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Amazon adds lower movie prices to battle over books

Aaron Pressman
The Exchange
File- This Sept. 6, 2012, file photo shows Jeff Bezos, CEO and founder of Amazon, at the introduction of the new Amazon Kindle Fire HD and Kindle Paperwhite personal devices, in Santa Monica, Calif. An official in the Galapagos Islands says that Bezos was flown by helicopter from a cruise ship on Jan. 1 for medical attention after suffering intense pain because of a kidney stone. (AP Photo/Reed Saxon, File)

Amazon (AMZN) sells a significant portion of all books sold in the United States but a much smaller portion of all movies. So what to make of the news that Amazon is using similar tactics as it negotiates with a major book publisher and a leading Hollywood studio?

The answer, of course, is that the popular narrative of a monopolistic bully throwing its weight around isn’t quite right. Rather, it’s just another turn of the screw in the perpetual struggle to divide up the loot between retailers and suppliers.

Amazon attracted intense (and even some pretty nutty) criticism starting last month after it began under-stocking current titles and stopped taking pre-orders on future titles from publisher Hachette. The two are locked in negotiations over the terms of future sales, with neither side providing any details.

Crying monopoly

Amazon critics cried monopoly because, even though Hachette is one of the five largest publishers of consumer books, Amazon is the biggest seller. It accounted for 29% of U.S. consumer book purchases last year, including both print and e-books, according to Bowker Market Research. Barnes & Noble (BKS) came in second, capturing 21% of sales.

On Wednesday, the New York Times reported that Amazon was using somewhat similar tactics with Time Warner (TWX) videos, forgoing DVD and Blu-ray pre-orders on upcoming titles such as “The Lego Movie” and “Transcendence.” The movies are still available for pre-order or for watching via Amazon’s online streaming service.

The newspaper hasn’t given the West Coast, Hollywood, studio the same kid-glove, fawning treatment it offered to Hachette, a stalwart of the New York publishing scene. "DVDs do not carry the cultural weight of books,” the paper claimed, also noting that competitors sell movies online (they sell books, too). And no explanation was offered for the paper's failure to go wild last year when Barnes & Noble used similar tactics in its stores against Simon & Schuster.

In movie disc sales, Amazon is also a pipsqueak compared to Wal-Mart (WMT), which has about a 40% share, not to mention other retailers including Target (TGT) and Best Buy (BBY). So if it’s not using supposed monopoly power to punish suppliers, what is Amazon doing by delaying sales and stopping pre-orders? Amazon hasn’t said anything yet, but it’s more likely a negotiating tactic to demonstrate the value of the company’s retailing smarts.

In its only statement on the Hachette matter, Amazon said: “Negotiating for acceptable terms is an essential business practice that is critical to keeping service and value high for customers in the medium and long term.”

Customers may face some short-term frustration but they gain from lower prices in the future. And it's not even that much frustration. For online consumers, comparison shopping is the rule. For example, when Amazon began collecting sales taxes on purchases from some states, consumers in those states immediately shifted their buying to other websites and physical retailers.

Likewise, since Amazon has added shipping delays to Hachette titles, Wal-Mart has noted a 70% jump in  sales and Books-A-Million (BAMM) has used the kerfuffle as a marketing opportunity. Expect much the same if the movie mayhem drags on, too.

Those retailers may fill in much of the lost Amazon sales, but they may do so less efficiently and less profitably than Amazon, from the publisher’s point of view. Martin Shephard, a small publisher who defended Amazon, said the Web giant had low return rates, paid its bills more quickly than anyone else in the industry and offered excellent terms on e-book sales.

Media and entertainment industries have never been known for their intelligent adoption of new technology. They opposed home video sales, e-book discounting and hobbled digital music sales until Steve Jobs came along.

Looks like more of the same when it comes to online sales.