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Aaah, what's that smell, Nook? Yes, it's death: Barnes & Noble to jettison e-book biz

Plans to spin it off as new public company next year

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Barnes & Noble has announced plans to spin off its floundering Nook e-book business as its revenues continue their long decline.

On Wednesday, the bookseller reported retail revenues of $956m for the fourth quarter of its fiscal 2014, more or less flat from the year-ago quarter. Meanwhile, revenues from the Nook division were down 22 per cent year-over-year, to $87m. And throughout all of fiscal 2014, Nook revenues shrank to $506m, a 35 per cent decline from the previous year.

In a canned statement, Barnes & Noble said that it now plans to split the Nook unit off from its core retail business by the end of the first quarter of the next calendar year.

"We have determined that these businesses will have the best chance of optimizing shareholder value if they are capitalized and operated separately," CEO Michael Huseby said. "We fully expect that our Retail and NOOK Media businesses will continue to have long-term, successful business relationships with each other after separation."

Based on past performance, however, the move seems less like sending a beloved child off to university and more like severing a gangrenous limb.

During the 2013 holiday gift-giving season, Barnes & Noble's Nook revenues were down 60.5 per cent over the same period the previous year – a sure sign that the company's quixotic quest to beat e-book titan Amazon is going badly.

At the time, Huseby said the sales slump was because B&N hadn't released any new tablets during the season, while in the previous year it released two. But the truth is that the Nook HD line were never strong sellers, and the company got out of the fondleslab business last June.

It announced that it would begin selling new Nook tablets earlier this month, but these will just be rebranded Samsung Galaxy Tabs with some preloaded Nook software.

What's more, declining hardware sales aren't the whole story. The Nook unit's sales of digital content in fiscal 2014 were down 20.6 per cent from the previous year. Barnes & Noble attributes that decline to lower device sales – if nobody's buying the e-readers, they won't be buying the content – but whichever way you slice it, it doesn't bode well.

And even excluding such items as taxation, interest, and amortization, Nook is losing money. It lost $56m during the fourth quarter and $218m for the full year, though it says it expects those losses to decrease in 2015 and beyond.

Even given such cheery prospects, however, Barnes & Noble cautioned that spinning off Nook might not be as easy as it sounds.

"The Company notes that there can be no assurances regarding the ultimate timing of the proposed separation or that such separation will be completed," Barnes & Noble's statement reads.

"Any separation of NOOK Media and Barnes & Noble Retail into two separate public companies will be subject to customary regulatory approvals, securing any necessary financing, tax considerations, final approval of the Barnes & Noble Board of Directors and other customary matters and is dependent on numerous factors that include the macroeconomic environment, credit markets and equity markets."

Right, got it. ®

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