Warren Buffett used Berkshire Hathaway’s 2006 annual report to present shareholders with an overview of the company, apprise them of the company’s financial status and his long term organizational strategy.
But he also used his annual letter to express his concerns about the newspaper industry where, he wrote, "fundamentals are definitely eroding.”
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Berkshire Hathaway’s chairman further warned that, "The skid will almost certainly continue.”
Berkshire Hathaway owns segments of other businesses such 18 percent of The Post Co. Berkshire also owns the Buffalo News.
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Referring to Berkshire Hathaway’s vice chairman Charles Munger, Buffett stated that, "When Charlie and I were young, the newspaper business was as easy a way to make huge returns as existed in America. As one not-too-bright publisher famously said, ‘I owe my fortune to two great American institutions: monopoly and nepotism’ No paper in a one-paper city, however bad the product or however inept the management, could avoid gushing profits.”
Buffett went on to explain that the newspaper industry’s "staggering returns” could be easily explained.
"For most of the 20th Century, newspapers were the primary source of information for the American public. Whether the subject was sports, finance or politics, newspapers reigned supreme. Just as important, their ads were the easiest way to find job opportunities or to learn the price of groceries at your town’s supermarkets. The great majority of families therefore felt the need for a paper every day…” he wrote, noting that just as advertisers preferred the newspapers with the largest circulation, readers preferred the newspapers with the most ads.
"This circularity led to a law of the newspaper jungle: Survival of the Fattest,” he wrote, adding that, "After competition disappeared, the paper’s pricing power in both advertising and circulation was unleashed. "
Buffett recounted that in his 1991 letter to shareholders, he warned of looming problems in the newspaper industry.
In today’s economy, he wrote, "…if cable and satellite broadcasting, as well as the Internet, had come along first, newspapers as we know them probably would never have existed…However, the economic potential of a newspaper Internet site — given the many alternative sources of information and entertainment that are free and only a click away — is at best a small fraction of that existing in the past for a print newspaper facing no competition.”
Editor's note:
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