Amazon has announced that it will pay a 70% royalty to content providers who use the Kindle Digital Text Platform (DTP) to upload e-books.

Up to now the Kindle  royalty has been pegged at approximately 50% of the publisher’s list price, but Amazon may be responding to the pressure generated by its major rivals Apple and Google, which have publicly stated royalties of 70% and 63% respectively. The move also appears to be tied to speculation that Amazon is withdrawing support for its wholly owned e-book platform Mobipocket (see Is Mobi a Dying Whale?). For years Mobi has served as the go-to place for publishers to upload files destined for the Kindle, but with the Kindle DTP program Amazon is clearly going in another direction.

Royalty? 70%.  But…of What?

At first glance the new 70% royalty would appear to be a no-brainer for  publishers and authors, 70% being more than 50%, right?  Well… not so fast.

For one thing, you are prohibited from charging more than $9.99 for your e-book. Commitment to Kindle’s DTP price structure will preclude content providers – such as the five major publishers that signed agreements with Apple – from selling their e-books on the iPad at Apple’s suggested retail prices of $12.99 to $14.99.

For another thing, the 70% royalty is calculated not on the publisher’s list price but on the actual price charged by Amazon.  If your book’s list price is $9.99 and Amazon charges customers $9.99, then yes, you’ll make out well with a royalty of $6.99.  However, if Amazon offers your book at $4.99 your 70% royalty will be $3.49. And the deeper that Amazon discounts the book’s price the lower your royalty goes.

How deeply could Amazon discount your book?  If there were a price war the list price could go very low indeed.  Could there be an e-book price war? Recently Barnes & Noble discounted the list prices of many books to as low as $3.21.  If Amazon matched that price, your 70% royalty would be $2.25. And with new retailers coming into the business, the prospects for price-cutting are not insignificant.

Playing It Safe with 35% of List Price

If you don’t have the stomach for that kind of roller coaster ride or have better things to do than track your book’s list price on the Kindle Store daily – and if you’re a publisher you could be tracking hundreds or thousands of them – Amazon offers you an alternative: a straight and unvarying 35% royalty based on the list price of your book.  For a $9.99 book that means a $3.50 royalty. No matter how low the Kindle price for your book goes, you’ll still get that $3.50.

Playing the Royalty Game

For gamblers who like playing the ends against the middle, Kindle permits content providers to switch from the 70% net royalty to the 35% list price royalty, something you might want to do if your books are caught in a price war. The new royalty will kick in within 48 hours from the time you issue the command, according to Amazon’s pricing page. How easy it will be for large publishers to switch over from one mode to another, we can’t say. If it means manually clicking on hundreds and hundreds of titles, that will be a problem. If e-book prices go back up again you can switch back to 70%, and switch back and forth as often as you want. On the other hand, if you want to speculate in futures it might be easier to day-trade pork bellies.

Another thing you need to know is that the 70% royalty applies only to US sales.  Royalties for non-US sales such as the UK are calculated at 35% of list price with no other option.

Mega-Bite Out of Your Royalties

But there’s more:  Amazon will now charge content providers for delivering e-books to customers, a little like airlines charging fliers for luggage. The charge is fifteen cents per megabyte but no less than one penny. We at E-Reads have measured the file size of our e-books and determined that a typical book is about 2 megabytes: a large one might be 3 MB. That translates to $.30 and $.45 respectively and it comes off the top. On a $9.99 title sold at 70% discount, that’s a levy of somewhere between 3% and 4 1/2% for a book of average length.  But if the list price is heavily discounted, as in the example above where your royalty is $2.25, Amazon’s bite on your pay check will be roughly between 7% and 11%.

We’re not aware of other retailers charging for delivery of content, but the prospect of Amazon’s rivals picking up on the practice should be of concern to all content providers.

There are some other significant restrictions and conditions which you can – and should – read here.

