Publishers Lunch points out that much of the financial analysis in the report of the proposed buyout is inaccurate: Among other things, while the report says a $1 billion purchase price is “well below the price it had originally bought in at,” Publishers Lunch notes that because of the way the original investment was structured, this price would actually represent a small premium. Nonetheless, if the documents are legit (the NYT says they are, but appear to be a few weeks old), it’s worth thinking about what Microsoft wants with the Nook business. Barnes & Noble shares were up 23 percent in pre-market trading this morning.

A reading ecosystem for Windows 8

It’s not surprising that Microsoft reportedly has no interest in Barnes & Noble’s tablets, which have never taken off. In fact, as of last week, the Nook HD and HD+ incorporate a full host of Google services, including Google Play, Gmail and the Chrome browser. While B&N has claimed it is committed to the Android platform and to the tablet business overall, Microsoft obviously has no incentive to keep a line of poorly performing Android tablets up and running.

What Microsoft does need is a reading ecosystem for its Surface tablets and other Windows 8 devices. That’s why the company bought a stake in Nook in the first place, but so far it hasn’t resulted in much more than a Nook app for Windows 8 (released after Amazon launched its own Kindle for Windows 8 app). With full control over the Nook ecosystem, Microsoft can take advantage of some of the technology — including book discovery and “scrapbooking” features — that Barnes & Noble has built for these devices without being dragged down by the devices themselves. It would also presumably get access to Nook’s ebook publisher relationships, which lie with Nook Media, not with Barnes & Noble.

A pre-existing customer base to compete against Amazon and Apple

The buyout could also help Microsoft compete against Amazon and Apple. Kindle is still the leading e-reading platform, and Apple’s share of the e-reading market is small, but growing, especially when it comes to heavily illustrated and interactive titles. While there is no guarantee that Microsoft can become a leader in e-reading, it has a better chance of doing so if it harnesses an existing platform and customer base and then extends it to Windows users worldwide, rather than attempting to build a system from scratch.

A caveat is that Nook hasn’t managed to grow its market share against Kindle. It’s been stuck around 25 percent since 2011. But that’s better than the zero that Microsoft has now. “They can afford it as a bet, even if it is a long shot,” Peter McCarthy, the founder of book publishing consultancy McCarthy Digital, told me. “Microsoft is awful with content and know it. They’re  always looking for another Xbox, though.”

This week, news broke that the remaining eight episodes of the ABC sitcom Don’t Trust the B In Apartment 23, which was taken off the air in January, would be posted to ABC.com, Hulu and iTunes.

The announcement is a boon for fans of the show, but they shouldn’t get their hopes up that successful online distribution will mean another season of the show; much of the cast has already moved on to other projects.

However, another show may truly get a second life: Also this week, rumors spread that Microsoft is looking at rebooting NBC’s Heroes, which was canceled in 2010, for Xbox and MSN distribution.

As television continues its evolution from a single box that sits in your living room to a multi-platform experience across many devices, resurrections like these are increasingly common — though sometimes they’re less like Lazarus, and more like zombies.

Netflix is of course a front runner in the rebirth business, thanks to picking up Arrested Development (only one more month, Bluth fans!).

But there’s a deep history to this practice. For instance: In late 2009, producer Ashton Kutcher turned to YouTube to screen the unaired five episodes of model drama The Beautiful Life, which had just been canceled by The CW.

However, while the TBL channel is currently at over five million views, not one of the five episodes on it has surpassed a million views.

They’re all still online, along with a plea posted by Kutcher saying that they’d be able to produce more episodes if the channel’s subscriber count hit a certain, unspecified threshold.

Whatever that threshold was, it was greater than 35,000 subscribers — which is the channel’s current standing, four years later. But TBL does deserve credit for being an early example of a show realizing the potential power of digital distribution — arguably ahead of its time in that respect.

The key is transitioning from digital distribution to actually producing new episodes. The most daring and ultimately successful example of this isn’t necessarily Joss Whedon getting to make a feature film follow-up to Firefly or the return of Veronica Mars as a feature — the real kickoff of digital distribution having real meaning for canceled shows comes from the early 2000s, and DVDs.

The Fox animated series Family Guy first premiered in 1999, and was canceled in 2002. But thanks to blockbuster DVD sales of the first three seasons, it was brought back to the airwaves in 2005, and has remained a key part of Fox’s schedule ever since. Creator Seth MacFarlane has even gone on to create at least two other shows for the network.

