So I was standing next to this friend of mine the other night when he casually mentioned that he might be joining the board of Barnes & Noble. My first reaction. Dude, the Nook has no chance. No one talks about the Nook. No one uses the Nook. I sit in a Barnes & Noble Starbucks quite a few days a week and I have never ever seen anyone even pause to look at the huge Nook display at the front of the store. You have to give that thing away to get anyone to use it. It's the only hope. Quite possibly Barnes & Nobles only hope not just in the eReader market but for their survival. In ten years there are not going to be any bookstores to walk into.
Well I get up the next day find out that Barnes has broken off talks with a gentleman named Ron Burkle to expand the B&N board by three seats, and that a judge had ruled against Burkle in his attempt to increase his ownership position at B&N. Ron Burkle is seriously rich. He is in the Forbes 100. He owns an investment company called Yucaipa.
So quicker than you can say kindle Yucaipa started a proxy fight. Mike McQuary, whom I worked with for a number of years, is on Yucaipa's slate of nominees for Barnes & Noble's board of directors.
If you are ever going to read SEC filings proxy statements are the best. Proxy statements filed by a party other than the registrant are the very best. They are full of intrigue. Buried with the proxy statement is this little gem:
In Yucaipa’s view, the B&N College acquisition (Barnes and Noble purchased B&N College for $514 million. B&N College just happened to be owned by the Barnes & Noble CEO and his wife) benefitted the Riggio family but does not make strategic sense for the Company. It gave Barnes & Noble over 600 retail textbook locations and essentially doubled the Company’s exposure to a “brick and mortar” market segment most at risk to technological changes, including increasing online textbook sales and digital textbook downloads. Yucaipa believes this capital could have been better and more timely utilized to support the Company’s digital media and e-books strategy.
Yucaipa understands the need to aggressively go after the e-books market. And my bet is that McQuary is thinking the same way I am about what to do. Amazon wants to view Kindle as a business that will stand on its own. Apple is proud of the iPad.
Barnes & Noble has got to get price/promotionally aggressive on the Nook. Is anybody asking for a Nook this Christmas? No. Change that by giving the things away on Black Friday with the purchase of x number of books. Treat the Nook cost as a marketing customer acquisition expense. With a small and shrinking market share a razor and blades strategy is B&N's only chance in the digital media and e-book world.
If they don't use it Barnes and Noble becomes Tower Records.