Barnes & Noble announced today that Microsoft was investing $300 million in a new Barnes & Noble subsidiary that will bring together the digital and college businesses of Barnes & Noble and separate them from the company's brick-and-mortar bookselling outlets.  Microsoft’s investment will provide it with a 17.6% stake in the as-yet-unnamed subsidiary, which B&N is referring to as Newco.  Microsoft and Barnes & Noble have settled their patent litigation, and going forward Barnes & Noble and Newco will have a royalty-bearing license under Microsoft patents for its NOOK e-readers and tablets.  The agreement paved the way for the strategic partnership announced today, which is clearly an attempt to cut into Amazon’s dominance in the digital reading realm.

 

B&N has not yet decided whether Newco will become a stand-alone public company or what sort of separation will occur between parent company and subsidiary.  The inclusion of Barnes & Noble’s college business in the new entity is an attempt to build on an acknowledged strength of B&N and attempt to gain a strong foothold in what could eventually become a lucrative part of the digital business, college text books.  If B&N can build “the preeminent technology for the distribution and management of digital education materials” as is the company’s stated goal, it could provide a strong foothold in the digital market.

 

One of the first benefits to come from the strategic partnership of Microsoft and Barnes & Noble will be a NOOK application for Windows 8, which will provide one of the world’s largest catalogs of digital books, newspapers, and magazines to hundreds of millions of Windows customers worldwide.

 

By spinning off its digital and college businesses, Barnes & Noble is reacting to stockholder criticism, though the exact nature of the separation between the company’s brick-and-mortar wing and its digital arm remains to be determined.