Another Sign That Newspapers Are Dead

I love newspapers, though there are problems with any individual name--similar to Linus' saying, "I love mankind, it's people I can't stand"--sorry for the digression. I spend over $500 annually on newspaper subscriptions and hundreds more on print magazines. I am also a dinosaur.

Another dinosaur, Warren Buffett, is also a newspaper lover and invested in them, probably more with his heart than his head. Today he announced that he is getting out of the business.

Warren Buffett tossed a newspaper in 2016.
In 2020 he will toss the business (WSJ photo)

Warren Buffett’s Berkshire Hathaway Inc. is selling its newspapers to publisher Lee Enterprises Inc. (ticker: LEE) for $140 million, a rare admission by the billionaire investor that he views his newspaper business as unsustainable.

Mr. Buffett, a lifelong newspaper lover, has said for years that Berkshire’s newspaper business declined faster than he expected. In mid-2018, Berkshire hired Lee to manage all of its newspapers except the Buffalo News.

The sale announced Wednesday includes the Buffalo News along with the dozens of newspapers that Lee already manages for Berkshire, Lee said.

...Berkshire’s newspapers have already shrunk considerably. The newspaper division and the Buffalo News employed 3,685 people at the end of 2018, down from 4,337 a year earlier, according to Berkshire’s annual reports.

Mr. Buffett’s decision to exit from the newspaper business underscores the widening divide in media between the handful of large, national players, including The Wall Street Journal, the New York Times and the Washington Post, and chains of smaller papers.

If even patient Warren Buffett has given up, then it's further evidence that only the big national and a few regional titles will survive.

Bringing it down to a personal observation, the kids won't read the free-to-them issues on the table, so they certainly won't pay for a subscription.

A couple of paragraphs caught this accountant's eye: [bold added]

As part of the sale, Berkshire is lending Lee $576 million at a 9% annual rate. Lee will use the money to pay for the acquisition, refinance its $400 million in existing debt and close its current credit facility, making Berkshire its only lender.

Berkshire’s deal with Lee is expected to close in the middle of March. Lee also said it is going to enter into a 10-year lease agreement for the media group’s real estate at an initial cost of $8 million a year.

Whenever a seller provides loans, leases, and other financial support to a weaker, smaller buyer, revenue-recognition rules come into play. If there's a significant probability that the buyer can't perform and assets and liabilities will revert to the seller, then the sale of the business is not recognized. I'm sure Berkshire Hathaway's financial advisors have vetted the sale; I'm just noting the eagerness with which Berkshire wants to go through with it.