Friday, May 14, 2010

Barnes & Noble's Coming of Age

This week we've been talking about the publishing strategies of Amazon, Apple and Barnes & Noble. Today's it's B&N's turn.

B&N is the largest book retailer in the United States. At last count by Wikipedia, it operates 777 bookstores and another 636 college bookstores.

During the '70s and '80s, B&N rapidly expanded across the U.S. By taking advantage of volume buying, the mega-chain was able to offer discounts to their customers on the best-selling books. The competition they provided led to the closing of many independent bookstores.

B&N also began publishing books in-house during the '80s, mostly releasing books that are in the public domain, no longer under copyright.

At the same time B&N was growing, Wal-Mart and other large retailers like Target were expanding. In an ironic twist, B&N found itself being squeezed by the big box stores in exactly the same fashion they had earlier squeezed the indie bookstores. The buying power of the big box chains permitted them to offer even deeper discounts on best-selling books than B&N could.

The growing power of the Internet put additional pressure on all bookstores. First you had Amazon, which offers enormous discounts and convenience. And then you had online used booksellers like AbeBooks (bought out by Amazon in 2008), which make it incredibly easy to locate and purchase a used book from your home or office--right at the time that gasoline prices were going up.

B&N made a few good moves. In 2000, the chain instituted a rewards program for repeat customers. In May, 2008, B&N announced they would begin selling digital and print magazine subscriptions on They also announced that "more than 12,000 back issues of hundreds of magazine titles will be available digitally for purchase as single copies." [Note: If they are, I haven't found them yet. Whenever I click on the single copy icon, I get a "sorry" message].

At the same time, some B&N executives exhibited the very thinking flaws we currently see in the top execs of the Big Six publishers. The B&N leaders remained in a cocoon of denial about the future of e-books for far too long. Two months prior to that magazine announcement, the CEO of B& said: ". . . e-books have been around for a long time. It still remains a very small market, albeit obviously growing but when you look at the percentage growth, remember it’s growing off of such a very small base. We continue to look and evaluate and we’ll make decisions about when and if to jump in at the appropriate time."

Five months later in August, 2008 she "resigned" from the company.

Solid evidence that B&N was finally getting a clue appeared in March, 2009, when B&N acquired e-book seller Fictionwise for $15.7 million. That same month, exactly a year after the CEO made her unfortunate comments, B&N was singing a different song: ". . . as electronic book devices and mobile platforms emerge, it’s . . . opening a new door for us, enabling us to sell lots of content that we’re not even currently offering . . . we think that this is a whole new exciting area for us and the range of content that we can sell is actually much large (sic) than that we’re currently offering within the four walls of the store or for our website." (From the Seeking Alpha transcript here).

B&N announced in April, 2009:
Barnes & has launched its Audiobook MP3 Store, featuring audiobook MP3s available for instant download and transfer to iPods, iPhones, MP3 players and other portable devices. The Barnes & Audiobook MP3 Store offers easy downloads of more than 10,000 titles across all genres, from new releases and bestsellers to classics and timeless favorites. The average price per download will range between $10 and $20.
While the announcement signaled recognition that B&N needed to expand its worldview, the pricing of the audiobooks suggests to me that they were artificially inflating the audiobook prices in order to protect their p-book sales.

In July, 2009, B&N opened its much anticipated e-bookstore. Then in October they unveiled their proprietary e-reader, the Nook, priced at $260 to match Amazon's Kindle. On a visit to B&N last week, I noticed that the Nook display has moved forward from the middle of the store to right inside the front door, displacing the new releases table.

B&N is also seeking strategic alliances. They've formed a content partnership with online magazine The April 21st press release said:
As part of the agreement, selected articles from the Barnes & Noble Review will be shared with on a daily basis ... will in turn share selected elements of its content on the Barnes & Noble Review site. All content will include links to corresponding information on both websites. Additionally, will include affiliate links to BN.COM, allowing its readers the opportunity to purchase books, eBooks and more from BN.COM.
B&N also formed a partnership with Plastic Logic, whose QUE ProReader is expected to be released this summer. The Plastic Logic website says:
Barnes & Noble is powering the Store, which offers a wide range of business and leisure content geared to business professionals. Barnes & Noble is also Plastic Logic's first distribution partner, and will sell the QUE ProReader in its retail locations nationwide and online at later this year.
During a conference call on March 18, 2010 when asked if they would be growing or shrinking the bricks-and-mortar stores, B&N Chairman Len Riggio responded that he expected the number of stores would remain flat for the next few years while they watch what happens in the industry.

On the same call, William Lynch, the CEO, said B&N wants their content available on the widest number of platforms possible which is why they are developing a B&N app for the iPad.

There is another fly in B&N's ointment. Six months ago on November 18th here I reported that B&N had created a "poison pill" strategy to stave off billionaire investor Ron Burkle, who at that point owned 17.8% of B&N's stock. The poison pill would be "exercisable if a person or group, without Board approval, acquires 20% or more of Barnes & Noble's common stock or announces a tender offer [hostile takeover] which results in the ownership of 20% or more of Barnes & Noble's common stock."

Earlier this month Burkle filed a lawsuit in Delaware, complaining that the company's directors have "breached fiduciary duties of loyalty, care, and good faith."

According to Sarah Weinman in Daily Finance here, Burkle now owns a 19.62 stake in B&N, which brings him dangerously close to the 20% trigger point for the poison pill.

Stay tuned ...

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