Amazon Heads Apple Off at the Pass With Kindle 70% Royalty Deal

Amazon announced on January 20th that is was launching a new “70% royalty option” for the Kindle. I’ve since logged into the DTP (Digital Text Platform) website and it looks like the options for the 70% royalty opt-in aren’t visible yet but I’m sure that will change soon. Basically what Amazon is offering is 70% of the list price of Kindle books to either the author or publisher (looks like it would be very easy to self-publish through DTP). This royalty rate is much, much higher than what normally is offered for printed books. There are a lot of concessions that must be made in order to get the 70% royalty deal, such as never selling your book for more than a percentage of the physical price, never charging more than $9.99, offering it in all geographies, etc.

On the surface this looks like a nice deal, and it probably is, but you know that Amazon is in it to make money and dominate market share. Their M.O. has always been to make it financially irresponsible for anyone to compete with them in a market segment that they intend to dominate. If you’re  a Trek fan, think of Amazon like the Borg. Little shops are either assimilated (become Amazon partners and give a cut of their business in exchange for not being disintegrated) or they fail. There are obviously exceptions but overall this is how it works.

Amazon’s plan here looks a lot like a plan to cut Apple off at the pass.  Apple has been in talks with Harper that we know of, which means they’ve probably been in talks with other publishers as well. The iTunes store is currently the largest media distribution hub on the planet, and certainly the most profitable. Apple is about to unleash a Tablet on the world, a 10″ piece of technocandy that will have geeks fauning and eReader lovers drooling. If Apple is allowed to create eReader buzz with their tablet, hook it up to the iTunes store so that downloading books from the tablet is as easy as downloading stuff for an iPhone, and Apple gets a bunch of publishers on board with eBook distribution through the iTunes store – you can see where this might end: with Apple dominating the eBook market the same way they dominate legal music downloads. If this happens, then the Kindle will become 2nd fiddle in a market that is rapidly expanding and gaining in popularity. Amazon doesn’t want that.

So what do they do? They offer a 70% royalty deal that includes a clause to prevent you from offering digital copies of your book anywhere outside the Kindle store to intice people into their camp. Lowered eBook prices could generate a huge increase in sales volume for eBooks, which will make publishers see more profit potential in eBooks and the entire thing becomes a self-feeding, beneficial cycle, the “network effect” as it were.

A lot of people in the publishing industry might not know this, but 70% is what application developers get as royalty from sales in the iTunes store. What this really means is that for an indie developer, the entire production chain is taken care of for them – the only thing they need to concern themselves with is building the software. There is no distribution cost to them, and Apple only taking 30% is actually a bargain considering what the independent developer might have to pay otherwise to get their application out in the world.

The conspiracy theorist in me figures that since the developer royalty rate on the App Store for the iPhone is 70%, and Apple is about to unleash a Tablet, and Apple has been talking to publishers, and Apple is currently sitting on the biggest media hub on the planet, that Amazon figures Apple’s going to offer a 70% royalty rate as well. This is why I think they’re trying to cut Apple off at the pass. They get people to start coming up with plans to adopt Amazon’s DTP, Amazon gets their hooks in, and by the time people get ahold of the Apple Tablet, they’ve sold their souls to the Kindle.

This whole business reminds me of the HD-DVD/BluRay format wars. Do I get a Kindle and read only Kindle books? Do I get a Nook and read only Nook books? Do I get an Apple Tablet and read only iTunes eBooks? At some point the house of cards will fall and there will be one winner. Only time will tell if any of this is good for the consumer and how it will change the publishing industry as we know it. As I’ve said before, the bottom line is that if authors and publishers do not embrace change, adapt, and move forward they will be left in the dust.

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