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Microsoft Considering Nook Buy

Microsoft may be considering buying Nook Media LLC for $1 billion, according to a Wednesday press report.

The authors of a TechCrunch story stated that they have seen internal documents to that effect. Nook Media is a Barnes & Noble subsidiary that was set up to handle the company's consumer and college electronic media businesses. It was originally called "Newco," with Microsoft initially gaining a 17.6 percent stake, while Barnes & Noble controlled 84.4 percent of it. Microsoft's original investment of $300 million in this subsidiary came after the two companies settled out of court on patent infringement claims associated with Barnes & Noble's Nook electronic reader and tablet devices, which use the Android Linux-based mobile operating system.

At the time of the deal, Barnes & Noble was working with Microsoft on Windows 8 integration with Nook devices. A free Nook app for Windows 8 or Windows RT devices is currently available in the Windows Store. Barnes & Noble recently expanded the access of its Nook devices to download Android-based games and other content from the Google Play store, alongside its own Nook Store.

Neither Barnes & Noble nor Microsoft commented on the supposed deal, which hasn't been announced. The documents were described as being "at least several weeks old," according to an unnamed source cited by The New York Times.

Nook Media was valued as being worth $1.8 billion back in December, but Nook devices have regularly been discounted, having to compete with Amazon Kindle e-reader devices.

Barnes & Noble reported Nook revenue of $316 million in its fiscal third quarter, which ended on January 26. That $316 million represented a revenue decrease of 26 percent compared with the Q3 Nook result in the prior fiscal year. "Lower device volume" was the stated reason for the decline in Nook revenue. William Lynch, Barnes & Noble's CEO, explained in the company's Q3 earnings report that Nook devices were getting marked down in order to meet future sales goals.

The rapid decline of e-reader devices was predicted in March by IDC. The research and consulting firm suggested that the appearance of low-cost tablets would eventually destroy the e-reader market, with a "permanent decline" happening by 2015.

Given that IDC prediction, it's difficult to see what Microsoft could gain in buying the Nook business. Microsoft is still a newcomer in the tablet business, having sold 900,000 of its Surface RT and Surface Pro computers in the first quarter of this year. The company has been projecting lower-cost Windows tablets to come, based on emerging Intel Haswell and Bay Trail chips. Those devices are expected to appear in the second half of this year.

About the Author

Kurt Mackie is senior news producer for 1105 Media's Converge360 group.

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