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Amazon, Warner Bros. Close to Ending Pricing Row

Zacks Equity Research

Per the Wall Street Journal, Amazon.com Inc. (AMZN) and Time Warner Inc's (TWX) Warner Bros. Studio are close to resolving a DVD pricing issue.  Amazon has already started taking pre-orders for hard copies of popular upcoming releases of Warner Bros. films.

Two weeks ago the online retailer withheld pre-orders for Blu-ray and DVD copies of a number of Warner Bros. films, its strategy to extract better pricing terms. The titles affected by Amazon’s pre-order suspension included blockbuster hits, The Lego Movie, 300: Rise of an Empire, and Transcendence. The pre-orders were reportedly blocked over the pricing negotiation going on between the two parties.

Sale of movies and DVD’s generate only a small part of Amazon’s revenues as compared to stores like Wal-Mart and Best Buy, which sometimes price new launches below their retail cost to attract customers. On the other hand, Warner Bros. would have lost a significant source of revenues, had there been no resolution of this pricing dispute. Therefore, Amazon appears to have had an edge over the Hollywood studio.

Amazon has in the past withheld sales of certain products as part of its strategy to gain leverage in negotiations with content providers. Amazon has previously applied such bargaining tactics against Hachette Book Group by pulling out consumers’ pre-orders for books and postponing shipments of the publisher.

Amazon is facing criticism from authors and other insiders in the publishing industry, who allege that the e-commerce giant is exploiting its position as a major retailer to extract better pricing terms from its suppliers.

The pricing disagreement between Amazon and Warner Bros. did not last long. However, the dispute between Amazon and Hachette will likely continue and it appears that we need to wait for the two to come to an agreement.

Amazon currently holds a Zacks Rank #3 (Hold). Other better-ranked stocks worth considering include LivePerson (LPSN) and Rovi Corp (ROVI). Both the stocks carry a Zacks Rank #1 (Strong Buy).

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