News isn't going extinct, just the newspaper as the best medium to present it.  

News inherently needs to be fast, with an ultimate goal of being instant. Twitter, Youtube and IM networks are dramatically better at breaking news than newspapers, this is well known.

So what are the old rags to do?

Ritual

Reading the newspaper is the western world's tea ceremony. Feet up, cup of coffee, and a solid 45 minutes of selfish escapism with the guise of intellectualism. Perfect...except for any day that isn't Sunday. No one has time during the week. Learn this, focus on this. Turn your daily soap opera into a quality weekly drama. 

Focus on selling and profiting from a product, not blindly producing an expensive wrapper for ads.

I have a lot of experience in the publishing world so I know first hand how much fat there is to be cut. Print only as many copies as you need. Cut your worst retailers. Don't print massive amounts knowing they're going to be thrown out to juice your circulation numbers. Advertisers know your numbers will never match the web and this is fine. Instead, focus on cultivating your quality readers and forgetting the masses. Why? Because if you start to be careful with every production penny, you should make a profit on your subscription base alone. Seriously.

Focus on selling and profiting from a product, not blindly producing an expensive wrapper for ads.

Focus: Consolidate to exclusive Sunday editions. Cut volume and raise the price to break even with subscriptions alone.

Quality

Your new exclusively-Sunday market appreciates quality. If they wanted to read junk they'd read online. Much like vinyl records rallying against CDs and mp3s, newspapers have to become synonymous with premium quality. The best listening experience money can buy. Focus on investigative journalism again. Hire the best talent you can, including your designers. Listen to your designers! Cut the pages and pages of color photos and cheesy headlines.  You now have a hungry audience every week, feed them the very best and leave them wanting for more.

Focus: Become THE quality source for journalism. Pay for the best writers. Pay for premium paper and printing. Pay for premium designers and typefaces. Ditch the fatal attempt to look like websites. Embrace the best of the old-school nature.

Much like vinyl records rallying against CDs and mp3s, newspapers have to become 

synonymous with premium quality.

Specialize

If you have a pulse in 2009, you know there is money to be made on the web.  Eventually online advertising rates will mature and the reign of free services will end. The netreprenuers will have their day, no reason you can't have your finger in the pie. However, do not cross-breed your businesses. The fraternal twins of news sites and newspapers are deadly toxic when combined.  Freelancers like the freedom of home, "serious journalists" don't need exuberant tweets from the web kiddies distracting them.

You need to operate your web organization 100% separate from your physical product. Two staffs, two budgets, two everything. Not that you can't have the same writers work for both, but keep them as freelancers with two different paychecks. Redundant systems to help insulate you from volatility in either business. 

The fraternal twins of news sites and newspapers are deadly toxic when combined

 Learn from your now-profitable physical operation and cut every possible expense that doesn't directly impact quality. No office, no expense accounts. No expensive server farms. No expensive software. Have monthly leases on every business asset (hosting, writers, photographers, cell phones, etc). The only long-term contract you should have is your domain name and that is only to save money. Oh, and you're always for sale. 

Stay intelligently lean and you'll find a profit. 

Focus: Split your newsrooms. Split your budgets. Split everything. 

Goodluck and I'll see you on Sunday.