Is 'sparkling water' news the future for newspapers?

Last week brought us a rare opportunity to share the stage at an international PR conference with the managing and digital editor of Italian newspaper, La Stampa.
 
The discussion topic was 'networks', but conversation soon turned to the future of the newspaper.
 
In a week that has seen two predominantly online news sites win Pulitzer prizes, a leading UK publisher switch many of its daily titles to weeklies, and as more and more people first see a breaking news story on social networking sites, newspapers are striving to keep pace, manage the shift from print to online and embrace new ways of engaging with readers.
 
Crucially, they are also striving to find a sustainable means of funding that shift that will allow them to maintain Pulitzer quality reporting.
 
La Stampa's Marco Bardazzi likened newspapers' current situation to the idea that tap water is ok, but when people want something better they’re happy to pay for sparkling water.
 
It's easy to circulate 'tap water' news free of charge, but how can newspapers make that financially sustainable in the longer term?
 
Retaining some content as 'sparkling water' news, which readers are prepared to pay for (aka paywalls) is one option, and one that many newspapers are implementing.
 
The challenge is making that sustainable when there is so much free content available, and when more and more people are happy to read a story written from the perspective of a blogger or a tweeter, not necessarily a journalist.
 
So what's the future for the newspaper?
 
Will we see paywalls on the rise, or will more print media seek to emulate the success of the online-only regional BusinessDesk.com sites, which give readers free access to content by developing the credibility that attracts regular advertisers?
 
What do you think? We'd love to hear your views.