I think your $400 a year might be a bit of an outlier. Personally I would say the $140 I'm spending per year via KU is probably more than I was spending before. If you multiply this out by the number of people with KU subscriptions it wouldn't surprise me if that's actually more money flowing directly to authors than before.
I guess it depends how much you like paperbacks but they were fairly good at getting me to buy hardcovers because I wanted something right when it came out and didn't want to wait for a paperback. At $40/hardcover $400 is less than a book a month. A KU subscription is less money flowing into the system than someone buying 1 hardcover per quarter.
