Barnes & Noble Bullish, Even On Drastically Shrinking Print Market

Speaking at Liberty Media’s annual investor meeting this afternoon, Barnes & Noble (NYSE: BKS) CEO William Lynch said the company expects the size of the print book market to decrease by a third by 2015, while the e-book market grows by 700 percent–and B&N sees itself taking larger shares of both the print and digital book markets in that time. Lynch expects the company will sell $1.8 billion of digital content in fiscal year 2012, with particular growth coming from self-publishing service PubIt!–now the fastest-growing area of the company’s digital business–and Nook Newsstand, while print book sales will proliferate as competitors close and consolidate their book sections.

Growing Print and Digital Market Share: Here’s market share now, print vs. digital: 17 percent of $21 billion print book market, 25 percent of $1 billion e-book market.

And here’s what the company expects in 2015: 20+ percent of a $14 billion print book market, 30 percent of a $7 billion e-book market. (Note they expect the size of the print book market to fall by a third and e-book market to grow by 700 percent in four years):

*If you can’t read the text at the bottom of the slides, it says “Based on company estimates of the U.S. Consumer Book Market derived from Veronis Suhler Stevenson Cummnications Industry Forecast”

Hey, Ladies: Lynch reiterated that the company’s strategy is to market to women, something he was more circumspect about at the launch of the Nook Tablet. When people ask how the Nook Tablet will compete with the iPad, he said, the answer is, “We don’t, really. We’re designing for a much different consumer. If you look at the customer we’ve been accumulating with Nook, it’s mostly women. It’s the same in our stores. 60% of books and magazines are bought by women. When we design these products, we’re talking about portability–men too, of course, but women who can take these products in purses and bring them around. Jane Lynch, starring in the newest Barnes & Noble ads, “has high CUE scores with our primary target market,” William Lynch said.

In-Store Support: When Barnes & Noble polled customers at the end of last holiday season, the #2 reason they chose Nook over Kindle was Barnes & Noble’s in-store support. (Lynch didn’t mention the #1 reason.) “Bookstores are our biggest competitive advantage,” Lynch said, and “no one has the reach we do to service these customers. This will only become more important as you cross the chasm from early adopters into early majority and the mass market. That’s where we are right now: Just getting to the end of the early adopters and getting into the early majority….I’d invite you to go into even a Best Buy, who in my view probably does the best job of educating their salesforce…go into a Walmart, Target, etc.” Those stores sell Nooks, but “there’s a totally different level of service you will get when you go into a Barnes & Noble.” A new Jane Lynch ad begins with her saying, “Hi, can you help me?” and includes a “Nook support is always freeeeeeee” jingle.

Barnes & Noble is increasing the footprint dedicated to its in-store service and has rolled out “Digital Shops” in 40 of its top stores, “meant to be the preeminent place for consumers to learn about e-books, get their Newsstand subscriptions, learn about new types of content coming down the pike, and learn about our Nook products.”

Nook Newsstand Is Key: The Digital Shops aren’t just about the Nook, Lynch said: “They’re about getting people to subscribe to our ecosystem. That’s where we can get them to subscribe to magazines and lucrative newspaper subscriptions. The [electronic version of] the WSJ is $20 per month” and B&N gets a large percentage of that. Barnes & Noble sees digital magazine and newspaper subscriptions as one of the fastest growing areas in digital content, now that the production is becoming less expensive. It now “costs on average $15,000 per issue to put out a digital magazine,” Lynch said, which is cheap compared to what it once was. Nook has the highest market share of any digital newsstand, he said (it has been around a lot longer than Apple’s or Kindle Fire’s), and “we see this growing with the explosion of more content.”

Self-Publishing Grows: PubIt! is “the fastest growing area of our digital business in both catalog as well as in sales volume. Last week we added over 4,000 new titles to our digital repository in PubIt and developed relationships with over 225 independent authors.” [I’d note: PubIt! tends to get overshadowed by Kindle Direct Publishing but if Lynch is identifying this as such an important part of B&N’s digital business, it likely is for Amazon (NSDQ: AMZN) as well and it is worth watching both services closely for improvements, enhancements, exclusives, etc.]

Borders’ Loss Is B&N’s Gain: Despite a temporary loss in book sales due to Borders’ liquidation specials, Barnes & Noble is now ready to benefit from industry consolidation and sees this as a $14 billion opportunity in the U.S. by 2015. “With Borders going out, there is $2 billion up for grabs this holiday season,” Lynch said. The company expects a $300 to $400 million annualized sales lift.

Barnes & Noble also sees mass market stores like Target and Walmart decreasing the number of books they carry, to the tune of $10 billion in consolidation. “We will benefit,” Lynch said. “We are vital to publishers, and the publishers understand this. We carry about 95,000 ISBNs [book identification numbers] in our stores, and most of the profit these publishers reap annually is from their backlist. Only 5 percent of what Barnes & Noble sells is bestsellers. We’re critical to the cash flow and profitability of these publishers. As these other retailers divest from the category, we only become more important.” (By contrast, Lynch said the next largest bookseller, Walmart, carries just 2,500 ISBNs.) Barnes & Noble is becoming “the sole showcase for a publisher’s large catalog.” As “the only national bookstore chain for real estate developers,” it also gets “very favorable leases,” he said. He said Barnes & Noble will sell more books in 2015 than it does now.

Toys and Games Are a “Massive Market”: Lynch said Barnes & Noble doesn’t intend to compete with “Walmart and Target in the plush area,” but is instead wants to be “the world’s best educational toy and game destination. Moms can go into Barnes & Noble and feel good the way they always have” when they pick up a birthday present, something “good and nurturing” for the child. B&N is rolling out thousand-square-foot Toys & Games sections in over 500 of its stores for the holiday season. Prior to the launch of those sections, “our toys and games business was up 53 percent year on year,” Lynch said, so it’s only growing.