NOOK revenues down more than 50%

NOOK revenues down more than 50%

In this

press release

Barnes & Noble their fiscal 3rd quarter 2014 financial results.

While CEO (Chief Executive Officer) Michael P. Huseby says:

“During the third quarter, the company significantly improved its balance sheet and bottom line, while making real progress on our strategic priorities…”

that may not be the message most people take away from the numbers.

In particular, for e-book users, this is not good news.

Here’s a short excerpt about the NOOK part of the business (which includes the devices, accessories, and e-books):

“The NOOK segment (including digital content, devices and accessories) had revenues of $157 million for the quarter, decreasing 50.4% from a year ago.  Device and accessories sales were $100 million for the quarter, a decrease of 58.2% from a year ago, due to lower unit selling volume and lower average selling prices.  Digital content sales were $57 million for the quarter, a decline of 26.5% compared to a year ago, due primarily to lower device unit sales.” 

Clearly, the NOOK business is sliding, even if it might not be sliding as much as it was. A drop of 50% (closer to sixty for the devices) means that at this rate, in two years, it would make no money at all.

The device declines were due to, according to them (although I’ll put it in other words), they didn’t sell as many and the ones they did sold, they sold for less money.

Lower sales of NOOK hardware is a bad number for Kindle users, because competition is good.

Also worrisome is that the content sales dropped about a quarter, which they blame on lower NOOK hardware sales (primarily). If the device sales dropped by half, and the content sales dropped by a quarter, that might seem like it suggests that about half the sales occur on NOOK apps, which would be one possible avenue for them for the future.

However…

Much of the content sale likely occurs to people who already own NOOK devices. It wouldn’t surprise me if 90% of Kindle book sales to people who own Kindles already.

That makes me guess that very few of their sales come from people who don’t own NOOKs. If they stop manufacturing NOOKs, as the NOOKs fail/are lost/get stolen, that pool of existing owners declines. That decline will be accelerated if the NOOK doesn’t keep up with the market in terms of features.

As a former brick-and-mortar bookstore manager, I’m also interested in the bookstore sales, and I’m sure many of you are, too.

Even though they were down 6.3% year over year, it is by far mostly the NOOK’s fault, according to them. They say that without the NOOK, they’d only be down 0.5%…up is better, but that’s tolerable.

That’s another bad thing for the NOOK, though. Barnes & Noble pushed as a strength for e-book readers that they had a physical presence (even though they weren’t going to actually repair your NOOK at your local store). They started out with letting you read e-books on your NOOK in their stores, and they had these NOOK desks in the stores.

If those are major anchors on the stores, holding them down, and they eliminate it…that reduces the strength of the NOOK.

Does this mean that B&N will abandon the NOOK?

Not according to Huseby:

“We remain committed to delivering world-class reading experiences to our customers through our reading centric e-Ink and color reading devices.  The Company is actively engaged in discussions with several world-class hardware partners related to device development as well as content packaging and distribution.   As a result, we plan to launch a new NOOK color device in early fiscal 2015.” [emphasis added]

A NOOK color device does not mean a color non-backlit model, based on the way they use it…it suggests  a new tablet.

Early fiscal 2015 is probably sooner than you think. The third quarter ended on January 25, 2014. Three months later would be the end of April, which would end fiscal 2014. So, we’d be looking at likely the summer.

The third leg of B&N’s stool, College, were also down. The best number they can give us is down 3.1% for comparable stores. It looks like they are doing better with non-book items in college stores…but as I wrote about at the end of January, Amazon has a pilot program which may challenge B&N in that area as well.

Overall, this is a report that isn’t encouraging for e-book readers. However, there are ways that good things could happen here. B&N could have a turnaround…or the resources currently being used to support B&N might end up doing something better for readers…

Nominate a child to be given a free Kindle at Give a Kid a Kindle.

This post by Bufo Calvin originally appeared in the I Love My Kindle blog. To support this or other blogs/organizations, buy  Amazon Gift Cards from a link on the site, then use those to buy your items. There will be no cost to you, and a benefit to them.

