Here’s why the deal makes a lot more sense than it appears:

A “three corner pool shot”

This week’s deal makes Buffett’s company, Berkshire Hathaway, the proud owner of the Richmond Times-Dispatch and 62 other daily and weekly papers in Virginia and the South. Most of the titles, like The Goochland Gazette and The Bland County Messenger, have small circulations in the range of 5,000 – 25,000.

The Oracle himself explained the deal this way:

“In towns and cities where there is a strong sense of community, there is no more important institution than the local paper. The many locales served by the newspapers we are acquiring fall firmly in this mold and we are delighted they have found a permanent home with Berkshire Hathaway.”

Buffett can wax sentimental all he wants but he is still the same hard-nosed businessman who was tough enough to stick it to Goldman Sachs. Like any of his deals, this is all about money.

“This deal is like a three corner pool shot that accomplishes several things at once,” says Ken Doctor, a media analyst.

Doctor notes that the deal includes an enormous loan and credit line to the newspapers’ former owner, Media General, in which Berkshire Hathaway will earn 10.5 percent. Buffett’s company also obtained stock warrants that will likely pay out handsomely as Media General works on becoming a full-time broadcasting company.

But what of the newspapers themselves? Doctor says that Buffett got them for a steal, noting that they sold on average for about $2 million a pop — or the price of an expensive home in each of the towns where they’re printed.

Small town papers make money

The story of the catastrophic decline in newspapers has been driven by metropolitan papers like the Washington Post  (on whose board Buffett sat for years) where ad rates plummeted while readers embraced digital alternatives.

The experience of small towns and counties has been different. In these places, a lack of print and online competition has allowed newspapers to hold onto some of their traditional monopoly power.

“In these communities, the local paper is the sole source of everyday news — from high school sports, local events or obituaries,” says Gordon Crovitz, former publisher of the Wall Street Journal and founder of digital subscription service, Press+.

This lack of competition has not only meant a slower decline in their print operations, but also a longer time period to make the transition to digital. While some metropolitan papers have rushed in a panic from one ill-advised paywall strategy to another in an effort to stay alive, smaller papers have had the luxury of a wait-and-see approach. In the meantime, digital subscription strategies have become more refined.

Crovitz claims that 70 publications have recently jettisoned the “free online” offer for print subscribers in favor of charging 25 percent and then letting readers opt-out of the digital part of the package.  He says that 90 percent of the customers elected to keep paying more.

What all this means for Buffett is that he can treat his newspaper fleet as a longer term investment that will pay off in three to five years. Most of the papers will likely deliver a modest profit from print while Berkshire Hathaway coaxes them into a digital strategy in which a growing share of revenue comes from subscription rather than ads (Doctor predicts subscription-based revenue will soon rise from 30 to 50 percent). The company can then cut away many of the printing, distribution and other legacy costs associated with newspapers.

Buffett being Buffett

Going into the newspaper business is a strange proposition for most investors but not for Buffett. This week’s purchase is consistent with a number of his investment mantras, including sticking to what he knows.

Buffett knows this business well from owning the Buffalo News and sitting on the board of the Washington Post, but also has more personal experience in the industry such as using $5000 from his savings as a paper-boy to launch Berkshire Hathaway. He also claims to read five newspapers a day.

Buffett also has a history of squeezing value out of traditional or troubled industries that scare off many investors. In recent years, for instance, he has bet big on airlines, autos and railroads.

There is also the question of scaling. According to Doctor, Berkshire Hathaway has long excelled at finding large scale efficiencies and the company now has enough newspapers (it also has six Nebraska papers in addition to the Omaha World-Herald) to make that happen.

Finally — and this is only speculation — some might wonder if Buffett, who has been close to the Obama Administration, might enjoy owning dozens of media outlets in swing states Virginia and North Carolina in an election year.

Join us for paidContent 2012: At The Crossroads on May 23 in NYC to discuss these issues and lots more.

New London, Conn.’s The Day is promoting its new paywall as a “membership program,” with benefits beyond online content. And the Southeast Missourian and Richmond Times-Dispatch appear to be the first two newspapers to use Google (NSDQ: GOOG) One Pass technology, which the company rolled out in February.