(Personal anecdote: I was working as a clerk in a DVD store in 2003, and I keenly remember how we couldn’t keep Family Guy box sets on the shelves; they sold out like crazy.)

Sometimes, things need to end. Sometimes, shows don’t work or don’t connect with a wide audience, and those involved are ready to move on. The Onion satirized this beautifully in the aftermath of the Veronica Mars Kickstarter campaign with this piece headined “Stars Of Canceled Show Terrified Fans Will Raise Money For Movie,” centered around recently-terminated NBC sitcom Animal Practice.

The episodes of Animal Practice left unaired after its cancelation are currently available online, though it’s unlikely to come back — a zombie, for better or worse.

But as the industry figures out how to make original content on the web sustainable and profitable, we’ll see more and more examples of Lazarus.

The service offers unlimited access to over 80 magazines on iPad, up from 39 at launch. Users can choose between an “unlimited basic” subscription, which offers access to monthly magazines like Glamour, Wired and Food & Wine for $9.99 per month, and an “unlimited premium” subscription, for $14.99 per month, that also includes weekly titles like People, New York, New Yorker and Sports Illustrated.

Next Issue Media, which started out in 2009 as a joint venture of Condé Nast, Hearst, Time Inc., News Corp and Meredith, was initially only available for Android 3.0 (Honeycomb) tablets before expanding to iPad — and, potentially, a wider audience — last July.

The Windows 8 launch is “the first time we’ve worked closely with a platform partner,” CEO Morgan Guenther told me. The app integrates features like “snap view” and multitasking from Microsoft’s interface; the software giant is also providing marketing and will feature the app in the Windows App store. “We saw the importance of moving beyond the tablet,” Guenther said, and Microsoft was a “motivated partner.”

Next Issue hopes that users will use the platform across devices. A single subscription can be authenticated on up to five devices. “With greater choice as to where, when and how they access their magazines, users can seamlessly switch from their tablet at home, to their Ultrabook on the road, to their company PC,” John Richards, senior director of Windows app marketing for Microsoft, said in a statement.

Less than half of Next Issue’s users pay

Discovery remains “an issue” on iPad, Guenther said, partly because the Next Issue iPad app isn’t available through Apple Newsstand. The company projects that by the end of this quarter, it will have about 120,000 total users — 50,000 of whom are actually paying for a subscription. Of that 50,000, about 60 percent have a premium subscription, Guenther said, and 40 percent have a basic subscription. The remaining 70,000 or so users are “authenticators” — users who already have a print subscription to a magazine and are accessing the print version through next Issue’s app.

In the next quarter, Next Issue plans to add Facebook integration and social sharing, followed by the integration of “clipping” technology that would let users virtually save individual articles or images from magazines. Guenther also says the library will expand to about 100 titles in the next couple of months.

Though Next Issue originally launched on Android, that platform hasn’t been much of a priority, Guenther said — to the extent that there are only 36 magazines available, less than half the number of titles available for iPad and Windows 8. In the next few months the company will “refresh” the experience on Android, Guenther said. It also plans to expand to Android smartphones and iPhones.

In a press release sent out after the market closed Wednesday, Barnes & Noble said it ”expects its fiscal year 2013 Nook segment EBITDA loss to be greater than it was in fiscal 2012 and expects fiscal year 2013 Nook Media revenues to be less than $3 billion.” Previously, B&N had expected Nook Media’s FY 2013 revenues to be $3 billion, with EBITDA losses comparable to those in FY 2012.

Barnes & Noble had also been set to announce its third-quarter earnings for fiscal year 2013 on February 22, but said Wednesday it will actually report them a week later, on February 28.

Nook Media is supposed to be the profitable part of the company. Consisting of B&N’s Nook and college businesses, Barnes & Noble spun it off in 2012 with a $300 million investment from Microsoft and, as of late December 2012, an $89.5 million investment from Pearson. (Barnes & Noble holds 78.2 percent of Nook Media.) Instead, Nook is doing worse at the same time that Barnes & Noble’s other segments — retail stores and BN.com sales — are also doing badly. Over the holidays, Nook device sales, BN.com sales and in-store sales all fell compared to the previous year. And the company plans to close up to a third of its retail stores over the next decade.

