The Other Zillionaire Who Bailed Out the Washington Post

Meyer in the 1940s

Eugene Meyer in the 1940s

In 1933, The Washington Post was in a death spiral. As a writer for Fortune put it 11 years later, “its playboy owner … had milked the paper of its assets until it could no longer pay the newsprint bill for its scraggly circulation of 52,000.” The bankrupt newspaper was auctioned off, and went for $825,000 to an anonymous bidder who after a few days revealed himself be Eugene Meyer.

Meyer was a hugely wealthy former Wall Street tycoon who had just spent a frustrating three years as the Herbert-Hoover-appointed Governor (analogous to today’s chairman, but with less power) of the Federal Reserve Board. He had tried to buy the paper before — in 1929, for $5 million — but was turned down. And a few years before that, he had offered to buy the Washington Herald from William Randolph Hearst.

As Merlo J. Pusey tells it in his 1971 biography of Meyer, the conversation went something like this:

“What,” [Hearst] had asked, “makes you think it would be a good idea to sell one of my Washington newspapers?”

“You are reported to be losing about a million and a half a year,” Meyer had replied.

Money-losing newspapers, then, are nothing new. The reason they lost money in the 1920s and 1930s was in some ways similar to why they are struggling today — because there were so many alternatives. The big difference was that back then, the main competitors for readers and advertisers were other newspapers. In Washington, at the time a city of fewer than 500,000 inhabitants without a lot of suburbs, there was only one really successful paper in 1933, the Evening Star. But there were five dailies in all. Scripps-Howard’s afternoon tabloid Daily News likely turned a profit, given the Scripps-Howard penchant for keeping costs low. But Hearst’s morning Herald and afternoon Times and the morning Post all found it hard to make money even in good times, and gushed red ink in the depths of the Depression.

Nowadays, of course, the newspaper business can be tough even if you’re far and away the leading newspaper in a big, news-addicted metropolitan area, which is why the company controlled by Meyer’s descendants sold the Post last year to Amazon founder Jeff Bezos. That marked the beginning of another saga of an enormously successful businessman from a different industry buying the struggling Post for non-financial reasons, and attempting to set it aright. In Meyer’s case, things turned out spectacularly well — the money-losing Post became the basis of a new family fortune that appears to have grown even bigger than the one he amassed in his Wall Street days. It seems pretty unlikely that things will turn out that way at the Post for future Bezoses (Bezii?). But hey, you never know.

I started studying Meyer for an Atlantic column on the pre-monopoly-era economics of the newspaper business. His story didn’t end up fitting in, but I felt compelled to tell it somewhere. The man was impressive.

Eugene Meyer was born in 1875, the son of a businessman and banker who had emigrated from Strasbourg to Los Angeles 15 years before. Marc Eugene Meyer (the father) moved the family north to the Bay area when his eldest son was a young boy, then moved East after the Panic of 1893 to become a partner in the New York office of the investment bank Lazard Frères. Young Eugene, who had just finished his freshman year at UC Berkeley, transferred to Yale.

After graduating, the younger Meyer went to work with his father at Lazard, but didn’t stay there long. His father had promised him $600 if he hadn’t taken up smoking by age 21. Meyer earned that reward, and quickly built it into $5,000 by investing in the common stock of the Northern Pacific Railroad. Then he made a big bet on the 1900 elections. Meyer expected Republican William McKinley to win, and expected this victory to unleash a stock market boom. As insurance he bought some gold bonds, which he figured would soar in value if easy-money Democrat William Jennings Bryan prevailed, but put most of his $5,000 into options to buy railroad stocks at specified prices after the election.

McKinley won, easily. Meyer held onto his options, cashed in his gold bonds the morning after the election, and bought more options. Then, the January after the election, he sold them all — for $50,000. With that he quit Lazard, bought his own seat on the New York Stock Exchange, and embarked on a remarkable career as an investor and sometime investment banker. His most lasting accomplishment was bringing five companies together in 1921 to create the hugely successful Allied Chemical and Dye Company (which later became Allied Signal, which merged with Honeywell in 1999), but he also was a big investor in Fisher Body (maker of most of the bodies for GM cars) and the Anaconda Mine. He wasn’t as iconic a figure as Bezos today, and wasn’t quite as rich either. But he was in the same general territory.

When he bought the Post, Meyer, seemingly like Bezos, wasn’t in it to make money. In his case, buying the paper was conceived mainly as a hobby to keep him busy in retirement and give him a continuing voice in national affairs. Meyer was 57, and had seriously been considering following up his stint at the Fed by succeeding his friend Bill Ward as Republican county leader of Westchester County, New York, where he and his wife had a weekend house. But running a newspaper in the nation’s capital was more appealing.

