“With regards to the cover, I would think that effects such as embossing would be more expensive than anything else, having spent about a minute in the printing industry. But are those prices you mentioned going to hold true in short runs? Academic/Trade publishers almost exclusively publish in large runs, if memory serves. So wouldn’t that be a major effect on fiction, which I believe is the primary market for eBooks?”

The most expensive effect is actually a pasted on hologram, although my production manager just laughed when I asked how much a video would cost, so I imagine that would be scads more. My books, which are nonfiction, have usually have an 8000 copy first print at a minimum. Fiction can go lower, maybe 4000-5000 at a minimum in hardcover. If your expectations are much lower, your margins probably aren’t going to covered, so there’s no point in doing the book. Speaking of trade books, of course, not, say, academic monographs, which have 250-500 copy print runs. But that’s a totally different business model.

“What [formatting] costs, specifically, and why aren’t they inconsiderable? The software cost isn’t large, and most publishers aren’t paying in the upper tier for editing/layout staff, from what I understand (though, being in the industry, you’ll know better than I). So where are these costs? Formatting is neither difficult nor time-consuming, so that doesn’t fly for me, neither is checking to make sure layout and flow line up correctly in digital format.

Conversion can cost a couple thousand dollars per program, I think, and that’s for a vanilla book with just text and maybe a few pictures, not a massive textbook with sidebars, quizzes, galleries, etc. I’m not sure what we pay our freelancer copyeditors, but I know a friend was making $25 an hour 10 years ago; I imagine the rates have gone up. And this might be factored into the conversion costs as a whole. What is difficult and time consuming is going through the whole book again to make sure it will look as good on the screen as it does on the page. That’s vital. The reading experience should be the same. I love Project Gutenberg, but I don’t want to read Dante in 10pt Courier; I want to read it in something fancier with drop caps and footnotes and all (obsessive note: I paste PGut titles into Word and redesign the text for reading on my Palm). I imagine this production stage is s comparable to going through the second pass pages or blues.

“No way. [Storage and distribution fees are] a once every 5 years expense (like a large NAS for massive storage, which would probably oversized if from a pro company like Lefthand Networks, etc.). The cost to store bytes is insignificant.”

And those costs, which are continuing like any warehouse, get amortized across every title as a certain percentage of income taken in. Just like my salary. And the lights.

“Okay, again, you’re in the industry, but SHOW me a contract that says [a $25 book costs them $12.50, for a net loss of $2.50]. There has to be one available in the public record. You’re telling me that Amazon is taking a LOSS on every paperback sold? How could that possibly make sense?

Contracts between publishers and accounts are secret, but this loss is pretty common knowledge because the math is so obvious. The biggest accounts, based on the size of their orders, command around a 50% discount; that’s the business. Amazon is obviously charging less. As to why: I would speculate it’s because they want people to buy the Kindle. Once they have an installed user base devoted to the Kindle–and once Sony’s reader has gone the way of its Betamax–they’ll be able to charge whatever they want, just like iTunes did. Just like Gillette gave away their razors to sell the blades. Just like tobacco companies snag you with a free cigarette first.

One final note: the number of ebooks sold for 99.9% of trade titles is miniscule compared to their treeware editions; textbooks are a totally different story, but I don’t know much about that side of things. Most trade books will probably never make up the cost of converting them to ebooks. But this market will grow, so we have to jump into it with both feet now.