Is Rupert Wiser Than Warren?

In a hypothetical contest pitting octogenarian moguls Warren Buffett and Rupert Murdoch against one another in an investment sense contest, I'm betting most observers would favor Buffett. However, as an erstwhile journalism professor, I'm likely to cast my vote for Murdoch, given the duo's recent respective leanings in the forlorn realm of publishing.

Splitting News Corp.
Let's look at Murdoch's handiwork first. As you likely know, during the waning days of June it was decided that News Corp. (NAS: NWS) -- the company Murdoch has built from a single Australian newspaper -- would be cleaved into two parts. One portion, the publishing unit, will include The Wall Street Journal, the New York Post, The Times of London, and HarperCollins, one of the world's major book publishers.

The entertainment part of the company, from which the publishing portion will be separated, will be made up of film producer Twentieth Century Fox, the Fox News cable channels, and Fox Broadcasting. Under the plan approved unanimously by the company's board, current shareholders of News Corp. will end up with one share each of the publishing arm and the more lucrative entertainment entity for each share of the combined company they currently own.

Murdoch will be CEO of the entertainment unit and chairman of the publishing company. A CEO for the latter has yet to be designated. There appears to be a possibility that, once the separation has been completed, additional publishing acquisitions could be considered, but that effort is likely far down the road.

The decision to divide the company into its component parts clearly relates in part to a phone-hacking scandal at News Corp.'s British newspapers that resulted in the shuttering of the News of the World newspaper. But probably more important for the long term is the recognition that the world of newspapers is unlikely to halt its slide in subscribers and advertising revenues. Precisely five years ago, for instance, The New York Times Company (NYS: NYT) traded at nearly $25 a share. It has since fallen nearly 70% to Friday's $7.68 close.

The Oracle's a budding paper boy
However, Buffett appears not to concur with the likely perpetuation of that phenomenon. After acquiring The Buffalo News in upstate New York back in 1977, the so-called "Oracle of Omaha" has seemed to be picking off newspaper properties with both hands thus far in 2012. In May, for instance he stuffed 63 small-market newspapers acquired from Media General (NYS: MEG) into Berkshire Hathaway (NYS: BRK.A) (NYS: BRK.B) . The biggest of the acquired fish-wrappers is the Richmond Times-Dispatch, while other properties include the minuscule likes of the Goochland Gazette and the Midlothian Exchange.

Admittedly, smaller rags have held up better than their larger brethren during the decades-long movement away from newspapers toward Internet content. Newspaper retention in the smaller burgs relates largely to coverage of local sports and politics. Nevertheless, in my own medium-sized city, the Sunday sports scene shares a section with local obituaries, and the latter frequently make for more captivating reading.

But Buffett hasn't stopped with the Media General purchases. Last month he followed up by picking up a couple of Texas papers, one being the Waco Tribune Herald. At this rate, I'd be difficult to convince that his shopping spree has ended.

Tripped by Tribune
A couple of weeks ago, in discussing Buffett's latest acquisitions, The Wall Street Journal noted that "Mr. Buffett is emotionally motivated." Unfortunately, that's all too often the case with newspapers and those who have accumulated fortunes elsewhere. For instance, five years ago Chicago real-estate investor Sam Zell headed a group that privatized Tribune Company, then the owner of such major metropolitan dailies as the Chicago Tribune and the Los Angeles Times, along with the hapless Chicago Cubs baseball team.

Zells' deal involved complex financial engineering, the main element of which forced the newly privatized entity to groan under the weight of $12 billion in debt. As I then observed to Fools, "That seems patently excessive for a company whose assets will continue to be in the declining newspaper and broadcasting industries." Today Tribune is attempting to crawl out from under the yoke of the bankruptcy protection it was forced to seek quickly after the restructuring was completed.

As Tribune's restructuring was going down, Zell was heard to maintain: "If you are relevant, people are going to buy the newspaper. If you're not relevant, then people will stop buying the newspaper and stop advertising and we'll all be in a stew of trouble." The journalism prof in me forces a contention that the current newspaper stew is stocked as much by a lack of timeliness as by reduced relevance.

The Foolish bottom line
Today, Foolish investors obviously can buy newspaper companies, while the makers of the obsolete buggy whips have all gone bye-bye. In my rarely tentative opinion, however, I'm jaundiced about the wisdom of following the Oracle down the path of publishing purchases.

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At the time thisarticle was published Fool contributorDavid Lee Smithdoesn't own shares in any of the companies named in the above article. The Motley Fool owns shares of Berkshire Hathaway.Motley Fool newsletter serviceshave recommended buying shares of Berkshire Hathaway. The Motley Fool has adisclosure policy. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.

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