Is There Any Hope for the NOOK Branded Samsung Galaxy Tab?

It's hard to imagine but it was once reasonable to ask whether the NOOK from Barnes & Noble  (NYSE: BKS  ) or the Kindle from Amazon  (NASDAQ: AMZN  ) would emerge as the more successful product.

Back when both brands were simply e-readers there was some question as to whether one company would come out on top or whether the market had room for both of them. That changed however when tablet versions of NOOK and Kindle were released with the Amazon Kindle Fire emerging as a major player and Nook being more or less obliterated.

The NOOK tablet never caught on partially because Barnes & Noble lacked the resources to manufacture new versions of it as often as Amazon and other tablet players did. The last new NOOK tablet products came out for the holiday season in 2012. Those same tablets were on the shelf in December 2013 while the company was silent as to when a new model would be released. The product was left in limbo until June 2013 when Barnes & Noble issued the following statement as part of its 2013 end-of-year financial press release. 

The company plans to significantly reduce losses in the NOOK segment by limiting risks associated with manufacturing.  Going forward, the company intends to continue to design eReading devices and reading platforms, while creating a partnership model for manufacturing in the competitive color tablet market.  

That statement was released over a year ago, and as the months moved forward it seemed likely that no partners were actually forthcoming and the NOOK tablet was dead. That has proven incorrect however as Barnes & Noble and Samsung  (NASDAQOTH: SSNLF  ) announced Wednesday that the manufacturer had created a version of its Galaxy Tab 4, which would be branded as a NOOK. The new device puts Barnes & Noble back in the tablet game with very little risk as Samsung is manufacturing the 7-inch Android tablet, which it describes in the launch press release as "optimized for reading."

For Samsung the risk is minimal as well because the tablet is a modified version of an already successful product. Adding the bookstore chain as a partner gives the company access to some prime retail space as well as a staff well-trained in selling tablets. It's a bit of a coup for the company as it adds over 600 new retail locations and, in general, Barnes & Noble has continued to give the NOOK display prime placement in its stores.

Are e-readers still a thing?
While Barnes & Noble is still making new NOOK e-readers, that type of device has greatly fallen in popularity largely because tablet prices have fallen and tablets work as e-readers. The market decline for e-readers began in 2012, the last year Barnes & Noble released a new NOOK tablet and it has only gotten worse.

"For the e-reader market, 2012 was a disastrous year in terms of total worldwide shipments," said IDC Tablet Research Director Tom Mainelli. "It's clear that most consumers are choosing tablets over e-readers in mature markets such as the United States." 

Neither last year nor this year brought a resurgence of the e-reader market, either. Instead, tablets continued to get cheaper and lighter, making buying a separate device for reading unnecessary. That left Barnes & Noble without a device in the segment where customers were actually looking to buy.

How far has the NOOK business fallen?
Not releasing new NOOK tablets since 2012 has greatly damaged the NOOK business. In 2013 the NOOK segment -- which includes tablets, e-readers, and digital content sold for them -- had $776 million in revenue for the year, a decrease of 16.8%, according to the company's year-end financial statement. The lower number was driven by fewer devices being sold. Digital content sales actually climbed 16.2% for the full year. This showed that while the lack of new tablets was hurting the division, there was still some life left in NOOK as people who owned tablets or e-readers were using them to buy content. 

In fiscal 2013, NOOK lost the company $475 million, though $222 million of that was inventory-related charges, according to the company.

By the end of the company's fiscal 2014 the lack of new tablet models began to show. Overall sales for the NOOK segment dropped to $506 million, a drop of 35.2% for the year which had an extra week compared to the previous one. Device sales made up $260 million of the sales total, a drop of 44.8%. The real bad news however was that digital content sales fell to $246 million for the year, a decline of 20.6%. 

Barnes & Noble blamed the declining content sales on the lack of device sales in the financial statement. 

Losses did improve, however, as the segment lost $218 million for the year.

Getting out of the NOOK tablet business saved the company money but it also did great damage to the company's ability to sell digital content. The launch of the new Samsung tablet may be the first step in correcting that.

Can NOOK make a comeback?
Barnes & Noble and Samsung are offering the Galaxy Tab 4 NOOK for $179 after a $20 instant rebate. That's the same price the non-NOOK-branded version sells for and the bookseller has sweetened the deal by adding what it describes as $200 in free, popular content. The freebies include the digital books FreakonomicsThe Wanderer, and I Am Number Four, and an episode each of the TV shows Veep, Hannibal, and Orphan Black. Buyers also get two week trials of a number of magazines and a $5 credit in the NOOK store.

If any of those giveaways are appealing it could make people who were considering buying a Galaxy Tab 4 anyway buy the NOOK version.

Samsung and Microsoft have little to lose here. The Galaxy Tab has proven to be a popular product and branding a version of it to NOOK puts Barnes & Noble back in the tablet game. That gives it a chance to steal back some market share from Amazon. Every new NOOK sold increases the amount of people the book chain can sell digital content to. If it can add to that base without incurring the expense of making the device it's already a winner -- the only question is will enough people buy it to keep Samsung interested or get other manufacturers to want to join the party?

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