Amazon Loses Digital Rights

A feud over e-book rights to some classic works that put literary agent Andrew Wylie and publisher Random House on the warring path appears to have been settled.

Andrew Wylie-led Wylie Agency announced that it has abandoned the decision to award exclusive rights to publish 13 classics in electronic format to Amazon.com (AMZN), a month after the agency infuriated the book industry by awarding the digital rights to the literary works to the company. Random House, which owns the publishing rights to the classics, had questioned Amazon’s “exclusive” agreement with Wylie to sell digital versions of the books. Random House then cut its ties with Wylie.

Although the new arrangement transfers the digital rights to the titles to Random House, and enables the publisher and Mr. Wylie to put the issue on the backburner, it brings to the forefront the contentious issue of royalties for authors that often sees publishers and agents at loggerheads. Publishers typically award 25% of total receipts from the sale of digital books to authors, but agents and authors say they are eligible for 50%, given the low production cost of electronic versions.

The rights in question would have transferred into Amazon’s shelf some of the classics of the 20th century, including such famous titles as Lolita and Invisible Man. Although Amazon has not yet commented on the development, the loss of digital rights of the books is not likely to have any major impact on the firm.

While independent book sellers have welcomed the decision, for publishers — and perhaps Amazon was trying to venture into that territory — the situation is perplexing. Even as they negotiate with authors over royalties, they are concerned about losing relevance in the digital age. Many authors have announced that they are moving away from publishing traditional books.

With digital books beginning to gain prominence, e-reader makers such as Amazon, Sony Corp (SNE) and Barnes and Noble (BKS) expect a spurt in sales of their e-reading devices. These firms have announced price cuts and introduced interactive features to boost sales even as new entrants flock into the market. Amazon says it expects to sell more e-books than paperbacks by the end of 2011.

We have a Zacks #5 Rank (short-term Strong Sell recommendation) on Amazon’s shares.

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