The Dilemna for Publishers of Fiction

Photo Credit: George Eastman House via Flicker

The traditional market for publishing fiction is under assault. The first salvo came with the introduction of print-on-demand. However, it appears the real threat is from the electronic book movement. One of the most significant trends from these initiatives is the emergence of competition from self-published  new comers, or even established pro's that are taking their books directly to consumers. How should a publisher react in this environment?