More expensive, too. The Post didn’t break even until 1943, when the combination of a wartime economic boom and wartime newsprint rationing (which resulted in smaller, cheaper-to-produce newspapers with a higher ratio of ads to news) put lots of previously ailing newspapers in the black. Meyer had, however, brought his newspaper back to respectability well before then, mainly by putting Felix Morley, formerly a PR guy at the Brookings Institution and later the president of Haverford College, in charge of the editorial page. Morley won the Post’s first Pulitzer Prize, in 1936, and established the paper as a moderate, well-informed voice on national affairs. The paper’s reporting improved, too, but the Post didn’t really become famous for that until decades later when Meyer’s daughter was running the show.

In the meantime, the economic and demographic trends of the postwar era all played into the Post’s hands, and Meyer made all the right moves to take advantage of them. The huge increase in the size of the federal government during World War II, which was only partially ratcheted back after the war ended, left Washington much more important as both a news source and an economic force. The Post took federal government coverage more seriously than its competitors, and it also took advantage of the fact that most of the region’s growth was taking place in the burgeoning Maryland and Virginia suburbs (the District of Columbia’s population peaked in 1950). It was a lot easier to deliver a paper to those suburbs before the morning rush hour than in the middle of the evening one, and declining reliance on public transit meant declines in the single-copy sales so crucial to evening papers. It became ever more advantageous to be a morning paper, and after 1954 the Post was the only morning paper in Washington.

That was the year when Meyer, who was 78 years old and had already handed control of the Washington Post Co. over to his daughter Katharine and her husband Phil Graham, forked over $8.5 million to buy the Times Herald (the Times and Herald had combined in 1937) and merge it with the Post. The afternoon papers lived on for a couple decades after that (the Daily News shut down in 1972 and the Star in 1981), but posed ever less of a competitive threat to the Post. Under Phil Graham’s leadership, the Post Co. had also acquired a few TV stations and Newsweek magazine. Meyer’s retirement hobby had grown into a small media empire, the kind of business that, in 1973, struck investor Warren Buffett as just the thing to help him turn his small fortune into a gigantic one.

By then Katharine Graham was fully in charge — her husband Phil Graham, who suffered from manic depression, had killed himself in 1963 — and was beginning to establish herself as one of the great makers-of-big-decisions in business history. She had already plucked Ben Bradlee out of the Washington bureau at Newsweek and appointed him executive editor of the Post. When word came that a strange man in Omaha was buying a big stake in her company, she ignored the warnings of her board of directors, met with Buffett, and invited him to join the board. With Buffett as her adviser, Meyer’s daughter transformed the Post from a very good business into a juggernaut. “From the time of the company’s IPO in 1971 until she stepped down as chairman in 1993,” Will Thorndike writes in The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success, “the compound annual return to shareholders was a remarkable 22.3 percent, dwarfing both the S&P (7.4 percent) and her peers (12.4 percent).”

Then the Internets came along and, two decades after Katharine Graham retired as CEO, her descendants began looking for a way out of the newspaper business. Buffett, a major Post Co. shareholder for four decades, said he briefly considered buying the paper outright last year. But he decided he was too old for that kind of thing, and Bezos came through instead.

What can the proprietor of “The Everything Store” possibly learn from Eugene Meyer’s experience? Not all that much in the way of specifics, one would have to think. Still, there were two elements of Meyer’s success that Bezos will probably have no choice but to emulate: patience, and a willingness to spend lots of money. A brilliant daughter would help, too.

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‘A New Golden Age for Media?’ Annotated

My latest Atlantic column, headlined “A New Golden Age for Media?” online and “Start the Presses!” in the May print edition, is about how newspapers made money back before they became profit-spewing monopolies — the idea being that the future of the news media will probably look more like that than what media people got used to over the past half century.

I relied on a bunch of books in writing the piece, but only had room to mention two. And while it is possible to insert links into Atlantic print articles, the last time I tried it didn’t stick, and I was in rush this time so I didn’t bother. So here are the links and other annotations I would have liked to include.

pmarca twitterFirst, to the left, is a screen shot of the beginning of Mark Andreessen’s Twitter list of the ways digital media companies can make money (read it from bottom to top). He was later nice enough to compile these and a zillion other media-related tweets in one handy blog post.

Andreessen’s tweeting didn’t inspire me to write the piece — that was Atlantic deputy editor Don Peck’s idea — but it certainly helped organize it.

I mention two books in the column, Richard John’s Spreading the News: The American Postal System from Franklin to Morse and James McGrath Morris’s Pulitzer: A Life in Politics, Print, and Power. They’re both pretty great.

Spreading the News is based on John’s doctoral dissertation, so it’s academic. But it’s good academic, offering lots of I-did-not-know-that moments, plus a framework for understanding why U.S. communications networks developed the way they did. John continues the story in Network Nation: Inventing American Telecommunications, which I cited in a previous Atlantic column. By the number of reviews the two books have gotten on Amazon, it appears that they haven’t attracted a general readership. They should. They’re both relevant to current issues such as the troubles of the USPS and the monopolization of broadband, they’re not hard to read, and they change how one sees the world.

