This is fully legal, getting-paid-for-it fanfiction. But the contract is not great.
Mightygodking dot com -- To Kindlefinity And Beyond
So Amazon has announce Kindle Worlds, which is kind of sickly brilliant: it’s basically an online publishing house for fan-fiction, wherein royalties are paid to the owners of the IP and to the author of the fanfic. And the royalty to the author is, frankly, not bad – 20-35% of total revenue of digital sales of the work.
Of course, it’s not all candy and sunshine. If you look at the more detailed explanation, Amazon explains that it will own all rights to the work for the entire term of copyright, including (most importantly) reprint and adaptation rights. If the CW likes your Vampire Diaries story so much they want to convert it into an episode or two, then they will pay Amazon instead of you. If the CW doesn’t like your Vampire Diaries story but does like your moody vampire character named Steve, Amazon will grant them “a license to use your new elements and incorporate them into other works without further compensation to you.” This is, to say the least, kind of problematic. The simple explanation doesn’t even say if you’ll be credited as the creator of those elements, which to many fanfic authors I think would be one of the most important things.
And remember, this is for the entire term of copyright, which means for as long as money can be made off it (e.g. until long after you are dead) Amazon will control it entirely. So to call this a “bad contract” is kind of a major understatement, isn’t it?
Well, yes and no. We are after all talking about fan-fiction – something that is only quasi-legal at the best of times. Amazon has found a way for fanfic writers to get paid something for their work (and it’s a pretty reasonable something) and to be recognized for their craft, and if the terms are draconian, they are still a major improvement over what previously existed, which is “nothing, or maybe get sued for copyright infringement.” If Amazon includes some more reasonable terms for compensation with respect to profits from reprints and adaptations it will be approaching “good.” Frankly it’s already more than I expected what this would eventually look like when it happened.