Microsoft is offering to pay $1 billion to buy the digital assets of Nook Media LLC, the digital book and college book joint venture with Barnes & Noble and other investors, according to internal documents we’ve obtained. In this plan, Microsoft would redeem preferred units in Nook Media, which also includes a college textbook division, leaving it with the digital operation — e-books, as well as Nook e-readers and tablets.

The documents also reveal that Nook Media plans to discontinue its Android-based tablet business by the end of its 2014 fiscal year as it transitions to a model where Nook content is distributed through apps on “third-party partner” devices. Speculation about the plan to discontinue the Nook surfaced in February. The documents we have are not clear on whether the third-party tablets would be Microsoft’s own Windows 8 devices, tablets made by others (including competing platforms) or both. Third-party tablets, according to the document, are due to get introduced in 2014.

Nook e-readers, meanwhile, do not appear to fall into the discontinuation pile immediately. Rather, they’re projected to have their own gradual, natural decline — following the general trend of consumers moving to tablets as all-purpose devices.

Microsoft and B&N representatives declined to comment for this story.

A deal to buy the digital assets of Nook Media is the natural next step for Microsoft, which first announced a plan to work with Barnes & Noble on its Nook devices and content in April 2012, ponying up $300 million at the time to help. That plan included an additional $180 million advance to develop content for its Windows 8 devices — which Nook has been doing.

To date, there have been 10 million Nook devices sold, including both tablets and e-readers, with more than 7 million active subscribers. Microsoft has seen limited interested in its Windows 8 devices (although it says it has sold more than 100 million licenses for the OS to date). Currently the Nook app is available on every major platform, including Android, iOS and Windows.

Nook Media split from the retail arm last October with a $300 million investment by Microsoft for a 16.8 percent stake in the company. The partnership was aimed at getting B&N content on then-nascent Windows 8 tablets. At the time, President of Digital Product at Nook Media, Jamie Iannone, said “It’s hardware, software, content: everything Nook is part of Nook Media. There will always be a long-term relationship between Barnes & Noble and the Nook business.”

Nook’s decline seems to have helped alter company strategy. Barnes & Noble founder Leonard Riggio proposed buying back the whole of the company’s retail operation.

The documents TC has seen values B&N at $1.66 billion. When Nook Media was first formed, the valuation of that division alone was $1.7 billion. When Pearson invested $85 million at a 5 percent stake in January, it was valued at $1.8 billion. If the deal goes through, Microsoft’s $1 billion purchase will be well below the price it had originally bought in at.

Projections in the document, which are based on company filings and management discussions, show the Nook unit bringing in total revenue of $1.215 billion for fiscal year 2012 (which for Barnes & Noble ended April 30th), for a loss of $262 million in earnings before interest, taxes, depreciation and amortization (EBITDA). It expects revenue to fall to $1.091 billion in fiscal year 2013, for a loss of $360 million as tablets are phased out — and estimates revenues to gradually recover, up to $1.976 billion by fiscal year 2017, for EBITDA profit of $362 million.

In the meantime, the Nook division has taken a beating this year following a slow holiday season. The new models have sold at a discount for weeks at a time and their flagship 10-inch Nook HD+ fell from $269 to $179. Kindle is offering the Fire HD for the same price. The hardware, while in many ways superior to Amazon’s, seems to have fallen behind in the race to market share and revenue. If Microsoft steps in, the dedicated e-reader race between the stalwart B&N and Jeff Bezos’ Amazon could be over.

John Biggs contributed to this article.

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The Nook HD and HD+ got a great update late last night (via Engadget), as Barnes & Noble finally moved away from its closed and system-specific app and media ecosystem. The two Android tablets now offer Google Play, and new devices will ship with the app pre-loaded, while existing owners can get it via a software update over-the-air or via direct download.

Other changes with this update include the introduction of some stock Android apps, including Gmail, Maps and Chrome (which replaces the Nook’s existing web browser as the default option). Essentially, Barnes & Noble is turning the Nook HD line into a very cheap Android tablet play, and not in the limited way it was doing so before.

