B&N Considers Nook Spin-Off

Barnes & Noble is considering spinning off its Nook business unit, which houses its tablet and e-readers plus their integrated digital content platform. This would enable it to capitalize more heavily on its digital assets, without seeing them dragged down by its core business as a bricks and mortar retailer focused on physical books - a far tougher proposition than Amazon's broad-based online model.

Focal Points:

• Both vendors had a strong holiday season for gadgets and media, and B&N said sales of digital content during the nine-week period increased by 113% year-on-year, with sales of the Nook Simple Touch, Nook Color and Nook Tablet up 70%. The firm now expects digital content sales to total about $450m in its 2012 fiscal year, with the Nook unit generating $1.5bn in sales during the period. 


• CEO William Lynch told analysts: "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. In Nook, we've established one of the world's best retail platforms for the sale of digital copyright content. Between continued projected growth in the US, and the opportunity for Nook internationally in the next 12 months, we expect the business to continue to scale rapidly for the foreseeable future." B&N is in talks with possible international partners, including publishers and other booksellers.
• In the holiday season, the iPad remained the tablet market leader, but is thought to have slipped somewhat under pressure from the Kindle Fire and the Nook (even though both are, so far, US-only). In a research note, Morgan Keegan analyst Tavis McCourt cut his estimates for Apple's fiscal first quarter, ending December 2011, because he thinks the Fire stole about 2m units away from the iPad, despite the two gadgets' very different positioning. He expects iPad revenues to be 21.3% of the Apple total in the December quarter, up from 17.2% a year earlier, but down from 24.3% in the previous quarter.
• "We are lowering our unit shipment estimates for iPad in the Dec. quarter from 16m to 13m," he wrote. "Based on data from Amazon, we believe the Amazon Fire likely sold 4m to 5m units this holiday season, which probably means maybe 1m to 2m cannibalized iPad sales at most."

Editor’s Note: Nook spin-off consideration is not surprising as digital content markets are still developing and while the promise of profit is looming on the horizon, the ability to capitalize on that profit is not to simply create another Kindle. Interestingly enough, Experton Group thought that B&N’s idea of focusing on enhancing the delivery of its digital content was and still is an excellent idea. If the spin-off is an effort to focus on the unique market proposition of digital content, then this is a good idea!