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
Amazon is NOT offering a 70% royalty. It is claiming a 30% sales commission. Although now calling itself a ‘publisher’, Amazon’s input on a Kindle ebook title is no greater than that of any other online retailer. So let’s get our definitions in a row. Best wishes. Beil
Spoken like a true champion of writers–and, incidentally, one who is taking a cut of writer income and is in danger of losing major business. Are you trying to make the case that a $2.25 royalty per sale is a BAD thing? Or that authors should give you half their income so you can “guard” against price movements? As if this all isn’t changing so fast that this whole argument will be laughable in a year?
If you are pricing your books above $9.99, you are either hopelessly out of touch with your audience or your book better be loaded with lots of goodies. And I have uploaded several dozen files and none of the delivery charges are more than fi9ve or six cents.
I know you have been at the forefront of e-rights for a long time, but right now you are just another biased voice in a world that’s changing too fast. Thanks for scaring some more writers away and back into the relative sanity of corporate publishing, though. It will give us forward-thinking authors more time to solidify our foundation for the next five years.
Scott Nicholson
http://hauntedcomputer.blogspot.com
Who is your audience for this article? I ask because your numbers seem off. For example, what is your source for original 50%? Prior to the “Great Change” as you reference it, Amazon offered a 35% rate for small/mid-presses & self-publishers using the DTP service. (I don’t know about those using, e.g., Ingram’s, but then Ingram’s takes a bit, too, doesn’t it?)
And what type of book (textbook, consumer reading, fiction, etc.) are you generalizing off of file size? Are you looking at PDFs, which are 2 to 3x a kindle file size? I doubt most fiction writers will go over 1mb unless they are mishandling formatting and inserting an ultra-hires cover in the kindle file (useless given kindle cover display). 150,000 words and a nice cover should still be able to come in under 1mb. So, again, who is your audience for this article — because I don’t see it applying to most of the current DTP users.
Finally, you are overlooking another option, one which Amazon likely is hoping at least the mid/small/self publishers will adopt — de-list from other than Amazon. Given that the amount sold by this group at Amazon seems to far and away exceed what they sell elsewhere, guaranteeing 90%+ of your sales at 70% while foregoing sales elsewhere is at least a viable choice.
The author ought to check his facts. Until the 70% deal was offered, the commission was NOT 50% as the author incorrectly says, but 35%.
I wonder how many other “facts” in the article are in error?
E-Reads’ discount to its vendors up to now has been 50%. We pay authors a 50% royalty based on our net receipts. Our files weigh in at 2-3 MB.
RC
Thanks, Richard. It’s nice to see some real numbers in this new “cloud” of mystery. I’m a little tired of hearing established authors who have already spent years developing platforms try to lure newbies into traffic with propped up income statements.
The article still continues to indicate that Amazon is offering a 35% solution that is less favorable than what it previously offered: “Up to now the Kindle royalty has been pegged at approximately 50% of the publisher’s list price, …”
At least for DTP publishers, 35% prior to new “70%” option and a current 35% for non-qualifying titles and for opt outs is no change.
I was going to say that your price matching example was wrong and that Amazon couldn’t do that. I was wrong. Amazon can do that. Ouch!
See http://forums.digitaltextplatform.com/dtpforums/entry.jspa?externalID=393 section b.ii,
However, it is not true that Amazon can discount your list price on a whim. They may only do so to price match, or if your list price exceeds the maximums given in section b.v
@ Chance Valentine – True, but remember that many e-book publishers (E-Reads included) uploaded through Mobi, where the the publisher’s share was 50% or even higher. If Amazon is indeed closing down Mobi, publishers will be forced to accept the 35% royalty – a cut of 30% of their revenue.
RC
Excellent summary, thanks.
The fact is Amazon is all about customer service and their main customers are the readers. I’m a writer, but I’m also a reader and a Kindle user, so I have an interest on both sides of the fence.
I’ve made it clear to Amazon that I don’t like the higher prices for ebooks and that I will read (and buy) more if the prices stay below $10. I’ve also made it clear to them that, as a reader, I would LOVE to see more of the money go directly to the author.
