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Rumors: B&N to Deemphasize the Nook? Going Private?

376143268_8655d3fbef[1]Barnes & Noble is expected to share bad news in their quarterly 10-k report later this week and there are already a couple early rumors with hints about how they will try to avoid going bankrupt.

The WSJ is reporting that B&N Chairman Len Riggio is interested in spinning off B&N’s retail bookstore chain and taking taking it private. This move would involve dumping selling off B&N College and Nook Media.

His expression of interest so far has been tentative, although one of the people said he was expected to make it formal this week, including with a public disclosure of his interest. If it proceeded, Barnes & Noble’s 689 retail stores would be taken private, separated from the company’s college-store chain and its Nook e-reader and tablet business.

Mr. Riggio own 30% of B&N. Coincidentally, he also used to own the B&N College division before selling it back to B&N in 2008/2009 (possibly on the strength of NookStudy, which B&N College was developing at that time).

The other rumor comes via the New York Times. Their sources say that B&N plans to deemphasize the Nook hardware in favor of content sales. B&N will reportedly work to get the Nook app on competitor’s hardware.

A person familiar with Barnes & Nobles’s strategy acknowledged that this quarter, which includes holiday sales, has caused executives to realize the company must move away from its program to engineer and build its own devices and focus more on licensing its content to other device makers.

“They are not completely getting out of the hardware business, but they are going to lean a lot more on the comprehensive digital catalog of content,” said this person, who asked not to be identified discussing corporate strategy.

On Thursday, the person said, the company will emphasize its commitment to intensify partnerships with other tablet producers like Microsoft and Samsung to make deals for content that it controls.

Today’s rumors come in the wake of news that B&N lost a lot of money this past holiday season and that they don’t expect the coming year to be any better.

I don’t think either solution is going to fix the company, but dropping the Nook hardware will at least slow down the bleeding. And no matter which rumor turns out to be true, clearly B&N has finally realized that focusing so much capital on their own hobbled, locked down hardware was a mistake.

More than anything I have trouble believing that the latter rumor will save B&N. They would be competing without a safety net against the smaller and nimbler competitor, Kobo, as well as their larger and smarter competitor, Amazon.

Yes, Kobo is now a serious threat. They have an aura of being in better financial shape than B&N as well as the annual report to back up that impression. Kobo is also backed by Rakuten, whose deep pockets could be useful in outbidding B&N for the privilege of having an app preloaded onto tablets and smartphones.

Frankly I think B&N did too much damage to public and private confidence several weeks ago when they announced plans to shrink for the next 10 years. The doubt that B&N sowed with that interview is probably going to be what kills them.

source, source

image by timetrax23

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Richard Adin February 25, 2013 um 5:09 am

Band-aid solutions to a problem that requires sutures.

Where are the forward-thinking visionaries? There have to be some among the staff of B&N. My guess is that anyone with a vision of how to resurrect B&N and lead it into the promised land is being shunted aside because Riggio and crew have difficulty seeing the hand in front of their face, let alone strategies to make B&N competitive.

Mike Cane February 25, 2013 um 7:30 am

B&N doesn’t listen:

And Nook will be reduced to an app — AS I SAID.

It’s over. Incompetent pack of greedy, grasping idiots. Next!

Ex-BNer February 25, 2013 um 1:28 pm

We work for Amazon now.

willem February 25, 2013 um 7:46 am

The hardware side of things never made much sense. It certainly made no sense after ereader sales dropped off a cliff at the end of 2011. Their attempt to make themselves a tablet powerhouse was based on a complete misunderstanding of the miniscule likelihood of success.

'…focus more on licensing its content to other device makers.' Awfully late in the day to try and do this, this was the strategy to follow when their marketshare for ebooks was still rising or at a peak.

As for Riggio… if that story has legs then it looks like he has thrown in the towel, which might bode well for those wanting to see the Nook business sold off.

Nate Hoffelder February 25, 2013 um 8:20 am

I agree, it never made sense.

B&N got into ebooks and ereaders during the hype of the Kindle-inspired ereader bubble. It now looks like they jumped in first and tried to come up with a strategy second, all without understanding the business.

flyingtoastr February 25, 2013 um 9:02 am

No, their problem is that they tried to change strategies mid-stream. The original NOOK focused on the BN stores a lot – the Read In Store system, More In Store coupons, etc.

Then they started to look for expansion internationally. Instead of making partnerships with stores that could give the same NOOK store experience overseas, they instead chose to just excise that part of the devices and the marketing. They thought that they could be just like Amazon.

So they killed the best competitive advantage they have over Amazon’s devices, thinking they could win at Bezos' own game.

Mike Cane February 25, 2013 um 9:18 am

>>>They thought that they could be just like Amazon.

Sit down so you don’t fall down. You’re correct.

willem February 25, 2013 um 9:36 am

An intriguing idea, but is there any evidence that the attempt to link stores to digital did anything for foottraffic or the bottem line? Seems more like an attempt to keep former print buyers from wholly deserting the store.

