By Jeremy Greenfield, Editorial Director, Digital Book World, @JDGsaid

The Kindle Fire and third-party sellers helped Amazon reach $17.43 billion in fourth quarter 2011 revenue, a 35% increase over fourth quarter 2010 revenue, according to a financial statement from the company.

Net income for the quarter was $177 million, a decrease of 58% from its 2010 fourth quarter.

“We are grateful to the millions of customers who purchased the Kindle Fire and Kindle e-reader devices this holiday season, making Kindle our bestselling product across both the U.S. and Europe,” said Jeff Bezos, founder and CEO of Amazon.com in the statement. “Our millions of third-party sellers had a tremendous holiday season with 65% unit growth and now represent 36% of total units sold.”

For the full year, Amazon had $48.08 billion in sales, at 41% increase over its $34.20 billion in 2010 revenue. Net income decreased 45% to $631 million in 2011 from $1.15 billion in 2010.

Kindle unit sales, including the Kindle fire, increased by 177% over the nine week holiday period in 2011 versus the same period last year. Since it was introduced four months ago, the Kindle Fire has been the most gifted and most wished for product across all Amazon products, according to the company.

Amazon ramped up its headcount significantly in 2011, growing to 56,200 employees versus 33,700 a year ago.

Write to Jeremy Greenfield

By Thad McIlroy, The Future of Publishing, @ThadMcIlroy

Editor’s note: Last week, we presented advantages that Barnes & Noble has in the bookseller wars. See second editor’s note below.

It was a busy fall for Barnes & Noble, the $7 billion bookseller.

After Amazon grabbed headlines with its $199 Kindle Fire, Barnes & Noble responded with the $249 Nook Color. Could Barnes & Noble possibly compete with a higher price? The doubters have been silenced now that post-Christmas estimates place Barnes & Noble into contention as a vendor of color tablets, its sales of 2 million units running a solid second to an estimated 5 to 6 million for the Kindle Fire.

Despite this success (and partly because of it) Barnes & Noble CEO William Lynch startled the markets last week with a press release that in effect put Barnes & Noble’s Nook business up for sale. The business is not getting the respect it deserves and exploring “strategic options” would unlock its value, Lynch explained.

The previous day, the The Wall Street Journal reported that Barnes & Noble’s $80 million publishing unit, Sterling Publishing, was already on the block. The seas seemed suddenly stormy. Could this signal the beginning of the end for Barnes & Noble?

As we reported last week Nook sales are up 70% from the same period last year while sales of content – defined as digital books, magazines and apps – grew by 113% over Christmas.

And while hardware analysts place the physical cost of these tablets around $200, the total costs, including packaging, marketing, software and support, are much higher. Barnes & Noble has never attached precise numbers to its losses selling Nook devices but it recently attributed tighter sales margins to “increased costs to support digital growth including advertising to support the launch of the Nook….” The operating loss in its online division (including online sales and “development and support” of the Nook) hit $66 million in its most recent quarter, up 17% from a year earlier, on a 26% increase in sales.

In the end, the only substantially profitable portion of Barnes & Noble’s business is its sleepy college bookstore business (4.3% of sales), followed by the general retail stores (2.1%). Online loses money, even as its sales grow.

But these aren’t the company’s only strengths. As discussed in last week’s article, Barnes & Noble also has:

1. A solid management team and deep bench strength.

2. Strong niches in kid’s books and romances.

3. Retail stores that are valued showcases for physical books and hubs for large communities of writers and readers.

Another strong endorsement was registered last year when legendary investor John Malone of Liberty Media placed a $204 million bet that Barnes & Noble will be a long-term player.

Now it’s time to consider the daunting challenges that Barnes & Noble faces in the bookseller wars.

—

For more insight into Barnes & Noble, hear a senior Barnes & Noble executive speak about the company and the future of bookselling at Digital Book World, January 23-25 in New York City.

—

1. Authors love Amazon.

But when it comes to publishing, Amazon and Barnes & Noble remain head-to-head competitors, but only on the surface.

Despite a few vocal detractors, most authors love Amazon.

Amazon’s infamous Christmas ploy that bribed its customers with a 5% discount if they used its mobile Price Check app to scope the competition ended up annoying some big name authors (even though the discount didn’t apply to books). Dennis Lehane called it “scorched-earth capitalism.” While Stephen King loves his Kindle he called it “invasive and unfair.” Pulitzer Prize winner Richard Russo sees Amazon as “half man, half dog and thus its own best friend” (while calling Barnes & Noble “last year’s bully”).

Still, Amazon now has 14 million-selling Kindle authors, those who have sold a million or more books through Kindle Direct Publishing, and 30 who have sold more than 100,000 books.

Thousands of different authors offer more than 75,000 titles exclusively through Amazon so they can be part of the Kindle Owners’ Lending Library and get their portion of a $500,000 monthly fund, bumped up to $700,000 in January, disbursed to those whose books are borrowed from the library.

(The only people who can borrow from the Amazon Lending Library are not in fact “Kindle Owners” but rather the subset of Kindle owners who are also Amazon Prime members. Amazon’s Prime program is another enormous advantage that the company holds over Barnes & Noble. Prime members’ spending at Amazon “already accounts for a 40% of the company’s domestic revenues.” As Jason Calacanis vividly describes it, Prime members are in a cult. He estimates that Prime “will reach 30 to 40 million of the 120 million households in the United States in the next four years.” Barnes & Noble offers a $25 “Barnes & Noble Membership” which offers free express shipping and savings on Nook hardware. The company has never discussed the success of the program beyond a vague claims of “millions” of members. Barnes & Noble would not comment.)

Amazon has its Kindle Direct Publishing service for e-books and CreateSpace for print books (and for film and music). Barnes & Noble’s self-publishing program, PubIt, is not nearly as big a success as Amazon’s diverse publishing efforts. For one thing it’s e-book-only; print books reach Barnes & Noble only through wholesalers. The biggest numbers Barnes & Noble has trumpeted for PubIt are 11,000 publishers and 65,000 titles.

An informal survey we conducted in early January reveals that 28% of the top 50 bestselling Kindle e-book titles on Amazon.com were not even available in Nook editions on Barnes & Noble.

Amazon significantly upped the publishing ante in 2011 by creating new publishing imprints and signing exclusives for compelling digital content that its largest competitor won’t be allowed to sell on the Nook. Barnes and Noble then announced a retaliatory measure: “We will not stock physical books in our stores if we are not offered the available digital format,” said chief merchandising officer Jaime Carey in a written statement. It remains to be seen how this exclusion will play out.

“Barnes & Noble can’t offer authors the same volumes that Amazon can,” Outsell analyst Ned May said in an interview. “The parallel is in the computer industry: getting developers on board. It’s the secret to Apple’s success with apps.”

