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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.

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Daily links round-up: Free Kindles, James Frey, and more

Sundry links from around the Web:

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Kobo celebrates e-book week with a round of financing

Kobo today announced it has closed a new round of financing.

The amount of the Series C investment has not been disclosed, but in a statement, the Toronto-based e-publishing company says, “Indigo Books & Music Inc., Kobo’s founding shareholder, invested in this round and maintains majority ownership.”

In December, Kobo raised $16-million from a group of investors that included Indigo, Cheung Kong Holdings, the U.S.-based Borders Group, and REDgroup Retail, which operates Australia’s Angus & Robertson and Borders chains. In the last month, both Borders and REDgroup have filed for bankruptcy protection. There was no mention of either company in Kobo’s statement, which says it plans to use the funding to support “growth in the worldwide eReading market through continued product innovation in the eReading experience and international expansion with new distribution partners, support for a wide range of languages and the world’s best content.”

The announcement arrives during Read an E-Book Week (March 6-12), which celebrates 40 years since Project Gutenberg founder Michael Hart entered text from the U.S. Declaration of Independence into a Xerox Sigma V mainframe computer.

In a guest blog post for Kobo, Hart predicts that in another 10 years one billion e-books will be available for download.

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Borders Australia updates creditors and unpaid staff

Administrators for Australia’s bankrupt REDgroup Retail, the company that owns book retail chains Borders, Whitcoulls, and Angus & Roberstson, held their first creditors’ meetings on Monday in Melbourne and Auckland, New Zealand.

Steve Sherman, from bankruptcy administrator Ferrier Hodgson, told attendees that the bookseller had close to $170 million AUD in debt (approximately $168 million Cdn.) and $6.4 million in cash, when the group entered voluntary administration as of Feb. 17.

Australian website Bookseller+Publisher reports that unsecured creditors, including publishers, are owed $44 million (REDgroup staff is currently owed $7.8 million AUD). The only secured creditor is REDgroup’s owner, private equity group Pacific Equity Partners, which is owed $118 million AUD. According to the Melbourne Herald Sun, “The 80 creditors also heard Borders was holding $45 million in stock and had only $1 million in the bank, while Angus & Robertson’s bank balance was $2.9 million.”

Within the next three days, a decision will be made as to which of the 169 Angus & Robertson, 67 Whitcoulls, and 26 Borders stores will close.

No official word yet on how the bankruptcies will affect Kobo. The Canadian e-book retailer is part owned by REDgroup and Borders U.S. (unrelated to Borders Australia), which declared bankruptcy on Feb. 16.

In Australia, Kobo eReaders are exclusively sold through Borders retail stores. In the U.S. the devices are also available at Walmart. Both the Kobo eReaders and e-books can still be purchased through borders.com.au and borders.com.

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REDgroup insolvency a further challenge for Kobo

It’s been a dismal 24 hours for global bricks-and-mortar booksellers. A day after U.S. chain Borders entered bankruptcy protection, Australia’s largest bookstore chain, Angus & Roberts, entered administration, putting in question the future of its 180 stores. The Australian Borders (which is entirely separate from the U.S. Borders) and New Zealand’s Whitcoulls chain are also in jeopardy.

All three booksellers are owned by REDgroup Retail, which was placed into voluntary administration by the private equity fund Pacific Equity Partners, which has owned the retail conglomerate since 2004.

While the news is a further sign of instability for print books, it could also cause some disruption for Canadian e-book retailer Kobo. Both Borders U.S. and REDgroup are part owners of Kobo and sell the Kobo eReader in their stores; in the short term, it seems inevitable that the device will be sold in fewer physical retail outlets. Kobo, meanwhile, has assured customers in the affected countries that the insolvency of REDgroup and Borders will have no impact on the availability of Kobo e-books.

The Australian cites “a massive downturn in consumer discretionary spending” as the cause of REDgroup’s insolvency, but that isn’t the whole story. Tax-free e-retail and the search for cheaper online products – described by The Sydney Morning Herald as “the Australian consumer’s love affair with online shopping” – was also a major factor, with Australian Publishers Association CEO Maree McCaskill pointing to the impact of the strong Australian dollar. “While the Australian dollar is high, a lot of Australian consumers determine that they will buy whatever they need online and from overseas suppliers,” she commented in the Guardian.

REDgroup chairman Steven Cain also pointed to restrictions on parallel importation – the practice of retailers buying around local suppliers with exclusive territorial rights – as a cause. The Australian parliament recently shot down a proposal to lift restrictions on parallel importation, a move the Canadian Booksellers Association has also called for.

The insolvency of REDgroup does not come as a surprise to Australian publishers after the retail conglomerate reported a $43 million loss last year and laid off several senior staffers.

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