B&N Now Admitting that Nook Revenues Will be Bad in 2012, Worse in 2013

b&nWhen Barnes & Noble reported poor holiday sales last month, with abysmal Nook revenue, I'm sure pretty much everyone knew it was going to get worse. And now it has.B&N has put out a press release with the news that they expect Nook revenues for fiscal year 2012 (ends April 2013) to be down from revenues in 2011.  They also have downgraded the estimated Nook revenues for fiscal year 2013. We don't have specific numbers yet; that won't be released until 28 February 2013:

Barnes & Noble, Inc. (BKS), the leading retailer of content, digital media and educational products, today announced the company will report fiscal 2013 third quarter earnings results on Thursday, February 28th, before the market opens.

Based on current forecasts, the Company now expects its fiscal year 2013 NOOK segment EBITDA loss to be greater than it was in fiscal 2012 and expects fiscal year 2013 NOOK Media revenues to be less than $3 billion.

Yes, B&N pushed the release date for their quarterly filing back 9 days. You can probably expect B&N to use the extra time to convince publishers to prop up B&N by buying parts of Nook Media, just like Pearson did in late December 2012.

But even though we don't know the numbers yet I think we can take a wild guess. Barnes & Noble's FY2011 included a holiday season with disappointing Nook Touch sales, followed shortly by a pair of BOGO sales on Ebay (buy a Nook Color, get a Nook Touch), and then a poor 4th quarter.

We already know that B&N had a bad Christmas in 2012, a marginal first quarter (no increase in revenue), and a passable second quarter (slight increase in sales). And now B&N is reporting that they don't expect their digital sales or hardware sales to improve this year or the next.

Would you believe that when I wrote in June 2012 that B&N should take the Nook out back and shoot it I was trying to be flippant, not prophetic?  I really thought B&N would turn it around.

Anyone want to take bets on whether B&N will still be around this time next year (and not filing for bankruptcy protection)?

Given that they've damaged consumer confidence by announcing plans to shrink over the next 10 years, and that the current management are the capable folks who went to a consumer electronics tradeshow and forgot to bring the gadgetry, and that there is no one in sight to rescue the company, I would say not too bloody likely.

About Nate Hoffelder (11579 Articles)
Nate Hoffelder is the founder and editor of The Digital Reader:"I've been into reading ebooks since forever, but I only got my first ereader in July 2007. Everything quickly spiraled out of control from there. Before I started this blog in January 2010 I covered ebooks, ebook readers, and digital publishing for about 2 years as a part of MobileRead Forums. It's a great community, and being a member is a joy. But I thought I could make something out of how I covered the news for MobileRead, so I started this blog."

38 Comments on B&N Now Admitting that Nook Revenues Will be Bad in 2012, Worse in 2013

  1. Despite what toasterbrain here thinks, B&N could still pull its damn thumb out if they’d make the Nook an unlocked tablet with all their Nook-iness just as an app. And that goes *double* for the eInk Nooks, which would sell like insanity as eInk Android tablets.

    But no. B&N will stick to its damn mutant DRM *and* stick to its suicidal We Gotta Be Amazon Too course.

    • Really? So how is BN supposed to compete with Google Nexus tablets when the Nexus devices are already sold at cost, BN has to pay licence fees to use the Play Store, and their entire revenue stream evaporates because Google is getting their content sales.

      BN isn’t Samsung. They don’t have the volume to make up for all that lost profit (and look at Sammy, they’re pushing their own app store now too to try and emulate BN and Amazon).

      In short, you still have no idea how to run a business.

      • B&N had 18 months of lead time on the Nexus 7, and a year of lead time on the Kindle Fire.

        Don’t get mad at us because B&N pissed away their early advantage. All they would have had to do is not hold on quite so tight. Allowing third party apps would have been enough to add a lot of value. And so would any move that lessened B&N’s control.

        • Competing on hardware seems like a chumps game given the pocket size of the competition and their expertise (though that said I think anybody would have to say Nook gave it a good go). The nub of it is William Henry Keeler (d. 1923), a.k.a Wee Willie’s “Hit’em where they ain’t.” So does/did B&N have a ground they hold on which they can compete?

        • I’m not going to argue that BN messed up the NOOK Color – they bungled it horribly.

          And, again, I’m all for allowing 3rd party app installs through an APK transfer.

          But shipping a “stock” Android device with the Play Store is the worst possible business decision they can make.

          • At this point the Nook hardware has such little market share that B&N might as well go double or nothing. There’s not much left for them to do.

          • Always interesting how you “don’t trust” the companies that report marketshare until it comes time to bash BN, Nate.

            But let’s play with the numbers.

