Amazon Kindle Store Hits Regulatory Snag 新闻出版总署叫停亚马逊Kindle商店
Global e-commerce giant Amazon (Nasdaq: AMZN) was decidedly low-key in the launch last week of its Kindle bookstore in China, and now perhaps we know why. Just days after Amazon formally opened the store on its China site selling books for its Kindle tablet PCs, media are reporting the government agency that regulates the publishing industry has said Amazon’s new store violates Chinese regulations, implying the store may have to close until the situation gets sorted out. Whether or not such a closure, if it comes, would be temporary or permanent remains to be seen, though I think it would probably be temporary. But this case does once again underscore the regulatory risk of doing business in China, where numerous government agencies often oversee specific industries and anyone who operates needs to take care to keep all those regulators happy.
Amazon made headlines last week when it quietly opened its Kindle store in China, selling electronic books as part of an aggressive push into the Chinese e-commerce market. (previous post) The store also sold software allowing consumers to read its books on other tablet PCs and e-readers, since actual Kindle tablet PCs aren’t available in China yet. That led many to speculate that Amazon was preparing to start selling the Kindle itself in China in the months ahead, in a bid to take a share of the nation’s fast-growing tablet PC market.
But before the Kindle hype could even start to build, an official from the General Administration of Press and Publication (GAPP), which regulates the publishing industry, has come out and said the new Amazon store violates its regulations. (English article) The reasoning looks a bit technical, and is related to China’s bureaucratic rules governing anything involving the sensitive publishing industry.
It appears that Amazon may have overstepped a line in partnering with local company ChineseAll.com, which is the actual license holder for the Kindle store in China. Amazon probably didn’t get its own license directly because China seldom if ever grants such licenses to foreign companies, which instead must always find Chinese partners that have existing licenses to publish and distribute published material. Many foreign companies take this route, and most magazines with foreign sounding titles that publish in China today usually do so using the licenses of their Chinese partners.
In this case, I suspect what has happened is that Amazon made the mistake of bypassing the GAPP in setting up its Kindle store, assuming it only needed to form a partnership with ChineseAll.com to proceed. Anyone who has been involved in Chinese publishing would probably know that this kind of assumption is always a bit dangerous, because the GAPP likes to have a hand in anything major on its turf. So Amazon’s failure to include the regulator in this move is most likely the main reason behind the regulator’s comments.
A similar controversy erupted 3 years ago when online game operator NetEase (Nasdaq: NTES) signed a licensing deal to operate the popular game World of Warcraft. The company thought it had received the necessary regulatory permission to operate the game. But it declined to seek permission from GAPP, which later said it also had to give its green light and threatened to shut down the popular game. The tiff was ultimately settled, and NetEase suffered only a relatively minor disruption in its operation of the game.
So, what does all this mean for Amazon and its China Kindle store? If the NetEase case is any indicator, I suspect we could see Amazon quietly close the Kindle store temporarily in the near future and approach the GAPP more directly to seek its formal approval for the store’s operation. The GAPP may also ultimately impose 1 or 2 conditions on Amazon to flex its authority and as a warning for Amazon not to commit any similar transgressions in the future.
But at the end of the day, the Kindle store will probably reopen, if it ever closes at all, and business will go on as usual. In the meantime, Amazon will learn an important lesson that one should never assume anything when it comes to Chinese regulators, and it’s always important to get a green light from any regulator with potential oversight authority when launching a new business initiatives.
Bottom line: Amazon’s reported tangle with a Chinese regulator over its new China Kindle store is likely to be only a temporary setback, but underscores the regulatory risk of doing business in China.
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