Don Dodge has a great post on the big gap in local -- newspapers, yellow pages, and the big search portals have thus far all failed to own local search results. I think that Don is right that papers need to do a much better job of exposing (largely through SEO) their content to the major engines; but they have an equally important task, which is to retain the user through value once the user arrives at their sites, by offering them parallel navigation, related content, useful search tools, and appealing options to explore and expand on the initial query that brought them to the site.
While papers have to live in a world that starts with Google first, they have to maximize their value in that world -- which means attempting to avoid the "Google back button tax" of the user clicking back to Google after every search that lands them on a newspaper content page, to give Google first crack at the targeted ad dollars on each subsequent search.
This requires serious product thinking, user testing, and technology on behalf of newspapers and other local content owners. It will hopefully surprise no one that Zvents, my company, is heavily engaged in all three. We're going to be at the NAA conference in Las Vegas, and I'd be delighted to speak with papers about how they can not just compete, but win, in the local search market.