Where once the Nook brand was a reader first, with Android-powered full-color readers with some tablet functionality, now it looks like we’ll see Barnes & Noble embrace the tablet identity much more fully. Another sign that the book seller is banking on tablets as a much broader attempt at reaching customers is the fact that the Nook Tablet and Color don’t get the Play update, meaning we could see those left behind in terms of future hardware updates.

John took a look at the updated Nook HD+, and found it impressive, especially at $269, or a full $60 cheaper than the cheapest iPad (16GB Wi-Fi iPad mini). The problem, though, was summed up in John’s conclusion: the Nook HD+ is a great upgrade as a reader, but not necessarily a real tablet competitor. Opening up the broader Android software market place and its selection of tablet apps definitely helps to change that.

The Nook line could be the key to Barnes & Noble’s future, but right now it’s also a weight hanging around its neck, as slow sales of the Simple Touch e-reader prompted a fire sale to help move more HD+ inventory, and the Nook division lost cash in the most recent fiscal quarter. There’s still an opportunity for a cheap Android tablet to capture the hearts and minds of consumers, however, and Nook is now in a better position to capitalize on that now that its ecosystem wall has come down.

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There’s been nothing but bad news coming from Barnes & Noble lately, and it seems as though the company has decided to resort to the desperate measure of giving away Nooks for free. Reuters is reporting that customers who purchase the $269 Nook HD+ will receive a $79 Simple Touch free of charge as a limited offer.

It’s a great deal if you’ve been looking for both a tablet and an ebook reader, but I can’t help but feel a little sad that this is what it’s come down to. Nooks have always been solidly designed products, it’s just that they were never able to catch on with consumers after being doubly sucker punched by the iPad and the Kindle.

In January, Barnes & Noble revealed its plans to close nearly 20 of its retail locations over the next decade, which was followed by news last month that Nook revenue had dropped 26 percent YOY.

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Barnes & Noble has reported Q3 2013 earnings for the fiscal three-month period ending January 31, with a loss of $0.18 per share on quarterly revenues of $2.2 billion. That’s down 8.8 percent from the same period last year, when B&N reported gains of $0.71 per share.

Net losses in Q3 totaled $6.1 million, a clear drop from net earnings of $52 million a year ago.

Analysts predicted revenues of $2.4 billion, and an EPS of $.54. Last quarter saw revenues of $1.9 billion and losses of $0.04 per share.

Q3 has been a messy one for the retailer, which started out as a college text book store. The holiday period, which is usually a sure spike for retailers, left Barnes & Noble with a 10.9 percent sales decrease on B&N retail and BN.com from the same time last year. B&N blames this on declining Nook hardware sales at its retail locations.

Reports are floating around that Barnes & Noble may spin out its Nook hardware business, or perhaps focus its OEM vision on partnerships with Microsoft.

Barnes & Noble denies the reports, with CEO William Lynch stating today that the company is adjusting the Nook strategy and righting the segment’s cost structure. But based on the widening losses compared to Barnes & Noble’s glory days, a drastic change could be needed.

The Nook segment had revenues of $311 million during the nine-week period ending December 29, which was a 12.6 percent decrease from last year’s holiday Nook sales. All in all, Q3 saw a 26 percent YOY drop in Nook retail.

Barnes & Noble announced on January 28 that it would shutter nearly 1/3 of its retail stores, bringing its total number of locations from 689 to between 450 and 500 over the next decade.

Luckily, digital content sales rose 13.1 percent over that same nine-week holiday period, indicating that a departure from hardware and a focus on digital products could be the saving grace for the company.

The company also said on Valentine’s Day that it expected the Nook business to post an increased full-year loss, exceeding the $262 million loss seen in fiscal 2012. Though, B&N also expected losses to be less than $3 billion.

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Amazon may have been touting its record holiday sales season, but Barnes & Noble is now reporting the opposite: according to a report released today, the company’s retail businesses, which include the Barnes & Noble bookstores and BN.com, saw a 10.9 percent decrease in sales over the nine-week holiday period ending December 29, 2012. Nook sales and BN.com were also down.

