E-commerce giant Amazon.com Inc. (AMZN) has entered into a new multiyear agreement with book publisher Hachette Book Group, effective from early 2015. Per the agreement, Hachette will have the right to set the prices of its titles and will get better terms when it prices lower. Amazon expects this to be beneficial since Hachette is being incentivized for lowering prices.
Buoyed by this deal, Amazon's shares jumped nearly 4% in Friday's trading session, continuing the uptrend since the announcement of the deal. The shares were up nearly 2% on the day the deal was announced.
Therefore, the truce seems a much needed change of strategy to save the company’s ailing stock, which is under severe pressure after dismal third quarter 2014 results. Amazon delivered a loss of 95 cents per share on revenues of $20.58 billion in the quarter, missing the Zacks Consensus Estimate of a loss of 73 cents and revenues of $20.86 billion.
The agreement came after Amazon finally ended the prolonged e-book pricing dispute with the book publisher. As a result, Amazon will resume selling Hachette titles as it did before the dispute started. The move follows a similar deal that Amazon struck with another book publisher CBS Corp's (CBS) publishing arm, Simon & Schuster, in October.
The pricing dispute started between the two in May, when Amazon pulled out consumers’ pre-orders for books and postponed shipments of titles from the publisher in a bid to extract better pricing terms. Hachette Group had, however, approached the board members of Amazon in September to solve the dispute.
Its pricing strategy harmed not only authors but consumers as well. Buyers purchasing books published by a Hachette publisher faced problems ranging from higher prices to availability issues.
Amazon has been facing criticism from authors and other insiders in the publishing industry, who allege that the e-commerce giant is exploiting its position as a major retailer to extract unfair pricing terms from its suppliers.
Also, the e-tailer is under a certain amount of pressure from investors who are increasingly unimpressed with its huge investments that continue to yield low returns because of its aggressive pricing strategies.
Amazon has in the past withheld sales of certain products as a part of its strategy to gain leverage in negotiations with content providers. It also ended up in a pricing dispute with Time Warner Inc's (TWX) Warner Bros Studio over DVD pricing, withholding DVD pre-orders of Walt Disney Company’s (DIS) smash hit movies.
Amazon shares currently carry a Zacks Rank #3 (Hold).
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