Expert publishing blog opinions are solely those of the blogger and not necessarily endorsed by DBW.
Earlier this week, I published a post about the pattern of Nook revenues and losses over the past four years, charting the figures the company has filed with the Securities and Exchange Commission over that time. I also tried to explain why we observe the figures we do.
In doing so, I left out two extremely important factors in explaining why at the end of calendar 2012 (Q3 fiscal year 2013 for Barnes & Noble), Nook saw its heaviest setbacks ever after several years of revenue growth with consistent losses:
The reasons I left out and should have included:
1. Most importantly, Barnes & Noble sold far fewer Nook tablets that holiday quarter than anticipated. The company sold 1 million Nook tablets over the holidays in 2012 versus 1.4 million in 2011. This was at a time when all other tablet companies made huge gains. As a result, Nook’s market share in the tablet space dropped to just under 2% from nearly 5% a year prior.
The company hadn’t planned for this. In fact, it planned for quite the opposite, and, as a result, it had a ton of unsold inventory that it had to store, discount and write-off. And that means big losses.
Additionally, fewer devices sold meant lower content sales, which had an impact, too.
2. The company was undoubtedly also affected negatively by the ebook price-fixing settlements that the big publishers signed with the Department of Justice, mandating a return to wholesale pricing for ebooks:
What this meant for Barnes & Noble was that instead of selling a $12.99 best-seller from a large publisher and taking 30% of the proceeds, the company could now price the ebook that a large publisher sold to it at $12.99 any way it wanted to. Often matching prices at other retailers, most notably Amazon, Barnes & Noble had to deal with lower revenue and lower profits on many ebooks it sold. And, because many of these ebooks were front-list best-sellers, the effect on the bottom line was huge.
Instead of big sales of best-sellers buoying results with a thick margin, they were dragging them down: less revenue for that $8.99 best-seller, and instead of taking a 30% profit on the sale, taking a double-digit loss, depending on the list price of the book.
Related: Charting Nook’s Decline