SEC Filing Sheds Light on B&N Education

Details about Barnes & Noble spinning off its education division recently came to light in a report from Shelf Awareness. Shares of B&N Education, applying to be listed on the New York Stock Exchange, will go to current stockholders and no dividends are expected to be paid in the near future.

According to the filing with the Security and Exchange Commission, B&N Education saw its revenue increase to $1.5 billion while its net earnings fell to $19.4 million in the first three months of the current fiscal year, which closed at the end of January.

The filing also noted that B&N Education operated 717 college stores and that its largest area of growth is through its school-branded e-commerce sites at each. The company is planning to increase that number by bidding aggressively on the 53% of college stores still operated by their institutions.

“The prospectus is highly optimistic as to the new company’s prospects,” Nate Hoffelder noted in his post on Ink, Bits, & Pixels. “I, on the other hand, can see that B&N Education faces strong competition in a declining market. It’s not just that students are buying less from their college bookstore, or that B&N Education’s digital textbook offering is a train wreck, but also that it has a couple of established competitors (Follett Higher Education and Nebraska Book Co.) as well as an aggressive newcomer (Amazon) with extensive retail experience and a kill-all-prisoners attitude.”

B&N Launches E-Textbook App

Barnes & Noble retired its NookStudy digital education platform and is replacing it with Yuzu. The new e-textbook app was launched as a beta version in April for the iPad and the Internet Explorer or Safari 6.1/7 web browsers.

Students will still be able to read digital content and take notes with Yuzu, just as they could with the Nook Study app. The app is also linked with the B&N FacultyEnlight website, according to Nate Hoffelder of The Digital Reader. FacultyEnlight allows instructors to search for content and assemble it into coursepacks, and provides a place to sell original course materials through Nook Press and the Nook Store.

B&N plans to have an Android app and support more web browsers by the time Yuzu officially launches this summer. However, Hoffelder is already on record as saying the future of digital textbooks is in publishers selling directly to schools, so he doesn’t see a bright future for Yuzu.

“Everything I have read today suggests that Barnes & Noble is pursuing a retail strategy where they sell (or rent) digital textbooks to students,” he wrote. “Given the general failure of the digital textbook market, this does not bode well for B&N.”

Tough Year Ahead for E-Reading

2013 wasn’t a great year for e-readers. Sales of the devices continued to decline and a study released in December found that 60% of the consumers who downloaded e-books never read them. Michael Kozlowski, editor of the blog goodereader.com, is predicting more of the same in 2014.

First, E Ink will start moving away from e-reader technology. The e-reader business has been losing ground to tablet technology for more than a year and Kozlowski wrote that expansion into the digital signage market will be its next move.

The E Ink shift away from e-reader technology may be helped along if Kozlowski is right about Barnes and Noble. He predicted that since B&N makes more money on digital content sales, it will decide to give up on the Nook. He also expects Sony to give up on its e-reading devices to focus more on tablet and multimedia-based experiences.

He also predicted declines in both reading on tablet devices and e-books in general.

Reading on tablets will decline because manufacturers will move away from producing as many tablets in favor of more smartphones in 2014, which should produce more smartphone readers. Or maybe, with e-book sales flat or in decline throughout 2013, people will just head back to hardcover and paperback books.

“With the way things have gone in 2013 in the e-reader and tablet sector, some people may be optimistic about the future,” Kozlowski wrote. “I, for one, am not.”

Pearson Makes Investment in B&N, Nook

Pearson announced it would invest $89.5 million in Nook Media just three days after Christmas, joining Microsoft as a partner with the Barnes & Noble subsidiary. It was a move aimed at delivering the publisher’s digital content to college students.

“With this investment, we have entered into a commercial agreement with Nook Media that will allow our two companies to work closely together in order to create a more seamless and effective experience for students,” Pearson North America CEO Will Ethridge said in the release announcing the deal. “It’s another example of our strategy of making our content and services broadly available to students and faculty through a wide range of distribution partners.”

Pearson is banking that pairing with the Nook Media expertise in online distribution and customer service will make it easier for customers to find and access its digital learning material. However, the purchase also comes on the heels of news that holiday sales at B&N were weak and that the Nook segment would continue to be lower than expected. 