If you’re a gambler who likes action and want to play the odds, the new Kindle royalty structure is your game.  If you’re an author or publisher, you could make out very well if list prices stay high. But you could also take a bath if there’s a price war.  You may decide to opt for the safe, straight 35% of list price. But bear in mind that that’s 30% less than the 50% that Amazon was paying you before The Great Change. If you add the delivery charge the net proceeds to you are even smaller.

To read Amazon’s announcement in its entirety, click here.

Richard Curtis

Pricing Page

1. Royalty Options. Subject to the limitations set forth in this Pricing Page, for each Digital Book, you may choose, in accordance with our then-current procedures, either the 35% Royalty Option or the 70% Royalty Option, each described below.

a. 35% Royalty Option.

i. The Royalty for the Digital Book will be equal to 35% of the applicable List Price for the Digital Book.

ii. For any Digital Book for which you select the 35% Royalty Option, at all times that the Digital Book is available for sale through the Program, you must adjust the List Price as required to ensure that the List Price, plus any applicable VAT, does not exceed the lowest of: (a) the lowest suggested retail price or equivalent price for any digital or physical edition of the Digital Book; (b) the lowest price at which you list or offer any digital or physical edition of the Digital Book on any website or other sales channel; and (c) any maximum List Price we provide from time to time in the Program Policies.

b. 70% Royalty Option.

i. The 70% Royalty Option is only applicable to sales to United States customers, so if you choose this option, the Royalty on sales to non-United States customers will be as provided under the 35% Royalty Option.

ii. The Royalty will be equal to 70% of the amount equal to the applicable List Price for the Digital Book less the Delivery Costs (as defined below) for the Digital Book. But if we sell the Digital Book at a price below the List Price to match the price at which a third party sells any digital or physical edition of the Digital Book or to match the price at which we sell any physical edition of the Digital Book, the Royalty will be equal to 70% of the amount equal to the price at which we sell the Digital Book less the Delivery Costs for the Digital Book. Our determinations regarding price-matching are final and non-reviewable. If you object to our price-matching determination with regard to one of your books, your sole and exclusive remedy is to switch your Royalty option for future sales of the Digital Book to the 35% Royalty Option as described below.

iii. The Delivery Costs for a Digital Book will be equal to $0.15 multiplied by our determination of the number of megabytes your Digital Book file contains, once uploaded by you and converted by us into our then-current Digital Book format. One megabyte equals 1024 kilobytes. One kilobyte equals 1024 bytes. We will round file sizes up to the nearest kilobyte. The minimum Delivery Cost for a Digital Book will be $0.01 regardless of file size.

iv. Example: If your book has a file size of 0.400 megabytes and a List Price of $8.99, the Delivery Cost will be $0.06 (0.400 MB x $0.15 = $0.06), and your Royalty will be $6.25 (($8.99 – $0.06) x 70% = $6.25).

v. For any Digital Book for which you select the 70% Royalty Option, at all times that the Digital Book is available for sale through the Program, you must adjust the List Price as required to ensure that the List Price does not exceed the lowest of: (a) the lowest suggested retail price or equivalent price for any digital edition of the Digital Book; (b) the lowest price at which you list or offer any digital edition of the Digital Book on any website or other sales channel; (c) 20% below the lowest suggested retail price or equivalent price for any physical edition of the Digital Book; (d) 20% below the lowest price at which you list or offer any physical edition of the Digital Book on any website or other sales channel; and (e) any maximum List Price we provide from time to time in the Program Policies.

vi. The 70% Royalty Option is not available for Digital Books that consist primarily of public domain content, and by selecting the 70% Royalty Option for a Digital Book, you confirm that it does not consist primarily of public domain content. If you select the 70% Royalty Option for a Digital Book that we determine consists primarily of public domain content, we will be entitled to change the Digital Book to the 35% Royalty Option retroactively and to pay you Royalties and adjust your previously reported or paid Royalties based on the 35% Royalty Option.

vii. If you select the 70% Royalty Option for a Digital Book, you must make it available to us for distribution in each territory for which you have appropriate distribution rights, and you must comply with any other restrictions or requirements we may provide from time to time for the 70% Royalty Option in the Program Policies.

viii. If at any time your Digital Book does not meet the requirements for the 70% Royalty Option, the Royalty for the Digital Book will be as provided in the 35% Royalty Option.

ix. Any new feature incorporated into the Program will apply to all Digital Books distributed under the 70% Option even if we make the feature optional for other Digital Books.

