Delivering the news: Warren Buffett buys newspapers in North Carolina because he thinks ink that's read can show a profit.

• Author: Meyer, Philip
• Position: FEATURE - Company overview

When Warren Buffett wrote this year's letter to Berkshire Hathaway Inc. shareholders, he waited until page 16 to announce his renewed interest in what many consider a dying industry. He gave the section a sheepish headline: We Buy Some Newspapers ... Newspapers? Since late 2011, the investor's Omaha, Neb.-based holding company has acquired 28 dailies, six in North Carolina. He knows his move is counterintuitive, considering the recent history of the newspaper business, but if he is right, it signals good news for the state. The case for optimism can be found by comparing Buffett's history with that of daily newspapers in the United States.

Here is his North Carolina portfolio of dailies in order of circulation size (weekdays combined with Sunday to yield a seven-day average): News & Record, Greensboro, 58,940; Winston-Salem Journal, 57,220; Hickory Daily Record, 19,197; Statesville Record & Landmark, 10,319; The News Herald, Morganton, 7,134; and McDowell News, Marion, 4,189. Al] but Greensboro came with the purchase of most of Richmond, Va.-based Media General Inc.'s newspapers in May 2012. Berkshire acquired the News & Record this year from privately held, Norfolk, Va.-based Landmark Media Enterprises LLC. The circulation numbers used to be higher, of course. But the paradox of the newspaper business is that it always has adapted its business model to whatever competition new technology spawned.

Of late, the industry's main adaptation has been to put out cheaper products. John Robinson, News & Record editor from 1999 to the end of 2011, recalls the pain of that strategy. "The staff got smaller about every year. It was very difficult to maintain the quality that we aspired to." Ken Otterbourg quit as managing editor of the Winston-Salem Journal after Media General consolidated copy editing of its three largest papers. "I resigned in 2010 because I disagreed with the decision to move the paper's copy desk out of state, away from our readers," he wrote on his website. "I believe that sometimes the best thing that leaders can do is be true to their values and act accordingly."

Buffett's history suggests that he will seek a different way. Instead of propping up the bottom line by making papers worse, he likes to make them better. This is not as contrarian as it sounds. The decline of newspapers started slowly. One traditional measure of a paper's value to advertisers is household penetration--paid circulation as a percentage of households. Nationally, it peaked in the 1920s at 130%. There were more copies sold than households to receive them. That was possible because many people took more than one newspaper. Even smaller cities had competing papers. Others had morning-evening combinations under one owner or joint operating agreements that let competing papers share production plants. Metropolitan papers often circulated well beyond their hometowns. Raleigh's News & Observer once offered home delivery all the way to the coast. When my wife and I moved to Chapel Hill from Topeka, Kan., in 1956, we had our choice of six home-delivered dailies, including The Charlotte Observer.

Newspaper growth was slowed by the first disruptive new technology, AM radio. KDKA in Pittsburgh made the first broadcast of presidential election returns on Nov. 2, 1920, and soon radio stations were competing with newspapers for advertising. They also competed for readers' time, and newspaper penetration began a decline that has never reversed. But it was a slow decline. Household penetration did not fall below 100% until the 1960s. By 2010, it was 39%.

Despite those losses, papers remained prosperous through most of the 20th century Circulation, bolstered by the growing population, kept rising. It grew even while technologies entered the field: broadcast television, FM radio and cable television. The introduction of offset printing with its lower cost and higher quality drew advertisers to direct-mail...