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.

GETTY
Show Hide image

Would you jump off a cliff if someone told you to? One time, I did

I was walking across the bridge in Matlock park, which is about 12 feet high, with a large group of other kids from my year, in the pouring rain.

Ever heard the phrase, “Would you jump off a cliff if they told you to?” It was the perpetual motif of my young teenage years: my daily escapades, all of which sprang from a need to impress a peer, were distressing and disgusting my parents.

At 13, this tomboyish streak developed further. I wrote urgent, angry poems containing lines like: “Who has desire for something higher than jumping for joy and smashing a light?” I wanted to push everything to its limits, to burst up through the ceiling of the small town I lived in and land in America, or London, or at least Derby. This was coupled with a potent and thumping appetite for attention.

At the height of these feelings, I was walking across the bridge in Matlock park, which is about 12 feet high, with a large group of other kids from my year, in the pouring rain. One of the cool girls started saying that her cousin had jumped off the bridge into the river and had just swum away – and that one of us should do it.

Then someone said that I should do it, because I always did that stuff. More people started saying I should. The group drew to a halt. Someone offered me a pound, which was the clincher. “I’m going to jump!” I yelled, and clambered on to the railing.

There wasn’t a complete hush, which annoyed me. I looked down. It was raining very hard and I couldn’t see the bottom of the riverbed. “It looks really deep because of the rain,” someone said. I told myself it would just be like jumping into a swimming pool. It would be over in a few minutes, and then everyone would know I’d done it. No one could ever take it away from me. Also, somebody would probably buy me some Embassy Filter, and maybe a Chomp.

So, surprising even myself, I jumped.

I was about three seconds in the air. I kept my eyes wide open, and saw the blur of trees, the white sky and my dyed red hair. I landed with my left foot at a 90-degree angle to my left ankle, and all I could see was red. “I’ve gone blind!” I thought, then realised it was my hair, which was plastered on to my eyes with rain.

When I pushed it out of the way and looked around, there was no one to be seen. They must have started running as I jumped. Then I heard a voice from the riverbank – a girl called Erin Condron, who I didn’t know very well. She pushed me home on someone’s skateboard, because my ankle was broken.

When we got to my house, I waited for Mum to say, “Would you jump off another cliff if they told you to?” but she was ashen. I had to lie that Dave McDonald’s brother had pushed me in the duck pond. And that’s when my ankle started to throb. I never got the pound, but I will always be grateful to Erin Condron. 

This article first appeared in the 25 August 2016 issue of the New Statesman, Cameron: the legacy of a loser