What is the role of the publishing company? At its most basic, the job of publishing is to provide the public with content that the public wants to read, and earn a profit as a reward for a job well done. At first blush, it seems that large publishing companies are continuing to fulfill that role; books are still being made available to the market, and publishing companies are still earning profits. After all, if they were failing in their role, the market would provide a correction in terms of eliminating profits, right?
Not exactly. The "big five" publishers control enough of the market that many writers see them as the only way to reach the market. The contracts offered by the big five are much the same, which, and I'd like to take a moment to note that I'm no expert, indicates a lack of meaningful competition among them.
See, readers most often buy books based on author name. If they've read something from an author and enjoyed it, they are more likely to buy another book from that same author. So as long as the publisher has exclusive rights to distribute that book, the reader will purchase the book regardless and the end user cannot exert force on the publishing company. The large publishing companies can take advantage of economies of scale, which makes marketing and distribution much cheaper for them per unit than it is for smaller companies or self-published authors. As a self-published author, it is next to impossible to get your book on shelves at bookstores, and when you do it's generally local indie places, and you either sell on consignment or have to offer the same deep discounts that large companies offer; discounts that are more easily absorbed by the larger companies. So many authors, seeing no other effective path to market, believe that the big five publishers are their only option. The author, the provider of the product, thus exerts little to no force on the publishing companies.
So the market is not requiring large publishers to be positive actors in the industry. And it shows.
Contracts with all but the most sought after of authors (those that are already famous) have withered, advances have shrunk, and the advent of ebooks has significantly reduced costs for publishers without a corresponding reduction in income. Some contracts currently offer 25% of net receipts to authors on ebook sales, which comes out to as little as 17% of the cover price (and that's before the agent gets paid). Ebooks cost almost nothing to produce, apart from the cost of the intellectual property that they contain. The usual contract contains terms for the life of copyright, which I believe as of the last extension is life plus seventy years and by definition beyond any usefulness to the author.
In addition, big publishers only publish a very small number of the manuscripts that they receive, which I would normally think was a good thing; part of the problem with independent publishing is that a lot of bad books get through. This isn't some kind of elitism, either; we're talking about the kindle goldrush style books, with little content to offer. But the big five publishers aren't sorting their slush piles for quality; they're sorting them for marketability. So if something hits it big with readers, they will publish more of that. This is rational behavior for a company, but when the market is so completely dominated, there's no room for boutique brands, niche brands, and other good outlets for fiction of good quality that just happens to not be a true crime thriller or whatever the flavor of the month happens to be.
In addition, the publishers consistently fail to publish and market a sufficient number of authors who aren't white males. Our culture in the US is supposed to be a mixed culture, made up of many different people from many walks of life with different points of view. When our literature doesn't reflect that, we suffer as a nation.
So those are the ways in which big publishers are failing both readers and authors, and yet they continue to make ever higher profits.
But the tide is slowly turning. The Amazon-Hachette dispute, regardless of what you think about it, clearly shows an inability of the large publishers to adapt to the new ecosystem, an ecosystem that is changing rapidly. Small publishers and indie authors make up for what they lack in size with their natural flexibility, with some writers putting out four or more fiction titles a year. Readers aren't reading less; they're purchasing and reading ebooks voraciously. But even as the world of publishing changes, there remains only one real way to put the screws to these companies; authors, seek out better terms with other publishing options. Readers, seek out great deals on books from small publishers and independent authors. Don't let five companies call the shots.