            IDC estimated that 121 million tablets were sold last year. IDC once again said that Android accounted for 42.7% of the tablets sold, for a total of about 52 million Android based tablets sold. Now we have varying claims for the marketshare BN controls here, from 1% (500k) to 10% (5 million) depending on who is reporting. But either way, BN has a healthy install base, as evidenced by their continually increasing content sales.

            And they’re still kicking the living crap out of all those crappy 3rd party tablets you post about here.

            Again, BN had a shitty quarter. But they’re not bankrupt yet.

          • B&N is the one company that has confirmed that their situation is as bad as the market analysts suggest. That’s why I believe the analysts. And hell, the news coming from B&N is so bad that I could ignore the market estimates.

            But I’m not sure B&N is actually doing better than the smaller independents. Sure, several have since gone bankrupt, but B&N is also going downhill. Plus they have capital costs that are hurting their bottom line.

          • You have to remember that BN’s physical stores are profitable – they’re making enough money to cover operating expenses and then some. It’s the costs in the NOOK division that’s walloping the company’s bottom line. If BN can get their partners (Microsoft specifically, whose quarterly profits are enough to buy BN’s market capitalization nearly ten times over) to help shoulder the burden there – particularly with advertising – they’ll be in a much better position.

            I still think BN is having problems with the market they’re going after. The consumer market is a tough one to break into, especially given the marketing power of companies like Amazon and Apple. I think their best bet is to focus on the education market. BN has longstanding relationships with school districts, the largest chain of college bookstores in the nation, and plenty of support from the publishers.

            So why the fuck isn’t NOOK Study on their flagship devices yet?

      • Companies do not need to pay a fee to license the Google Play app. They must meet certain standards to be certified as compatible, however.

        That said, I actually agree with you it probably wouldn’t help them make money (because they probably lowered their margins hoping to make it up with the walled garden). IMO they should sell a 7″ Windows tablet (maybe using the Windows Phone 8 OS?)

        • Toasterbrain as usual is all toast and no brain. /ignore

          As for a Win 8 tablet, that’d probably be a worse move than making their tablets open.

          For one, there are much higher costs associated with creating a full Win 8 tablet. And FULL Win 8 is what the market wants, not crap and confusing RT that has so few apps that moving from Andy to 8 would be a *downgrade*.

          B&N could *easily* raise the price of the eInk Nooks by ten bucks and make them Android tablets and *still* clean up. They’d bury the Kindle because they’d *finally* have what *no one else* has in the market: A cheap, battery-sipping Android tablet below the cost of most cheap color Android tablets. This is not a big deal to do. The Nook features would be a custom launcher just like any damned 3rd-party Andy launcher — an option — and they already have a damn Andy Nook app. As Nate said, they have more to *lose* at this point by ignoring this option.

          They were stupid to begin with, thinking they could be an Amazon or an Apple. The only innovation they have had has been in their hardware — and their walled garden is now killing them. If all of this has been Lynch’s plan, then maybe it’s time for Lynch himself to get the boot.

          As for competing against the Nexus 7, fine, kill the damn 7 inch tablet if that makes them nervous. They still have the larger tablet and the eInk devices. And those are still damn compelling as full Andy devices. They have mircroSD card slots. And they’re also *not* crap like the crap tablets that Archos is going to introduce (rebadged Chinese junk from Onda with faulty graphics and very weak battery life).

          Also, DROP THE DAMN MUTANT DRM ALREADY!

          • “They were stupid to begin with, thinking they could be an Amazon or an Apple.”

            Apple. They’ve been trying to be Apple. That’s where the android lockdown comes from. And they’re no Apple: their brand loyalty is good but not *that* good.

            “Also, DROP THE DAMN MUTANT DRM ALREADY!”

            At this point, it can hardly hurt.
            Their hardware alone isn’t letting their installed base grow with the market so they might as well try to cannibalize some Sony and Kobo customers. They do have a bigger ebook store than either. And they might pick up some buyers from the other generic ADEPT readers.

            The downside: the Adobe tax on those sales.

          • Heh.
            “Make the publishers pay the Adobe tax” sounds sweet. “You want DRM? You pay for it.”
            Alas, neither Apple nor Amazon have that problem.
            And, once again, it overestimates B&N & Nook’s value to the BPHs.
            It is nowhere near as high as the pundits make it out to be. Yes, it is convenient to sign one deal and get 600-store placement. But convenient doesn’t make B&N indispensable.

            Mind you, the publishers can easily agree to it… and then reduce the wholesale discount. 🙂
            But it’s a cool idea and a good negotiation ploy for Nook to try. If nothing else it’ll muddy the waters a bit.

