Is this the beginning of the end for Barnes & Noble?

The Nook segment drives staggering losses, so BN to discontinue current Nook tablets

The Nook seemed to be doing so well this time last year, but alas…Barnes & Noble’s Kindle competitor is struggling mightily. In BN’s year-end report, the company revealed staggering quarterly and yearly losses that were driven primarily by the Nook segment.

Barnes & Noble reported a fourth quarter net loss of $118.6 million, compared to $56.9 million the same quarter last year. Net losses for the 2013 fiscal year totaled $154.8 million, compared to $65.6 million the year before.

At the heart of those losses was Nook… Nook revenues declined a full 34% in the fourth quarter to $108 million, and 16.8% for the whole year to $776 million. The company attributes the steep losses to lower selling volume. Digital content didn’t fare much better. While digital content sales actually increased 16.2% for the whole year, they declined 8.9% in the fourth quarter due to a lack of new Hunger Games and Fifty Shades of Grey books.

So where does that leave Nook? Despite the fourth quarter decline, there’s clearly a demand for digital content.

Unfortunately, Barnes & Noble is in a weird sort of digital/brick-and-mortar limbo. With plans to shutter over 200 stores over the next 10 years, the company knows that on some level, it’s going to have to move away from its brick-and-mortar existence and beef up its digital side. But it’s entering the race way behind the starting line, as Amazon and Apple dominate the game without having to worry about the deadweight of bricn-and-mortar stores dragging them down.

In an attempt to cut down on overhead costs, Barnes & Noble announced Tuesday that it will be partnering with yet to be announced third party manufacturers to manufacture its Nook tablets going forward. Nook e-readers like the Simple Touch and Glowlight will continue to be developed in-house, but henceforth, its tablets will be co-branded with whatever CE manufacturers it partners with.

Now you’re probably all “WUUUUUT?!” Yeah, so, basically, the Nook HD and HD+ are being discontinued. Barnes & Noble says it will continue to sell existing inventory through the rest of 2013. Presumably, the company will begin offering a new tablet some time in 2014.

In the meantime, BN plans to continue building out its digital catalog.

“We are taking big steps to reduce the losses in the NOOK segment, as we move to a partner-centric model in tablets and reduce overhead costs,” said Barnes & Noble CEO William Lynch, in a statement. “We plan to continue to innovate in the single purpose black-and-white eReader category, and the underpinning of our strategy remains the same today as it has since we first entered the digital market, which is to offer customers any digital book, magazine or newspaper, on any device.”

Barnes & Noble shares were down 17% to $15.61 at the close Tuesday.