The Future of the Nook

Barnes and Noble’s Ebook Business Gets A Cash Infusion–From Microsoft

The bookseller will create a subsidiary just for its ebook and college businesses.
3620176997 a6db8e7865 Barnes and Nobles Ebook Business Gets A Cash Infusion  From Microsoft

Barnes and Noble's flagship. (flickr.com/edenpictures)

Things have been looking awfully upbeat for Amazon lately, with the DOJ taking exception to the $9.99-price-point-busting agency pricing model,  which was designed in part to give publishers more leverage with the online bookseller. But for once, this morning brings some potentially positive news for a beleaguered competitor: Barnes & Noble will partner with Microsoft in the creation of a new subsidiary formed from its digital and College businesses. What’s MSFT bringing to the table? Cash money, honey. 

Here’s how the deal works: The subsidiary (hilariously dubbed “Newco” in the press release) will take over Barnes & Noble’s digital (i.e., Nook) and college businesses. Microsoft will plunk down $300 million (at a valuation of $1.7 billion) for a 17.6 percent equity stake. The subsidiary will “have an ongoing relationship with the company’s retail stores,” which Betabeat takes to mean that those great honking Nook displays aren’t going anywhere.

Barnes and Noble CEO William Lynch situated the move in terms of the bookseller’s current strategy:

The formation of Newco and our relationship with Microsoft are important parts of our strategy to capitalize on the rapid growth of the NOOK business, and to solidify our position as a leader in the exploding market for digital content in the consumer and education segments.

He also promised the investment will “allow us to significantly expand the business.”

Betabeat spoke to Jamie Iannone, President of Barnes & Noble’s digital business, and he offered a little more insight into the deal. “I think [Microsoft has] seen the success of the Nook business, how customers have been attracted to what we’re creating, and if you look at the innovations the Nook team had, combined with the great things that are happening at Microsoft, we see the collaboration between the two companies unlocking a lot of potential in the growth of digital content.”

The deal gives the Nook a little financial breathing room in its ebook battle with the Kindle, which has the benefit of being backed by a rather profitable online retailer, perhaps you’ve heard of it? The move also sets up nicely for the potential spinout of the ebook business (though the bookseller isn’t making any promises that’s how this will play out). Operation Nook is already based out in Silicon Valley, far from Barnes and Noble HQ here in New York–and far from the traditional center of the publishing business. It’s not clear where the new subsidiary will be based.

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