Barnes & Noble sees Nook unit loss increasing in 2013
(Reuters) - Barnes & Noble Inc said on Wednesday it expects its Nook business to post an increased full-year loss in fiscal 2013, as the top U.S. bookstore chain struggles with slower sales of e-readers and e-books and rising costs.
Context & Ripple Effects
Nook had been presented as a meaningful growth business in 2011, but Barnes & Noble's 2012 results showed the Simple Touch weighing on revenue even as digital-content sales rose. A hardware drag alongside digital-content growth left the unit dependent on stronger demand to absorb its costs.
The holiday sales declines across Nook, stores and BN.com sharpen that pressure. The fiscal-2013 loss outlook indicates that weaker device and e-book demand is outpacing the unit's ability to cover rising costs.
First-order effects
- Barnes & Noble faces a larger fiscal-2013 operating drag from Nook as slower e-reader and e-book sales coincide with higher costs.
- Nook's device-and-content model is generating less revenue against its cost base, despite Barnes & Noble having previously reported digital-content growth.
Second-order effects
- Barnes & Noble's earlier description of Nook as a $220 million business gives way to a tougher monetization problem: each active Nook customer must contribute more as new device and e-book sales slow.
- Pressure on Nook's economics limits Barnes & Noble's room to treat digital expansion as an offset to weakness in its store and online businesses, both of which were down over the holiday period.
Third-order effects
- If device demand and e-book purchases decelerate together, dedicated e-reader businesses will be judged less by installed-device growth than by whether recurring content revenue can support hardware and platform costs.
- The episode points to a digital-reading market in which scale alone is insufficient; sustainable operators need a cost structure matched to revenue per active device.
The trend: Digital-reading businesses are shifting from device-led growth stories toward the harder test of recurring revenue per active customer covering platform and hardware costs.