The Nook, Video and Barnes & Noble’s New Life
Barnes & Noble unveiled its Nook HD and HD+ to compete with the Kindle Fire HD. But Nook Video, its online movie store, is the more important announcement. It fills a hole for the bookseller, as the tablet battle shifts to software.
When Amazon and Barnes & Noble released their first tablets, it was hard to tell them apart. Both devices had 7-inch displays at similar dimensions. They both had full-color with a backlight and both supported Wi-Fi.
If you looked at the hardware, you could choose one by flipping a coin. But the software and online services helped the Kindle Fire top the tablet market. Amazon offers the largest e-books library, and access to Prime Instant Video, a subscription service that links to Amazon MP3s through its Cloud Player. The Nook, meanwhile, offered a substantial e-book library, but little else. No videos, no music. Instead, it championed Netflix and Pandora — rather poor substitutes.
A Gap in the Nook Ecosystem
Barnes & Noble is changing that in the Nook HD and HD+. As part of Nook Store, Nook Video will not only run on its tablets, but also on smartphones, smart TVs and rival tablets. And unlike Netflix, Hulu Plus and Prime Instant Video, Nook Video is not a subscription service, but rather an a la carte video store that lets you rent or buy the movies and TV shows one at a time.
That works. First, it doesn’t have to compete with Netflix, so you won’t have to choose one or the other. In addition, Barnes & Noble strike can strike content deals with a rent-and-purchase model. Major players like Disney, Sony, Starz and Warner Bros. have all signed on to support Nook Video, sending titles like “Toy Story 3,” “The Hangover,” the “Harry Potter” franchise, “The Dark Knight” and “The Walking Dead” series to boost its credibility.
Even HBO jumped on, bringing its much coveted programming. Want on-demand access to Game of Thrones, Boardwalk Empire and True Blood? You can get it. ITunes succeeded with an a la carte model, and Barnes & Noble hopes to similarly benefits by selling one at a time.
In addition, Nook Video also partnered with UltraViolet to give access on mobile devices. You can sync UltraViolet with Nook Video, and create a digital copy of films on Nook Cloud. You can watch content on local devices until the rental expires.
A Big Step for Barnes & Noble
Nook Video, along with the Nook HD and HD+, won’t launch until October, so only time will tell if the service is a success. If successful, the full effect Nook Video won’t be clear. There are a number of customers who will consider the Nook now that it has its own video service. Sure, the decision to offer the video on rival devices takes away from its exclusivity — but it’s the best way to grow. Nook Video needs a platform to shine, and the Nook brand needs a bigger brand in the tech industry.
For now, Amazon has the upper hand on content, but Barnes & Noble learned from its mistakes. The Nook hasn’t closed the gap with the Fire, but impressions are positive. Analysts are impressed with the display, and customers laud the interface.
Barnes & Noble is beefing up content to become a legitimate player in the mid- and low-end tablet market — a crucial segment not yet dominated by the iPad. Amazon and Barnes & Noble unveiled tablets a few weeks apart, and both are fighting for lucrative holiday sales. But this time, Nook Video fills a crucial hole in Barnes & Noble’s ecosystem — so there’s no holding back.
The Future
Physical retail remains the largest part of Barnes & Noble’s business, generating more than $1 billion in revenue in the first quarter of the year. However, Barnes & Noble stores are operating largely uncontested now that Borders Books is officially out of business, and the company still posted a loss in excess of $40 million for the quarter. Traditional book sales are simply not what they were, and there won’t always be a “Fifty Shades of Grey” or “Hunger Games”-type series to help make up for the difference.
Barnes & Noble has resorted to dedicating a large part of each of its stores to toys and games as a way to help recoup lost revenues, but the real answer for the retail chain is the Nook. The company’s e-readers and tablets are not just a way to generate revenue; they’re the retail stores of the future. Barnes & Noble has already taken steps to put the Nook front and center, blocking off large portions of its retail stores to display the device and designating employees to take time to demo and sell them.
In the age of the e-reader and tablet, every person that purchases an Amazon Kindle, Nexus tablet or iPad should be viewed as a customer Barnes & Noble will likely never get the chance to serve again. Today, when a person decides which e-reader or tablet they’re going to buy, they’re also committing to the online retailer to supply books and other content. Kindle buyers will buy all their books through Amazon, Nexus owners are going to Google Play and iPad users are turning to iBooks. The Nook line is struggling to hold its own against these competitors, and Barnes & Noble needs to turn things around if it’s going to continue to be a retail superpower.
Think of it this way: five years ago all book readers were living in one town. We’ll call it “Paper Town.” In Paper Town, Barnes & Noble was the biggest and baddest book seller around and the company was sitting pretty. Today, Barnes & Noble is still the best book seller in Paper Town, but the population is beginning to migrate over to E-Inkville, a place where the company does not have the same presence as other competitors. Barnes & Noble is in a race to build itself up enough in E-Inkville so that it doesn’t die serving the reduced population in Paper Town.
There is still a high enough demand for physical copies of books that Barnes & Noble’s retail stores can continue to be successful, especially because competition in this arena is so sparse. However, with no guarantee that demand for physical books will always be around, it’s pivotal the company establishes its Nook brand as a mainstay in the world of e-readers and tablets.
Barnes & Noble should strongly consider slashing the price of Nook devices dramatically and taking a loss to steal customers away from Amazon and Google. The results of high Nook sales won’t show up in the company’s bottom line in this quarter or the next, but it will pay dividends down the line. Amazon took a similar tactic when it launched the Kindle Fire late last year. The company took a loss on every device sold and banked on making up the difference with purchases customers would make on the device in the Amazon app store and subscriptions to Amazon Prime.
People aren’t going to stop reading books. What will — and is — changing is how they read them, and as a direct result, where they buy them from. A customer who purchases an e-reader is paying for admission into a store they may never leave. Right now, customers can get into Amazon’s store by buying a Kindle for $80. The cheapest a customer can do that for at Barnes & Noble is $100 with the Nook Simple touch. This has to change.
Barnes & Noble is already behind the eight ball in E-Inkville, and it can only recover by making its price of admission cheaper than competitors. Translation: very cheap Nooks.
