Now go outside and look at the sky.
Challenges in Contemporary Literature
Bruce Sterling posted a rather rough wakeup call about the state of current literature and publishing at his beyond the beyond blog - Eighteen Challenges in Contemporary Literature.
The recent wave of layoffs in the publishing industry was probably just the beginning in a process that will eventually lead to a new equilibrium far away from the current state of the industry and all eighteen points by Bruce Sterling are worth a thought.
I don't think any of the existing large publishing houses will survive in their current form since even if these businesses want to change at this point (and that's a big IF), there is preciously little that can be done.
Ditch paper and go online? Yes, but the ebook market is already carpet-bombed by small startups and behemoths like Sony and Amazon.
Make everything a free download to support paid copies? Yes, but that should have been done long ago. That would have been GREAT advertisement before the Internet started to drown in free content, but now?
Go viral? Yep, like everybody else. Doesn't help with the revenue, though.
At this point traditional publishing is dead, with the possible exception of coffee table books and niche publishers that will sprout like weeds around the edges of the old system. There will still be book stores and new books from many (many!) more smaller publishers, but the times of million-dollar advances for books and monolothic publishing deals will be over for good.