I know, the titles is a tad hyperbolic, but I've been thinking a lot about this issue lately, and I'll probably be posting on it more and more as time goes on.
As you know, markets for short stories have been shrinking drastically in recent years. Science Fiction and Fantasy have been hard hit, and a number of great magazines have disappeared in the past two decades. While a few online 'zines have popped up, nothing seemed to really halt this overall decline. Literary fiction has had and even rougher time, with few literary fiction magazines able to survive without government funding, or private donations, and even then having a rough time making a go of it.
If you wanted to start up your own magazine, off the bat, you're jumping into a market that is seen as not only dying, but perhaps long dead. It's a grim scenario, for sure, but in recent years a teeny, tiny bright light has appeared.
This bright light comes in the form of "audio magazines?" You see, I don't often have time to "read" short stories, but I do "listen" to them. Every day I listen to podcasts like EscapePod, which is a science fiction audio magazine that has already produced over 200 episodes. In fact, the creators of this podcast were so successful that they have branched out into other genres, with PodCastle (Fantasy) and PseudoPod (Horror). They actually pay their writers ($100 a story) and have built up a listener base in the tens of thousands. In fact, because of the size of their listener base, other writers, publishers, and even musicians often pay them to "sponsor" an episode, which allows these programs to run at a slight profit.
There are other audio magazines like EscapePod, but as far as I know, thus far there is no CanLit version. Being Canadian, this could represent a market opportunity, even if it is a tiny one.
Along side the the print material, the can be stories recorded as podcasts. You can put them up on iTunes, offer them for free, and post them on the website alongside the source material. You can even do the same thing with the reviews of short story collections. If you can build up an audience, even a modest one, after a year or so your initiative might be eligible (in Canada, at least) for Canada Council funding. Based on the size of the listenership, you might even be able to hit up the publishing companies for a few bucks.
I know it is not about the money, but this way you could actually pay your writers for their work, which would be something to boast about, considering the state of the CanLit short story market. And even if that didn't come to pass, you'd still be doing something needful, and filling a currently unfilled niche.