Wednesday, August 04, 2010

Is there still a market for content at retail?

I was in a Barnes & Noble store this afternoon when I overheard a customer ask a salesperson why the price of a book was so much lower online than in the store. The salesperson stumbled through a variety of stories: First, he said that the customer would have to to pay shipping on an online order below $25, so that might make the in-store price closer to online. Next, he said that Barnes & Noble's stores and online are two different companies for all practical purposes, and that the online store gives discounts to everyone. By the end of his "explanations," if I'd been the customer, I would have just gone home and purchased the book online. That experience, and some other recent events, got me thinking about the state of content sales at retail in the U.S.

If you're looking for a music store in the U.S., you may be looking for a long time. With a few exceptions, such as Trans World Entertainment and its f.y.e. stores, music store chains have died out. Once-powerful brands such as Tower Records, Sam Goody, Musicland, Wherehouse and Virgin Megastores now exist only as brand names owned by others or not at all.

In home video, Blockbuster's problems are well-known; its retail rental business is struggling against Netflix and Redbox, its kiosk business has barely gotten off the ground, and its online streaming business is virtually dead. There's not a single major player in U.S. retail video rental that hasn't gone out of business, or is just about ready to enter, is in or has recently left bankruptcy.

In books, Borders Group put itself up for sale in March 2008 but was never able to find a buyer; as of this writing, its stock is trading at $1.36/share on the NYSE. And yesterday, Barnes & Noble put itself up for sale, with the goal of "raising its market value," which it did, at least temporarily; the day of the announcement, its stock closed at $12.84/share on the NYSE, and today it closed at $15.31.

The most successful sellers of content in the U.S. are Amazon and Apple. They've used the Internet as a way to reach customers without needing a huge investment in stores, and their pricing models have made it impossible for all but the "big box" retailers like Wal-Mart and Target to compete. The move to digital content that's not only sold but distributed via the Internet gives the online merchants an even greater advantage: They can sell content and deliver it instantly.

Barnes & Noble plans to build 1,000 sq. ft. "boutiques" for its nook eBook readers in every store, located next to their cafes. To do so, they'll shrink or eliminate the music departments in the stores, and reshelve books and other merchandise to get the rest of the needed room. The question is, if Amazon is doing quite well with the Kindle without having any retail stores, and if once a customer purchases a nook, they have even less reason to go into a Barnes & Noble store, will the nook really have any long-term impact on the viability of Barnes & Noble's stores? And, if the nook won't help the stores in the long run, what else will?

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