Ken Auletta in The New Yorker:
Traditionally, publishers have sold books to stores, with the wholesale price for hardcovers set at fifty per cent of the cover price. Authors are paid royalties at a rate of about fifteen per cent of the cover price. On a twenty-six-dollar book, the publisher receives thirteen dollars, out of which it pays all the costs of making the book. The author gets $3.90 in royalties. Bookstores return about forty per cent of the hardcovers they buy; this accounts for $5.20 per book. Another $3 goes to overhead costs and the price of producing and shipping the book—leaving, in the best case, about a dollar of profit per book.
Though this situation is less than ideal, it has persisted, more or less unchanged, for decades. E-books called the whole system into question. If there was no physical book, what would determine the price? Most publishers agreed, with some uncertainty, to give authors a royalty of twenty-five per cent, and began a long series of negotiations with Amazon over pricing. For months before Sargent’s visit, the publishers had talked about imposing an “agency model” for e-books. Under such a model, the publisher would be considered the seller, and an online vender like Amazon would act as an “agent,” in exchange for a thirty-per-cent fee. Yet none of the publishers seemed to think that they could act alone, and if they presented a unified demand to Amazon they risked being charged with price-fixing and collusion.
More here.