Despite the raving reviews over Barnes & Noble's new Nook tablets released during 4Q12, the company reportedly faced fierce competition from the likes of Google, Amazon and Apple which released new products in the same timeframe. The bookseller's Nook HD and Nook HD+ went up against the Nexus 10, the Kindle Fire HD tablets, and a 7-inch iPad mini. The new Nooks didn't even have a chance.
Even more, the company released this statement back on February 13. "Based on current forecasts, the Company now expects its fiscal year 2013 NOOK segment EBITDA loss to be greater than it was in fiscal 2012 and expects fiscal year 2013 NOOK Media revenues to be less than $3 billion," Barnes & Noble announced.
Then on Monday, Barnes & Noble said that its Board of Directors has received notice from the company's biggest shareholder, founder and Board chairman Leonard Riggio stating that he plans to propose to purchase all of the assets of Barnes & Noble's retail business. This includes Barnes & Noble Booksellers Inc. and barnesandnoble.com, and excludes the Microsoft-backed Nook Media LLC business which handles the Nook tablets.
"There can be no assurance that the review of Mr. Riggio’s proposal or the consideration of any transaction will result in a sale of the retail business or in any other transaction," the company stated. "There is no timetable for the Strategic Committee’s review. The Company does not intend to comment further regarding the evaluation of Mr. Riggio’s proposal, unless and until definitive agreements for a transaction are entered into or the Strategic Committee determines to conclude the process."
A source close to the company's strategy told the New York Times that the disappointing fiscal 3Q13 numbers, which includes holiday sales, has caused executives to rethink the current strategy. Its digital approach over the last several years has seemingly "run its course", and the company may now need to focus on licensing its content to other device makers rather than engineer and build its own devices.
"They are not completely getting out of the hardware business, but they are going to lean a lot more on the comprehensive digital catalog of content," the unnamed source told the paper. The source also said that on Thursday the company will "emphasize its commitment to intensify partnerships with other tablet producers like Microsoft and Samsung to make deals for content that it controls."
Back in January, Barnes & Noble hinted that it may spin off its Nook tablets, saying that it was looking to pursue strategic exploratory work to separate the Nook business from the rest of the company in order to capitalize on the rapid growth of the Nook digital business.
“We see substantial value in what we’ve built with our Nook business in only two years, and we believe it’s the right time to investigate our options to unlock that value,” said William Lynch, Chief Executive Officer of Barnes & Noble. “We have a large and growing installed base of millions of satisfied customers buying digital content from us, and we have a Nook business that’s growing rapidly year-over-year and should be approximately $1.5 billion in comparable sales this fiscal year."
Lynch said that between continued projected growth in the U.S., and the opportunity for Nook internationally in the next 12 months, the company expects the business to continue to scale rapidly for the foreseeable future. That said, Barnes & Noble's Nook Media business may make a bigger impact on the market if it served as a separate entity.
For the nine-week holiday period alone, the company's digital business only saw net revenues of $311 million, down 12.6-percent compared to the same period in 2011. Digital content sales actually increased 13.1-percent while device unit sales brought the entire unit's numbers down. The company said Nook sales were off to a great start during the Black Friday period, but tanked thereafter. The company said it would investigate why the tablets did so poorly in December.