Entertainment and digital media President Nancy Tellem, who worked for CBS before arriving to head Microsoft’s Los Angeles studios, said she is working on ways to make shows more interactive by tapping into technology like Kinect.

However, the goal wasn’t to use interactivity for interativity’s sake, she said, adding: “It has to be organic and a natural extension of what we are doing.” Examples could include live shows, or children’s programming where kids can interact with the characters on screen.

Tellem declined to specify how much Microsoft is spending on its original content play. “We are certainly looking at a very robust content production schedule,” she said, adding that her studio currently employs 125 people.

Microsoft has been stepping up its engagement in the entertainment space over the last few years, adding more than 110 100 content partners to its Xbox Live platform. Microsoft SVP for Interactive Entertainment Business Yusuf Mehdi said Monday the company now has a total of 46 million Xbox Live subscribers worldwide.

He declined to go into any details about Microsoft’s plans for the Xbox hardware, sidestepping questions about rumors that Microsoft is going to release a more lightweight, entertainment-focused living room device.

Microsoft made a significant showing in the area of internet VOD, which is industry slang for those 24 or 48 hour video rentals you can get from iTunes, Vudu and others. That segment currently accounts for just 12 percent of total video-on-demand revenue, with 72 percent of the money coming from rentals through pay TV operators. But it’s an interesting segment, in part because it’s not dominated by just one or two players.

Apple’s iTunes does have a strong lead with 45 percent of all internet VOD revenue, according to NPD, but there’s a fierce competition going on for second place: Amazon Instant Video generated 18 percent of the industry’s revenue in this segment in 2012, followed by Walmart’s Vudu with 15 percent and Xbox video with 14 percent.

That’s a pretty strong showing for Microsoft, considering that the company has just begun to put some more muscle behind its own video rental offering. Microsoft just recently unified all of its entertainment offerings under the Xbox brand and is now beginning to promote it as its home entertainment property across all of its Windows 8 platforms, as well as the Xbox 360. I wouldn’t be too surprised if Microsoft surpassed Vudu and maybe even Amazon by the end of this year for internet VOD rentals.

Of course, one has to look at these numbers with a grain of salt: NPD’s home video data focuses entirely on transactional spending, meaning that Netflix and competing subscription offerings don’t show up at all. That’s despite the fact that Netflix now has some 27 million subscribers in the U.S. alone. But subscriptions generally don’t offer access to movies right after they were in the theaters — and that’s an area in which Microsoft, with a pretty big installed device base, is starting to move a lot of media.

So why were the feds investigating Google in the first place?

A group of Google competitors, many of them tied to Microsoft, claimed the company was breaking antitrust laws by kicking competitors down its search rankings. Sites like Yelp and Kayak complained that Google favored its own search and travel businesses ahead of theirs in the search listings.

The Federal Trade Commission responded by “exhaustively” investigating a wide range of Google’s business practices, including its ad business and use of patents.

So what did the FTC find?

Today, the FTC concluded that Google didn’t break any laws in the way it displayed its search results. The agency said that Google did change the way its search algorithm sorted results but that those changes were “plausibly connected” to efforts to improve its user experience — not simply to crush competitors.

The FTC did say that Google misbehaved by using standards-essential patents (ones it is supposed to share at reasonable royalty rates) as a weapon. Google responded by saying it won’t do that anymore.

So why is this a big win for Google?

It’s a win for Google because the government won’t get all up in its search results. Microsoft and others had hoped the government would impose some sort of “search neutrality” requirement on Google but that won’t happen now. The end of the investigation also means that Google won’t have to reveal any of the “secret sauce” that it uses to order the search results.

The company also avoided a so-called “consent decree” about its search practices; these decrees set out what the agency thinks a company has done wrong and how it must behave in the future. Consent decrees also act as a magnet for private lawsuits.

As for the patent issue, it was just a sideshow that has little effect on Google’s core business or strategy.

So Google can do what it likes with its search results?

Pretty much. In the past, the company claimed its results were strictly objective but more recently it has argued that search listings are simply a matter of opinion protected by the First Amendment.

The company did, however, make a voluntary pledge today to remove snippets from Yelp reviews and other such sites if the company in question asks them to; Google also said it won’t punish those who opt out.

Is this bad news for consumers?

