Online publishing isn't particularly beneficial to the publishing industry, not if it wants to monetize itself effectively. When someone publishes their work online in a literary magazine or a newspaper as opposed to publishing within their own blog or forum or whatever, both sides (publisher and published) are hoping to make scale and community be the commodities that are monetized. The problem with this, in my view, is that online publishers (and this includes newspaper companies) are charging for their ownership of the IT infrastructure and not the content itself. IT infrastructure holds no inherent value in the Web 2.0 age.
Here's a monetizable model for a literary magazine:
1) Make users also editors.
I'm constantly amazed by how many people that buy literary magazines are literary geeks. God love the folks that subscribe only to OneStory (which is great btw) but the vast majority of the people that subscribe to litmags want to read, love to read even. As one of the folks that work on StoryQuarterly, I'm wading through 400 stories in the slushpile. Every submission ends up getting at least one pair of eyes on it but it's an excruciatingly slow process. If we could open up the editing process to folks who subscribe, perhaps we could make sure more eyes are on every submitted story.
The way SQ works is that there's a slushpile and tiers. The stuff that gets into the tiers are really good. Incredible, some of them. At the end of the day, what separates the published from the publishable boils down to the editors' and readers' individual taste. If even a portion of the subscriber base (in the thousands) decided to take an active role in helping out in the winnowing process in the tiers, then readers would have stories they'd want to read more consistently.
It's also a great way to get people involved. If something I fought for gets published, then I'll be more inclined to bring like-minded folk into the community. Of course, we'll have to consider quality and such. There will still be a place for editors and readers, and especially super-editors to make final calls. We'll still wade through the slushpile so the subscribed editors get to comment and choose only stories that have been judged to be of sufficient quality. Subscription becomes representation. Isn't that nice?
2) Added value circumvents problems with the medium.
A lot of people don't like to read. Or don't have the time. They have iPods and Kindles and other devices though, mediums traditional litmags don't compete in. One of the really neat things StoryQuarterly is doing is having selected authors read from their stories to create what is essentially an audiobook version of the print journal, soon to be downloaded from iTunes.
It is my belief that no one can say the story as a form is dead. Humans, social creatures that we are, love stories and storytelling. This trait is as old as we are. What we don't love anymore is perhaps the medium and the presumptions it makes. Another thing StoryQuarterly will do this year is put out an online edition of the stories that almost made it. Windows like this are where free communities can be built that aren't editorial necessarily and provide free users a place to be involved within the community.
3) Make literary magazines work for published authors AND publishable authors
People that buy litmags also buy books. People that are published in litmags are often published or are about to be published. However, sales of litmags show minimal effect on book sales and vice versa. I'm thinking it'll take some creative legal thinking but how about soliciting excerpts of recently published books to drive subscribers to buy said book? Partner with agents and publishing houses to provide an option to deliver said book with the literary magazine every quarter.
Let's presume Jonathan Lethem's new book is coming out soon and he gets an excerpt published in the magazine. How about giving subscribers an option to (automatically, or manually) have the new book from which the excerpt is taken sent to them along with the magazine? It would have to be at a discounted price that's conscious of the magazine's cost of course, at which point it's a win-win for both parties. Imagine the boost that would give first-time authors to have their books sent out one month after Lethem or whoever.
4) The internet hates static.
Getting people to click the first time is easy. Getting them to click again is hard. The reality is websites have to constantly stay in controlled flux. Books and newspapers are physical products but websites aren't. Literary sites shouldn't behave as if they are nor should they reduce themselves to an archive. That's something most literary magazines don't get. Yet. Given how most of them are staffed by student volunteers who are themselves starved for time and attention, it's a natural problem.
In my experience, litmags draw from grad students in Creative Writing and English alone. The solution, however, is inbuilt in the system so this is an easy fix. Literary magazines have access to student volunteer pools. Many students at university are involved in web design and graphic arts and website management. Open up university publishing classes to those students. Co-ordinate, you bureaucratic beast!