last week that the company has problems of its own.  The most recent of them dates to last December, when chairman Arthur Sulzberger Jr. called chief executive officer Janet Robinson, his lieutenant of seven years, into his office at 7A.M. and fired her — without a replacement anywhere in sight. (The company has since hired an executive search firm.)

The disagreements between them had become complicated, according to reporter Joe Hagan, but Robinson’s proximate sin, apparently, was attempting to cut Sulzberger’s cousin Michael Golden out of an argument over whether or not to sell The Boston Globe. Her exit package, widely assumed intended to assure her continued loyalty (or at least her silence), came to almost $24 million – nearly half of what the Times earned last year. Meanwhile, the Ochs and Sulzberger cousins, who, through a trust, control the paper, haven’t seen a payday since February 2009, when the dividend was eliminated.

The situation obviously is perilous.  The company borrowed $250 million from Mexican billionaire Carlos Slim in 2009, at more than 14 percent interest; since then there has been speculation that perhaps the paper would be sold. (The Times paid off the note last August, more than three years ahead of schedule.) And certainly there are plenty of billionaires who presumably would jump at the chance to own the Times – including David Thomson, of Thomson Reuters, and the aforementioned Michael Bloomberg.

But the Ochs and Sulzbergers cousins are not the Bancrofts, the loose-knit clan of fourth- and fifth-generation heirs who in 2007 sold The Wall Street Journal to Rupert Murdoch.  It was the hired help that built the WSJ  into a great paper; the Bancroft cousins took little more interest than pride in the result.

The Sulzberger family, on the other hand, has managed the Times every step of the way since Adolph Ochs bought the paper fot his family in 1896.  It is true that Arthur O. Sulzberger Jr. has been a poor chief executive, making many more bad decisions than good ones.  But as publisher of the Times, his other title, he has kept faith with the family’s traditions. The result is that, even financially impaired, the Times is still what it has long been:  the highest aspiring newspaper in the world.

The question is what to do now.  The cousins will hire a new top manager soon, but the great family council will continue. There may be considerable newspaper talent in the next generation. That’s why the decision to showcase the problems of the Newhouse family on the front page, instead of the intuitions of Warren Buffett, is problematic.  The Times – indeed, publishers generally — should be leery of Web-bedizened voices trying to shut down print.

.                             xxxxx

The Stanford University buildup in economics, financed by the riches of Silicon Valley, continues apace. Susan Athey and Guido Imbens, of Harvard, a married couple, last week accepted an offer. Previously announced was the decision of Alvin Roth, of Harvard Business School, to relocate to Palo Alto.  Other offers are said to be in the works.

Athey and Roth are market designers, at the forefront of especially exciting developments in present-day economics, in which the nexus with technology is especially germain. (Imbens is a highly rated econometrician.) Athey started a research laboratory for Microsoft in Cambridge that has since grown to considerable size. I don’t suppose that the leadership of economics itself is in any danger of tipping out of Massachusetts. But it’s clearly easier to make things happen on the Left Coast.

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  1. Economist's View: Links for 06-04-2012 on Monday, June 4, 2012 at 7:16 am

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