Hypergene on Buffett says Newspapers are "a business in permanent decline"
The guys at Hypergene were tipped by George Johnson, Jr to comments made by Warren Buffett about the death of newspapers:
[from Buffett: Newspapers are "a business in permanent decline".What multiple should you for a company that earns $100 million per year whose earnings are falling by 5% per year rather than rising by 5% per year? Newspapers face the prospect of seeing their earnings erode indefinitely. It’s unlikely that at most papers, circulation or ad pages will be larger in five years than they are now. That’s even true in cities that are growing.
But most owners don’t yet see this protracted decline for what it is. The multiples on newspaper stocks are unattractively high. They are not cheap enough to compensate for the companies’ earnings power. Sometimes there’s a perception lag between the actual erosion of a business and how that erosion is seen by investors.
Certain newspaper executives are going out and investing on other newspapers. I don’t see it. It’s hard to make money buying a business that’s in permanent decline. If anything, the decline is accelerating. Newspaper readers are heading into the cemetery, while newspaper non-readers are just getting out of college. The old virtuous circle, where big readership draws a lot of ads, which in turn draw more readers, has broken down.
When Buffett says it you know that smart money will run away from newpapers. He also thinks the TV business is not great either, by the way.
I continue to be astonished by the reaction of the typical 40 or 50 year old when I say they won't be getting a newspaper thrown in the driveway in a few years. They tell me that it will take ten years, or it will be around until they die. Baloney. As soon as the tipping point is reached for investors, and there is no support for the artificially high value on these companies with rapidly eroding value, the next thing will be dismantling media businesses from their newspaper boat anchors, and the newspaper parts will be sold off or shut down. It will happen really fast at some point in the not too distant future. One day there will still be a bunch of struggling dailies. and the next things you know -- poof -- two or three much more expensive national papers, and everything else will be on line. No dead trees on the kitchen table.
Nonsense!
Posted by: nathan smith | June 10, 2006 at 03:29 PM