Buffett buys a newspaper. Time to invest in news?

Warren Buffett's $200 million deal to acquire the Omaha World-Herald is no investor's home run. But it does signal that well-run local newspapers have a profitable future.

By , Business editor

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    Warren Buffett, chairman of Berkshire Hathaway, speaks on the sale of the Omaha World-Herald to Berkshire Hathaway Wednesday in Omaha Neb. His $200 million purchase doesn't signal that local newspapers are suddenly a great investment, but it does suggest they're viable.
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The deal was no blockbuster. No splashy audacious buy during a market sell-off. But in a way, Warren Buffett's plan to purchase the Omaha World-Herald for $200 million is a bold move.

Newspapers are nobody's idea of a growth business. Even Mr. Buffett has disparaged the future of printed news. In 2009, he said many newspapers could look forward to “the possibility of nearly unending losses.”

So has the "Oracle from Omaha" changed his mind – and does his purchase suggest that investors should take another look at newspapers? Making money was not Buffett's sole goal in buying his hometown paper, analysts say. But his purchase signals that one of the world's most astute investors believes newspapers, at least well-run local ones, can survive and profit.

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"I think newspapers ... have a decent future,'' he said in an interview with the World-Herald, after the purchase was announced Wednesday. In terms of profits, "it won't be like the past. But there are still a lot of things newspapers can do better than any other media. They not only can be sustained, but are important.''

Buffett has long experience with newspapers. His father edited the University of Nebraska's student newspaper. He himself was once circulation manager of the Lincoln Journal. His company, Berkshire Hathaway, owns the Buffalo News and is the Washington Post's largest shareholder.

"He really knows the newspaper business," says Donna Dudney, a finance professor at the University of Nebraska at Lincoln. And "there's a distinction to be made between national newspapers and local newspapers."

While national papers have so much competition that they have to give away much of their content for free, many local papers have seen far less of a profit squeeze. That's especially true of World-Herald. The state's largest paper in terms of print circulation, it has little competition locally or regionally. Its website attracts twice the monthly web traffic of Omaha's two local TV stations combined.

"They really dominate the news in Nebraska," says Professor Dudney.

Still, Dudney and other observers were a little surprised by the price that Buffett paid for the World-Herald and its string of local newspapers in Nebraska and Iowa: some $150 million in cash plus the assumption of $50 million in debt.

"I honestly thought it might be a bit lower," says Dudney, who also teaches a course on Buffett's investing methods. The paper is privately held, so it's hard to know just how profitable it is. But "I am not sure Buffett applied the same standards he would have to an acquisition where he had no emotional ties."

So are newspapers suddenly a good investment? Analysts are skeptical.

"I doubt his opinion about the future of newspapers has changed," says John Morton, a longtime newspaper analyst and head of his own media consulting firm. "I suspect he wants to make sure the paper continues to do a good job covering his hometown, rather than risk some other buyer coming in and plundering it."

Buffett's expectations about his latest $200 million acquisition seem middle-of-the-road. 

"It's not a crazy price. It certainly is not a bargain price," he told the World-Herald. "I wouldn't do this if I thought this was doomed to some sort of extinction."

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