          • You can already root a Simple Touch. I rooted mine and it runs some apps including Kindle.

            What happens to B&N if they get out of the Nook hardware business and instead sell competing devices like the Nexus. Does Walmart sell the Nexus 7 at $249 without making some kind of profit?

            I would rather buy a non=Nook tablet such as the Ainol Novo7 Venus from China at under $150 and install the Nook app. I find it hard to believe B&N is selling the HD or HD+ at cost. If so, they went to the wrong supplier and are getting ripped off.

          • >>>Ainol Novo7 Venus from China at under $150

            And then what do you do if there’s a manufacturing defect? Are you so rich that you can afford the postage to China, yet skimp so much on hardware? And is your time worth so little that you can wait and wait and wait for the back-and-forth between you and China? (Note: Some of this might not be so bad if you’re located in Europe, but shipping times to the States can sometimes be brutal.)

            Most people would rather deal with someone they can return a product to easily.

        • The Android OSP FAQ specifically describes “licensing” access to Google Play, along with the caveat that Google doesn’t disclose the fees involved and to contact them directly (and sign an NDA, presumably).

  2. I’d say the problem with B&N is very basic. In order to compete on any ground you have to do at least one thing better than anyone else.

    Instore experience–no
    Online experience–no
    Ereader–no
    Customer experience–no
    Affiliate network experience (a huge part of Amazon’s success)–no

    It would have taken a very different corporate culture but B&N could have excelled at in-store selection, in-store customer service, online curation and recommendations–in essence focusing on personalized customer needs.

    • What customers at BN had which was amazing was the ability to download and read any ebook inside the store for an hour before it would expire.

      This seemed like a great come on — although maybe they should have repackaged. Say for $10 a month you could have unlimited access to any ebook instore. I really wanted BN to come out near the top because they supported epub…..

  3. I dunno if anything can save the Nook in the long run.

    Maybe it can eek out a longer existance if it can price compete with Kindles…meaning sell the hardware at cost AND do something else dramatic that makes it a must-have selling point for some people …like free ebook with print buy, OR go all DRM-free like Apple did with music.

  4. I think B&N is a very salvageable company and that it could compete effectively with some basic changes. The very first thing it needs to do — above and beyuond anything else — is restart customer service and tech support from base zero. Its motto should become “the customer is always right.”

    The second thing it needs to do is incorporate Nook and B&N online into its brick-and-mortar stores. There would be a lot of upward momentum if people knew that if they bought a Nook, they could take it to their local B&N store and get real, knowledgable tech support and customer service. Most people still like to deal face-to-face.

    The problem is fundamentally, as I see it, that B&N keeps the online too separate from the b&m; instead, it should make them real partners. The top management thinking is 1950s when it needs to be 2020s.

  5. Let’s get down to basics for a moment.
    B&N announced that FY2013 (April 2012-March 2013) will result in lower revenue than FY2012 (April 2011-March 2012) and bigger losses. Now, bigger losses are not a critical issue, per se, because they have been spending on international expansion.
    The honking big red flag I see is *lower* revenue.

    Lower revenue in FY13 vs FY12 means they either:
    – sold less hardware
    – sold their hardware at lower prices
    – sold less content
    – sold their content at lower prices

    “Sold less hardware” we know to be true, at least for the LCD devices. A bad sign for their app and video business. If it is also true for their eink devices it is simply bad for their future prospects.

    “Sold their hardware at lower prices” is likely but unverified; annecdotally we know they had steadily declining Nook STR and Nook Color prices throughout the year but we don’t know how many were selling at those prices compared to their regular-price sales. Or compared to the newer models selling at full list. It is even possible that their average eink device sale price might have gone up over the year if the Glo dominated their sales. We know they had (have?) a glut of STRs they have been trying to clear up without much success but we don’t really know the ratio of Glo to STR sales.

    “Sold less content” is where things get scary. And we *know* that december 2012 content sales were weak. But, unlike hardware sales, which is about increasing the customer base, content sales are the *result* of increasing the customer base and the reason for Nook’s existence. Unless all FY13 device sales to date have been merely replacements for older device–unlikely–their hardware installed base probably has not shrunk. Their Nook app driven sales *could* have gone done, especially on iOS, but I’m thinking the most likely reason for weaker content unit sales is simply a lower attach rate; the average customer simply bought less books. That could be a logical consequence of lower device sales; buyers of new devices tend to buy a lot of content early on and slow down once they have a backlog of content to be read.

    “Sold their content at lower prices” on the other hand is easier to explain; Nook’s Pubit isn’t as prominent as Amazon’s KDP, but they do carry a lot of indie and self-pubbed content and consumer acceptance of that kind of content is on the rise so it would hardly be a surprise to see average ebook prices decline somewhat. That said, a decline in total content sales due solely to a shift towards cheaper books would require a massive shift to the cheaper books to offset even a small increase of the install base.

