Kobo Sold to Japanese Company

[Fringecup]

Originally Posted by anonymoose

I can see the benefits of getting another company involved, but I have to say that I am shocked that Indigo gave up their stake completely, especially since they keep losing their book sales to e-books and focusing more and more on non-book products.

I read in The Globe & Mail newspaper today that Indigo kept their 51% share in Kobo and sold only the remaining outstanding shares to the Japanese company. Kobo is STILL majority-owned by Indigo. Let's face it, they needed the deep pockets of a larger company with access to Asian and other markets where they could not otherwise compete with the giants out there!

[taming]

What I find interesting is that in Canada, Chapters-Indigo is faced with many of the same problems/challenges as B&N is in the states. Their decision was to bail on Kobo ownership and put their money into their bricks and mortar stores and non-book related on-line selling. I'm betting there will be some sort of Kobo affiliate money making happening as well, perhaps with referrals coming from the Chapters-Indigo website earning a commission on books in addition to their in-store and on-line sales of devices and accessories.

It may be that B&N will make a similar decision in the future. Right now though, B&N is saying they are going to expand the Nook into international markets (as Kobo was doing). I guess we'll see if they can pull it off.

EDIT: Just saw today's Globe and Mail article on the sale. It covers things I was speculating about. http://www.theglobeandmail.com/globe...rticle2229733/

[fjtorres]

Originally Posted by Fringecup

I read in The Globe & Mail newspaper today that Indigo kept their 51% share in Kobo and sold only the remaining outstanding shares to the Japanese company. Kobo is STILL majority-owned by Indigo.

The article is a little too literal in its phrasing. Try this:
Kobo currently owns 51% of Kobo.
Rakuten is paying $315 million for 100% of Kobo.
The deal closes in early 2012 so, while technically Indigo still owns Kobo, it is just a matter of paperwork. They cashed it in.

Indigo got a good deal: their Kobo stake will bring in ~$160 million which is roughly Indigo's market capitalization.

Note that Kobo,according to the article, commands around 8-12% of US market share vs Nook's 29% and Kindle's ~50%. Not much room for new players there, hence the big premium Rakuten paid.

Earlier this year, B&N reportedly came close to selling itself for $1Billion until Liberty Media got cold feet over the Borders bankruptcy. Based on the Kobo deal, B&N had better take another look at their financials. A Nook-spinoff IPO might be a better way to raise cash to keep the storefronts afloat than creative loans.

The Kobo sale values Nook at about a billion at a time B&N's market capitalization runs around $700 million. Much like Indigo's situation and Border's liquidation, those giant storefronts are not highly valued today:
http://finance.yahoo.com/q?s=BKS

[emilikins]

Whoa! Totally unexpected! I'm taking the optimistic view that this will strengthen Kobo in the U.S. and internationally (they have a head start on B&N). Even though I opted out of the Vox, I do want Kobo to succeed, because better competition and more choices in the market is generally better for consumers. (If only we could get rid of agency pricing ...)

It feels a little weird that they were bought by an e-commerce company, but it kind of makes sense, too. I think one of Kobo's weaknesses has been its marketing reach and strategy, though they seem to have latched onto a more "open" philosophy compared to Amazon and B&N. As long as Ratuken allows Kobo to fulfill its vision, I think this is a good thing. If it starts to cloud the vision, then we lose out, I believe.

But I'm not an expert in this stuff.

[taming]

It would be great if the buyer is willing to put some more money into their programming/engineering. They have had tiny (relatively, of course) development teams working on firmware/software development. I understand why this was true, but it would be nice to be able to get more polished devices and apps out the door faster.

[Suzanna]

This is what I find worrying about the sale to Rakuten:

Buy.com in the U.S.
Buy.com in Canada

There's a reason I'd never heard of Buy.com - they have next to nothing on the Canadian site. That leads me to believe they value the U.S. market more than they do the Canadian one. Will we see another Amazon.com vs. Amazon.ca with Kobo, where the U.S. market gets all this new, neat stuff (apps, cloud service, music, video streaming) and we're left with just ebooks?

For now I take heart in the fact that Kobo will be keeping it's head office in Toronto, but I admit I'm wondering if that situation won't last much longer.

