Digital readers will save writers and publishing, even if they destroy the book business.

Amazon announced the second iteration of its Kindle electronic reading device last month. The next day, HarperCollins announced that it would close its Collins division to substantially reduce head count and limit the number of books it acquires to publish. It was almost as if Harper was acting out a ritual dismemberment upon hearing the news.

There was, in fact, no cause and effect between the two events—but there ought to have been. The Kindle may be little more than a novelty device today. With each passing day, though, it begins to have the potential to change the business model for writers of all types and stripes. As for Harper, the layoffs were the caboose in a long train of publishing industry firings that began last fall. Think of the causal chain here as the beginning of the beginning for digital delivery of written works and the beginning of the end for the corporate publishing conglomerate.

Why are the publishers cutting back? Sales aren't exactly down across the board. Look at Simon and Schuster, one of the first to cut jobs: Its sales were up 1 percent in the fourth quarter (though profits were down). Nor is S&S on the defensive. In her year-end letter to employees, S&S head Carolyn Reidy exhorted her employees not to turn tail and run: "This is precisely the moment—when established routines do not yield the customary results—that we must take chances and embrace risk."

The risky part of the business—best-sellers—isn't really the problem. Though how to manage that risk has become a serious problem for several houses. What's eating into publishers' profits is the slowing of backlist sales. Penguin CEO David Shanks told the industry's news hub, Publisher's Marketplace, that backlist sales—where they get most of their profits—were slow in October and November. In December they were back to normal based on the success of a series of vampire books, which is really backlist selling as frontlist.

Backlist is slowing because traffic at the bookstore chains is slowing. Barnes & Noble's holiday sales were down nearly 8 percent as measured by same-store comps. Retail was bad everywhere in the fourth quarter, but for the year, those comps were down more than 5 percent. Ironically, the book chains are falling victim to the same disease that killed the independent bookstore. High-margin sales—big best-sellers that come in the back of the store in a shipping box and leave through the front with a customer in the space of a few hours or days—have migrated to other outlets. When a book is running hot, most sales don't take place in bookstores at all. They're at Costco and newsstands and grocery stores and dozens of other nonbook book outlets. Meanwhile, back at the Barnes & Noble, the low-margin books—those worthy backlist titles for which the store must pay a lot to store on the shelves for weeks or years just so they'll be waiting for you when you finally come looking for them—are clogging up the system.

Think of it this way: Borders and Barnes & Noble pay lots of rent on large stores filled with backlist books in the hope that the cornucopia of titles will attract you to them. But, in truth, you go there to read magazines, drink coffee, and loaf. You're not buying many of those backlist books when you're there.

Forget all the myths about the book business: the parties, the poring over manuscripts, and passionate arguments. The book business is a distribution business, pure and simple. It's about getting the words and ideas of a writer into the hands of a reader.

In the old days, publishers had to get the books piled in the bookstore so readers would notice them when they came in to buy. They also needed to get them reviewed because that's where book buyers learned about books. Book publishers made nice profits by proving their mastery of everything from getting the cheapest printing and most efficient trucking to having clout with bookstores and reviewers.

Few readers buy books based upon reviews anymore. Listen to Farrar Straus and Giroux's editor in chief, Eric Chinski: "Reviews don't have the same impact that they used to. The one thing that really horrifies me and that seems to have happened within the last few years is that you can get a first novel on the cover of the New York Times Book Review, a long review in The New Yorker, a big profile somewhere, and it still doesn't translate into sales."

What does translate into sales? A direct connection to the reader. That comes from publicity or word of mouth. What publishers pay for when they pursue the high-risk strategy is access to publicity—fame in one of its many forms or something sensational—or their sense that a book will tap into a kind of social currency. That's everything from the next hot idea to the next book club must-read.

The important thing here is to recognize that the purchasing decision for a book doesn't take place in the bookstore anymore. You don't need to hold the book, read the flap copy, or weigh the sincerity of the jacket blurbs anymore.

Here's where the Kindle comes in. The collapse of bookstores almost ensures that the Kindle will thrive. Not because it's better than a book; that doesn't matter. The nation-within-a-nation that reads for pleasure and to be informed is a small but vibrant republic. Heavy readers make up a large portion of the book-buying public. These are people who read two to three books a week and buy 50 or so books a year. The Kindle will solve a number of problems for the citizens of Biblandia, not the least of which is having to go find a bookstore to get their next read.

