So, why are subscriptions and sales dropping? Why are the big three dying (Analog, Asimov, and F&SF)?
Perhaps some reasons for the demise is that SF & F magazines have problems acquiring works from authors who are big names in the genre, or at least have problems getting truly awe-inspiring work. This is just a judgment based on what I think might be a possible reason, but as I just subscribed to Analog for the second time today I obviously am not 100% clear on how true this is. But I will argue a point about this. These magazines don't typically pay a lot of money for short stories. Scifiction paid something close to fifty cents (USD) a word when it was in existence, and it was one of the highest paying markets. But Analog and the other three don't pay nearly that much--though certainly the big three have a lot of prestige attached to them for good reason. Writers who want to pursue writing as a career are less likely to work with short stories simply because it isn't a market that they can rely on for income. At best, short form markets can supplement income, but not replace it. There are probably a few authors who do survive on shorts (such as Alastair Reynolds who sells books of connected shorts), but most of us aren't those lucky few. But magazines are like book companies: they rely on sales. When circulation goes down, so too does the money they are pulling in as profit, and as such there is no chance that these magazines would increase how much they pay. It's a sad paradox really, although I really doubt that the magazines intend to increase payment anyway.
Perhaps that reason is only a minor reason. Certainly a lot of the bigger authors who publish books have little interest in short form because they simply do not have the time to 'waste'. I put emphasis on 'waste' because I don't find writing shorts to be a waste of time. I actually enjoy writing shorts, even if I may not be very good at them. But I'm also not writing several novels a year, so I can fully understand why established authors might not want to spend time on short stories.
I think the most pressing matter in the demise of the short story market, however, is that people simply do not know where to find them. The big three are generally easy enough to find if you live in a large city. However, I've been to several Borders stores that didn't have Asimov's or Analog's, or even F&SF. In fact, I've been to several Borders that had no speculative fiction magazines at all. I don't know if this is Borders' issue, or if it is the management of those stores, but it seems to me that if you want sales of the big three, and even some of the smaller magazines that are actually quite good I hear, then you should be making it your mission to make sure they are easy to find. Not everyone who would enjoy reading SF or F shorts knows to go online and go straight to Asimov's website or to Analog's. In fact, aside from the big three, it's really not that simple to find the quality speculative fiction magazines if you don't know where to look.
The fact that even the big three are hard to find is an indicator of what the short story market needs to do: advertise and establish a marketplace presence. How are people supposed to find out about these magazines, give them a look, read them, etc. if they can't even find them in their favorite newsstand or book store? That's the problem, they can't. There are dozens of quality magazines that print quality material, but almost none of them are available to the general public in traditional venues (yes, I know they are on the net, but that's not a 'traditional venue'). Most people are not entirely interested in going online to find magazines to subscribe to. So something that magazines need to do is get themselves out there.
And what if the big three are not suitable to your tastes? While the big three are certainly in a lot of stores and therefore have more exposure than the other magazines, they also publish a certain type of speculative fiction. As such, they go into the store and don't see anything to their liking and never buy the magazines that they would be interested in, which unfortunately are not in a lot of stores and very well should be. In short (ha, get the pun?), the magazine market needs to make itself better known.
Another thing that might make people more inclined to subscribe is to offer 'example issues' online. They could be a few notable stories from last year that, most likely, are not going to be read by people in the actual issue again anyway. By doing that, people who do look online and are not sure about a magazine now have a way to actually look. I personally would never use this only because I hate reading online, but it certainly would make choosing for a lot of people easier. Perhaps magazines could reach out to their subscribers and ask them to put banners on their blogs or websites to help promote the magazine they enjoy. If Analog came up to me and asked me to put a banner on here, I would without question because I have enjoyed the magazine in the past. There are thousands of blogs out there and hundreds of quality blogs that deal with speculative literature. Start talking to them! There are loads of huge review sites. How much does it cost you to send a free copy to these sites? Or, you could have a pdf and send it them for review too. There is so much that these magazines could really do that many of them simply don't.
All of this could help the market increase its subscribers and sales. I love short stories and I would hate to see the market die. So, someone needs to get on top of it and start spreading the word!