A big question is how valuable the free board is.
I'm sure there are some metrics around it - but the only financial value I can see in the free board is as a means to entice people into the premium board and to a lesser extent as a platform for advertising.
If the metrics show that you don't really get many premium memberships out of the free board, or if the free board members join for a short period of time then cancel their subscriptions, then it makes sense to focus on the premium board without having to deal with the headaches of maintaining/moderating a free community that isn't contributing much to the bottom line.
Of course, if the metrics show that the primary driver of premium subscriptions is a thriving free board, then it makes sense to focus on building up a free board community to lure new subscribers in.
I don't know what the metrics are (or if the staff of the other site is even using metrics to determine their strategy), but it seems they are (at least initially) focusing on the premium board at the expense of building a free board experience.
Your post is only valid if the only revenue stream is subscriptions. Certainly advertising is also a revenue stream, and there may be other revenue streams as well.
If the revenue from subscriptions doesn't cover, or barely covers, the cost of providing premium content (e.g., the cost of staff writers and their expenses), then the other revenue streams become even more important to subsidize the premium content, cover the costs of running the site (both the local costs plus the costs incurred by Yahoo or CBS), and providing a profit.