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Friday, September 08, 2006

Amazon: Every Website In The World Will Sell Movies

Amazon (AMZN) announced yesterday that is will offer TV shows from the likes of CBS, Fox, and the BBC. And, the service will also sell and rent movies from seven major studios like Warner Bros. Disney's studio will be holding out, according to the Associated Press. Steve Job's is Disney's largest shareholder and he want the movies for his new Apple iPod movie service. Maybe that is a corporate governance issue, maybe not.

You will now be able to get movies from Movielink, CinemaNow, and Amazon. In all probability the service will be added by AOL and Apple. It would make sense for Yahoo!, run by a former head of Warner Bros., and Google, which has the huge GoogleVideo platform, to sell movies. It is unlikely that Blockbuster and NetFlix will want to be left out. It would allow other companies to flank their DVD businesses. Eveny MySpace could offer movies along with the usic download service for its independent bands. Why not? News Corp owns a major studio, and MySpace has 100 million users, according to the company.

As Amazon gets further afield from its business as an online book seller, its ideas about how to make money become more and more flaky. And, the will not fix what ails the company.

Amazon has seen its stock drop from a 52-week high of $50 to $29.73. That's $10 billion in market cap gone up the chimney. And, for what?

After three years of fairly good revenue growth and reasonable operating income, Amazon's last quarter showed revenue that was worse than the two immediately previous quarter at $2.139 billion. Operating income was a mere $46 million.

Analysts like Morningstar believe that as Amazon offers more services like groceries and toys, margins will drop further and spending will rise. And, there is no evidence that selling food, toys, and movies into extremely competitive markets will work.

Just because someone likes a website for books, does not mean it can sell TV shows.

Amazon investors should be worried.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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