Speculation: Microsoft to Buy Nook Media for $1bn ?

nook-windows-8[1]Microsoft could be getting back into the ebook biz.

Techcrunch is reporting today that Microsoft has made an offer to buy out B&N's controlling interest in Nook Media. According to unnamed documents, MS is willing to put up $1,000,000 to gain control of the beleaguered Nook Media.

The docs reportedly reveal that Nook Media plans to retire their current line of hardware by the end of the 2014 fiscal year and transition to a model which focuses on getting Nook apps onto partner devices and 3rd-party hardware. Obviously that also indicates the coming end of the Nook ereaders, a detail that comes as no surprise given the recent rumor that B&N passed on using the new 6.8" E-ink screen on a Nook Glow HD.

nookshd[1]

So is this story true? I think so, but the more important question is whether B&N will take Microsoft up on their offer.

Microsoft has clearly been interested in Nook Media ever since the subsidiary was formed last year. That's why MS put up $300 million for a minority share, so today's news would make perfect sense.

And the price also makes sense; while some might think that it undervalues the $1.8 billion value that B&N assigned to Nook Media, I always thought that B&N had overpriced Nook Media by a significant margin. Furthermore, a billion dollars doesn't mean the same thing to MS as it would to B&N; Microsoft has over $60 billion in cash on hand. They won't miss a billion here or there.

But the important question here is whether B&N will take Microsoft up on the offer. I expect them to do so, yes.

This is the kind of deal that B&N should have made this time last year, but they didn't. B&N had just come off a not entirely satisfactory holiday season which made them decide to spin off Nook Media, but instead of selling off the Nook B&N instead took a piecemeal investment from Microsoft.

I'm afraid that  if B&N repeats that mistake it will be the end of the Nook platform.

But I'm not too worried because that probably won't happen. Remember a few months back when Len Riggio wanted to buy the B&N retail stores and split the company in two? He didn't want Nook Media, just the stores, so today's deal is almost exactly what he wants - almost.

It's not quite the deal he wanted back then - MS is trying to buy the Nook but not the B&N College bookstores.  Those would stay with B&N (according to the rumor). Still, I expect Riggio to take Microsoft up on the offer. It's close enough to what he wants that he'd be a fool to pass it up.

27 thoughts on “Speculation: Microsoft to Buy Nook Media for $1bn ?

  1. I’m confused. CNET.com is reporting that MS isn’t getting the eBook/eReader part of Nook Media…

    “Under the plan, according to internal documents obtained by Tech Crunch, Microsoft would purchase preferred units in the joint venture, which includes a college text book division, while leaving Nook Media with the e-book and e-reader operations.”

    But it seems that you’re saying MS would be getting the eBook/eReader/tablet portion. What gives?

    1. First, Nook media doesn’t have a college textbook division, so far as I know. So there’s no way for MS to want to buy it. And besides, why would MS want anything other than the tech/ebook stuff?

      Later in the Techcrunch post there’s this:

      A deal to buy the digital assets of Nook Media is the natural next step for Microsoft, which first announced a plan to work with Barnes & Noble on its Nook devices and content in April 2012, ponying up $300 million at the time to help.

      1. They sell and rent textbooks. They don’t publish them, if that’s what you mean.

        They do have an etextbook platform as well.

        1. Yes, but the etextbook platform was folded into Nook platform.

          And B&N College’s textbook activities are just one aspect of running a college bookstore, so it’s better to look at the whole than at one part.

    2. the hardware business is being discontinued, according to these supposed documents. hence, NOOK passing on the hi def eink plates picked up by Kobo for the Aura.

  2. Nook Media currently includes the college bookstores business (which is why Pearson owns a chunk). Odds are the CNET report was trying to say MS would *not* be getting that part of Nook Media.

    Without the college business and factoring in the $300M MS already invested, they’re being very generous with their petty cash and aren’t discounting the valuation for lost ebook market share.

    Personally, I think the optimum match for Nook would be Google, which might be why MS is being so generous now, while Google is dealing with indigestion from the Mototola buy.

