Barnes & Noble's Nook attracts Liberty Media

NEW YORK — Why buy a bookstore?

John Malone, who made a fortune in cable television, is offering $1 billion for Barnes & Noble — trying to jump into a business so sick its No. 2 competitor, Borders Group, is on life support.

The difference is Malone and his Liberty Media conglomerate aren't betting on the books-and-mortar past, analysts say, but the promise of the electronic future.

Barnes & Noble's Nook electronic reader now accounts for 28 percent of the market for those devices. And the Nook has the potential to go beyond books to deliver all types of digital products, including music, magazines, TV shows and movies. That makes it a competitor not just to Amazon.com's Kindle but also to Apple's iPad.

"This deal is all about the device," said Sherif Mityas, a partner in the retail practice of global management-consulting firm A.T. Kearney. "As Apple proved, you need to have the content and the device. Malone has the content, and Barnes & Noble has the device. You're not buying the stores; you're buying the Nook."

Malone's empire, Liberty Media, operates three publicly traded companies — Liberty Interactive, Liberty Starz and Liberty Capital — through which it runs home-shopping network QVC and movie channel Starz.

It also holds stakes in numerous other online, media and communications companies. Some think QVC could be used as a marketing vehicle for Barnes & Noble's Nook.

With the backing of a media conglomerate, Barnes & Noble's digital business would be able to compete better with Amazon, Apple and others, said Gary Balter, a retail analyst at Credit Suisse.

Barnes & Noble's 700 stores may appear to be an albatross. But they could be transformed into places that mimic Apple's successful stores.

Barnes & Noble already has cleared space at its stores to display the Nook and push e-books.

"You don't want the old-fashioned bookstore customer who goes in and sits and reads a book for two hours. You want people going in there who are hungry for experience," said Richard Hastings, a consumer strategist with Global Hunter Securities.

Shares surge

Barnes & Noble's shares surged almost 30 percent Friday and passed Liberty's bid of $17 a share in cash, closing at $18.33. The companies haven't yet signed an agreement, and the deal is still subject to closing conditions, including one that founding Chairman Leonard Riggio keep a stake in the company and remain in a management position, Barnes & Noble said.

Barnes & Noble reiterated Friday a committee of its board is evaluating the offer.

Barnes & Noble had put itself up for sale in August in response to pressure from billionaire activist shareholder Ron Burkle, but the company didn't find much interest.

Traditional book sellers have been facing increasing competition from online retailers like Amazon.com and discounters like Wal-Mart Stores. And heavy readers are quickly embracing e-books.

Right now, though, Simba Information senior trade analyst Michael Norris estimates there are still at least five print-book buyers for every e-book buyer.

Electronic future

Still, the industry thinks e-books are the future. Amazon.com said Thursday that, after less than four years of selling electronic books, it's now selling more of them than printed books.

The shift already has rocked Borders Group, which filed for bankruptcy court protection in February. It has been closing stores and is reportedly in talks to sell more than half of those that remain.

Barnes & Noble reported growth in its online store in the most recent quarter, and said both that and its bricks-and-mortar stores were helped by sales of its Nook e-reader.

Last month, Barnes & Noble added an app store and an email program to its Nook Color e-reader. That brings the $249 device closer to working like a tablet computer like the iPad, which sells for twice as much.

Barnes & Noble is expected to announce a new version of the Nook next week, though it hasn't said what features it will include.