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I realise people have already poked a few holes in the publishers arguments, but I thought I'd get my own tuppence in.
"including converting files to multiple formats, digital warehousing, anti-piracy protection, and content and metadata tracking."
Converting files to multiple formats - Assuming I received a formatted document, with cover images it takes minutes. Near zero cost.
Digital warehousing - Throw a buzzword in for a bit of confusion? It's not clear what they mean here. They probably mean (since they don't mention this cost anywhere) the cost of turning books into formatted text. This puzzles me, although Dale has pointed out it's not as simple as it may seem, there isn't a formatted document that gets sent to the printers as one might imagine. Fixed cost.
Anti-piracy protection - DRM. I honestly don't know if Sony and Mobipocket charge a fee to use their DRM. They may charge a one off fee, and or they may charge a per sale fee. Fixed and or marginal cost.
Content and metadata tracking - I'm not aware of this being done, other than at a very basic level. And by that I mean the genre, a few keywords, and some blurb. Zero cost.
Benefits they don't mention
Retailers cuts - Retailers cuts on electronic books have to be lower. It's much cheaper for booksonboard to run a store permanantly in stock of tens of thousands of books available to all of the English speaking world than it is for Waterstones to ensure that everybody has access to a nearby Waterstones store that's fully stocked. Retailers have much lower costs, so they'll get a lower cut. Marginal cost.
Production cost - Doesn't need printed. If there are any DRM costs per copy they are accounted for above. Marginal cost.
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But do you notice something? There's a lot of fixed costs, few marginal costs, and any benefits are marginal benefits. This means that it's a whole lot cheaper to do electronic books than paper books, so long as you're selling lots of them. With a market of 1% then the fixed costs are much more significant. Perhaps that's why they're telling authors that they can't support a model with 25% royalty as opposed to 15%.
However, there's no reason why this can't be changed. Tell authors that the book has to be formatted in RTF or MS Word, HTML, or ISO document or whatever. Bang goes the fixed costs. The publisher just takes the document, wraps it up in DRM and Mobipocket and Sony format and it's ready to sell.
There's three "real" costs, and no more.
1) Production (I.e. getting the book into a formatted document, what they referred to as Digital Warehousing)
2) Administration (Wrapping it up in the right format, issuing it to retailers, dealing with the author, other administration)
3) DRM
If they can get rid of the production cost, which is very possible, they can get rid of the majority of the costs and leave themselves with the administration and DRM payments. DRM payments would be a percentage of sales, so a very simple factor in the price, and since they're a marginal cost it's a cost that can be largely ignored, because you don't need to project how many you'll sell.
The administration costs are what might cause a change in the industry. Given that the other costs can be negated then if a traditional publishing house can't do the administration and pass on a 25% royalty, then another publishing house will do it. The problem with that is that authors very likely can't turn round and sell the paper rights to one publishing house, and the electronic rights to another. The paper rights are worth far, far more at the moment.
I'd suggest that publishing houses need to get their house in order before the market share on electronic books significantly increases. And I'd also suggest that authors shouldn't worry about getting crap royalties at the moment, since electronic sales mean very little to their pocket, and when they start meaning more to their pocket they can agree new terms, or switch publisher.
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