Someone's head had to roll. Just weeks ago, Barnes & Noble (NYSE: BKS ) finally gave up its ambitions in the tablet market. The surrender came amid slow unit sales for its Nook device and the Nook segment, which includes content sales, saw revenue fall by 34%. B&N ate an inventory charge of $133 million related to the heavy discounting it did to get units moving, and the company said that it was changing its strategic plans as a result of the indigestion.
Nook's failure has now claimed a casualty in CEO William Lynch, who has just resigned effective immediately. Lynch had spearheaded B&N's digital and tablet strategy, after becoming CEO in early 2010. The company made no mention of a replacement CEO, but instead divvied up responsibilities among other executives, all of which will report directly to Executive Chairman and founder Leonard Riggio.
Michael Huseby, who joined up as CFO just over a year ago, will become the CEO of the Nook Media subsidiary. He'll be the leader held accountable to minority investors Microsoft and Pearson if the digital-only business similarly stumbles. On one hand, getting out of tablet hardware will help Barnes & Noble reduce its losses. On the other hand, the company's adoption of Google Play as a content store concedes that B&N isn't happy with digital sales through its own Nook platform.
In fairness, digital content sales performed better than unit sales. Digital content sales were up 16.2% for the full year, and the company had said weak hardware sales contributed to an 8.9% decline in content sales in the fourth quarter. B&N was also facing a tough Q4 comparison, since last year was particularly strong thanks to the The Hunger Games and Fifty Shades of Grey trilogies that sold well a year prior.
Nook's future is up in the air. Co-branded Nook tablets made by third-party OEMs are a curious possibility, since manufacturers have more promising platforms like Android to partner with. Growing a Nook content platform that's secondary to other platforms is also an uphill battle. Nook may have claimed its first casualty, but it might not be the last.
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