Agencies will not lose their customers because most of the small and medium size newspapers simply don't have the resources to put their staff/reporters in all corners of their country or the world. So they will continue to source their stories from the like of AP even if they don't get the traffic that they were used to get from Google news. Most likely this will squeeze the margins of smaller sites and quite a few of them will end up closing their shop. Basically this is very bad news for the online versions of small newspapers.
[edited by: iThink at 10:38 am (utc) on Oct. 5, 2007]