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Microsoft throws away US$315 million on failed Nook deal

Gregg Keizer | Dec. 8, 2014
Spent as much as US$435 million in less than two years, got back US$120 million today when partners pulled the plug.

Although the total Microsoft paid out under those two programs has not been disclosed by either Barnes & Noble or Microsoft, the $60 million per year payment was to be made "for each of the first three years since the launch of the application for Windows 8." Nook Media debuted a Windows 8 Nook app on Feb. 4, 2013, implying that Microsoft paid at least the first $60 million on that same date this year.

The $25 million annual payment was different. "Microsoft has paid and is obligated to continue to pay to Nook Media $25 million each year for the first five years of the term," Barnes & Noble said in a June 2014 filing with the U.S. Securities and Exchange Commission (SEC).

Microsoft and Barnes & Noble formed their partnership in late April 2012, so it's conceivable that the former has paid out $75 million total: An initial $25 million and then two more identical checks on the anniversary date in 2013 and 2014.

Bottom line: Microsoft likely paid another $135 million during the time it was in cahoots with Barnes & Noble. If accurate, that would push its total loss to $315 million by the market's closing bell (but $311.7 million at the day's start, if Microsoft, for instance, immediately unloaded every share).

Microsoft said that the existing Nook app will remain in the Windows Store. Earlier this year, Microsoft and Barnes & Noble agreed that the latter did not have to craft a Windows Phone app, as was once mandated. However, the company declined to answer questions about how much it had paid Nook Media over the two-years-plus length of the contract.

But Microsoft may be able to recoup some of its lost money, perhaps even all, maybe even turn a profit in the end if the stars align: The termination agreement provides for payments to Microsoft of 22.7% of some Nook Media proceeds, including dividends, as well as the same slice of a sale of Barnes & Noble's digital business if that happens in the next three years.

Microsoft may have just flushed millions down the drain, but it also gets out from under the future payments it was obligated to make, which could have totaled $170 million or more over the next several years. Still, $315 million is nothing to sneeze at. It may be a pittance to Microsoft, which has billions in the bank, but it's still real money.

And those may be the final words of the Microsoft-Barnes & Noble book.

 

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