The challenge, said May, is first of all to make it simple for authors to sign up. But more important, he said, “Make it rewarding.” And Amazon is far more rewarding than Barnes & Noble when it comes to e-book sales, mostly in volume, but also in margins (in most cases by paying self-published e-book authors a 70% royalty vs. Barnes & Noble’s 65%).

Magellan Media Partners’ analyst Brian O’Leary feels that it’s foolish for Barnes & Noble to attempt to punish Amazon by dropping titles where Amazon has a special deal with the publisher. “In general” he said, “it’s a mistake for any author or publisher to create scarcity in the channel. It sends the wrong message to readers.”

And in a world where Barnes & Noble needs to compete for authors, it’s not a good idea to alienate readers.

2. Barnes & Noble’s lack of international presence has become a liability.

Barnes & Noble had been sending out contradictory signals about its international plans.

In 2009 the company was said to be searching for a “head of [its] international business.” In December, The Bookseller in the UK reported that a senior Barnes & Noble executive said that the Nook will be available in the UK in the “not too distant future” but was uncertain by what means this would occur. Then, last week, a Barnes & Noble’s press release included a statement that the company “is in discussions with strategic partners including publishers, retailers, and technology companies in international markets that may lead to expansion of the Nook business abroad.”

On the Barnes & Noble corporate site, however, this statement appears unequivocal: “Barnes & Noble, Inc. has no outlets outside the U.S. and has no plans to expand internationally.” (Barnes & Noble would not comment.)

Amazon has established a series of strong subsidiaries throughout Europe and Asia, and continues to expand.

The Barnes & Noble version of the chart looks something like this:

“We’re seeing the emergence of global e-book retail platforms. For Barnes & Noble to reach a scale sufficient to compete with those giants they need to get international quickly,” said Eoin Purcell, publishing consultant and editor of the Irish Publishing News, offering an across-the-pond perspective. “Barnes & Noble must pursue e-book and device partnerships and e-book retail operations outside of the U.S. Without those they’re at a significant disadvantage to their competitors.”

3. Barnes & Noble’s network of stores is too costly in the face of decreasing gross product margins.

Barnes & Noble’s retail strategy is based on simple logic that looks shaky when scrutinized.

At the Liberty investors’ presentation last November, CEO William Lynch essentially said that everyone else is dead so we will live. This approach didn’t work for music retailers and it didn’t work for video sales and rentals. Why would books be any different?

Retail is already on a declining sales trajectory at Barnes & Noble (down 2% in the latest 26-week reporting period) but still accounts for two-thirds of overall sales. The story is buried within the company’s financial filings. (As with many companies, frequent changes to accounting practices can make it a challenge to find strict apples-to-apples financial comparisons.)

Comparable store sales, a key measure for retail, declined by 5.4% in 2008, 5.7% in 2009 (a shortened reporting period), and 4.8% in 2010. They increased by 0.7% in fiscal 2011, but then dropped by 1.1% in the latest quarter.

This was particularly disappointing for investors, as the company expected a significant boost from the demise of Borders. In his November presentation to Liberty investors, Lynch projected a $300 to $400 million bump on an annualized basis. Last week, Lynch revised the forecast to be “in a range of $200 million to $230 million in fiscal 2012.” Given that Borders last full year’s sales were nearly $3 billion, and that Barnes & Noble acquired its website and customer lists, these sales figures may be disappointing to investors. (They shouldn’t be surprising, however: Best Buy analysts expected a huge gain for the retailer following the demise of rival, Circuit City, but the ailing electronics giant only picked up a small percentage of the business, ceding much of it to Target, Wal-Mart and Amazon; more on this below.)

To make a long story short, Barnes & Noble retail stores are in managed decline, at best. Operating profit as a percentage of sales for retail dropped from 4.1% in 2010 to 2.1% in 2011 and hit a loss of 1.9% through October 29, 2011. Only the college operation remains consistently profitable.

“They can’t turn inventory fast enough with books,” said Magellan’s O’Leary, so they had to add other products to the retail mix, like toys and games. While Outsell analyst May sees advantages for Barnes & Noble in selling Nooks, he notes that “the cost of physical distribution creates problems (for Barnes & Noble) that Amazon doesn’t have.”

4. No one has yet succeeded in competing with Jeff Bezos at Amazon.com.

Barnes & Noble has enjoyed many days in the sun. When it went public in the fall of 1993 its stock “soared past its $20 initial offering price to close at $29.375 on the New York Stock Exchange.” In 1999, with Amazon yet to earn a nickel in profit, Barnes & Noble reported that its holiday online sales quadrupled from the previous year.

Yet, based on recent share prices, Barnes & Noble is worth less than 1% of Amazon. In the last year, Barnes & Noble’s shares have dropped by over 30% in value (much of that in the last month), versus 4.4% for Amazon.

In the ongoing battle for bookselling supremacy, Amazon CEO Jeff Bezos consistently outguns Barnes & Noble’s management. Amazon has established a commanding market-share that it uses to bat Barnes & Noble around – and Amazon doesn’t care if it makes money selling books; Barnes & Noble has to.

As Richard Brandt notes in his new book, One Click: Jeff Bezos and the Rise of Amazon.com, Bezos is Amazon’s main weapon. “Anyone could have copied Amazon’s strategy and reproduced its software,” he writes. “Several executives tried.” But Bezos has “an original vision” that has kept the company ahead of its competition. Both publishers and competitors “think Bezos is ruthless.”

Brandt quotes Owen Teicher, CEO of the American Booksellers Association, as stating that Bezos “uses books as loss leaders to sell everything else. He’s acquiring customers in order to sell them whatever he can ultimately sell them.”

Still, customers love the Barnes & Noble brand. It ranked first in the 2010 Forrester Research “Customer Experience Index,” its second year in a row.

But they love Amazon just as much. In ForeSee’s annual Holiday E-Retail Satisfaction Index Amazon scored 88 on a 100-point scale, “registering the highest score from any retailer in 14 consecutive studies.” Barnes & Noble certainly had a strong showing, but nearly 10% below Amazon at 81 points.

Best Buy as a Case Study for Barnes & Noble

The shape of things to come for Barnes & Noble is presaged by the recent struggles that Best Buy faces as Amazon steps up the pressure in the electronics retail business. Like Barnes & Noble, Best Buy is primarily a bricks and mortar retailer.

The death of Borders is failing to deliver the hoped-for sales boost to Barnes & Noble. Michael Nowacki of Nowacki Asset Management notes that Circuit City’s bankruptcy had also led analysts to expect that Best Buy would reap major sales benefits. “Best Buy, however, did not see a significant increase in business. In fact, they have been struggling to grow same-store sales and profits,” he wrote. Like Barnes & Noble, Best Buy is facing sales declines in brick and mortar while online sales increase – but not fast enough.

Barnes & Noble is turning to toys and games as a safe-haven in a turbulent retail climate, while Best Buy is clinging to appliances, where it doesn’t face as much competition from Amazon and other online retailers. As The Wall Street Journal recognizes, defending against Amazon.com comes at a “steep cost.”

