>They are now all chasing a fixed advertising pie, but the barrier to publishing has been greatly lowered
Possibly shrinking advertising pie.
Before papers made lots of money selling classified ads locally. Ads for cars, houses, and random junk may have sold for $20 each, but they had hundreds of them. And each market was different leading people to pay double or triple market boundaries (say places with more than one large paper).
Then comes Craigslist and a few other services (even Ebay is a good example for junk not getting posted to the paper). These places allowed lots of people that used to pay, to post for free. Others profit after the sale is completed, leading to little risk to the poster.
Let's say that between these hundreds of papers the combined amount of money coming in was $10,000,000 (this is completely made up, I'm sure I could get realistic numbers if I put a lot of time into it). Each one was making enough money to stay alive. Now, with the new online selling services charging very little, the combined online services made only $1,000,000 a week. But because of their low cost distribution model they still profited hansom. There was a theoretical contraction of $9 million a week in advertising revenues among all the papers, which means a huge number of them had to consolidate or go under. With people not reading the paper for those ads (which I still remember being highly popular in the 80s and 90s) distributions fell even further.
Simply put, nothing could save the papers as they were. It had nothing to do with the contents inside of them, but how they were funded.