I'm no expert on the digital revolution's effect on fiction; you'll have to read more of Nath's entries for that. I do, however, have some experience in negotiating and drafting contracts. A recent New York Times article details Amazon's recent forays into publishing and cutting out traditional publishers and sneaks in the elimination of the agent, too. The agent is charged with, among other matters, helping the author find a publisher and negotiating on the author's behalf. The outlook was not all rosy.
The first author the story discusses, Kiana Davenport, signed with a division of Penguin books and received a $20,000 advance. Hey, not bad. Before she finished that novel, she published an e-book of short stories on Amazon. She refused a demand to remove the e-book, so Penguin canceled her contract for the novel and has threatened to sue unless Davenport returns the advance. It is not clear if Davenport had an agent (although she likely did for the novel). It is clear that defending a lawsuit is expensive, even if you win. In summary: author makes good with contract from big publishing house, tries to e-publish on the side, loses contract and faces lawsuit and loss of advance. Perhaps Davenport's tale will have a happy ending, but so far so bad. I wonder if an agent gave advice about the e-book, and what it was.
The second author, Laurel Saville, is presented as the success story. She self-published a memoir, paid Publisher's Weekly to be included in a list of self-published authors, got a postiive review from the magazine, and received an offer from Amazon to re-publish the work, with a different title, with no advance and otherwise undisclosed terms. Strangely, the Times states that the lack of advance means that "[i]n essence, Amazon has become her partner." Seville, who didn't use an agent, adds that "I assume they want to make a lot of money off the book, which is encouraging to me." But all publishers want to sell lots of the their books and make a lot of money doing it. Authors generally get royalties when their books sell, and traditional publishers sometimes pick up self-published works. What makes Amazon more of a partner than a regular publishing house? Without knowing the terms of Saville's agreement, it is impossible to know whether she will be getting more royalties than traditional publishers agree to. What she may gain is Amazon's desire to give the book more publicity than it otherwise would. In summary: author self-publishes book, pays for advertising, gets picked up by Amazon with terms that are impossible to compare but worse up front than traditional houses give, and appears to misunderstand the business model.
This is not to say that Amazon is bad, that publishers are good, or that agents either would have helped in these cases or are in general jolly, generous folk. Agents might be gate-keepers who miss good writing and make money off books they didn't write. However, as President Obama - and now everybody else - likes to say, let us be clear. Amazon is out to make money, just like traditional publishers. Amazon has hired experienced negotiators who know the ins and outs of book contracts. Most authors will be far outmatched in any negotation. Moreover, like Davenport, most authors are not prepared to anticipate and address legal ramifications that may arise with untraditional modes of publication.
In summary: e-publishing might be a wonderful opportunity for authors to "get their work out," and Amazon might step in where other publishers won't, but beware the possible pitfalls. And don't assume that dispensing with an agent is just an easy way to save money.