Via the Washington Post 

In his annual letter to his company’s shareholders, Warren E. Buffett— the world’s second-richest person and the largest shareholder of The Washington Post Co. — wrote that “fundamentals are definitely eroding in the newspaper industry” and warned that “the skid will almost certainly continue.” (…)

Buffett often includes in his letters brief history lessons on his business segments. In addition to owning 18 percent of The Post Co. — Buffett sits on the board — Berkshire also owns the Buffalo News, and Buffett opined on the newspaper industry.

“When Charlie [Munger, Berkshire Hathaway’s vice chairman] and I were young, the newspaper business was as easy a way to make huge returns as existed in America,” Buffett wrote in the letter, which was released Thursday.

“As one not-too-bright publisher famously said, ‘I owe my fortune to two great American institutions: monopoly and nepotism.’ No paper in a one-paper city, however bad the product or however inept the management, could avoid gushing profits.”

As early as his 1991 letter to shareholders, Buffett recounted, he warned of looming problems in the industry: For the first time, he wrote then, newspapers no longer held a monopoly on news and information.

In today’s economy, Buffett wrote: “Simply put, if cable and satellite broadcasting, as well as the Internet, had come along first, newspapers as we know them probably would never have existed.”

Average daily newspaper circulation in the United States has declined each year since 1987. At The Post, print advertising revenue decreased 4 percent in 2006 from the year before.

And for newspapers that have pinned their revenue hopes on their Web sites, Buffett had a sobering prediction: “. . . the economic potential of a newspaper Internet site — given the many alternative sources of information and entertainment that are free and only a click away — is at best a small fraction of that existing in the past for a print newspaper facing no competition.”

Dan Gillmor adds: “It’s a sobering assessment from the world’s most famous investor.”

Stowe Boyd says: “The Oracle of Omaha is dead on, in this time and place.”

Mathew Ingram thinks that “getting more social with readers is something newspapers have to do, if they want to have a chance of avoiding the inevitable decline that legendary investor and gazillionaire Warren Buffett referred to…”

What it means: Very sobering assessment indeed. I agree with Mathew that, if newspapers want to be successful in the future, they need to re-take their place in the social ecosystem at the center of local conversation. They also need to become more hyperlocal. Finally, they need to increase their online reach, to be able to offer to their advertisers an equivalent reach in print and online.