–The Day, New London, CT. The paper is launching a “new membership program that will offer unlimited access to its website, theday.com, including its premium online and mobile content,” going into effect on September 14. Associated Press content will remain free; non-”members” can read 10 staff-written articles per month before the paywall kicks in, and non-subscribers also can’t comment. The program “ranges in price per month from $9.99 to $22.99 for top-of-the-line platinum service,” but it’s not clear what the different membership levels entail; the paper said it will “feature an eight-page ‘how to’ guide in its Sunday, Sept. 11, edition,” and I’ll follow up as well. (My guess is that this one is operated by Press+ but I will find out. The paywall is operated by Clickshare.) For now, here are the benefits outlined by the paper:

–Unlimited access to theday.com, including the ability to comment on articles and features.

–Full access to The Day’s extensive online archive, dating back to 1999.

–Free delivery of The Day’s electronic edition to email accounts or tablet devices, such as Apple’s iPad.

–Full access to all digital formats and services offered across The Day Publishing Co. platform.

–And enrollment in a new, and growing, member rewards program called The Day Passport, which features rewards, events and giveaways to local businesses, entertainment venues and cultural institutions including Mystic Aquarium, Garde Arts Center, Mohegan Sun and the Children’s Museum of Southeastern Connecticut.

Thanks to Poynter. for the tip.

–Google One Pass’s first newspaper partners: Southeast Missourian and Richmond Times Dispatch. As reported by Rob O’Regan at eMedia Vitals, Southeast Missourian publisher Rust Communications and Richmond Times Dispatch publisher Media General (NYSE: MEG) were among the partners Google One Pass announced at its launch. For web publications, Google One Pass is a competitor to Press+.

An online subscription to seMissourian.com costs $2.95 per month for print subscribers (bringing a total home-delivery-plus-digital subscription to $17.90 per month) and $7.95 per month for online-only access. Non-subscribers can read the homepage and section fronts for free, and can read “a specific number” of other articles for free each month (number not specified, but for me it was 12; I’ll update this post when I get the official figure). Articles accessed via external links (Facebook, Twitter, blogs, social media) and search engines doesn’t count toward the monthly limit.

The Richmond Times-Dispatch is doing something a bit different: Rather than adding a paywall across the site, it’s testing one on a premium content package of Civil War coverage. The package includes a blog called “Behind the Lines,” pages from the paper’s Civil War-era archives, maps, videos, slideshows and other coverage. Subscribers can purchase a “premium content” subscription for $1.99 per month or $19.99 per year; it is unclear how many more premium content packages on other topics will be added, or when–and it’s not immediately obvious from the website what a $19.99 yearly subscription would get you beyond the Civil War coverage; I’ve reached out to the Times-Dispatch and will update this post when I hear back.

Media Gen’s partnership with Groupon is expected to start showing up on its newspaper websites by the end of the year. McClatchy (NYSE: MNI) also has a similar arrangement with Groupon.

Looking at the details of its Q3 interactive performance, the company’s local media websites saw revenues rise 15 percent. Within that segment, online classifieds grew for the third consecutive quarter, rising 12 percent, which the company partly attributed to its Yahoo and Zillow alliances. Over the past few months, Media Gen has extended the Yahoo and Zillow arrangements to its TV station sites as well as its newspapers.

While online remains the perpetual bright spot, Media Gen’s print side is struggling along with the rest of the newspaper industry, though the declines have been easing a bit this year. Publishing revenues fell 7.6 percent, mostly due to weak retail spending resulting from the weak economy. Classified revenues dropped 11.4 percent from last year, a while national ad dollars headed in the direction of a recover with a 2 percent decline.

Overall, Media Gen saw its net loss narrow considerably, thanks to continued cost cutting. Looking ahead, digital media revenues are expected to increase between 9- and 11 percent in Q4, with publishing falling another 5- to 7 percent. In total, revenues should be up around 6- to 8 percent in Q4, the company said.

The deals will be promoted under local names in each of Media General’s markets; the service in Richmond, where Media General owns the Richmond Times-Dispatch, for instance, is called “Richmond Daily Deal.” Media General is promoting it aggressively on the Times-Dispatch‘s site. Groupon will handle ad sales while Media General will maintain the e-mail list of people who sign up for deals.

While both Media General and McClatchy (NYSE: MNI) have chosen to partner with Groupon, a number of other media companies have decided to cut out the daily deal middle man entirely by launching their own daily deals services, relying on their own in-house ad sales teams. We profiled some of those efforts by newspapers in late August, and just today, Cox Media Group said it would launch its own daily deals service called DealSwarm.