The retail segment had revenues of $1.2 billion, and the company said the nearly 11 percent decline was attributable specifically to troubles in its brick-and-mortar stores and declining Nook sales. 8.2 percent of the decline was due to lowered store sales  store closures and lower online sales. Sales at stores, excluding Nook products, declined by 3.1 percent compared to last year.

But adding in the Nook sales don’t help the bottom line: B&N also said that sales of the Nook products had dropped as well, with the company noting the “lower unit volume and average selling prices.”  The Nook segment, which includes ereaders, digital content and accessories, had revenues of $311 million during the holiday period – or 12.6 percent down from a year ago. Digital content sales, which include digital books, newsstand, and apps, were up 13.1 percent, however, indicating that at least those who own Nooks are using them to buy content.

The company didn’t break out the sales volume for specific devices, like the Nook HD or Nook HD+, though. In a statement, B&N CEO William Lynch said that the Nook devices got off to a good start over the Black Friday period, but “fell short of expectations for the balance of holiday.”

“We are examining the root cause of the December shortfall in sales, and will adjust our strategies accordingly going forward,” he said. As a result of the holiday declines, B&N now syas that it expects Nook media revenue of approximately $3 billion in 2013.

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Nook Media, the Barnes & Noble subsidiary that handles Nook e-readers and digital content, announced today that education publisher Pearson has invested $89.5 million, giving it a 5 percent stake in the company.

Nook Media spun out from Barnes & Noble earlier this. B&N owns 78.2 percent , while Microsoft (which made a big investment aimed at  bringing Nook content to Windows 8 devices) owns 16.8 percent, according to the press release. The deal gives the company a post-money valuation of $1.789 billion.

The companies paint the deal as a partnership allowing Nook to improve the experience it offers to students. In the release, Pearson North America CEO Will Ethridge says:

Pearson and Barnes & Noble have been valued partners for decades, and in recent years both have invested heavily and imaginatively to provide engaging and effective digital reading and learning experiences. This new agreement extends our partnership and deepens our commitment to provide better, easier experiences for our customers. With this investment we have entered into a commercial agreement with NOOK Media that will allow our two companies to work closely together in order to create a more seamless and effective experience for students. It is another example of our strategy of making our content and services broadly available to students and faculty through a wide range of distribution partners.

In the regulatory filing discussing the investment, Nook Media also says that it “expects” its holiday sales numbers, which it plans to release on January 3, will fall below the company’s previous projections.

[via PaidContent]

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Owners of the Nook Tablet and Nook Color (plus Android tablets with the Nook app) will now be able to catch up on the adventures of Superman, Batman, Sandman, and other characters published by DC Entertainment. Barnes & Noble announced today that more than 100 of DC’s graphic novels are available through Nook Comics.

To facilitate the reading experience, Barnes & Noble also says it’s adding a new feature called Zoom View, allowing readers to zoom in on a particular panel, then read the graphic novel panel-by-panel. This will probably sound familiar to users of ComiXology and affiliated apps on the iPad, where the Guided View experience has gone a long way towards making comics pages readable on smaller screens.

Marvel and Barnes & Noble made a similar partnership announcement for Nook Tablets last fall. Collectively, these announcements suggest that the Nook is making steps to catch up with other devices (the Kindle being the bigger competitor, but the iPad being the trendsetter when it comes to digital comics) as a comics reading experience.

In the case of DC, the news also means that the publisher has gotten over its dispute with Barnes & Noble from last fall. DC had announced that it was offering 100 graphic novels exclusively on the Kindle Fire, prompting Barnes & Noble to pull those titles from the shelves of its physical stores, claiming, “we will not stock physical books in our stores if we are not offered the available digital format.” Well, now they’re being offered the digital format.

Those 100 Nook titles will include a number of graphic novels collecting the first storylines from The New 52, the initiative that DC launched last fall to reboot all of its characters (and also to take a more aggressive approach to digital distribution). Other titles include Watchmen, All Star Superman Vol. 1 and 2, and The Sandman Vol. 1-10.

