Nook and Microsoft terminate relationship

Nook and Microsoft have agreed to terminate their commercial agreement as of yesterday (4th December).

The global technology company had invested $300m in Barnes & Noble, Nook’s parent company, in April 2012  , which led to the creation of a new subsidiary of the bookselling company, which included Nook, digital sales and the college stores. But yesterday (4th December) the pair revealed they had agreed to terminate their relationship, with B&N paying $125m to buy back Microsoft’s preferred shares (in a combination of $62.5m plus common stock.) The agreement also means Microsoft will be entitled to receive 22.7% of the proceeds from any sale of Nook Digital, which includes the content and devices, leading to speculation the Nook arm will soon be sold.

In June this year B&N announced it would separate its Nook and Retail business units in order to increase shareholder value, with the separation expected to be completed by August next year, the company said.

A statement by B&N said: “…Barnes & Noble and Microsoft have agreed to terminate their commercial agreement including any associated obligations for international content acquisition and sale. Such termination will allow the company to continue its rationalization of the Nook Digital business and enhances Barnes & Noble’s operational and strategic flexibility. The termination also relieves Microsoft of any obligation to continue to fund support and other payments set forth in the commercial agreement between the partners.”

The parting comes after dramatically falling sales of Nook devices and content over the last 18 months and yesterday’s financial statement revealed sales had fallen further still in the second quarter of the year ending  1st November 2015.

The Nook segment, including digital content, devices and accessories achieved  revenues of $64m for the quarter, decreasing 41.3% from a year ago, while device and accessories sales were $18.7 million for the quarter, down 63.7% from a year ago, due to lower unit selling volume. Digital content sales were $45.2m for the quarter, a decline of 21.2% compared to a year ago, primarily due to lower device unit sales, the company said.

However, Nook EBITDA losses decreased 16.8% to $38m compared with a year ago, due to “cost rationalization efforts.”

Overall, B&N’s second quarter consolidated revenues decreased 2.7%, to $1.7bn, compared to last year, while second quarter consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) were down from $76m to $68m year-on-year.  

The Retail segment, which includes the Barnes & Noble bookstores and BN.com, had revenues of $888m for the quarter, decreasing 3.6% over the prior year, attributed to lower sales of Nook products. Meanwhile there was good news in the College arm, which saw revenues of $751m, up 1.9% year-on-year, which includes back-to-school season.

B&N said it expected both retail comparable bookstore sales and college sales to decline in the low-single digits in 2015.  But it also expected its losses to decline.

Michael P. Huseby, c.e.o of Barnes & Noble, said: “Retail and College improved their sales trends during the second quarter and Nook continued its rationalization efforts, while recently launching several initiatives to increase Nook users and content sales. Retail sales continued to benefit from improving physical book industry trends coupled with our own merchandising initiatives, while our College bookstores comparable sales improved on favorable textbook sales trends and higher merchandise sales.  Separately, today’s announcement on the restructuring of the Nook Media agreements will enable the company to further rationalize the Nook business and provide a clearer path for the potential separation of our Retail and Nook Media businesses.”