Set fire to newsprint — that’s all it’s good for these days. In case you hadn’t heard, the newspaper business absolutely stinks. Despite Warren Buffett’s recent bullish investment, newspapers are a sunset industry. Why? Because more and more people are getting their news from free online sources.
Buffett’s Berkshire Hathaway (NYSE:) just bought out Media General (NYSE:). Well, the Oracle of Omaha must have cracked his crystal ball because apparently he doesn’t see that newspapers are yesterday’s news.
. Advertising revenues fell 48% — yep, half of newspaper advertising revenue disappeared. Poof! Classified-advertising revenue fell 60% during the same period because nobody puts classified ads in newspapers anymore. That’s what craigslist is for. Circulation got smacked, too. It declined for 15 consecutive six-month periods from 2003 through 2010. In 1990, daily-newspaper circulation was 62.3 million. In 2010, it was 43.4 million — a 30% decline.
Warren Buffett sees value here. I call it a classic value trap.
Let’s look at Media General’s metrics: losses as far back as the eye can see, including a loss that tripled from $25 million to $75 million in 2011. Losses are expected at least through 2013. Revenue is off 25% since 2008, while selling, general and administrative expenses (SG&A) have risen 27%. Balance sheet? Let’s see: $658 million in debt that the company is paying 10% annual interest on. Negative free cash flow for 2011.
How can you profit? Fortunately, Berkshire is a diversified holding company, so it won’t be hurt. But I’d short New York Times Co. (NYSE:
). Washington Post Co. (NYSE:) and Gannett Co. (NYSE:) aren’t in imminent danger, but there are many better places to put your money.
Lawrence Meyers does not hold shares in any company mentioned.