John begins Spreading the News with a quote from Alexis de Tocqueville’s 1831-1832 travel journals, subsequently published as Journey to America:

There is an astonishing circulation of letters and newspapers among these savage woods … I do not think that in the most enlightened rural districts of France there is intellectual movement either so rapid or on such a scale as in this wilderness.

John points out that a few years later in Democracy in America, Tocqueville quantifies this observation, showing that postal revenue per person is higher in backwoods Michigan and Florida than in the Departement du Nord, “one of the most enlightened and manufacturing parts of France.” The Frenchman also offers this wonderful assessment of the inhabitants of the rude wood huts of America’s frontier:

Who would not suppose that this poor hut is the asylum of rudeness and ignorance? Yet no sort of comparison can be drawn between the pioneer and the dwelling which shelters him. Everything about him is primitive and unformed, but he is himself the result of the labor and the experience of eighteen centuries. He wears the dress, and he speaks the language of cities; he is acquainted with the past, curious of the future, and ready for argument upon the present; he is, in short, a highly civilized being, who consents, for a time, to inhabit the backwoods, and who penetrates into the wilds of the New World with the Bible, an axe, and a file of newspapers.

But I digress.

Morris’s Pulitzer is an entertaining, engrossing biography. So is David Nasaw’s The Chief: The Life of William Randolph Hearst, the source for most everything Hearst in the column. The stuff about James Gordon Bennett came mainly from Richard Kluger’s The Paper: The Life and Death of the New York Herald Tribune, a book I read back when it came out in 1986, and loved. I even visited Kluger at his house near Princeton and I thought I had written up the interview for The Daily Princetonian, but I can’t find the article in the archives. This recent Prince article about Kluger looks pretty cool, though.

Most of the other information about how newspapers made money in the 19th century came from Gerald Baldasty’s The Commercialization of News in the Nineteenth Century, which is not exactly a fun read, but is full of useful facts. My brief mention of radio’s success as an advertising medium was based on a skimming of Laurence Bergreen’s Look Now, Pay Later: The Rise of Network Broadcasting, which looked pretty interesting although I was mainly just digging for numbers. Such as, 1931 advertising revenues for the main radio networks and a couple of leading magazines:

  • Saturday Evening Post, $35 million
  • NBC, $25.9 million
  • Ladies Home Journal, $12.8 million
  • CBS, $11.6 million

For the rest of the 1930s, revenues just kept rising for the radio networks while they presumably stagnated or even fell at the magazines. NBC and CBS, Berggreen wrote, “were purveying a commodity desperately needed by a Depression-ravaged nation: free entertainment.” ABC, by the way, wasn’t created till 1943, after the FCC ordered NBC to divest a big chunk of its operations and the man behind Lifesavers candies, Edward J. Noble, bought it.

Still, print publications could make tons of money even in the broadcast era. The quote from Warren Buffett about newspapers gushing profits comes from Berkshire Hathaway’s 2006 shareholder letter. Sandwiched between the two sentences I quoted in my column was this:

As one not-too-bright publisher famously said, “I owe my fortune to two great American institutions: monopoly and nepotism.”

Buffett then launches into an extended (it starts on page 11 and takes up all of page 12) and very good explanation of why newspapers used to be a great business but aren’t anymore. It’s too long to quote, so just read the letter. Fun bonus: Margaret Sullivan, now the excellent public editor of The New York Times, rates an admiring mention.

Finally, while my Atlantic piece was in the editing process, Buzzfeed founder Jonah Peretti posted a fascinating memo to staff in which he too compares the current media environment to that of before 1950. At one point he writes:

These days, media companies don’t have natural monopolies or oligopolies where one or two newspapers dominate a local market or a handful of broadcasters are the only options on a limited dial. There is more competition, the market is more fragmented, and gatekeepers have less power. Advertisers have more ways to reach consumers so they aren’t as dependent on publishers and can negotiate lower rates. In fact, some smart people in our industry don’t think it is possible to build a huge new media company anymore, that the golden age is over, and that all the growth now will be limited to pure technology companies.

Which is basically the argument of my column, although I wouldn’t say it’s impossible to build a media empire, just really, really hard. “This pessimistic view is wrong,” Peretti continues,“because it is focused entirely on what has been lost (monopoly pricing power, etc) and ignores what has been gained. This is a common psychological trap: People tend to be overly focused what is lost, while under-appreciating gains.”

The gains Peretti sees have to do with technology, scale, and diversity of talent. I totally get how those three factors all help Buzzfeed now. And I wouldn’t put it past Peretti to become the new Henry Luce. I wouldn’t bank on it either, though — and I really wouldn’t bank on Buzzfeed continuing to thrive long after Peretti and Ben Smith have retired, as Luce’s Time Inc. did. But then I do prefer history to futurism, which I guess makes me a backward-looking guy.