Declining Nook Revenues Could Impair B&N’s Split Up Plans

3461384691_bfa403c34d_z[1]When I reported on Barnes & Noble's latest revenue report yesterday I noted that the drastic decline in digital revenues could impair B&N's plans to spin off Nook Media, and apparently I'm not the only one to think that way.

The WSJ reported that several analysts are expressing doubts:

The decline in digital content sales suggested Nook owners were “abandoning” the Nook e-bookstore, said James McQuivey, an analyst with Forrester Research. “Otherwise, you’d have seen stabilizing digital content sales,” he said. Mr. McQuivey said the best move for Barnes & Noble might be to fold the Nook business into its online arm, BN.com.

John Tinker, an analyst with the Maxim Group, said the Nook losses are so bad that Barnes & Noble may not be able to move forward with the split. Selling off the Nook business to a third-party buyer, he said, could be equally challenging.

“There is still value but it’s a lot harder now with these numbers,” he said. Mr. Tinker said Barnes & Noble would still be able to take the college bookstore group public, since it is performing well.

With Nook revenues dropping by over half from the same period in 2013 (which was itself down almost 60% from 2012), I have to agree with that analyst's suggestion that customers are abandoning the Nook platform in favor of other ebook retailers.

Just to give you an idea of how much holiday revenues declined, B&N reported that the 2012 9 week holiday revenues were $311 million. This year they were $56 million.

That's going to be a serious problem when B&N follows through on their plan to spin off Nook Media later this year into its own publicly traded company.

In spite of Nook revenues dropping every quarter since spring 2013, B&N is showing every sign of plans to spin off its troubled digital sub. B&N has bought out both Pearson and Microsoft's investments in Nook Media, and late last year B&N also added new services (POD, Author Solutions) to Nook Media which were intended to make the company look better to investors (the services were certainly not designed to appeal to authors).

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The spin off is scheduled to happen some time before August 2015. Absent any new announcement from B&N, I think it's safe to assume that the plans are moving forward.

And that has me puzzled. Am I the only one who wonders who exactly would want to buy stock in Nook Media?

The only position I would take would be to short the stock - to assume the price would go down and bet accordingly. I sure as heck would not consider it a long term investment.

But perhaps B&N has a trick up their sleeve. We'll just have to wait and see.

images by Martin Cathrae, dybarber

About Nate Hoffelder (11591 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."

18 Comments on Declining Nook Revenues Could Impair B&N’s Split Up Plans

  1. The problem for Nook is they have no lock-in on existing customers: ADEPT support means eink Nook owners can get their bokks from Google or (if they’re careful) Kobo.
    Conversely their ebooks are readable on tablets and smartphones so the ebook investment can travel out of Nook hardware even if the owner isn’t acquainted with Alf.

    Add in the lack luster hardware of the past two holiday seasons and the 2013 waffling over whether there *would* be new hardware and… Well, it’s not just investors who have reason to be wary of putting money into Nook.

    • This might offer another explanation for B&N taking away the download option. They’re trying to stem the hemorrhage.

      • No that simply increased the hemorrhaging, the download option and side loading where the big advantages that Nook had.

        • True, but I think they saw it as customers downloading and going elsewhere.

          B&N wanted to stop customers from fleeing with their ebooks, but instead discouraged the customers from buying at all.

          • “True, but I think they saw it as customers downloading and going elsewhere. ”

            What’s the problem with this (from B&N’s point of view)? They are buying from B&N. That should be a good thing.

            Are you saying that in order to protect their ‘market share’ in which they make no revenue (which reader ebooks are read on), they killed off their revenue stream?

            While ordinarily that would sound like insanity, I would find it surprising if anyone found this surprising.

        • That was the outcome.
          Doesn’t mean that was the original intent.

      • Looks like those pity sales are finally over. The download button being taken away was just another (in a long long line) step to show how un-customer friendly they and their policies are.

        Most of their policies are in place to keep from losing money, but you can’t do that when Amazon is the complete opposite. These polices actually aid in them losing money.

  2. The way B&N has reacted to changes in the digital marketplace show how tone-deaf they are to what their customers and the indie authors who utilize their services actually want.

    Personally, I think they should close ALL of their money-losing brick-and-mortar retail stores and build a think-tank that can make rapid (relatively), audience-tested moves to meet the shifting marketplace. Right now, they’re like a ship that takes 3 miles to make a turn. They need to be more nimble if they’re going to grow Nook sales rather than see them continue to plunge.

    • Shut down all their brick and mortar stores? Then where are they suppose to make any money. I think they would rather retain the 1 BILLION dollars that the brick and mortar sector brings in for as long as possible. The Nook division is what to let go of first.

