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Right on Schedule, Amazon Changes the Arithmetic of Publishing By Launching 70 Percent Royalty Option for Kindle Digital Text Platform

By Stephen Windwalker, Editor of Kindle Nation

Right on schedule, Amazon followed through today on the promise it made in January to offer a direct 70 per cent royalty option to authors and publishers who use the company’s Kindle Digital Text Platform. 

As we said here when Amazon made its initial announcement January 20, the effective doubling of direct author royalties is “a move that is likely to bring dramatic changes in the way that authors and publishers view their ebook publishing options.”

The 70 percent royalty option will also have an enormously beneficial effect for Kindle owners and other Kindle content customers, in part because it will further accelerate the velocity with which new content comes to the Kindle Store. Equally important, the conditions upon which eligibility for the 70 percent royalty option is based will be a powerful force in organizing Kindle content prices into a mandatory $2.99 to $9.99 price range and setting a maximum price ration of 4:5 between a qualifying Kindle book and “the lowest list price for the physical book.”

How big a change is the new royalty option? It’s more than just a matter of upgrading DTP royalties from their previous 35 percent level, although that’s nothing to sneeze at. Instead, Amazon vice president of Kindle Content Russ Grandinetti suggested in the January 20 press release, it has the potential, for authors and indie publishers, to transform the economics of trying to earn a living by writing and publishing:

“Today, authors often receive royalties in the range of 7 to 15 percent of the list price that publishers set for their physical books, or 25 percent of the net that publishers receive from retailers for their digital books. We’re excited that the new 70 percent royalty option for the Kindle Digital Text Platform will help us pay authors higher royalties when readers choose their books.” 

The stunning arithmetic involved here is bound to get the attention of well-established authors who have plenty of choices when it comes to publishing their books, because all of those choices, at present, involve far lower per-unit compensation. As always, the point where the rubber hits the road in these equations involves the number of units that becomes the multiplier for per-unit royalty rates, and more than a few mid-list as well as bestselling authors are likely to get out their pencils and try to calculate how important their publishers are in generating book sales.

In an interview last week on Len Edgerly’s The Kindle Chronicles podcast, Grandinetti directly questioned the roles both of publishers and of Amazon and its retail competitors as intermediaries in the changing worlds of publishing and bookselling:

“Any of us in this business, publishers and retailers, aren’t that necessary. Really the only things that you need are an author and someone interested in his or her work, and all of us in the middle have to figure out how to add value between those two parties….

“We’ve long said that part of our work is to become a more efficient retailer, a more efficient intermediary between suppliers, publishers, authors, and cusrtomers and I think we’re reasonably well known for working hard to lower prices for customers. But if we think about authors as our customers, then making it easier and more feasible for an author to sustain a living writing is a great way to make our store better and to grow our business, so taking some of the efficiency that digital book publishing affords us and passing some of that efficiency back on to authors is a really great way to let digital publishing and digital bookselling drive a better customer experience.

“There are myriad examples out there of authors how self publishing allows them to earn a better income at their craft. We’re happy to take advantage of it but I don’t think we’ll be the only ones. That’s just going to happen as the book business shifts more and more to digital,” said Grandinetti.

Under this new royalty structure, no DTP author with an understanding of the rules and of simple price-demand elasticity would ever price a book between $10 and $25, and few authors with any confidence in their product would ever price a book below $2.99. (This royalty structure does not yet apply to larger corporate publishers under the agency model, but they may create pricing trends that could affect all publishers, and Amazon has shown an interest in publisher parity and may try to move gradually in the future to bring larger publisher contracts into conformity with this structure.)

Here’s how royalties would play out at various price points, assuming a net delivery cost of 6 cents per unit:

Retail   Royalty   Net      Royalty
Price    Pct.      Delivery


$0.99    35.00%    $0.00    $0.35
$1.99    35.00%    $0.00    $0.70
$2.99    70.00%    $0.06    $2.03
$3.99    70.00%    $0.06    $2.73
$4.99    70.00%    $0.06    $3.43
$5.99    70.00%    $0.06    $4.13
$6.99    70.00%    $0.06    $4.83
$7.99    70.00%    $0.06    $5.53
$8.99    70.00%    $0.06    $6.23
$9.99    70.00%    $0.06    $6.93
$10.99    35.00%    $0.00   $3.85
$11.99    35.00%    $0.00   $4.20
$12.99    35.00%    $0.00   $4.55
$13.99    35.00%    $0.00   $4.90
$14.99    35.00%    $0.00   $5.25
$19.99    35.00%    $0.00   $7.00
$24.99    35.00%    $0.00   $8.75
$29.99    35.00%    $0.00   $10.50

Here’s the guts of the Amazon press release this morning:

70 Percent Royalty Option for Kindle Digital Text Platform Now Available
Starting today, authors and publishers can earn more royalties from every Kindle book sold

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.

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