Buffett Is Wrong About Free News

| About: Berkshire Hathaway, (BRK.A)
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The word from Mr. Warren Buffett (BRK.A, BRK.B) is that he's doubling down on his newspaper holdings, adding papers from Media General (NYSE:MEG) to his investment in the Washington Post Co. (WPO) and telling all who will listen that they will have to pay and pay and pay to read any news online from now on, or the business will disappear.

He also thinks the New York Times (NYSE:NYT) paywall is a raging success.

A word for Mr. Warren Buffett. News has always been free.

Oh, and the only reason your WPO investment is afloat? Kaplan. Good news for Berkshire shareholders. The boss has gotten you into the education business, not journalism.

That newspaper that dropped on your porch, the one you "paid" for? The payment didn't go to the writers and editors, or even the printers and paper company. It went to the newsboy. It went for distribution.

This has been a basic law of the journalism business since it started. A news story that isn't read makes no noise. You have to get it read before it matters.

Besides, newspapers aren't in the "news" business anyway. Never have been.

They are in the business of making markets. You bring buyers and sellers together by advocating and organizing a place, an industry or a lifestyle. That's what publishers do. They hire people to do it. To say people must pay to read news is like saying they have to pay admission to the mall.

For the last two decades newspapers have been running themselves into the ground because they've been letting editors define the business. This is like expecting musicians to know the music business. Promoters know it, agents know it. Musicians just write and play music.

How are you going to compete with TV? I see nothing in my local paper that I don't see on TV. There is nothing there worth paying for. And there are a growing number of web sites run by local people who do a very fine job covering the local news I need to know.

But let's assume you're right. Let's assume you can get people to pay for local news. Let's assume you can hide that local news from the rest of the web, that no one can get it for free.

How many newspapers are people going to read then? How many news sources are they going to have? No more than two or three, guaranteed.

Now there are things you can do that make sense. You can require registration, and you can manage your circulation so that you can prove to advertisers the power of that list. You can add paid tiers, with services such as organized video chats with local newsmakers. You can sell reports on local industries, or give those reports to regular advertisers, again to prove the value of their ads.

The good news for Berkshire Hathaway shareholders is that this mistake by Mr. Buffett is not material to your holdings. Everyone makes mistakes. But this one should remind you again of the key material issue before you, that is what happens when Mr. Buffett is no longer around. Because that is what you're investing in.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.