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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Theresa May's cabinet regroups: 11 things we know about Brexit negotiations so far

The new PM wants a debate on social mobility and Brexit. 

This was the summer of the Phony Brexit. But on Wednesday, the new Tory cabinet emerged from their holiday hideaways to discuss how Britain will negotiate its exit from the EU. 

The new prime minister Theresa May is hosting a meeting that includes Brexiteers like David Davis, now minister for Brexit, Boris Johnson, the new Foreign secretary, and Liam Fox.

For now, their views on negotiations are taking place behind closed doors at the PM’s country retreat, Chequers. But here is what we know so far:

1. Talks won’t begin this year

May said in July that official negotiations would not start in 2016. Instead, she pledged to take the time to secure “a sensible and orderly departure”. 

2. But forget a second referendum

In her opening speech to cabinet, May said: “We must continue to be very clear that ‘Brexit means Brexit’, that we’re going to make a success of it. That means there’s no second referendum; no attempts to sort of stay in the EU by the back door; that we’re actually going to deliver on this.”

3. And Article 50 remains mysterious

A No.10 spokesman has confirmed that Parliament will “have its say” but did not clarify whether this would be before or after Article 50 is triggered. According to The Telegraph, May has been told she has the authority to invoke it without a vote in Parliament, although she has confirmed she will not do so this eyar.

4. The cabinet need to speak up

May’s “you break it, you fix it” approach to cabinet appointments means that key Brexiteers are now in charge of overseeing affected areas, such as farming and international relations. According to the BBC, the PM is asking each minister to report back on opportunities for their departments. 

5. Brexit comes with social mobility

As well as Brexit, May is discussing social reform with her cabinet. She told them: “We want to be a government and a country that works for everyone.” The PM already performed some social mobility of her own, when she ditched public school boy Chancellor George Osborne in favour of state school Philip Hammond. 

6. All eyes will be on DExEU

Davis, aka Brexit minister, heads up the Department for Exiting the EU, a new ministerial department. According to Oliver Ilott, from the Institute for Government, this department will be responsible for setting the ground rules across Whitehall. He  said: “DExEu needs to make sure that there is a shared understanding of the parameters of future negotiations before Whitehall departments go too far down their own rabbit holes.”

7. May wants to keep it friendly

The PM talked to Prime Minister Sipilä of Finland and Prime Minister Solberg of Norway on the morning of the cabinet meeting. She pledged Britain would "live up to our obligations" in the EU while it remained a member and "maintain a good relationship with the EU as well as individual European countries".

8. But everything's on the table

May also told the Finnish and Norwegian prime ministers that negotiators should consider what is going to work best for the UK and what is going to work for the European Union, rather than necessarily pursuing an existing model. This suggests she may not be aiming to join Norway in the European Economic Area. 

9. She gets on with Angela Merkel

While all 27 remaining EU countries will have a say in Brexit negotiations, Germany is Europe’s economic powerhouse. May’s first meeting appeared amiable, with the PM telling reporters: “We have two women here who have got on and had a very constructive discussion, two women who, I may say, get on with the job.” The German Chancellor responded: “Exactly. I completely agree with that.”

10. But less so with Francoise Hollande

The French president said Brexit negotiations should start “the sooner the better” and argued that freedom of labour could not be separated from other aspects of the single market. 

11. Britain wants to hold onto its EU banking passports

The “passporting system” which makes it easier for banks based in London to operate on the Continent, is now in jeopardy. We know the UK Government will be fighting to keep passports, because a paper on that very issue was accidentally shown to camera.