June 26, 2014
Barnes & Noble consciously uncouples from the Nook
by Alex Shephard
Yesterday morning, Barnes & Noble announced it would be spinning off its Nook division into a separate, publicly traded company, in a move long-anticipated by observers of the company. The company’s investors were absolutely ecstatic, if the stock market is believed: Barnes & Noble’s stock jumped nearly 10% after the announcement and ended the day up 5.3%.
In a statement, Barnes & Noble’s CEO Michael Huseby explained why America’s 4th largest car magazine showroom was splitting from its digital wing as only a CEO can:
“We have determined that these businesses will have the best chance of optimizing shareholder value if they are capitalized and operated separately. We fully expect that our Retail and Nook Media businesses will continue to have long-term, successful business relationships with each other after separation.”
After a long, drawn-out, will-they-won’t-they- relationship, the Nook and Barnes & Noble’s retail division will officially break up in the first quarter of next year, which ends on March 30. Notably, the Nook division includes Barnes & Noble’s college stores, which—very much unlike the Nook—are profitable, though sales are declining at similar rates to the company’s retail stores.
The decision comes after a fourth quarter in which the Nook , as Gigaom’s Laura Hazard Owen noted, “once again performed particularly badly”:
Its revenues were $87 million for the quarter, down 22.3 percent over this time last year, and $506 million for the year, down 35.2 percent. Barnes & Noble specifically broke out device and accessories sales, which it doesn’t always do: They were $25 million for the quarter and $260 million for the year, down 30.1 percent and 44.8 percent, respectively. And digital content sales were $62 million for the quarter and $246 million for the year, declines of 18.7 percent and 20.6 percent respectively. Barnes & Noble attributed those losses to “lower device unit sales.”
(You can read more of our coverage of the Nook’s disastrous recent history here, here, here, here, here, and here. The complete archive can be found here.)
The move comes only a few weeks after Barnes & Noble announced that it was teaming up with Samsung to produce a new Nook. The new tablet will be unveiled in early August. Based on preliminary reports (and Samsung’s reputation) I, for one, think that the Samsung Galaxy Tab 4 Nook will be on improvement on the older models—that said, the Nook has always been reliable as an ereader and as a tablet. The biggest issue it’s had has been standing out in a crowded tablet market that includes the Kindle and the iPad and, more importantly, in establishing Barnes & Noble as a retailer of electronic books—B&N put out a decent device, but they, like everyone else, has had an excruciating time competing with Amazon, the Abraxas of the ebook market. When your primary competitor controls 80% of the market and has the support of the federal government, you’re going to face an uphill battle. Even if Barnes & Noble did everything perfectly, it’s likely they would have failed. Barnes & Noble did not do everything perfectly.
While Michael Huseby’s belief that the Samsung partnership “will drive traffic to [Barnes & Noble] stores” strikes me as a tad optimistic, the Nook does have a few things going for it. Its new relationship with Samung is definitely a boon—they’ll undoubtedly produce a superior product that can’t possibly (right?) do worse than previous models. The continued affiliation with Barnes & Noble’s college division is a push (if, in fact, that’s not brought back under the brick-and-mortar umbrella or spun off into a third entity), as brick-and-mortar college bookstores are facing the same difficulties (and competitors) as big box bookstores and will continue to slowly decline. And, untethered from Barnes & Noble, which had kept it afloat for a very long time, it’s sink-or-swim for the Nook—I’d place my money on sink, but necessity is the mother of invention and they’re going to have to be innovative and experimental to succeed. That said, Barnes & Noble’s college division has been eking it out—at least compared to the Nook—and should ease the transition. And it will be a transition: Huseby indicated, to no one’s real surprise, that the two companies will maintain a close relationship—the big difference here seems to be that Barnes & Noble won’t have to drag the Nook behind it anymore. They won’t have it to kick around anymore either, though I suspect they’re thrilled by that fact.
Of course, that doesn’t mean that this is anything but a desperation move designed to appease investors. Barnes & Noble tried for years to sell the Nook to no avail (remember Microsoft?). Jettisoning it, at long last, means that the company will hemorrhage less money in the future, but it certainly doesn’t mean that it’s smooth sailing from here: the Nook, alas, is not the only thing wrong with Barnes & Noble. The move undoubtedly improves the company’s long-term outlook, but more changes are necessary for Barnes & Noble to survive. Its current investors may be pleased for the moment, but the long-term future of the big box, brick-and-mortar bookstore remains uncertain.
Alex Shephard is the director of digital media for Melville House, and a former bookseller.