Does anyone remember Babbages? Barnes & Noble (NYSE:BKS) purchased the video game retailer back in 1999, changed the name to GameStop (NYSE:GME), and spun off the company several years later, retaining roughly a two-thirds stake. Since then, GameStop has grown rapidly, expanding its store base to over 1,600 units to become the nation's largest video game and entertainment software retailer. Meanwhile, revenues have nearly quadrupled from $465.2 million to $1.6 billion.

The cyclical industry has, at times, been highly dependent on the release of popular titles -- such as Take Two's (NASDAQ:TTWO) Grand Theft Auto and Electronic Arts (NASDAQ:ERTS) Madden NFL -- but generally has been a faster-growing and higher-margin component to Barnes & Noble's business model. GameStop's earnings were expected to represent one-fourth ($0.56 of $2.23) of Barnes & Noble's bottom line this year. I say "were" because the firm has decided to begin a new chapter without the video game business, and will be distributing GameStop to shareholders by the middle of next month.

Barnes & Noble began unraveling the position by recently selling 6.1 million shares back to GameStop for $111.5 million, or $18.28 per share, reducing its interest in the company to 59%. Furthermore, the board of directors at Barnes & Noble has already authorized that the remaining 29.9 million class B shares be distributed to shareholders via a tax-free dividend. GameStop has a dual-class structure, and the class B shares will retain their super-voting power of 10 votes per share.

As it stands, shareholders of record on November 2 will receive about .43 shares of GameStop for each share of Barnes & Noble owned. The actual ratio will be determined on the record date, based on the total number of Barnes & Noble shares outstanding then.

According to Chairman Leonard Riggs, Barnes & Noble's original $400 million investment in GameStop has been worth twice that amount, including the impending $500 million-plus spinoff. "Though both companies are doing extremely well and are industry leaders," he said, "we believe they will be more valuable trading separately than together."

GameStop's growing revenues have helped augment Barnes & Noble's core book business, but expansion of the video game chain cannot continue indefinitely, and Barnes & Noble is cashing out its chips after an impressive run. Furthermore, same-store sales, which once grew at a torrid double-digit pace, have generally been on a downtrend.

While revenues jumped 13% last quarter (thanks to the addition of 180 new stores), comps dropped 2.4%. Rival Electronics Boutique (NASDAQ:ELBO) reported flat same-store sales growth for all of last year.

Accordingly, Barnes & Noble has lowered its outlook to reflect the loss of GameStop's income. As a result, previous full-year earnings guidance of $2.23 to $2.31 has been scaled back to $1.85 to $1.93. The decision to spin off GameStop will remove a healthy chunk of revenues and earnings from the picture, but will also eliminate the volatility and inventory risk inherent in the video game industry. The sideline venture has been profitable, but for Barnes & Noble, it's back to the books.

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Fool contributor Nathan Slaughter enjoys both books and video games, but not books about video games. He owns none of the companies mentioned.