B&N, Microsoft Partner to Form Nook Media

The strategic partnership between Barnes & Noble and Microsoft is now complete and the new venture will be called Nook Media.

Nook Media will be a B&N subsidiary made up of its digital and college  businesses, backed by a $300 million investment from Microsoft. The partnership will help B&N continue its growth into digital content and allows the company to expand internationally, CEO William Lynch told The Wall Street Journal. Lynch added he expects Nook Media revenues to be $3 billion annually, but no decisions have been made for possible spinoffs.

“There can be no assurance that the review will result in a strategic separation or the creation of a stand-alone public company,” Lynch said. “Barnes & Noble does not intend to comment further regarding the review unless and until a decision is made.”

Nook Media does have one issue to address: The name is already owned by a Swedish developer of online gambling casinos, according to Digital Reader.

Breathing Room for B&N in Microsoft Deal

The partnership between Barnes & Noble and Microsoft is providing the bookseller with an infusion of capital it needs and the software giant with the foothold in the e-book and college textbook market it wants.

The deal calls for a new B&N subsidiary formed by spinning its digital and B&N College Booksellers divisions together into a new company, temporarily named Newco. Microsoft is investing $300 million into Newco for a 17.6% equity stake.

The infusion of money will allow B&N to grow its e-book business, while at the same time fending off shareholder calls for it to sell the Nook business or the whole company. In addition, it ends speculation that B&N doesn’t have the funds to go head to head with Amazon.com in the e-book business.

“Our biggest concern for Barnes & Noble has been its ability to compete against Apple and Amazon, two of the deepest-pocketed players in the technology and media world,” said Matthew Fassler, a Goldman Sachs analyst. “Newco now has an equally deep-pocketed partner.”

The investment also gives Microsoft a path into the e-book business and a presence on college campuses to compete with Apple. It was reported that a Nook app for the Windows 8 operating system would be developed, but B&N CEO William Lynch told Forbes that the only plan at this moment is to embed NFC chips into the device.

The deal should also give consumers greater confidence in the Nook, according to David Carnoy, executive editor at CNET News. Speculation about the future of B&N had Nook readers wondering about the titles they’ve purchased and if those would vanish if the company were to fail. But Microsoft’s willingness to invest millions means the Nook will remain.

Google eBooks launches

Today Google launched its online bookstore called Google eBooks. Up until this point, the program has been referred to as Google Editions. According to an article from Wired, the e-book store will have about 2.8 million books that are no longer under copyright and were scanned through the Google Books project. The store will have another 200,000 books that have been licensed from publishers. Users will be able to read the books on Apple devices, Barnes & Noble Nooks, Sony E-readers, and computers. The books will not be accessible on the Amazon Kindle because of compatibility issues.

In addition, Google has partnered with some independent bookstores to allow them to sell e-books on their websites and share the revenue. Google also plans to add social networking features and says it has the infrastructure in place to let consumers purchase digital and paper copies in a bundle.

James Crawford, an engineer for Google eBooks, noted, “The idea is that you buy where you are and read on devices you already own. We are committed to open structure, and building up a wider and wider retailer network.”

The Google ebookstore can be found here.

e-readers expected to be a top seller this holiday season

E-readers are expected to be a popular gift this holiday season and many e-reader companies have expanded the distribution of their devices to stores like Target, Best Buy, and Walmart. In addition, Amazon, Borders, and Barnes & Noble, have come up with new ways to promote their devices on the web or in the stores.

In an article from The New York Times, Peter Hildick-Smith, president of the Codex Group, says, “This is the tipping-point season for e-readers, there’s no question. A lot more books are going to be sold in e-book format. It also means that a lot fewer people are going to be shopping in bookstores.”

Forrester Research predicts that about nine million e-readers are currently in circulation in the United States and this could increase to 10.3 million after the holidays.

As mentioned previously, according to a survey by the Consumer Electronics Association, e-readers rank fifth on the holiday wish lists of adults.