I would argue that their biggest error was their steep drop in ereader prices in June 2010. They destroyed almost all their hardware margin in one go, leaving content as the only way to get the Nook division profitable.

fjtorres February 25, 2013 um 9:57 am

That does seem the turning point. Between that and the price fix conspiracy the balance of power shifted strongly towards Amazon. Their market share never got any higher than it was mid-2010 and now looks to be in decline as Apple grows theirs and Amazon holds steady.

fjtorres February 25, 2013 um 8:16 am

I’m still a bit puzzled by the thinking of those folks.

In the NYT report, they claim content is their crown jewel.
" Still, the threat is large enough that Barnes & Noble executives are working hard to determine a strategy that focuses on core strengths like content distribution. Its content is its “crown jewel,” said the person familiar with the company’s strategy, “and where the profitable income stream lies.”"

They seem to think they own the content…
That their catalog is unique (well, maybe the Sterling and Pubit side)…
And they think they are *good* at digital distribution.

I dunno…
Are they that good at distribution? I kinda thought being good at distribution meant a good user experience. 😮

flyingtoastr February 25, 2013 um 2:35 pm

BN does have a unique and very valuable relationship with the major US publishers that no other company can replicate. If they can leverage it effectively they would indeed have an excellent catalogue of content to offer a company trying to break into ereading (i.e. Samsung, who is trying to distance themselves from the GPS – opens a new "S Books powered by NOOK").

fjtorres February 25, 2013 um 3:30 pm

Yes indeed.
They are their number one toady.
Unindicted conspirators in the Agency Price Fix or merely accessories after the fact is unverified by they really and truly have a very special relationship to the owners of their inventory.
And that relationship will get them exactly the same help it got Borders. 😀

BTW, since you’re so plugged in to B&N, do you know if they settled their fight with S&S? Or even what it was all about?

fjtorres February 25, 2013 um 8:18 am

Now, splitting the company in two is a good first step.
But it also requires changes in the policies at both sides a real break between the two "companies".
Otherwise it’s just a paper move.

burger flipper February 25, 2013 um 11:16 am

Lotta people forget now, but the 2010 ereader price drop was spurred by Kobo’s entrance into the market with their 150 dollar reader. Maybe b&n shoulda let it play out instead of matching instantly but kobo was getting plenty of national press and hype.

I know that initial wave of kobo hype is what hooked me. I never would have paid 200. But Amazon would have kept price cutting anyway to lure in lookiloos like me.

Nate Hoffelder February 25, 2013 um 11:22 am

I don’t think anyone reading this blog forgot that Kobo started the price war. I’m pretty sure I was the first blogger to make that point.

And I can’t fault B&N for thinking they needed to respond to Kobo’s lower price point. I certainly that it was not a bad idea at the time.

fjtorres February 25, 2013 um 12:34 pm

Yes, Kobo was the first to go that low (with a nearly obsolete device) but you need more than one player for a price war and Amazon was (wisely) ignoring Kobo.
(Kobo announced in March, shipped in May, and Amazon only acted in June after B&N dropped their prices.)
*That* made it a price war.

Whether it was a bad idea or not depends on what it cost them to build the Nook and how fast they were selling. I’m pretty sure the Nook WiFi was more expensive to build than the Kobo. Dito for the K2. But they were both higher quality readers.
(But the Kindle was cheaper to build–no LCD panel, no Adobe Tax–than the Nook so Amazon could always match B&N and B&N should have known it.)
B&N going after Kobo was kinda like GM going after Yugo thinking they could undercut Honda.
It was most likely a knee jerk reaction to "Borders has a cheaper reader!"
Yeah, and a fat lotta good it did Borders.

The thing to consider is that Kobo was making a small profit on their basic unconnected reader and by moving the Nook into that price range B&N (whether they expected Amazon to follow them or not) they moved the business very close to a subsidized hardware model.
And that is a dangerous model to use if you’re not careful with your inventory management.
(Normally, hardware vendors clear out excess hardware by selling it at cost or slightly less so obsolete hardware doesn’t turn into a bloodbath. But with Nooks *starting* out at near cost, liquidating excess stock–of STRs, for example–is an automatic bloodbath.)

We’ll know for sure thursday, but I’ll bet the really bad news is a writedown of unsold STRs and tablets. The things probably cost $90-100 to build back in 2011 so each one they sold at $49 was $40-50 down the drain. And that is without factoring in the warehousing cost.

B&N trying to undercut Kindle pricing was far from wise: their hardware was inherently more expensive *and* their sales volume lower, so Amazon could get extra volume-based discounts on components and other fringe benefits. (Like near-exclusivity on Pearl screens for an entire holiday sales season.)

Dissecting how B&N got where they are today is going to take a book, but it can be reduced to one word: hubris. They have been so used to being top dog in the B&M pbook business they couldn’t conceive of anybody being able to match them, much less beat them hands down.

Paul February 25, 2013 um 1:20 pm

The question is, when will shareholders finally get frustrated at amazon for selling books below cost all the time? Or maybe this suggests within a few months they will be able to do so?

fjtorres February 25, 2013 um 3:32 pm

Hey, Nate!
Remember I said last week the urban legend was going to pop up again any day?

We have a winnah!

New Gossip: B&N to Spin off Nook Media – The Digital Reader April 10, 2014 um 8:50 am

[…] college bookstores in 2012, selling stakes to first Microsoft and then to Pearson. And then in 2013 rumors circulated that Len Riggio wanted to split B&N and take the retail stores as a separate […]

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