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
Mobipocket is a cross-platform e-book format developed by a French team at the dawn of the e-book revolution. It was the earliest attempt to make a one-size-fits-all program and for years the most successful. Then Amazon acquired it and reversed its polarity, turning it from a universal format to an exclusive closed system. That system became the Kindle. E-book publishers wanting to convert files for the Kindle use a variant of Mobi called eBookBase.
According to Diesel founders Scott Redford and Kelley Allen. you can kiss your eBookBase goodbye. “Last month,” they report on the Diesel website, ” eBookBase informed their client base that they had no current or future intentions of renewing their contracts with the Agency Five (Hachette, HarperCollins, Macmillan, Penguin and Simon & Schuster) and that they were pulling all A5 books off our site.”
Redford and Allen have looked at some other examples of a fading MobiPocket presence and wonder Are We Witnessing the Slow, Agonizing Death of Mobipocket?
It makes sense to us. A whole new suite of tools has burgeoned since the program was introduced and it just may be that the time has come to deep-six Mobi. Au revoir, cher ami!
Richard Curtis
Although it was only alluded to once by Mobipocket in public, the Mobipocket iPhone application is potentially Amazon’s best weapon for indoctrinating more Kindle customers and pulling the Mobipocket format away from obscurity. So, where is it?
At the IDPF conference in May, 2008, I watched Martin Gorner of Mobipocket state to the audience that they had plans to release the Mobipocket reader for more platforms, including the iPhone, before the end of the year. Mobipocket is tightly leashed by their owners, Amazon, so this was great news for Mobi fans. Mobipocket has never really supported any Apple OS before, and my brain enumerated the possibilities of a Mobi iPhone app. My first thought was that this could be the start of some really wonderful synergy for Amazon’s Kindle, because they’d be foolish not to join forces in a new application. And besides adding Apple support, maybe they planned to really update the Mobipocket Reader software and create a user experience on par with the Kindle’s user-interface or Adobe’s Digital Editions.
Just imagine that you could have a similar Kindle experience on your iPhone, shopping for books wirelessly, using a built-in dictionary, taking notes, etc, and at the end of the session all your book data would be sync’d with your Kindle account and back to your Kindle (through the Kindle’s wireless connection), if you had one. Amazon would sell more books, people might upgrade to Kindle devices for the larger screen real estate, and the Mobi format would really come alive, too, if its DRM was supported. It would just require Mobi and Amazon to allow readers to keep both their Mobi and Kindle purchases in the same library and allow for note/bookmark data in the cloud (on Amazon’s internet servers), so that customers’ libraries could be re-downloaded and synchronized across devices. Add special location aware services (via the iPhone’s GPS), special note export features (for bibliographies and personal footnotes), and then I’d be impressed.
Well, by the end of 2008 this never materialized. In December, Chris Meadows of the blog TeleRead surmised that Amazon put the whole project in the deep freeze so it wouldn’t undermine Kindle sales (“The mysterious case of the missing iPhone Mobipocket reader” and “Is Amazon sitting on the Mobipocket iPhone client after all?“). An anonymous source apparently told Chris that “Mobipocket had its iPhone reader complete and ready to ship as of August—but Amazon.com did not permit them to release it.” That isn’t hard to believe, but I hope there’s more to that story. I’d like to know why. Does Apple have secret ebook plans that Amazon is aware of?
In the meanwhile, other contenders have stepped up to the plate, offering E-Book software for the iPhone that comes close to the full potential, but not without limitations. For readers who take the time learn how to crack the DRM on their purchased E-Book files, BookShelf is an iPhone application that can read Palm .PDB and Mobi .PRC files, as well sync with “Shelf Servers,” which are libraries of content on the internet or on your computer (there are E-Reads’ books at Baen Webscriptions‘ Shelf Server). And, of course, there’s the popular Stanza iPhone application, that is a wireless Fictionwise storefront (with access to your Fictionwise eReader library bookshelf), as well as a terrific E-Book reader for growing ePub format. Yet despite supporting over a dozen other formats, too, eReader’s .PDB is the only DRM that works with Stanza, at the very least because of Fictionwise’s support.
Has Mobipocket lost too much time? It’s hard to tell. E-Book sales are still ramping up across all the major platforms (Sony, Kindle, eReader). Our expectations are that iPhone readers are adding to sales, not cannibalizing from other devices. The iPhone has something that the Kindle and Mobipocket should be envious of: popular mindshare with 18-35 year-olds. Every day Mobipocket or Amazon isn’t a part of that zeitgeist, it sets them as outsiders and it counts as lost revenue in the current quarter. Maybe Amazon is gambling that when they do enter Apple’s market, it will make up for all their time hemming and hawing. Maybe they just don’t see the money there, yet (but I doubt this). However, no one has delivered the perfect E-Book reader application for the iPhone yet, either. Let alone for Google’s Android or the new Palm Pre. It’s still Amazon and Mobipocket’s game to win or lose. At the very least, they can sell some ebooks. They just have to show up.
- Michael Gaudet
