CNet has an article about the future of newspapers. It says that some papers, like the New York Times, have more people reading the paper online than on paper. But the papers are mad because they are giving away the content for free. They want to start charging for online subscriptions (note that a few papers, like the Wall Street Journal, have been doing this for years).
The papers have it wrong in several ways. In the first place, it's ads that cover most of the cost of newspapers, not subscriptions. An online edition has essentially zero distribution costs, compared to the massive expense required to print news on paper and distribute those paper copies. With the boom in online advertising, it seems like better ad management might actually make online newspapers profitable. But you'd have to let go of the idea that "real" news is better on paper.
The other problem most papers have is that their capacity to generate original news is extremely limited. Many mid-size local papers simply fill their pages with AP reprints, and sprinkle in a few local articles along the way. I'd like to see a paper embrace the blogging model, where you simply turn reporters loose with a well-designed blog framework. If you did so, you could fire most of the editors, who have a limited function in an online edition. The original purpose of editors was to decide what "fit," literally, in the paper. You don't need editors in the same way because you don't have limits in online publishing. Editors could still fill a vital function by keeping reporters focused and by identifying important stories, but my guess is most mid-size city papers could get by with just a couple of editors--and could cut costs substantially.
But I think some papers would rather go out of business first. Blogging is a tool, not a medium, and it's a tool that would work well for newspapers if they can let go of ink and dead trees.