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The Outlook Darkens for the Barnes & Noble Nook

Rick Newman

The latest plot twist in the Barnes & Noble drama may foreshadow the death of the beloved Nook e-reader.

B&N Chairman Leonard Riggio, who owns about 30 percent of the company's stock, is hoping to take the struggling bookseller private. But he'd only buy the retail stores and the e-commerce Web site, leaving the future of the Nook Media division uncertain. If it happens, the move would represent a kind of capitulation for a company that gambled on an aggressive new digital strategy that failed to pan out.

The Nook e-reader and tablet devices, which generally earn strong reviews from critics, occupy shifting terrain within Barnes & Noble. The Nook e-reader was introduced in 2009 to compete with the Amazon Kindle and give readers a reason to buy e-books from Barnes & Noble, which seemed sensible at the time. B&N has since added several variants of the Nook, including a couple of full-scale tablets.

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But the proliferation of tablets made by Apple, Microsoft, Samsung and many other competitors has left the Nook line with less than 15 percent of the e-reader market. Barnes & Noble has been losing money on the Nook and has signaled that those losses are likely to widen in 2013, prompting speculation it may have no choice but to kill the device.

That might be tricky though. The problem is that the company's Nook Media division involves a lot more than a line of e-readers. Among other things, there's a profitable segment that operates about 100 college bookstores. "They have yet to articulate a vision for what Nook Media is supposed to be," says analyst Allen Weiner of research firm Gartner. "Pulling the device would hurt the momentum of the Nook Media brand."

Nook Media is also a joint venture in which Pearson, a big British publisher, and Microsoft own minority stakes. Since Microsoft just introduced its new Surface tablet, there could be plans to rely on Microsoft devices in the future to fulfill the hardware needs of Nook Media. It's possible the Nook name could even migrate to a product built by Microsoft.

In a statement, Barnes & Noble said it has no plans to discontinue the Nook line of products. But it's still not clear what would happen to the Nook division if the company split in two, or whether Nook would be viable as a standalone firm."

Splitting the bookseller in two would still leave the Barnes & Noble Web site, which would remain with the retails stores, in need of devices B&N customers would download their e-books onto. Yet the free Nook app already allows shoppers to download B&N titles onto any device other than Amazon's Kindle. That raises further questions about whether there's a need for the Nook tablets in a marketplace that has quickly gotten crowded and may be primed for pruning.

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Other companies have struggled trying to figure out whether to be in the content, software or hardware business--or some mix of all three. The now-defunct Borders bookstore chain, for instance, relied on third-party e-readers, which some analysts felt was a weakness. Apple is one company that has seamlessly connected its retail arm for content--iTunes--with the devices it manufacturers. But when Microsoft built its first tablet device, some analysts questioned the strategy of trying to expand from software into hardware, and it's still far from clear that will work out. Google provides content through its Play store, but that hasn't caught on the way iTunes has.

As for Barnes & Noble, the Nook Media division accounts for just 13 percent of the company's total revenue, and splitting it from the retail operation may give the bookstores a better chance to survive. We may not remember much about the Nook in a decade or so, but we may still be able to read about it in a Barnes & Noble store.

Rick Newman's latest book is Rebounders: How Winners Pivot From Setback to Success. Follow him on Twitter: @rickjnewman.

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