Amazon 'stomping on its own feet' in Disney, Hachette e-commerce spats
Aggressive moves could backfire for online retail giant
Amazon's heavy-handed tactics with some of its suppliers in recent months are prompting retail watchers to wonder whether the global e-commerce giant has gone too far in search of the bottom line.
Earlier this week, it emerged that the Seattle-based retailer is not accepting pre-orders on upcoming Disney DVD and Blu-ray titles, including the summer-hits Maleficent and Captain America: The Winter Soldier.
Neither side revealed the reason for the dispute. But Amazon's actions echo those used in its months-long spat with France-based Hachette, one of the world's top-five publishing companies, and with Time-Warner earlier this year.
Some say the aggressive move could backfire for Amazon, and not only in its relations with the public and prominent authors. These unusually public tiffs could also put it in the crosshairs of regulators.
"It's a tussle over what are the profits in this business and how are they going to be divided. In that way, it's a typical challenge," says David Soberman, the Canadian National Chair in Strategic Marketing at the University of Toronto. "But where it gets complicated is you have competition law, which comes to bear."
Soberman suggests that the spotlight now being place on Amazon's repeated use of these tactics, which block and delay consumer access to desired products, could trigger government scrutiny ove whether the company's taking advantage of its dominant position in online retail.
If they sense a monopoly, antitrust investigators could impose fines, force Amazon to divest some of their businesses or increase regulation, which can be just as restricting for a company that relies on flexibility to eke out profits.
The fight for profits
The European Commission has taken Microsoft to task over the years for the abuse of its dominant position in the market, and imposed fines and restrictions, for example, to prevent it from refusing competitors the information they needed to have their products work with the dominant Windows PC system.
As a result, Soberman says, Microsoft's power diminished, though it's still quite strong.
In Amazon's case, the muscling of its suppliers may be tied to the retailer's difficulties bringing in a profit.
Amazon reported a $126 million loss in the second quarter (though it saw a 23 per cent jump in revenue0, and it predicted third-quarter losses could be triple that.
Founded by Jeff Bezos 20 years ago as an online book store, Amazon has become the world's largest e-commerce retailer, selling a diverse selection of products from DVDs and video games to furniture and food.
Despite that, it still struggles to generate reliable profits, a frustration for investors.
The Hachette dispute, it is suggested, showcases how important it's become for Amazon to squeeze out every dollar of profit it can.
A pioneer in the e-book field with the creation of the Kindle e-book reader, Amazon controls over 60 per cent of the e-book market, according to Forrester Research.
Its dispute with Hachette, Amazon says, is over the attempt to lower e-book prices and boost the income of authors, on the assumption that lower prices will equal higher sales.
"Books compete against mobile games, television, movies, Facebook, blogs, free news sites and more," Amazon said in a statement. "If we want a healthy reading culture, we have to work hard to be sure books actually are competitive against these other media types, and a big part of that is working hard to make books less expensive."
Amazon posted that statement on a website it launched last week called ReadersUnited.
The site came about in direct response to a website called AuthorsUnited, launched by over 900 authors – both those published by Hachette and others – to say "we feel strongly that no bookseller should block the sale of books or otherwise prevent or discourage customers from ordering or receiving the books they want."
Hachette argues that more than 80 per cent of its titles are already at $9.99 or lower – the price tag cited as Amazon's goal in the dispute -- and accuses Amazon of seeking more market share at the expense of authors and publishers.
To push its case, Amazon has slowed delivery on currently available books and refused to accept pre-orders on Hachette authors' hard copy and e-book titles.
That's a significant handicap as pre-orders help launch titles into the profitable bestseller lists.
Over the years, independent authors have flocked to the powerful retailer because it enables them to self-publish their books, though some criticize Amazon’s low royalties.
Battling on a field of authors
John Degen, executive director of the Writers' Union of Canada, says Canadian authors are thinking twice now about using Amazon, soured by the company's strong-arm tactics.
Amazon has “stomped on their own feet on this one,” said Degen.
The Writers' Union is upset at the impact the public battle is having on authors, and blames not only Amazon, but Hachette as well.
"What we have are two giants in the marketplace battling it out and, unfortunately, they're battling it out on a field full of authors," said Degen.
"Our position is we just want to make sure no one gets squished while the giants are fighting."
In an interview with the New York Times, Douglas Preston, a bestselling author who penned the Authors United letter in his little wooden writing shack in a forest along the coast of Maine, accused Amazon of turning its back on the very authors that helped the company when it started out.
"Jeff Bezos used books as the cutting edge to help sell everything from computer cables to lawn mowers, and what a good idea that was," he told the Times. "Don't they feel any loyalty?"
Though some analysts suggest the public could seek out alternatives to Amazon, such as Barnes and Noble, and Wal-Mart, others argue the ubiquitous brand is unlikely to feel much backlash as long as its spats remain limited to a few suppliers.
As one noted, despite a "few chinks in its armour," Amazon retained its top spot in the YouGov Brand Index of U.S. companies, a tool intended to track public perception of brands.
Overall, the publisher Hachette has less to lose than Amazon, since even though it's widely known in France, it's a lesser known entity in North America where it sells under the brand names Little, Brown and Co., and Hyperion.
Ultimately, Soberman says Amazon's actions raise a broader issue for society, which is: Are we comfortable with one big company in Seattle controlling the sale of intellectual property like movies, books and video games for the whole world?