Columnist Mathew Ingram writes that although limited paywalls seem to work at papers like the New York Times, "Those positives can be more than outweighted by the negatives of a paywall, particularly for smaller newspapers -- the main one being that a wall creates an opportunity for free competitors, of which there are a growing numbers."
I wanted to give you the full quote because that's the crux of the matter -- free competitors. News happenings will always be vulnerable to free competitors since they can rewrite (as I do), link (as I do), aggragate (as I do) news. What they cannot offer free is whatever original content is being offered -- reviews, comments, editorials, blogs, etc. They can offer their own original content. For example onmilwaukee.com has several excellent columnists/bloggers. But it doesn't offer an article by Duane Dudek or Bob McGinn or Bob Wolfley. Original content behind paywalls works.