Over the years, bookseller Barnes & Noble's (NYSE:BKS) tablet and digital content strategy has faltered quite a bit. After seemingly giving up its tablet business entirely a year ago, which was soon followed by an ouster of then-CEO William Lynch, the company changed its mind and decided to stay in the tablet business by tapping third-party manufacturers to build NOOK-branded hardware.
Well, Barnes & Noble has scored the most prominent Android original equipment manfacturer to help build its newest NOOK tablet: Samsung.
Which is better: Google Play or NOOK Shop?
On Wednesday, the two companies unveiled the new Galaxy Tab 4 NOOK, which is a rebranded version of Samsung's 7-inch tablet that was announced earlier this year. The Galaxy Tab 4 NOOK starts at $179 and the bookseller says it's throwing in an additional $200 worth of digital content to boot.
Samsung doesn't need to do much, merely swapping out its own TouchWiz version of Android for Barnes & Noble's semi-forked version. I say semi-forked because Barnes & Noble finally embraced the official Google Play store last year in a tacit admission that its own content sales were struggling.
The new Galaxy Tab 4 NOOK will likewise include Google Play, in which case there's not a whole lot of reason to go to B&N's NOOK Shop.
On one hand, it's smart to effectively outsource hardware design and production to a company like Samsung that's very good at hardware. When B&N reported earnings in June, the company said that the partnership with Samsung would help mitigate losses in the NOOK segment.
On the other hand, Barnes & Noble needs a cohesive content strategy to make the bigger picture work, something it just doesn't seem to have.
The company has tried very hard to build its own proprietary content storefront in response to Amazon.com, but that also involves competing directly with the content repositories of Apple and Google, whose ecosystems are built upon massive content libraries. If the NOOK content store were doing well (which it's not), Barnes & Noble would have never adopted Google Play in the first place.
The numbers speak for themselves.
While NOOK's EBITDA losses are indeed narrowing as a result of B&N exiting first-party hardware, revenue is also shrinking quite quickly. Of NOOK's total $506 million in revenue last year, $246 million came from digital content sales. That's down 21% year over year, in part because device unit sales are also getting crushed.
Has B&N read Catch-22?
Barnes & Noble faces a difficult dilemma. It recognizes that content is shifting toward digital formats, so it feels a sense of urgency to adapt with the times. But at the same time, it has largely failed with all of its digital content strategies while its brick-and-mortar segments are immensely more profitable.
In fiscal 2013, the NOOK segment literally ate through all of the positive EBITDA generated from the retail and college segments. Fiscal 2014 played out a little better, with NOOK only consuming about half of the other segments' profits.
Ultimately, B&N's latest tablet efforts are less risky thanks to the rebranding deals, but at the end of the day B&N's digital content strategy will fail yet again.
Evan Niu, CFA owns shares of Apple. The Motley Fool recommends Amazon.com, Apple, Google (A shares), and Google (C shares). The Motley Fool owns shares of Amazon.com, Apple, Barnes & Noble, Google (A shares), and Google (C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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