Seems like they’re responding to the reader’s needs and wishes, rather than the publishers’, which is the only viable model for them.
Keep in mind the actual financial and social dynamics of this contract.
Amazon’s routine discounts on print books cost an author nothing. I know. I have about 30 books there. The author still gets the same royalties because they are based on the list price. They may be small, say 10% (20-25% in my case), but they don’t change. In that situation, an author always wins when Amazon discounts.
Under this new contract, however, Amazon’s choice of discounts on ebooks imposes the burden disproportionately on the author. When a $9.95 book is sold for $4.95, the author gets $3.50 less, while Amazon gets only $1.50 less. And that’s before the download fees are included, on which Amazon is probably also making a profit. The greater the discount, the great those fees bite into an author’s income.
The social dynamics are even worse. Again, assume a $9.95 list book discounted to $4.95, what sort of message is being communicated to customers?
For authors, the message is that this writer ‘ain’t that good.’ Why else would the price be cut so much? Think of the bargain section at a Barnes & Noble bookstore. It’s where losers and their failed books go to die. Same dynamic here. When Amazon discounts, you look bad, so bad you may not get many more sales from the discount.
For Amazon, the message is exactly the opposite. Despite the fact that the author is paying for almost twice as much of this discount as Amazon, the message customers pick up is that “Amazon cares. Look at the great discount we’re offering customers. We love you much. Huggie, huggie.”
This did not have to be. Amazon’s contract could have split the cost of discounts they choose to make 50-50. Reducing the selling price of a book from $9.95 to $4.95 could have mean $2.50 less for both Amazon and the author. Computers can easily calculate that sort of thing. Amazon isn’t doing that. It’s being ‘generous’ at an author’s expense, but hoping customers will bestow their gratitude on it.
@Paul: Yes, that was my first thought–”but they can’t just change the price!”
…and, well, THEY don’t. They require that YOU do it. See section b.v of Paul’s link.
I can see some nasty battles about this one–for example, Apple could declare an across-the-board price cut for iBooks content that’s also available via DTP. This forces the DTP authors to price-match, reducing their income. Then Apple points out how much more money iBooks is making and wouldn’t it be nicer if you just standardized on iBooks?
On the other hand, 70% per sale is still a pretty darn big cut, and Apple would have to go a long way to match that. Authors might well respond by dropping their iBooks offerings and standardizing on DTP!
…which is, I think, what this is all about.
@RC – thanks for the Mobi clarification.
What it comes down to for me, is that Amazon wants to be able to discount a book, but not pay you the full royalty on the list price. Enter the 70% gamble.
However, if you don’t want your books discounted like crazy, just opt for the 35%. It’s what we had before anyway and we’ve mostly been doing well enough with it. It kind of sucks, but it’s the situation we agreed to originally anyway.
Since Amazon pays 35% on list price and NOT the discounted price if you pick the 35% option, there is less motivation from a dollars and cents perspective for them to discount your book if you’re under the 35% pricing scheme. There is loads of incentive for them to discount at the 70% though if another retailer is selling your book cheaper.
I may try 70% when I get something out that’s 2.99 but I will be monitoring what Amazon does very closely.
Keep in mind also that Amazon discounting, no matter what your royalty can help your sales ranks go way up. If you switch to the 35% then, once your rankings are higher, you’re being paid on list price and selling a lot more books than you were.
There is always a way to come out on top here, but people have to look at their options and stop the knee-jerk reactions.
@ Zoe Winters
Simple rule of thumb: if you elect the 70% royalty but Kindle’s price drops below half of the price you originally listed your e-book for, it’s time to switch to the 35% option.
RC
Amazon is truely claiming 30% not 70% of royalty
So three bucks is horrible? For something that costs nothing to produce?
How many writers get that much from a twenty dollar paperback from a “traditional publisher”?
Oh, and after the agent’s 15% has been removed.
Are agents and publishers getting desperate?