Wednesday, February 27, 2013

More trouble for Barnes & Noble?

Photo courtesy of NYT article linked below.

I can't take credit for this find, the link came from the Passive Voice blog. For some of you this isn't news, but I wanted to look at it more closely because it dovetails nicely with my last post on the future of the industry. This article from the New York Times begins by analyzing a B&N company memo from this month. They quote the memo, saying that Barnes & Noble's losses for e-books and Nook e-readers "will be greater than the year before and that the unit’s revenue for all of fiscal 2013 would be far below projections it gave of $3 billion." According to the article, this includes holiday sales, which in the bookselling business should have accounted for a large portion of annual profits.

The article quotes an unidentified insider as stating essentially that B&N will be pulling back from e-book hardware and will seek to license "content" to other tablet makers. 

To me, this just sounds insane. What kind of licensing does B&N have anyway? It's the publishers who own the books. Barnes & Noble was and is a distributor. They're in the business of delivering product to end consumers. They're a middle-man. Developing the Nook was a smart way to hold onto that position and subsidize losses they were taking in physical stores. To me it sounds like they're more or less walking away from that prospect. One should also bear in mind that not too long ago, B&N spun the Nook into a separate division in order to protect the main business from investment expenses (and losses). In my opinion, this was a clear case of watching the bottom line for the quarter without giving a moment's thought to the future.

In their defense, the Nook has had stiff competition. B&N came late to the e-book game and when they finally entered, they were miles behind the competition. The Nook was a good start, and it gave them a jump. It also helped that they used technologies that were end-user friendly, making it possible for some readers to"hack" the devices to expand their usefulness. That's something Amazon doesn't and probably will never do. And many Nook users really seemed to like the devices. After all, they came out with the "glowing screen" technology first, and they were first to make their e-reader function more like a tablet.

But now, after dumping millions of dollars into the Nook and laying the groundwork for what may have replaced much of their lost income from physical stores, they're changing their minds? They're going to license content? Again, how does that work? Why would a manufacturer like Sony or Apple license content from B&N when they could bypass the middleman and license directly from the publisher? What exactly do they hope to sell, and how will they force third parties to license this content?

Again, this looks to me like an attempt to shore up this quarter's bottom line without a second thought to what happens next year, or ten years down the road. This way of thinking is outmoded, a fact that has been proven by Amazon again and again. These executives seem to be terrified of the stockholders, and yet they're doing the worst thing possible for the company in the long run. This is the kind of behavior that leads to a business going away forever. That's disappointing, because I'll miss browsing the nice big two-story B&N we have downtown. I doubt we'll ever see another bookstore that big in this area (or most places).

I understand that Barnes & Noble has been stuck between a rock and a hard place. They had to downsize in order to remain profitable. That was inevitable. I would have liked to have seen this stabilize at some point without the company going belly up. In light of the latest reports I've seen, I doubt that will happen. Sadly, I don't think Barnes & Noble will be with us two years from now. To be honest, I'll be a little surprised if most of the stores aren't gone by the end of the year.

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