Good luck replicating the relationships that the local newspapers have with the people in their communities who are able and willing to report on them. It's true that we don't have to use newspapers to distribute local reporting, but the only companies in most communities that have connections to the journalists there happen to be called newspapers and happen to put out a print product.
Any new service that wants to distribute local journalism will have a hard time re-doing all the relationship building that the newspapers have.
When I started Windy Citizen two years ago, I thought we'd be able to give people a better way to find news in their city. That's gone quite well, but I've learned firsthand that the real value that the "newspapers" have is that they're the ones that have all the journalists. There's a non-profit news startup here in Chicago called the Chicago News Coop that also had a similar goal when they started up. But instead of making a cool new product and taking lessons from hacker culture, they went out and stole away the crown jewel reporters from the Tribune and the local alt. weekly. They may be broke as a joke, but good journalists definitely would like to work there, which means in the end, they'll have a good product.
You know how people on HN talk about how hackers only want to work for and with other hackers?
Most journalists only want to work for and with other journalists. I thought that was one of the big takeaways from the NewsTilt post-mortem.