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Summary:

Being a billionaire means Warren Buffett’s views on all kinds of things get a lot of attention — but his comments about the benefits of newspaper paywalls suggest the octagenarian investor misunderstands what the business of content looks like in our digital and hyper-connected age.

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Warren Buffett, one of the world’s wealthiest men, got that way by making smart investments in companies like Gillette and Coca-Cola Co., and now he has acquired a newspaper: the Omaha World-Herald, which he bought recently for $150 million. Given his track record, we should probably pay attention to what Buffett thinks about the future of newspapers — and yet, in an interview with CNBC, the octagenarian made some comments about paywalls that suggest he misunderstands what the business of content looks like in our digital and hyper-connected age. Yes, that’s right: I am disagreeing with one of the world’s most renowned investors.

In the interview, Buffett says that newspapers face three problems: one is that they have lost their status as the place where people find out the news about most things — apart from certain specific areas such as “whether your friends are alive or dead” (which the billionaire says printed obituaries are still good for) or whether a local sports team won or lost. On that point, he is totally correct, as we have noted a number of times: for many people, news comes from their social networks first, although smart media outlets are taking advantage of that phenomenon by being active on those networks.

The second problem Buffett identifies is the simple cost of publishing a printed product: paying huge prices for newsprint, contracts with printing plants, delivery trucks and satellite time and all of the other tools that newspapers have to use to distribute their content. As the Berkshire Hathaway founder puts it: “You start with trees up in Canada and it’s very expensive… and that doesn’t go away.” He’s right about this one too — the cost of electronic production and distribution is lower by orders of magnitude.

Newspapers giving away their product? Not really

The third issue Buffett identifies is that newspapers have been giving away their product for too long. In other words, the investment guru seems to subscribe to what some newspaper executives like to call the “original sin” of online content: namely, the decision to give away the news by putting it online for free. Buffett says:

[N]ewspapers have been giving away their product at the same time they are selling it and that is not a great model. You’re competing with yourself… you shouldn’t be giving away a product you’re trying to sell. That’s key to the future of the newspaper.

This advice will no doubt encourage the growing number of newspapers who have launched paywalls, following in the footsteps of the New York Times and its “metered” subscription model. But as Jeff Bercovici notes at Forbes, the billionaire investment manager’s advice is exactly the opposite of the strategy taken by the Washington Post — a newspaper Buffett is an investor in. Although the paper’s chairman and controlling shareholder Donald Graham looks up to Buffett, so far the company has remained steadfast in its commitment to not put a paywall around its content. So who is right?

I’m going to side with the Washington Post on this one, and one of the reasons for that is the way that Buffett describes his argument: he says that newspapers are giving away their product while still trying to charge for it. But that assumes the “product” is the news, and that this is what newspapers are charging for — and I don’t think that’s really the case any more. For content companies of all kinds, the product is (and in many ways, always has been) the relationship that you can build with readers around your content. And the monetization of that now comes in many different forms.

Paywalls are only one way to monetize a content relationship

Charging users for content is one way to try and monetize that relationship, and some newspapers like the NYT and the Wall Street Journal have had some success with that (although not enough to make up for the ongoing decline in print advertising). And a paywall may help stop print circulation from eroding, but that still makes it seem a lot more like a wall of sandbags than any kind of coherent digital strategy. And in any case, a paywall is almost inevitably going to appeal to only a small subset of readers.

So what is a content company to do? The Washington Post and some other media outlets have chosen to focus on reaching new audiences in different ways — including Facebook’s social-sharing apps, which Don Graham talked about in an interview with Om. I have some issues with content companies giving over that kind of control to a walled garden like Facebook, but there is no question that this can expose a newspaper’s stories to much larger groups of people, and one of the strategies in the age of “democratized distribution” is to go where the readers are instead of expecting them to come to you.

The Washington Post has also been experimenting with more targeted offerings like the WaPo’s new election app for the iPad, which is free but allows readers to pay extra for certain special content. That is much closer to the idea of a “reverse paywall,” as suggested by both journalism professor Jeff Jarvis and former WaPo managing editor Raju Narisetti — a model where readers who engage with the content are rewarded instead of being penalized by hitting a paywall. Both are ways of monetizing a relationship, but one seems to have a lot more potential than the other, at least to me.

