I don't know how the numbers have worked out for them, but I think it the way they're trying to do it makes sense. You still get 10 or so free articles per week/month (don't remember which) if you don't subscribe to home delivery. Or, you can subscribe to home delivery and get all the internet content free. I subscribe to the Sunday paper only (the coupons in the paper offset the cost of subscription), and get access to all the online content as part of the subscription, so I can read anything that interests me the rest of the week.
The main problem I see with this model is thatthe paper has tohave content people are willing to pay for, and the way that newspapers have been laying off reporters in the last few years makes that tough. The Commerical Appeal for example, fills a whole section of the Sunday paper with "My Life" or something like that, which appears to be nothing more than press releases and photos of local high school/nursing home awards ceremonies. They do have some decent reporting, but rely too much on the "extra local" news, which isn't even news at all, to fill the rest of the space. You can get maybe 3-5 decent local stories in the Sunday paper, and the rest is wire reports and things that really aren't newsworthy.