Buffett’s investing strategy revolves, in part, around what he calls “moated businesses”—that is, businesses whose competitive advantage is so wide that other companies cannot cross it. For him, strong newspapers were the perfect moated businesses. “In newspapers, the basic rule was survival of the fattest,” he told me. “And the trick was to be bigger than the other guy because at that point you had more help-wanted ads, you had more automobiles for sale, you had more people if you lost your dog who might find it if you ran a classified ad. And you got more dominant because to many people—this kills people in the news business—the most important news in the newspaper are the ads.” Buffett made it clear when we spoke that he understood that he was talking about an outdated model of newspapers, one that has not survived the Internet, which has thrown bridges and grappling hooks across the moat and allowed interlopers to surge inside. But it was this old-fashioned dominance that he had loved about the Post.
And, as Buffett sees it, the newspaper’s journalists never understood that fundamental reality. “The Washington Post is a local newspaper,” Buffett said flatly. “I mean, it has national reach, but the grocers that advertise in it, they’re not going to get national customers. The circulation they’re paying for is the circulation that goes to people in the Greater Washington, D.C., area, and that’s way different than The New York Times. One of the things that’s existed over time which I’m sure you’re aware of is that the newsroom, kindled by what happened in Watergate, liked to think of themselves as national. And they are national in an important respect, but they’re not national as a business. And they don’t have a business model that works nationally. What they do have as a business asset is a large and prosperous local market.”Continue Reading