Sunday, January 15, 2012

Four Disadvantages for Barnes & Noble in the Bookseller Wars

By Thad McIlroy, The Future of Publishing, @ThadMcIlroy - Digital Book World

Editor’s note: Last week, we presented advantages that Barnes & Noble has in the bookseller wars. See second editor’s note below.

It was a busy fall for Barnes & Noble, the $7 billion bookseller.
After Amazon grabbed headlines with its $199 Kindle Fire, Barnes & Noble responded with the $249 Nook Color. Could Barnes & Noble possibly compete with a higher price? The doubters have been silenced now that post-Christmas estimates place Barnes & Noble into contention as a vendor of color tablets, its sales of 2 million units running a solid second to an estimated 5 to 6 million for the Kindle Fire.
Despite this success (and partly because of it) Barnes & Noble CEO William Lynch startled the markets last week with a press release that in effect put Barnes & Noble’s Nook business up for sale. The business is not getting the respect it deserves and exploring “strategic options” would unlock its value, Lynch explained.
The previous day, the The Wall Street Journal reported that Barnes & Noble’s $80 million publishing unit, Sterling Publishing, was already on the block. The seas seemed suddenly stormy. Could this signal the beginning of the end for Barnes & Noble?
As we reported last week Nook sales are up 70% from the same period last year while sales of content – defined as digital books, magazines and apps – grew by 113% over Christmas.
And while hardware analysts place the physical cost of these tablets around $200, the total costs, including packaging, marketing, software and support, are much higher. Barnes & Noble has never attached precise numbers to its losses selling Nook devices but it recently attributed tighter sales margins to “increased costs to support digital growth including advertising to support the launch of the Nook….” The operating loss in its online division (including online sales and “development and support” of the Nook) hit $66 million in its most recent quarter, up 17% from a year earlier, on a 26% increase in sales.
In the end, the only substantially profitable portion of Barnes & Noble’s business is its sleepy college bookstore business (4.3% of sales), followed by the general retail stores (2.1%). Online loses money, even as its sales grow.
But these aren’t the company’s only strengths. As discussed in last week’s article, Barnes & Noble also has:
1. A solid management team and deep bench strength.
2. Strong niches in kid’s books and romances.
3. Retail stores that are valued showcases for physical books and hubs for large communities of writers and readers.
Another strong endorsement was registered last year when legendary investor John Malone of Liberty Media placed a $204 million bet that Barnes & Noble will be a long-term player.
Now it’s time to consider the daunting challenges that Barnes & Noble faces in the bookseller wars.

For more insight into Barnes & Noble, hear a senior Barnes & Noble executive speak about the company and the future of bookselling at Digital Book World, January 23-25 in New York City.

Read more at Four Disadvantages for Barnes & Noble in the Bookseller Wars | Digital Book World

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