Under this option, Amazon will pay authors and publishers a royalty of 70% of the list price of Kindle books, which is a far higher per-copy royalty than most authors receive on physical-book sales (including the standard Kindle book royalties).This new plan will encourage more authors to “go direct” to Amazon (or at least force their publishers to sell e-books at a substantial discount). This, in turn, will increase the pressure on traditional publishers to cut prices on wholesale Kindle books. And that, in turn, will transform the Kindle business from a big money-loser into a very profitable business for Amazon.
The new royalty plan comes with some strings attached, all of which are designed to further Amazon’s goals here:
- The author or publisher-supplied list price must be between $2.99 and $9.99. This is designed to force a big difference between the physical-book price and the Kindle price, which traditional publishers are currently desperate to avoid (good luck).
- This list price must be at least 20% below the lowest physical list price for the physical book. Ditto.
- The title is made available for sale in all geographies for which the author or publisher has rights. This gets around the typical regional royalty deals, putting pressure on publishers worldwide.
- Books must be offered at or below price parity with competition, including physical-book prices. This one is aimed at other e-readers, a slew of which have recently hit the market. Want your fat 70% royalty? Then you can’t go cut a sweetheart deal with Barnes & Noble for the Nook.
This looks like a brilliant play from Amazon. E-book prices need to (and should) drop substantially: When the cost of an incremental sale is near zero, publishers have no business charging physical-book prices. The traditional publishing industry moans that cuts in e-book prices will wipe out what little margin the publishers have left, thus preventing publishers from paying authors big advances and, thus (be afraid! be afraid) result in fewer good books being published.
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