In the same week that the US saw some of the coldest weather in generations, a venerable institution of US bookselling Barnes & Noble revealed financial results that suggested all prospects for growth in its digital Nook business had frozen over. During the all-important 9 week holiday period to 28 December 2013, B&N stated that it had experienced a 60.5% year-on-year decline in sales of its Nook eReaders, tablets and digital content from the Nook Store. Broken down into individual product categories it was clear that most of this decline came from device sales, which fell by 66.7%, while content sales were down 23.7%. These results look even starker when we look back to Barnes & Noble's 2012 holiday trading statement, which reported a 12.6% decline in device sales and 13.1% dip in sales from digital content.
All of this is a far cry from 2009 and 2010, when the launch of the Nook devices and store were widely seen as Kindle's most effective competitor, quickly taking around 25% of the growing eBook market. At the time, Barnes & Noble was lauded as an innovator on both the software and hardware layers. For example, it launched the Nook Color, an eReader based on Google's Android software and also capable of use as a tablet, just a few months after the announcement of Apple's iPad at a time when most other phone and PC manufacturers were struggling to get off the starting blocks. In 2014, however, as the tablet business diverges with Apple dominating the premium end of the market while cheap Android tablets flood the market at ever lower prices, Nook has struggled to differentiate its mid-priced devices. The company's newly appointed chief executive Michael Huseby excused this poor performance on the basis that B&N had not refreshed its tablet product line in time for the Christmas season. This statement that suggests Nook is committed to a future as an integrated software and hardware multimedia proposition, contradicting former CEO William Lynch's assertion back in summer 2013 that B&N would soon exit the tablet business
Nook's early lead in content and services also suffered in 2013 from the outcome of the DoJ pricefixing case against Apple and major publishers, which saw the end of the agency model for eBook pricing and ushered in a new round of steep content discounting led by Amazon. Commenting on the effects of this decision in Bloomberg's Business Week, the book industry consultant Mike Shatzkin said
“The Justice Department came in at a time when agency pricing was weakening Amazon’s hold and dispersing the e-book market,” says Mike Shatzkin, CEO of the Idea Logical, a book industry consultancy. “By eliminating fixed prices for e-books, they have handed the advantage back to Amazon. Now everyone else is losing share.”
Certainly the falling unit price of individual books, which hit an all-time average low of $5.27 in early December 2013, no doubt contributed significantly to the overall decrease in revenues from content sales. There were also signs that Amazon's strategy of using ever bigger discounts to attract new customers into the Kindle ecosystem are working, as B&N admitted that Nook's market share in the US had fallen from 25% to just 20%.
All this adds up to a stiff challenge for new Barnes & Noble CEO Michael Huseby, whose promotion from the post of president and CEO of Nook Media has been interpreted as a vote of confidence in the Nook proposition. He has already hinted that Nook will re-enter the tablet market through a hardware partnership, but ironically the only chink of light in Barnes & Noble's otherwise disappointing results came from its bricks and mortar business. Sales of physical books and other products in its stores held up remarkably well in otherwise tough trading conditions, netting $1.1 billion over the 9 week holiday period, compared to only $125 million from digital devices and content.
Whether Huseby manages to stem the losses at Barnes & Noble and return Nook to the status of chief bulwark against the march of Kindle remains to be seen. What is clear is that the biggest name in US bookselling is determined to forge some kind of digital future in 2014 and beyond, with Huseby's appointment putting to bed rumours that Nook Media was likely to be spun off and sold to a third party.