The only thing worse for an industry than a price war is a cost war, and that is just what Amazon.com
The leading online retailer is offering a 70% royalty option on e-books, double the 35% rate that has held firm since the Kindle's launch in the fall of 2007.
Why is the doubling of the commission schedule not automatic? Why make authors and publishers opt-in to the new rates? Well, Amazon has several conditions tied to the higher payout rate.
- The content creators will have to foot the delivery costs. This is not a deal breaker, since the median tab on a digital book being sent out is a mere $0.06 apiece.
- The list price must be between $2.99 and $9.99. Most books fall into this range anyway, but it's going to keep prices honest when a publisher can make more off a $9.99 e-book than an $18.99 e-book.
- Amazon's price must be 20% below the list price of the physical version. Here is where things start to get interesting, as Amazon begins to make sure that it's offering Kindle owners a more attractive value proposition than buying the actual books.
- Kindle books under the 70% royalty umbrella will have to include a growing set of reader-friendly features, including the text-to-speech option that some publishers balked on, fearing that they will lose out on audiobook sales.
- Books on the higher commission schedules cannot be offered at lower price points elsewhere. Amazon will automate the process, so it can adjust to any changes through Sony
(NYSE:SNE), Barnes & Noble (NYSE:BKS), and eventually Apple (NASDAQ:AAPL).
Ah, yes -- Apple. This is really ultimately just a preemptive strike against Apple. Everyone knows that the tablet computer is coming. Reports surfaced this week that Apple is already in talks with News Corp's
Amazon hasn't really been challenged by potential Kindle killers in the past, but Apple is a different critter altogether when it begins cranking up the hype machine. The "iTablet" will likely cost a lot more than the entry-level $259 Kindle, but it will also likely do a lot more. Anything that Amazon can do to disrupt Apple's game plan -- especially as it raises expectations for what publishers can get in digital deals -- may sting in the near-term, but will hopefully pay off in the long run.