But there’s hope in this madness. The $9 best-seller is the game-changer publishers need to rejigger their relationships with their biggest authors. Ted Kennedy’s publisher may not lose money on his $8 million book, but they’re not going to make any, either. Instead of competing for Kennedy or Palin or any of a host of other celebrity books by bidding up the advance, publishers could use the squeezed margins to do a Dutch auction on a distribution fee.

Publishers shouldn’t be risking their capital on authors who bring their own audience to the equation. These are the authors who will want Wal-Mart, Amazon, and Target selling their books for $9. All the book company does for them is provide distribution, so the publisher should reverse the formula. If the publisher is going to sell the book to Amazon for $9, they should offer to take $3 per book as distribution and marketing fee. A fat hardcover book costs $2 in paper, printing, and binding. The author would keep $4, which is basically what he or she would earn in royalties on a $27.95 book. But since this is a competitive situation, the publisher might bid lower—say, $2 per book and a pass-through on the marketing costs.

If the book succeeds, the author makes a boatload of money: $5 million on a million copies sold. If it fails, the publisher isn’t crushed by the unearned advance. The more copies the publisher sells, the more the company makes. Everyone’s interests are aligned. If publishers want to get really slick, they can create sliding-scale distribution fees that reward the author with a greater share as the book gets bigger. Thus, they would pay the authors who really deliver the most, instead of the authors who bedazzle them the most in a meeting.

Will publishers have to drastically cut their overhead with this model? Yes, but they’re going to do that anyway. It’s been another bad year in the book business, and we’re likely to see another round of big cuts this Christmas. Do I think publishers will embrace this new business model? No. They’re too greedy. Like bankers, they would rather increase their risk-chasing margin than decrease their risks by reducing their costs. But the funny thing here is that the same supply-chain forces that have them posturing as the defenders of emerging writers have also provided a much better—and more cost-effective—way for them to develop new talent. And that would be those $9.99 e-books they were so worried about until last week.