The Barnes & Noble investor conference call this morning was one for the, um, books.
It was short, lasting about forty minutes, had few questions — none of which were hard-hitting — and was punctuated by moments of silence. I still don’t know if that silence was due to technical problems or if Lynch & Co. were hitting the Mute button on their speakerphone.
And William Lynch made clear that they plan to drop the Nook app store, music, and video. You didn’t notice that? Here’s the quote from the morning press release:
and the underpinning of our strategy remains the same today as it has since we first entered the digital market, which is to offer customers any digital book, magazine or newspaper, on any device.”
Boldfaced emphasis added by me.
Remember, Lynch was the guy who also said, previously:
As the market goes to more multi-function tablets, we have to look at how we offer functionality differently and that’s what we’re focused on now
That gave us Google Play on the color Nooks.
He also said:
We’re not going to continue doing what we’re doing
And that gave us the death of the color Nooks, finally made official only today.
So yeah, when Lynch says something, it actually means something — if you bother to stop to parse it.
Dropping the Nook app store, music, and video tells me that Microsoft is not going to come to the rescue of Nook Media.
What did Microsoft get for its $300M investment? Basically a Nook app for Windows 8. Which Lynch pointed out was released yesterday. It’s going to be a Rocket Man-like long, long time for Microsoft to get that money back unless they’re the first creditor in line at the future Barnes & Noble bankruptcy proceedings.
Further, it was revealed that the majority of eBook sales are to owners of eInk Nooks. “Majority” can mean as low as fifty-one percent, but I think this is an admission of two things:
1) Nook tablet buyers aren’t interested in reading eBooks
2) The entirety of Nook Media depends on a screen technology
Yep. This is why Nook Media hasn’t changed its DRM, adding standard Adobe DRM. They need to lock in customers to survive. If people could swap out all their purchases from Nookbook DRM to Adobe DRM, there would be an exodus of customers from Barnes & Noble in an instant. Keeping that mutant DRM will keep people buying eInk Nooks. Until they, you know, just don’t. Hey William Lynch, iPad Mini, have you heard of it?
What are the things that were never mentioned today?
1) PubIt! (or Nook Press). Lynch has made a point in the past to talk about how well that’s been doing. Today it was placed under the generic “We’re adding four thousand titles a week” to their eBookstore. (And, um, that’s 208,000 titles a year!)
2) The Nook desktop apps. There was no acknowledgement that they’d ever gone missing, no reassurance that they won’t go missing again, and no mention of customers using their desktop software at all (aside from the plug for Windows 8).
3) iOS and Android Nook apps. Apple said there are six hundred million iOS devices out there. Well how many have the Nook app? And what about that monstrous Android market share? How many of those devices have the Nook app? Silence. Has anyone ever seen B&N/Nook Media advertise to either iOS or Android owners? I haven’t. That has to be well over a billion devices that Lynch just ignores. By doing that, he prints himself a Get Out Of Jail card by blaming a decrease in digital media sales on a lack of color Nook sales. Neat trick, isn’t it? Handwaving has never worked so well since the original Star Wars movie.
4) No breakdown of the number of eInk and color Nooks sold. And now I think I know why: Embarrassment. If people knew how few they had sold, the stock would flatline. Lynch said they have “millions” of customers using their website — but gives no breakdown of how many use BN.com for print books (or toys or games or WTF non-book stuff they’ve added) versus Nookbook sales.
Lynch said that the Nook business was now financing itself and had $46M in cash, with no debt. With Tumblr and Instagram going for one billion dollars each, $46M isn’t even a rounding error in the financial figures of the tech world. At that rate, a valuation of half a billion dollars for Nook Media would be at the high end of delusional, never mind dreaming of a cool billion.
Remember: Nook Media is now depending primarily on its customer lock-in eInk Nooks to survive. If they ever wind up breaking even on the tablets in the end is open to lots of debate, but that money can’t be figured into any valuation of Nook Media. It’s now all eInk.
As for partnering with third-party tablet manufacturers, they’ve been there before. And chose a string of losers, like Pandigital — which doesn’t even exist any longer. If that strategy had been even a minor success, wouldn’t they have been encouraged to continue it? Let me remind you that Borders counted on that strategy to survive. Where is Borders now?
And how does Nook Media intend to convince Android device makers to include its software? Google doesn’t want that competition for its Google Play Books app. If you think Google isn’t going to whisper in the ears of Google Certified device makers, I have to wonder if you’re paying attention at all.
As for eInk, if Lynch thinks he can pull off an open Android tablet with an eInk screen, he better wake up. There’s just no cost-effective way to do that now, with LCD tablets moving into the price range of illuminated eInk devices. Again, the Acer Iconia A1-810 is US$169 — and the base price for a tablet like that will go lower by the end of this year. And then lower again next year.
The guts for an effective eInk Nook tablet would have to match that of a regular tablet and whatever price difference there is in the eInk versus LCD screen would be eaten up by software development costs to make the eInk more acceptable to tablet users (no flashing at all, making sure all tablet apps can run despite the color depth being all wrong, etc.), never mind the additional expenses of all the new calls to Customer Service. It would be a version 1.0 product again, eating up development costs to make it right.
There’s just no way out of this box: Nook Media is a sinking ship that needs a deep-pocket buyer or it will go out of business.