Indigo’s sale of Kobo realizes “a stupendous return,” Reisman says

As many in Canadian publishing’s inner circle primped and primed themselves for the Scotiabank Giller Prize gala, important industry news of another sort broke with the announcement Tuesday evening of Indigo’s decision to sell its majority stake in Kobo, the e-reading company it spun off less than two years ago, to Japanese e-commerce giant Rakuten.

Indigo is expected to realize between $140 and $150 million from the sale, but it raises questions about what the chain’s future will look like without a significant investment in e-reading (not to mention whether the deal will be allowed to go forward under the Department of Canadian Heritage’s foreign-ownership rules).

In a Q&A published today in Canadian Business magazine, Indigo CEO Heather Reisman addresses some of those questions, telling staff writer Jordan Timm that the sale represents “a stupendous return on our investment” in Kobo, especially in a market that is becoming increasingly competitive:

Over the next year, this business [Kobo] will need in excess of $100 million to take it to where this industry is going, and we just cannot play in that league for that amount of capital. That’s first, but it’s also a question of speed. How quickly can you grow this business in order to establish your leadership position? What Rakuten brings is tremendous reach with their huge customer network.

Reisman was, understandably, less specific about how Indigo will use the influx of capital from the sale, but she did say a new acquisition for Indigo is “very possible”:

We must and will fundamentally transform Indigo. The idea of a book retailer as it existed up until the last two years – that option no longer exists. We did two things two years ago: we made the decision to commit to Kobo, and we also made the decision to fully transform Indigo into a whole new kind of retailer and e-tailer, and we are on that track right now. And there’s no doubt that some of that money will be used in that transformation process, both digitally and physically.

In related news, Indigo’s most recent financial results, released at the same time as the Rakuten announcement, show a relatively flat quarter, with sales up 1.7 per cent to $218.5 million. Revenues at Indigo and Chapters superstores were down 4.3 per cent, while revenues at small-format stores were down 2.9 per cent. By contrast, Kobo sales were up 219 per cent to $40.9 million, though the division operated at a net loss of $10.8 million.

Kobo to be acquired by Japanese e-commerce company Rakuten

Kobo announced Tuesday it has entered into a definite agreement under which it will be acquired by the Japanese e-commerce company Rakuten. The deal is expected to close in early 2012.

According to a press release, Rakuten intends to “acquire 100 per cent of total issued and outstanding shares of Kobo for US$315 million in cash.” As part of the agreement, the e-reading platform will continue as a stand-alone operation, maintaining its Toronto headquarters and employees under the leadership of Kobo CEO Michael Serbinis.

In the press release, Serbinis said:

“From a business and cultural perspective this is a perfect match….We share a common vision of creating a content experience that is both global and social. Rakuten is already one of the world’s largest e-commerce platforms, while Kobo is the most social e-book service on the market and one of the world’s largest e-book stores with over 2.5 million titles. This transaction will greatly strengthen our position in our current markets and allow us to diversify quickly into other countries and e-commerce categories.”

Kobo was founded in 2009 by Indigo Books & Music before it was spun off into a separate company 10 months later, with Indigo remaining as the majority shareholder. Indigo will receive approximately $140 million to $150 million in the Rakuten deal. In a separate press release, Indigo CEO and chair of Kobo Heather Reisman said:

“Notwithstanding the sale, Indigo will maintain a very strong relationship with Kobo, supporting the products and the services both in-store and online…. The success of Kobo confirms that Indigo is a great brand and a strong platform on which we can continue to innovate and grow.”

In October, Kobo announced it would be offering self-publishing services and launched the Kobo Vox, a tablet to compete against the Kindle Fire and iPad.

Kobo tablet to do battle with Kindle Fire, iPad

Just months after launching a touchscreen e-reader at BookExpo America, Kobo has unveiled its latest e-reading device, a 7″ colour tablet that will go head-to-head against the Kindle Fire and other tablet devices. The Kobo Vox will tie into Kobo’s online store of more than 2.2 million e-books, and will allow users to surf the Web, check e-mail, and download apps for its Android operating system.

Kobo is billing the device as the world’s first “social e-reader,” as it will allow readers to plug into Facebook and Kobo’s unique social platform, Reading Life. The device’s name comes from the idea of the vox populi, or “voice of the people.”

