I suspect we're seeing a classic disruptive innovation at work here. A new technology (blogging) arrives that provides
lower quality than existing markets demand, but does so at dramatically reduced cost. Existing solutions have overshot the quality levels demanded by the marketplace - the average American can't tell the difference between FOX News and the New York Times. The existing market remains, but is dwarfed in size by the new market for low-quality, shoot-from-the-hit journalism. Meanwhile, incumbents find they can't meet the cost structures necessary to compete in the new market.
I suspect that the New York Times will go the way of the Betamax and the Lisp Machine. It becomes a quaint relic of a technically superior age, but nobody actually buys it anymore.
The good news is that once a disruptive innovation has taken over the market, it usually improves to eventually match the original incumbent. So after a few years of drek, we'll see the worst, most content-free blogs die off and be replaced by people who put more thought into it. I suspect this is what'll happen to the best reporters - after a few lean years, they'll start up blogs, people will realize that those blogs give much better information than the competition, and they'll end up making much more than they ever did while working for a newspaper. After all, they don't have to share all the ad revenue they generate with the print staff anymore.
Only the best reporters, though. It'll suck to be a mediocre reporter, just as it sucks to be a mediocre real estate agent now and it sucked to be a mediocre programmer in 2002. The field will probably shrink significantly, but that's the whole point of capitalism - freeing up labor to work in fields where they'll be more productive.