Amazon Hedges Ahead of Pending Apple Event

Posted by Editor on Jan 20, 2010 in Amazon Kindle, Tablets

In a sign that the party is coming to an end for Jeff Bezos, it was announced today that Amazon would be changing their royalty sharing model from the truly paltry 25-30% they were offering before to up to 70%. This comes with some strings as explained by Mashable:

To be able to get the 70 percent royalty deal, the list price for your title must be both between $2.99 to $9.99 and be 20 percent below the lowest physical book price; title also must be “offered at or below price parity with competition, including physical book prices”. The title also needs to be included in a broad set of features in the Kindle Store, e.g. text-to-speech. Finally, the title must be made available for sale “in all geographies for which the author or publisher has rights”

Personally I’m a bit surprised that Amazon is clinging to these sorts of conditions. This will play right into Apple’s hands who are surely to offer their standard 70/30 deal on the iTunes Store for book publishers with much less of these kinds of conditions.

Amazon’s new format is called the Digital Text Platform and unfortunately for publishers comes with a host of fees attached that may push them further away from Amazon and over to Apple where the fees are likely to not exist. Techcrunch has some details on Amazon’s proposed pricing plan.

Delivery costs will be based on file size and pricing will be $0.15/MB. At today’s median DTP file size of 368KB, delivery costs would be less than $0.06 per unit sold. This new program can thus enable authors and publishers to make more money on every sale. 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.

If Amazon’s plan is to draw a sharp contrast between confusing and simple, this will be an excellent move. Apple will offer a simple 70/30 split on profits with none of the restrictions to size of content or pricing. Amazon’s Kindle offers free wireless access which is supposed to make things simple for consumers. Unfortunately Amazon must turn to publishers to foot the bill for ‘delivery costs,’ which puts them at a distinct pricing disadvantage especially when compared to new competitors.

In the case of Apple, the content delivery is over existing Wifi which the consumer is already paying for or potentially over 3G network which is again the consumers burden. In other words, the delivery costs are not passed onto the publisher at all. Whether this will end up being Kindle’s Achilles’ heel or not remains to be seen.

By basing royalties on content file size Amazon is also limiting publisher options to add perceived consumer value to ebooks. At a time where most consumers are just starting to warm to the idea of viewing a book on a screen in 16 shades of grey it seems like offering a richer multimedia experience would be a better way to motivate sales.

Publishers in Talks

Meanwhile, Apple Insider reports that “secret” negotiations are taking place between Apple and nearly all (and most likely all) of the six largest trade publishers in the U.S. The talks are reportedly underway in New York as Apple preps to unveil its tablet next week.

Those involved said that it’s possible a deal may not be reached in time for the Jan. 27 event. It also noted that publishers could be “seeking greater control over pricing and supply of digital material.”

The rumors follow a report from earlier this week that Apple was in talks with publisher HarperCollins to sell e-books on the tablet, with a business model that would follow that of the existing App Store for the iPhone and iPod touch. Typical bestseller releases could cost about $9.99, and Apple would give publishers 70 percent of the revenue, while keeping a 30 percent share for itself.

Related posts:

• Amazon Kindle App Store Download Terms Restrict Developers
• Amazon Kindle Changes Strategy in Apple’s Shadow
• Kindle for iPhone – Gives Books and The Real Kindle a Run For Their Money

Tags: Amazon, Amazon Kindle, Amazon.com, App Store, Apple, iPhone, IpodTouch, iTunes, iTunes Store, Kindle, New York City