The joint venture is upping the financial stakes in the mobile TV space, which has been dominated by MobiTV, and Qualcomm’s FLO TV subsidiary. It consists of: Belo (NYSE: BLC), Cox Media Group, E.W. Scripps (NYSE: SSP), Fox, Gannett (NYSE: GCI) Broadcasting, Hearst Television, ION Television, Media General (NYSE: MEG), Meredith (NYSE: MDP), NBC, Post-Newsweek Stations and Raycom Media. The plan is to pool spectrum together from Fox, NBC & Telemundo and ION to be able to reach about 150 million U.S. consumers. It requires commitments for content, marketing and capital.

The joint venture is escalating its mobile efforts following the passage of the FCC’s National Broadband Initiative, which proposes to reclaim some of the broadcasters’ spectrum for more mobile broadband networks. The broadcasters will have to move fast to prove to the FCC that the spectrum is being used to the nation’s benefit. In a release, the group said the venture “is designed to complement” the initiative by reducing congestion of the nation’s wireless broadband infrastructure. In other words, they are arguing that if they can offload video to broadcast spectrum from today’s mobile networks fewer new networks will have to be built.

The Open Mobile Video Coalition, which names these dozen broadcasters as members, along with over 800 TV stations, has been working for years to establish a national mobile TV standard. The goal is for broadcaster to be able to transmit the same TV signals that they do today to mobile devices, like phones, cars and portable consumer electronics, without much financial investment.

Yesterday, the Open Mobile Video Coalition provided an update on its efforts, saying that 45 stations have started providing mobile broadcasts. Washington D.C. kicks off on May 3 and two stations in Detroit will follow. But it will take awhile for consumers to start having capable devices of receiving the broadcast signal. The first available consumer device is the “Tivizen,” which was funded by broadcasters. The small device, built by Valups, receives mobile TV signals and then re-transmits them to WiFi devices, such as a laptop or mobile phone. It will cost $149 beginning in May and will be available on Amazon.com.

The broadcasters are clearly trying to position this offering as a way for the FCC to achieve its goals of increasing mobile broadband in the U.S. That may be a tough argument to win. The FCC says the U.S. is currently in a spectrum crisis, given the dramatic growth curve of smartphone usage. But John Wallace, President of NBC Local Media, argues: “This initiative offers a path for the next generation of video consumption, and will help the FCC in its goal of ensuring efficient and reliable broadband service for US consumers.”

The group said more information would be released later in regards to a dedicated management team who would focus on “securing additional content, spectrum and distribution partnerships for the venture.”

This doesn’t necessarily pose a new threat to either Qualcomm’s FLO TV or MobiTV since the broadcasters have been working for a number of years on a plan to roll out mobile TV services. In fact. all three providers have their own set of challenges. FLO TV has recently launched its own branded service after relying on Verizon Wireless and AT&T (NYSE: T) for years to resell the service on a handful of phones. And while it has done a good job of securing rights to a lot of content, it still has major gaps, such as rights to the Super Bowl or the local news. In contrast, these broadcasters in the joint venture will benefit from having the rights to local content, but will clearly have to work together to secure national feeds. Both FLO and the joint venture will have to get new devices into the hands of consumers in order for them to receive a TV signal. That’s one of the biggest benefits for MobiTV. Its service is streamed over the mobile network, so as long as the network is not congested, any subscriber can watch content.

Aside from the typical cost-cuts-to-profits path that newspaper publishers have been forced to take in the past year, Media Gen’s latest earnings suggest that the chill in online ad spending at newspapers is starting to thaw. Yesterday, The McClatchy Company (NYSE: MNI) posted a 15 percent jump in online ad revenue, for example. However, there’s no trend yet, as Lee Enterprises (NYSE: LEE), one of the first newspaper publishers to report Q4 earnings, saw online ads slide 8.4 percent during that period.

– Interactive up 10 percent: While a number of newspaper publishers have seen even their online ad revenues fall, Media Gen’s grew a respectable 10 percent in the quarter. Surprisingly, local online revenues were considered a major contributor, rising 43 percent over Q407. Media Gen’s digital revs were also boosted by money coming in from DealTaker.com, the online shopping site it bought in March ’08. The interactive unit even managed to narrow its operating loss to $1.6 million versus last year’s loss of $2.6 million.