The device retails at $199.99 and is available for pre-order in Canada and the U.S. It will begin shipping Oct. 28.

The Financial Post has the technical specs:

The Kobo Vox is built on the “Gingerbread” version of Google Inc.’s Android operating system and will enable users to download applications, watch movies and listen to music in addition to read digital books. Users will also be able to access their email via the device — it supports Microsoft ActiveSync, IMAP and POP technology — whether they’re using Gmail, Yahoo or corporate email.

The Post‘s Tech Desk editor, Matt Hartley, goes on to point out that the WiFi-only Kobo Vox is half the price of the least expensive versions of Apple’s iPad and Research in Motion’s BlackBerry PlayBook. Unlike the Kindle Fire, which begins shipping in the U.S. beginning Nov. 15, it is being made immediately available to Canadian consumers.

The tablet will stand out in Canada, where the selection of e-readers is sparse, but as columnist Michael Kozlowski of Goodereader.com points out, Kobo faces an uphill battle in a U.S. market already saturated with inexpensive e-readers and tablets:

Kobo had an agreement with Borders to exclusively sell its devices in their retail locations. Since the collapse of the company Kobo has really been without a home in the retail sphere. They really need to iron out a new agreement when their contract officially expires in 2012 in order to secure more stores to peddle their wares.

Kobo Pulse gets to the heart of “social in-book e-reading”

Kobo has released more details about Kobo Pulse, its new “social in-book e-reading experience”

Essentially a social media tool, Kobo Pulse will allow Kobo users to connect with other people reading the same book, comment on passages or the book as a whole, and view statistics (e.g., how many people are reading the title at a given time). According to a press release, readers can also post reviews and engage in online conversations. As more people join the conversation, the Kobo Pulse will turn “larger and brighter,” indicating the level of interaction.

Last Friday at F8, Facebook’s developers conference, Kobo CEO Michael Serbinis spoke about how the company’s e-reading app, Kobo Reading Life, will be seamlessly integrated into the Facebook interface. Today’s press release provided more details on the new features, which include the ability to follow friends’ reading activity; customizable privacy settings; automation of Ticker e-reading updates; and profile “‘call-outs’ for recently read books, most read authors, books that have the most time read and recent awards.”

A release date for Kobo Pulse was not available. However, the Facebook integration features will “roll out gradually over the coming months.”

Kobo Reading Life and Facebook partner for “frictionless” social e-reading

Soon Facebook users won’t have to click a button to tell their friends what they’re reading. Yesterday at F8, Facebook’s annual developers conference, Kobo CEO Michael Serbinis announced that its e-reading app, Kobo Reading Life, will be seamlessly integrated into the Facebook interface as part of the website’s Open Graph product, along with services for music, film, games, and news media.

During the conference’s keynote speech, Facebook CEO Mark Zuckerberg referred to Open Graph as a means of “frictionless sharing,” meaning once a user signs up for an app, it will automatically track their media usage, which will then be shared, in real-time, with friends as part of Facebook’s new Ticker feature.

“You don’t have to ‘like’ a book, you can just read a book. You don’t have to ‘like’ a movie, you can just watch a movie…” says Zuckerberg, referring to the website’s ubiquitous Like button. Facebook’s new Timeline feature, available now as a beta program, also gives users the ability to build personal reports, such as how many pages read in a single week.

In a video interview at F8, Kobo Reading Life product manager Jason Gamblen and Serbinis offered more insight into the integration. Through the Reading Life app, Serbinis says, a Kobo user can track “all the books you’ve ever read, what you’re reading right now, times a day you read, stats about yourselves, friends that you share books with.” Gamblen explained that when a Facebook user adds Kobo to their Timeline, they can also account for the number of books read, the amount of time and the most popular days spent reading. Users are also eligible for awards by hitting milestones such as reading 50,000 pages or a certain number of classic books.

Reading Life’s “social e-reading” features allow people to connect and engage with other Kobo users via Facebook. “Our best recommendations come from friends, not the 400th Harry Potter review on some e-commerce site,” says Serbinis, who also briefly mentioned a new initiative, Kobo Pulse, which will be officially announced in the next couple of weeks.