Looking to the Future

Peter Wahlstrom, an analyst at Morningstar who covers Barnes & Noble said last week, “If you look out five years and ask if there are going to be more bookstores or fewer bookstores, I think there will be fewer. Barnes & Noble is facing an uphill, structural industry headwind.”

May at Outsell stresses that Barnes & Noble has been “making solid strides in the tablet market.”

O’Leary remains optimistic for the prospects of the once-dominant books giant. “Barnes & Noble has to compete toe-to-toe with Amazon and I think they can,” he said.

Write to Thad McIlroy

Thad McIlroy is a publishing consulant and analyst who makes his home at thefutureofpublishing.com.

Editor’s note No. 2: For this article series, we repeatedly contacted Barnes & Noble communications executives asking at first for access and participation and then, most recently, merely for comment. After being ignored for many weeks, we finally received response that Barnes & Noble would not be participating in the article. We were given links to publicly available resources about the company. We have also received no response to fact-checking emails intended to verify the facts presented above.

As a journalist, I find it disturbing that a publicly-traded company would refuse to engage with members of the press. Strategically, I think it’s silly that Barnes & Noble, which is, quite frankly, struggling in the public -war against its chief rivals would treat the possibility of talking to an important industry publication with so little regard.

I still welcome comment from Barnes & Noble. I can be reached via email here or at 212-447-1400 x12266. The lines are open on our end.

—

For more insight into Barnes & Noble, hear a senior Barnes & Noble executive speak about the company and the future of bookselling at Digital Book World, January 23-25 in New York City.

—

By Jeremy Greenfield, Editorial Director, Digital Book World, @JDGsaid

Due to strong borrowing by Kindle Prime subscribers in December, Amazon has increased its monthly bonus pool for KDP Select authors in the Kindle Owners’ Lending Library to $700,000 from $500,000.

In a statement, Amazon said that Kindle owners borrowed 295,000 KDP Select titles in December and that Amazon paid the authors whose titles were borrowed $1.70 for each borrow that month. Amazon added that in December, paid sales growth outside of the lending library for KDP Select titles outpaced those of KDP titles that are not in the Select program, which guarantees that the books will only be sold on Amazon for a set period.

“KDP Select appears to be earning authors more money in two ways…. Paid sales…increased, even relative to the rest of KDP,” said Russ Grandinetti, vice president of Kindle Content in the statement. Amazon did not respond to requests for comment before press time.

In December, Amazon set up a $6 million royalty fund designed to encourage authors to participate in its “Select” program, which would make their work available for sale only on Amazon for a 90-day period and would automatically include the titles in the Kindle Owners’ Lending Library. The $6 million is split into 12 $500,000 pots, one for every month, and divided equally between authors for each of their titles that is borrowed in the lending library. Authors whose books are borrowed more often would capture more of the KDP Select bonus money.

Amazon said that it now has 75,000 titles in its lending library, up from around 5,000 when the program was announced in November. The lending library program allows Amazon Prime subscribers to borrow up to one book a month at a time from a selection of titles. Prime also gives Amazon customers free two-day shipping on items sold by Amazon and access to a library of video and audio content; it costs about $80 a year to participate.

When the lending library was announced, the reaction from the book publishing community was mixed. Some publishers, like F+W Media, which owns and operates Digital Book World, came out in support of the initiative, citing it as another revenue stream and a new way for books to be discovered. Other publishers and some authors and agents were against it, saying that some of the titles in the library were included without publisher or author consent and that it violated authors’ contracts with publishers.

In December the top ten KDP Select authors netted over $70,000, Amazon said in its statement. The release goes on to interview several authors who reaped the biggest rewards from the program.

Carolyn McCray, a paranormal romance writer and e-book sales expert (who, full disclosure, has written for Digital Book World), earned $8,250 in December from the KDP Select fund and said that participation in the fund has “quadrupled” her royalties. Other participating authors echoed her success story in the press release, which can be found here.

Write to Jeremy Greenfield

—

Hear Amazon’s Russ Grandinetti speak about Amazon, Kindle and the future of book publishing at the Digital Book World Conference + Expo in New York City from January 23 to 25.

—

By Thad McIlroy, The Future of Publishing, @ThadMcIlroy

Thad McIlroy is an electronic publishing consultant based in Vancouver. His career has spanned book distribution, journalism and consulting. He has authored or edited a dozen books on electronic publishing and written about 200 articles on the topic. In addition, he has written for Digital Book World about Barnes & Noble and another article from him on the company will be published here next week. His writings can also be found at TheFutureofPublishing.com.

Yesterday morning, Barnes & Noble dropped a bombshell. In a press release reporting on the holiday season, Barnes & Noble CEO William Lynch revealed that the company’s overall sales and profits are not looking as strong as expected.

Lynch had good news to report as well, but that didn’t matter, as Wall Street gets angry when companies revise sales projections downward. Barnes & Noble shares lost over 30% of their value at one point yesterday before closing down 17% for the day. (They’ve lost three-quarters of their value in the last five years.)

More confusing yet, a rumor had leaked on Wednesday that Barnes & Noble is selling its Sterling publishing group. It felt like the beginning of the end.

Is Barnes & Noble going down the tubes? Could it be that terrible? If you read the headlines yesterday you would’ve sold your shares by noon. Publishers were probably checking how their accounts receivable stood. Authors started imagining life without bookstores.

Let’s have a look at what’s really going on at Barnes & Noble. A good place to start is my article published on Tuesday this week. It reveals seven advantages Barnes & Noble holds – among them good management, great investors and lots of opportunity in e-books, e-readers and tablets. Next week I’ll be examining the company’s disadvantages in the same detail. What’s happened in the mean time?

Barnes & Noble’s William Lynch provided little public comment beyond what’s contained in the press release. Let’s look at the details.

The press release is a short story in two parts: the good news and bad news.

The good news is that Barnes & Noble’s Nook is a big success. The hardware is selling well and so is the content that runs on it. Nook sales are up 70% from the same period last year while sales of content – defined as digital books, magazines and apps – grew by 113% over Christmas. Sales of the monochrome Nook Simple Touch were disappointing, but tablet sales “exceeded expectations.” Lynch said also that the company now expects that content sales will total $450 million in its current fiscal year, ending April 30, 2012.

The bad news is financial. If you’re not a shareholder of the company, it’s no big deal, little has changed. The company is going to lose a bit more money this year than it did last. Retail sales aren’t landing as large as hoped for. And the company is still losing a lot of money online, mostly because selling and marketing Nooks is expensive. Still, the loss is less than 1% of sales; Borders’s loss was 13.3% of sales in its last fiscal year.

—

For more insight into Barnes & Noble, hear a senior executive at Barnes & Noble speak at Digital Book World, January 23-25 in New York City.

