New Internet Regulations: Hindering Amazon's Growth?

Sep.24.12 | About:, Inc. (AMZN)

For Internet companies like Amazon (NASDAQ:AMZN), providing a variety of content through a variety of online channels, including e-books and streaming media, helps maintain steady growth and profits. But with increased issues concerning intellectual and property rights, antiquated antitrust and anti-piracy regulations, both the U.S. government and the European Union have considered updating or adding new regulations to help minimize these issues.

Unfortunately, new regulations could force companies like Amazon to spend more in lawsuit settlements and in policing vendors to prevent the selling of pirated content through the company's website. In the end, adhering to new regulations could reduce profits and prevent the company from providing the types of content consumers demand.

Even though two bills, SOPA (Stop Online Piracy Act) and PIPA (Protect IP Act) failed to pass in congress, new bills that include enhanced antitrust and anti-piracy regulations continue to receive ample attention as lawmakers try to update existing laws to ensure fair and open markets and protect the rights of those who create content.

There's little doubt amongst regulators, businesses, and consumers the existing laws that prohibit companies from creating and maintaining monopoly's in the marketplace and laws that protect creator's rights (anti-piracy laws help protect those whose property has been copied and sold without permission or proper financial compensation) have not kept up with the rapidly changing Internet landscape. But even though government regulations must work to protect the interests of businesses and content creators, regulations that provide too many or too few restrictions will not benefit anyone in the long run.

To help protect the interests of online companies, Amazon, along with Google (NASDAQ:GOOG), Facebook (NASDAQ:FB), and Yahoo! (NASDAQ:YHOO) have formed a new lobbyist group called The Internet Association. Giving online companies the chance to speak about new regulations during congressional hearings or to government insiders may help prevent overly strict regulations from passing through congress.

After multiple online protests last year over SOPA and PIPA hosted by online companies and supported by consumers, regulators decided not to pass either bill and instead continue to work to develop regulations that are fair for everyone involved. But not all online companies opted to join the new lobbyist group. Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT) have not signed on to become part of the group's efforts. Both companies have invested in lobbying efforts on their own over the years.

In the past, Amazon has faced a number of lawsuits pertaining to the selling of online content. Multiple book publishers, along with companies including Apple have tried to limit the number of books and other content Amazon can sell through its website. The company has also been involved in suits pertaining to the illegal copyright of content sold through online affiliates and vendors that used Amazon's website to conduct sales.

Even though most of these lawsuits have ended in dismissal, fighting these suits cost the company money. If new, stricter regulations concerning intellectual property rights pass, the company may have to spend additional money to make sure vendors don't sell copyrighted or counterfeit materials. Stricter antitrust laws could also affect Amazon's ability to compete with the competition. Over the past few months, Amazon has emerged a major player in the online streaming market, rivaling other companies like Netflix (NASDAQ:NFLX).

Current antitrust laws do not provide many guidelines when it comes to competing with others in an online venue. This means that Amazon could hypothetically strike a deal with Google, for example, to influence content search results so its products list higher than its competitors. While there's little evidence of deals like this now, as competition becomes tighter - Redbox, owned by Coinstar (NASDAQ:CSTR), and Verizon (NYSE:VZ) plan to stream movies within the next year - companies may be tempted to engage in this type of behavior to maintain a solid customer base.

Overly strict antitrust laws could limit how companies partner with each other to promote goods and services, however. For example, if companies can't partner with each other to offer special deals and promotions to customers, companies may reach a certain point of growth and remain stagnant going forward. This could severely limit profits over time.

New regulations concerning online commerce will eventually take effect - in one form or another - regardless of the number of lobbyist groups formed. With so many other ventures, including cloud services, online document storage, mobile phones, and maintaining one of the most popular retail websites, the impact of new regulations on the company's bottom line will be minimal - even if the company has to spend money fending off additional lawsuits or making changes in vendor relations to prevent online piracy and counterfeit.

Second quarter earnings for the company totaled $12.83 billion. This is down slightly from the first quarter ($13.19 billion), but should still provide investors peace of mind. With a knack for knowing what customers want (in some cases, even before the customer does), Amazon has plenty of money to invest in new product and services and compete with other companies.

One of Amazon's strengths is its ability to adapt quickly to changing markets. For example, the company has become a pioneer in customer search and in the e-reader market. And while no one can foresee the future of the Internet and how it is regulated, companies like Amazon have the ability and the means to adopt and adapt to changes in online commerce.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.