Maybe I missed something.
But I can't see any evidence that they're going to drop adverts altogether, in fact the front page has a link for potential advertisers to use.
So they don't need to replace all of the revenue from ads, in fact they may not need to replace any of it because the ad people might (probably will) get access to a bunch of demographic data that they wouldn't get from the normal paper - and they may place a high value on that.
I also see they appear to have their pricing wrong, surely the accepted norm is to charge twice as much for the electronic version?
And lastly, if they are targeting this at the iPad owners then someone needs to point out that they have way too much Flash on their new site.
Actually, this is a prime example of what is wrong with web+flash generally; all of the flash applets on the front page are just showing pictures, which is something that can be easily achieved by, say, using a picture. I expect it's to make it difficult for someone to steal the picture, although it doesn't make it impossible and it does spoil the experience for those of us with blocking software.