By Daniel Eran Dilger

Published: 10:20 PM EST (07:20 PM PST)

Amazon's third door: the Kindle

A third option for publishers selling subscription content is Amazon's Kindle, which beat both Apple and Android to market. Amazon delivers content not just to its own Kindle devices, but also desktop users and both iOS and Android hardware.

Unlike Apple and Google, Amazon does not operate a mobile ad network, making Kindle wholly dependent upon content sales and content subscriptions, the same model Apple is targeting with its own subscription plan. Also like Apple, Amazon sells its own hardware.

Until the end of 2010, Amazon was charging bloggers, newspapers and periodicals a 70 percent cut of their subscription revenue, a cut more than twice as large as the 30 percent cut Apple is asking. The range of publishers supporting Kindle indicates that the size of the subscription cut taken by the distributor is clearly not at issue for the vast majority of publishers.

Digital delivery charges

One key difference is that Amazon subsidizes Kindle users' 3G connectivity (referred to as Whispernet), an expense it passes on to content publishers. While Amazon has revised its policies to now take a 30 percent cut just like Apple (at least for select publishers; for others, including bloggers, Amazon takes a 70 percent cut), it also charges publishers a delivery fee before taking its cut. Amazon charges 15 cents per megabyte in the US and UK, and 99 cents per megabyte in other countries.

This means that a newspaper that delivered 9MB of data to subscribers per month would be changed $1.35 fee in the US or UK and $8.91 elsewhere. For a newspaper priced at $9.99 per month, the publisher would net either $6.05 (domestic) or just 64 cents (foreign) per subscriber. This compares to a $7 net for publishers from iTunes. These delivery fees are only incurred on Kindle 3G distribution; content delivered via WiFi or through mobile apps do not incur extra fees, because Amazon does not pay anything for delivery.

It appears, however, that under Apple's new in app subscription rules, delivering content through iOS apps, at least for subscriptions sold through iOS in app purchases, will incur a 30 percent cut by Apple. For the hypothetical 9MB newspaper that costs $9.99 per month, this would amount to $3, which is more than Amazon currently charges for 3G Whispernet delivery within the US and UK, but far less than it charges everywhere else.

This delivery fee, inherent in Amazon's Kindle business model, goes up as content grows in size digitally. For that reason, it's being blamed as the reason why newspapers and magazines who use Kindle as a publishing medium avoid the use of graphics. Apple and Google have no similar delivery charges because they deliver content via the Internet, allowing customers to choose whether they want to pay for mobile delivery (or pay for unlimited data service) or whether they want to use existing WiFi or, in the case of iTunes, desktop internet service to obtain their content.

Also unlike Apple and Google, Amazon provides a publisher option for bloggers to sell their content via subscriptions in Kindle. However, Amazon takes a 70 percent cut of the revenue bloggers generate. For newspaper and magazine publishers who do not meet certain requirements, including a 3 hour advanced delivery of content prior to print publishing, Amazon also charges a 70 percent cut. Amazon also does not support free delivery of subscription content via Kindle.

The Amazon Way

Amazon also prices Kindle content itself, leaving publishers out of the loop on how much their own work should cost. Apple similarly set the price of music within iTunes, but it set it once, giving labels a consistent idea of exactly how much they'd make from each sale. Amazon reserves the right to set and change prices at its whim, and also charges delivery fees that may easily eat up most of the value of the subscription, particularly for content that has any graphical content.

A report by PCPro on the subject of Amazon's digital delivery fees noted, "an issue of PCPro with around 150 separate articles, and 100 photos would likely incur delivery costs of 50p-60p [80 cents to $1] an issue. We can pop a magazine in the post to subscribers for significantly less than that."

On the subject of Amazon setting publishers' prices it added, "if Amazon decides to publish PCPro at the bargain price of £1.99 per issue, not only are we taking the hit on the delivery costs, but we’re severely under-cutting our print magazine too. Conversely, if Amazon decides to push for maximum profit – The Economist costs £9.99 per month on The Kindle store, almost £20 more expensive over the course of 12 months than a print subscription that also gives access to the digital editions (excluding Kindle) – the publisher gets in the neck from angry customers."

The magazine concluded, "no wonder most newspapers and magazines have decided to play it safe with minimal images, or avoid publishing on The Kindle at all."

A three horse race

While Google is getting lots of attention for challenging Apple's subscription policy, it's Amazon that currently has the largest lead. It's also clear that it will be increasingly cheaper for Amazon to deliver content through iTunes, even paying Apple in app fees where necessary, than to continue to pay for Kindle Whispernet delivery, even when it passes most of its "delivery charges" to publishers. Publishers will also prefer to deliver as much data as they want, rather than having expensive per megabyte fees eating up most of their revenue.

Apple's provision to enable publishers to begin selling subscription content to iOS users directly will likely get some initial resistance, just as music labels pushed back on individual song sales, a lack of variable pricing, and the removal of DRM. All the labels eventually joined iTunes simply because it offered them a legitimate market that made them money. They later negotiated with Apple to give up DRM in exchange for variable pricing, but also accepted that song prices were a good idea after all.

Similarly, Apple entered the episodic TV and later movie rental markets with initially just one or two partners. Other studios later jumped on the bandwagon after Apple proved its audience was real and ready to buy their content. Apple also launched its App Store with initial support from small and indie developers, with larger firms, including Microsoft and Adobe, taking longer to join Apple's mobile app market.

Google's publisher-friendly terms are also not without precedent. When Microsoft attempted to take on Apple's iPod, it initially offered labels far more restrictive Windows Media DRM that promised to restrict users' music playback to mobile devices or prevent it from being burned to a CD or expire songs after a period of time.

Apple's appeal to end users trumped that strategy, as individuals simply rejected PlaysForSure devices and bought iPods instead. That holds little hope for Google's attempt to draw publishers to its new tablet platform. Additionally, Google has the same problem as Microsoft in terms of installed base.