The sale of The Washington Post: How the unthinkable choice became the clear path

Donald Graham, the Post Co. chairman and chief executive, explains why he came to believe Amazon founder Jeff Bezos offers the Post the best chance to thrive after 80 years of Graham family ownership. (The Washington Post)

Washington Post publisher Katharine Weymouth presented her uncle, company chief executive Donald E. Graham, with a once-unthinkable choice at a lunch meeting at downtown Washington’s Bombay Club late last year.

The paper was facing the like­lihood of a seventh straight year of declines in revenue, with one preliminary budget estimate showing the possibility of $40 million in losses for 2013. And despite years of heavy investment in new digital offerings, there was little sign that robust profits were about to return, she reported.

That left three choices, Weymouth told Graham. The family could continue presiding over the gradual decline of the newspaper they loved. They could move more aggressively to cut the paper’s staff more deeply than ever, hoping that they could return The Post to sustained profitability by sacrificing its longtime excellence.

Or they could sell, cutting ties to one of America’s iconic news organizations after four generations of family control in the hopes that The Post could thrive again under a new, deep-pocketed, civic-minded owner.

That meeting triggered months of remarkably quiet maneuvering for a company that ordinarily prides itself in dragging other people’s secrets into the light. Eight months after Weymouth first raised the possibility, Graham arranged to sell The Post to Amazon.com founder Jeffrey P. Bezos in a $250 million deal — after two key face-to-face meetings with a man who has scant journalistic experience.

Several factors allowed the deal to come together with relative speed. They included a long-standing friendship between Bezos and Graham, 68, an executive steeped in traditional newspaper publishing who had become a respected elder for a newer generation of tech magnates. Bezos was among the most successful of those, and the two men had on several occasions traded insights on their businesses.

“The Post is his baby,” Weymouth said of Graham. “He was not going to give his baby to anybody who he thought would not care for it properly.”

But also propelling each step was his reluctant acceptance that continuing to own The Post — so long synonymous with the Graham name — probably meant years more of cuts, with significant profits perhaps never returning for the family or the company’s other investors. He long has demanded that each of The Washington Post Co.’s divisions — including ones focusing on education, cable television and other markets — stand alone as viable businesses.

“You wouldn’t mind losing money if you thought you were building toward something two or three years from now, but that was not what Katharine was saying,” Graham recalled. “She was saying the decline in revenue was going to go on, so, you know, the only choice was lose money or cut costs. . . . It’s certainly an option to lose money for three or four years. The question was what would happen in three or four years.”

Even so, Graham said he was at first surprised that Weymouth had raised the possibility of selling The Post. And while she did not endorse the idea, leaving the choice to Graham, the idea was launched.

The unthinkable quickly became thinkable, then, once a viable new owner was found, all but inevitable.

Weymouth, 47, was the tall, blunt-spoken granddaughter of famed publisher Katharine Graham, who in turn was the daughter of Eugene Meyer, who bought The Post at an auction for $825,000 in 1933. Weymouth long had been groomed for a leadership role at The Post before taking over as publisher in 2008, a time when newspapers nationwide already were shedding readers and revenue ahead of the global economic collapse later that year.

As The Post struggled, Weymouth cut staff and other expenses to keep pace with falling revenue. Despite the preliminary estimate of a $40 million loss for 2013, the newspaper had managed a positive cash flow in recent years and would have maintained that record, she said.

Still, she began contemplating the possibility of a sale. At a strategy session with senior managers last summer, several months ahead of her lunch meeting with Graham, she openly discussed the possibility as one option to protect The Post’s journalistic traditions.

“She was not squeamish about it,” said one company official, who like several people interviewed for this story spoke on the condition of anonymity to share details of internal company deliberations.

Weymouth regularly made upbeat presentations to gatherings of Post employees, highlighting new ventures that might bolster revenue. This year, The Post invested roughly $5 million in a video venture, Post TV, and $2.5 million in a system to charge some regular readers of the newspaper’s online offerings, another company official said.

But the tough financial calculations in private meetings rarely brought good news as readers increasingly migrated to online offerings — many of them free — for news, classified advertising and other information. Advertising on The Post’s Web and mobile sites brought a small fraction of the print-advertising income that had been key to the paper’s massive revenue streams in past decades.

“There wasn’t much they could do to rectify it,” said John Morton, a longtime newspaper analyst. “They can’t invest a lot of money and try a lot of new initiatives on the Internet unless there are immediate payoffs. And of course there are no immediate payoffs for things like that.”

