Newspapers really fucked themselves by sticking to unnamed old-school practices: $15-$50 for 2-3 lines in print, no online-only option for more copy and lower price. They could have simply out-Craigslisted Craigslist with online but chose not to. In the process the abandoned the market completely.
All adverts are free, with the following exceptions:
Help-wanted employment ads.
Housing, in New York City.
I believe a few other classifications, including "for sale by dealer" ads in some markets may also be paid.
The point is that most of your advertising activity does little but make a market: providing liquidity and interest in the classifieds market itself.
Within a select number of classifications, there are sufficient numbers of large players, readily identified and monetized, that you can support the rest of the operation.
Newspapers were basing forward models on past, not recognizing what had changed, or that it was simply necessary to support the classifieds marketplace itself on net, not to equitably charge every last comer.
What happened was that everyone fled.
Curiously, Craigslist is starting to get upended in specific classifications where other services can beat their offerings, not on price but on quality. Personals, some jobs classifications, "by dealer categories" (furniture's been worthless for years and years, etc. The problem for CL has always been that it relied on low-tech and pretty coarsely-operating crap filters, and increasingly those classifications are overrun.
The marginal cost of provision fell. No, classifieds weren't going to remain the cash cow they once were, but some market remained.
