April 12 (Bloomberg) -- Barnes & Noble Inc., the largest U.S. bookstore chain, introduced a Nook e-reader with a screen that glows in the dark, challenging Amazon.com Inc. at a time when prices for digital books may start falling.
Both companies have touted page turn speeds, battery life and weight to attract customers. Now Barnes & Noble has added an adjustable light to the screen on its Nook Simple Touch. That’s easier than connecting a light to Amazon’s Kindle Touch, which can’t light up, and offers benefits such as helping a wife keep reading in bed while her husband sleeps, said Chief Executive Officer William Lynch.
“Having to clip on the light at night, there is the consumer cost of the hassle factor,” Lynch said in an interview today. The glow feature “is the biggest revolution in the dedicated single-purpose e-reader market since the launch of the Kindle in 2007.”
Barnes & Noble, based in New York, has anchored its future to the fast-growing digital book market by investing in the Nook at the expense of profits as more readers adopt the technology. Less than three years after introducing the Nook, the company projects the business to generate $1.5 billion in annual revenue, or about 20 percent of total sales.
Lower E-Book Prices
In the quarter that ended Jan. 28, revenue from the Nook unit rose 38 percent to $542 million, while total sales rose 2 percent at its 690 retail stores. Barnes & Noble has about 30 percent of the U.S. e-book market, compared with Amazon’s 60 percent.
Changes to the e-book pricing model may make it harder for Barnes & Noble to hold onto its market share. In 2010, publishers agreed to set the so-called agency model with Apple Inc., Amazon and Barnes & Noble, that didn’t allow retailers to discount e-books.
Before that, Amazon was selling some new e-books at a loss to gain market share. After the agency model was instituted, the playing field was leveled and helped Barnes & Noble, Apple and others boost sales, according to Michael Souers, a retail analyst for Standard & Poor’s in New York.
The U.S. government sued Apple and two publishers yesterday for conspiring to fix e-book prices. CBS Corp.’s Simon & Schuster, News Corp.’s HarperCollins and Lagardere SCA’s Hachette Book Group settled and agreed to end the agency model agreements. Apple and publishers Macmillan, a unit of Verlagsgruppe Georg von Holtzbrinck GmbH, and Pearson Plc’s Penguin didn’t settle.
Allowing retailers to set prices will help Amazon bolster its leading market share because it can subsidize lower prices, even selling e-books at a loss, and relying on profits from its wide assortment of products, Souers said. Barnes & Noble faces greater challenges now because the retailer has been losing money as it spends on developing and marketing the Nook.
“It’s a pretty big negative for them because it gives Amazon the flexibility to undercut them on prices,” said Souers, who recommends selling Barnes & Noble shares. “Barnes & Noble would have to follow suit and margins will be impacted, or they don’t follow suit and risk losing market share.”
Lynch declined to comment on the cases, saying he would only answer questions about the new Nook. Amazon plans to lower e-book prices as soon as possible, according to Drew Herdener, an Amazon spokesman.
Touch for $139
“Things look bleak now that the Justice Department is unshackling Amazon,” said Paul Aiken, executive director of the Authors Guild in New York. “What’s bad for Barnes & Noble is even worse for traditional bookstores, which may well find Amazon giving away e-book versions of bestselling hardcover titles as a means of selling more Kindles.”
Barnes & Noble began taking orders for the new Nook Simple Touch today at $139. The first Touch model, introduced about a year ago, is priced at $99. Amazon sells the Kindle Touch, which doesn’t have a light feature, for $139 and a version with on-screen advertising for $99.
While Barnes & Noble trailed Amazon in entering the digital reading market with the first Nook debuting two years after the Kindle in 2009, it’s been faster to innovate.
The original e-readers of both companies used e-ink, which looks like an Etch A Sketch, and didn’t have a touchscreen. Barnes & Noble then offered a version with a color liquid-crystal-display touchscreen, called Nook Color, in October 2010. Priced at $249 and run by Google Inc.’s Android software, the device gained traction as an inexpensive alternative to Apple’s iPad.
Barnes & Noble upgraded its e-ink e-reader with a touchscreen and made it lighter with the release of the Nook Simple Touch in May. Amazon introduced its color-screened Fire and Touch in September.
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