Amazon is fighting a multifront war in its battle to generate much-needed profit out of sales of e-books and movies.
It is still in a protracted dust-up with Hachette Book Group over the price of e-books, and is putting pressure on Disney for a bigger share of DVD revenue.
What seems to be the common thread in Amazon's attempt to extract concessions from these suppliers are the problems Amazon is having in generating profit from all the revenue that it raises.
A quick look at Amazon's second-quarter financials tells the story -- sales grew 23 percent to $19.3 billion, yet the company still posted a net loss of $126 million for the quarter. Consequentially, Amazon's stock price took about a 10 percent drop.
Amazon, and analysts from here to eternity, take a look at that and come to the obvious conclusion; the company is losing money on much of the product it sells.
Amazon sees media as one of the areas where profit margin is scant. Its strategy for restoring profitability on e-books and DVD is straightforward; squeeze its supplier partners for concessions that reduce their partners' financial rewards, and hand some of those over to Bezos & Co. There is a whiff of desperation in these tactics.
This strategy, essentially blackmail, requires an effective "or else." Amazon has delivered that "or else" in the form of denying preorders on new titles from Hachette and Disney DVDs. Preorders are valuable marketing tools to book and DVD publishers, as they put a claim on consumer spending that could otherwise have gone toward other media purchases, and they help a title scramble up the charts, a nice prerelease momentum builder. Amazon has also reduced the number of titles it stocks, in many cases hurting upcoming authors who relied on Amazon to support their breakthrough efforts.
The preorder process helps Amazon, too, in that it improves inventory estimate accuracy, makes order fulfillment more "orderly," and locks in the sale of a new release before those brick and mortar guys and other online retailers can get a sniff. However, banning preorders hurts publishers more.
In Hachette's case, Amazon is asking the company to lower its retail price per e-book title to $9.99, down from a range of $12.99 to $19.99. Simple math tells us that's a big ask.
Both companies have been waging the battle publicly. Amazon is claiming that Hachette is price-fixing with other publishers, with resulting higher costs keeping the reading public from paying a fair price on books. Hachette is telling anyone who will listen that Amazon is attempting to boost its profit margins and market share unfairly on the backs of publishers, authors and customers.
In Disney's case, Amazon is simply asking for a bigger monetary share of each DVD. Amazon has complained that it loses money on DVD sales since big-box retailers such as Wal-Mart use DVDs as loss leaders and set retail prices sometimes at below Amazon's cost. Amazon would also like Disney, and other DVD publishers, to take on a larger share of promotional costs.