—

The Story Behind the Story

What publishing professionals need to get a handle on instead is the underlying financial health of the company. Here it is in four bullet points:

– Barnes & Noble makes very little money online

– Barnes & Noble makes no money on the Nook

– Barnes & Noble makes very little money from its bookstores

– Barnes & Noble makes a whole bunch of money from its college bookstores. Without the college bookstores we probably wouldn’t have a Barnes & Noble to kick around right now.

On the one hand William Lynch and everyone associated with Barnes & Noble would like us to focus on the tremendous success of the Nook and the burgeoning content sales for the devices. On the other hand he would prefer us not to pay too much attention to how hard it is to make a dollar selling hardware in a hideously competitive market. And with Amazon as a competitor, it’s tough all around to make any money selling stuff online.

Still, sales of the Nook are growing by leaps and bounds. And so Barnes & Noble would like investors to pay much more attention to its fast-growing digital business, and ignore its core business – trade bookstores, that are quietly closing and are now all-but-impossible to make a profit on.

This leads to an even more challenging spin. William Lynch is the first to admit that Barnes & Noble’s big play against Amazon in selling e-readers and tablets is its bookstore network: feet on the street to sell content in the cloud. As I reported Tuesday, Lynch calls it Barnes & Noble’s “biggest competitive advantage.” The devices are similar and pricing is competitive. It’s the one thing, the only thing, which Amazon cannot compete with at this point.

Barnes & Noble would be thrilled to separate the Nook business and create a separate public share offering. One analyst projected “conservatively” that the Nook business alone would be instantly more valuable than all of Barnes & Noble today, weighed down as it is by bricks-and-mortar.

A comparison is readily available. In November Indigo Books & Music, Canada’s largest bookstore chain (the equivalent of Barnes & Noble in Canada), sold off its e-reader business, Kobo, to Rakuten, the Amazon of Japan. The calculations are complex because Kobo’s ownership was shared between several companies, but the sale, for roughly $315 million, was called a “windfall” and a “vindication” for Indigo, which will net $140 million. Indigo CEO Heather Reisman said this sale represented a 300 per cent return on its investment in the startup.

Indigo’s market value (as of yesterday) is just $50 million more than the sale proceeds, so it’s tough to call it a triumph. (The big jackpot was claimed by the outside investors who bought 42% of Kobo Inc. for $11 million at the end of 2009. They hit payday: a 12 times return in two years.) If this is Barnes & Noble’s financial model, the prospects are grim.

The problem with selling your e-reader business is that you don’t have one anymore – you’ve lopped off the most appealing growth opportunity left to a declining industry.

Bringing it all together

Where does that leave things?

Did the market over-react yesterday to Barnes & Noble’s news? Yes, as it always does. (The shares closed up 20% from their low point yesterday, and they’re up another 3% this morning.)

Over 13 million shares traded hands yesterday, 15 times the daily average for BKS shares and easily the largest trading day ever for Barnes & Noble. We’ll probably be hearing shortly from the biggest buyer(s).

The sale of Sterling Publishing is a distraction in this story, just as it’s a distraction for Barnes & Noble. Unlike Amazon’s high-profile publishing effort, Sterling is a stolid and solid backlist non-fiction publisher. It makes sense to convert it to cash and lose the distraction.

Can Barnes & Noble compete against Amazon with the Nook? Yes, as evidenced by yesterday’s announcement.

Can Barnes & Noble compete against Amazon profitably? That looks like it’s going to be very, very tough.

Write to Thad McIlroy

—

For more insight into Barnes & Noble, hear a senior executive at Barnes & Noble speak at Digital Book World, January 23-25 in New York City.

—

—

For more insight into Barnes & Noble, hear a member of the executive team at Barnes & Noble, speak at Digital Book World, January 23-25 in New York City.

—

By Jeremy Greenfield, Editorial Director, Digital Book World, @JDGsaid

In the wake of rumors that book retailer Barnes & Noble will be selling its Sterling publishing unit and the announcement that it is exploring strategic options for its Nook business, analysts say that this might be the beginning of the end for the No. 1 bricks-and-mortar book retailer in the U.S.

“Physical book sales are down and the largest national competitor [Borders] shut its door in 2011,” said Peter Wahlstrom, an analyst at Morningstar who covers Barnes & Noble. “If you look out five years and ask if there are going to be more bookstores or fewer bookstores, I think there will be fewer. Barnes & Noble is facing an uphill, structural industry headwind.”

Yesterday, it was widely reported that Barnes & Noble is seeking bidders for Sterling, the New York-based publishing house that it acquired in 2002 for $115 million. And today, the company announced that it would be pursuing “strategic exploratory work to separate the Nook business.”

The Nook business has been a bright spot for Barnes & Noble amid the decline of its largest unit, its network of retail stores. How does a Barnes & Noble without its fastest-growing business grow in the coming years?

“It’s certainly not a business that grows organically when you’re selling physical trade books,” said Wahlstrom. “What do you have to do to remain in business? You have to be creative with costs, be creative with merchandising, look for additional opportunities and close underperforming stores.”

Barnes & Noble’s retail business was to get a lift when Borders closed its doors. The company predicted that it would pick up upwards of $300 million in new revenues. The same was predicted of Best Buy when its chief competitor, Circuit City, went belly-up. It didn’t work out that way for the challenged electronics retailer, as Amazon, Wal-Mart, Target and others picked up much of the business.

Indigo, Canada’s largest bricks-and-mortar books retailers, also provides an instructive example for Barnes & Noble. In 2009, Indigo spun off its Kobo unit. In late 2011, the e-reader company was sold to Rakutan, the largest online retailer in Japan, for $315 million. Indigo said at the time that it expects to see about $150 million of that sale price.

“Spinning off the e-reader/e-book business is exactly what Indigo did in Canada and that proved to be a very modest return for them and left the mother-ship vulnerable,” said Thad McIlroy, a Vancouver-based electronic publishing analyst who runs the site TheFutureofPublishing.com and has written for Digital Book World about Barnes & Noble. “They’re already a year or two ahead of Barnes & Noble on this particular strategy, so you’ve got a clear look at how it plays out. It doesn’t.”

To be sure, the publishing industry shouldn’t panic about this recent flurry of news, said analysts.

“The Sterling story is nothing. It’s as if they sold off the corporate jet. It wasn’t being used much so they’re going to get $50 million for it and that will be the end of that,” said McIlroy. Regarding the Nook announcement, “It’s way too soon to think or react or to know how it’s going to play out.”

Still, publishers who haven’t already should be taking a close look at their business and determine if they could survive in a world without Barnes & noble.

“’Where will I be without a bricks and mortar books business?’ Publishers need to ask that question and need to adjust their business model,” said Wahlstrom.

While the bricks-and-mortar retail books business may be in decline, decline is something that can take a very long time.

“Do they muddle in mediocrity in 50 years? Maybe. Do they shut the doors on January 1, 2020? Doubtful,” said Wahlstrom.

