Amazon is launching a new "70% royalty option" for the Kindle. Under this option, Amazon will pay authors and publishers a royalty of 70% of the list price of Kindle books, which is a far higher per-copy royalty than most authors receive on physical book sales (including the standard Kindle book royalties).
This new plan will encourage more authors to "go direct" to Amazon (or at least force their publishers to sell ebooks at a substantial discount). This, in turn, will increase the pressure on traditional publishers to cut prices on wholesale Kindle books. And that, in turn, will transform the Kindle business from a big money-loser into a very profitable business for Amazon.
The traditional publishing industry feels that cuts in ebook prices will wipe out what little margin the publishers have left, thus preventing publishers from paying authors big advances and, thus result in fewer good books being published. But, as ebook prices drop, unit velocity will increase, leading to higher revenues. So this is where the book industry is headed, whether traditional publishers want it to or not. Amazon's new plan should help shorten the time it takes to get there. The plan should also solidify Amazon's already tremendous dominance of the ebook business.