This is a country report from Sandra Burrows from the Library and Archives Canada. The Library and Archives site has a list on their site of mostly free online Canadian-related newspaper content that can be full-text searched. They also have a similar international list, sorted by country.
So far in Canada, beyond the Paper of Record project, there is very little digitization due to copyright restrictions and issues. Some projects that do exist include Canadian Newstand via ProQuest, Paper of Record, and the Virtual News Library.
They are hoping to begin two projects in the near future. The first is to scan multicultural papers across Canada, published generally prior to 1915 (to avoid copyright problems). They hope that initial success will lead to other partners who are interested in providing permission for their own papers to be digitized. One problem is that Canada does not microfilm papers themselves. Instead, they rely on third-party microfilming and archiving, purchasing microfilm as necessary or desired. Thus, it may not be easy to obtain a master film for scanning, as well as a disparate quality of the existing films.
A second, smaller, more feasible project is the Engine of Immortality. They are scanning first pages of papers from around Canada for a museum near Niagra Falls. This is extending to newspapers in general for Canadian newspapers from 1752 to present. (I’m not sure what the difference in subset is between this and the previous project.)
There is Canadian legislation to require deposit of online and born-digital newspapers. (Sweet!) They are currently examining how to archive and index this stuff as a prelude to the legislation.
Archiving must continue in the microform and physical form. Electronic archiving cannot be a substitution for the physical, and it will not be cheaper.