Price Fixing

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Matt Welch has an interesting article in Reason talking about the newspaper business. It's a great column that shows the newspaper business isn't in such bad shape. Of course, one reason the industry has so much dead baggage is because of governement regulation. Matt mentions Richard Nixon's attempt to save dying newspapers called the Newspaper Preservation Act. Here's an article in Slate calling for the anti-trust exemptiom to be to be removed. On a side note, it looks like the Tribune Company has had enough of the LA Times, I learned over beers recently that it has been shopped along with Newsday.

Here's an except of Matt's article:

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 of 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.

2 Comments

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This page contains a single entry by Bob published on April 24, 2005 6:12 PM.

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