The factoid I remember, although I can't cite a source offhand, is that the cost of printing and delivering a daily newspaper is just about equal to the cost that the consumer pays, and the rest of the newspaper's income is coming from advertising.
If ebook readers were more widely used then it might be practical to run a newspaper by selling an online-only edition (perhaps making everything free on the Web after a 48-hour delay), but I'm not sure we're there yet. Also, I suspect that the first publisher to offer news in this way will be some upstart who is not encumbered by the sunk costs and contractual obligations surrounding a paper-and-ink newspaper.
My sister-in-law is the business manager for a magazine with 250K subscribers. Their printing/distro costs exceed the average subscription price, so they'd be overjoyed if they could strike such a deal with Amazon and get their subscribers to convert over (unlikely).
The largest dent in newspaper revenue is the gradual loss of revenue from classified ads, and the falling revenues from print-based advertising, caused by pricing competition from online sites.
Daily newsstand price is $1.00.
$1.00 x 541,000 x 365 = $197,465,000
What percent of that number does it take to bring all those ideas (including stories, columns, ads and obits) to market?
Let's say 85%. That's $167,845,250.
$197,465,000 - $167,845,250 = $29,619,750
Now make everything digital. Sell the trucks and presses, layoff all production and delivery personnel. Hire only digital content creators and use the Amazon Kindle.
Annual subscription per reader: $54.75
At 70/30, the Amazon Kindle subscription would have to be $182.50 not the $120.00 cited in the article.
I'm not including revenue from advertising (which may not translate well on the Kindle) but if you owned the Chicago Tribune or The Dallas Morning News would you agree to the terms?