Contrarian Investors

Owners continue to extract what value remains in their companies for as long as they can but are also preparing for what appears to be an inevitable migration for news from a hard-copy print to an online news platform.

Media People Contrarian Investors Buck the Tide

With newspapers seemingly in a death spiral as a mass medium, the most successful investor in the country, Warren Buffett, began buying them by the dozen. What does Buffett know that nobody else seems to know?

In 2012, Buffett paid $142 million to the Media General chain for the Richmond Times-Dispatch and 62 other dailies and weeklies in Virginia and the South. About the same time, Buffett began acquiring shares of the Lee Enterprises chain of 48 dailies, mostly in midsize markets.

Whether Buffett was seeing a long-term future seemed dubious to most analysts, but he explained otherwise. Where there is a strong sense of community, he said, there is no more important institution than the local newspaper. Where else can people track high school sports, local events, and obituaries? Also, many middle-market and small- town merchants find potential buyers with ads in these papers.

As a shrewd investor, Buffett saw a fire sale. For the Media General papers, he paid an average of $2 million. That, noted business journalist Jeff Roberts in Time magazine, was the price of an upscale house in each of the communities. Also, Buffett issued a line-of-credit to Media General at 10.5% interest to expand its broadcast holdings. Buffett also gained stock warrants in Media General, which held promise of a long-term payout as the company shifted into a full-time television entity.

In short, Buffett’s new newspapers weren’t the worst dogs in a failing industry. Besides, they were dirt cheap. And even if the papers failed, Buffett had hedged the investment with a promising stake in Media General’s broadcast properties.

With Lee Enterprises, Buffett’s initial investment of $2.1 million gave him 4% of the company. Lee had lost 95% of its value over the previous five years, mostly due to ill- timed purchases of major dailies in St. Louis and Tucson for $1.5 billion just before the industry began its free-fall. The heart of the company, though, remained the kind of mid-market and small-town dailies that typified the Media General portfolio.

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