Kobo sues Borders, strikes European deal

It’s been a busy week for Canadian e-reading company Kobo. On Tuesday, representatives for Kobo filed documents at a bankruptcy court in New York to ensure that Kobo licenses held by Borders are not put up for sale when the failed U.S. bookstore chain starts liquidating its intellectual property assets. PaidContent.org reports:

Kobo … wants to prevent whoever wins the auction from obtaining the customer data. The company may also be worried because the licenses are likely to contain an exclusivity clause that prevents Kobo from partnering with another seller. … In its filing, Kobo says the licenses are invalid because Borders did not hold up its end of the bargain. The Toronto-based company also says it is illegal under Canadian privacy law to transfer customer data.

Borders was an early partner with Kobo, at one time owning an 11 per cent stake in the e-reading company, which is backed by Indigo Books & Music and the beleaguered REDgroup Retail, among others.

Then, on Wednesday, Kobo announced a new deal with the German store of online retailer Redcoon that will finally introduce the company’s Kobo eReader Touch Edition to the European market (it was originally set to release in Germany in August). The Kobo Touch will be available in October at a price of €149.

According to a press release from Kobo:

Redcoon is one of the largest online retailers for consumer electronics in Europe, serving consumers in Germany as well Austria, Spain, Portugal, Netherlands, Belgium, Poland, Italy, Denmark and France – in this market segment, the online retailer is seen as a major competitor to Amazon.com in Europe.

…

“The retail partnership with Redcoon starts in Germany, but is going beyond this market,” [explains Kobo EU director of sales Thorsten Schröer]. “As Kobo expands to additional European countries later this year, Redcoon will offer our products there as well.” Additional leading retail partners will be announced shortly.

Indigo sales down as the chain prepares to launch its lifestyle business

Indigo Books & Music is reporting a 1.1 per cent decrease in net revenue for its first quarter, which ended July 1.

Revenue for the quarter was $202 million, down $2 million from last year, which Indigo attributes to lower print books sales. Indigo also reports its digital operations grew 170 per cent, thanks in part to the June launch of the Kobo Touch eReader.

While the net loss attributable to Indigo shareholders for the quarter was $18, million compared to $5 million last year, in the press release, Indigo CEO Heather Reisman said, “The results were expected as we invest both in the growth of our digital business and in preparing to launch our proprietary gift and lifestyle business in the fall of this year.”

Indigo’s new product mix will focus more on giftware, toys, and other lifestyle products, reducing the shelf space dedicated to books. Indigo said it has created a $3.2 million inventory provision for its annual summer clearance sale as it “intends to discount more aggressively to clear a larger amount of product than in prior years.”

In July, Q&Q reported that the chain will also be introducing a new returns policy that will evaluate a book’s sales after 45 days, a significant reduction from the industry standard of 90 days.

E-book apps for Apple lose e-bookstore links

Big changes are underway in the e-book app world. Since Saturday, iOS (Apple’s operating system for mobile devices such as iPhone, iPod touch, and iPad) apps for Kobo, Barnes & Noble’s Nook, and Amazon’s Kindle have been updated to remove e-bookstore features and links to external online e-book stores such as kobobooks.com. The Google eBooks app, which has been available in the U.S. App Store since December 2010 (although unavailable in Canada) has been removed from Apple’s App Store and iTunes entirely.

The updates follow Apple’s weekend warning to Kobo regarding compliance with latest App Store rules. The Wall Street Journal (which will soon remove all purchasing options from its own app) reports:

Mike Serbinis, Kobo’s chief executive, said Apple told Kobo Saturday that it could no longer operate its digital bookstore from its Kobo apps and had to stop selling e-books directly through them. Kobo subsequently altered the apps so that they no longer sell digital titles.

Now Kobo customers who want to buy digital books via their Apple devices will have to visit www.kobobooks.com via Apple’s Safari browser to make their purchases, a potentially more laborious process for customers used to buying e-books directly through a Kobo app. Customers will continue to be able to access and read Kobo-purchased books from their library on various Apple devices.