2. Changing your Royalty Option. You may change your choice of Royalty option for future sales of a Digital Book at any time through our then-current procedures. It may take up to 48 hours for your change to be effective.

3. List Price Requirements. To be accepted in the Program, your Digital Book’s List Price must meet the List Price requirements.

SEATTLE, Jun 30, 2010 (BUSINESS WIRE) –

Amazon.com, Inc. (NASDAQ: AMZN) today announced that the 70 percent royalty option that enables authors and publishers who use the Kindle Digital Text Platform (DTP) to earn a larger share of revenue from each Kindle book they sell is now available. For each book sold from the Kindle Store for Kindle, Kindle DX, or one of the Kindle apps for iPad, iPhone, iPod Touch, BlackBerry, PC, Mac and Android phones, authors and publishers who choose the new 70 percent royalty option will receive 70 percent of the list price, net of delivery costs.

Delivery costs are based on file size, and pricing is set at $0.15/MB. At today’s median DTP file size of 368KB, delivery costs would be less than $0.06 per unit sold. For example, on an $8.99 book an author would make $3.15 with the standard option and $6.25 with the new 70 percent option. This new option, first announced in January 2010, will be in addition to and will not replace the existing DTP standard royalty option.

In addition to the 70 percent royalty option, Amazon also announced improvements in DTP such as a more intuitive “Bookshelf” feature and a simplified two-step process for publishing. These features make it more convenient for authors and publishers to publish using DTP.

“We’re excited about the launch of the 70 percent royalty option and user experience enhancements in DTP because they enable authors and publishers to conveniently offer more content to Kindle customers and to make more money from the books they sell,” said Russ Grandinetti, Vice President of Kindle Content.

DTP authors and publishers are now able to select the royalty option that best meets their needs. Books from authors and publishers who choose the 70 percent royalty option will have access to all the same features and be subject to all the same requirements as books receiving the standard royalty rate. In addition, to qualify for the 70 percent royalty option, books must satisfy the following set of requirements:

* The author or publisher-supplied list price must be between $2.99 and $9.99.
* The list price must be at least 20 percent below the lowest list price for the physical book.
* The title is made available for sale in all geographies for which the author or publisher has rights.
* The title will be included in a broad set of features in the Kindle Store, such as text-to-speech. This list of features will grow over time as Amazon continues to add more functionality to Kindle and the Kindle Store.
* Under this royalty option, books must be offered at or below price parity with competition, including physical book prices.

The 70 percent royalty option is for in-copyright works and is unavailable for works published before 1923 (a.k.a. public domain books). The 70 percent royalty option is currently only available for books sold to United States customers.

DTP is a fast and easy self-publishing tool that lets anyone upload and format their books for sale in the Kindle Store (www.amazon.com/kindlestore). To learn more about the Kindle Digital Text Platform, visit http://dtp.amazon.com or e-mail dtp-support@amazon.com.

Kindle is in stock and available for immediate shipment today at http://www.amazon.com/kindle.

