I would maybe consider paying for specialist content on a "magazine format" basis (content-wise, not some lame-ass graphics designer's attempt to "put a magazine on the web") if I was really interested in the typical subject matter, but only in very limited fields of interest.
I have no interest in paying for general news. And I block ads wherever possible, and would never knowingly click through an ad. So I am not your revenue stream, boys and girls. I have real reservations about the true feasibility of transferring commercial paper media to electronic format.

I agree that all content must survive on it's merits. My underlying point is that to get good content will always cost money. Either from subscriptions or, indeed, from advertising, it is not 'free'. Now, I'm not talking about News Corp here but it is especially true for local news. This has, by definition, a relatively small consumer base, so costs "per customer" are much higher. Having worked in the local media I can say that getting advertisers to spend money on advertising at all is very difficult these days. Especically so when the demographic is so small. That does not mean that these publications are doing anything inherently wrong or are failing their customers in any way. Indeed most still provide a welcome and often invaluable, service to their readers. The problem is that the advertising revenue (which is still required, as the cover price hardly pays the costs of production) has fallen away in recent years. This makes it very difficult to pay the bills, even when you are still "selling" physical newspapers.

Right now, there are too many news sites, so the traffic is spread out too thin. You don't need thousands of sites with the same information. In the future you will have fewer news sites, but each site will have much more traffic and then will get enough income from ads.

My guess is that if Murdoch doesn't change his mind, his empire will be in the losers group.

I'll answer your opening question with a question: why does every newspaper think they should have paying readers? There are hundreds of newspapers, they are a comodity.

If you haven't noticed, most online papers (including the inq) generate revenue by advertizements. So, if some can survive without a paywall, and others fail, then don't blame the readers. Blame the paper for not being distinctive enough to survive.

Here in the states, people used to get FREE tv and FREE radio via antenna, and they would sit through commercials. Now, we pay cable/satellite companies (i.e. xm, sirius), and still sit through commercials with cable tv unless we cough up extra for a DVR. 100 channels and nothing's on, but at least it costs more!

Personally, I watch TV on hulu ('free' other than the price of internet, and the commercials are a fair trade-off). I get my news from 'free' sites with advertisements.

The Economist.

And will continue to do so.
For some time there has been no better source of considered analysis.

For the forseeable future I expect them to survive in print because long articles are easier to read in print.

Us ripped-off UK types already pay for the BBC's news via our licence fees. Murdoch would like us to pay for it again on-line and preferrably through him. Seems to be a no win situation for the newspapers. I know of many people who buy a newspaper after reading a article on-line, who would not otherwise buy said paper.

Why do people think they deserve to get everything for nothing these days? Last time I looked, life wasn't exactly free. The BBC website certainly isn't - it's 139.50 a year. Nor do I think my mortgage company or utility providers would be too pleased to hear I wasn't going to pay any more because it's a brave new world and paying for things is just so 'yesterday'. It does actually cost money to provide decent content - unless you only want to get it from a bunch of semi literate teenage bloggers. Even they will find out soon enough that life is not a free ride.

You may put up a paywall if and only if you are the sole supplier of said news. If you have any kind of competition then the paywall is like asking your readers to migrate to the competitor.

More along the lines of EPIC FAIL, but lead balloon works too.

It's not so much the monetary value that is the problem, as it's pennies, it's just the inconvenience of trying to find some news and being presented with a box you have to type your credit card details into.
You know what will happen...
Google for some local news
Click link "Register here..." click back, go to next link, cool, free BBC Local news page.

The words 'Lead' and 'Balloon' go together well i think