In 2006, several consumer groups produced a Compendium of Public Interest Research in response to an FCC request for comment on the importance of media ownership rules. Part of the research found:
The traditional local media -- television and newspapers -- are the dominant sources of local news and information. The small number of people who go online for local news and information are likely to go to the Web sites of traditional media...
The Internet is at best a supplement for local news and information that is relied upon by a very small percentage of the population...Among the 11% of respondents who say that the Internet is their first or second most frequent source of news, the websites of local TV and daily newspapers account for about half (51%) of the primary sites they visit most frequently. Sites not affiliated with a traditional media outlet...account for only 17% of the sites visited most and second most. [My bold]
This is bad news for urban dailies like the Detroit Free Press and Detroit News, which announced they would scale back home delivery and offer a digital edition for a fee. More and more local newspapers will likely morph into online "papers," taking only some of the offline audience with them. If these local papers disappear entirely (that is, if their digital versions fail), the evidence suggests that "untraditional" sources like blogs just won't be able to pick up the displaced audience.
Even if Yglesias is right and nonprofits, "amateur experts", and uber-enterprising (he's not kidding -- see NYU Professor Eric Klinenberg's portrait of the contemporary newsroom) journalists pick up the slack, we'll see a decline in attention being paid to local stories (and a decline in the quality of local stories that do make the news).
This is a consequence of James Surowiecki's observation that:
[I]t would not be shocking if, sometime soon, there were big American cities that had no local newspaper; more important, we're almost sure to see a sharp decline in the volume and variety of content that newspapers collectively produce.
Online news is no panacea.