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  (Source: Getty Images)
Move would reposition Nook media as solely an e-book seller

While the Nook HD+ is a well-known budget Android tablet, the days of the Nook may be numbered.  According to a report by TechCrunch, internal documents indicate that Microsoft Corp. (MSFT) is offering Barnes & Noble, Inc. (BKS) a $1B USD buyout to acquire some of the assets of Nook Media LLC, which Microsoft will then look to reposition as the go-to digital college textbook source across its platforms.

I. Microsoft Looks to Scavenge Juicy Innards From Struggling Nook Media

E-INK readers have been a double-edged sword for Barnes & Noble.  While, Inc. (AMZN) showed the market that e-books are a ticket to higher profits, B&N's Nook -- launched during the 2009 holiday season -- has been largely a money loser for B&N.  The company added a color Android tablet (the Nook Color) during the holiday 2010 season, which was followed by the Nook HD and Nook HD+ tablets. 

The platform has seen it successes, selling 10 million units to date.  While far from Amazon's Kindle sales, Nook's active base of 7 million subscribers is certainly worth something.  But the ongoing losses have caused the company to question the utility of that asset.

The book seller had looked to spin off the unit, but stabilized when Microsoft injected $300M USD into the "Newco" joint e-book venture.  Microsoft owned approximately 16.8 percent stake in Newco, while B&N owned 83.2 percent ($1.49B USD) of the venture as of its April 2012 launch.

However, since then the joint venture has devalued as its e-readers continued to struggle in sales, driving losses at B&N.  B&N, currently considering going private, may be tempted to unload parts of its digital business to offset these losses.

The bid indicates that the Nook partnership has significantly devalued in recent months.  The documents indicate that B&N is worth $1.66B USD, while Nook Media is valued at $1B USD.  That's significantly less than the original $1.7B USD valuation, or the $1.8B USD valuation from January when UK-publisher Pearson PLC (LON:PSON) bought a 5 percent stake in Nook Media for $85M USD.

II. What's Next

If Microsoft's bid succeeds, it will gain select units of Nook Media -- reportedly the college textbook division.  Nook Media will keep the e-reader and core e-book business.

But documents reveal that the current plan is a phase-out of Nook Media's titular hardware offerings.  Nook may soon no longer make Nooks.  

Nook Media
Nook Media hopes to return to profitability by 2017. [Image Source: Reuters]

Android tablets will die out first, being discontinued by the end of next year (2014).  The lower-priced E-INK readers will continue to be sold into 2015, but are expected to suffer a quiet death as customers abandon the power-efficient, but aged form factor for glistening tablets.

The documents indicate that Nook Media will lose $360M USD this fiscal year, following losses of $262M USD last year in B&N's fiscal 2012, which ended in April.  But with the hardware phaseout, Microsoft predicts the unit will recover to $362M USD in annual profit by 2017.  

Nook e-book apps are currently available on every major platform -- Android, iOS, Windows, and OS X.

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Why kill the tablet?
By nafhan on 5/9/2013 12:39:39 PM , Rating: 2
Seems like a next gen, low end, Win RT tablet under the Nook branding might not be a terrible thing. I guess it would be competing with the "Surface Mini" or whatever MS is already planning to come out with at that price point, though.

RE: Why kill the tablet?
By retrospooty on 5/9/13, Rating: 0
RE: Why kill the tablet?
By kb9fcc on 5/9/2013 2:04:21 PM , Rating: 1
MS would never leverage the Nook line as it stands, because it runs on Android.

This was always part of MS's plan to "embrace, extend, and extinguish" the Nook when B&N had the goods on MS's patent extortion attack a year ago. B&N and MS "made nice" to avoid the costly legal battle, gave the Nook reader app/name/store to MS, and Nook gets axed anyway, the very thing B&N was trying to avoid in the first place.

When are companies going to learn you don't do a deal with MS and expect to come out of it holding anything other than the short end of the stick?

RE: Why kill the tablet?
By nikon133 on 5/9/2013 6:57:04 PM , Rating: 2
There is not much reason why next generation of Nook readers wouldn't run on WRT or even W8 Pro. All that would really be required is for B&N/MS to release good Nook reader for Windows platform.

RE: Why kill the tablet?
By retrospooty on 5/9/2013 7:50:52 PM , Rating: 2
True, but MS surface already has a bigger name than Nook, so it wouldn't really be much of a benefit to use the Nook brand name. Now if it were Kindle, it might be a different story.

RE: Why kill the tablet?
By Ktracho on 5/10/2013 12:18:10 PM , Rating: 2
Nook could be low end, while Surface could be priced like Apple's iPad mini.

RE: Why kill the tablet?
By dgingerich on 5/9/2013 2:12:41 PM , Rating: 2
They're leaving the reader business with Nook Media. They're just buying the format for electronic textbooks. So, the Nook readers will still be coming from their original source, but MS will have control over the textbook media format. Nook Media will probably license it back for free in a deal like this.

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