There has been a lot of talk over recent years about how online classifieds like Craigslist have been the cause of the decline in the overall revenue and profit of the newspaper industry (some papers still thrive). I do not believe that this is the whole story though. Newspapers did not start with a business model based on classifieds, they built that market opportunistically over time. This new market potentially allowed them to last as long as they did in such a powerful market position however the Internet has changed that.
The actual product that the newspapers sell is news, that is how they created their market share, and their ability to still provide that service in a competitive way has allowed them to continue to play in the market. The news is a valuable product, we all like to gossip and know what is going on and this is the base service that newspapers started with. When communications were poor, and speed of information was expensive, papers could aggregate the cost of acquiring that news over a larger group of people and make a profit on top. As technology has improved with phones, radio, TV and then the Internet the gaps between people have continually shrunk and the base level of information that people can get a hold of has increased.
While other markets dwindled for them, the papers found other aggregation markets, like local classifieds to fill the revenue gaps but this was only a stop gap. There were two directions that papers took to address the changes in their core market. Some of them started to find areas where they could provide information beyond the news, in depth analysis of issues beyond the baisc repeating of what was happening. The others started reducing reporting costs and did more repeating of news gathered by others. The latter are the ones that are dying faster.
Blogs are obviously a rival channel to newspapers with the key advantage of much lower costs. If they can provide as good a service then it is hard for newspapers as a whole to compete. There will remain space for some newspapers to survive as there is a market for that format still, but the market will continue to consolidate to a few larger players. The smarter news organisations are realising that it is the information that matters and that they need to offer that information to their audience through multiple channels and blogs are one of those. The argument about whether bloggers are journalists or not is really a specious one, blogs are a delivery mechanism and it is the information that matters. The factors that the organisation can add are authority, trustworthiness and access. These factors can be gained whether the organisation is a large old media group or a small collection of independant bloggers like GNC.
The issue that blogs and other Internet news and analysis methods need to cover is how to generate primary revenue. Advertising revenue is a valid expectation and a big way to fund information sources, however it is fickle and if too prominent will devalue the trust in the audience. While newspapers did this with subscriptions it is very hard to envisage the genie making it back into that bottle with blogs. As long as there is someone willing to post information for free it is very hard for anyone to charge. Some niche areas will be able to build a revenue base from secondary sources, however the mainstream revenue model is yet to emerge.