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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The UK must reflect on its own role in stoking tension over North Korea

World powers should follow the conciliatory approach of South Korea, not its tempestuous neighbour. 

South Korea’s president Moon Jae-in has done something which took enormous bravery. As US and North Korean leaders rattle their respective nuclear sabres at one another, Jae-in called for negotiations and a peaceful resolution, rejecting the kind of nationalist and populist response preferred by Trump and Kim Jong-un.

In making this call, Jae-in has chosen the path of most resistance. It is always much easier to call for one party in a conflict to do X or Y than to sit round a table and thrash through the issues at hand. So far the British response has sided largely with the former approach: Theresa May has called on China to clean up the mess while the foreign secretary Boris Johnson has slammed North Korea as “reckless”.

China undoubtedly has a crucial role to play in any solution to the North and South Korean conflict, and addressing the mounting tensions between Pyongyang and Washington but China cannot do it alone. And whilst North Korea’s actions throughout this crisis have indeed been reckless and hugely provocative, the fact that the US has flown nuclear capable bombers close to the North Korean border must also be condemned. We should also acknowledge and reflect on the UK’s own role in stoking the fires of tension: last year the British government sent four Typhoon fighter jets to take part in joint military exercises in the East and South China seas with Japan. On the scale of provocation, that has to rate pretty highly too.

Without being prepared to roll up our sleeves and get involved in complex multilateral negotiations there will never be an end to these international crises. No longer can the US, Britain, France, and Russia attempt to play world police, carving up nations and creating deals behind closed doors as they please. That might have worked in the Cold War era but it’s anachronistic and ineffective now. Any 21st century foreign policy has to take account of all the actors and interests involved.

Our first priority must be to defuse tension. I urge PM May to pledge that she will not send British armed forces to the region, a move that will only inflame relations. We also need to see her use her influence to press both Trump and Jong-un to stop throwing insults at one another across the Pacific Ocean, heightening tensions on both sides.

For this to happen they will both need to see that serious action - as opposed to just words - is being taken by the international community to reach a peaceful solution. Britain can play a major role in achieving this. As a member of the UN Security Council, it can use its position to push for the recommencing of the six party nuclear disarmament talks involving North and South Korea, the US, China, Russia, and Japan. We must also show moral and practical leadership by signing up to and working to enforce the new UN ban on nuclear weapons, ratified on 7 July this year and voted for by 122 nations, and that has to involve putting our own house in order by committing to the decommissioning of Trident whilst making plans now for a post-Trident defence policy. It’s impossible to argue for world peace sat on top of a pile of nuclear weapons. And we need to talk to activists in North and South Korea and the US who are trying to find a peaceful solution to the current conflict and work with them to achieve that goal.

Just as those who lived through the second half of the 20th century grew accustomed to the threat of a nuclear war between the US and Russia, so those of us living in the 21st know that a nuclear strike from the US, North Korea, Iran, or Russia can never be ruled out. If we want to move away from these cyclical crises we have to think and act differently. President Jae-in’s leadership needs to be now be followed by others in the international community. Failure to do so will leave us trapped, subject to repeating crises that leave us vulnerable to all-out nuclear war: a future that is possible and frightening in equal measure.

Caroline Lucas is the MP for Brighton Pavilion.