[Suzanna]

Originally Posted by taming

I'm betting there will be some sort of Kobo affiliate money making happening as well, perhaps with referrals coming from the Chapters-Indigo website earning a commission on books in addition to their in-store and on-line sales of devices and accessories.

Actually, I'm wondering if the deal would be broader than that. When Kobo partnered with W.H. Smith in the U.K. recently, I read that a commission of *all* sales at the Kobo site from British customers will go to W.H. Smith. Even if a customer goes straight to the Kobo store, bypassing W.H. Smith altogether. (Since the Kobo store is completely separate, I imagine this agreement was made to allay fears that sales commissions will soon be worthless since W.H. Smith customers would probably start going to the Kobo store directly.)

I would think the same type of deal would be made here - a percentage of all sales made in Canada will go to Indigo. They brokered that deal with another country, and I can't imagine them wanting anything less for themselves.

[taming]

Originally Posted by Sao

Will we see another Amazon.com vs. Amazon.ca with Kobo, where the U.S. market gets all this new, neat stuff (apps, cloud service, music, video streaming) and we're left with just ebooks?

There are always two factors in play when looking at what is available to Canadians. One is that non-Canadian companies don't value our small market very highly and so do not invest much in going after sales, storing inventory, creating a Canadian presence etc. The other is our tax and import structures and our (sometimes protectionist)laws. The two can also combine. It does explains why buy.com is so different in the two countries.

Kobo will face the same laws--the same way that music is licensed, for example, that Amazon faces. They would have these problems if they stayed Canadian owned.

[PeterT]

Another interesting view on Kobo

http://startupnorth.ca/2011/11/09/th...story-of-kobo/

[DonaldL.]

Indigo sells Kobo: A Q&A with Heather Reisman

[Suzanna]

If we're sharing articles

Amazon Faces Serious International Competition, From Japan

[fjtorres]

Originally Posted by DonaldL.

Indigo sells Kobo: A Q&A with Heather Reisman

Good one!

Signature quote:

CB: Heather says it’s going to take $100 million next year to keep Kobo competitive. Do you think that’s a fair number?
MS: You know the thing that’s been constant from the beginning is that the capital requirements in this market continue to grow. And I think the reason for that is that the transition to digital just continues to move faster than anyone expected. Certainly the capital needs in the next couple of years, without revealing too much about strategy, is in the hundreds of millions. And whether a hundred gets you to 6 months or 12, we’ll see—but it’s certainly in the hundreds of millions.

CB: And Rakuten's obviously willing to invest those huge sums in this venture.
MS: Absolutely. They built a tremendous business as an e-commerce player n Japan, the largest economy outside of the U.S., and they have been expanding globally. They see how important digital content is to the future of e-commerce for them.

If that is true, where does that leave B&N?

[Suzanna]

Originally Posted by fjtorres

If that is true, where does that leave B&N?

That might be why B&N, thus far, have limited their market to the U.S. It will be interesting to see what happens with their proposed international rollout.

[EricDP]

Originally Posted by taming

...The other is our tax and import structures and our (sometimes protectionist)laws...

Business tax in Canada is lower than in the US.

As for protectionist laws, that part is true about content, but companies like Amazon have already passed that hurdle--they are selling books here. It makes no sense to me why they wouldn't sell everything else.

[taming]

Eric, have you noticed the problems we are having getting things like Pandora or the sub-par version of Netflix available here--getting anything like that is very, very difficult because of Canadian regulations. Amazon had a huge struggle getting permission to build a warehouse here, and was only granted permission in the spring of 2010.


From The Toronto Star:

Ottawa approved Amazon.com's plan for a “fulfilment centre” warehouse on Monday after reviewing the proposal under the Investment Canada Act, which protects the bookselling business from foreign ownership because it is part of a cultural industry.

As part of the deal, Amazon will invest more than $20 million, including $1.5 million for cultural events and awards and for promoting Canadian-authored books abroad.

Amazon's commitment also includes adding Canadian jobs, improving service for Canadian consumers, and increasing the visibility of Canadian and French-language products on its Canadian website, Amazon.ca.