Amazon's Content Conundrum

The pressure on the company to pull more-profitable media products also comes at a time when Wall Street is growing testier about Amazon's operating margins. The company has put off promises to boost margins -- even at the end of a fiscal year when the company was supposed to stop sinking dollars into technology and content investments.

"I know that 2006 was an investment year, and I think a lot of investors, including us, were hoping for some leverage in 2007," said Goldman Sachs analyst Anthony Noto in the company's fourth-quarter conference call for investors. "But now it appears that your operating income margins will be down in 2007 at the midpoint vs. 2006 after an investment year."

Compounding Amazon's predicament is that the solution to one of its problems may actually exacerbate the other. The company is banking on the growth of third-party sellers on its site to expand margins.

Having more third-party sellers, who pay Amazon a fee while reducing the company's need to buy inventory, will help increase margins as well as volume, according to management.

"Certainly, the third parties will help us expand margins, as well as get better prices as our volume gets bigger with many of these suppliers," Amazon CFO Tom Szkutak said in the company's conference call with investors.