Beware of old farts lamenting today's youth's lack of literacy!
While it is disturbing that reading is apparently declining, there is a new kind of literacy that I believe is rising to take its place. It's like media literacy, but there's more to it as well... The new generation of readers aren't content to be passive consumers of books. They want to be able to interact and communicate with words and other media. The NEA report actually has a little clue that helps confirm this trend: it states that creative writing has increased over the last 20 years (almost the only thing that did increase!).
I've noted before on this blog that Generation Y is very community-oriented. They use media to form social bonds and reading books doesn't necessarily meet those needs. Maybe that explains the 28% drop in readership among 18-24 year olds.
Two-way media such as blogs and ebooks are the future of reading, because literacy is no longer a one-way consumer culture of 'we write, you read'. Creativity is half the equation now and the new generation want reading books to be a social and productive activity. Digital media and the Internet are the enablers of this new kind of read/write literacy.