In many ways, newspapers and other media platforms were the original social networks: companies that gave away their services for free (their content) and then tried to monetize that attention by appealing to advertisers. That game has changed, but that doesn’t mean throwing up a wall is going to solve anything, even if you are a billionaire. The full interview with Buffett is embedded below:

Post and thumbnail photos courtesy of Flickr users Fortune Live Media and Giuseppe Bognanni.

  1. if content is not the product, why call them content companies?

    start over .. they are relationship companies, and go from there

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    1. That’s a great way to think about it, Greg. Thanks for the comment.

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    2. Great way to put it, it goes nicely with the last paragraph [quote]In many ways, newspapers and other media platforms were the original social networks[/quote]
      and when you think about them this way, there is much more way to monetize relationship.

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  2. I don’t read/view “the news” (newspapers, magazines, TV) anymore because it’s usually incomplete information that’s presented to me. It’s intentional misinformation used to manipulate the reader’s opinion. The kind of people who would pay for that information are the kind that like to have other people make their opinions for them and don’t really want to do any research.

    Social networks can be loaded with the same thing, though. The difference being that it’s free, and there are MANY different views you get at the same time. This ends up showing you more information than what a single news source would provide. Sure, you could sign up for multiple newspapers, but you’re still limiting yourself while paying for it.

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    1. I agree, Kevin — every newspaper thinks that they will be the sole source of news and information for people and that’s just not the case any more.

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      1. The Washington Post’s slogan is “If you don’t get it, you don’t get it,” which is pretty absurd. Do they really think people believe that?

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  3. When I share news to my social networks, where do you think I get it from? From online newspapers and blogs that regurgitate it themselves.

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  4. Time for GigaOm to put up or shut up, I say. If paywalls and various “old media” activities and business models are wrong, show us the way, any way, that works. GigaOm has taken in millions of dollars of VC money. Is it profitable yet? When will it go public? When will it live and die on things like…revenue. Cash flow. I’ll wait.

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  5. Why is there a paywall around Gigaom Pro content then?

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    1. Good question, Tim. It’s based on the same kind of strategy that the WaPo’s iPad app is — we try to build a relationship with readers based on our free, ad-supported content, then we offer people additional content with added value that they might be willing to pay for.

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  6. There was an interesting article in yesterday’s Toronto Star suggesting Buffet isn’t practicing what he once preached. http://www.thestar.com/business/article/1137390–warren-buffett-why-the-oracle-of-omaha-is-irrelevant-olive
    Excellent article Mathew.

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    1. Thanks, Anthony — and thanks for the link as well.

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  7. Let’s see what the director of mobile at the WaPo says about paywalls for their iPad…“The Post’s flagship iPad app remains free while we continue to make enhancements to the product,” Jacobs said. “When we begin to charge, we want to make sure we are launching with a compelling, value-add experience.”

    Hmmmm… “remains free”….”when we begin to charge”…Looks like you’re about to suffer some serious betrayal at the hands of your favorite newspaper, at least on the iPad front. Because the WaPo wants to make money, I think we can expect to see it go the way of NYT, LAT, Chicago Tribune, Chicago Sun, Minneapolis, Omaha, San Fran, Boston, Providence, Cincinatti, Indianapolis, Milwaukee, Denver, Phoenix…all paywalled (or soon to be)

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  8. BTW… nice paywall you got here at GigaOm. Kinda brilliant, actually. You bring people in with free content and then get them to pay for “premium” content? Hmmm… sounds like the New York Times to me. What does the premium content say? “We’re just joking about ‘paywalls are bad’! Only a fool wouldn’t have one. Now aren’t you glad you know?”

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  9. The Privacy Policy and use of “Personally Identifiable Information” are part of the digital value exchange, free or not.

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  10. The ULTIMATE problem with newspapers today is that there is NO NEWS IN THEM! They just rehash what television, social and other electronic media have already covered. They made a fatal classic Business 101 mistake years back: they cost cut themselves into the corner they are now in. The broke the number one rule of marketing : DO NOT DILUTE THE BRAND… EVER!
    When the Internet started to be serious competition, instead of beefing up their reporting staffs and products with better and unique offerings, they went the other way, they cut, cut, cut and as they did so they lost more and more readers as they raced to the bottom in a downward spiral. And now they are flip-flopping around in desperation trying to salvage what they can.

    My answer: now that Steve Jobs, who had a horrible hatred of newspapers almost equal to his hatred of fans, is gone: cut a deal with Apple, someway, somehow, because it is the future… today!

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