How will Kindle affect newspapers?

Earlier this month, Amazon released a new version of its electronic reader, Kindle 2.  It was created primarily as a replacement for books (you can carry over 1,500 books on it, and it's as thin as a pencil), but you can also read newspapers from it. For $13.99/month, Amazon automatically sends the paper to your Kindle every morning, and you get everything that's in the print version, minus some graphics and things like classifieds.

That makes Amazon a delivery system for the New York Times, and on January 12, Slate's Jack Shafer wrote that the New York Times shouldn't be giving over this power:

"What makes the Kindle stink for newspaper publishers is that it's designed to turn their customers into Amazon customers just as the iTunes store was designed to turn the music labels' customers into Apple customers, and did. The music labels rue the day they gave Apple the extraordinary leverage they did over their content, so newspapers should beware."

He then laid out his idea for the NYT.  If they are going to sell their content to portable readers (and that could be a future funding model that could help preserve newspapers), they should be in charge of the delivery, not Amazon:

"Just as the iPhone and other smartphones obliterated the PDA category, mobile PCs and smartphones used as electronic readers could render the Kindle obsolete overnight if publishers joined forces to create a technical standard for over-the-air delivery of books and publications. (If newspapers can't agree on a standard, a prospect that would not surprise me, one should create the standard and license it to its fellow newspapers.)"

Will portable readers be the future of the industry?  It's still early, and no one has quite created a device that is a logical way to read the paper.  In Wired's positive review, Steven Levy writes about improvements in the new Kindle:

"One of the weakest aspect of the original Kindle was an abysmal interface for reading newspapers:  it required painstaking back-and-forthing to get a grasp of contents.  This new software still isn't perfect--again, a touchscreen would help--but it now provides a logical path for navigating the Times and other publications."

The New York Times also gave a positive review, though it didn't say much about Kindle's capacity for delivering newspapers. This September 2008 New York Times article talks specifically about this function, covering the different devices, including Kindle, that are entering the market.