Taking your questions in order:
1) Is it true that “life-of-copyright” is now the industry standard,
so that rights never revert, regardless of the original publisher’s
intentions for the book?
Life of copyright has _always_ been the industry standard among large and medium-size publishers. This is nothing new, and I’m bemused that Dean Wesley Smith would say that it is.
I do think that a limited-term contract is far more desirable, if you’re going with a small press (and small presses do often offer limited-term contracts–though life-of-copyright is not at all uncommon in the small press world). But life of copyright doesn’t have to be a problem–as long as there’s a detailed, specific reversion clause that ties rights reversion to minimum sales (for instance, making rights reversion automatic on author request once sales drop below 100 copies in any 12-month period). I’ve written about this in detail here: http://accrispin.blogspot.com/2012/04/importance-of-reversion-clauses-in-book.html .
Unfortunately, it’s not unusual to encounter life of copyright contracts that _don’t_ have adequate reversion clauses–especially in the small press world, where people often don’t know what they’re doing. You may be able to negotiate to add a good reversion clause–my agent has negotiated sales-dependent reversion clauses into all my contracts since at least the early 2000’s–but, depending on the publisher, you may also choose to walk away from a life of copyright contract offer with inadequate reversion provisions. It’s definitely something to watch out for. But the reality is a lot more nuanced than what’s presented in Dean Wesley Smith’s post.
2) Is it true that authors who were once seen as “midlist” should
now assume they will most likely be offered $5000 or less as an
advance? (I received that amount for my first novel, but much more
for subsequent submissions that definitely did not quality as
“best-sellers,” though they sold respectably.)
Advances have generally fallen, especially since the 2008 economic downturn. But they are all over the map, so it’s impossible to make a blanket declaration. Advance amounts depend on all kinds of factors, including your agent (or if you have one; authors without agents tend to get lower advances), the publisher (smaller publishers generally offer smaller advances), what the publisher’s expectations of your books are–and, unfortunately, if you have a publishing track record, the sales of your previous books. In any case, if your sales are good, you’ll get the money owed to you regardless of the advance amount.
As for the whole “midlist” thing (that word doesn’t mean what it used to)–a lot has changed in the publishing world over the past 15 to 20 years, and one of the things that’s changed most is how hard it is to stay in the game. I don’t think it’s any more difficult to break into traditional publishing than it ever was (possibly easier, given the huge volume of books that are being published), but it is a lot more difficult to maintain a career, especially if your sales aren’t stellar.
3) the proliferation of “royalty only” publishers. How are such
entities regarded in the industry at present? Is this a coming wave?
This really is a phenomenon only in the small press world, which has expanded hugely over the past 15 or so years thanks to digital technology. These days, anyone can set up a publishing company just by registering with CreateSpace or LightningSpark. One of the ways many small presses try to limit their financial outlay is to eliminate advances. This is extremely common, and has been for some time. However, don’t believe anyone who tells you that advances are becoming less common among large and medium-sized publishers, or that debut authors no longer receive advances. This simply isn’t true.
There are some great small presses, but an awful lot of amateur and predatory ones whose staff know little about editing, production, design, and marketing. When Writer Beware was founded in 1998, we mostly got complaints about literary agents and scam vanity publishers; these days, small press problems make up by far the biggest volume of complaints we receive. In many cases, self-publishing is preferable.