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.

Photo: Getty
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Theresa May's "clean Brexit" is hard Brexit with better PR

The Prime Minister's objectives point to the hardest of exits from the European Union. 

Theresa May will outline her approach to Britain’s Brexit deal in a much-hyped speech later today, with a 12-point plan for Brexit.

The headlines: her vow that Britain will not be “half in, half out” and border control will come before our membership of the single market.

And the PM will unveil a new flavour of Brexit: not hard, not soft, but “clean” aka hard but with better PR.

“Britain's clean break from EU” is the i’s splash, “My 12-point plan for Brexit” is the Telegraph’s, “We Will Get Clean Break From EU” cheers the Express, “Theresa’s New Free Britain” roars the Mail, “May: We’ll Go It Alone With CLEAN Brexit” is the Metro’s take. The Guardian goes for the somewhat more subdued “May rules out UK staying in single market” as their splash while the Sun opts for “Great Brexpectations”.

You might, at this point, be grappling with a sense of déjà vu. May’s new approach to the Brexit talks is pretty much what you’d expect from what she’s said since getting the keys to Downing Street, as I wrote back in October. Neither of her stated red lines, on border control or freeing British law from the European Court of Justice, can be met without taking Britain out of the single market aka a hard Brexit in old money.

What is new is the language on the customs union, the only area where May has actually been sparing on detail. The speech will make it clear that after Brexit, Britain will want to strike its own trade deals, which means that either an unlikely exemption will be carved out, or, more likely, that the United Kingdom will be out of the European Union, the single market and the customs union.

(As an aside, another good steer about the customs union can be found in today’s row between Boris Johnson and the other foreign ministers of the EU27. He is under fire for vetoing an EU statement in support of a two-state solution, reputedly to curry favour with Donald Trump. It would be strange if Downing Street was shredding decades of British policy on the Middle East to appease the President-Elect if we weren’t going to leave the customs union in order at the end of it.)

But what really matters isn’t what May says today but what happens around Europe over the next few months. Donald Trump’s attacks on the EU and Nato yesterday will increase the incentive on the part of the EU27 to put securing the political project front-and-centre in the Brexit talks, making a good deal for Britain significantly less likely.

Add that to the unforced errors on the part of the British government, like Amber Rudd’s wheeze to compile lists of foreign workers, and the diplomatic situation is not what you would wish to secure the best Brexit deal, to put it mildly.

Clean Brexit? Nah. It’s going to get messy. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.