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B&N Reports eBook Revenues Down 15%, But Not Due to "The Hunger Games"

barnes noble logoBarnes & Noble released their quarterly report for Q1 2014 today, and the news could not be worse.

Revenues are down significantly, with both B&N’s retail division and Nook division reporting 10% and 20% drops in revenue.

But hey, B&N is still going ahead with their plans to release a new gadget later this year. (It might even be a color device, if the footnote is to be believed).

This spreadsheet sums up the bad news:


Retail sales were down both in store and online, thus giving us a lesson in why you shouldn’t tell your customers that you plan to close 20 stores a year for the next decade. It tends to destroy consumer confidence.

The Retail segment, which consists of the Barnes & Noble bookstores and businesses, had revenues of $1.0 billion for the quarter, a decrease of 9.9% from the prior year.  The sales decrease was attributable to a comparable store sales decrease of 9.1% for the quarter, store closures and lower online sales, in line with company expectations.  First quarter comparable bookstore sales decreased, reflecting lower NOOK device unit volume and a title lineup last year that included unusually strong sales from The Hunger Games and Fifty Shades of Grey trilogies.  “Core” comparable bookstore sales, which exclude sales of NOOK products, decreased 7.2% for the quarter.  Excluding the impact of the two mentioned trilogies, Core comparable bookstore sales decreased 2.9%.

The B&N College division reported revenues were up about 2.4%, but in comparison to B&N’s overall revenues that 2.4% raised "hardly anything" in terms of revenue to "still not much":

The College segment had revenues of $226 million during a period that did not include a back-to-school rush season, increasing 2.4% compared to a year ago, as a result of new store growth.  Comparable College store sales decreased 1.2% for the quarter, reflecting the retail selling price of new or used textbooks when rented, rather than solely the rental fees received and amortized over the rental period.

And then there’s the news from B&N’s digital division, which is so bad that it even surprised me. Digital revenues and hardware sales were both down from last year because fewer people are buying tablets, ereaders, and content from B&N.

The NOOK segment, which consists of the company’s digital business (including devices, digital content and accessories), reported revenues of $153 million for the quarter, a decrease of 20.2% from a year ago.  Device and accessories sales were $84 million for the quarter, a decrease of 23.1% from a year ago, due to lower unit selling volume.  Digital content sales were $69 million for the quarter, a decline of 15.8% compared to a year ago, due in part to lower device unit sales as well as the comparison to The Hunger Games and Fifty Shades of Grey trilogies.  Excluding the impact of these two titles, digital content sales decreased 6.9%.

I would ignore what B&N is saying about Hunger Games. That movie came out in March 2012 (and left most theaters by mid-April), while this financial report covers May, June, and July. I doubt the spike in book sales generated by the movie last year affected B&N’s revenues in the May-July period of 2012.

I wish we could write off some of B&N’s drop in revenue as being caused by that movie creating a spike in book sales revenue in 2012, but it’s just not plausible. No, B&N’s problems are mostly the fault of B&N. They’ve mismanaged their Nook investment, destroyed consumer confidence, and generally mucked things up.

On a related note, I think we now know why Bill Lynch left. I’ve been told that I was wrong to describe that event as a firing (given the suddenness) but  that doesn’t change the possibility that he left in early July because of the previous couple months sales reports.

On the plus side, with Lynch out maybe B&N Chairman Riggio will be able to rescue B&N. Speaking of which, the press release also mentions that Riggio has canceled his plans to buy the retail division from B&N. I guess with retail revenues down there was little point in splitting up the company.

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wayne leong August 20, 2013 um 10:16 am

They lost me as a frequent customer, when they closed their store in my normal driving area , and moved the store to an area much farther away, where I hardly drive to . And to make up for this, I just go to the competition bookstore that was a couple stores away from the closed store.

Michelle Louring August 20, 2013 um 10:21 am

I wanted to order a Nook the other day… Until I realized that it doesn’t ship to anywhere but the US or UK and even if it did, I wouldn’t be able to access the Nook store from where I am.
Guess I’ll just have to order a Kindle, ’cause guess what? Amazon knows how to ship things across borders.
I wonder what their secret is…

flyingtoastr August 20, 2013 um 10:28 am

Don’t complain abut BN, complain about international trademark and copyright laws.

Brian August 20, 2013 um 12:41 pm

No, complain about B&N. They’ve had years to go international, just like all their competitors.

yuzutea August 20, 2013 um 3:31 pm

Other e-ink readers are available overseas. It is not legally impossible.

Alexander Inglis August 20, 2013 um 11:18 am

On the investment call, they stated they closed 9 college stores and opened 15 more; closed 2 retail stores and opened one more (Indianapolis, 28,000 sq ft!).