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Microsoft really wants to make sure it can compete against Amazon and Apple in the e-books space — and it’s putting its money where its mouth is. In addition to the $300 million Microsoft is investing for a 17.6 percent stake in Newco, the un-named subsidiary that will now house B&N’s Nook and other digital businesses, it looks like it is putting other money towards the venture, according to the 8-K form filed by Barnes & Noble earlier today.

A section called “Commercial Agreement” notes that Microsoft will be paying the Barnes & Noble subsidiary $180 million in connection with revenue sharing on the Nook app that B&N will make for the Windows 8 platform. This is nonrefundable, the filing notes. Microsoft is also paying $125 million (equal to $25 million over five years) “for purposes of assisting NewCo in acquiring local digital reading content and technology development.” This, too, looks to be nonrefundable.

The 8-K form appears to note that this is on top of the $300 million investment, and it will only become effective once the investment deal is closed. It also notes that it can only be terminated by Microsoft in case of bankruptcy or insolvency of Newco; a material default at Newco; or by Newco for a similar material default by Microsoft. The exact terms of the revenue share are not included in the filing.

The 8-K form was filed after the two companies came together for a joint call with analysts. That, too, gave a little more insight into what the deal will entail.

Andy Lees, president of Microsoft, is leading on the deal for his team, and he made it clear that while today there was no news on devices or any “product roadmap,” this was about more than just a book app for Microsoft’s next OS: “The option here is to define the future of reading,” he said. “We’re more than just the platform provider.” His take today was to turn that into a wider conversation about experience and discovery, but what people really want to know was whether that means a Windows Nook.

Today, no direct answer on that but no denial, either. “We’ve been working with hardware manufacturers to provide [the minimum requirements]” for them to make Windows 8 tablets with the lowest-costing processors and other equipment, he said. He also claimed that Microsoft has “not yet done teardown of the Nook,” to determine whether it would run Windows 8 as it is today.

Similar to the lack of specifics on hardware there was also little detail from the B&N end on Windows 8, but again no flat-denial: “We have no plans to sell Windows software right now…but this partnership opens up a whole host of opportunities going forward,” noted B&N’s CEO William Lynch.

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An enlightening and frustrating evening in equal measure this evening in London, where Barnes & Noble sponsored a Nook developer event and panel discussion on the state of the tablet market.

The bookseller is definitely planning to launch its tablet outside of the U.S. — the company has confirmed as much, and the fact that they’re here in London attests to that — but after a developer event at Mobile Monday London very light on details and developer tools, the takeaway from several developers was that a lot more work needs to be done before B&N will be able to make a credible entry into the market here.

On the plus side, the company’s director of developer relations later gave some enlightening numbers on who it is that is using those devices in the U.S.

In packed room of app makers, Barnes & Noble’s director of developer relations, Claudia Romanini, took the audience through some of the basics of developing apps for the Nook tablet. In attendance, a lot of Android developers. We caught up with a couple to gauge their feedback, and they were a bit perplexed on why B&N held the event in the first place, given how little they are able to offer at the moment in terms of information:

– Major focus around U.S. market, for now, is completely unfriendly to doing business abroad. Consumers currently need to have U.S. credit cards in order to purchase apps. Meanwhile, developers do not need U.S. bank accounts in order to get paid, but they will still be paid by check, in U.S. dollars. And one developer who won a Nook in the raffle after the event told me that he’ll need to pay an import tax if he hopes to get the device eventually. (“They could have brought it over with them today. Why do I have to pay for my prize?” he asked.)

– There are no details on when the tablets will go to its first non-U.S. market, although there will be no Barnes & Noble stores opening here alongside a launch. Specifically, Romanini said: “We’re expanding out digital business, but not our stores.”

In the U.S. the physical stores have been an instrumental part of the company’s marketing of the tablets: apps and e-books are free to read in the stores for an hour, and there are tables to sample tablets; the stores also market specific apps.