Barnes & Noble did not immediately respond to requests for comment.

Related: Seven Advantages Barnes & Noble Has in the Bookseller Wars

—

For more insight into Barnes & Noble, hear a member of the executive team at Barnes & Noble, speak at Digital Book World, January 23-25 in New York City.

—

Write to Jeremy Greenfield

By Thad McIlroy, The Future of Publishing, @ThadMcIlroy

Editor’s note: Today we will present advantages that Barnes & Noble has in the bookseller wars. Next week  we will present Barnes & Noble’s weaknesses in the bookseller wars. See second editor’s note below.

With over 1,200 college and retail bookstores across 50 states, Barnes & Noble is the No. 1 bricks-and-mortar book retailer in America. After nearly a century in bookselling, the company is currently staffed with 35,000 employees. Barnes & Noble stores average 25,000 square feet and carry up to 200,000 titles along with a wide selection of music, DVDs, magazines and toys and games, all according to the company’s website. Additionally, Barnes & Noble Cafés pour 60 million beverages, bake six million cookies and scones, and grill three million sandwiches annually.

As the last man standing in the 30-year war of the chain bookstores it has 40 million customers with a stake in its future.

In Amazon.com, Barnes & Noble faces a tough competitor. If business is war, Jeff Bezos is a battle-tested and decorated general. As popular as the Nook eReader is, the Kindle is much more so. As cheap as Barnes & Noble might price its books, Amazon often undercuts them. If Barnes & Noble stakes out a new market, Amazon follows the charge, guns blazing. Barnes & Noble declined to comment for this article (see second editor’s note below).

Given the state of the company and of its competition, what are the advantages it has in the bookseller wars?

—

For more insight into Barnes & Noble, hear Theresa Horner, vice president of digital content at Barnes & Noble, speak at Digital Book World, January 23-25 in New York City.

—

1. Good management with deep bench strength

In January 2009, Barnes & Noble appointed 38-year-old William Lynch as president of its online division. He brought to Barnes & Noble some sorely needed skills in online marketing. Just over a year later in March, 2010, Lynch was promoted to CEO of all three of the company’s divisions (online, college and trade retail).

Lynch presumably had his first taste of e-books while working at Palm from 2000 to 2004. It may have given him some unique insight into the value of its e-book related businesses. Barnes & Noble announced the acquisition of Fictionwise for $15.7 million in cash on March 5, 2009, a deal that “was completed in less than 100 days.” Lynch had joined the company three months earlier. Fictionwise owned eReader.com, which had been part of Palm from 2001 to 2003.

In 2004, Lynch founded Gifts.com as part of Barry Diller’s IAC. His last job prior to joining Barnes & Noble was as executive vice president of marketing and general manager of HSN.com (spun off from IAC in 2008). As TechCrunch reported, “In short, he’s all about digital.”

Announcing Lynch’s promotion to CEO, Barnes & Noble chairman and controlling shareholder Len Riggio told the New York Times, “by appointing him it sends a signal to the marketplace that we are serious about the business and the way this business is evolving.”

Lynch is well-compensated for his efforts at Barnes & Noble. He earned $15,709,965 in 2010. That is nearly a million dollars more than William R. Johnson earned as president and CEO of H.J. Heinz. His salary for 2011 is $1,603,181 (plus the vesting of previously-designated stock options). In an SEC filing on December 13, 2011, Lynch recorded receipt of options for a million shares in Barnes & Noble at an exercise price of $16.

Since joining Barnes & Noble Lynch has been gradually and deliberately adding to his operational management team. His hires built their careers in technology and online services, not selling books. Lynch has worked with many of them before.

Prominent on the team are:

•    Jerram Betts, vice president of Internet marketing; directed SEO efforts at Shopzilla.

•    Sara Bial, vice president of product management and creative; was director, product management (eCommerce) at HSN.com with Lynch.

•    John Foley, president of eCommerce; founded Pronto.com and was president of Evite.com.

•    Lee Huang, product director of the digital newsstand and emerging content; was director, digital strategy at NBC Universal.

•    Chris Peifer, vice president of business development; was a founder of e-Government SAAS firm SOE Software.

•    Marc Parrish, vice president of membership and customer retention marketing; was CEO and co-founder of StockphotoPro after working at Palm.

•    David Rowland, chief technology officer of BN.com; held positions at Electronic Arts and Gifts.com.

•    Liz Scheier, editorial director of digital content; joined Barnes & Noble from Scrollmotion, which offers “end-to-end solutions that help companies create and distribute across digital devices” and was a senior editor at Random House and an editor at Penguin.

•    Tim DeSoto, director of business development and content acquisition for the digital newsstand; was director of business development at Dow Jones.

•    Jeff Snow, director of sales and marketing; worked with Lynch at Gifts.com.

•    Roger Webster, chief architect, “responsible for rich, interactive content on the Nook color;” was a senior software engineer at Adobe Systems for eight years.

Tactical execution remains a top challenge for Barnes & Noble. Time and again Amazon gets the leap in new programs and product promotions. Though much of the publicity was unfavorable, Amazon’s recent Price Check app stunt certainly reinforced its positioning to consumers as the low-cost shopping destination.

2. The market for digital media devices is exploding and so is the demand for digital media to run on those devices

Markets for digital books are growing fast. Tablets are taking off, as have e-readers. E-book sales will increase in proportion to all of the new devices, and as smartphones get better, e-books and other digital content will increasingly be purchased there as well. Barnes & Noble, with its popular devices and sales and marketing engine, is well-positioned to capitalize on this growth.

A September forecast from Juniper Research, a UK-based research firm, projects tablet shipments will reach 253 million by 2016, a five-fold increase from the 55.2 million tablets projected for shipment in 2011. A November report from the same firm forecasts that despite the growth in tablet sales, e-reader shipments will reach 67 million by 2016, nearly triple the 25 million estimated to have been shipped in 2011.

E-book sales have followed a dramatic trajectory since Amazon launched the Kindle in 2007. The numbers most people associate with the explosive growth appear on the often-reproduced IDPF chart that covers 2002-2010. Sales grew from $20 million in 2006 to a run rate of about $450 million in 2010 (and these were just wholesale numbers from a subset of U.S. publishers).

Barnes & Noble’s latest financial filing for the first half of fiscal 2012 through October 29 states that comparable online sales “increased 38%, on top of a 59% increase a year ago…driven by continued growth of digital content sales and purchases of award winning Nook devices.”

A report from the Yankee Group predicts that “e-book sales will grow at a compound annual growth rate of 72% to reach nearly $2.7 billion” by 2013. A report from Juniper Research states that (worldwide) “annual revenues from e-books “delivered to portable devices” will increase from $3.2 billion in 2011 to nearly $9.7 billion in 2016, an annual compound growth rate of 24.7%.

3. Liberty Media’s John Malone and Gregory Maffei are betting that Barnes & Noble is a winner

The word “legend” is often associated with John Malone and his flagship venture Liberty Media.