B&N Nook Color

Earlier this week, Barnes & Noble unveiled a new color version of its Nook reader. The device features a 7–inch color LCD screen and Android operating system. This is an interesting device because it combines features of an e-reader and a tablet. It has a color screen and on screen keyboard like a tablet but does not include all of the capabilities or the larger device size. It is like other e-readers because it is designed primarily for the purpose of reading. However, this device will not be as easy on the eyes because it features a LCD screen with backlighting rather than a black and white E Ink screen. In terms of price, it also falls between cheaper e-readers and pricier tablets. Jamie Iannone, president of digital products at B&N, described the Nook Color by saying, “This device is the reader's tablet.”

According to an article from The Wall Street Journal, magazine and newspaper subscriptions with color photos will be available on the device. In addition, according to a posting on the Bits Blog, B&N has also introduced a new feature called Nook Friends that will allow readers to share content and notes with friends via social networks.

It will be interesting to see how this new type of device does this holiday season. B&N is expected to begin shipping the devices on November 19th.

Analyst reactions to the news that B&N may be for sale

Shelf Awareness has an interesting article that includes a round-up of analyst reactions to the announcement that B&N may be for sale.

Barnes & Noble considering sale of company

Barnes & Noble announced that its board is evaluating strategic alternatives to improve shareholder value, including the possible sale of the company.

According to reports, like other booksellers, B&N struggles with the changing publishing industry and retail environment. In recent years, books sales have moved to other big-box retailers and to online competitors such as Amazon. In addition, reading habits are changing as e-books and e-readers become more popular. B&N made efforts to adapt to the changing environment with its large online store and electronic reading options however, sales at the brick and mortar stores are still a significant part of the business.

David Schick, managing director at Stifel Nicolaus commented, “There’s been a long series of pressures. The market has not been kind to bookstores, and it’s for new reasons like competition with Apple and Amazon, and it’s for old reasons, like what we believe has been a decline in reading for the last 20 years. Americans have devoted less of what we call media time to books.”

An article from Reuters says that Leonard Riggo, founder of B&N, may be a possible buyer along with a larger investor group. The article notes that going private could help the company realign its business and invest more in digital options.

For college stores the future of B&N has interesting implications. As one of the largest contract management companies serving the college store industry, the fate of the company could ultimately affect hundreds of college campuses. Textbook publishers likely also feel concern as the number of large channel-aggregating players diminishes – leaving them to negotiate with a few players, such as Amazon and Apple, over future pricing models for their products. As the future of B&N and B&N College awaits determination, college stores might take the opportunity to ask themselves what they are doing to remain viable and relevant into the future, and how we improve the value we provide to our “shareholders” – students, faculty, and institutions.

B&N’s NOOKstudy and Borders e-book store

Last week, both Barnes & Noble and Borders announced new digital initiatives.

According to the press release, Barnes & Noble has created a new study application for students of higher education called NOOKstudy. The application is currently being tested at several universities and will be available to all higher education students during the fall 2010 semester. The application is free and can be downloaded to PC’s and Mac’s. It enables students to download e- books and e-textbooks, take notes, tag content, search through both the textbook and annotations, and manage all of their digital content, including: lecture notes, syllabi, slides, handouts, trade books, and other course documents. Marketed as a study aid, the NOOKstudy may prove to be a convenient tool and interface through which students can organize, download, and read e-textbooks and other digital content.

As mentioned in a previous posting, NOOKstudy will be also be integrated with Blackboard Learn.

Also last week, Borders launched an e-book store that is powered by Kobo. According to an article from RetailingToday.com, Blackberry and Android reading apps will also be available.

New color e-reader from Pandigital

This week another new competitor entered the e-reader market. According to an article on InformationWeek’s website, Pandigital will release a 7-inch e-reader called Novel. The device will be integrated with the Barnes & Noble eBookstore which currently offers more than a million titles. The device features an Android operating system with a full color touchscreen, Wi-Fi connectivity, virtual keyboard, 1 GB of internal memory, ability to display in either portrait or landscape mode, and a USB port for transferring files. It will also support PDF, ePUB, and HTML formats. The Novel will be available next month with a very competitive price tag.