We're almost there folks.
The days of the subsidized Kindle -- perhaps even down to zero -- may be on the way.
Amazon.com (Nasdaq: AMZN ) announced last night that magazine and newspaper publishers will be able to begin receiving a 70% slice of Kindle-based subscriptions, net of delivery costs.
The beefed-up royalty kicks in next month, and publishers have to allow their online publications to be made available across all Kindle platforms and in all geographical regions. It's a fair compromise, given that Amazon made a similar offer to book publishers earlier this year. We've come a long way from the Kindle's early days when it was Amazon collecting the lion's share of the resulting revenue.
This doesn't mean that a $100 annual subscription will net a newspaper $70. The delivery costs will add up. Amazon's FAQ for publishers explains how the delivery costs -- currently $0.15 per megabyte -- will play out.
For example, the delivery cost of a newspaper that delivers 9.0MB/month via paid delivery methods is $1.35. If the publication costs $9.99/month, then a publisher would earn $6.05 for each subscription.
Obviously the breadth of different publications will vary, but if the example is close to the average, a royalty cut of 60.5% is still generous.
It's about Times
The top-selling newspaper on Kindle's digital storefront right now is The New York Times' (NYSE: NYT ) namesake daily, fetching $19.99 a month. If the bandwidth costs would also equal to $1.35 a month, The New York Times would be receiving $13.05 a month.
Now let's tackle the subsidization model. AT&T (NYSE: T ) knows that it can shave hundreds off a new wireless phone, because it can make that back through at least two years of contractual connectivity. Can this work for publishers? If The New York Times would offer a free Kindle to any subscriber committing to two years of its namesake paper, where's the harm -- especially if it aims at out-of-town readers first?
Over the course of two years, The New York Times would receive $313.20 in royalties. Is it that outlandish to offer a $139 Wi-Fi-based Kindle -- or perhaps even the more accessible $189 3G model -- for free?
The next two best-sellers -- News Corp.'s (NYSE: NWS ) Wall Street Journal at $14.99 a month and Gannett's (NYSE: GCI ) USA Today at $11.99 a month -- would require trickier math to make it work, but isn't it worth a shot?
Print circulation rates continue to shrink. Why not be the first newspaper company to blow this model wide open by subsidizing Kindles or perhaps even Barnes & Noble's (NYSE: BKS ) Nooks? Who knows, maybe Barnes & Noble may even lend a hand to the subsidization process if it means folks will be carrying around the Nook for two years and drumming up incremental digital download sales.
If the math makes sense -- and keep in mind that many subscribers will likely continue to stick around after the two years of contractual obligations -- the time to act is now, just in time for the holidays.
If The New York Times were to offer two years of prepaid service with a free Kindle included, wouldn't it take e-readers to a whole new level? I think so.
One thing for sure is that this is the kind of math that will never work on Apple's (Nasdaq: AAPL ) iPad -- but Amazon may want to encourage its publishers to consider the possibilities before a newspaper company begins offering a half-priced entry-level iPad under a similar arrangement.
The Kindle isn't a razor, but if they play their hands just right, the newspaper companies may be trading in their printing presses for blade factories.
Why do you think newspapers or costly magazines aren't subsidizing the Kindle? Share your thoughts in the comment box below.