Liberty Media (and its associated investment arms) own all or part of Gifts.com, Expedia, Starz cable network, Sirius XM Radio, HSN and QVC, to name a few of the well-known firms. Malone is also the largest private land owner in America.

From the Liberty Media Investor & Analyst Meeting

Liberty Media didn’t make a $204 million investment in August 2011 in Barnes & Noble just for the 7.75% annual dividend it’s receiving for its preferred share. The company is a long-term strategic player with a superb track record. Under the leadership of John Malone the company has seen extraordinary financial returns primarily from investments in broadcast and cable TV. Grading Malone’s recent investments, The Wall Street Journal says of Malone’s Sirius XM play “it’s hard to think of an investment made anywhere, anytime that turned out better.”

On November 8/11 Gregory B. Maffei, president, CEO and director of the executive committee at Liberty Media, called Barnes & Noble a “strategic investment…we’re excited about the things they’re doing.” In his mid-November presentation to Liberty investors Maffei discussed various motivations behind its investment, including its profitable stores (with short-term leases), its college bookselling network and the benefit of top competitor Border’s liquidation.

According to a Spring report in The Hollywood Reporter, Liberty is focused on the value at Barnes & Noble and sees possible synergies between the bookseller and its other assets as “icing” on a cake (for instance, the QVC channel could sell Nooks).

Earlier this year when Liberty showed interest in acquiring the entire firm, Credit Suisse analyst Gary Balter wrote: “With strong backing of a media company like Liberty, we believe Barnes’s digital business will be able to compete more effectively with the likes of Amazon, Apple and others.”

4. The college store business marches profitably on

Barnes & Noble is a well-established and successful player in the college bookstore business, with 635 stores serving 4 million students. The stores are mostly school-owned and operated under contract by the B&N College division.

This is Barnes & Noble’s most profitable business segment. In the last fiscal year B&N College delivered a quarter of overall company sales and more than twice the operating profit of the retail stores.

In an interview with Ned May, who covers book publishing as vice president and lead analyst at Outsell, Inc., William Lynch said, “We operate over 600 of the country’s best college bookstores including Colombia, Yale, Harvard, Penn. As that format begins to move digital – and it is taking much longer than it is in consumer trade – we believe not only will we have great technology and great product experience but we also have the sales and marketing channel to drive our solution, Nook Study, to millions and millions of students…. We can play offense in digital education, but it is still very early.”

“The college bookstore market is a strong suit for Barnes & Noble,” said May in an interview with Digital Book World. “It also offers a stable, captive audience for the Nook.”

5. The Nook product family is competitive in a tough market

Amazon and Barnes & Noble have been battling for the top spot in monochrome readers since the first Nook appeared two years ago. The latest ratings from Consumer Reports show the various models still running neck and neck, with the Nook Simple Touch the current leader. The latest review on Wired gave a surprise win to Kobo, followed by Nook and then Kindle. There’s not a lot dividing the top players, and the Nook is always in the running.

Two Tablets Compete Head-On

It’s partly a matter of timing that pushed the Nook Color reader out of the running against the identically-priced Kindle Fire, forcing Barnes & Noble to fight back with the $249 Nook Tablet. Some reviewers have seized on the $50 price differential as a key factor to award Amazon an edge over Barnes & Noble. The range of content is another factor cited by reviewers. But reviewers who favor the Nook Tablet like the hardware extras: more memory, better battery life, and an excellent display. Where Amazon.com wins hands down is, as always, in marketing.

The Review Score Card

Review Source                      Winner
                                    Amazon    B & N    Tie

CNET                                                    X
eWeek                                                             X
Fortune                              X
PC Magazine                                                 X
Philadelphia Inquirer                                   X
TabletPCReview                                X
USA Today                        X
ZDNet                                                              X

6. Kid’s books and women’s romances are solid niches for Barnes & Noble

Barnes & Noble has carved out two successful e-book niches: romances and kid’s books. This past fall, the company extended the kid’s franchise into toys and games. It’s difficult to measure the bottom-line impact from these two markets, although analysts have noted the Nook as a favorite among women buyers, and Barnes & Noble has been advertising consistently to this market.

“Barnes & Noble got a jump on both Amazon and Apple’s iBookstore by focusing on kids with a parent-friendly UI [user-interface] and by being the first vendor to include enhanced features – animations and activities,” said Sara O’Hearn, director of content at Panarea Digital, a Sao Paolo-based digital content production company (disclosure: O’Hearn is the author’s sister). “They’ve released scores of kid’s favorite picture books and parents don’t have to buy a separate app to download them. Amazon is getting to this market a year after B&N launched their first round of illustrated e-books.”

The Barnes & Noble store is also easier for kids to figure out than the Kindle store, according to O’Hearn, who has supervised porting over 500 children’s books in a variety of sizes and formats, incorporating audio, animation, and interactive activities to Barnes & Noble Nook Color.

In Barnes & Noble’s December 1 conference call with analysts, Lynch pointed out that the company is focused “more to the higher-end educational toys and games. After a strong launch on ‘Black Friday’ the momentum in toys and games has sustained.”

7. Barnes & Noble stores are showcases for physical books and hubs for community

Barnes & Noble is learning how to use its bricks-and-mortar presence to great effect, while at the same time expanding Nook distribution well beyond its own stores into retailers like Best Buy and Wal-Mart. With Borders dead and buried, Barnes & Noble is the last man standing. (Books-a-Million, its only retail bricks-and-mortar competitor, is a distant second with 200 stores.) The company’s strategic importance grows for the big publishers as it becomes essentially the only place to showcase new printed books.

Community reinforces bricks-and-mortar. As Barnes & Noble states on its website: “We pioneered the concept of a retail store as a community center, and annually host approximately 100,000 community events nationwide.” It’s hard to put a number on the value of these events, but for authors and publishers, well-organized appearances at Barnes & Noble stores are very much a part of the sales and publicity engine.

When William Lynch presented to the Liberty Media Investor & Analyst Meeting in mid-November he pointed out that the Barnes & Noble network of prime retail locations is its “biggest competitive advantage.” This fall the company introduced new “Digital Shops” in 40 stores, designed to be “the preeminent place for consumers to learn about e-books, get their newsstand subscriptions, learn about new types of content coming down the pike, and learn about our Nook products,” according to Lynch, who added that there would be 100 more next year.

To be sure, this advantage may be eroding, as Barnes & Noble continues to close stores.

When Barnes & Noble surveyed Nook owners as to why they bought a Nook over a Kindle, the No. 2 reason was the in-store support (he didn’t reveal what No. 1 was).

Maybe most importantly for Barnes & Noble’s bricks-and-mortar retail presence, Liberty’s John Malone was quoted May 23, 2011 in The Wall Street Journal saying, “I’ve been a Barnes & Noble customer myself for many, many years. The stores will shift around, but there will be a physical presence for a long, long time to come, and it will be a profitable presence.”