About Amazon.com

Amazon.com, Inc. (NASDAQ: AMZN), a Fortune 500 company based in Seattle, opened on the World Wide Web in July 1995 and today offers Earth’s Biggest Selection. Amazon.com, Inc. seeks to be Earth’s most customer-centric company, where customers can find and discover anything they might want to buy online, and endeavors to offer its customers the lowest possible prices. Amazon.com and other sellers offer millions of unique new, refurbished and used items in categories such as Books; Movies, Music & Games; Digital Downloads; Electronics & Computers; Home & Garden; Toys, Kids & Baby; Grocery; Apparel, Shoes & Jewelry; Health & Beauty; Sports & Outdoors; and Tools, Auto & Industrial. Amazon Web Services provides Amazon’s developer customers with access to in-the-cloud infrastructure services based on Amazon’s own back-end technology platform, which developers can use to enable virtually any type of business. Kindle and Kindle DX are the revolutionary portable readers that wirelessly download books, magazines, newspapers, blogs and personal documents to a crisp, high-resolution electronic ink display that looks and reads like real paper. Kindle and Kindle DX utilize the same 3G wireless technology as advanced cell phones, so users never need to hunt for a Wi-Fi hotspot. Kindle is the #1 bestselling product across the millions of items sold on Amazon.

Amazon and its affiliates operate websites, including www.amazon.com, www.amazon.co.uk, www.amazon.deb,www.amazon.co.jp, www.amazon.fr, www.amazon.ca, and www.amazon.cn. As used herein, “Amazon.com,” “we,” “our” and similar terms include Amazon.com, Inc., and its subsidiaries, unless the context indicates otherwise.

Forward-Looking Statements

This announcement contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Actual results may differ significantly from management’s expectations. These forward-looking statements involve risks and uncertainties that include, among others, risks related to competition, management of growth, new products, services and technologies, potential fluctuations in operating results, international expansion, outcomes of legal proceedings and claims, fulfillment center optimization, seasonality, commercial agreements, acquisitions and strategic transactions, foreign exchange rates, system interruption, inventory, government regulation and taxation, payments and fraud. More information about factors that potentially could affect Amazon.com’s financial results is included in Amazon.com’s filings with the Securities and Exchange Commission, including its most recent Annual Report on Form 10-K and subsequent filings.

SOURCE: Amazon.com, Inc.

Amazon.com, Inc.

Nook for $149.00. Next: $99.00? And why stop there?

The back page of today’s (June 22 2010) New York Times news section carries a full page ad for Barnes & Noble’s Nook e-book reader. The price is $149.00 for a Wi-Fi only version.  But the price of the original model introduced a year ago also dropped from $259.00 to $199.00 according to the Times’s Brad Stone. In response Amazon cut its undercut its rival, dropping the Kindle price to $189.00.

Is this the start of a price war or an adjustment that has bottomed out?  And why are prices dropping in response to the success of Apple’s iPad selling at almost three times the cost of its Amazon and B&N rivals?  Read In Price War, E-Readers Go Below $200 for some insights.

Stone quotes B&N’s CEO William J. Lynch as predicting that within a year the cost of a device will drop below $100.00, the fabled threshold below which appliances become as commonplace as pencils.  But why would prices stop there?  We have long urged the industry to consider adopting the so-called Gillette Razor model: give the device away and charge for the content. (See King Gillette and the Kindle)

A free e-reader?  As of today, we’re only $149.00 away.

Richard Curtis

According to top Penguin executives, writes Wall Street Journal’s Jeffrey Trachtenberg, the company has reached a detente with Amazon to conclude a price war that lasted about a month. The behemoth retailer, responding negatively to the agreement Penguin reached with competitor Apple, had turned off the Buy buttons on Penguin titles. The dispute centers on the fact that Apple’s business model is vastly different from Amazon’s, putting the latter at a competitive disadvantage. (For background, read Are We Capitulated Yet? Amazon Turns its Guns on Penguin.)

As part of the settlement, writes Publishers Lunch’s Michael Cader, Amazon “presumably” will switch to the same model as Apple, but if experience is any guide, in all likelihood that will result in higher e-book prices that may dampen customer enthusiasm. Penguin presumably understands that and is willing to trade curtailed sales for greater control over the way its books are sold through third parties.

