The web often provides better information than newspapers, Guardian editor Alan Rusbridger admitted on Thursday in a speech to the Royal Society of Arts (RSA) in London.

In his speech, which was blogged in detail by, Mr Rusbridger outlined how newspapers are being increasingly challenged by innovative web start-ups that are contributing to declining newspaper readership and the loss of classified advertising revenue.

"We have reached a point where the newspaper is in the middle of a fragmented world of interest groups aligned around zones of politics and passions and geography," he said.

Readers are now self-selecting he said, and will pick out the in-depth information they want while ignoring the rest.

"They are not wrong, these people. The internet now does a lot of information on all sorts of subjects better than newspapers.

"I shouldn't be saying this live to the world outside - I should be keeping this a secret. But a lot of people have twigged to this."

Mr Rusbridger referred to a meeting with 25-year-old web users compiling specialised, aggregated services like Digg, Flickr, MySpace and Tribe. As well as editorial content, some new sites such as Edgeio are now 'scraping; adverts from websites and aggregating them in one place.

Craigslist, the San Francisco-based classifieds site, is fast becoming the nemesis of the newspaper industry.

The small ads site has become the subject of intense focus from newspaper businesses concerned that its free advertising model is threatening their traditional advertising base.

He contrasted the "utopian" Craigslist site, which employs 19 people in a modest office, with the corporate baggage of the New York Times (NYT).

"Craig has a shack and these NYT people are terrified, and that goes for the whole of the American print industry," he said.

"The New York Times is about to move into a massive new headquarters, and employs around 10,000 people."

Mr Rusbridger described Craigslist as "a utopian exercise; we think he's making $10 million a year and he's not going to sell. He's just interested in creating a space that's free to both sides."

He also said that despite Craigslist's objective of retaining an independent ethos by not relying on advertising revenue, historically that revenue had granted newspapers their independence from politicians or patrons.

"I will never lose sight of the role of newspapers and their role," said Mr Rusbridger.

"In some ways it's the most exciting time to be in newspapers. There's a revolution as big as Gutenberg and Caxton going on, but in many ways it's also frightening."

During the speech, Mr Rusbridger compared the Guardian's new Comment is free project, which is free to access, with the NYT's decision to put its comment behind a payment barrier, saying the US newspaper was creating a gap between older readers and a younger audience that would not pay for online opinion.

He estimated that the NYT makes around $10 million from its paid-subscription service: "Great, but it's not going to pay the gas bill on their huge new building."

Mr Rusbridger also said that by "pretending that the internet doesn't exist", Express Newspapers will eventually "fall off a cliff as the last reader dies".

The full speech and Q&A is available on the RSA website.

• Guardian chief executive Carolyn McCall is to speak at the World Newspaper Congress in Moscow this June, outlining how the paper views innovation as "a core value and brand attribute".

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