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We have an existence proof that eBooks can be sold at lower-than-paperback prices: Baen Books and Webscriptions.net. Their standard price for an eBook is $6.00 (quantity one), with many bundles that lead to lower prices per included book. Webscriptions covers its costs, and is the main business for the gentleman who runs it. Baen makes more money from eSales than from all non-U.S. dead-tree sales combined (Canada included!). It's quite profitable, even after charging the eBooks their pro-rata share of all the fixed costs (editing, overhead, etc.). They also start that $6.00 price before the hardcovers even hit the bookstore!
Authors royalties on an eBook sale are better than for a Trade Paperback (the "fancy" hardcover sized paperbacks), but not as good as Hardcover. Of course that's way better than the royalty on a mass-market paperback (the normal kind).
My net cost per book from Baen -- after considering the effect of bundles -- is about $3.40 per book. And yes, I did remember not to count books that I wound up purchasing more than once due to bundles.
And all the books are DRM-free!
Xenophon
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