One other reason HarperCollins, et. al., aren't doing as well: Dilution
But aside from the competing types of entertainment out there, there is one within the publishing industry that is repeatedly ignored: self-published books. If you do a little math, you can see how much money is being pulled from the commercially published books and being transferred over to POD. It's bigger than you think (if would have to be or why would iUniverse and Lulu continue to exist)?
I'll be conservative. Let's say you have 50,000 POD authors (don't laugh; PublishAmerica claims to publish a quarter of these). And let's go with the average number of sales for a POD book (which I think is a too low) of 75 units (don't laugh again; this doesn't take into account POD titles that sell extremely well, like the 5,000 copies of the DIDYMUS CONTINGENCY that Jeremy Robinson has sold). So, 50K times 75 units is 3,750,000 books. Now add on the average price of $17. That means over the past couple of years, POD has stolen just shy of $64 million dollars from New York (not including Xlibris, which funnels its profits back to the Random House). And the truth is this is probably double that.
The publishing industry has become incredibly diluted. Not just with POD, but how about all the small publishers that have claimed their stake? Even the number of agents submitting books to editors has reached an all time high. We are beyond the point of the massive publishing groups like Bertelsmann and Holtzbrinck looking to snatch up the next William Morrow or FSG. Who's even a possibility? Maybe MacAdam/Cage. Other than that it is an ocean of ultra-small publishers that will never have the appeal to draw a major in to buying them.
The times, among other things, are a changin'. Check out what the New York Daily News has to add about POD.