HMV dying has nothing to do with Amazon's tax avoidance

How do you fight a behemoth which needn't profit?

The death of HMV is undoubtedly due to competition from Amazon in particular and the internet in general. There's a lot of rosy-eyed reminiscing about the chain from people who apparently haven't been in it for a decade or so – it was, in many ways, a terrible shop – but the fact that it represents (represented?) 38 per cent of the entire physical music market suggests that it isn't just dying because it was run badly. There may be something fundamentally untenable about high-street music retail.

(Though that untenability only necessarily applies to chains; it may be the case that independent record shops, like Rough Trade, have something to offer which the internet can't out-compete them on)

But I'm uncomfortable about the meme going round that Amazon only has the advantage it does over HMV because of its tax-avoiding ways.

It's certainly the case that Amazon's, er, tax planning gives it an advantage. For instance, it charges 20 per cent VAT in ebooks, but only returns 3 per cent of it to the Luxembourgish exchequer, taking advantage of the discrepancy in the rates between where it is based and where it carries out its business. And, until the loophole was closed in April last year, Amazon managed to avoid charging any VAT at all on goods below £18 by shipping them from the Channel Islands.

But even without those avoidance strategies, HMV would have found it impossible to compete with Amazon, because it's a company which simply plays a different game from all others.

Amazon's entire strategy to date is to release loss-leader after loss-leader, building its share of the market – and the number of markets it operates in – to astronomical levels, all while promising jam tomorrow.

Take the Kindle owner's lending library. That's a project which offers free access to ebooks for Amazon Prime subscribers – Amazon's flat-rate free next-day-delivery program – who have Kindles. It is clearly a loss leader, aimed to drive Kindle sales and Amazon Prime subscriptions. But both of those are, themselves, loss leaders. Amazon makes no money on its flagship Kindle model, the Paperwhite, and while it doesn't reveal the figures, most analysts agree that it also loses money on Amazon Prime.

The company has revenues of the same magnitude as Apple, but profits at the same magnitude as Games Workshop. It has managed to convince an entire class of investors to give it money and not ask for anything back save continued growth. In short, it's a multi-billion pound company being treated like it's a start-up.

That is something which HMV cannot compete with. Even if online retail didn't have intrinsic advantages over brick-and-mortar – with lower fixed costs, larger potential markets and a near-infinite potential for keeping things in stock – and even if Amazon paid full British tax on everything it does, HMV still couldn't offer prices that matched Amazon's, because HMV has to make a profit on what it sells.

That's not actually a bad thing in the short-term. What Amazon's strategy amounts to in the short-term is a massive transfer of wealth from its investors to its customers — at least compared to the non-Amazon alternative. In the long-term, it must result in one of two things: the bubble bursting, and the company being forced by shareholders to stop sacrificing profit for market share; or a consolidation of its monopoly, allowing it to raise prices because every other potential competitor has been driven out of business. Neither of those outcomes sound as good.

Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Former Irish premier John Bruton on Brexit: "Britain should pay for our border checks"

The former Taoiseach says Brexit has been interpreted as "a profoundly unfriendly act"

At Kapıkule, on the Turkish border with Bulgaria, the queue of lorries awaiting clearance to enter European Union territory can extend as long as 17km. Despite Turkey’s customs union for goods with the bloc, hauliers can spend up to 30 hours clearing a series of demanding administrative hoops. This is the nightmare keeping former Irish premier John Bruton up at night. Only this time, it's the post-Brexit border between Northern Ireland and the Republic, and it's much, much worse.   

Bruton (pictured below), Taoiseach between 1994 and 1997, is an ardent pro-European and was historically so sympathetic to Britain that, while in office, he was pilloried as "John Unionist" by his rivals. But he believes, should she continue her push for a hard Brexit, that Theresa May's promise for a “seamless, frictionless border” is unattainable. 

"A good example of the sort of thing that might arise is what’s happening on the Turkish-Bulgarian border," the former leader of Ireland's centre-right Fine Gael party told me. “The situation would be more severe in Ireland, because the UK proposes to leave the customs union as well."

