In digital land:
"Warehousing" = Storage and databasing. The digital files you maintain for integrity are not the same copies of the file you are maintaining in various formats for purchasers to download at any time around the clock. (And keeping up to date so that they still work every time one of the collection of E-readers does an update.)
The exported InDesign file package for a print book, mostly straight text little to no images runs about 200mb (cover & interior, all images, fonts, etc). The actual ready to sell PDF of the same book runs about 22mb. The Complete Works of Shakespeare .epub I have is 2.2mb, fairly well done, including cover image. You can store 10 of those per salable PDF, or about 90 Complete Works of Shakespeare .epubs for each printers package for a print book. I doubt you need that many different iterations of the same book.
"Transportation: = digital access and transmission. Which equals the hosting servers, the firewalls, routers, wiring, switches, power and support staff -- whether you host them yourself or are paying a server farm to do it; and the bandwidth that is being used for window shoppers to view your product offerings and the bandwidth involved in the downloading of purchases.
This is misleading, as is part of the top bit I quoted. These aren't costs incurred by actually producing a digital book, but rather a cost incurred for hosting a storefront to sell digital books directly as a publisher. Many digital publishers don't have their own storefronts, but rather rely on distribution channels (Apple, Amazon, Powell's, etc) to host and sell the files. So again, these are possible costs incurred for directly
selling digital books on your site, but not for simply
producing a digital book. But, the additional bandwidth load of customers window shopping your website would be incurred irrelevant of which distribution model you chose.
But fine, for the sake of argument, toss those both out. You're still left with several factors that make a staggering difference in the cost of production.
Printing. These costs are a significant expense, that simply isn't incurred with digital. Depending on various factors, this can be as much as $5 per unit on a trade paperback with a 5000 unit offset print run. You have to roughly quadruple the print run, around 18-20k, to bring you down around $2.50 per unit. So for that 5k print run that's a $25,000 expense just to print the books, not including overages. For the larger print run you're looking at $50,000 to print, not including overages.
Distribution. Typically the distribution channel takes 65% of retail and the pub only gets 35%. With digital it varies, but to make things easier let's use Apple which takes 30% of retail, leaving 70% for the pub. I'm using Apple here because it's a nice round number and they also take the largest chunk of each sale that I'm aware of.
Royalties. Print typically sees up to 10% of retail, while digital often sees 50% of retail.
So run the same book through those numbers. Fiction, nothing fancy design-wise, or production-wise (no spot colors, or wonky trim). A $25 trade paperback would earn the publisher 35% of retail from a standard distro channel sale, so $8.75. Then consider the $5 per unit to actually print the physical product, brings us down to $3.75 for the publisher to pay all expenses. Next up is the royalties, which if we're generous are 10% of retail, or $2.50, finally bringing us down to $1.25 per unit for the pub to pay all expenses. When people say publishing is a narrow margin industry, they ain't kidding.
The same content as an ebook would look like this. At less than half the cover price of the trade paperback, say $10, our ebook (sold through Apple, the biggest distro hit) would lose 30% of retail off the top, so $7 goes to the publisher. Out of that you're then paying, if generous, about 50% of retail in royalties to the author, so drop $5 off that, which leaves the publisher $2 per unit sold to keep the lights on and cover all expenses. So at less than half the retail price, a single digital sale nets the publisher more per unit.
For the sake of argument, let's run that 20k print run and jump the ebook price up to match. The retail of most books are about 5-6x the printing cost, so let's say our $2.50 per unit print run will each retail at $15 because it's a nice round number (and 6x the print costs). So $15 retail gives the publisher $5.25 per unit per sale, minus the print costs ($2.50), leaving $2.75. From that we need to pay royalties, $1.50 (10% of retail still), which leaves $1.25 for the publisher to cover all expenses.
The digital sale of the same content, at the same price ($15), would have $10.50 go to the publisher per unit (30% for the distro). Minus the 50% of retail for royalties ($7.50) which leaves $3 per unit to cover all expenses.
Several unique factors are scrubbed from these figures for the sake of argument, each of which would lean the scales further toward digital books being cheaper. Also the extreme case is taken, such as using Apple which takes the largest piece of the pie compared to other digital distros, and assuming the highest royalty rate of any digital publisher I've seen for these figures. Using more accurate figures in each case would shift the scales even more in favor of digital.
I will suggest that the interactive opportunities of digital and the development and programming behind taking advantage of that will soon make this debate obsolete.
I couldn't agree more. I would add that with the increasing quality and slowly decreasing price of POD, we will likely see nothing less than a paradigm shift in publishing quite a bit sooner than some are willing to accept.