Newspapers existed before advertising was invented, and they did just fine. The problem they're facing right now has everything to do with the tragedy of the commons and nothing to do with technology or the Internet.
In those days the business model was to cover the front page with small text ads! (as pointed out by currybet here: http://www.currybet.net/cbet_blog/2009/05/happy-birthday-to-...)
* If any one paper gives their news away for free, it makes it effectively impossible for other newspapers to charge money.
* If all newspapers give away their news for free in exchange for advertisements, they all lose money.
I guess the prisoner's dilemma would technically be a better term, but it's basically the same thing in this case, at least if you think of advertisers as an over harvested resource.
Perhaps you could explain a bit as to how this is the case?