The outlook for Ireland looks grim – and a world away from the dynamism of the Celtic Tiger days Bruton’s coalition government helped usher in. “There will be all sorts of problems," he said. "Separate permits for truck drivers operating across two jurisdictions, people having to pay for the right to use foreign roads, and a whole range of other issues.” 

Last week, an anti-Brexit protest on the border in Killeen, County Louth, saw mock customs checks bring traffic to a near standstill. But, so far, the discussion around what the future looks like for the 260 border crossings has focused predominantly on its potential effects on Ulster’s fragile peace. Last week Bruton’s successor as Taoiseach, Bertie Ahern, warned “any sort of physical border” would be “bad for the peace process”. 

Bruton does not disagree, and is concerned by what the UK’s withdrawal from the European Convention on Human Rights might mean for the Good Friday Agreement. But he believes the preoccupation with the legacy of violence has distracted British policymakers from the potentially devastating economic impact of Brexit. “I don’t believe that any serious thought was given to the wider impact on the economy of the two islands as a whole," he said. 

The collapse in the pound has already hit Irish exporters, for whom British sales are worth £15bn. Businesses that work across the border could yet face the crippling expense of duplicating their operations after the UK leaves the customs union and single market. This, he says, will “radically disturb” Ireland’s agriculture and food-processing industries – 55 per cent of whose products are sold to the UK. A transitional deal will "anaesthetise" people to the real impact, he says, but when it comes, it will be a more seismic change than many in London are expecting. He even believes it would be “logical” for the UK to cover the Irish government’s costs as it builds new infrastructure and employs new customs officials to deal with the new reality.

Despite his past support for Britain, the government's push for a hard Brexit has clearly tested Bruton's patience. “We’re attempting to unravel more than 40 years of joint work, joint rule-making, to create the largest multinational market in the world," he said. It is not just Bruton who is frustrated. The British decision to "tear that up", he said, "is regarded, particularly by people in Ireland, as a profoundly unfriendly act towards neighbours".

Nor does he think Leave campaigners, among them the former Northern Ireland secretary Theresa Villiers, gave due attention to the issue during the campaign. “The assurances that were given were of the nature of: ‘Well, it’ll be alright on the night!’," he said. "As if the Brexit advocates were in a position to give any assurances on that point.” 

Indeed, some of the more blimpish elements of the British right believe Ireland, wedded to its low corporate tax rates and east-west trade, would sooner follow its neighbour out of the EU than endure the disruption. Recent polling shows they are likely mistaken: some 80 per cent of Irish voters say they would vote to remain in an EU referendum.

Irexit remains a fringe cause and Bruton believes, post-Brexit, Dublin will have no choice but to align itself more closely with the EU27. “The UK is walking away,” he said. “This shift has been imposed upon us by our neighbour. Ireland will have to do the best it can: any EU without Britain is a more difficult EU for Ireland.” 

May, he says, has exacerbated those difficulties. Her appointment of her ally James Brokenshire as secretary of state for Northern Ireland was interpreted as a sign she understood the role’s strategic importance. But Bruton doubts Ireland has figured much in her biggest decisions on Brexit: “I don’t think serious thought was given to this before her conference speech, which insisted on immigration controls and on no jurisdiction for the European Court of Justice. Those two decisions essentially removed the possibility for Ireland and Britain to work together as part of the EEA or customs union – and were not even necessitated by the referendum decision.”

There are several avenues for Britain if it wants to avert the “voluntary injury” it looks set to inflict to Ireland’s economy and its own. One, which Bruton concedes is unlikely, is staying in the single market. He dismisses as “fanciful” the suggestions that Northern Ireland alone could negotiate European Economic Area membership, while a poll on Irish reunification is "only marginally" more likely. 

The other is a variation on the Remoaners’ favourite - a second referendum should Britain look set to crash out on World Trade Organisation terms without a satisfactory deal. “I don’t think a second referendum is going to be accepted by anybody at this stage. It is going to take a number of years,” he said. “I would like to see the negotiation proceed and for the European Union to keep the option of UK membership on 2015 terms on the table. It would be the best available alternative to an agreed outcome.” 

As things stand, however, Bruton is unambiguous. Brexit means the Northern Irish border will change for the worse. “That’s just inherent in the decision the UK electorate was invited to take, and took – or rather, the UK government took in interpreting the referendum.”