Theoretically, the Kindle will give writers greater access to the public. Some of contemporary publishing's biggest success stories are self-propelled sensations. The Secret and the Twilight series were self-published works that became independent industries. A publishing house played no role in their initial success.

These books suggest a truly Darwinian future for the book business. With the Kindle, a plucky writer can publish and promote her own work at very little cost beyond time and determination. Once she proves her appeal with a sufficiently impressive rate of sale, she'll merit having her words printed on paper and distributed. Everyone benefits from the efficiency.

With enough Kindles in the hands of tastemaking, trendsetting readers, publishers won't really need many editors or marketers. They'll acquire the right to print and distribute books on the basis of already established success. Think of the Kindle as brute force focus group or a 21^st-century version of opening in New Haven.

When Random House buys those rights, it will handle the sales, printing, and warehousing functions. Publicity will be outsourced (and, if they're smart, publishers will make the writer pay for it). The only necessary change to make this work is a shift in the business model away from the author royalty.

Publishers have been ferocious in defending the fixed royalty. It's the line they won't cross. Agents have tried to get a greater share of the royalty on the back end, but publishers would rather pay too much upfront for many titles than lose the fat profit margin on a few mega-hits. Since no one really knows which books will succeed or why, this is actually a strangely rational system, even if it has created a terrible overhang of unearned advances.

An author who has already built momentum through the Kindle will have no incentive to give away the lion's share to the publisher. Instead, he'll take no advance upfront, let the publisher charge a high fee until certain fixed costs are paid off, and then demand the majority of the profit after distribution costs.

Successful writers will be able to do that because Amazon is already establishing the pattern. When you see Stephen King writing something directly for the Kindle, you can be sure Amazon is giving him the bulk of the $2.99 it receives for each copy of UR. How long until he demands the same split from Scribner?

This structure works for the writer, the publisher, and the long-term health of the business. It doesn't work for a large company with lots of overhead. The successful writers will no longer subsidize the unsuccessful ones, and the employees of the publishing houses will no longer have to look over their shoulders waiting for the next round of layoffs. Publishing will return to the steady, risk-reduced distribution business it always wanted to be. The only losers are the authors and agents who have been living off of inflated advances.

Believe it or not, that's the best-case scenario. There's a worst case lurking out there, too. Kindle is hardly the only digital reader on the market, and many more are coming. Hearst just announced its expertise in the field; a company called Plastic Logic has a larger-format machine on its way to market later this year, too. And Amazon has also announced it will sell electronic books for Apple devices.

These devices are championed by the magazine and newspaper businesses because printing presses and trucks are capital intensive. With advertising in decline, a digital platform offers the last, best hope for journalism. The Kindle's secret weapon has been that it is also a conduit to newspapers, magazines, and blogs.

Over the past decade, a variety of nonfiction books have been major drivers of the publishing business. Almost every tent-pole nonfiction writer—from Malcolm Gladwell to Michael Lewis to Jeffrey Toobin and others—has been a house author at a newspaper or magazine or held a regular television gig.

For years, newspaper editors and publishers have gnashed their teeth as ambitious reporters took their best stories and got big book deals. From Bob Greene to Bob Woodward, newspaper editors are annoyed when their thoroughbreds are out to pasture writing books. Newspaper publishers too are jealous of the lost return on investment. They create a star, but the revenue flows to a book publisher instead of back into the news organization.

But with the Kindle as a platform for newspaper and magazine reading, everyone from The New Yorker to the New York Times will be trying to harvest more dollars from its readership base by cutting out the publishing house without affecting its writer's revenue opportunities. If the New York Times could publish a Kindle version of Tom Friedman's books that yields the futurist as much income as before but also provides a revenue stream to the cash-strapped organization, don't you think they'd do it?

From there, we're back to printing books again—maybe at the same plants that print books for publishers now. But with newspapers and magazines, there's no need to outsource the distribution anymore. They're already delivering papers to airports, groceries, and convenience stores.

All that either of these scenarios requires is an installed base of digital readers who number in the eight figures. No one knows what the Kindle has sold so far, but even the most optimistic estimates don't get us to that number for several years (though today's news about the Kindle app for iPhone and iPod might hasten that day), which gives publishers time to think up an alternative—though it's hard to imagine what that would be.