Barnes & Noble Key to Apple’s Domination of Consumer Tech

by Anthony John Agnello | August 1, 2011 2:33 pm

Barnes & Noble Key to Apple’s Domination of Consumer Tech

Barnes and Noble Barnes & Noble Key to Apple's Domination of Consumer TechIt’s far from confirmed, but there’s a very good reason investors should be intrigued by early rumors that Apple (NASDAQ:AAPL[1]) might acquire book retailer Barnes & Noble[2] (NYSE:BKS[3]). The rumor first popped up[4] on BGR on Thursday.

An “unproven source” indicated that Apple would purchase the company, incorporate its vast selection of electronic books into its own (struggling) e-book store for the iPhone and iPad, the iBookstore, and do away with Barnes & Noble’s Nook e-reader device. The company also would convert many of Barnes & Noble’s 700-plus retail stores into Apple stores.

The price tag on Barnes & Noble would hardly break Apple’s bank; BGR‘s source places the acquisition between $1 billion and $1.5 billion. As of the end of the second quarter, Apple has $76 billion in cash stockpiled.

Does it makes sense for Apple to take on a company that has been struggling on and off as consumers increasingly turn away from physical media — the books, magazines, DVDs and CDs that always have been Barnes & Noble’s trade — toward electronic media? Barnes & Noble’s total sales for the fiscal year that ended April 30 came to $7 billion, but the iPad generated $6 billion revenue in the second quarter of 2011 alone[5]. The company wouldn’t exactly be the jewel in Apple’s crown.

Still, ownership of the company would have very clear and powerful benefits for Apple. Amazon (NASDAQ:AMZN[6]) is gearing up for what appears to be a knock-down, drag-out fight with Apple for supremacy in portable entertainment and digital retail. That company’s Kindle store already is a greater presence than the iBookstore on Apple’s iPad and iPhone.

Amazon also beat Apple to the punch earlier this year by delivering Amazon Cloud Player, a cloud storage service and delivery system for digital music that lets users stream purchased songs from any web browser and most mobile devices, ahead of Apple’s own iCloud.

In the streaming video business, Netflix (NASDAQ:NFLX[7]) is trouncing both companies, but Amazon is bulking up. It began offering subscribers of Amazon Prime (its premium subscription program that offers deals on shipping) access to thousands of streaming television shows and movies earlier this year. Amazon will bring all of these digital distribution businesses to its fight with Apple when it releases a much-rumored Kindle tablet this fall. The tablet is said to be on par with the iPad but will be available for $450 — $50 less than the lowest-tier iPad in Apple’s stable.

By purchasing Barnes & Noble’s Nook and online media distribution business, Apple would be able to match Amazon on every front. The company also would be able to diminish any momentum Amazon has with consumers later this year by applying its famous marketing savvy to the redefinition of Barnes & Noble.

There is another, possibly more significant reason for Apple to acquire Barnes & Noble: It would give the Cupertino, Calif.-based company direct access to the university bookstore business. Barnes & Noble operates more than 600 of the university bookstores in the United States. By taking on the company, Apple would have a direct line into one of the most desirable consumer markets in the world.

Apple already is pulling in cash from college students with the iPhone, iPad and MacBook Air laptop line. A fleet of Apple stores on college campuses across the country would merely strengthen its growing chokehold on the American technology consumer market.

As of this writing, Anthony John Agnello did not own a position in any of the stocks named here. Follow him on Twitter at @ajohnagnello[8] and become a fan of InvestorPlace on Facebook[9].

Endnotes:
  1. AAPL: http://studio-5.financialcontent.com/investplace/quote?Symbol=AAPL
  2. might acquire book retailer Barnes & Noble: http://investorplace.com/53483/fridays-apple-rumors-apple-barnes-noble/
  3. BKS: http://studio-5.financialcontent.com/investplace/quote?Symbol=BKS
  4. first popped up: http://www.bgr.com/2011/07/28/does-apple-have-any-interest-in-buying-barnes-noble/
  5. in the second quarter of 2011 alone: http://investorplace.com/52624/ipad-value-tech-entertainment-stocks/2/
  6. AMZN: http://studio-5.financialcontent.com/investplace/quote?Symbol=AMZN
  7. NFLX: http://studio-5.financialcontent.com/investplace/quote?Symbol=NFLX
  8. @ajohnagnello: http://twitter.com/#%21/ajohnagnello
  9. InvestorPlace on Facebook: http://www.facebook.com/pages/InvestorPlace/178906405484848

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