Before I talk turkey, let’s talk ketchup.
On Feb. 14th (Valentine’s Day, sweet day for a merger) the acquisition of Heinz by Warren Buffet’s Berkshire Hathaway was announced.
Not many days before, Dell company founder Michael Dell, Microsoft, and the private equity firm Silver Lake Partners announced their deal to take computer maker Dell private.
Are these good ideas?
Beats me. I haven’t a clue. Remember, I’m a journalist, and, God help me, a poet. The making of money is a gene or a genius I do not have.
Here’s the way Heinz CEO William Johnson summed up the advantages of the acquisition, which meant the public company was going private offers (NPR All Things Considered on Feb 14, 2013):
“The deal provides Heinz with more flexibility, and as a private company we can be even more focused, more competitive, more nimble and benefit from much faster decision making.”
Nimble is good. So is faster decision making.
The NPR reportage on the Dell deal highlighted a behind-the-scenes dynamic. As a private company Dell can pay less attention to the quarterly returns and more to the innovation that often spells success for the long term — though it can play havoc with the short term.
If investment, and ignoring the hollering from Wall Street analysts are good ideas for a ketchup company as well as for a innovation-starved computer company, might they not also benefit a communications company? Especially a news communication company?
Newspapers, particularly, but most media outlets, get short shrift from Wall Street analysts who have predicted the imminent demise of newspapers and their media cousins, for more than a decade now. Oddly, those media institutions haven’t disappeared yet. I’ll grant you they are getting weaker.
Here’s another oddity: While circulation has fallen — cataclysmically — the number of eyeballs has risen. By that I mean, folks who still pay for their news, dead-tree variety, are getting more scarce. But the on-line readership of newspapers and many news-gathering companies has SKYROCKETED!
We have MORE people reading MORE news now than ever.
The problem lies not in ourselves, but in our stars, is how I might reverse Shakespeare’s phrase.
The problem is not that there aren’t readers for the news that journalists of all stripes are producing, it’s that no one has figured out how to make money off those readers.
And no one, for lo these many years, has considered newspapers, especially, a good investment. Yet there ARE all those readers… perhaps there needs to be some time and money spent in connecting those dots.
I’d hazard a guess the lack of investment is because too many people with money to invest have been listening to those doomsayer analysts who live in big cities, where multiple news outlets offer news in 57 varieties. And most analysts probably want their news ASAP or sooner, and they’re likely to be living on their smart phones and digesting news tidbits like a hungry dog chowing down on dinner… in the bowl or from the garbage can.
They prize fast and first. What is true takes a back seat when whiffs of a hint of a rumor can tank a stock or send it soaring.
The reality outside those media-saturated markets is entirely different.
There are many places where if there’s even ONE media presence it’s likely to be a newspaper, perhaps even a weekly newspaper. And the scarcer the outlets, the more the individual brands are recognized. Which should mean — shouldn’t it? — that those outlets are worth something?
Even in the big cities, where you get your news matters. It matters if you’ve heard/read about that court decision on NBC or Joe’s blog, even if Joe is a lawyer. Or the city’s union dispute, or the teachers’ contracts.
When there are enough media to create a media scrum, you’ll still turn to someone you recognize as a reliable source.
Brand recognition and credibility. Wow. That’s something to bank on.
News companies’ producers and publishers, from the corner office to the ad department to the newsroom have been starved of money for years and years. This is why they are not nimble, not innovative.
Analysts seem to relish hitting news companies when they’re down. Those analysts have developed the habit of blaming them for their lack of nimbleness, as if those on the ship would wish to sink it.
Many innovative ideas these days come from outside news organizations, from think tanks of various kinds, from university-based projects as well as those outfits stating right from the get-go that they they are not in the profit-making business, like ProPublica.
I applaud the increasing involvement of smart people from all sorts of places in the various news businesses. However, I still detect that the best thinking coming from all of them is straining to make itself felt at most news organizations, little or large. The purse strings are too tightly held for fear of that dreaded quarterly report.
I’m not going into the ins and outs of the benefits and risks of a leveraged buy-out for Dell, but I think it’s striking that Dell’s founder — who might know a thing or two — is joined by Microsoft, in walking this particular plank.
In the coverage given to the story on NPR’s All Things Considered on Feb. 5th, the conversation circled around some statistics on new patents gathered and studied by Josh Lerner, a professor from Harvard, who is also author of the book The Architecture of Innovation.
“When one spends money on R&D,” he said, “it’s expensed immediately, and it drags down your earnings, yet the benefits from doing it aren’t seen for years to come.”
Trying to figure out if this notion of increased innovation does indeed come from less emphasis on quick returns, he explored the number of patents granted to companies and compared the numbers between public companies and ones that went private.
He found little difference in the numbers. He did find, however, that the quality of the innovations was substantially higher in the patents for those newly private companies.
As summed up by NPR’s technology correspondent, Steve Henn: “These patents were cited by other inventors more often, and they had a bigger impact on these companies’ bottom lines…when managers are freed from chasing quarterly profits, they seem to make smarter long-term investment decisions.”
Let’s go back to Warren Buffet. Before he bought Heinz, he bought The Buffalo News. In 1977. He has had for quite a while a sizable share of the Washington Post. In 2011, when no one was buying, the oracle of Omaha bought the Omaha World Herald.
Last year, he bought 60-plus newspapers from Media General.
Two weeks before the ketchup deal was announced, he bought the Greensboro (N.C.) News & Record.
“In towns and cities where there is a strong sense of community, there is no more important institution than the local paper, “ he said after the Media General purchase.
I recognize that his company, Berkshire Hathaway, is itself a publicly traded company, and that it could be sensitive to investors and analysts. But his track record shields him from that noise. He, in turn, shields the senior managers of his companies.
If it works for ketchup, why not newspapers?