1996: Will World Book Encyclopedias go electronic?

AUDIENCE MEMBER: Hello. This is Rick Merliof (PH) from Oakland, California.

I wanted to ask you about World Book Encyclopedia. World Book seems to me to be an example where Berkshire has invested in technology without necessarily intending to.

I would expect that in five or 10 years it’s going to be real tough to sell a paper encyclopedia, because at that time, you’ll probably be able to buy the computer and the electronic encyclopedia for less than the paper encyclopedia.

Up till now, I haven’t had the impression that World Book has been as aggressive as its competitors in marketing and developing its electronic product.

It’s been the highest price that I have seen of the competition. It’s — it asked at least — a year ago, its list price was 600 and the competition was 8,200.

You sold as low as a hundred on special promotions. But it — I don’t think that was the list.

A year ago, you were still selling by direct sales. I have not yet seen it in a mass market software store. I’ve never seen it bundled with a computer.

And I have seen one newspaper review of electronic encyclopedias that mention the World Book print version but didn’t seem to be aware that a World Book electronic version was available, which it was at that time.

In terms of the product itself, we have both the World Book and the Grolier’s at our house. The Grolier’s came with the computer. And both encyclopedias, in this last year, solicited us to buy an upgrade. World Book was asking $85. Grolier’s was asking 30.

But in addition, I ended up buying only the Grolier’s, because it addressed my biggest disappointment on the original version of both of them, which — it’s sort of a — in a way, a minor issue. But I thought it was relevant for kids doing school reports.

Neither one allows you to print out a very big percentage of the pictures in the encyclopedia. They have a lot of pictures. But you can’t print them. And you can get a color inkjet printer for under 200 bucks these days, so it’s real practical to print things out.

The World Book made no mention of having any improvement in this area. The Grolier’s said you can print out almost all the pictures. And I have found — since we got the upgrade — I found that to be true.

So, I’m concerned that — I’m not an expert on this, but I don’t think World Book is as aggressive in either developing or marketing its electronic encyclopedia.

So, my question is, do you plan to become aggressive in this area and a leader in the electronic technology? Or have you considered selling your electronic business and just getting out of it?

WARREN BUFFETT: Yeah. We won’t sell the electronic business. That, I can tell you.

You’re quite correct. Some of the technical stuff I’m not very good at. I have a little trouble turning on the light switch.

But the — (laughter) — in terms of the bundled product, which is the encyclopedia that is offered with the purchase of a new computer, there’s no question that that’s become a large business in units.

It’s not so large in terms of dollars, because those units, bundled with an original equipment sale, are very low. Actually, Encarta’s probably — well I’m sure has sold, you know, many, many millions of units bundled with a new encyclopedia. It doesn’t necessarily produce a lot of dollars. But it produces a lot of units out there.

We, at World Book — Encyclopedia — some of you may not have noticed, but Encyclopedia Britannica has, within the last couple of weeks, announced the cessation of direct distribution of the print product.

And unit sales of encyclopedias — print encyclopedias — in the country have gone down very significantly in the last few years, as they have at World Book.

We changed the — we are in the process of changing, and have already changed in some parts of the country — the distribution system because we are going to see what can be made to work, if anything, in the direct distribution.

There are some indications that we may be able to make money in that business but with a different cost structure than before. And it — well, we’ll know more about that. We’re not that far along, because we changed the distribution within the last — or partially changed it — within the last few months.

We — it’s not easy to figure out how to make money in either the electronic or print encyclopedia end of the business. And we have some ideas in the electronic end that we’ll know a lot more about in about six months or so, but I can’t really — I don’t want to go into any detail on those at present.

I’ve got the electronic product myself. It’s a first-class product. We’ve got ideas about how to make it an even better product. And we have taken a lot of costs out of the print end of the business. We’ll be putting some of those into the electronic end. But we’ve taken a lot of costs out.

It may well be that it’ll be a workable business for us, even though it isn’t for anybody else, but the jury’s still out on that.

It is not the business it was five years ago. And I don’t think it will be the business that it was five years ago, because the world is changed in some ways on that.

But we’re — we will not sell World Book. That I can just — I’ll state that unequivocally. We will not sell electronic World Book. We are in the business to stay.

But we are groping a bit in terms of figuring out a configuration that will produce decent profits for us and sell a lot of World Books in the process.

Charlie?

CHARLIE MUNGER: We don’t have any way of avoiding declines in some of our businesses some of the time.

Blue Chip Stamps once sold stamps at the rate of $120 million year. Now, it’s about $200,000 a year. So, we lose some. (Laughter)

WARREN BUFFETT: We were in the windmill business many years ago. (Laughter)

We try to make — you know, we think plenty about the problems. But there are industry problems.

I was in anthracite coal at one time, too. Street railways. I’ve seen them all.

But World Book is a first-class product. It’s a product I use, a product Charlie uses. And there is — through an electronic means, you can deliver information at costs far, far less than — I mean, unbelievably less — than was the case not that many years ago.

And the world, in many forms, will be adjusting to that, not just in encyclopedias. And it affects some of the businesses we’re in. And it’s something we think about. But it’s very unlikely that Charlie and I are going to be smarter than the rest of the world, in terms of the electronic world.

I mean, we are looking at it as something where we’re looking for the obvious, and something that is within our capability of doing something about. But we’re not trying to beat people at their own game, where we’re not very good at the game.