Pricing Dispute Between Walt Disney Co (NYSE: DIS) and Amazon Inc (NASDAQ: AMZN) Worsens

Walt Disney Co (NYSE: DIS) is currently embroiled in a dispute with Amazon Inc (NASDAQ: AMZN) over the retail of certain Disney films, including “Captain America” and “Maleficent”. The media company’s dispute with the enormous online retail website involves the product placement and promotion on Disney’s content on Amazon’s website, as well as the issue of who must pay the difference when Amazon lowers prices to match the prices of competitors and loses money.

While the companies are still both in the discussion phase of the dispute, Amazon has already removed the preorder option from its website for DVDs and Blu-ray discs of certain Disney Movies, including “Captain America: The Winter Solstice” and “Muppets Most Wanted.”

As for Disney movies that were released prior to this dispute, their sales have not been affected. Disney books, toys, and other branded merchandise have not been affected either.

These issues in question are reminiscent of those that were brought up during a heated contract renewal in the spring between Amazon and Time Warner Inc (NASDAQ: TWX)’s auxiliary company, Warner Bros.

One of the most pressing issues for Amazon is that brick and motor stores like Wal-Mart Stores Inc (NYSE: WMT) and Best Buy Co (NYSE: BBY) often cut their prices on new discs so that they are lower than wholesale prices in order to attract customers into the store, where they will hopefully purchase additional, more profitable products. Amazon does not benefit from these price markdowns, because it cannot take the benefits of drawing customers into a physical store to display and show the products.

According to people familiar with the situation, Amazon has tried to solve this pricing problem by asking studios to cover the losses in these situations.

In the past, the online retailer has participated in heated negotiations with Hollywood film studios, but it has never prevented the ability to allow customers to preorder the discs until the recent argument with Time Warner’s Warner Bros.

Amazon also faces greater pressure to increase profitability after its lackluster second quarter, which dragged down its stock price last month. The retail giant posted unexpected losses of $126 million, even though its revenue jumped 23%. Amazon also expects more trouble ahead – it estimated an $810 million operating loss for the current quarter.

Amazon’s dispute with Warner Bros was settled within a couple weeks. No one can be sure how long the fight with Disney will continue, but both firms have shown that they do not sway easily in conflicts in the industry.

Amazon is also concurrently dealing with a dispute with Lagardere SCA (ETR: MMB), a book publishing company. The dispute has lasted four months so far. Amazon pushes for the French company to price their e-books at $9.99, saying that the lower price will attract more sales and increase revenue for the industry. The retailer plans to discuss e-book pricing deals with other publishing companies later this year.

Disney has also been engaging in a dispute with Outerwall Inc (NASDAQ: OUTR)’s Redbox since June of 2012. Redbox provides movie and video game rental services. The dispute is regarding the amount of time customers should wait after a film’s DVD release to rent discs from the kiosks. Disney wants to instill a wait time of 28 days after the DVD’s go on sale, which is the same policy as three other major Hollywood studios. It is widely agreed upon in the film industry that this policy encourages consumers to purchase the actual DVD rather than the $1.20 per night rental discs.

Redbox has refused to accept Disney’s policy, arguing that the family movies coming from Disney are especially valuable to its main customer base. Since the dispute has started, Redbox has purchased Disney’s movie discs directly from other suppliers and retailers, and used those DVD’s to rent out. After two years of discussions, neither company has given an inch.