Sales in Amazon.com's North America media division rose 9% in the second quarter ended June 30, to $541.8 million, while media sales in its international group jumped 35%, to $495.5 million.
The rate of the sales increase in both segments was slower than in recent quarters, which Amazon attributed to difficult comparisons with last year's second period, when the e-tailer sold 1.4 million copies of Harry Potter and the Order of the Phoenix. Amazon chief financial officer Tom Szkutak said sales of Phoenix and related Potter products added at least five points of incremental growth in the second quarter of 2003. In the North America media division, Szkutak said, sales would have been "substantially higher" without the Potter comparisons.
Sales for the entire company rose 26% in the quarter, to $1.1 billion, and Amazon had net income of $76.5 million, compared to a loss of $43.3 million in last year's second quarter.
In a conference call, analysts were skeptical that the slowdown in media sales, particularly in the international segment where media sales had increased 75% in the second quarter of 2003, was due solely to Phoenix. But under repeated questioning, Szkutak maintained that the absence of the title appeared to be the major cause for the decline in the rate of growth in the most recent period.
Amazon sold Phoenix at a 40% discount off the $29.99 list price, generating revenue of more than $250 million. There was a plus side to not having Phoenix in the quarter, however—slightly higher gross margins. The company noted that the steep discount combined with shipping costs meant that Phoenix sales "were fulfilled at roughly our overall cost."
Gross margins in the second quarter were also helped by increased sales from third-party sellers. Third-party sales accounted for 24% of worldwide unit sales in the quarter, up from 19% in the comparable period in 2003. Szkutak said Amazon plans to continue to expand its third-party business.
Amazon will also continue to lower prices in the second half of 2004, although company chairman Jeff Bezos did not mention if prices will come down on books. Amazon currently offers a 30% discount on all books over $15.
Real Names, Games
In an initiative begun last month, Amazon has begun encouraging its customers to put their real names on their reviews in an effort, company spokesperson Patty Smith said, to boost other readers' confidence in the opinions. The initiative—dubbed "Real Names"—replaces a system in which customers were free to flame or fawn over a title anonymously.
"What we're doing with the Real Names feature is saying that we believe that by posting their real names to the content that they provide, their opinions will be viewed as more credible and more thoughtful," Smith said. "Real" in this case is relative: people not quite ready to fully stand by their opinions can choose to use a pen name. Either way, the reviewer must be registered with Amazon with a credit card or through a record of their purchase history.
For years, of course, it's been widely believed that the anonymity of Amazon's reviews have led to such abuses as authors lauding their own book or rival authors trashing another writer's work. Smith maintained abuses of the system are rare. "I really think it is such a small fraction of the reviews we see on the site," she said. "The vast majority of people who post reviews do so because they have a strong opinion."
And in a triumph of commerce over competition, Amazon.com has added a GameStop section to its site (www.amazon.com/gamestop). GameStop, a major video game and entertainment-software retailer, is 63% owned by Barnes & Noble Inc. Ironically, B&N.com, Amazon's only serious rival in online bookselling, doesn't carry GameStop merchandise.
