A Power Shift in the Publishing Industry

| About: Amazon.com, Inc. (AMZN)
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Amazon (NASDAQ:AMZN) has just announced a hugely significant deal to publish $9.99 Kindle exclusives of, for now, 20 of the great classics of contemporary literature from, mostly, the second half of the 20th century, and the publisher is a literary agency, The Wylie Agency. This news will have earthshaking ramifications for the Kindle catalog, for readers, and for authors, publishers, and literary agencies: yes, The Wylie Agency is a literary agency, not the publisher John Wiley, and this represents the first major foray by a literary agency into the world of Kindle content publishing, but not the last, but more about that later.

So, the power shift in the publishing industry continues, and we're seeing some signs that there's an A-list of players holding the trump cards: authors, agencies and Amazon.

As with all Kindle book, there's no Kindle required for reading these titles, since Amazon provides free Kindle apps for the iPad, iPhone, iPod Touch, BackBerry, PC, Mac, and Android-based devices.

The deal comes as authors, agents, and publishers are battling to sort out a new ebook royalty structure against the backdrop of Amazon's new 70% royalty structure through the Kindle Digital Text platform. As I wrote in a post yesterday: "Publishers who try to lowball authors and agencies on ebook royalties will find themselves sending their established authors in the direction of the DTP or to innovators like Open Road Media and RosettaBooks." Obviously, we can now add to that list The Wylie Agency, one of the world's most successful, venerable, and controversial literary agencies in the world, with 30 years of history, offices in New York and London, and a Hall of Fame client list.

"As the market for e-books grows, it will be important for readers to have access in e-book format to the best contemporary literature the world has to offer," said Wylie, President of Odyssey Editions. "This publishing program is designed to address that need, and to help e-book readers build a digital library of classic contemporary literature."

Writing in the current issue of Poets and Writers Magazine, Grove/Atlantic senior editor Jofie Ferrari-Adler said: "In case you don't know, people do not like Andrew Wylie. I would not go so far as to say that most people in the publishing industry actively want Andrew Wylie to die, but I would sat that most people in the publishing industry are excited by the idea that Scott [Moyers] may take over for Andrew Wylie some day. Now that I think about it, hiring Scott probably proves that Andrew Wylie is some kind of genius."

Well, I think we can turn up the dial a bit both on the publishing industry's dislike for Andrew Wylie and on the notion that he may be some kind of genius, but for anyone who is thinking that publishers will stop accepting Wylie manuscripts now that the agency is a competing publisher, best to take a look at the Wylie client list. More likely the major publishers will be begging Wylie not to take those A-list clients directly to the Kindle without the publishers' profitable (if only for the publishers) intermediation.

This is the first time any of these titles have been available electronically, and all of the books are exclusive to the Kindle Store for two years, Amazon said in its news release. It will be interesting to see how publishing insiders cover the deal, and how long it takes them to find out the structure of royalties for affected authors.

With publishers trying to hold ebook royalties in the 25% range, authors and agents calling for 50%, and Amazon offering 70% in direct publication deals, it's not surprising that a powerful literary agency like Andrew Wylie's has, to quote a Publisher's Marketplace post this morning, "made good on threats to create his own company to distribute ebooks by making deals directly with etailers rather than traditional publishers."

There's no word yet either on Wylie's financial arrangement with Amazon or on the royalty rates that Wylie will pay to authors and their estates, but I'll speculate that Wylie will be paid 70% of the Kindle list price by Amazon and that royalties will fall somewhere between 50% and 60% of the Kindle list price. Now that such a deal has been made, it will add significant traction, in terms of the financial consequences of various alternatives, to two major battles: the debate over what standard ebook royalties should be, and current and prospective legal battles about who owns ebook rights for backlist titles.

Random House, which owns the print rights to many of the newly published ebooks, sent a letter last December to literary agents claimed that it owned digital rights to the entire Random House print catalog even if those rights weren't specified in the publisher's contract. While that sounded like a warning salvo from Random House foreshadowing litigation against authors and agents' disaggregation efforts concerning ebook rights, the publisher has yet to file any lawsuits and has instead focused on negotiating agreements with agents to publish backlist titles in digital form.

But apparently Random House does feel strongly that it has legal arrows in its quiver to fight this development, and Random House spokesman Stuart Applebaum told Publisher's Marketplace this morning, "We are disappointed by Mr. Wylie's actions, which we dispute. Last night, we sent a letter to Amazon disputing their rights to legally sell these titles, which are subject to active Random House publishing agreements. Upon assessing our business options, we will be taking appropriate action."

This announcement is likely to strengthen the hand of agents and authors in such negotiations, and perhaps even empower them to decline further negotiations in favor of direct deals if publishers continue to demand a 75-cent donation from every dollar of ebook proceeds.

Disclosure: Long AMZN