    I’m not going to argue for one explanation over the others because I don’t see Nook’s hardware business collapsing so I think Nook is dealing with all four issues to one extent or another. I, however, will point out one unavoidable result of lower hardware sales and weak content sales and reduced year-to-year revenue: that Nook’s share of the US ebook market has almost certainly declined.

    Keeping in mind that ebook sales growth has slowed but not declined, not even the most diehard Riggio apologist can claim that Nook has retained its claimed 26% share of the US ebook market from years before. (Well, yes; they could claim it but I doubt anybody woud buy the claim.)

    That to me is the real problem behind the delays in reporting FY13 numbers by B&N. Because the only real value Nook can claim is its share of the US ebook market. The investments from MS and Pearson and any other BPHs willing to float B&N some spending cash in return for chunks of Nook Media are all predicated on Nook owning a significant market share, on it being the primary alternative to Amazon. If their 26% share drops–and it clear has dropped–so does the value of Nook media. And any future sell-offs will bring in less money to keep the boat afloat.

    For a while I’ve been saying they should have spun Nook Media off and IPO’ed it. They didn’t and now the odds of that bring in significant revenues are fading. If the Reuters report is to be believed, they are loking at FY13 losses of over $262 million at Nook Media:
    http://www.reuters.com/article/2013/02/14/us-barnesnoble-nook-idUSBRE91D04120130214

    Which is about three quarters of the MS upfront injection. (The rest of MS funding is to be spread out over several years and it is merely a guarantee against Windows-driven Nook ebook sales so they won’t see all of the promised money as straight cash.) With a burn rate of $65 million or so per quarter the rest of the MS money and the Pearson investment should see them through the rest of the calendar year–if the rest of B&N operates at breakeven or better. If they sustain losses elsewhere of if the Nook revenue drop continues…

    Regardless of the state of their overall business it is pretty clear Nook itself is in big trouble. At this point they need to see if anybody wants to buy it as a fixer-upper. Cause a growth investment it isn’t, not with a plateauing US ebook market…

    Calendar 2013 is looking to be make-or-break for Nook.
    And the case for “break” is growing.

  6. I live in Argentina. On October 2011 I tried to buy an ebook fron B&N. It was a fail. Surprised, I wrote to B&N. They told me that they only sold to US an Canada customers. A few months later I asked again. Same answer. Nook ebooks don’t need a physical Nook to be read. The Nook is incidental. What B&N needs is willingness to sell worlwide.

    • What’s even worse is that they had an international ebookstore. It was called Fictionwise. It’s dead now.

    • >>>Nook ebooks don’t need a physical Nook to be read.

      Something B&N doesn’t seem to understand.

      And to be fair to them, there are legacy regional rights that have probably hampered their international expansion. Even so, they should be selling in every country that Amazon is selling Kindle books in, inviting people to download their Nook app for their phone or tablet or even desktop computer.

    • That would be international copyright law that doesn’t permit BN to sell in those countires, not them trying to kill customers.

      Different publishers have the rights to the ebooks in different countries (i.e. Scholastic sells Harry Potter in the US while Bloomberry does in the UK). BN legally must have a contract with whichever publisher has the rights in that specific country before they can sell that book – a hugely time consuming and expensive process.

      • That hasn’t stopped Apple, Kobo, or Amazon from setting up global english ebookstores.
        And, as Nate pointed out, B&N *had* an international bookstore. The shut it down two weeks ago.

        • The “international” store you’re talking about is under the same agreement BN has – if your account is set up to buy books from a certain territory (i.e. I have an account with US billing credentials) you can buy books internationally – but only from that territory’s store. BN has had the same systems in place for nearly 3 years now.

          • I don’t think Booksonboard has more selling power than B&N, and they’re selling USA books to international costumers. They’re not last releases, but definitively modern books, only some months old. The same with Amazon, haven’t tried Kobo. B&N doesn’t want to sell books outside USA.

      • >>>That would be international copyright law

        Holy shit. Apparently you don’t know shit about book publish9ing, either. Copyright law has ZERO to due with regional rights in book publishing.

  7. Cue the fat lady singing “Requiem for B&N”. Music by Walden, Libretto by Borders.

  8. im sorry to hear BN is floundering 🙁 on the bright side, does this mean the nook simple touch will go down in price? i will def buy (then root for kindle app). its more ergonomic than kindle and you can use it for borrowing ebooks at library (unlike kindle)…correct me if im wrong, a super newbie here

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