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Amazon and Disney’s Media Feud: What You Need to Know

When the world's largest media company locks horns with the world's most powerful e-commerce company , it's bound to generate plenty of interest from consumers and investors alike. That's exactly the scenario we're seeing between Walt Disney and Amazon.com .

Source: Amazon.

This bitter dispute -- the cause of which remains murky -- has already resulted in Amazon pulling pre-orders for some Disney products from its uber-powerful website.

This certainly isn't either company's first rodeo in this regard. So while Amazon and Disney settle into what could be a protracted dispute, and with the holiday season only months away, let's look at this budding battle and what it could mean for key stakeholders.

Can't we all just get along?

As a result of this dispute, Amazon has halted taking pre-orders for all upcoming Disney DVD/Blu-ray releases, including two particularly important productions: Maleficent and Captain America: The Winter Soldier .

Amazon and Disney have largely remained tight-lipped as to the genesis of their disagreement, although DVD pricing is likely at the heart of the matter. A number of reports have noted that brick-and-mortar retailers such as Wal-Mart and Best Buy routinely price similar DVD and Blu-ray releases below their wholesale cost in order to drive foot traffic into physical stores. The Wal-Marts and Best Buys of the world offset those losses with the additional sales volume generated from other, more spontaneous purchases that occur once they've enticed customers into their stores. But as a purely online entity, Amazon can't enact this same strategy, and as such, has asked companies such as Disney to help it recoup losses it endures as it matches the competition at negative margins.

It isn't immediately clear how Amazon could recoup those losses in practice, but it would likely involve either Disney conceding an upfront discount on wholesale DVD and Blu-ray prices or a periodic reimbursement for Amazon's losses from matching competitor pricing. And as should come as no surprise to anyone, neither option would appear palatable to Disney.

However, additional issues have apparently contributed to the Disney-Amazon fissure. News reports indicate Amazon and Disney are also arguing over other promotional and product placement details. The situation doesn't appear to be affecting aspects of the sales of digital copies of Disney content, which is due to differing contract terms between the two companies for physical and digital content.

In any case, this situation certainly isn't pretty and could get a lot worse.

No shrinking violets

Both Amazon and Disney have well-earned track records as tough negotiators, which suggests this dispute could be more than short term in nature.

Source: Disney

Disney has refused to provide exceedingly favorable terms for DVD-rental company Redbox and its parent company Outerwall . In fact, Disney hasn't sold a DVD directly to Outerwall since 2012. It has forced the company instead to purchase Disney content from other wholesale vendors rather than concede to irregular rental terms that Outerwall has sought.

On the other side of the ring, Amazon is one of the most famously, or infamously, depending on your perspective, combative negotiators in big business today. In the long, established history of bleeding its suppliers' margins as extensively as possible, Amazon's highly publicized battle with publisher Hachette has now reached its fourth month and shows signs of actually intensifying.

However, Amazon's corporate clout remains undeniable and is growing. It controls over 60% of the global e-book business and has steadily expanded its e-commerce and third-party sales platforms. It is legendary for its dedication to offering customers the absolutely lowest prices to continue to solidify its ever-expanding e-commerce market share.

Barring a possible but unlikely escalation, this cold war between two U.S. business icons won't materially impact either company's financial performance. Disney's media empire has produced $48 billion in sales over the past 12 months, and Amazon enjoys an even firmer sales base of $81 billion in the trailing 12 months. Neither company's door will shut on account of the other, so this remains simply an interesting business drama at present. However, investors and consumers should certainly be keenly aware of this situation and the damage it could inflict on all parties if it were to escalate. My money's on that day never arriving, and here's to hoping.

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The article Amazon and Disney's Media Feud: What You Need to Know originally appeared on Fool.com.

Andrew Tonner has no position in any stocks mentioned. The Motley Fool recommends Amazon.com and Walt Disney. The Motley Fool owns shares of Amazon.com and Walt Disney. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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