Addendum on Charting Nook’s Decline: The Effects of Poor Tablet Sales and Ebook Price-Fixing Settlement

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:

nook-quarterly-sales-and-losses-since-2011-holiday-quarter-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:

nook-quarterly-sales-and-losses-since-2011-holiday-quarter-discounting

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

 

One thought on “Addendum on Charting Nook’s Decline: The Effects of Poor Tablet Sales and Ebook Price-Fixing Settlement

  1. Theresa M. Moore

    I am sure that yet another reason is that PubIt had seen a decline in sales which was slow and gradual, whereas Nook Press immediately clamped down on publishers and authors by demanding the right to alter, modify, and even change the covers of ebooks it received to post on Barnes & Noble, at its sole discretion and without prior notice. The contract has not been changed to reflect considerations of any kind to the suppliers, so there are less and less publishers willing to sign up. A lower sized catalog means the Nook is doomed, not just for being a dedicated device but for offering less ebooks from Nook Press. Meanwhile Smashwords has been filling the gap. I would be willing to sign with Nook Press if not for that contract. The terms give me nothing, and Nook Press should come out and say it wants all rights to the titles instead of pussyfooting around the terms.

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