(FORTUNE Magazine) – DENVER BILLIONAIRE PHILIP ANschutz is known to be one of the nation's cagiest businessmen. So why would he jump into a business where the end product is given away? Because Anschutz--along with a bunch of bigtime media companies--believes the free-newspaper business is ready for prime time. That, or in the case of the big newspaper companies, cannibalize yourself, or your competition will.

Of course free newspapers (which are free only to readers; advertisers are what supports the business) have been around forever. Over the past decade, though, changing demographics--i.e., the loss of readership of traditional papers among young people--has spurred the growth of these free sheets. Anschutz, who rocked the newspaper biz last year when he bought the venerable but ailing San Francisco Examiner, just launched the free, six-day-a-week Washington Examiner in the nation's capital. The Washington Examiner (which will feature unsolicited home delivery to certain neighborhoods) will compete against traditional papers, as well as the free Washington City Paper and Express, a free paper the Washington Post Co. launched in 2003. Meanwhile, the Chicago Tribune Co. publishes the free RedEye in the Second City and is part owner of AM New York, distributed, of course, in Gotham.

The driver of the trend is in part a Swedish company called Metro International, which is running a burgeoning empire of free papers in 63 cities in 17 countries, including new offerings in Boston, New York City, and Philadelphia. Total readership of Metro papers is reportedly 14.5 million, making it one of the three largest newspaper companies in the world. (The biggest U.S. competitor is USA Today, with 5.4 million readers around the world.) "The Metro model is what's inspiring everybody," says Tom Allon, the CEO of Manhattan Media, which publishes Our Town and West Side Spirit, two free weeklies in New York City. Metro's editorial costs are minimal, and the company shuns unions, outsources printing, and targets young people who prefer to get their news from the Internet or TV. "The paid-circulation model has been dying for the past ten years," says Allon.

Simply hawking free papers is hardly a straight shot for the big established players, though. First, they risk eating into their own business. Second, the business is still a bit rough around the edges, as the New York Times Co. just found out. Earlier this year the Times (which also owns the Boston Globe) bought 49% of Metro Boston for $16.5 million. Days later the Boston Herald published a story alleging racist comments by two Metro executives. One man resigned, and the other was reassigned within the company. The Herald has also filed a complaint with the Justice Department seeking to block the deal by the Times. Guess there's no such thing as a free lunch--except, in this case, for readers. -- Andy Serwer