Antitrust

Free at Last

New newspapers are springing up everywhere, despite the government's help.

|

Nancy Barrick sounded concerned. Her city's two daily newspapers–the family-owned, market-leading Seattle Times and the Hearst Corporation's lagging Seattle Post-Intelligencer–had announced in early February that they were both doubling newsstand prices to 50 cents. Given the "intense financial pressure" the papers were facing, the KOMO-AM news anchor asked me, "what can be done?"

I had to suppress a laugh. Daily news publishing is one of the most profitable businesses in the United States, with average operating margins last year of 20 percent among publicly traded newspaper companies (compared to about 5 percent for the dreaded Wal-Mart). Dominant dailies in even second-tier cities are swollen with enough ads, news pages, and editorial employees to make a European journalist collapse with envy. The Seattle Times, with a weekday circulation of 230,000, has a staff of 1,600; The Sun, England's largest-circulation daily at 3.5 million, has just over 500.

Seattle's jacked-up prices are a logical consequence of letting the federal government "protect" local newspaper markets. In 1970, in the middle of the industry's 50-year contraction, Richard Nixon signed the Newspaper Preservation Act, which allowed rivals in the same city to sidestep antitrust law by forming "joint operating agreements," or JOAs, in which a single entity could set prices and handle the business operations for ostensibly competing newsrooms.

The law was supposed to save struggling newspapers and give multiple editorial voices to cities not named New York. In practice, it has done little to stanch newspaper closures–15 of the original 28 JOAs have ended with just one paper left standing–and much to prevent new voices from entering markets in the first place. Provided with a license to fix prices, JOAs have effectively scared off new entrants (who wouldn't be able to enjoy their antitrust exemption) and hiked ad rates and circulation fees for their captive audiences.

Meanwhile, the corporate parent companies of some lagging JOA partners have learned that the shortest path to their ideal situation–sole ownership of a newspaper monopoly–is to underperform deliberately.

Such is the case in Seattle, where Hearst finds itself in the same position it faced in 1990s San Francisco: the owner of the foot-dragging half of an unhappy JOA. The San Francisco Chronicle, like the Times, was owned by a local family who had grown tired of splitting profits with a deep-pocketed circulation bleeder that showed no signs of trying very hard. After some high-profile and unprecedented meddling by the Justice Department's antitrust division, Hearst bought the Chronicle in 2000 for $660 million while handing over its stumbling Examiner, plus $66 million, to San Francisco's eccentric Fang family.

The Fangxaminer was a resounding artistic and financial failure, but Hearst's former flagship paper may once again be asserting its historic role after being sold last year for $20 million to Philip Anschutz. The reclusive Denver billionaire entrepreneur, who founded Qwest Communications and owns the country's largest movie chain, has shocked easily-fooled industry observers by demonstrating decisively, from coast to coast, that daily newspapers no longer need to be saved.

Anschutz converted the Examiner into the fastest-growing format of newspaper in America (and the world): a free tabloid. In this young century alone, scores of smaller freely distributed dailies have been launched across the country, from Santa Monica to Aspen to Nashville to Philadelphia. After decades of losing newspapers, some cities are suddenly gaining not just one but two new dailies. Among them are Chicago, Dallas, New York, and now Washington, D.C.

Most of the new tabloids, though by no means all, print Monday through Friday, run short and gossipy stories from wire services, fill about 40 pages, and are distributed along public transportation routes. They come in English and Spanish; are owned by local activists, Swedish Marxists, and American media magnates; and rarely employ more than 40 workers or spend more than $10 million a year. While the average broadsheet reader is a white man approaching his 50th birthday, two-thirds of free-tabloid readers are under 45, and fully half are female. Metro, the trailblazing 10-year-old Swedish chain that owns papers in 42 cities worldwide, including Boston, Philadelphia, and New York, demands and usually receives operating profits in each of its markets within just three years.

"I've been in this business for 30 years," the World Association of Newspapers' Jim Chisholm told The New York Times last fall. "And for the first time we're really seeing lots of exciting things happen."

Until now, this exciting model has produced little of journalistic note in the U.S., aside from a funny columnist here and there, a handful of aggressively hyper-local newsrooms, and some frank features about drinking and sex. But Anschutz expanded the tabloid horizons this January with his launch of the Washington Examiner.

Instead of 40 pages, the 260,000-circulation D.C. Examiner has been printing between 56 and 64. Staff writers fill a good percentage of the news hole, and the paper publishes on weekends. A lively opinion section called "The American Conversation" spills over several pages. In its early days, the paper looks like a slimmer version of the New York Daily News, with politics that lean in the conservative direction of the three-year-old New York Sun.

Most intriguing and promising of all is the fact that Anschutz has registered the Examiner trademark in 69 cities, including the JOA-afflicted markets of Albuquerque, Birmingham, Cincinnati, Denver, Detroit, Las Vegas, Salt Lake City, Tuscon–and Seattle. "This is the biggest development in the newspaper business since the launch of USA Today," Washington Examiner Editor John Wilpers told the Richmond Times-Dispatch in late January. "This could be the next big thing."

If you thought the journalism establishment would welcome this development with open arms, you'd be wrong. Four decades after the passing of media criticism godfather A.J. Liebling, who spent a lifetime lamenting each newspaper death and celebrating each newspaper birth, his would-be descendants have mostly heaped derision on the first newspaper boom of their lifetimes.

In 2002, when I was in discussions with ex–Los Angeles Mayor Richard Riordan about launching a free tabloid, local journalism professors and media columnists were eager to pour cold water on a business model none of them had heard of. Analyst John Morton, the ubiquitous go-to source for every article about the American newspaper industry, was contemptuous then and remains so now, even after three years of newspaper launches. "You don't want to go into a daily market against a paper that's already dominant," he told the San Francisco Chronicle in February. "I suspect [Anschutz] will lose money for some time."

Boardrooms tend to respond a little more quickly than newsrooms, though, and the big boys are eagerly jumping on the tabloid bandwagon. The Tribune Co. has launched papers in Chicago and New York, Knight-Ridder announced in January that it plans to expand heavily into free tabs, and The New York Times itself bid $16.5 million in January to buy 49 percent of the Boston Metro, less than a year after Times Publisher Arthur Sulzberger called the free papers "degrading."

The Times-Metro deal hit a snag in January, when the Justice Department announced it was investigating possible antitrust ramifications. The complaint behind the investigation, initiated by the paid tabloid Boston Herald, alleges that since the Times already owns the market-leading Boston Globe, it could use its leverage to squeeze the Herald out of business.

The Herald, like the newspaper chains that successfully lobbied Richard Nixon 35 years ago, understands that nothing can prop up a struggling newspaper, at the expense of new competitors, better than the federal government. But newspapers have been doing just fine these last five years without Uncle Sam's help. If the government wants to preserve newspapers, the best thing it can do is get the hell out of the way.