RC

“What might at first seem an arcane matter — precisely when to put a movie for sale on cable systems and at what price — has been the subject of ferocious debate in a film industry that so far has stopped just short of embracing the digital revolution.”

Does that sound familiar to you? Denizens of the publishing industry will recognize the answer instantly: It’s about “windowing” movies.

While the book industry debates the timing of e-book releases of print books, movie companies are trying to figure out the best timing for cable release of theatrical motion pictures. A big difference between the two industries, however, is that the movie business now has US government “permission to activate technology to protect new releases from being copied if they were sold through video-on-demand systems before being issued on DVD.” This according to Michael Cieply of the New York Times.

Cieply writes that the Federal Communications Commission okayed technology called ’selectable output control’ that “can reach into a customer’s home video player and turn off its video outputs while a pay-per-view program is being watched, to prevent the program from being copied.”

The technology reflects the ire of movie theater owners “who have been fiercely protective of the exclusive period during which they have customarily served up the major studio pictures,” the Times article explains.

You can easily replace the players in this story with “Publishers”, “Authors”, ” E-Books” and “E-book Retailers.  The difference is, the book industry doesn’t have “selectable output control” to regulate windowing – bookbiz-ese for withholding – release of e-books, either legitimate ones or the pirated version.

Read details in Filmmakers Tread Softly on Early Release to Cable

RC

As of this writing, the top ten titles on Amazon.com’s Kindle bestseller list are free. Does that devalue the list in your mind?

Before you say yes, ask yourself whether you’d rather have a #10 book on the for-pay bestseller list or a #1 on the free list? Motoko Rich, former book biz reporter for the New York Times, wrote that “if a free e-book rises to the top of the Kindle best-seller list — or Barnes & Noble’s ranked list of free e-books — it automatically gives an author more visibility. ‘When you push to No. 1 of any best-seller list, that in itself seems to beget publicity,’ said Brandilyn Collins, who writes suspense novels with Christian themes and whose novels “Exposure” and “Dark Pursuit” were No. 1 and 2 on the Kindle best-seller list earlier this month and remain in the Top 10 (and are still available free).” (See With Kindle, the Bestsellers Don’t Need to Sell.)

Whether you see it that way or not, Amazon has decided to split off the frees from the for-pays. Publishers Weekly’s Rachel Deahl reveals that Amazon’s practice of lumping the two together “will soon no longer be an issue. A representative at the e-tailer has confirmed that the company will be splitting its Kindle bestseller list, creating one list for paid books and another for free titles. The date for the switch is vague—the rep would only say it will happen in ‘a few weeks’—but the switch will certainly be noticed.”

As counterintuitive as it may sound, I’m not sure I think this is a completely desirable shift.  While traditional listkeepers would recoil in horror at the idea of folding giveaway e-books into the paid bestseller list, digital technology has turned so many traditions on their ear – why not this one?  As I said to Ms. Deahl, who interviewed me for her article, popular free e-books reveal as much about consumer tastes as popular sold ones.

Another consideration is scale. Maybe it’s more important for the fledgling e-book business to concern itself with quantity rather than quality. Bestseller lists are generated by the velocity of sales in any concentrated time period. Most free e-books, like most paid ones, sell at a modest velocity.  Perhaps we can learn from those that move rapidly, even if some of them do so because a publisher is hyping them.

That said, splitting the list does give us a significant new way to judge e-book consumption.  We can now compare what people are reading to what they are buying.

The changeover in Kindle metrics may have another effect, according to Ms. Deahl: “After Amazon splits its lists, writers may soon find more competition—and potentially less payoff—for getting to the top of the free downloads list. Then again, maybe not. Getting to the top of any heap, as author Brandilyn Collins told Rich in the Times, is a good thing.”

By the way, we should take a cue from Ms. Deahl and refer not to “free bestsellers”, a grammatical car wreck if there ever was one, but to the “free downloads list”.

