The rumor that Amazon.com was launching in Brazil has been gossiped about for months now. Yes, Seattle executives started visiting last year and as a result, Brazilians have imagined all kinds of stories, including one that places Jeff Bezos himself in Brasilia sign- ing a secret deal to sell Kindles to the federal government — a story that sounds as mythological as the Amazonian legend that pink dolphins can seduce and impregnate young ladies in the Amazon region.
But executives from Seattle were not the only e-retailers said to be traveling to Brazil. Much more discreetly, Kobo employees started visiting Brazil in 2011, starting with the Digital Book International Congress, organized by the Brazilian Book Chamber. Several flights under the radar later, Kobo announced a partnership with chain bookseller Livraria Cultura this September, with operations scheduled to start in late October. This makes Kobo the first large international player to launch in Brazil — beating their Seattle competitor to the country from which it derives its very name.
Kobo and Cultura
Livraria Cultura is an important mid-sized bookstore chain, and was Brazil’s pioneer in selling books online during the late 1990s. They have a solid reputation as one of the best booksellers in the country. “The choice of Kobo was a very natural one, since we wanted an open and good-quality platform,” explains Sergio Herz, Livraria Cultura’s CEO. “The Kobo e-readers will be sold in Brazil always with our signature, and the partnership brings the growth of our e-book catalog to three million titles, of which 15,000 will be in Portuguese.” At this moment, the Brazilian bookstore offers only 11,000 titles in Brazilian Portuguese, which is pretty much the total number of commercial e-books “in print” in Brazil, discounting public domain and self-published titles.
Livraria Cultura hasn’t disclosed exactly when Kobo’s e-readers will be available for sale in their stores, nor the final prices. But ac- cording to the local newspapers, the e-readers will be available for sale at the end of October and will cost less than an imported Kindle. Today, after taxes and shipping, Brazilians pay around US$216 for the most basic device from Amazon.com.
Amazon.com, of course, has been working hard to sign deals with Brazilian publishers and put a digital catalog together. There is suspicion that the company and its representatives are having a difficult time in their negotiations. Brazil’s book professionals follow the US market very closely, and the various controversies between Amazon and American publishers and booksellers are well known in Brazil. Add to that the fact that Amazon rarely talks to the press, and journalists and publishers alike have developed a kind of “Amazonaphobia.”
However, after more than a year of tense negotiations, things are starting to progress. Amazon hired a Brazilian employee in January. In August, following years of litigation with a local IT company (itself based on the shores of the Amazon and legitimate owner of the name), Seattle was finally able to secure the domain www.amazon.com.br.
The market was expecting the Brazilian store to open in 2012, but chances are it may have to wait until 2013. Russ Grandinetti, Amazon’s VP for the Kindle operation, was in the country for the first time this August to speak at the São Paulo Book Fair, known as Bienal do Livro.
Where are the Other International Players?
Google, Apple and Barnes & Noble appear to be behind Kobo and Amazon. Google hired a Brazilian executive exclusively to secure content in Latin America more than a year ago and, for some time, the market expected a local Brazilian Google Play store to launch in 2012, but things have been quiet at the São Paulo Google headquarters.
Apple seems to be a little late opening up in Brazil — despite promises to the contrary — but that’s no surprise considering they only opened a Brazilian iTunes store in December and never bothered to open an Apple store in the country. Barnes & Noble has expressed an interest in Brazilian and Portuguese content, but little is known about whether or not the country is on the short-term agenda — or else they have been working very discretely.
The Good Problem of the Brazilian Tax System
One thing all the international e-booksellers who are looking to enter the market share is the challenge of dealing with the Brazilian tax system — something that has been cited as an excuse for the delays. The tax problem, however, is a good one in its origin: books are absolutely tax-free in Brazil, with no VAT or sales tax. Of course, that relates only to print books, so when it comes to e-books, it gets a little complicated. Thus far, everyone is treating e-books as tax-free products even though there is no legal guarantee. E-readers, in particular, are an issue and a bill is currently being discussed in the Senate to amend the National Book Law to render the e-reader (e-ink only, not tablets), as well as e-books, as tax free. Should the bill pass, sales of e-readers are expected to rise significantly, as current import taxes can run as much as 60% on devices.
Further complications arise with the tax code when it comes to e-book distribution models. Books are tax-free, but services are not. So if you buy and sell books, there is no tax, but if your distribution qualifies as a “service” — B2B activity, for example — you would be subject to tax rates as high as 14.25%. This is known as ISS and PIS/Cofins. This is a direct impediment to the application of the “agency model” in Brazil, as the “agency services” would be taxable. What’s more, as in the US, there is a de- bate regarding the very legality of the agency model, with no firm and decisive answer on the horizon.