Since inception, they have sold 10M Nook devices: some households have multiple Nooks (you know who you are), and 6M accounts running Nooks apps only. Of the "active" accounts with a Nook, they buy 3 to 4 books a month. They would not say how many are "active", "low usage", "lapsed"; and they admitted they do not even have this data for app only customers.

They essentially said Lynch left the company because of the device inventory issues: far more devices were acquired than they could sell which has led to continuing attempts to move existing stock at lower and lower prices (GlowLight now $99, regular price). One new device is coming this fall; they did not comment on a partner for a colour tablet.

There are no plans for further international expansion at this time (sorry, Canada). It’s expansion of Nook Books only is limited to obligations under its Microsoft deal which includes 10 countries only via Windows 8 platform.

There is no active program underway to split the company; in fact, they are focussed on consolidating it again "for the benefit of customers". They said Nook losses ($55M this quarter) would be made up though Nook division, not using Retail profits (reminder: the Nook division includes the College stores but not website).

It’s hard to fathom how they are selling less unit volume, less revenue in the e-book business, but there it is. At one point they mentioned a 22% marketshare which is significantly down from previous estimates of 28%.

This was another big ouch quarter and a lousy start to the fiscal year.

fjtorres August 20, 2013 um 1:12 pm

The reason for lower digital content sales are three-fold:
– new reader syndrome: the first thing most people do when they get their first reader is to go on a shopping spree to load up on ebooks and stockpile a deep TBR list. Which is why device sales peak in nov-dec but ebook sales peak in early jan.
– ADEPT support: Nooks not only support B&N ebooks but also generic ADEPT ebooks, which leaves their installed base vulnerable to poaching by Kobo, Sony, and the generic ebookstores. With the price fix ending, discounting is returning and shopping around can pay off.
– The war with S&S: B&N has been stocking less S&S titles for the bulk of the year. If you don’t carry the books, customers can and do go elsewhere. In this case, Kobo, Sony, etc…

Death spirals are built off things like this.

cookie August 20, 2013 um 11:22 am

Someone please put B&N out of its misery.

willem August 20, 2013 um 12:05 pm

Some years ago Geoff Gannon wrote a thoughtful article of why he was no longer interested in the company’s stock. It has proved very prescient. Some quotes:

"Barnes & Noble’s financial health would be fine without the Nook."
"The Nook isn’t offsetting some problem. The Nook is the problem."
"Barnes & Noble has decided to develop the device themselves. That was stupid. And it still is stupid. And eventually it may prove suicidal."
"Right now, they’re intent on death by Nook."

Glad I’m not a B&N shareholder.

Alexander Inglis August 20, 2013 um 12:30 pm

I should clarify it is 10M households with Nook devices, not 10M Nooks sold. Because some accounts have multiple Nooks attached, there are more devices than accounts. They did say these 10M households include lapsed users and occasional users but declined to say what portion of the 10M were "active" accounts.

fjtorres August 20, 2013 um 1:37 pm

The number of accounts is basically the number of activated Nooks.
Which is…low…for an operation claiming 22% of the market.
I think B&N needs to be thankful Amazon doesn’t disclose the number of units they sell.
(The recent Morgan Stanley estimate of Kindle sales puts their gadget sales at 20-30m *a year*.)

Alexander Inglis August 20, 2013 um 5:02 pm

I suspect that many accounts have more than one device attached so the number of Nooks activated will be considerably more than 10M. And B&N says a further 6M accounts do NOT have a Nook attached. So, that’s a base of 16M accounts. I am guessing there are a lot of households where there is more than one Nook sharing one account. Perhaps, then 15 to 20M Nook devices have been built and sold.

Alexander Inglis August 20, 2013 um 1:13 pm

CEO Michael Quesby confirmed to Bloomberg this afternoon that the next Nook device will be a colour e-reader (Quesby specifically noted their tablets are for people who read). So I guess a form of HD e-ink is out of the question for 2013 as the company continues to work through inventory overhang from 2012. It also suggests B&N will not be aggressively pursuing audio and video services on its Nook tablets. It really leaves the Kindle Fire as the sole platform for a dedicated ebook, video tablet vs. a more all purpose iPad or Android tablet. Quesby also defended its tablet team and backpeddled on the idea it would stop making its own devices: it would continue to have partners but would be designing and selling them under Nook brand, not white label another device.

Todd P. August 20, 2013 um 2:46 pm

Isn’t the reference to The Hunger Games a reference to the prior year book sales, not the movie adaptation? Meaning sales of The Hunger Games and 50 Shades trilogies last year skews the current year comparisons? Especially for The Hunger Games, a movie last spring would likely drive book sales at the same time.

Nate Hoffelder August 20, 2013 um 2:53 pm

The launch of the movie last year caused a spike in book sales.

Let me go back and make it more clear.

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