The paywall doesn't have to pay
It all depends on what you mean by 'success'. The size of the audience will shrink dramatically, but then as we pointed out here, much of the audience for a general purpose newspaper isn't really worth anything.
The Times is charging £2 a week for access. Some estimates put the amount of online advertising gathered by the Times at under £20m a year. So if 'success' means matching today's online ad revenue with online subs, then Murdoch needs about 175,000 people to suddenly acquire the habit of paying for stuff online.
This is... optimistic.
But maybe this isn't the plan; there are other measures of success. When the techno-utopian Web 2.0 crowd asked the newspapers to commit suicide by giving away everything for free, there was no need for the newspapers to pay any notice. Remember that the Times has an average of over 600,000 people giving it a pound a day, every day (Saturday's is £1.50), and from that you can start to build a business. Making up £20m in gross revenue is a lot easier from people who already pay you money. In fact, it requires about 50,000 more people (on average) to start paying for the daily Times to meet the revenues likely to be lost from going behind a paywall. Obviously there are several titles in play, and very obviously, we're talking about gross revenue not margin, and (in theory) margins are greater on the web (or should be).
Is finding 50,000 Times readers so difficult? The paper has lost around 80,000 paying customers since 2006, when it opted for the pastel colours, and expanded its web presence. Go figure.
The great paywall adventure may go wrong for all kinds of reasons: the stuff isn't as unique or compelling as News International thinks, perhaps, or the price is too high. As I said, the debate is coloured by the fact that Murdoch is a ritual hate figure for some people. Unfortunately this tends to affect people's judgement. Many more actually wish it would work, though they're loathe to admit it. And whatever else Murdoch may be, he certainly isn't stupid.
So perhaps 'success' here is 'not committing suicide' and merely involves getting people to pay real money for your real product. ®
No way I'll pay...
...most especially since I'm not the slightest bit interested in anything printed, broadcast or available online by the Murdoch organisation, even when it's free, let alone paid for...
The printed versions used to at least come in handy for wrapping fish and chips - can't even say that about online editions.
Mind you, as that goes for the rubbish output of the Desmond stable too, there's not a lot left these days.
You're right about having to define 'success'
Yes, I hate Murdoch. No, I wouldn't pay for his papers. Yes, I think the price is too high. On the other hand, would I pay 5p per Guardian article or a few quid a month? Maybe. So I'm no hardcore freetard.
The point is, as you mention, that The Times (or the Independent or Guardian) have never made money, online or off. Journalism costs more money than you can sell it for. The greatest journalistic organisation in the world is the BBC, who don't have to worry about profit.
I don't really get why you'd define success as 'making money' in the internet age, because that's not how it was defined before. To many people, success of a newspaper would be better defined as readership, influence, quality and integrity.
If a newspaper is breaking interesting and important stories, is widely read and highly regarded, it's more successful than one that makes a profit but no-one reads. Else Nuts and Zoo would be the high mark of British publishing.
I think the key for the future of news is to use other things to pay for the quality. For the Guardian that means its AutoTrader mothership, which makes a pretty penny. For The Times, that would mean using Sky or the tabloid market to fund something worthwhile further up the chain.
I agree with the Guardian approach - because they're widely read and well-regarded journalistically, and believe that it's wrong to sacrifice readership for profit. Whether it can carry on forever is another matter, but so long as AutoTrader keeps the group afloat I don't see why not.
If newspapers have to turn a profit by themselves, we'll end up with Metro. Bland churnalism with at least 50% of the space given to advertising.
Another gambit in the war against the BBC
In two years time Murdoch can turn around and say "the BBC News and Sport sites are destroying the profitability of our business; please turn them off kthxbye."
(Conveniently forgetting that they never were profitable)
And the rest of the publishing world will leap for joy and dive behind a paywall