IMO, this sort of thing is ultimately inevitable, and I don't think that the Internet is the ultimate cause (it's an accelerant, at best) -- I think that it's been getting harder for newspapers to compete with the depth of coverage provided "for free"* by television news organizations.
* When's the last time you paid a bill to CNBC or CNN? I don't pay an explicit bill for CBC Newsworld -- it's included in my cable package.
The cable model is interesting. Perhaps such sites could work out deals with ISPs - you'd pay a few more bucks each month and in return get free account on WSJ, NYT etc.
AFAIK that is an excellent way to get into trouble with the law, and if it isn't then it should be.
You are supposed to come up with your price independently and without 'backtalk' in the boardroom.
If two gas stations get caught doing this they'll end up in serious trouble, I don't see why it should be any different when you're running newspapers.
Check out the article - it's the same guy who created The Wire, he's not a bad writer :)
It's clever though, that's for sure. But like most typical layman attempts at 'hacking' the court system it would probably fail. Judges are not nearly as stupid as people seem to take for granted.
As for the Google Times option, I think it'll bring about more problems than solutions. You don't build a quality newspaper by "hiring a bunch of reporters". There's a lot of accumulated knowledge in places like the NYT or WSJ. What we see from the web - from leading "reporters" investing in the field they're supposedly covering to opinion pieces by Jenny McCarthy and Jim Carrey - is far from encouraging.