    That said, given the way the B&N managers have “managed” Nook, I fully expect they’ll refuse to give up their deathgrip on the unit and reject the offer.

    1. Still, if by any chance the B&N board gets a fleeting moment of sanity, they could easily flip the College Bookstores to Pearson. They’d be a great fit for *their* textbook business.

    2. Totally agree that Google is a better match for NOOK. Google Play has no marketshare in books, movies, or magazines. They just have no expertise as a content retailer. This is what B&N is good at, selling stuff to people.

      As for MS, I’m starting to think that they need to stay as far away from anything to do with the consumer as possible, and stick to enterprise. With their lousy marketing skills, they’d probably jsut end up running the ebook business into hte ground.

      1. Uh, the fact that we are discusing this possibility tells us B&N isnt quite *that* good at selling *digital* content. ;)

        And Microsoft, contrary to the naysayers, is actually quite good at consumer and content sales. No, they never had a reality distortion field, but the much maligned Zune might not have caught up to apple but they quickly leap-frogged Creative Labs and the rest of the players to get to second place in media players. It might have been a distant second but it was a decent showing. And the hardware was, from an audio-reproduction point of view, superior to all the pods.
        The XBOX story likewise shows them taking on both Sony and Nintendo and winning. True, they have near zero presence in Japan despite all their efforts but that is pretty clearly a cultural thing.
        When it comes to content, MS has long been a respectable player in music, video, and gaming.
        They have been overshadowed by Apple but other than that they are a better performer than pretty much everybody else in those categories.
        Don’t assume MS won’t know how to right the Nook ship.

        1. The economics of this business are difficult, particularly when you are competing with much larger, deeper pocketed rivals. If B&N manages to sell off their business to MS for a cool billion, I’lll say their venture was a success.

          It is true that the app store never really took off. But the 25% market share in ebooks and the 35% share of digital newstand are strategically important assets going forward.

          1. Ye, they would.
            If those numbers hold up. The magazine market is small enough I could buy the idea that 7 million users could buy 35% of all digital magazines but ebooks are a bigger business and I’m skeptical that 10% of ebook buyers can buy 25% of all books in today’s environment.
            At a minimum, there is a qualifier missing.
            (25% of all Penguin ebooks? Maybe. Of the full US market?)

        2. 10% of ebook buyers and 25% of sales.

          That’s just called good sell through. The NOOK platform has managed to yoke in the most dedicated readers, the ones who spend the most per capita on books.

  3. By the way, did you catch this in the TechCrunch report?

    “To date, there have been 10 million Nook devices sold, including both tablets and e-readers, with more than 7 million active subscribers.”

    If those numbers are accurate, B&N needs to accept the offer instantly before the MS beancounters alert Ballmer.

    Those numbers are a lot closer to Kobo territory (4-6 million subscribers) than they are…

    Well, anything worth a billion smackers. :)

    A huge overpay.

  4. Google would not be a good fit either. Look at what they done with Frommer? I have yet to find a tech company that understands content as well as Amazon. They should just partner up with Amazon instead of fighting it.

    1. …which would bring the feds knocking on the door faster than you can say “Standard Oil”.
      Buying up the most prominent competitor in a business you are already head and shoulders above everybody else is one big flare screaming: “Sue me!”

      The only safe buyers already selling ebooks would be Kobo, Sony, or Google. Or somebody outside the business like Amazon.

      1. “Partner up” being the key words here. Both are really just acting as middleman when it comes to selling ebooks. The problem for as long as I can remember, is B&N keeps fighting Amazon as if only one can be left standing. As we all know by now, sucks for B&N since their business portfolio is no where nearly as diverse as Amazon. B&N is fighting a two front war, physical stores and online, it is depleting their resources faster than they can say “holy Batman”.

        I don’t see how MS can get anything positive out of this but if you are B&N, you take that offer and run.

