Washington Post buy: Can Jeff Bezos fix newspapers’ business model?
The definitive line about a newspaper’s public mission came, as it happens, from Hollywood.
In Orson Welles’ classic “Citizen Kane,” the title character, his newspaper empire in tatters, is asked by Walter Thatcher, the film’s stand-in for J.P. Morgan, what he would like to have been. Kane answers: “Everything you hate.”
Jeff Bezos’ dealings with the moneymen of Wall Street have always been rather friendlier than those between Kane and Thatcher. But what he may share with Kane is the feeling that these unappreciated — indeed, financially despised — enterprises known as newspapers have some value that other investors have been overlooking.
Bezos, the founder of Amazon.com whose $250-million purchase of the Washington Post was announced Monday, is just the latest in a string of billionaires who have taken up or expanded their newspaper holdings this year.
Only days ago the commodity trader and Red Sox team owner John W. Henry bought the Boston Globe, which had been put on the block by New York Times Co., for a paltry $70 million. (The New York Times had purchased the Globe for $1.1 billion in 1993.) Earlier this summer Warren Buffett added the Atlantic City Press to his company’s holdings of 30 medium and small newspapers.
And a number of billionaires were said to have been circling around Tribune Co.'s newspapers, which include the Los Angeles Times and the Chicago Tribune, until the company put the papers’ sale on hold last month.
But Bezos’ play may be the most intriguing. Bezos, who is buying the Post personally, outside of Amazon’s corporate structure, hasn’t said what his goals or intentions are; in an open letter to Post employees he declared, “The values of The Post do not need changing. The paper’s duty will remain to its readers and not to the private interests of its owners. We will continue to follow the truth wherever it leads.”
But he also observed that “the Internet is transforming almost every element of the news business: shortening news cycles, eroding long-reliable revenue sources, and enabling new kinds of competition.... Charting a path ahead will not be easy. We will need to invent, which means we will need to experiment.”
If you could read those words out loud in Bezos’ own hyper-enthusiastic voice, you would hit one sentence particularly hard: “I’m excited and optimistic about the opportunity for invention.” He’s looking forward to turning the Post into a laboratory.
That’s a real departure from what drove newspaper ownership in the old days. The pattern of family ownership in the past has been consistent: The first generations bought or founded their local paper for profits and also social and political influence (which often brought more profits). Their children enjoyed both profits and influence, but as the families grew larger, the later generations found that only one or two branches got the power, and everyone else got a share of the money.
Eventually the coupon-clipping branches realized that they could make more money investing in something other than newspapers. Under their pressure the companies went public, or split apart, or disappeared. That’s the pattern followed over more than a century by the Los Angeles Times under the Chandler family.
Its destiny was paralleled by that of the Wall Street Journal under the descendants of Dow Jones owner Clarence Barron, and perhaps now the Post under the Grahams and its public owners, who evidently have concluded that there’s more money to be made hawking educational services than news. So The Times got sold to Tribune, the Journal to Rupert Murdoch’s News Corp. and now the Post to Bezos.
Bezos said in his letter that he won’t be managing the Post day-to-day and will be happy staying at home in Washington state. It wouldn’t be surprising if Bezos expects some measure of public influence from owning the Post. Amazon.com hasn’t been shy about communicating its corporate views about online sales taxes and other issues dear to its bottom line to lawmakers in Washington, where it has spent $20 million on lobbyists over the last dozen years, according to the Center for Responsive Politics.
Still, an overt attempt by Bezos to place a personal stamp on the Post’s coverage or editorial policies would be closely scrutinized, and possibly be counterproductive. But the Post’s editorial position on network neutrality and other regulatory issues of interest to e-commerce companies should be watched very closely in the future.
It’s Bezos’ success at experimentation that will draw the eye. As the entrepreneurial founder of Amazon.com, he upended a decades-old business model in retailing, in part by pushing an old, forgotten verity to the forefront: Customer service is the whole ballgame. Anyone who has tried to get satisfaction for a disappointing purchase from Amazon versus, say, Sears, knows that Amazon almost always does what it takes to bring a consumer back again. Sears, by contrast, is on its last legs.
The downside of this strategy, however, is that it costs billions of dollars. Amazon’s profit margins are minuscule; in the company’s last profitable year, 2011, it earned 1.31% on sales of $48 billion. Last year it lost $39 million, and this year so far it has turned a profit of $75 million, a measly 0.23% of its $32 billion in sales. By almost every measure it’s a pygmy compared with Apple, yet over the last year its shares have gained nearly 30%. In that same period the shares of Apple, a known moneymaker, have fallen 24%.
That’s a signal that investors think Bezos is on to something over the long term — that he can continue to exploit the power of the Internet to make Amazon even more of an Amazon than it is now, and that eventually it will turn its enormous market share into profits.
That leads back to the question of what Bezos sees in the Washington Post. Its financial record is worse than those of many of the retailers that Amazon has outmaneuvered. The newspaper lost a total of $75 million in 2011 and 2012, and the entire Washington Post Co. was kept in the black largely by its Kaplan education business.
Indeed, Bezos may in effect be paying less than the published price of $250 million. The sales agreement filed with regulators this week seems to indicate that the company is transferring to him a fully funded employee pension plan, plus $50 million, presumably to cover future liabilities.
Plainly the newspaper business — and not just the Post — needs an infusion of innovative ideas. The industry is struggling to manage the transition from paper to Web, and no one yet has found a formula that can keep newspapers from being valued at bargain-bin prices.
One factor that has made that transition so difficult is that everyone is trying to do it without giving up the declining profits of physical publication while figuring out how to exploit the slowly developing profit potential online.
Bezos is one business owner who has shown he’s not averse to giving up profits, at least for some lengthy period, while aiming for much greater gains in the future. The challenge he faces with the Washington Post, and the goals he may have set for himself as a newspaper magnate in the digital world, might be encompassed by another line from “Citizen Kane”: “It’s no trick to make a lot of money … if all you want is to make a lot of money.”
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