No More Loopholes

Amazon is also facing further obstacles ahead. As of January, the European Unon has ensured that Amazon's tax tricks will be a thing of the past. Until now, the company, like Apple has been funelling its revenues through Luxembourg, taking advantage of its low tax rate and collecting a 3 percent value-added tax (sales tax) on digital services like e-books. But Brussels has introduced new tax rules, according to which web retailers must charge customers based on where the consumer lives, and not where the retailer operates. The new rule will cost Amazon millions, since the VAT on e-books is up to 20 percent in most EU member countries.

Despite an ongoing exchange, negotiations between Amazon and Bonnier are making little headway. This is particularly vexing to Amazon because it feels it kick-started Germany's e-book market in the first place. When it entered it three years ago, it signed distribution deals with the country's leading publishers. The terms, however, were not the focus of these agreements. As ever, Amazon was interested primarily in growth before profit. It accepted the same share of earnings publishers had offered Apple. They got 70 percent, the web retailer got 30 percent.

Now, Amazon has not only launched the most user-friendly e-reader on the market, it has also become the best-known platform for e-books. When they want an e-book, the majority of consumers log on to Amazon without thinking twice. But this was a dead-end street that publishers and retailers alike went down with their eyes wide open. For a long time, they both saw e-books as a threat to their thriving business with pricey printed matter. All their attempts to establish their own portals for e-books were miserable failures. They are now paying a high price for this initial arrogance and lack of vision. The book industry's refusal to make even the smallest concessions to the web retailer is also a desperate 11th-hour attempt to contain Amazon's growing power.

By now, though, the horse has bolted. Amazon has secured itself an estimated 50 percent share of the e-books market in Germany and is shutting the stable door. "Today's e-book industry, which affords many authors and publishers profitable turnover, would not exist without our investment in Kindle," says Kleber. "The industry is now developing fast and we would like to have our fair share of it."

Bonnier, needless to say, has its own ideas about where fairness ends and coercion begins. After the Leipzig Book Fair in March, the group was prepared to put up a fight. "It's a choice between standing firm, however painful that might get, or sliding into financial difficulty over the next five years," says Lorbeer.

Blackmail

Last week, the German Publishers and Booksellers Association lodged a complaint with the Federal Cartel Office. "It is effectively blackmailing publishers in a manner that breaches antitrust law," the association said. The EU Commission also has its eye on the case, with its antitrust watchdogs sending Amazon and Bonnier a list of questions in recent weeks.

Kleber doesn't understand what all the fuss is about. Were the discount supermarket chain Lidl to stop selling coke because the discount supermarket could no longer agree on a price with the Coca Cola company, Germany wouldn't start clamoring for new laws and lobbying antitrust authorities. Books, soft drinks -- it's all the same to Amazon.

Kleber also insists that Amazon continues to ship Bonnier titles, merely with a delay. The reason he gives is that the company has to order inventory from Bonnier if there is no stock on hand. What Ullstein, Piper and Carlsen see as a boycott is what Amazon sees as its right to buy whatever print inventory it likes. Every item on its shelves costs Amazon money, and right now, it's not willing to spend that money on Bonnier. In Amazon's lingo, its "overall profitability" is not currently to its satisfaction.

Kleber doesn't care much for crunching the numbers -- at least not when he's talking about Amazon. "I would rather not comment," is his stock phrase. "We provided Amazon with all our calculations," complains Schumacher-Gebler at Bonnier. "But they won't even tell us how many Kindle Readers they've sold in Germany."

Amazon is famous for humoring its investors with a gigantic promise: Once Amazon has become indispensable to billions of people, profits will take care of themselves.

For now, though, those profits remain elusive. It ploughs turnover into new ideas and business segments designed to make the company even mightier. These include drones that in the future might be able to deliver fresh groceries to households in American cities within 24 hours. Or the Fire Phone, which automatically recognizes text, sounds, and objects and then offers a way to buy it through Amazon's online store.

With turnover of $74.5 billion last year, Amazon was over 50 percent bigger than the Coca Cola company but was left with a slim profit of just $274 million. Coca Cola's yield is 31 times that amount. Shareholders never seemed to care, at least, not as long as they trusted in Amazon CEO Jeff Bezos' guiding principle that ultimately, all that matters is customer satisfaction. But as of January, the company's stock market value shrunk by 17 percent. "Is a 20-year honeymoon coming to an end?" the New York Times asked in April.

Amazon needs profits, and no other book market promises them quite like Germany's. It's the second-largest in the world, and a protected biotope thanks fixed book pricing that is required under federal law. In the US and Britain, in contrast, books are becoming increasingly cheap, with many e-book bestsellers retailing at just €5. The price wars were started by Amazon. The company used publishers' discounts to lower prices and undercut competitors. In the US, Amazon sold the last book in the Harry Potter series without making a profit. Fixed book prices make this sort of approach impossible. Every euro that Amazon takes from publishers benefits itself, not the customers.

A Doomsday Scenario

Germany likes to see itself as the land of poets and thinkers. The web retailer is keen to take advantage of this unflagging enthusiasm for books, but without grasping its origin. As far as Kleber is concerned, printed matter is just a P-book, another product. He doesn't get why publishers throw lavish parties and senior editors get to live in luxury villas. He himself doesn't even have a reception area and his office is barely 20 meters square. A seemingly unbridgeable divide separates a company whose façade is decorated with words such as "Sheer Quality of Life" and a publisher like a Piper, which sees itself in the tradition of German Expressionism.

The argument could end up being decided by authors. If it weren't for them, there would be no books, so publishers need their support. Amazon might try to sabotage this relationship, by luring writers with promises of 70 percent of sale price if they choose to self-publish with Amazon.

Traditional publishers would continue to print books while Amazon will take over the publication of e-books and attract writers whose work appears exclusively in digital editions. This would effectively bar traditional publishers from the future. A doomsday scenario, but not an unimaginable one.

Ralf Kleber is optimistic that an agreement can be reached. It's part of Amazon's strategy to assume that customers are not hugely interested in battles over book retailing. But readers are educated. Amazon would not be the first tech giant to discover that its thirst for success blinded it to customer sensibilities.