"Amazon can sell millions of books by obscure authors, while at the same time those authors, when they get their Amazon receipts, will see that they have sold only five books in a year."
Because they would have only sold five books in a year anyway!
One of the interesting things about that power law distribution is that the area of the long end of the tail is equal to the area at the "mass market" end of the scale. Meaning there is just as much selling going on, only the number of products is increased.
But that's exactly what has happened in the past anyway. The total number of all poetry books sold since the invention of the printing press doesn't equal the number of
Harry Potter books sold in the last 10 years. That relationship between the mass market and the niche has not changed, and it never will change.
Disruptive change forces invention, and just because we may not have a viable version of electronic books now doesn't mean viable electronic books are impossible. People who fret over the demise of this or that are thinking within established, traditional methods. People who think outside of traditional methods will come up with the new methods and everything will carry on as it always has. Human nature does not change, and there will always be multiple markets and multiple products to serve those markets.
The point of the article seems to be that authors won't be able to make a living anymore from sales of their writing. He bases that conclusion on the current, disrupted market. He's worried that J. K. Rowling won't be able to buy another castle, or Stephen King won't be able to find other millionaire writers to play in his garage band. But the rest of the writers, the broke ones, were broke under the old, traditional system regardless of what the handful of mass market writers earned. Nothing has changed.
You can say, "it's harder to cut through the noise, there are 800 million writers now," and that's true. But at least now you have a chance of cutting through the noise on your own. The old system did not allow for that. Publishing is facing the same thing the music business faced 10 years ago. They are in a panic because they are losing control (read: money). But look at what happened in the music business: more musicians are making a living now than ever possibly could have under the old system. The same thing will eventually happen with writers. The music business is larger than the publishing business, so it may not happen as quickly, but the same kinds of changes are inevitable.