I've been receiving the Galley Cat daily feed, and news is good for small publishing houses (or at least better than it has been for the dinosaurs). In the latest bit of news, Chelsea Green Publishing reported record sales last year. While Chelsea isn't a fiction publisher, I want to reflect on what I believe might be happening.
Purely speculation, but that's what I do.
When the purse strings are tight, people stop spending money on "extras". For a huge chunk of the popular fiction/non-fiction crowd, these "extras" would include books. Schunk! We just eliminated a swath of the big publishers' sales. Small houses (whether fiction or non-fiction) do a better job with niche markets. They know what readers (those people for whom books are not "extra") want. When the surplus money dries up, they are still above water because the dedicated readers are still buying books.
Just a theory.
Recessions have a way of forcing the cream to the top (i.e., better music, better art, better literature). Consumers must become more discerning in their purchases when their purchasing ability is limited. I hope this recession can create a renaissance, too.