I'm not sure I can fault them much for this. I imagine most that care for national news care enough to get it from some more well known agency, like WaPo, NYT, etc. You can either try to compete with the likes of them, or focus on what they can't easily provide, which is more local news.

This is just what the Internet does, consolidate services into the few players that do it best. It would be interesting if their were bundled subscriptions for local papers. If there was an integrated offering such that you could buy NYT or WaPo with LA Times, or SF Chronicle, or whatever your local paper was tacked on for a moderate fee, I imagine a lot of people would opt for that. Enough that it might be beneficial for both agencies.

NYT and WaPo definitely have the online resources and talent to do something like that, and if they did it well, they could offer a platform for newspapers to use for publishing that allowed enough branding that they could probably make quite a bit of money while making it trivial to combine articles between sources very smoothly.