There have been many rumors that Barnes & Noble will partner with UK bookseller Waterstones, which has said it would launch a tablet later this year and could potentially take on some of these physical store roles — although neither side has confirmed this plan, and Waterstones doesn’t have a similar kind of “hangout” feel in their retail locations.

– Lack of functionality. There are still no in-app payments, or in-app advertising, available for apps on the Nook. This is partly why paid apps have done well but also cuts out a big part of the business model used by developers here — especially since the in-store app usage, at this moment, would not apply here because B&N is not opening stores here.

– Low number of apps. Two developers told me they thought that Romanini’s characterization of the number of apps in Nook in the “thousands” — not tens or hundreds of thousands; just thousands — was alarming: yes, it means more visibility and discoverability, but goes very much against the ethos of an active marketplace.

For all the vagaries of the developer event, Romanini then delivered on some pretty amazing specifics on how the Nook is doing in the U.S.

She says that B&N has sold “millions of units” of the Nook. Figures have put the Nook’s market share at around five percent, compared to the over 50 percent held by the iPad from Apple and the 14-odd percent taken by the Kindle Fire in its short time on the market. The Nook is currently selling for $249 for its highest-range device.

She noted that at the moment “over 70 percent” of buyers of the Nook are women aged between 25 and 45. They live within 15 minutes of a B&N store and often have kids. “When you go in, you can see kids running around loose in the store,” she said. “We even have nook tables in the stores for the kids to try out apps.

“We very focused on families and children,” she continued, and she says they know their tablet customer so well they have given her a name: Julie. “We know what Julie would like to buy and how to approach her.”

She says that “Julie” does not like to consume apps on phones because she is “a bit afraid of data consumption,” and because of that B&N has found a good way to market apps to her: by making them free when she is in the store to try them out. This, she calls, “approaching the device from a content perspective.”

She says that because of this mother/female focus, and the fact that the Android Market (now Google Play) are not very strong on female apps, B&N has put a big emphasis them in its Nook app store. One-third are children’s and education apps; one-third are games; and one-third are lifestyle apps covering areas like fashion, food, health, fitness and travel. “Basically, anything that would interest a woman,” she said.

Great information, but will B&N try to use some of it in its global push? With no details to link up the two sides of the evening, our screen on that one remains dark.

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Twitter has just launched a new app refresh for its mobile apps in Android and iOS, as well as expanded its offerings to the Kindle Fire and the Barnes & Noble NOOK and NOOK color.

Returning to the iOS and Android apps is the ability to swipe individual tweets to reveal tweet actions like ‘Reply,”Retweet,”Favorite’ and ‘Profile’ — a feature which was initially available in Tweetie, the app that eventually became Twitter for mobile, and then removed inexplicably. Another blast from the past is the ability to copy and paste text of tweets and user profiles, which I for one really missed.

One clear sign we live in a post-Pathgate world? The iPhone app now gives you a brusque, “We will securely upload your contacts to help you find friends and suggest users to follow on Twitter” notification you when you try to find friends, buried deep under the ‘#Discover’ tab (which I’ll elaborate on in a moment).

In addition to the major changes above, Twitter has also added the ability change your font size and to tweet, copy and mail a link with in a tweet or read a link later if you enable that setting.

While the design of Direct Messages has been further streamlined and now users can mark all as read,  the feature itself is still disappointingly buried under the vague ‘Me’ tab. Sadly enough for those who find Twitter to be a superior short messaging platform, you still have to take two steps to get there, whereas old school Direct Messaging was given prime real estate with rest of the core functions.

You know what replaced easily accessible DMs (Grrr)? This terrible thing called #Discover, which I guess lets me view all the trending topics I don’t care about like the #Brit Awards #MardiGras or #SometimesWhenImBored.

Twitter, hear me out bro: I’ve never gone to #Discover with the intent of actually discovering something. In contrast, I visit my DMs about 20 times a day. How about you move the tab just for me? Pretty please.

Oh hell, I’m just going to download Tweetbot.

Article courtesy of TechCrunch