Here’s what little I know about David Sullivan — he’s a journalist in Philadelphia — I believe a copy editor — and primarily a person of print lineage — and new to blogging.

And in his first week of blogging about the newspaper business — and keep in mind, Sullivan is a newsroom guy, not a business-side guy — he’s pretty much nailed the very issues we’re all grappling with, such has how do we really measure audience, what is our real online audience size, what is our audience worth, how do we compete with free, and where our competitors come from and what they do.

And all of that in this one intelligent post.

Most importantly, he notes that a family-owned paper in Watertown, NY has dropped it’s pay wall on its web site (a significant act to contemplate for the cranky old journalists who think everybody should pay for everything).

The Watertown Daily Times operates in an isolated market — almost an hour north of Syracuse and hours away from anywhere else. Watertown, like most of outstate New York, has had hard times, but the Times as still managed to keep (in 2007 Year Book) a daily circulation near 29,000, down from 37,000 10 years ago — not as hard a decline as a lot of papers, but still in the 2o-to-25-percentish range.

The Daily Times, being a family owned newspaper and thus having neither stock analysts nor corporate overseers, decided to put the Web content behind a wall. Last week it threw up its hands and dropped the wall. Victory for the Web!

In a way. The Times subscription Web site had 1,000 paid subscribers. Which means 29,000 households took the print paper and 1,000 took the Web site, meaning — 7,000 of the circulation loss was people who simply had no use for paying for the Watertown Daily Times in any form.

David points us to a local news aggregation site that appears to be in direct competition with the Watertown paper, newzjunky.com. It’s success (more on that below) is object lesson for newspaper sites that fail to take the web seriously.

Newzjunky.com dominates the WatertownDailyTimes.com both in audience and advertising. It has way more local information than most local newspaper web sites, and all of it free, and none of it coming from the Daily Times (not a single link to a Daily Times article).

Newsjunky.com has managed to secure obits direct from funeral homes as well as other hyperlocal information. From their it acts as a super aggregator of links to other news sites with stories it believes will interest its audience (not just local news).

As I said, NewsJunky.com dominates the WatertownDailyTimes.com. Look at this chart from compete.com:

Never before have I seen a newspaper.com get trounced in its own market by any competitor — not even a TV station. NewsJunky.com has twice the traffic, and is growing faster, than the local daily’s news site.

Sullivan notes that even with NewsJunky.com giving it all away, there are still 27,000 households in Watertown willing to pay for home delivery. Fine. But according to compete.com — which I believe tends to under count audience, but is also measuring non-local audience (and one more caveat to that: numbers I’ve seen from Belden Associates suggests that 80 percent of a newspaper.com’s traffic is local) — more people visit NewsJunky.com on a monthly basis than subscribe to the newspaper.

If that doesn’t put a nail in the coffin of the “people should pay for our news” argument, I can’t imagine what will.

So if our only chance at survival is to give news away for free, how do we survive? Obviously, advertising is going to be a big part of it (though not necessarily advertising as packaged goods media has traditionally sold). Any such model requires much larger audiences than we’re currently getting. And, so, again, I refer you to this piece by Kevin Kelly about unlocking true economic value online. And here again is my own post inspired by Kelly.

UPDATE: Additional thoughts immediately after posting.

First, I bet NewzJunky has a fraction of the staff — lower overhead – than the Daily Times. It may, in fact, be a one-person operation.

Second, to those who object the idea that sites like this can only exist thanks to MSM (look at all the links to other news sources), well, then, yeah, and your point? Not all local information requires reporters (look at Everyblock) to gather. Even if the MSM sources all go out of business, sites like NewzJunky still have a sustainable business model. And when MSM sites go out of business (if they do), all the more audience and advertising for sites like NewzJunky. More revenue means more staff for original reporting. Even if such a site isn’t staff as well as the daily newspaper it put out of business, the daily newspaper is still out of business. This is how disruption works.

The point is — ignore the concept of sites like newzjunky at your own peril. Feel free to marginalize the threat in your own mind, and say, “it can’t happen here.” Tell that to the publisher in Watertown.

UPDATE: In an e-mail, Jim Romenesko passes this along: “NewzJunky was founded by one of my early tipsters (starting 1999), a guy named Stephen Smith. He *is* in fact a news junkie who, I believe, runs the site on his own. I don’t hear from him as often these days probably because of his increased workload and success.”