9 Responses to “NOOK revenues down more than 50%”

  1. tellthetruth1 Says:

    Do you think that Kindle would die without Nook? We still have Sony and iPad, and surely, now that so many of us use a tablet of some sort, the ebook experience wouldn’t come to a halt in a hurry?

    I so love having a Kindle, although I still get a lot of paper books, too – owing to the content I like to read.

    • Bufo Calvin Says:

      Thanks for writing, tellthetruth1!

      No, I don’t think that the Kindle depends on the NOOK, but I do think we have gotten some innovation (or perhaps gotten it faster) because of the NOOK. As two examples, the NOOK had book lending and a frontlight (which is now on the Kindle Paperwhite) first. There was also at least one case where Barnes & Noble lowered the NOOK price, and the Kindle price was lowered shortly afterwards.

      We don’t really have the Sony in the USA any more…they’ve effectively pulled out of the market. The iPad is a backlit device, so that’s less likely to drive innovation in non-backlit readers. The Kobo is likely to be the other real competitor for now.

      I don’t get p-books for myself at all any more…I find enough to read in e-books, although I’m sure it helps that my tastes are somewhat eclectic.

  2. Edward Boyhan Says:

    I’m afraid I disagree with you that the demise of the Nook (or any other or all of the competing EBRs) would be bad for the kindle. The market for EBRs is not like VCRs from 10 years ago where a Sony might be competing with Panasonic for the consumers dollars based on features and price.

    Today it’s all about these devices facilitating sales at Amazon.com, and about content. As long as there are Nooks or Kobo’s etc that is an opportunity for customers NOT to shop at Amazon.com. It also means there are more players going at content providers for their stuff. The fewer entities looking to acquire content deals, the easier it is for Amazon to get content.

    Amazon already sells EBRs at (or slightly below) cost — they’re not selling these things to make money. If they can figure out a way to give them away without breaking the bank they will. (:grin) — They are motivated by considerations which have little to do with alternative EBR vendors IMO.

    IMV from Amazon’s perspective whatever EBR competitors do is largely irrelevant save that fewer EBR competitors would probably mean they’d get better content deals. Amazon wants content competitors gone.

    From a customer’s perspective Amazon will continue to drive the price down, and add such features as make the shopping experience pleasant.

    From my own view having a plethora of estores and EBRs all with non-compatible formats, standards, and DRM is a royal pain. This is a case where lots of choice is not a benefit — time spent searching across multiple venues has real costs — I’d rather spend my time doing something else.

    Besides if I have kindles, it’s not gonna be easy to effectively shop at B&N or Google. This is not the way consumer electronics used to be (more’s the pity). Back in the day I could buy a device from any consumer electronics manufacturer, and that device would play all content from all creators.

    Now we have walled gardens, and I don’t think that traditional notions of competition among H/W vendors hold as much weight as previously.😀

    • Bufo Calvin Says:

      Thanks for writing, Edward!

      You shouldn’t be afraid to disagree with me…that would be like being afraid to tell someone you respect them.🙂 It’s natural that people see things differently, and hiding the way you see it, when you can express respectfully (as you always do), suggests that you are confident in the person’s ability to assess the information.

      I think, in this case, that we are addressing different questions. I was looking at whether or not the demise of the NOOK would be bad for Kindle users, and I think you are addressing whether or not it would be bad for Amazon (and the Kindle).

      Kobos and NOOKs only compete with Amazon on low margin digital content (and, significantly, on advertising fees). The Kindle is the gateway to Prime, and to easy shopping in other ways for physical goods. However, I don’t think most people buying a device, especially for children, look at the EBR (E-Book Reader) and evaluate it on that basis. I think they look at what value it delivers on its primary function, and they compare it to other similar devices.

      Let’s say that, in addition to Troy and Greece, there were two other giant wooden horse makers out there. Only Greece is going to use the horse to sneak soldiers into Troy. However, they would still need to make their horse more attractive than the other two, to be sure it was selected to be brought into the city. That would be a benefit for giant wooden horse statue lovers.😉

      As long as there is competition for content pools, I’m sure that Amazon is putting more money and effort into obtaining licenses. If there wasn’t significant competition, especially for exclusive licenses, Amazon could just stick pretty much to what they have…they’d be the only game in town.

