Someone (I think it was Kevin Kelly) once said that in the future all media will be free – we will only pay for functionality and personalisation. I’d like to disagree – but I can’t. I can’t think of a single reason why this statement won’t be true, especially if you take a liberal view of what constitutes payment, functionality and personalisation.

Newspapers are a good example. In 1960, 80% of Americans read a daily newspaper. Today the figure is closer to 50% – and it’s failing. Globally it’s the same story. Between 1995-2003, worldwide newspaper circulation fell by 5%. In 1892 London had 14 evening papers. Now it has just one. Also in the UK, a staggering 19% of all the newspapers delivered to retailers in the first quarter of 2006 came back as returns and three national newspaper titles had return (non sale) rates approaching 50%.If these trends continue the last newspaper will be probably be produced by Grace Murdoch sometime in the year 2040.

However, if newspapers were invented tomorrow they would be hailed as a miracle innovation. They are cheap, paper thin, easy to annotate and don’t use batteries. You can read them in the bath and when you’ve finished with them they can be thrown away and safely recycled. Unfortunately they also go out of date the minute they’re printed, cost a fortune to distribute and user-generated content is limited to the letters page and classified advertising.

Despite predictions of paperless offices and the leisure society we are all working harder than ever. As a result we are time starved and the family breakfast (along with home delivered newspapers) is being replaced by fly-by breakfasts listening to up-to-the-minute cable TV. Either that or it’s a milkshake in the car listening to the radio or a Starbucks and nytimes.com in the office.

In other words we are becoming digital nomads. We read, listen and watch what we want when we want. We no longer have the time (during the working week at least) to read newspapers and readers are shifting their eyes and ears to online sources of information delivered via everything from mobile phones to iPods. Online news is especially useful because it’s usually free and the content can be easily controlled and personalised. If you’re of the active (or exhibitionist) persuasion you can comment on the news through your own blog or send your own homemade entertainment to Youtube. We don’t even trust newspapers these days. Only 59% of Americans believe what they read in the newspapers compared to 80% in 1985.

What used to be a passive one-way conversation is thus turning into an active relationship. Content flows both ways and consumption has time shifted and place shifted.

According to research by comScore, Six Apart and Gawker Media, 50 million people visited blog sites in the US in the first quarter of last year — which is about 30% of all US Internet users or one-sixth of the entire US population. What’s more they weren’t all reading about Ms Hilton – the most popular sites were about politics (sorry Paris).

So are newspapers yesterdays news? Not quite.

Firstly newspapers are using innovation to improve their products. Some of the best ideas include compact formats for commuters (e.g. The Times and The Independent (UK) have been available in a choice of two sizes), there are kids newspapers (e.g. Play Bac Presse in France) and newspapers written entirely by readers (OhMyNews in South Korea is created by 33,000 ‘citizen reporters’ and is read by 2 million South Koreans). In the US the Wisconsin State Journal (the State’s second largest selling paper) asks its readers to go online everyday between 11am and 4pm to vote for the next day’s lead story. Consequences include the fact that sports stories have started to appear on page one.

In other words we are entering what Jonathan Schwartz (COO of Sun Microsystems) has called a new participation age where the traditional boundaries between the creator and the consumer are becoming eroded or disappearing altogether. One of the biggest questions arising from this type of open innovation is who owns openly created content? This question will drive new business models and radically transform the relationship between media owners their audiences.

A second significant innovation in newspapers is the growth of free. Most newspapers create revenue by charging people twice. You pay to buy the paper and you pay to place an ad (e.g. classified ad). The theory is that advertising supports subscriptions and newsstand sales but it won’t for much longer. In the future most weekday newspapers will be free. Early examples of this trend include Metro and 20 Minuten. Alternatively, you can buy a copy of Loot – which costs money – but it’s free to place a classified advertisement. Another future variation on this theme could be ad free quality newspapers available on a paid-for subscription basis.

Moving slightly outside newspapers other interesting developments include a magazine created by Nokia and MTV that is produced entirely by their customers who send in content via text and picture messages. Moving further in the digital future sites like Craig’s List are giving traditional media owners something to think about. Classified revenues from accommodation through to autos and jobs are moving online, as is time sensitive information like stock prices and weather. The New York Times recently announced that is was cutting back its stock market price tables because so many readers were accessing this online. Meanwhile, the Washington Post has announced that it has hired the creator of Chicagocrime.org to create ‘mashups’ for the online edition of the paper.

So who will be delivering tomorrow’s newspaper?

The answer, apart from you and me, will be a mixture of mainstream media companies and brand owners. Mainstream media owners will increasingly divert investment into digital media platforms while companies like Nike and Procter & Gamble will create their own content. For example, see www.joga.com and www.homemadesimple.com

And I don’t believe that newspapers will totally die any more than I think that people will stop reading paperback books or stop visiting movie theatres. Part of the reason for this is historical but it’s also psychological.

It takes time, often a generation, for one innovation to replace another. Newspapers are a ritual purchase and loyalties run deep. If you ask people in focus groups why they read newspapers some people can’t tell you. “Because I’ve always read it” is a typical answer. I once did some work with United News and Media on the UK and found quite a few people reading the Daily Express and the Daily Mail because their parents and grand parents did. That’s brand loyalty.

Sticking my neck out a bit I’d even suggest that there could a newspaper renaissance around the corner. Many local titles are thriving because they are personalised. The news is local and advertising tends to be localised and highly accountable – which is something that people are making a song and dance about in new media circles. For example, Fox Network is customising its TV ads so that local neighbourhoods can receive tailored TV commercials.

The other reason I think that newspapers could be making a comeback is the ubiquity of online media. Put simply, there is now so much digital content around that it’s becoming valueless. Physical media in contrast — especially content that is thoughtfully written, expertly edited and well designed — cuts through. If you think this is an exaggeration just think about how much e-mail you received today and then consider your response if someone had actually taken the time to send you a letter.