In any event, do read Amazon to Drop Free Books from Kindle Bestseller List

Richard Curtis

Every Blogger owes a debt of gratitude to newspapers and magazines. This posting relies on original research and reporting performed by the New York Times and Publishers Weekly.

“We will not only undersell Amazon, but we make this guarantee: if you find a book cheaper on Amazon, we’ll refund the difference plus 10 percent.”

That’s the offer that Borders Australia made to its customers as reported by Neerav Bhatt in ITnews.com.au. The feisty antipodal book chain “announced plans to launch online bookstores powered by e-books download service Kobo and sell its own e-book reader devices,” writes Bhatt.  Kobo expects to launch on May 19th with over 1 million e-books, newspapers and magazines.

Casually mentioned in the story is the projected list price of Kobo’s reading device: AUS $200. That’s $180 in Yankee dollars, about US $80.00 less than the Kindle.

Has anyone noticed that e-book prices are coming down, and royalties going up?

While you ponder, read Borders Australia Lays Down Challenge to Amazon.com

Richard Curtis

What Would Teddy Do?

Is there an app for We’re Suing Your Ass?

The New York Post reports that the Department of Justice and the Federal Trade Commission are seriously looking into antitrust violations by Apple over its policy of requiring developers to use only Apple tools in the creation of apps.  A similar action against Microsoft ended in a similar unbundling.

“Regulators, this person said, are days away from making a decision about which agency will launch the inquiry,” writes the Post’s Josh Kosman. “It will focus on whether the policy, which took effect last month, kills competition by forcing programmers to choose between developing apps that can run only on Apple gizmos or come up with apps that are platform neutral, and can be used on a variety of operating systems, such as those from rivals Google, Microsoft and Research In Motion.”

“After years of being the little guy who used Washington to fend off Goliaths like Microsoft, Apple CEO Steve Jobs is about to learn what life is like when the shoe’s on the other foot,” writes Kosman.

We couldn’t have said it better, and we’re not going to try.

Read details in An antitrust app: Apple may be in the eye of regulatory storm

Richard Curtis

Who can forget the hot war that broke out last January between Macmillan and Amazon, ending with Amazon capitulating?  (See Publishing’s Weekend War: 48 Hours that Changed an Industry)

But if you thought that Amazon had made peace with the publishing industry you obviously missed a posting we ran a few weeks ago reporting that Amazon Launches Spring Offensive.

You’ll remember that the original clash with Macmillan was over the introduction by Apple of a new business model for retailing books on the iPad. When Macmillan defied Amazon’s threats by signing with Apple, Amazon dimmed the Buy Buttons on Macmillan titles.

The quarrel with Penguin is over the same issue, but this time Amazon’s tactic is to sell Penguin’s books far below the prices offered by Apple. It may not be as high-profile as pulling the plug on Macmillan, but it sends an iron-fisted message to publishers who have committed to Apple or are thinking about it.  Gizmodo covered the confrontation with this bald headline: Amazon Stabs Penguin in the Throat With Ebook Pricing for Real Books.

The  skirmish was disclosed by Wall Street Journal’s Jeffrey A. Trachtenberg. “In the latest round of the book pricing wars,” writes Trachtenberg, “Amazon.com Inc. has begun selling a number of new hardcover books published this month by Pearson PLC’s Penguin Group (USA) for only $9.99 amid a dispute between the two companies over electronic books. Penguin stopped providing digital editions of new titles to Amazon as of April 1 because Penguin and Amazon haven’t yet struck an agreement on a new ‘agency’ pricing model, in which publishers set the retail prices of their e-books.”

Does Amazon have the right to cut Penguin prices so radically? That’s for Amazon to know and Penguin to find out.

The unfolding drama will make for some prime spectating over the next few months. Meanwhile, check out Trachtenberg’s Amazon Cuts Prices in Tiff With Penguin.

Richard Curtis

Every Blogger owes a debt of gratitude to newspapers and magazines. This posting relies on original research and reporting performed by The Wall Street Journal.