A Microsoft Promotion Might Hit Amazon.com's Media Revenues

| About: Amazon.com, Inc. (AMZN)

The world takes many turns, not all of them easy to predict. But here's a strange turn of events. Microsoft Corporation (NASDAQ:MSFT) is running a promotion where it sells the 4Gb Xbox 360 + a Kinect for just $99, although it saddles the consumer with a two-year $14.99/month subscription to Live Gold. This promotion is now also being expanded to GameStop Corp. (NYSE:GME) and Best Buy Co. (NYSE:BBY) stores, increasing distribution significantly, and thus probably becoming a factor for console sales in this and the next quarter.

Now, what has that got to do with Amazon.com, Inc. (NASDAQ:AMZN)? On the surface, it would just seem that it would perhaps hit console sales over at Amazon.com, since Amazon only has a similar bundle priced at $269.95. But, since the Xbox bundle isn't even one of the highest selling items, one could think that it would be mostly irrelevant.

But it turns out that there's an angle where this seemingly inoffensive initiative can have an impact. This stems from a little-known fact about Amazon. Basically, Amazon.com considers gaming consoles as part of its media segment, as was disclosed during the Amazon Q1 conference call:

Sure. I'll take the second one first on North American media. I just mentioned that a little bit in one of the previous questions. But certainly, our digital media growth has been great and certainly it's helping that. One other color just to keep in mind, in Q4, I had mentioned that video games, including video game consoles, the consoles are part of North America media, that's a seasonal business that was bringing down growth in Q4. So it's also something to keep in mind.

Now, with this huge promotion by Microsoft, it can happen that the Xbox will sell a lot less in the retailers not having the promotion, such as Amazon.com. And while this might not make much difference for Amazon's overall sales, it might make a difference in the media segment since the segment is just about one-third of the company's sales, even though it usually commands a lot of attention from the analysts (since it is believed to be the most profitable segment).

In other news

In just 2 days' time, Google Inc. (NASDAQ:GOOG) is expected to unveil its Nexus tablet, based on a design by Asus, this 7" tablet will supposedly carry very interesting specs, including a 1.3 Ghz 4-core Tegra 3 CPU, 8Gb or 16Gb in storage, high resolution IPS display (1280 x 800), and the latest Android iteration. All this for a price that is expected to be $199 (8Gb version) to $249 (16Gb version). If this is confirmed, this tablet will be hugely competitive with Amazon's Kindle fire. A true killer, as for once the market will have a mid- to high-end tablet in terms of specs with a much broader ecosystem, at Kindle fire prices. I would expect Amazon.com to lower the Kindle fire price instantly, but it should make little difference because the Google tablet will continue to be so superior anyway. Barnes & Noble Inc's (NYSE:BKS) Nook tablet might also feel the heat.

Disclosure: I am short AMZN.