Barnes & Noble has reached an agreement with Samsung for the technology giant to develop co-branded tablets that will include Nook software.
The deal meets B&N objectives of cutting its hardware manufacturing costs, while continuing to produce digital devices that will offer a link to its Nook content. Simultaneously, with the announcement of the Samsung agreement, B&N disclosed that it will sublet its 280,000 sq. ft. Palo Alto, Calif., offices to Google and move the Nook staff from those offices to an 88,000 sq. ft. facility in Santa Clara, Calif. B&N College’s digital education employees that have been in Palo Alto will relocate to a facility in Mountain View, Calif.
B&N CEO Mike Huseby told PW the agreement with Samsung leverages Samsung’s strength in hardware, and B&N’s strength in digital content. As B&N has looked to downsize its hardware footprint, Huseby has repeatedly said it is key for B&N to remain in the device business.
To that end, the Samsung deal allows B&N to sell new color devices as well as the dedicated Nook black and white e-readers, which B&N will continue to make on its own. The deal, per Huseby, permits B&N to continue its “pivot from a hardware-centric company, to a content-centric company.”
The first of the new co-branded 7-inch devices, called Samsung Galaxy Tab 4 NOOK, are expected to be released in August. Customers who buy a Samsung Galaxy Tab 4 NOOK will open the device to a Nook page that will connect to the Nook digital bookstore. As for device retailing, the Tab 4 Nook will be sold in B&N trade bookstores, as well as through bn.com. Huseby added that B&N has the option to offer the device in its college stores if demand warrants, and that there are opportunities for other distribution channels as well.
B&N is committed to buy 1 million devices in the first 12 months after the launch, although that period could be extended by three months. The price of the new color device has not been officially released, but documents filed with the SEC show it will likely be under $400.
Huseby said the under $400 figure is a range, and that B&N's research shows this rough price point is of greatest interest to its customers. B&N also has the option of having Samsung develop a higher-priced tablet at a later date.
The agreement also calls for Samsung to help B&N market the new devices. One of the problems B&N encountered when it marketed Nook tablets was that it was heavily outspent by Apple and Amazon. Samsung has much deeper pockets than B&N and can therefore actively promote this device. Huseby noted that the marketing agreement shows that both B&N and Samsung are committed to making the new device a force in the marketplace.
Returning to the subject of the subleases, the relocations are expected to occur by the end of the first quarter of fiscal 2015 in July. In February, B&N reported that it cut about 190 positions from its Nook hardware staff. The company said it expects the relocation to save B&N approximately $10 million in annual lease costs and reduce its future lease commitments by approximately $102 million.
