Will Amazon Lose by Playing Hardball with Publishers, Studios?

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Ted S. Warren/APAmazon CEO Jeff Bezos.
Amazon.com (AMZN) is ruffling a lot of feathers with contractual tussles with Time Warner's (TWX) Warner Home Video and Hachette Book Group.

Disagreements have led Amazon to delay orders for Hachette books and suspend preorders for Warner DVD and Blu-ray releases. Customers used to finding everything they want through Amazon are now encountering barriers.

Amazon wants to draw attention for things like its new Prime Music digital streaming and whatever it's introducing on Wednesday, but instead it's generating negative buzz.

Bury the Hachette

Flexing its muscles, the leading online retailer last month stopped taking advance orders of Hachette books and is delaying shipments by several weeks.

This is a big deal. Hachette is the publisher behind several of this summer's big releases. On Thursday, we get J.K. Rowling's new book, but Amazon shoppers were being told earlier this week that they can't preorder the next installment in her gumshoe series. Holding back on "The Silkworm" has some meaty implications. Telling shoppers to sign up to be notified when the book is available -- instead of allowing them to lock in their purchases now -- is going to cost Amazon sales. It's is also delaying the promised delivery of several Hachette books, advising buyers that they will have to wait a couple of weeks instead of a couple of days.

Video buffs are also finding Amazon less useful. Amazon delayed preorders of "The Lego Movie" until just before its release on Tuesday. Next week's big home release -- "300: Rise of an Empire" -- is not currently available. These are just some of the DVDs and Blu-rays being put out by Warner Home Video. Reports indicate that a contract dispute is leading to Amazon playing hardball by holding back on the releases.

You're Not Getting Warner

Amazon is trying to show that it's such a big force in e-tail that it can influence sales activity, but is it biting off more than it can chew?

This fight could easily backfire for Amazon. Those customers being told to wait may well lock-in their purchases with preorders elsewhere. Folks who have made a habit of relying on Amazon for two-day deliveries of Amazon-warehoused goods may start questioning their dependency. If Amazon's most loyal customers -- the more than 20 million who pay $99 a year for Amazon Prime memberships -- can't count on the online juggernaut for items such as hot new movies or the latest bestseller, they could begin to defect, or at the very least, reduce their spending on the site.

Amazon's sending a message to its suppliers with all of this muscle-flexing. It wants the best terms possible, and it believes that it has the leverage to get the deals it wants. However, it's also sending a message to its longtime patrons who have historically turned to the site because they know that items are cheap, shipped quickly and -- more importantly -- available. The message they them: You're pawns in our game.

Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com. Try any of our newsletter services free for 30 days.

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If Hachette stays the course, it's likely a 'lose - lose' for Amazon.
Firstly, other book retailers can jump into the gap and to do an effective job of providing what Amazon won't. It's a golden opportunity for them. If I were Hachette, I'd be helping the other retailers any way I can. This is helped by the fact that a book is a unique product, so readers will search for it, not just take some substitute that Amazon chooses to offer. For books, Amazon is, in reality, just a fulfillment service, albeit with fast service and, generally, excellent prices.
Secondly, wrestling bigger discounts and/or marketing dollars from publishers may be only temporary. OK so they get more discount points, but publishers can respond by raising list prices. They can also offer similar deals to other retailers. In the end, the industry could then simply gravitate to more and more specials ... 60% off best sellers, etc. etc. My bet is that it will turn out Amazon doesn't have the power it thinks it does.
Lastly, Amazon has now demonstrated that their focus on customer service is really just a veneer, not the core belief we thought it was. Hard to see how that can do anything but backfire.

June 17 2014 at 11:55 PM Report abuse rate up rate down Reply