– Classifieds: The main drag on newspapers the past few years have been classifieds and Media Gen wasn’t spared. The segment’s Q4 revs fell $14.2 million, or 37.6 percent, from last year driven by shortfalls in all markets, but most significantly in the company

– Interactive: A mixed bag … revenue rose 9 percent, aided by a 29 percent increase in local advertising and a “strong performance” by DealTaker.com, acquired in Q1. But it’s still in the red albeit a smaller loss: $336,000 compared with a $1 million loss last year (excluding a writedown). Some more concrete results from the Yahoo (NSDQ: YHOO) Newspaper Consortium: “the partnership with Yahoo!HotJobs generated $1.7 million in revenues in the quarter, helping to mitigate a 12 percent decrease in Classified revenues.” The company attributes the local ad increases to “a continued focus on direct sales, increased staffing and training” leading to “growth in banners and sponsorships.” But national and regional dropped 11 percent “due to softer advertising from national agencies, particularly at TBO.com in Tampa.”

– Warning: slow growth ahead: Blockdot’s declining advergaming revenues in Q3 “reflected a slower pace of incoming projects, as a result of the weaker economy, compared with the same 2007 period.”

Earnings release | Webcast (11 a.m. eastern)

– September revs down 13.9 percent: Separate from its Q3 report, Media Gen said total company revenues came in $59.7 million versus $69.3 million the year before for a 13.9 percent drop. The Interactive Media Division, though, had revenue gains of 8.1 percent, citing 17 percent growth in local advertising and as well as revenues from DealTaker. But the online side wasn’t all rosy: The division’s national/regional advertising fell 22.3 percent, due mostly to weakness in the Florida market. Also, online classifieds dropped 17.5 percent overall. Nevertheless, Media Gen said Interactive generated an increase in “employment liner advertising” through its Yahoo HotJobs partnership, though no specific numbers were offered. September Revenues Release More from the earnings call after the jump.

– Not just Yahoo: [David adds] During the call, Marshall Morton, Media Gen’s president and CEO said the company was looking forward to taking advantage of Yahoo’s additional display offerings. He added that the company wasn’t just relying on Yahoo and is looking to online revenues to be generated by real estate ads with Zillow as well. Again, revenue numbers or specific targets were not discussed.

– Online ad price hike?: When asked about the kinds of prices Media Gen is getting from online ads given the tougher economy, Reid Ashe, the company’s COO said that some publications are more “under-priced than over priced in some markets.” He added that ad rates for some of its online newspapers may go up in 2009.

– The future: Morton said he wants Media Gen to be regarded as an “information company” as opposed to a newspaper company. Certainly, given the downward trend the industry has been facing, it makes sense to want to avoid the label. But newspapers are and will remain the core of Media Gen, Morton said. But newspapers can take on different forms. “Shrinking the size of the newspaper isn’t necessarily bad. It’s an option in some areas. The customers who read a full newspaper these days are few and far between. But we still have to provide the information they want. We’ll look at that things like shrinking newspapers’ size on a market by market basis. But what will the future look like? Newspapers have a long life, even if they’re not a necessarily a printed paper delivered to the front doorstep.”

But the NYTCo’s gain was nothing compared to Media General (NYSE: MEG), whose stock basically doubled on the day, returning it to levels not seen since February of this year. They too reported not-terrible August revenue, with revenue only falling 4.4 percent. And yet the company attributed the modest decline to political and Olympic spending — ad revenue at its NBC stations was up over 11 percent in the month. Interactive was strong, growing 13.7 percent. It said new sales efforts and strength at its DealTaker.com business contributed to a 45 percent gain in local online advertising. Release.

One big winner yesterday: Harbinger, the activist firm whose two newspaper targets were NYTCo and Media General.

– McClatchy: Another rough month for The McClatchy Company (NYSE: MNI), as July revenues fell 16.4 percent on ad revs that were down 19.3 percent. The only bright spot: a 12.8 percent gain in online ad dollars. McClatchy is one of the few newspaper companies lately not to experience a slowdown on online ads: in July 2007, the company posted web ad growth of 8.4 percent. Looking at the past seven months, total McClatchy revs declined 15 percent as ad sales slid 16.5 percent. Internet ads grew 11.7 percent during that same period, thanks to strength from online national ads (up 160 percent), though online job ads fell 27.1 percent . Release

– Media General: Revenues at the Interactive Media Division rose a tepid 5.7 percent, boosted by higher local ads — up 47 percent — and revenues from the March acquisition of DealTaker.com. July’s online gains were striking compared to Media General’s (NYSE: MEG) interactive rev growth for the same month last year, when ads grew 37.4 percent. Still, it wasn’t enough to offset a 13.8 percent decline in total revs, held down by weakness on the classified side, which was down 32.5 percent. Release