Why Amazon won't stop picking fights with its partners

The online retailer ramps up its public war with publishers and studios in the name of pricing. Will consumers care?

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Sarah Tew

Amazon is at it again.

The online retail giant took on yet another partner over the weekend, halting DVD preorders for Disney titles such as "Captain America: The Winter Soldier" and "Maleficent," and escalated a four-month publicity battle with Hachette over the pricing of e-books, which has resulted in popular authors such as James Patterson, John Grisham, and Stephen Colbert speaking out against Amazon. Earlier this summer, Amazon chose to freeze out disc orders of video titles such as "The Lego Movie" in what appeared to be a similar dispute with Warner Bros.

Why is Amazon taking on these big dogs? Because it can.

Consumers have grown accustomed to using Amazon as their one-stop shop for everything from electronics to movies to books. With 250 million active customer accounts, the Seattle-based company has plenty of power to push other companies around. Consider how many other sites consumers might need visit if they wanted to avoid shopping at Amazon. They could visit iTunes for e-books, Walmart or Best Buy for electronics, and sign up for a Netflix account for streaming video.

Amazon has a record of playing hardball, even halting the sale of products and hitting companies where it hurts most -- sales produced by Amazon's extensive reach. Because it's a defensive tactic employed in the name of value, it buys a lot of goodwill with consumers.

"For Amazon, the goal is always going to be pushing those prices down," IDC Research Director Scott Strawn said.

Over the weekend, Amazon responded to a protest campaign from a group of authors to send emails directly to CEO Jeff Bezos with its own offensive, asking readers and Kindle Direct Publishing authors to email Hachette CEO Michael Pietsch in protest. Amazon's actions with Hachette should come as no surprise to any company that does business with the online giant.

Amazon has argued e-books are over-priced so it's fighting on behalf of its customers. An email to Bezos went unanswered, and a spokeswoman declined to comment further.

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A spokeswoman for Hachette said Pietsch has received a "significant number of emails." He's responded to each email with a form letter, saying that the publisher is trying to ensure quality content is created, not just cheap content.

While Hachette has been vocal about its opposition to Amazon's tactics, both Warner Bros. and Disney have remained silent. Warner Bros. declined to comment for this story, and Disney has not replied to a request for comment.

The Warner Bros. dispute lasted several weeks, according to The Wall Street Journal, ending with the disputed DVD titles once again available on Amazon's site. It's not clear how long it will take Amazon to resolve its problems with Disney. Both companies reportedly took issue with Amazon over how products were promoted and priced.

The dispute with Hachette is noteworthy because of the shifting priorities at Amazon. The company started out as an online bookseller, but e-book sales only make up a shrinking part of its business. In the second quarter, Amazon reported more than $19.3 billion in sales. Media sales, which include e-books and DVDs, account for 25 percent of the total. Physical merchandise sales make up nearly 69 percent of Amazon's total sales.

Essentially, any loss of sales as a result of withholding Hachette titles is a blip on the radar for Amazon.

"The dispute seems to be garnering some attention," said Trefis analyst Ashish Deswal. "But when you really get down to fundamentals and financials, you'll find that it will barely affect Amazon, except for some bad PR."

This could change, however, if Amazon starts to have similar disputes with other major publishers, Deswal said. If it becomes difficult to access a wider range of titles, it could hurt Amazon's Kindle e-reader sales.

But for Amazon, the focus has moved to physical merchandise. Strawn said he is not aware of Amazon using the same tactic against physical goods manufacturers, but it's certainly possible.

"Amazon has a reputation for being very efficient; I certainly expect them to continue down this path if they can," he said.

The difference is that it's easier for Amazon to fight with content producers, particularly book publishers, since there are only a handful of companies that dominate the industry. Physical goods, however, require negotiations with "tens of thousands" of companies.

Ultimately, Amazon can afford to play rough because consumers love the company. Amazon has consistently ranked as one of the top companies in customer satisfaction rankings, according to research company Foresee. Product selection and shipping are other positives for Amazon, according to Eric Feinberg, a senior director at Answers, the company that runs ForeSee.

But Feinberg warned that other factors are increasingly swaying consumers, including things like social justice campaigns, employee working conditions, and celebrity endorsements.

"It's entirely conceivable that customers will grade Amazon based on their dealings with their suppliers and vote with their wallet accordingly," he said. "How Amazon handles these next few days and weeks might very well determine future customer sentiment and its effect on Amazon's bottom line."

All of this fighting means little to consumers now, but as the high-profile fight continues, and high-profile figures such as Colbert continue dumping on Amazon, the perception of the online retailer could transition from defender of low prices to bully.

"I'm not sure that this the level of of depth people get into or care dramatically about," Strawn said. "However, if you get more respected content producers coming out and saying, 'this is impeding our abilities to create quality content' that could actually trigger some meaningful reaction."

 

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