So we're moving toward a loosely coupled network of small, focused companies (or "branded" individuals) providing services big publishers used to provide, like editing, copy-editing, typesetting, marketing, book design, etc., and other companies that'll remove from authors the logistical burden of orchestrating all these moving parts. That's great. But these services have to be paid for, and authors need to eat while they're writing. So who'll foot the bill and finance the authors? Investors? Grants? And is it even reasonable to expect future readers to pay for books? I hate to say it, but I won't read a book with advertisements in it. We're in for a storm.
Edit: Maybe I will read a book with advertisements in it. In a sense, I've already done it. Cory Doctorow's _Little Brother_ and _For the Win_ both begin each chapter with "bookstore dedications". This wasn't advertising they paid for, but something he did on his own. Not only did I not find it intrusive, but I found it sort of endearing. There's a lot of unexplored territory in the field of advertising.
What are you talking about? Who financed authors previously? 99 percent of the time it was their day jobs or their previous income/royalties. Advance payments are rarely big enough to live on for unknown (ie, poor) authors. And where did you get the idea of advertisements from? These vanity presses pay much higher percentage royalties than normal publishers and so total readership is actually less important.
I suspect the self-publishers are reducing costs not by doing things more efficiently but by cutting corners on all the non-writing expenses; this could turn out to be a "worse is better" moment for the publishing industry.
To my mind the interesting thing here is it leaves writers less beholden to the decisions of editors than has been the case prior. While there are MANY benefits to going through a publishing process, especially at larger houses, being denied because none of the editors get it, even for some already big name authors, forces anyone who wants to write full time to take editor tastes into account at least somewhat when picking projects.
This option lets same writers, though more so the ones who already have a fanbase, have an alternate choice from fighting through finding a publisher who will take your book.
Actually, I wonder if kickstarter, or perhaps something similar but designed specifically for fiction, could work as a method of testing a market for the viability of a book to be published in eformats.
I'm not sure where the "no more 'vanity' press" bit comes from; I'm certain most self-published titles are still fairly awful.
Still, the bit about Amazon now giving 70% of e-book revenues directly to the author for books priced between $2.99 and $9.99 does strike me as tempting. That could be a real gamechanger for books with an expected readership in the thousands. Does anyone have any experience with this scheme?
Perhaps customer ratings + reviews mitigate the rise of awful titles dominating the space. Having said that, sometimes publishers miss golden opportunities (e.g. Rowling). On the flip side, there is also junk being published by the big publishing houses.
I don't have experience with Amazon's self-publishing system, but I can tell you about how one recent author published on Fifobooks (my startup) even though his book is also available on the Kindle store. The book, Crude Behavior, is a political satire in comic form. Because it is in full color, the author and illustrator wanted to make it available on as many devices as possible, especially ones that support color. His book, when viewed on a color device (iPad, android, laptop, etc.) comes alive compared to how it looks on a b+w Kindle. You can see some screenshots here: http://joubert.posterous.com/crude-behavior-a-political-sati...
The music is easy by comparison, as bands play concerts all the time. Authors can't book more than a few readings to promote, placing books in stores is almost worthless when the author is unknown.
The publishing industry will have to change quite a bit before the big players are replaced. Promotion and marketing along traditional media is locked up pretty tight, and online increasingly so. Remember that for every great book we're selling there are hundreds of books from crap to gold hyped by professional promoters with more money, connections and experience.