Capital Allocation is King--Newspapers Edition

"Someone's sitting in the shade today because someone planted a tree a long time ago." 

-Warren Buffett

In 1975 David Halberstam published The Powers that Be, his study of the great American media dynasties.  It depicted the Washington Post Company as a kind of plucky little brother to its northern neighbor, the New York Times Company:

"The New York Times.  There was, Bradlee [Ben Bradlee was managing editor of the Post] often thought, the Times and then there was everyone else.  Only the Times had the money, the resources, the prestige, the tradition to do great things, an institution that seemed the very equal of any government institution, a power unto itself.  The Times was the Times, and the others weres simply newspapers.  Only the Times had the money and the power and the prestige to stand up to the government, to hire the lawyers, to stand equal to the Solicitor General of the United States, to fight if necessary not just City Hall but 1600 Pennslylvannia Avenue."

Today the Times is still considered the paper of record, and dwarfs the Post in terms of daily circulation (1,038,000 to 635,000).  Both have suffered greatly from the decline of the newspaper business.  Look closer at the financials of their parent coompanies, however, and a different picture emerges:

• The New York Times Company has a market capitalization of $1.08 billion.  The family that controls it, the Ochs-Sulzbergers, owns about 19% of the equity, about $206 million.

• The Washington Post Company has a market capitalization of $3.7 billion.  The controlling Graham family's interest amount to at least $1.8 billion.

How could the Grahams have caught up to and overtaken the Sulzbergers when the latter's flagship product continues to be larger, and both flagships are suffering?  The answer, in the main, is superior capital allocation over a period of decades.

The following two articles tell the story:

FT article about the Washington Post Company

New York Magazine article about the New York Times Company

Of the two companies, guess which had Buffett on the board of directors?

May 11 2009 Update: a New York Post article about the Sulzberger's finances.