Write to Thad McIlroy

Thad McIlroy is a publishing consulant and analyst who makes his home at thefutureofpublishing.com.

Editor’s note No. 2: For this article series, we repeatedly contacted Barnes & Noble communications executives asking at first for access and participation and then, most recently, merely for comment. After being ignored for many weeks, we finally received response that Barnes & Noble would not be participating in the article. We were given links to publicly available resources about the company. We have also received no response to a fact-checking email intended to verify the facts presented above.

As a journalist, I find it disturbing that a publicly-traded company would refuse to engage with members of the press. Strategically, I think it’s silly that Barnes & Noble, which is, quite frankly, struggling in the public relations war against its chief rivals would treat the possibility of talking to an important industry publication with so little regard.

I still welcome comment from Barnes & Noble. I can be reached via email here or at 212-447-1400 x12266. The lines are open on our end.

—

For more insight into Barnes & Noble, hear Theresa Horner, vice president of digital content at Barnes & Noble, speak at Digital Book World, January 23-25 in New York City.

—

By Jeremy Greenfield, Editorial Director, Digital Book World, @JDGsaid

Yesterday, Amazon announced that Simon & Schuster’s biography of Steve Jobs by Walter Isaacson is its best-selling book of the year, combining print and digital.

The book, titled Steve Jobs, beat out Bossypants by Tina Fey (No. 2, Reagan Arthur Books) and A Stolen Life by Jaycee Dugard (No. 3, Simon & Schuster). Coming in fourth on Amazon’s top-ten best-selling books of the year list was self-published title The Mill River Recluse by Darcie Chan. The book has reportedly “sold more than 400,000 copies,” according to The Wall Street Journal, which featured Chan’s self-publishing story in a lengthy item last week.

Being No. 1 for the year is all the more impressive for the Jobs book, considering it only came out on October 24, long after most of the other books on Amazon’s top-ten list:

1. Steve Jobs by Walter Isaacson (October 24)

2. Bossypants by Tina Fey (April 5)

3. A Stolen Life by Jaycee Dugard (July 12)

4. The Mill River Recluse by Darcie Chan (May 18)

5. In the Garden of the Beasts by Erik Larson (May 10)

6. A Dance with Dragons by George R.R. Martin (July 12)

7. The Paris Wife by Paula McLain (February 22)

8. The Litigators by John Grisham (October 25)

9. The Abbey by Chris Culver (February 2)

10. Inheritance (The Inheritance Cycle) by Christopher Paolini (November 8 )

(Source: Amazon.com)

Here are some other interesting insights into Amazon’s best-selling book of the year:

– Debuted on the Kindle best-sellers list at No. 82 on August 26 for just one day due to pre-orders.

– Disappeared from the list until October 6, the day after Steve Jobs died. The book’s return was at No. 1.

– Over the next few weeks, the book stayed on the list, moving as low as No. 46 and as high as No. 2.

– On October, 24, the day the book came out, it again hit No. 1 on the Kindle best-sellers list and stayed there for ten straight days.

– The book debuted on the Amazon print rankings on October 24 at No. 1 and stayed there for two weeks straight.

– From November 2 until the end of the month, the book was featured as a “New & Noteworthy” book on the Amazon Kindle landing page.

– The price for the Kindle edition dropped from $16.99 to $14.99 on November 7.

– The Amazon print price has hovered between $17.50 and $17.88 for the book’s entire run.

– Since the book’s release, the Kindle edition has been ranked as high as No. 1 and as low as No. 18. It is currently ranked No. 14.

– Since the book’s release, the print edition has been ranked as high as No. 1 and as low as No. 3, which it only hit for one day, November 9. It is currently ranked No. 1.

– Across both print and digital, the book has been rated by Amazon users as low as 3.6 stars and as high as 4.6. Its current rating is 4.2 stars. The average rating for an Amazon Kindle best-seller today is 4.13 stars; for an Amazon print best-seller, it’s 4.28 stars.

(Source: eBook Market View, powered by Iobyte Solutions)

—

Hear from Iobyte Solutions about more data in book publishing at Digital Book World Conference + Expo 2012, this January 23-25 in New York. More>>>

—

Write to Jeremy Greenfield

By Jeremy Greenfield, Editorial Director, Digital Book World

Liberty Media’s ongoing interest in acquiring Barnes & Noble is driven by a desire to acquire the Nook platform, a source close to the matter told Digital Book World.

“They think the Nook can take on the Kindle,” said the source.

Liberty Media CEO John Malone reportedly implied as much in July. Requests for comment from Liberty Media were not returned before press time.

Attempts to take over the company this Spring and Summer were waylaid by resistance from Ron Burkle, the supermarket magnate whose investment vehicle, Yucaipa Companies, owns nearly 20% of the bookseller.

Through its Liberty Starz group, Liberty Media owns outright the Starz premium movie service, which offers 16 movie channels to paying subscribers and other related services. Liberty also has a 40% stake in satellite radio provider SiriusXM and other media holdings. The Nook, Barnes & Noble’s e-reader and tablet platform, will offer users access to Netflix, Hulu Plus and other content providers.

Liberty Media reportedly has “renewed” interested in acquiring Barnes & Noble and is rumored to be creating a $1.5 billion credit facility for the acquisition. If true, this would represent roughly a 50% premium on the current stock price for Barnes & Noble as of 3:24 today and a 50% increase in the company’s $1 billion offer for Barnes & Noble earlier this year.

Barnes & Noble has told Bloomberg that there is “no truth” to Liberty Media’s new interest.

Write to Jeremy Greenfield

By Jeremy Greenfield, Editorial Director, Digital Book World

Retail and bookselling giant Amazon Inc. is giving readers another way to obtain books, but is it good for publishers?

The Seattle-based company announced its Kindle Owners’ Lending Library yesterday, a program that offers Amazon e-reader owners who are also Amazon Prime subscribers the ability to borrow from a limited selection of books for free: one title at a time and up to one every month; new titles can’t be borrowed until old ones are returned.

Good for Kindle owners who have Prime? Undoubtedly. Good for publishers? Perhaps, say publishers and observers.

Proponents of the program say that the library will help publishers surface and sell more back-list titles, learn more about their readers desires and habits and provide a new revenue stream.

“This will be really good for authors and readers, as it will increase the visibility of these titles, will help make them easier to discover, will help longer tail sales of the books, will help publishers uncover what readers really want, and what they don’t,” said David Nussbaum, CEO of New York-based book publisher F+W Media, which is a charter member of the lending library. (Full disclosure: Digital Book World is a property of F+W Media.)

Publishers leery of the program – and sometimes of Amazon in general – worry about initiatives that may drive down the perceived value of books, how authors might be compensated for books that are borrowed, and Amazon’s overall dominance in the marketplace.

