OK, I will grant that circulation currently does pay some of the cost of producing a newspaper. To be a little ruthless though (perhaps killing the hog or at least lopping off its legs): reams of newsprint and a huge printing press are definitely not going to be needed in the future. Digital copying and distribution have a very very low cost. Value associated with content -- Consumers Reports is an excellent example -- remains even when the distribution medium is 100 percent digital. Consumers Reports can still command a pretty reasonable online subscription fee.
However, I continue to assert that newspapers are bleeding money primarily because advertisers are putting their money elsewhere. Craigslist replaces classifieds; Google replaces much of the targeted advertising. Lamenting that journalism will die without being propped up by an unsustainable business model is counterproductive. Anyone who cares about journalism (and you'd think the newspapers themselves would be leading the charge) should be experimenting and forging ahead with innovative new business models. Micropayments, subscriptions, and even banner advertising have been experimented with in recent years. The success with them has been underwhelming to mixed.
Clickthrough rates are much more measurable than CPM (cost per thousand -- the old eyeballs estimation); today advertisers on the Web know exactly what they're getting for their money. Imagine if newspapers had been the pioneers in search and clickstream analysis like Google, Overture, and others ended up being? Maybe we would not be having this debate.