Here is what a few papers are trying to keep advertising revenue :

• Some newspapers are selling ads near their search results, like Google and Yahoo. Instead of competeing with these serach engines, some papers are offering search engines that focus on local results, giving readers more than just links to newspaper articles.
• McClathcy is experimenting with offering flat-rate fees starting at $50 a month for advertisers who want their ads to pop up first alongside search results. In contrast, advertisers must bid for spots on sites like Yahoo or Google and agree to pay a certain amount for each user who clicks on their ad.
• Newspapers are also experimenting with free classified ads for individuals, which has long been a major source of revenue for newspapers. This idea is to attract a bigger audience to the classifieds, then tr to sell other services such as upgraded placement of ads.
  

What one newspaper says:
"This is not about making money. This is about growing readership," says Scott Whitley, advertising director of Copley Press Inc.'s San Diego Union-Tribune, which offers three lines of classifieds free both in the newspaper and on its Web site. He says the paper hopes that as young people find their ads are successful, they will start reading newspapers more regularly.

A sucess story :
The Bakersfield Californian has recently launched a free classified web site, along with many other innovative changes, and has seen unexpected benefits. For example, local musicians began using the free site to find band members and equipment, etc., attracting a younger audience that had not before shown interest in advertising in the newspaper. Although the site is not yet making money, it hopes to integrate the new young audience into its readership and start running paid ads from businesses.

Source : Wall Street Journal Online