Barnes & Noble Launches New Tablets in E-Books Fight

Barnes & Noble
Barnes & Noble

By Phil Wahba

NEW YORK (Reuters) - Barnes & Noble Inc's (BKS) first high-definition tablets, unveiled on Wednesday, were well received by analysts who said the devices keep the bookseller in the fight with Inc (AMZN), Apple Inc (AAPL) and Google Inc (GOOG) - for now.

The largest U.S. bookstore chain has staked its future on success in the growing e-books industry in the face of declining sales of physical books that last year led to the bankruptcy of the Borders bookstore chain.

Barnes & Noble introduced a $199 7-inch Nook HD tablet that will go up against similar, recently launched products by Google and this holiday season.

The company also unveiled a $269 9-inch Nook HD+ tablet that will compete with the Apple iPad.

"The devices are an improvement in important ways over the previous generations of the Nook, and they one-up Amazon in some areas," Forrester Research analyst Sarah Rotman Epps told Reuters.

While the new products are thinner and lighter than rivals and follow a few months after Microsoft (MSFT) said it would invest $605 million in Barnes & Noble's Nook e-reader and college business, the bookstore chain still faces a daunting task.

"Barnes & Noble is the smallest player trying to do the software and the hardware development, and they don't have the financial means beyond what Microsoft has already fronted them to keep up in the arms race," said Morningstar analyst Peter Wahlstrom.

In many ways, Barnes & Noble, which operates nearly 700 stores, has defied expectations. It beat Amazon to the marketplace with touchscreen devices and a color reader in recent years, and won plaudits from reviewers this year for its glow-in-the-dark Nook that allows someone to read with the lights off so as not to disturb others.

Since the chain launched its first Nook device, a basic e-reader, in 2009, it has won as much as 30 percent of the U.S. e-books market. Amazon is the leader with about 60 percent.

This race has proven expensive and, so far, unprofitable. The battle with Amazon is taking a toll. Barnes & Noble reported lower Nook sales last quarter, after earlier quarters of torrid growth, hurt by price cuts to fight Amazon's aggressive pricing.

"Barnes & Noble must continue to invest to introduce new products with enhanced features at prices that are the same as or lower than older, less-sophisticated devices," Barclays Capital analyst Alan Rifkin wrote in a research note. The problem is that hurts profits and margins, he said.

But the company's chief said the Nook devices are essential to helping it generate sales of digital content.

"We're growing the digital content portion of the business, and that's where we envision making our economics," Barnes & Noble's William Lynch told Reuters at a media event on Tuesday.

Shares of Barnes & Noble rose 6.2 percent to $13.03 in afternoon New York Stock Exchange trading.

Bruising Price Wars

The tablet market is among the fastest-growing sectors of the technology industry. Research firm Gartner forecasts that sales will almost double this year, to 118.9 million units.

Barnes & Noble is in some ways at a disadvantage. Amazon can use its Prime shipping service and site to draw users to its Kindle tablets. Apple, which has sold tens of millions of iPads, has an indisputable "cool" factor.

So Barnes & Noble needs to focus on its natural customer: the reader that comes to its stores to buy books.

"A key growth area is to get their existing customer base onto the digital platform," Forrester's Epps said, adding that the new devices would help.

For these new devices, Barnes & Noble added features that allows each member in a family to share a Nook tablet, becoming the first tablet to let each user create a home page and customize preferences.

There are also parental controls that can prevent kids from adult content or going shopping.

The company hopes a new video-streaming and download service for Nook will help narrow the gap with Amazon and Apple, which offer more content on their devices.

Barnes & Noble emphasized features such as image resolution and page-turning technology given the needs of its basic customers; book and magazine readers.

"We are playing in the tablet space, but reading is at our core," Lynch said.

The 7-inch tablet weighs 11.1 ounces. Its larger sibling is 18.2 ounces, making it lighter than the iPad and making them both more appropriate for reading, he added. The iPad weighs about 23 ounces.

Barnes & Noble's new devices, available for pre-order on Wednesday, will ship in October and be in U.S. stores in November. They will be on sale in Britain beginning in late November at chains including Sainsbury's (SBRY) and Waitrose.

(Editing by Prudence Crowther and Andrew Hay)

Get info on stocks mentioned in this article: