The Dubious Future of Nook

Is the Barnes & Noble Nook in Trouble?


The Dubious Future of NookHere’s the Scoop…


What would you pay right now for a big but struggling electronic book business?

That’s the question on the mind of many as reports claim Barnes & Noble might be getting ready to jettison its Nook Media unit.

Barnes & Noble has two pretty distinct businesses right now: a bricks-and-mortar bookstore business, and an e-book company that makes
e-readers and runs a digital bookstore.

Getty Images

While the former is facing a tough time amid competition from online book sellers and broader industry malaise, it’s the latter business, Nook Media, that has seen a real sales slide lately: in fiscal third quarter results announced in late February, the Nook unit showed a sales decline of 26%, compared to a 10% decline at the physical stores.

As the WSJ reported back in February, one option being mulled by the company’s chairman and largest shareholder, Leonard Riggio, has been to separate the bricks-and-mortar business from Nook Media and take the former private. Nook Media already has two other minority shareholders: Microsoft and UK-based publisher Pearson. Perhaps one of them might be interested taking charge?

That deal is now also reportedly being considered. From this morning’s Media Journal:

Shares in Barnes & Noble are up more than 20% in premarket trading following a report by TechCrunch indicating that Microsoft is considering buying the digital assets of Nook Media business for around $1 billion. The proposal calls for Microsoft to redeem preferred units in Nook Media—the software company already owns a stake—in exchange for the digital operation, which includes e-books, as well as Nook e-readers and tablets, the article notes, citing internal documents. Such a move would eliminate some of the uncertainty about Barnes & Noble’s future, amid potential plans to take the stores division private. It also could give a new lifeline to the Nook business, which has struggled from fierce competition from the likes of Apple and Amazon’s Kindle.

The stock kept rising after the market opened, ending the day up nearly 25%.

That billion dollar valuation is a step down from the almost $1.8 billion that Pearson valued Nook Media at when it acquired its 5% stake earlier this year. After rising by nearly a quarter today, all of Barnes & Noble — including both brick-and-mortar and its controlling stake in Nook Media — has a market cap of $1.32 billion.

What Nook might be worth on its own is, of course, a bit of a moving target: would it keep its existing relationship with Barnes & Noble, including heavy presence of the e-readers in the physical retail stores? For how long? Would it have to pay for the privilege? And content licensing deals, formerly done by Barnes as a giant integrated bookseller, might have different economics when approached by a new owner like Microsoft (not to mention if Pearson, itself a major book publisher and competitor to other publishers, boosts its stake).

Microsoft is also already making some pretty solid touchscreen tablets, so continuing to make the physical Nook readers may not be a priority. Here’s what TechCrunch reported today, based on what the site said were internal documents outlining the possible deal:

The documents also reveal that Nook Media plans to discontinue its Android-based tablet business by the end of its 2014 fiscal year as it transitions to a model where Nook content is distributed through apps on “third-party partner” devices. Speculation about the plan to discontinue the Nook surfaced in February. The documents we have are not clear on whether the third-party tablets would be Microsoft’s own Windows 8 devices, tablets made by others (including competing platforms) or both. Third-party tablets, according to the document, are due to get introduced in 2014.

Nook e-readers, meanwhile, do not appear to fall into the discontinuation pile immediately. Rather, they’re projected to have their own gradual, natural decline — following the general trend of consumers moving to tablets as all-purpose devices.

Story by Tom Gara, WSJ