- I don't expect Amazon's strong-arming to have any impact of Disney's bottom line.
- Disney would love the access to Amazon's customer base. But the company is not out of distribution options.
- Like a villain in its own movies, Disney will laugh last.
Amazon (NASDAQ:AMZN) has never been afraid to flex its online muscle.
The remains of Barnes & Noble (NYSE:BKS) and memories of retailers like Borders and Media Play serve as reminders of how powerful Amazon's model has become. Taking its fight to Disney (NYSE:DIS), however, is a bit too brash, if not entirely stupid.
In a maneuver to seize control of online pricing, Amazon CEO Jeff Bezos is blocking preorders of some of Disney's biggest summer hits, including Captain America: The Winter Soldier, Muppets Most Wanted and other Disney hits due out in disc form. These titles won't be available for preorder in either Blu-ray or DVD from Amazon's website.
Never shy about taking on the role of the villain, Amazon is employing the same competitive tactic used against movie studios such Warner Bros., a division of Time Warner (NYSE:TWX), and book publisher Hachette. During rigid supply contract negotiations, these companies have had sales of their products halted by Amazon and/or experienced drastically slow shipments.
Amazon declined to comment. And calls made to Disney were not immediately returned.
But unlike Hatchette, Disney has enough financial muscle to withstand any near-term headwind caused by Amazon. With hit titles such as Frozen and the opening success of Guardians of the Galaxy, Disney has strong franchises that Amazon will want a piece of.
What's more, over the past couple of years, Disney has picked off Lucas Films and Marvel Entertainment -- two brands known for capturing the imagination of adventure seekers with hits like Star Wars and Iron Man. Disney would love the access to Amazon's customer base. But the company is not out of distribution options, whether through its own online store or on sites like Wal-Mart (NYSE:WMT).
And it says a lot about Amazon that it is willing to keep from consumers items that are in high demand just to wield its sword as the world's largest Web retailer. Jeff Bezos is feeling the pressure of Wall Street. The company's "growth at all cost" model no longer resonates with investors. Pressuring vendors and hurting future relationships is not the way to do it.
In contractual disputes with Hachette, Warner Bros. and now Disney, Amazon is alienating the content producers that it relies on for a portion of its revenue. And this is while it has created enemies in other parts of its business.
With its recent Fire Phone, Amazon has taken on Apple (NASDAQ:AAPL) and Samsung (OTC:SSNLF) in smartphones. The company has entered the home entertainment market with Fire TV, a device closely resembling products from Google (NASDAQ:GOOG) (NASDAQ:GOOGL) and Roku. With its Prime Movie streaming service, the company goes toe-to-toe with Netflix (NASDAQ:NFLX). These ambitions are too scattered. Bezos will eventually need better focus.
In the case of Disney, it may be only a matter of time before both companies come to terms. And I don't expect Amazon's strong-arming to have any impact of Disney's bottom line. The greater question is how much of their relationship Amazon has hurt. At some point, Disney may open more of its valuable content library to online streaming. Will it choose Amazon over Netflix, or even Apple? Like a villain in its own movies, Disney will laugh last.
Disclosure: The author is long AAPL.
Business relationship disclosure: The article has been written by Wall Street Playbook's tech sector analyst. Wall Street Playbook is not receiving compensation for it (other than from Seeking Alpha). Wall Street Playbook has no business relationship with any company whose stock is mentioned in this article.