Amazon's Content Conundrum

There are several disquieting things about this (not the least of which is that many customers apparently find Feathered Warrior magazine appropriate for their reading habits).

But for Amazon, it highlights another conundrum: The high-margin media products that were initially the company's staple are now playing a diminishing role in the mix of overall sales, giving way to lower-margin consumer electronics goods instead.

And this in turn is battering the company's closely watched operating margins, which continued to slip last quarter despite the company's strong revenue growth.

Despite its public posture as a free-speech guardian, the company may be more worried that buckling to the pressure to stop selling controversial items could set a dangerous precedent and limit the already diminishing high-margin media inventory it is able to move.

This is especially important in the face of increasing pressure from Wal-Mart(WMT Quote), the retail behemoth that is moving aggressively into selling media products online -- and whose own stringent requirements regarding the content it sells mean that Amazon could seek an edge in more questionable material.

During Amazon's most-recent fourth quarter, the sales mix for media products dropped to 63% from 67% the year prior; electronics and other general merchandise grew to 35% from 30% over the same period.

It also was the first time that Amazon's revenue in non-media products grew faster than that of media products. At the same time, the company's operating margin dropped to 4.9% in the quarter from 5.5% a year earlier.