Free at last: new newspapers are springing up everywhere, despite the government's help.

• Author: Welch, Matt
• Position: Industry Overview - Column

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...