  5. There are a lot of question marks about this development… Per updated news articles, sounds like the documents TechCrunch got are from March. That would’ve been right after the holiday quarter. A lot could have changed since then. Also, nobody knows if the offer was actually made to B&N, or just discussed internally at MS. And we don’t know if MS was thinking of paying $1bn or if they were valuing the business at $1bn and whether the $390mm of preferred membership interests (which seem to be puttable at par) would be netted out of that.

    Re: what could have changed… Sounds like MS really saw value in B&N’s ebook business (as one would expect), but that has shown a declining growth rate lately and it wouldn’t surprise me if the growth turns out to be negative for their Q4 (ended April) since in the past B&N saw growth spurts in ebook sales following device sales as customers loaded up those devices with ebooks, and now the devices are rapidly disappearing. Also, by now MS may have less confidence in the growth of its own tablet business, which could affect the value it sees in Nook.

    It looks to me like Nook may have done about $560-580mm of ebook sales for this last fiscal year, but if April quarter sales are down slightly, then the run rate could be more like $450-500mm. It’s also not clear to me if they’re making any money on ebooks. The gross margins improved a lot with agency pricing, but that’s now reversing and B&N doesn’t have scale. Keep in mind, B&N ebooks are really just a US play. They’re building apps + libraries for other countries, but they’re far behind other players and the B&N name isn’t known in those countries since they never had retail stores. Even within the US, the 25% market share # is quite old and is probably a lot less now, as Apple and Google have built their businesses and Apple in particular has been successful (some reports imply that Apple may now have more market share than B&N in ebooks).

    Net net, I don’t see what MS really gets out of this… They already have secured an app + library for Win8 with their investment in Nook. And they can’t lock out rival ebook apps from their Win8 tablets, given how much they’re struggling to make their tablets attractive to consumers as it is. (In fact, there is already a Kindle app for Win8, and it has 3x the # of reviews as the Nook app.) If it looks like there’s not a lot of growth potential in Nook ebooks on a standalone basis, then they may view it as less strategic. I think a lot depends on Q4 #s. If they’re bad, it could be like Dell where an interested bidder backs out after bad numbers are reported.

    But, MS has overpaid for a lot of stuff in the past… That’s the main hope B&N has here, IMO.

  6. As an author of 12 Nook eBooks and 24 eBooks for Amazon Kindles, I’ll be very curious how this potential transition affects my Nook self-publishing account.

    Currently, B&N announced to me that they are transitioning their PubIt self-pub platform to a new entity titled Nook Press . . . which thus far contains a few bugs in it when I try to update my material. For example, I didn’t see a place to replace a newly revised and updated manuscript, so I had to resort to going back to their PubIt platform. Further, when I tried to upload a new cover for some of my eBook titles, the changes didn’t take place on Nook Press . . . and once again, I returned to PubIt to ensure the updated covers would take. Thus, I haven’t had a whole lot of confidence in B&N’s transition to Nook Press from PubIt (which they say they will be phasing out in a few months).

    Another thing I find interesting is that my Kindle content consistently outsells my Nook content by 4-1 or 5-1 ratios . . . even when I had the same number of titles on both Amazon and B&N digital readers platforms. So when Amazon offered KDP Select that offers perks to Amazon Prime members for the Kindle Owners Lending Library . . . as well as 5-day free eBook promos every 90 days for digital content an author keeps exclusive to Amazon . . . it seemed like a slam dunk to make many of my more obscure titles exclusive to Kindle so I can promote them more efficiently.

    All said, I’ll be very curious how such a buyout affects us self-pubbed eBook authors . . . and will be staying tuned intensely.

    Best regards to you all,
    Brian Shell

  7. According to insidermonkey.com, a highly placed source in Microsoft says a Nook buyout is “not happening.” Nook stock shares have receded 10% so far…that’s why I don’t play the market. :/

  8. Thanks, I was wondering why the stock is off 10%… My guess is that MS will ultimately buy the ebook part of Nook, but who knows when and at what valuation… I’m sure there will be a lot of posturing, as well. But they probably would get a better valuation the longer they wait, as B&N’s situation doesn’t seem like it’s going to get stronger over time. And I don’t see anyone else being very interested in buying their Nook business.

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