Graham said he consulted with Post Co. board members and former board member Warren Buffett before initiating a search early this year. He made one or two initial overtures before hiring Allen & Co. — an investment firm that hosts an annual conference in Sun Valley, Idaho — to assist the search for a buyer.

Graham said he wanted someone who would protect The Post’s tradition of journalistic independence and integrity while also continuing the newspaper’s moves into the digital age. He also wanted a buyer wealthy enough to pay his asking price of $250 million without requiring an immediate payoff in fat profits.

On a relatively short list of prospective buyers — Graham said it was fewer than a dozen — were some people from the high-tech world that had attracted Graham for years, as he joined the board of Facebook and built extensive relationships with tech leaders. Among them was Bezos, 49, who had built Amazon into one of the world’s most powerful retailers through a focus on sophisticated distribution, customer service and narrow margins. Key to his success, Graham and others noticed, was a willingness to forgo short-term profits while building a business into a powerful position within a market.

Allen & Co. made initial contact with Bezos around March or April, Graham said, and while Bezos expressed some interest, talks did not develop immediately. Graham, who said he was surprised that Bezos would consider buying The Post given his long-standing fixation on building Amazon, believed that Bezos had decided not to pursue a deal.

Graham moved on to talks with other potential buyers and, according to company officials, entered serious negotiations with at least one of them.

But on the morning of July 8, the day before Allen & Co.’s annual Sun Valley media industry conference was scheduled to begin, Graham received an e-mail directly from Bezos. It was clear that, at least tentatively, he was interested.

The two men met one-on-one the following day, sitting for more than an hour at a table at the Sun Valley Lodge.

Graham took an unusual approach. “I wasn’t there to be a salesman,” he recalled. Instead he told Bezos, “This is going to be the most unusual sales process you’ve ever been through.”

Graham then ran through many of the difficulties The Post faces, in terms of sagging revenue and long-term financial obligations, and even the challenges of owning a news organization that might at some point investigate Bezos or his friends. By the end of their talk, Bezos told Graham he would think about the idea.

In an e-mail two days later, Bezos told Graham he was still interested. The men met a second time for at least two hours on July 13, and Bezos offered no objection to the asking price of $250 million, Graham said. The following week, financial advisers to Bezos entered serious talks with a small group of Post Co. officials. Among the conditions, company officials said, was that Weymouth remain publisher.

Soon, Bezos sent over an offer sheet with terms for buying the Post newspaper and several related newspaper properties. As part of the deal, Graham agreed that the company left behind by the sale would relinquish its name as it continued its other investments. The board of directors approved the deal in a conference call Monday.

“He appears to have come to a conclusion that this younger man with this great success as a digital innovator might be able to come up with a solution he could not foresee himself coming up with,” said Leonard Downie Jr., who was Graham’s executive editor during many of The Post’s most journalistically successful and prosperous years. “When you don’t have to report quarterly results, and have the freedom to do what you please in trying to innovate, that makes a big difference.”

What comes next for the paper is not clear. Bezos did a short interview with a Post reporter Monday, when the deal was announced, and published a letter to newspaper employees saying he does not intend to use The Post to pursue a political agenda.

“The values of The Post do not need changing,” he said in the letter. “The paper’s duty will remain to its readers and not to the private interests of its owners.”

Instead, Bezos said, he would hope to spur a new era of innovation for the paper.

“There is no map, and charting a path ahead will not be easy,” he wrote. “We will need to invent, which means we will need to experiment.”

But his specific plans for The Post are not yet formed or not yet public.

Graham said he does not know why Bezos went silent between the initial inquiry in the spring and the discussions in July.

“I think he was thinking,” Graham said. “I think he was looking at the shape of the business. I think he was thinking about what he might do. . . . I think this is going to be the most exciting place in the news business.”

Weymouth, too, expressed hope for the future. Her senior leadership team, including president and general manager Steve Hills and executive editor Martin Baron, are slated to stay. Yet she offered little insight into what exactly lies ahead for The Post.

Even the future of one of her signature initiatives, charging some readers of The Post’s online offerings through a metered system — sometimes called a “pay wall” — appears in doubt. Graham long resisted the idea, favoring building readership while offering news articles and other content for free. He allowed the metered payment system to proceed despite his doubts, she said, but it is not clear what will become of the plan under Bezos.

“We’ll see. He will be our new owner,” Weymouth said. “I don’t know how he feels about the pay wall. If he wants to take it down, we’ll take it down.”

Follow The Post’s new tech blog, The Switch, where technology and policy connect.

Craig Timberg is a national technology reporter for The Post.
Jia Lynn Yang is a staff writer at The Washington Post who covers policy and business. Before joining the Post, she worked at Fortune magazine.
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