Barnes & Noble
) has announced that it will be separating its Nook business, which
includes its ebooks, devices and accessories from its core retail
business, which includes its book stores and BN.com. The company
has been making losses for a while now, most of which was
contributed by this business.
Separating Nook will enable it to focus on software and content.
Besides, management has said on various occasions that building a
hardware unit had put too much pressure on operating costs. But the
search for a buyer proved fruitless, despite rumors last year of a
possible buyout by
), which has around a 17% interest in the brand. British publisher
Pearson plc has a 5% stake.
Two problems have plagued Nook, both of which originate with
), its main rival in the book business. First, Amazon was quick to
anticipate the need to sell books online and then the need to sell
digital versions. This gave it a first mover advantage and enabled
it to pick up most of the online traffic. It built on this
advantage with its devices, apps and Prime memberships.
The second problem was with respect to Amazon's pricing strategy
(it continues to sell books or devices at little or no profit).
This makes it extremely hard for the competition to take away share
by pricing aggressively. These factors have made Nook unattractive
for a prospective buyer.
But things could be changing now. Earlier this month, BKS
announced that it was relocating to a couple of smaller offices and
saving $102 million in the process (spread out over the period of
It also announced a hardware partner in Samsung, which would
manufacture a new 7-inch tablet, co-branding it as Samsung Galaxy
S4 Nook to hit stores in August. Barnes & Noble will provide
software support and content and buy a million tablets in the first
year after launch (could be extended to 15 months if sales fall
short of projections).
Samsung entering the picture makes it much more interesting.
Although it hasn't commented on what it is getting out of the deal,
there are a few possibilities. First and most obvious is the profit
from hardware sales. Second, it could get a store-in-store facility
at BKS stores, similar to what it has with
). Samsung seems to have gotten much more interested in content of
late, closing its own ebook store to offer a Kindle for Samsung app
for Galaxy devices using Android 4.0 and up from July 1.
Amazon has a Zacks Rank #4 (Sell) while Barnes & Noble has a
Zacks Rank #3 (Hold).
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