“Nothing in the big six’s contract with authors covers stuff like this. In the big six’s view it wouldn’t help sell books and is a threat to their business model,” said Thad McIlroy, a Vancouver-based electronic publishing analyst, speculating on the viewpoints of big publishers, though he believes that the lending library is ultimately good for publishers.

Many major publishers contacted for this article declined to comment, including Hachette, Penguin and Random House, whose head of corporate communications, Stuart Applebaum, told Digital Book World in an email, “We are not commenting on this, as we don’t publicly discuss, even for background, retailer initiatives in which we don’t participate.” Some publishers did not respond to requests for comment before press time.

“This is a new model…[and] obviously requires some thought,” said Dominique Raccah, publisher and CEO of Sourcebooks, a Naperville, Ill.-based independent book publisher.

Sourcebooks is not yet participating in the lending library program, citing “questions” about the program, including how authors are compensated and its effect on pricing of books in general.

Russel Grandinetti, Amazon’s vice president for Kindle content, said that in the digital age, book publishers should look for more and new revenue streams and that the Amazon Lending Library model isn’t so different from other ways content companies monetize their products.

“Sometimes I go to the movies and pay for it and sometimes I watch a movie on cable,” he said. “When you go home to watch a movie on cable, is it free or did you pay for it?”

Some publishers may simply not be ready for this model in book publishing, said George Burke, founder and CEO of eBookFling, a West Long Branch, NJ-based start-up that allows its users to lend books to each other through Amazon’s and Barnes & Noble’s lending-enabled functionality, which allows some books to be lent between users. EBookFling currently has about 12,000 books in its catalogue.

“As you know, the book industry is quite old and very slow to change,” he said. “It’s just a matter of time before more publishers come on board.”

Burke cited author compensation as a potential hurdle for publishers when it comes to lending, but said that other industries had adopted a similar model and book publishing would eventually, too.

“Both the movie industry and the music industry have moved that way,” he said. “Spotify and Rhapsody have flat fees worked out with record companies. And Netflix pays flat fees to movie production houses for access to their catalogues.”

About 5,000 books are currently available in the lending library. Notable titles include the Hunger Games series, Fast Food Nation and Moneyball. Only readers who own Kindle devices and are Prime subscribers can borrow books from it, locking out Kindle app users on other devices, which The Wall Street Journal reported as a “restriction” intended to juice Amazon device sales.

A New York Times analysis of some of the books available showed that none are current Times’ top-20 best-sellers, followed by the observation that “traditional publishers are obviously leery of this program.”

They shouldn’t be, said McIlroy, who contends that author compensation issues and other challenges holding publishers back will eventually be overcome and that Amazon’s lending library will only increase in size until eventually all publishers, including the largest houses, participate. Its libraries that should worry, he added.

According to McIlroy, Amazon may seek to replicate and replace many functions of public libraries and “they [the libraries] couldn’t be more short-sighted not to fight this tooth and nail,” he said.

The libraries, however, are not worried and welcome this new development, according to the American Library Association, a Chicago-based trade association for librarians.

“I see it as yet another alternative – absolutely not a replacement – for the ways in which libraries have provided access to content,” said Maureen Sullivan, the association’s president-elect. “It’s going to appeal to people who own a kindle and are able to invest their money in these services.”

Lent Without Consent?

There are two revenue models for publishers whose books are lent in the Amazon Lending Library. Some are paid a flat licensing fee for a curated catalog of titles; others are paid the wholesale price for every book sold.

In his email newsletter yesterday, publishing observer and owner of PublishersMarketplace.com, Michael Cader, contends that the books being paid for by Amazon individually are in the lending library without the consent of the individual publishers. In this thorough take on the lending library, Cader outlines some publisher concerns and analyzes some of the other issues involved, like the number of Prime subscribers who may own a Kindle. Click here for more.

(Full disclosure: Publisher’s Launch, a property owned and operated by Cader, is a co-presenter of Digital Book World Conference and Expo 2012.)

Write to Jeremy Greenfield

By Jeremy Greenfield, Editorial Director, Digital Book World

Toasters, coffee machines and vacuum cleaners are all perfectly good things to buy on Amazon, the general manager of Toronto-based Kobo told us yesterday when we sat down with him for a product demo of the company’s latest e-reader tablet, but not books.

Books, according to Matt Welch, general manager at the e-reader manufacturer and bookseller, are best read on the Kobo Vox, the company’s new seven-inch, touch-screen, color tablet that ships to consumers today and retails at $199.

As we reported last week, the Vox signals several important trends for publishers, authors and e-book producers and distributers. And next week, we’ll be giving you the inside scoop on the Vox – what works, what doesn’t, and whether it’s really better than the competition, as Welch and Kobo product lead Jason Gamblen asserted in our sit-down yesterday.

For now, here are some salient points from our talk and a subsequent email exchange, including Kobo’s differentiators, what Kobo has to say to publishers and why Welch thinks nobody should be buying books from Amazon.

Jeremy Greenfield: What sets this new tablet apart from the Kindle Fire, for instance?

Matt Welch: We’re about reading, they’re not. In the 10,000 word press release they put out about the fire, only about two things mentioned reading. The Vox is all about reading.

JG: What do you say to publishers who have to worry about getting their books formatted and up on Amazon, the Barnes & Noble store, your store and others?

MW: If I were them I would want to sell a lot of books and I would want people to discover books. How people discover books is social and Kobo is social.

JG: That’s true. But through apps like Subtext, which made a splash this week with its new social app, other e-readers can be social, too. Will Kobo, which runs Android 2.3, allow Subtext and other social apps to be downloaded on the Vox and work with the reader?

MW: We don’t stop anyone from installing and using outside apps. We’re open. There are 15,000 free Android apps available on the Vox.

JG: What about the Kindle app?

MW: That, too.

JG: Speaking of Amazon…would you say that the best place to read Kindle books is the Vox?

MW: The best place to read Kindle books is nowhere, in my opinion. Why would anyone buy an e-book from Amazon? Freedom is a value held dearly in America and around the world. People should be able to transfer and read their books on any e-reader they wish, and don’t like being trapped in one ecosystem, which would be the case if they started building a Kindle e-book library. More and more people are realizing this, and are saying they don’t want to get stuck in the Amazon. They paid for their e-books after all. Why are they held captive? Readers get quite irritated (understandably so) when they learn they can’t they take their kindle e-books with them if they decide to upgrade to the Kobo social e-reading experience. I get it. This lack of freedom seems like a very un-American idea to me, coming from a very American company like Amazon. That said, I recently bought a very nice toaster, a coffee machine and a vacuum cleaner from Amazon, so I think it makes perfect sense to buy myriad different types of products from Amazon. Just not e-books.*

JG: So, what’s next for Kobo? Will we see a 10-inch tablet next year?

MW: I’m going to give you the old Steve Jobs answer – we don’t comment on product roadmap.

*Response edited from an email for style and space.

Write to Jeremy Greenfield