Sarah Hoyt on Authors, Agents, and Publishing

Award-winning fiction author Sarah Hoyt recently wrote a post on some of the changes she's seeing in the publishing business.  It's interesting from several perspectives, not the least of which is offering an author's perspective.  And well worth a read in full, including the comments (where she gives added thoughts and advice on getting published).
The post is motivated by her decision to drop her agent, and go without one, at the end of her current contract.  Praising her current agent, her decision is based on changes she's seeing on the agency and publisher side of the book business. First, she noticed that the responses by publishers to work submitted by her agent were "slow and often rude, not just to me but to my agent." As she continues,

"Now publishers don’t seem to care. Mostly they’re publishing bestsellers. It’s the only way they think they can survive the next two or three years."

While bestsellers are good, the foundation for both publishers and agencies are the "midlisters" - established authors with steady sales (often in genre fiction).  They aren't always the most profitable, but their sales tend to be steady, there are a lot more of them, and in aggregate, they generate most of the income for most publishers and agencies.  Letting that segment slip away, whether intentionally or through shifting shrinking resources to other areas, isn't likely to be a good long-term strategy.  Given their perception that the big publishers aren't interested in midlist authors' work, several agencies (including the one she currently works for) are responding by developing their own digital publishing arm.
Its a logical move in digital publishing, Hoyt suggests; agents and agencies already act as first-stage gatekeepers, sifting through submissions from their authors and from those seeking an agent.  They also handle initial editing and much of the promotion for writers and books.  And in digital publishing they can bypass the other major services that traditional print book publishers provide (printing and distribution) as well as avoiding a major risk factor (predicting demand).  Having agents linked to specific publishers, regardless of whether it's in-house or exclusive deals with an external publisher, does have one drawback - without competition, they may not be able to get the best deals for authors.
The problem Hoyt has is that her agency isn't making a straightforward transition to digital publisher - they want to remain agents as well, which will allow them to get two cuts of the revenue stream, first as agent, then as publisher.  In addition, Hoyt argues that her agency is pushing up-front costs.  In her case, it doesn't make a lot of sense.  Especially since the current digital book sales models out there allow authors to make more money self-publishing or through using a micro-press than for going through a traditional publisher. For digital versions anyway, and for those best-selling authors and midlist writers who have built a following and don't really need a lot of marketing.
Until on-demand printing system costs fall to competitive levels, there will be a role for traditional publishers. However, as has happened previously in magazines and television, the dominance of big, general interest, publishers is likely to be replaced by more narrowly targeted and focused imprints that can build a brand and a loyal community of readers.  And if they're smart, those focused imprints will offer established authors digital publishing terms close to those they can get themselves, and save the upfront charges for marketing et al. for the less-established writers that still need to build their brands and fan base.

Sources: "The (Publishing) Times They Are Achanging", madgeniusclub blog
"The (Publishing) Times They Are Achanging", Pajamas Media  (a shorter version cutting details of her dealings with agents).