OUP bigwig says ebooks will never dominate because of economic factors. Then he raised his massive, bespectacled, reptillian head into the cretaceous sky and laughed—laughed, I tell you—at the falling snow.

Trade publishing economics is predicated on the ability of retailers to mitigate their risk and return unsold inventory for full credit. (NB, not all retailers are designed this way – but the majority of bricks and mortar retailers in particular, are… especially the big box stores such as Costco who take huge positions on a relative handful of titles). So the publishers are in a funny position. To get top authors, they bid against each other and drive publishing costs through the roof. To recoup this investment, they have to pre-sell very hard and get too much inventory out onto the market, in order to bring in the cash to cover the investment. Then after some time, the unsold inventory comes back for credit, which forces us to publish more books in order to sustain our position! The cycle is never-ending and sounds all too similar to certain less than legit investment portfolios featured in recent headlines.
So what does all of this have to do with ebooks?

Well, for starters, ebooks don’t follow these rules. Ebooks are effectively sold on a consignment basis – meaning the money for the sale is distributed after the sale is made, not up front. Stores don’t buy inventory, they put the file in a database and distribute copies as they are sold. This means that ebooks don’t have a huge returns problem, but it also means they cannot generate short-term cash flow like print books do.

Furthermore, when you look at the pricing models that trade ebooks have engendered in the market, you see that publishers have allowed pricing to be controlled by forces that are looking to control over an emerging market rather than those who need to fund the content creation. Ebooks (at best) are selling for less than 50% of the hardcover price – often at 35-40%.