Bookstore Shutdown Clouds Apple's China Blitz

| About: Apple Inc. (AAPL)

It seems that all the goodwill in China garnered by Apple (NASDAQ:AAPL) CEO Tim Cook wasn't enough to prevent the company from hitting a major new roadblock, with word that its book and movie services have been blocked in the country. The move nicely illustrates two faces of Beijing that sometimes seem contradictory. On the one hand, Chinese leaders crave the attention they get when global leaders like Cook visit China and pay due respect to the market. But on the other, they have little tolerance for anyone who violates the country's strict censorship rules.

Buzz is now centering on whether Apple will be able to somehow bring its book and movie services into compliance with new Chinese rules rolled out last month, allowing the services to resume. If this were Alphabet (GOOG, GOOGL) running into similar problems, I would say the answer would be "no", since the company has little goodwill with Beijing. But Apple has invested heavily to win the favor of Beijing leaders, meaning it's likely to get a more sympathetic ear, probably after personal intervention by Cook himself.

The latest headlines note that Apple's iBooks Store and iTunes Movies services became unusable in China, most likely at some point last week, though no exact time was given (English article). They say attempts to use the services returned a message saying they were currently "unusable". The book and movie services join Apple's news app, which is also currently unusable in China.

An Apple spokeswoman said the company hoped to make the services available again as soon as possible, but didn't comment further. The New York Times previously reported the government agency that monitors movies and books had demanded that Apple halt the services following the roll-out of strict new regulations governing the media in China. Those regulations prohibit foreign-invested ventures from publishing in China, and require that all content be stored on China-based servers.

Interestingly, the online China bookstore operated by US e-commerce giant Amazon (NASDAQ:AMZN) remains functional, offering a wide range of books in Chinese and English. That might imply that Apple's site contained some self-published material, which perhaps is what irked the censors. Another possibility is that books and movies for Apple's service were housed on servers outside China, which would have also been taboo.

Lacking Goodwill?

A third possibility could be that Apple simply lacks the goodwill of Amazon, though that seems unlikely. Both companies have invested heavily in China and take extra care to make sure they are following Beijing's strict rules regarding matters like self censorship. Apple's Cook has traveled at least twice to China each year over the last few years as part of a campaign to give the company broad access to a market that has rapidly grown to become its second-largest worldwide.

Apple was rewarded for its efforts back in February, when it became the first major foreign company allowed to offer domestic electronic payment services in China with the launch of its Apple Pay product (previous post). The company also continues to receive broadly positive media coverage in China, following the launch of several recent environmentally-friendly initiatives that fit nicely with Beijing's broader objectives.

Those gains reflect the positive state of Apple's broader relationship with Beijing at the moment, which contrasts sharply with this sudden shutdown of its book and movie services. I suspect the site probably violated rules by containing some self-published material, which would have led to the demand for the shutdown. But given its broadly positive relationship with Beijing, I expect Apple will quickly resolve the matter and the site could reopen for business by some time next month.

Disclosure: None.