I’m not sure what the complete answer is. Maybe there has been wage inflation and stagnation in the publishing industry.  Maybe that model has to completely collapse – but then what about the positive externalities (those well written but unprofitable books that publishing houses effectively subsidize that I mentioned back in part one)?
Perhaps there should be more “samples”. Sampling – whether through serial fiction like the type Mike Stackpole is doing or releasing back catalog items like Baen has done – makes intuitive sense. But what about, say, Escape Artists? They’ve been around for years now, giving away CC-licensed content, and are (AFAIK) running in the black, primarily through donations. What makes their model different and workable?
Maybe it’s not workable – but until more creators (and publishers, whether they be big NYC companies, quasi-DIY outfits like Escape Artists, or totally DIY folks like Brave Men Run’s author Matt Selznick) put all the cards on the table, we won’t know. We’re all guessing in the dark – and a lot of people are going to be undeservingly hurt if they guess incorrectly.
Because I really do believe in a free market. And the market of fiction is already a differentiated one. One book is not a substitute for another, one magazine is not a substitute for another, one author is not a substitute for another. In a free 21st century entertainment market, the price should not be set by artificial constraints like DRM or device lockdown, nor should it be set by opaque deals and obscured supply chains. There’s no need for any of that. Not anymore.
It’s in their own best interests, as well. Maybe Escape Artists really is onto something. How could McMillan emulate their model? Maybe Tor or Baen could show (explicitly) how social media and free product is actually reinforcing sales.
I remember reading in Suck.com (that dates me, huh?) that less than 1% of banner ads were clicked – let alone turned into a sale. Yet while people bemoaned that horrible rate, they never stopped to think what the conversion rate might be from a billboard or newspaper ad. At least with the banner ads, they knew, and could focus on the things that brought in the most money. Because remember, the more we can make our writing profitable, the more we can afford to write.
And if we – as authors, publishers, and retailers – can focus our efforts on those things that bring us all money, then maybe we could spend more time writing and getting those written words to readers. Because while we want to follow our passions, we also need to eat.
 I think there’s wage stagnation and wage inflation in most of the “developed world”, and think that we’re fighting a holding action against a massive market correction downward as the rest of the world comes into more direct competition.
[Note: Edited to fix the link to Mr. Selznick’s work. Whoops!]