Most companies that are looking to advance themselves will do a SWOT analysis comparing themselves to their competition. The problem is that the ‘local' media did a great job of ignoring the Internet as a threat for a long time. It wasn't until the Newspapers handed Classified revenue to Craig's List and eBay that they figured out that this Interweb thing was here to stay. But they have yet to flex their regional muscles and take advantage of where they are at.
SWOT = (S)trengths, (W)eaknesses, (O)pportunities, (T)hreats
There are three key factors that a newspaper has over its Internet competition: local coverage, local distribution and local resources. Do you see something in common there? Local, local, local!!! These are 3 factors that should be turned into competitive advantages overnight! I spent over a decade in the newspaper industry screaming from the top of my lungs that we needed to exploit our strengths to take advantage of the opportunities of being local. It was on deaf ears.
The key issue is that the newspaper industry is a incestuous industry. Its leaders are educated within the industry and it seldom leaves the industry for talent. The Internet industry, on the other hand, has accumulated talent from many industries – including Newspapers (moi).
I'm not sure that the key is that newspapers need to think small, I truly believe that they need only take advantage of the differences they have as a regional business. As well, I think it's high time that they begin looking outside their four walls to pull in talent. The folks that have been there for a lifetime aren't doing them very good.