I would have thought the cost of producing an e-book would be less than producing a paperback?
Honestly, it comes out about even, except that publishers cannot off-load their unsuccessful e-book stock to remainder houses to recoup their up front investment. (Which of course cuts both ways, as I can't re-sell the license to a DRM'd ebook, either.)
There are expenses that remain constant regardless of format, including staffing costs for editing, design, layout and promotion, legal costs in negotiation for author's rights, author's royalties, and the biggy of media buys and travel costs for promotion of the frontlist.
With paper books you incur printing, transportation and warehousing costs, but of those only the first is actually paid by the publisher. Wholesalers carry the other two. With electronic books, publishers bear the entire cost of formatting for the various reader formats sold by the ebook retailers, hosting the content in those formats, and paying IP attorneys and IT professionals to make sure that security is preserved and electronic rights are protected. (rights agreements and anti-piracy actions)
At first publishers were content to let wholesalers such as
Amazon, B&N, and Sony foot the bill (and the risk) for developing platforms and promoting the idea of e-books, and thus charged them a bit less for the content, but now that the market is is becoming profitable they realize that they will be able to make more money if they manage to cut out the wholesalers. This has been happening for a while now with academic publishers, and I predict it will quickly move to the trade houses. As far as the publishers are concerned, as long as they have to pay for all that infrastructure anyway, why not sell directly to the consumer and keep a tighter rein on costs?
The advantage in ebooks from a publisher POV is that they believe that buyers will pay a premium for the convenience of getting the books instantly, anytime, anywhere, and taking advantage of value-added features like being able to enlarge the font, search the text, and annotate, etc., and also the storage advantage.