The folly of joint operating agreements.

Commentary about business and finance.
May 8 2003 5:59 PM

JOA DOA?

It's time to kill the antitrust exemption that allows rival newspapers to act like partners.

The divorce battle between the Seattle Times, owned by the Seattle Times Co.,and Seattle Post-Intelligencer, owned by Hearst Corp., turned messy this week. The Times is seeking to dissolve the 20-year-old joint operating agreement under which the two papers run separate newsrooms but share resources and costs for advertising, printing, and distribution. Hearst wants to save the marriage. Each party is accusing the other of trying to put it out of business.

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The squabble highlights the bizarre world of JOAs, in which newspapers—historically some of the most cutthroat businesses—agree to make love, not war. Practiced as long ago as the 1930s, JOAs were enshrined into law by the Newspaper Preservation Act of 1970, which provides a special antitrust exemption for geographically co-located newspapers that combine business operations. JOAs are a form of big government industrial policy meant to bolster the fortunes of also-ran newspapers in two-newspaper towns.

Today, many of the 12 existing JOAs involve Fortune 500 companies such as Gannett and Knight Ridder. In essence, these giant corporations are permitted to fix advertising and subscription rates in a way that two competing plumbers, or restaurants, or magazines never could. The theory is that it's so important to have competing newspapers that it's worth junking the free market to do it.

The thinking behind JOAs reflects antedeluvian notions of what constitutes media. And given the long-term trends of declining readership for daily newspapers—and the continuing growth of alternative weeklies, business newspapers, the Internet, and local cable networks—JOAs are increasingly hard to justify.

On its face, the Newspaper Preservation Act of 1970—like most forms of industrial policy—has failed. According to figures from the Newspaper Association of America, the number of daily papers has declined from 1,748 in 1970 to 1,468 in 2001. The number of afternoon papers has fallen 35 percent since 1990. (Many JOAs involved a more successful morning paper and a withering afternoon newspaper.) In 2002, when the Pew Research Center asked Americans born between 1962 and 1971 if they had read a paper the day before, only 30 percent said yes. In 1991, 48 percent had said yes.

Alternative weeklies, such as the Village Voice or Washington City Paper, have also taken a bite out of dailies' hides. According to the Association of Alternative Newsweeklies, its members' revenues have soared from $174 million in 1992 to $511 million in 2000, while audited circulation rose from 3 million in 1990 to 7.8 million in 2001. Add in business weeklies, Internet news sites, and 24-hour local news channels, and there's more local journalism being practiced than ever before.

JOAs, which calicify an old status quo, certainly don't address the cultural, economic, and technological trends that are hurting daily newspapers. Even worse, they don't address the fundamental business problem facing a second newspaper in a two-newspaper town. Readers don't necessarily prefer two newspapers to one. Bryan Gruley, who wrote an excellent book about the JOA between the Detroit Free Press and the Detroit News in the late 1980s, notes that before the JOA went into effect, the Free Press and the Detroit News claimed weekday circulations of 690,000 and 630,000, respectively. Today, the two papers have a combined circulation of only 609,000. "It would have been better if one of them would have just survived on its own and dealt with the many problems that newspapers have," says Gruley, now a senior editor with the Wall Street Journal.

And what would happen if free enterprise were allowed to be free in two-newspaper towns? In places where it made economic sense, the two papers would continue.JOAs in San Francisco and Honolulu ended with both papers remaining in business. But in many cases, one of the papers would disappear. The journalists and editors would find other jobs, some at growing suburban newspapers, or at alternative weeklies, or at business publications, or at local cable TV channels.Some would leave the industry altogether. And in several years, you would have a less concentrated, but perhaps richer, media mix. New York may have lost the Herald-Tribune in 1966 and New York Newsday in 1995. But look at what it's gained: New York, the English-language Forward, the New York Observer, the entire Bloomberg news complex, the New York Sun, New York 1, a growing El Diario, a gazillion ethnic newspapers, and strong papers like Gannett's Journal-News in Westchester.

Price-fixing isn't good for the people who buy products, and it isn't good for the people who advertise in newspapers.  If the newspapers in JOAs had to compete financially—instead of just editorially—presumably advertising rates would be lower, or subscriptions would be cheaper. Or editors and publishers would try to make the newspapers so good that one would attract a larger audience and people would pay a premium for the product, and to advertise in it. And then everybody would benefit.

It's easy to get that toasty First Amendment feeling when reading the Newspaper Preservation Act. But that's not what JOAs are about. Instead, JOAs seem to function like another government obstacle to free enterprise: protective tariffs. Like protective tariffs, JOAs insulate politically connected and favored industries from the competition that would cause them to change business models or innovate, and permit them to collect diminishing profits while doing nothing to ensure long-term viability.

Daniel Gross is a longtime Slate contributor. His most recent book is Better, Stronger, Faster . Follow him on Twitter.