      What they should try and do is try and replace their big stores with smaller stores and fill it with higher profit items like greeting cards to supplement their books. Games and toys are fine because these are high profit items too. I would also phase out the cd and video sections because these can not be making any money anymore. The prices are highly inflated in this area and with a dwindling marketplace, this can’t be making any money.

      I would still keep the Starbuck’s in place to again supplement business with a high profit item.

      • OK, I misread what you said and you did say all the money losing stores. Sorry Richard 🙂

        • It’s an understandable mistake. TBH I have to keep reminding myself that B&N does have some profitable stores. 😉

          • Usually in the biggest most affluent cities.
            Smaller cities and suburbs, not so much.
            They need a lot of people within a small radius to find enough customers to keep those big stores from becoming cricket condos.

          • Agreed. I also find it interesting that they are claiming that B&N.com and Nook account for only $1.1b of their approximate annual gross of roughly $6b in sales (yes, I’m ball-parking–I don’t have the exact figures in front of me). I honestly find it difficult to believe that the Barnes & Noble brick-and-mortar stores are collectively earning $5 billion annually in sales.

            Something about these reported numbers doesn’t ring true to me. Anybody have any insight into this?

  3. Nook’s digital numbers are public and don’t look good, But can anyone point to an ebook retailer that has actually given us real numbers to show things are that much better elsewhere?

    So far we’ve had tale after tale after tale of woe from indies seeing as much as a 75% crash in sales and variously blaming KU or a glut or some other excuse as to why they are no longer selling.

    When Nook sales fall we are all desperate to blame the management.

    “I have to agree with that analyst’s suggestion that customers are abandoning the Nook platform in favor of other ebook retailers.”

    Or maybe they simply aren’t buying as many ebooks, just like everywhere else, because they already have a trillion and one ebooks on their devices that they got for free or near enough free, or as 10- or 2–title box-sets for 0.99.

    For a reader averaging one book a week a twenty-title box set is five months reading. Two quality box sets and a handful of quality freebies and a sensible reader need only be spending two dollars a year on ebooks, without ever having to dirty their hands with the tsunami of crap.

    • The BPHs are still reporting increasing ebook revenues.
      And while some high profile indies (who apparently put *all* their titles into KU) are reporting declines plenty of others aren’t.
      And, most importantly, Nook has been declining since well before this holiday season. They peaked back in 2010 just as the agency conspiracy kicked in. Since then Apple’s rise has been paralleled by Nook’s decline while Amazon’s share has held steady or grown depending on who you ask.
      Nook is hardly an industry bellweather.
      If anything, they are a cautionary tale: consumers can and will abandon digital platforms they see as risky, previous investment or not. Lock-in is way overrated.

    • Or maybe they simply aren’t buying as many ebooks, just like everywhere else, because they already have a trillion and one ebooks on their devices that they got for free or near enough free, or as 10- or 2–title box-sets for 0.99.

      That describes me, an owner of a Nook Simple Touch. While in the year after purchasing the Nook Simple Touch, I purchased more at B&N – CDs, hard copy books, and e-books- than I had in the 10 years before I had a Nook, my e-book purchases from B&N are far below what B&N hoped.

      I have mainly used the Nook Simple Touch as a reading device -not as a revenue generator for B&N-for reading free or inexpensive e-books, and to read via Calibre articles from the Internet that are too long to comfortably read from a desktop screen. Thank you, Internet Archive and Project Gutenberg.

      Similarly, before I purchased the Nook Simple Touch, my book purchases were nearly all at a local used book store where selective shopping got me some very good books at $1 a book, both hardbound and paperback. I wasn’t purchasing much from B&N before my Nook purchase, either.

      • I could be wrong, but I’m betting you’re not a typical customer. All the anecdotal data I’ve seen indicates that people have rejected much of the non-book items being sold in the Barnes & Noble brick-and-mortar stores, leading to massive losses in many stores. Music, for example–who buys CDs anymore? And book covers and book lights? Cut-rate prices at Amazon, anyone? And stuffed animals or coffee mugs? The former is why Disney does $40 billion or so in merchandise sales annually, a good portion of it plush. The latter is why Starbucks exists.

        And before anyone says it, I’m sure Starbucks does reasonably well in the B&N brick-and-mortar stores that have them. On the other hand, Starbucks does NOT franchise anymore. Those are Starbucks-owned stores, which probably means that B&N is collecting rent but no percentage of sales. Which is fine, until Starbucks decides to open a stand-alone store in the parking lot of B&N…a stand-alone store that they own, much like McDonald’s owns its stores and leases them back to franchisees or runs them as wholly-owned corporate locations.

        No, I think the writing is on the wall for the B&N brick-and-mortar stores. But I suppose we’ll see what happens in the next 5 years or so.

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