The State of the RPG industry is captured by Scott Thorne over at ICv2 in his column Rolling for Initiative. Basically he argues that the three things killing RPGs in stores are PDF sales, Kickstarter, and the always present difficulty of selling the product (hard to explain quickly). And he's right on all points. We here at TLG have watched our distributor sales dwindle from 73% of our revenue in 2000 to about 7% these days (give or take), though the overall sales have increased dramatically.
What this means for the distribution model is a slow erosion toward niche and specialty stores. What it means for the direct to consumer market remains to be seen, but it seems, at the present to be growing.
But the growth has allowed companies like our own (Troll Lord Games, www.trolllord.com) to shift our focus into other markets, all the while growing the RPG. We are branching out both into the fiction market, with both our release of The Andanuth and Winds of Fate and now working with other companies like d20 Entertainment to break into a broader medium, such as web series or even tv shows: C&C Blacktooth Ridge.
The market is definitely changing. Of that there is no doubt. For better or worse, only time will tell, but changing it most certainly is.
All I know is that its best to go where the fresh water is.