January 20, 2010 / 1:00 PM / 8 years ago

Amazon, pre-empting Apple and Google, ups royalties

NEW YORK (Reuters) - Amazon.com Inc will offer higher royalties on the discount books sold for its popular Kindle electronic reader in a move to boost profitability and preempt the anticipated entry of Apple Inc and Google into the e-book market.

Under the new program, which takes effect on June 30, Amazon will pay authors and publishers 70 percent of a book's list price, net of delivery costs. The plan is limited to e-books whose list price is between $2.99 and $9.99.

Amazon says the Kindle has sold briskly since its introduction in 2007, but the online retailer is facing pressure from publishers concerned about dwindling royalties, as well as new, formidable entrants that could squeeze what e-booksellers make from each title.

"We believe that the move is a preemptive measure in advance of next week's Apple iSlate announcement and the pending launch of Google's online bookstore," Lazard Capital Markets analyst Colin Sebastian wrote in a research note.

Apple is widely expected to unveil its tablet computer, which could also function as an e-reader, at a special event next week in San Francisco.

"You can bet that Amazon has heard specific numbers from people who are talking to Apple and is trying to respond," said Forrester Research analyst James McQuivey. "Essentially, Amazon will match whatever pricing Apple is giving people."

Earlier this week, the Wall Street Journal said News Corp's HarperCollins Publishers unit was negotiating with Apple to make e-books available for its tablet. The publisher would set prices for the e-books, and Apple would take a percentage of sales, the report said.

Amazon shares closed down 1.4 percent at $125.78 on Wednesday.

SQUEEZING PUBLISHERS

Amazon and rivals such as Barnes & Noble Inc and Sony are jockeying to offer as many titles as possible in their e-bookstores to make their devices the most attractive.

Despite the new royalty plan, relations are likely to remain strained with publishers who are still smarting from last year's price war involving low-cost books sold online by Amazon, Wal-Mart Stores Inc and Target Corp.

Lazard's Sebastian said in his note that Amazon's top priority for e-books will remain low prices which fuel consumer adoption of the Kindle.

Publishers will stay most concerned with what lower retail prices for e-books will do to demand for higher priced hardcover books, McQuivey said.

"In the long term, publishers are worried about the changing perception of the worth of a book," McQuivey said.

Authors typically get between 7 percent and 15 percent of the list price for their physical books, or 25 percent of the net proceeds publishers get for their digital books, Russ Grandinetti, vice president of Kindle Content, said in a statement.

The higher royalty program is also restricted to books whose list price is at least 20 percent below the lowest for the physical book, Amazon said.

UBS estimated earlier this month that Amazon had sold 1 million Kindles in the fourth quarter. Forrester expects U.S. consumers to buy 6 million e-readers in 2010, with many opting for the industry-leading Kindle.

Barnes & Noble and Borders Group Inc both declined to comment on whether they it would change their royalty plans, while Amazon and Apple did not return requests for comment.

Reporting by Phil Wahba; additional reporting by Nivedita Bhattacharjee in Bangalore; editing by Derek Caney, Lisa Von Ahn and Andre Grenon

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