      I think that formats will become less important than exclusive content. I think Amazon is okay with you consuming Amazon Instant Video on non-Amazon devices…because you had to go to Amazon to get it. Since you had to go to Amazon anyway, you are going to look to continue to go to Amazon in the future (it’s just easier to have all of your content in one Cloud). So, you’ll look for easier ways to get there and to get the content. That’s both Amazon hardware, and Amazon Prime.

      Does Amazon want content competitors gone? I can see them seeing the content competition as an advantage…you can’t be great by comparison if there is nothing against which to compare.😉 I haven’t seen evidence that they want to put people out of business: they approve apps in their store which serve direct competitors (Netflix and Pandora, for example). I’ve always believed that it is Barnes & Noble which doesn’t put the NOOK reader in the Amazon Appstore, rather than it being Amazon declining the submission. It’s much more dangerous for B&N for people to shop at Amazon (to get their app) than it is for Amazon for their to be a B&N competitor out there…which they crush.

      Thanks for disagreeing!🙂

  3. B&N Confirms New Nook Tablet In The Making Says:

    […] NOOK revenues down more than 50% […]

  4. Jamie Bothen Says:

    I got a NOOK and never use it- the Kindle is so far superior. When I had a problem with my NOOK and took it into B & N their expert was flummoxed-he’d never seen the problem and would have to call someone. With Kindle I got an immediate call back and the person stayed on the phone and waited while I had to do through all the necessary steps. And now they have the Mayday buton. Also Amazon has cheaper books and more free Apps

    • Bufo Calvin Says:

      Thanks for writing, Jamie!

      I used to do some price comparison analyses between the big e-book companies, but got out of the habit when the Agency Model homogenized all the prices. Maybe I should look at it again.🙂 Customer Service from Amazon has been great, and Mayday is astounding! I have not had a comparable experience at Barnes & Noble online (although their instore service has been good for me).

      I actually think them having those NOOK desks is probably a negative for people’s perception of Barnes & Noble Customer Service. Unless they are just going to hand you a new one (which would be good service), or it’s something simple, they are pretty likely to be unable to fix it…which disappoints a customer who might otherwise love B&N.

  5. Tom Semple Says:

    It seems Nook fell off Amazon’s radar at least a year ago, and this new information isn’t really going to change that. Also, e-reader innovation seems to be pretty much played out, if for no other reason than level or declining sales volume and non-existent profit margins don’t justify such investment. Last year’s GloLight was pretty much a cheaper version of its predecessor (a better screen, but no buttons or SD slot), without any new software features to speak of. The new Paperwhite changed very little also. Kobo came out with Aura HD and Aura, but these have very little impact in the US.

    By contrast, I think Amazon has a lot of urgency to make a success of the Fire and full-spectrum media offerings (Fire TV or whatever). It is Apple and to a lesser extent Google who are in the digital content crosshairs. At the same time, they cannot be complacent about online retail, as Walmart is investing heavily in that.

    So it remains to be seen how much innovation we’ll be seeing in the Kindle reading platform, which has to be a lesser priority, especially when the competing reading platforms are so mediocre. My guess: slow, incremental improvement. I used to think digital textbooks might drive the next wave of innovation, but lately I wonder if the concept of ‘textbook’ is losing significance and value in education, in favor of more ‘agile’ learning and skill acquisition approaches.

    • Bufo Calvin Says:

      Thanks for writing, Tom!

      I agree that the Fire is very important to Amazon right now, as a gateway to Prime. My wi-fi instability seems better, but not fixed. I don’t want to focus on just my issues, but I have seen a lot of people mention it in the forums. I did search for “iPad drops wi-fi”, and there were quite a few results (especially tying it to IOS 7). However, the weird part for me was that it used to be fine, and now it’s not…which suggests to me that it could be fixed eventually.

      I do think they’ll continue to work on the non-tablet Kindles, though. That’s a gateway to a different set of customers, and one that I think Amazon wants to keep…

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