Apple first announced the new App Store rules, which strictly forbid in-app links redirecting customers to online e-bookstores, in February and set a June 30 deadline for compliance. Apple’s enforcement of this policy comes as a surprise since the tech company dropped some of their original conditions last month, and the cutoff date came and went without much change to existing apps. From WSJ:

Apple in February laid out new terms for companies wanting to sell digital content via its devices. Apple said that companies selling digital media, including books, needed to make that content available for sale via an app, rather than through a link within the app to an outside website. As part of the change, which was aimed at giving Apple more control over the business, Apple said it would take 30 per cent of each sale.

In June, Apple appeared to relax those rules in content companies’ favour, giving them more freedom over pricing and selling their content. Apple dropped its requirement that any content sold outside the App Store also had to be available inside the store at the same price or less, with Apple taking its cut.

The updates to these e-reading/e-bookstore apps mean content providers maintain ownership over customer information and avoid cutting Apple into 30 per cent of a sale. Ultimately though, it makes purchasing e-books for Apple devices less user-friendly, which, unless Quillblog is mistaken, is a big part of the appeal of Apple devices and e-readers in the first place.

Kobo issues statement about Borders liquidation

Kobo, the Toronto-based e-reading company, has issued an official statement to clarify its position vis-à-vis the recent announcement that the U.S. bookstore chain Borders would be entering liquidation. The statement is in response to “misconceptions about Kobo that have been inaccurately reported by the media and misunderstood by consumers.”

The Borders liquidation is of particular concern to Kobo, since the bookstore chain was an early investor in the e-reading company, with an 11 per cent stake. According to the statement issued today yesterday, “Borders shares are subject to the terms of the Kobo shareholders’ agreement which, among other things, restricts their transfer or disposition.” On Monday, Bloomberg reported that Kobo was one of several creditors to file objections to Borders’ liquidation process in U.S. bankruptcy court.

Where customer service is concerned, Kobo asserts that for some time it has been working to transition Borders’ customers’ e-book accounts to Kobo and will continue to do so.

The Kobo statement quotes CEO Michael Serbinis:

Borders has a minority stake in our company and serves as part of our distribution in the U.S. along with Walmart, Best Buy, Sears, and other leading retailers. As a member of the broader book publishing and retailing community, we are watching Borders’ story and will offer our support to Borders and their employees. Kobo will continue to serve Borders customers – in this time of transition as well as moving forward – to provide the ultimate eReading experience and one of the widest selection of eBooks available to the eReading community worldwide.

Borders gives up the fight: UPDATED

The embattled U.S. book chain Borders has run out of options in its attempts to find a buyer and will begin the process of liquidating, according to the Detroit Free Press. The liquidation plan, which was presented to the U.S. Bankruptcy Court last Thursday, is the only option left to the big-box bookstore chain after it failed to meet Sunday’s deadline for finding a buyer.

From the Free Press:

“Following the best efforts of all parties, we are saddened by this development,” said Borders Group President Mike Edwards, in a statement. “We were all working hard towards a different outcome, but the headwinds we have been facing for quite some time including the rapidly changing book industry, eReader revolution and turbulent economy have brought us to where we are now.”

An article on Paid Content.org states that Borders is closing all of its 399 remaining stores and laying off close to 11,000 employees. Paid Content includes Borders’ official statement, which reads in part:

Subject to the Court’s approval, under the proposal, liquidation is expected to commence for some stores and facilities as soon as Friday, July 22, with a phased rollout of the program which is expected to conclude by the end of September. Borders intends to liquidate under Chapter 11 of the Bankruptcy Code and, as a result, Borders expects to be able to pay vendors in the ordinary course for all expenses incurred during the bankruptcy cases.

UPDATE: In the face of Borders’ liquidation announcement, the Canadian e-book company Kobo has voiced objections to the procedure, according to Bloomberg. Creditors filed official objections in bankruptcy court in Manhattan on Monday.

From Bloomberg:

“The debtors are proposing a hurried and confusing sale process that leaves parties such as Kobo uninformed as to precisely what will be sold or how the debtors intend to proceed,” lawyers for Kobo wrote.

Kobo, a Toronto-based maker of electronic books, said it should have the right of first refusal for any transfer of Borders’ 11 percent stake in its equity, and Borders shouldn’t be allowed to sell information that Kobo has licensed to Borders.