I don't expect the big publishing houses to disappear from the face of the earth anytime soon.  People will still want their coffee table books.  Textbooks are still required by colleges, and the industry is still trying to squash the used textbook market by coming out with new editions having trivial changes every year or two. ( On the other hand, our kids' schools seems to be getting along fine without them.)  Also when I spend $100 for a book on molecular modelling or 2D infrared spectroscopy, I want to have something solid on my shelf, not just another computer file.  For almost everything else, an e-book is fine.  Regardless, for the bulk of entertainment publishing, they may be embarking on a long downward spiral, fueled by their own business model.

Let's start with a couple similar industries: audio CDs and DVDs.  As you probably know, the MPAA and RIAA have filed multiple law suits to shut down file sharing sites, and in some cases have sued individuals for copyright infringement.  I don't believe all the hullabaloo is so much about copyright infringement -- although that makes a good publicity release -- as it is about controlling Internet distribution.  What they understand and what a lot of the public doesn't yet is that they are an obsolete industry.

It wasn't always this way.  At one time, the movie and recording industries has absolute control over the distribution channels.  If you were a young musician, or an old one for that matter, you didn't have the option of pressing your own records.  And if you did, you didn't have the means to get them into thousands of stores across the country.  You had no choice but to appeal to the big guys, try to get a contract, and agree to it on their terms, which was that they would sell your creative work, make most of the money, and throw you a few percent to keep you happy.  That system is no longer necessary.  We don't need printed disks; the Internet does the task of distribution faster, and in a format that goes right to our computers and portable players.  More significantly, it does so at lower cost to the consumer, higher profits for the artists, and nothing for the old middle man.  The middle man is running scared.

As a scientist, I am aware of the similar situation with academic journals.  Researchers get nothing for writing papers.  The referees get nothing for reviewing them.  But the publishers take them and put them behind paywalls, charging typically $35 per article unless you're attached to a big university or government agency that can afford tens of thousands of dollars annually for subscriptions.  And all this for something they got for free.  In 2008, the National Institute of Health instituted a policy that the results of publicly funded research that they sponsor must be made available to the public that funded it.  Makes sense to me.  But the publishing industry is all up in arms, wanting their unearned profit, trying to get laws passed to that effect. ^1] At one time, these journal publishers were essential to the dissemination of academic information; now they are an impediment to it.

Now back to the big publishing houses.  Of course I've gotten rejection letters, and they almost always say the same things that independent reviewers have said: "This is quite good."  "This is definitely publishable."  "I was pleasantly surprised."  "Keep trying, there is no reason this can't be published."  But, those comments are always followed by a but: "... but we're not doing that right now."  "But that is not in our business plan."  "But we are looking for something else."

Let me paraphrase.  Rather or not to publish my books depends not on the book but on some business plan made by some suit in an office that probably doesn't have time for reading fiction anyway.  This is a weird situation.  They spend so much energy trying to decide what will sell, when the industry has a long history of not being able to predict it at all.  And this is on top of their other effrontery to the source of their products: enforcing "no simultaneous submissions" while taking six months to get back to you.  If a writer has to go through twelve publishers or agents, that's six years!

I'm don't mean to imply that I am a Steinbeck or Tolkien, but one has to wonder how many Steinbecks and Tolkiens there are out there who have given up because their works weren't in the current business plan.  Your favorite book, which you will probably never read, may be sitting in the bottom drawer of a desk in a dusty attic somewhere.

Which is why a lot of writers are turning to self-publishing.  It's not what it used to be, where vanity presses would take your money to print books that no one in their right mind would read, but which you can give out to your friends nevertheless.  With the shift toward e-books and the maturity of print-on-demand technology, it is no longer difficult to publish a book.  You don't need to get it onto shelves in thousands of stores because most book sales are over the Internet.  Writers can cut out the middle man and their measly 15% royalty terms, sell their books for less, and make more.

The current hero story in vogue is that of Amanda Hocking ^2], who, flat broke after years of rejection letters, turned around to make millions on Amazon.  Oh, NOW the publishers want to talk to her!^3]

Publishers have always been a bit skittish about what they published. A hundred years ago, when printing was expensive, it made sense to try to publish books that were expected to sell a lot of copies.  Now, in an age when publishing is cheap, it probably makes more sense to print hundreds of titles and sell a few of each.  But that's not how business thinking works.  Instead, in the face of this new source of competition for the reader's dollar, they are becoming even more skittish.   There is a political faction in the United States that firmly believes that the way out of our economic problems is to press on with the policies that caused them.  This seems to be a popular, if self-defeating, philosophy.  Publishers' being timid about what they published have pushed writers into self-publishing, which has created new competition, which has made the publishers more timid, which will push more writers into self-publishing, and so on.  Therein lies the downward spiral.  They are pressing on with the same business model that helped to create what they are deathly afraid of.

Understand that I'm not a big fan of Wells Fargo.  They are a large predatory corporation that was one of the contributors to the U.S. financial collapse of 2007.  However, they started out as a railroad express company and became widely known for their stagecoach lines.  The directors at some point apparently realized that stagecoaches were not the wave of the future, and shifted their activities more toward banking.  Modern companies seem less amenable to recognizing when they have become obsolete.  Instead of evolving, they are content to file lawsuits and play marketing games to hold onto a monopoly that is no longer justified with modern technology.  I don't know that the publishing houses have tried lawsuits yet, but they are playing marketing games, such as trying to fix prices on e-books, which has resulted in a DOJ suit against them.^4]

The public is quickly figuring out that they don't have to do it the old-fashioned way.  Yes, I know of people who have pirated CDs, and most of them are perfectly willing to pay the artists with some cold cash.  They are just tired of being screwed over by the people who own the distribution channels, paying $15 for a CD the artist gets $0.80 for.  There don't seem to be too many musicians yet selling directly, but there are some.  There are a lot more writers doing it at this stage, which suggests that when enough people wake up, the publishing houses might be the first to go the way of the Pony Express.  I don't think I'd buy their stock.

^1] Elsevier-funded NY Congresswoman Carolyn Maloney Wants to Deny Americans Access to Taxpayer Funded Research

^2] Amanda Hocking, the writer who made millions by self-publishing online

^3] Self-Publisher Signs Four-Book Deal With St. Martin’s

^4] U.S. Alleges E-Book Scheme