Not necessarily. So far, Google has stayed more or less true to its stated mission of helping people find any type of information (search “Google sucks” for instance). It’s only in so-called “search verticals” like shopping that Google, like rival Bing, has really been putting its thumb on the scale and favoring certain partners. But in the future who knows what Google will do.

So who loses?

The biggest loser is Microsoft, which funded a long-running cloak-and-dagger lobbying campaign to convince the public and government that its arch-enemy had to be regulated. Sites like Yelp, Kayak and Expedia also lose in the sense that Google can now push them down its search listing with impunity (though there is no sign for now that Google is actually doing this).

The FTC is also a loser because it ran a high profile two-year investigation but came up dry. In this context, the patent ruling is just a minor victory that lets the agency save face.

Did the FTC simply cave in to Google?

Not really. The FTC was in an awkward spot because it didn’t have a slam-dunk case. The agency would have had to prove the existence of a Google monopoly and that Google abused that monopoly; it would also have to clear the First Amendment issue. Rather than risk the embarrassment of losing a lawsuit, the FTC decided to fold its cards instead.

But aren’t European regulators going to force Google to bend on search rules?

The European Commission suggested in December it will come down harder on Google. According to a source familiar with the matter, the outcome is likely to be a “commitment decision” in which Google promises to behave a certain way or else be fined. The source added, however that the rules of a European “commitment” do not expose companies to private lawsuits so, unlike in the U.S., Google will be willing to enter a binding agreement.

It’s too soon to know what that outcome will be but we’re likely to find out in the next month.

(Image by Kzenon via Shutterstock)

Speaking to reporters on Thursday afternoon, FTC Chair Jon Leibowitz said the agency, in a 4-1 vote, would force Google to stop using standards essential patents in order to to ban rivals’ gadgets from the market place.

On the question of so-called “search bias” — whether Google unfairly demoted rival companies’ sites in its search listings — Leibowitz said the FTC had “exhaustively” examined the issue but concluded that there was no evidence had broken any antitrust laws. He said the FTC had found a “plausible connection” between Google’s listings and efforts to improve user experience, and pointed to efforts by other companies to “game” Google’s algorithms.

In response to criticism from Microsoft and others that the FTC was being soft on Google, Leibowitz cited the late Supreme Court Justice Earl Warren to say that the country’s antitrust laws exist to protect competition not competitors.

Under the deal, Google is also making commitments to let competitors like Yelp exclude snippets from its search results and to share certain data that helps marketers buy ads on different platforms.

You can read details here. We will have a good rundown of the winners and losers of the deal soon.

*Nook revenue is comprised of Nook devices, digital content and accessories.

A holiday sales spike following the launch of the Nook Tablet in November 2011 hasn’t been enough to sustain the Nook business. And despite the launch of the front-lit Nook e-reader in April 2012, Nook business revenues are flat compared to this time last year.**

Microsoft is investing $300 million to spin off Barnes & Noble’s Nook and college businesses into a new company. But these revenue figures suggest that’s a bad bet. (Note: Amazon doesn’t release Kindle revenue figures at all. Its ebook market share is higher than Nook’s, but we don’t know how Kindle revenues compare, though here’s our best guess. B&N’s relative openness makes it easier to write a post like this about the Nook business. Amazon offers a lot less to go on.)

E-reader problems

Barnes & Noble has had particular trouble with e-ink devices. The Nook Simple Touch e-reader (without GlowLight) had such poor holiday sales that B&N downgraded its full-year guidance. And in Tuesday’s earnings report, Barnes & Noble said that “production scaling issues” prevented it from filling orders for the Nook Simple Touch with GlowLight. That was a “missed opportunity,” CEO William Lynch acknowledged in an investor call following the report.

Nook with GlowLight may have great reviews from Consumer Reports and tech blogs and B&N may have beat Amazon (AMZN) in the launch of a front-lit e-reader. But that doesn’t matter if people can’t actually get their hands on one. Amazon is widely expected to release its front-lit Kindle this fall, and it appears B&N has already squandered its first-mover advantage.

Falling prices

Barnes & Noble also attributes falling Nook device revenues to price cuts. But the company is going to have to keep dropping prices on its e-readers and tablets to stay in line with Kindle and with budget tablets like Google’s Nexus 7 and the anticipated iPad Mini. It can’t increase prices to increase revenues.

International delays

Barnes & