The entire printed media business is undergoing a sea change. The internet, and the associated explosion of blogging have greatly impacted the print media's- especially newspapers- ability to make money.
Book publishing is one of the oldest and most traditional businesses we have in Western culture. I can remember the introduction of paperbacks and the predictions of doom for the book industry this caused. After all, only trashy novels were issued in paperback format, weren't they? Yes, for a short time until they were embraced by smart publishers. Now they are dominant.
Book publishers that will continue to succeed will be ones who adapt and expand their ebook publishing and de-emphasize the production of hardbacks except for technical publications requiring large format detailed illustrations (medical texts come to mind) or other text that might be technically unsuitable for digitization. There will always, I believe, be a limited market for beautiful, well printed paper hardbacks but I believe the era of the popular novel in either hardback or paperback is ending. It seems to me that books that today have too limited an appeal for traditional publishing might also be economically published as ebooks. I'd like to know more about the process of digitizing a book so I could discuss this intelligently.
Publishers should start emphasizing the digital part of their business (or get one going!) and start selling well edited ebooks, efficiently produced and distributed. With all the inherent cost savings realized by reducing printing, binding, and distribution facilities the smart publisher should be able to turn a respectable profit, especially if they "retail" the books themselves online.
The small bookselers, except those specializing in out of prints or specialty books will probably go the way of the local hardware store or grocery.
Don't like Amazon? Then digitize and sell your own books in either multiple formats or non DRM protected versions that will work on platforms like the Kindle. I can't believe the potential "sharing" of ebooks between friends is enough of a problem that a publisher gains by DRMing his product thereby forgoing sales to a wider audience.
A long post but this has been an interesting thread (until now!
)