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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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This doesn't make sense
By DanNeely on 5/9/2013 11:49:37 AM , Rating: 1
Why would MS want the college textbook business. Deadtree is legacy and totally outside MSes core business areas/competencies.

From the other direction, the people who want to take B&N private have been reported to be true believers in printed books; ditching textbooks but keeping the ebook segment is the opposite of what I'd've expected them to do as well.

RE: This doesn't make sense
By Salisme on 5/9/2013 12:03:43 PM , Rating: 3
California is moving to digital version of college books and it won't be long before other states will follow suit. With that in mind, students are going to want a tablet to read these books, MS is competing with iPad so it is a great opportunity to push the Surface as a textbook reader.

RE: This doesn't make sense
By chmilz on 5/9/2013 1:13:52 PM , Rating: 2
Mix a top-tier textbook platform with OneNote/Office and you have an incredibly strong incentive for students to buy your product. Once they're invested in the platform for a multi-year term, chances are they'll stick with it as long as it's robust. With millions of new students entering the system every year, and generally being fairly savvy, they would make the platform robust with new apps, furthering the incentive to buy for those outside the student segment.

I guarantee you iPad was successful early on in no small part due to students.

RE: This doesn't make sense
By drlumen on 5/9/2013 4:16:28 PM , Rating: 2
How do you see a DRM book merged with outside apps like onenote or office?

In other words, how would this be different than using some Android tablet?

RE: This doesn't make sense
By nikon133 on 5/9/2013 6:52:52 PM , Rating: 1
An Atom based tablet with docking station at the dorm (with large screen, full size keyboard and mouse, LAN connectivity) feels pretty good choice for students in eBook learning environment. Drop it on dock and you have slowish but fully compatible desktop replacement. Pull it off and you have proper tablet, light and with long battery life - and you can still review and do some editing on your DOC assignment, PPT presentation... in park, mess... and with portable keyboard, pen digitiser and OneNote, you can easily use it during lectures too.

Intel is promising performance boost and price drop for incoming Atom upgrades, which will only improve platform.

I'm finding this much more desirable and functional solution compared to both iPads and Android offerings. Especially if MS and B&N manage to offer good academic eBook shop model.

RE: This doesn't make sense
By dgingerich on 5/9/2013 2:09:33 PM , Rating: 2
They could integrate support for it into the OS, like they have with the Zip format, and allow college students to use Windows tablets, including ARM tablets, for their textbooks. This would, by extension, allow students to copy and paste quotes from the books they read into papers instead to having to retype it or look it up online. This would be above and beyond the capabilities of Apple's products for college students.

In short, it would encourage college students to use Windows based systems instead of Apple based systems. That's right along their core business area.

Personally, I'd love to see Apple fail again. I despise that company.

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.

I guess that explains the prices...
By kmmatney on 5/9/2013 6:01:39 PM , Rating: 2
I guess that explains why Nooks are so cheap this week. We just picked up a 32GB Nook HD+ last night (9 inch, 1920 x 1080) for $209. She had been saving up to buy an iPad mini, but this has a bigger screen, higher res screen, double the space, faster processor, and is $100 less. For the price, it is very impressive, and they now have access to the Google Play store.

RE: I guess that explains the prices...
By kmmatney on 5/9/2013 6:09:40 PM , Rating: 2
oh yeah - and you can expand the memory with an SD card...

By ShaolinSoccer on 5/12/2013 12:09:59 PM , Rating: 2
You could've gotten it cheaper at Best Buy or Target.

Knew this would happen.
By thesavvymage on 5/11/2013 1:37:13 AM , Rating: 2
THIS is why I will never buy an e-reader. Wtf are you supposed to do when the company who supplied it to you goes bankrupt, ends support, or gets bought out? Do you just lost access to redownloading all of the books you bought? Books are often things you read multiple times throughout your life, physical copies are amazing to keep as collections. The main convenience I see for e-readers is for people who travel a lot, on planes, and want to bring their collection with them. Other than that, they are not cheaper and they are filled with DRM. Physical books ftw.

RE: Knew this would happen.
By bug77 on 5/13/2013 5:30:08 AM , Rating: 2
Hear, hear. Though I have found a nice alternative in Kobo Glo. No DRM, higher resolution than Kindle or Nook and the possibility to annotate text. I would have paid for a 10" version, but sadly that's not an option these days.

By geekman1024 on 5/9/2013 9:07:42 PM , Rating: 2
Microsoft & Barnes & Noble's Nook of the Surface!

...or Surface of the Nook?

Book vs. e-book
By vailr on 5/11/2013 1:15:23 PM , Rating: 2
CRC Handbook of Chemistry and Physics, 93rd Edition
Length: 2664 pages
Kindle version: $121.83
Printed hardcover version: $84.98 (via 3rd party seller).
The Kindle pricing is still too high. There's similar price disparity between printed textbooks and the same in e-book format. There needs to be much lower pricing on e-books.
My suggestion: make all e-book textbooks available for 1 cent per page. Or something like that.

By OBLAMA2009 on 5/12/2013 3:10:50 AM , Rating: 2
...just wait until paper book printing is drastically reduced, how high ebook prices will go

"So, I think the same thing of the music industry. They can't say that they're losing money, you know what I'm saying. They just probably don't have the same surplus that they had." -- Wu-Tang Clan founder RZA

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