2010: Does the iPad and other e-reading technologies make Buffett more optimistic about newspapers?

ANDREW ROSS SORKIN: This question I’m actually very self-interested in. It comes from Anton Ossip (at) Alexander Forbes from Johannesburg, and (he writes), “Last year you said you were down on the newspaper industry.

“Given your life-long interest in newspaper companies and your stake in the Washington Post Company and others, has your view changed in the past year with the introduction of the iPad and other e-reading technologies?

“Do you think we will see a contraction in the value of — in the value retained by — media houses versus what will be passed on to distributors of the media?”

WARREN BUFFETT: Well, you could probably answer it better than I can.

My relatively uninformed opinion — because I’m not that up on the technology — but I just have a feeling that when the money — has basically — the money to run good newspapers has come from advertising, you know, three-quarters of the money or thereabouts — the papers become less useful to advertisers.

I mean, they were the only game in town for a long, long time. They are not the only game in town. And what a difference that makes if you’re selling something.

So, when the Philadelphia Inquirer, I — Stan Lipsey is here — I called Stan up and I said, “Stan, this is probably like an old fire horse or something, but let’s think about it anyway a little bit.”

And it was sold yesterday at a bankruptcy sale, although I think that’s pending confirmation.

But, you know, it is very tempting, if you’ve still got fairly substantial circulation - The Philadelphia Inquirer and they’ve got the Daily News there, too.

But the math is really tough. I mean, the distribution costs, the printing costs, everything, and maybe all this changes that in some way that you would understand better than I would.

But since I don’t understand it, I have to stay with — and there are plenty of things I don’t understand — and I cannot make an affirmative decision on newspaper ownership.

I just got the — the ABC puts out Fast Facts, this big yellow publication — I just got it a couple days ago and I can’t resist looking through there. And I flip the pages and look at circulation of all kinds of papers.

Actually, in Buffalo, we were down less than a great many papers, even though, you know, our population demographics are very tough. We were down less than Rochester, I might mention, which is owned by Gannett.

But you look at San Francisco Chronicle, you know, down 20-odd percent. Dallas —

These are communities that are thriving, and it blows your mind how fast people are dropping it.

It’s not just older — it’s not just that younger people aren’t picking it up. I mean, the world has really changed, in terms of the essential nature of newspapers.

There’s nothing that looked — back when Charlie and I would talk about them in 1970 or ’65, there was probably nothing that looked more bulletproof than a daily newspaper where the competition had melted away.

But it’s a form of distributing information and entertainment that has lost its immediacy in many cases.

It’s certainly — it is not the essential place to get — think about how stock market quotations were, you know, 30 or 35 years ago. You looked in the paper to see what stocks had done. You looked in the paper to see how sports games had turned out.

So its primacy has withered away, and the advertisers weren’t there because they love the publisher of the newspaper. They were there because it was a microphone to talk to everybody in town, and they had to talk to everybody in town.

And so you get this chicken and egg thing that the newspaper becomes less valuable as the advertisers float away, and the advertisers float away as the subscribers diminish. And I don’t see a good answer to it, but Charlie, what do you have to say?

CHARLIE MUNGER: Well, the independent newspapers, due to the accidents of history, as they became dominant in their individual towns, for decades had impregnable economic strength.

And by and large they behaved better because they were so strong. And they were called the ”Fourth Estate.” They were really a branch of the government, they helped keep government honest.

And if you take this state in which we’re located, The World-Herald has been a very constructive force, net, over a long period of time. As those dominant franchises have weakened and weakened, it’s not good for the country.

I think we’re losing something that we have no substitute for. And I think it’s very sad and I don’t have the faintest idea what to do about it.

WARREN BUFFETT: Charlie and I love newspapers.

I think The World-Herald hit a 300,000 circulation peak on Sunday at one time. I don’t think they averaged that for the six-month period, but I seem to remember that, I could be wrong.

And the figures — 100,000 off that or something of the sort, and the state has gained population, the city’s gained population.

I think it’s as vital to me as ever, but it clearly — it has changed for the populous as a whole.

And, you know, when I look at the Philadelphia Inquirer and I forget what it was, 350,000 or something like that of circulation, and, you know, I’m not worried about Philadelphia going away.

But when I look at the figures being down — I don’t know, I forget what it was now — 30 or 40,000, you know, in a year, it doesn’t work very well as that goes along, because the advertiser just does not need you the same way as they needed you 10 or 15 years ago. So your ability to price evaporates in them.

It used to be — Charlie and I met Lord Thompson in 1970 or so, and he owns the paper — he owned the paper — in Council Bluffs, right across the river. And he was a jovial fellow, he was very happy to see us.

And we said to him, “Lord Thomson,” we said, “We noticed you own the paper in Council Bluffs. Have you ever been there?” He said, “I wouldn’t dream of it.” (Laughter)

And then I said, “Well, Lord Thomson,” I said, “You seem to increase the price of your paper every year and your poor advertisers” — I mean the advertising price. And I said, “What can they do about it?” He says, “Nothing.”

And then I said to him, “Well, in that case, how do you decide how much to increase prices, since it’s totally at your discretion?”

And he said — I think Charlie will remember these words — he says, “I tell my U.S. managers to price to make 40 percent pre-tax. Above that, I feel I may be gouging.” (Laughter)

Those days are gone. (Laughs)

CHARLIE MUNGER: Yes, and the politicians are not behaving better as the newspapers are weakening. We’re going to miss the newspaper power.

WARREN BUFFETT: I agree with that. (Applause)