The Snowball_ Warren Buffett and the Business of Life - Alice Schroeder [276]
The Washington episode symbolized the reality of Warren and Susie’s new relationship; if Susie was to keep all her stock, his grip on the checkbook had to loosen. Warren gave her an allowance, besides covering all her bills: This was her giveaway budget. When the children had needs, she took care of expenses that Warren wouldn’t. Howie had sold some of his Berkshire stock to build a tree house for him and Marcia to live in. They were struggling with their finances as well as their marriage. “It’s just terrible that Warren won’t pay for it,” Susie grumbled. “He was going to let the ceiling fall in. He was going to let them lose the house.” But this was part of their game: Warren knew that Susie would take care of it for them, as she had taken care of Little Sooz when she was unhappy in her marriage, as she always took care of everything.
Everything, that is, except the money. Making that was Warren’s job, and all these changes and complexities and mounting bills had come at a time when the family fortunes were declining. Just as Susie was leaving for San Francisco, Warren had been dragged into court in Buffalo, New York, for a costly battle between two newspapers. Normally he was competitive enough to roll up his sleeves and relish something like this. But now, since he was facing a personal crisis, it became an expensive, absorbing episode that shut out the rest and blunted the pain. The Buffalo Evening News drama would be a protracted battle, one that would threaten Blue Chip’s value and rank among the most unpleasant of his career. It bore a vivid resemblance to the conflict he had faced in Beatrice many years before, one he had sworn to himself never to repeat.
In the spring of 1977, he and Munger had finally bought the daily newspaper for which they had been searching these many years. At $35.5 million this was their biggest purchase ever.15 Rusting, icebound Buffalo wasn’t the growing one-newspaper town of their dreams, but it was still a good place to own a newspaper. Buffalo’s citizens left for their factory jobs before dawn and read the paper in the evenings. The Buffalo Evening News dominated its nearest competitor, the Courier-Express, which was weak financially. Buffett had developed a well-founded theory of competition in the newspaper industry.
“Kay was always saying how competition made them better and all that stuff. I said, ‘Lookit. The economics in the business is inevitably leading to one newspaper in a town. Survival of the fattest is what I call it. And you win. There is no second place. There’s no red ribbon. In the end, there isn’t going to be any competition because that isn’t the way it works.’”
The Courier-Express’s staff and publisher had also figured out that there was no red ribbon in newspapers. In 1920, seven hundred cities in the United States had two major newspapers. By 1977, the number was down to not quite fifty. On weekdays, the Evening News sold twice as many papers as the Courier-Express. The Courier-Express clung to survival through having the only Sunday paper in town, which made up sixty percent of its revenues.
The Evening News had been offered to the Washington Post, which had turned it down. Kay Graham could not stomach another paper with a strong labor union. Buffett was not afraid of that. “We sat down with the unions before we bought it and said, ‘Lookit, we could be wrong for a variety of reasons, but there’s one thing that will kill any paper in a two-paper town, and that is an extended strike. You guys have got the ability to do that to us. And if you do it, well, you know, we’ll have lost. But that is a risk we’re taking, and we want you to understand we’re taking it. Although you hold the card, if you play it, we both lose.’” The unions seemed to understand.
Buffett and Munger’s empire now had assets of over half a billion dollars,16 and controlled more than half of Berkshire Hathaway and sixty-five percent of Blue Chip. These two companies owned National Indemnity, the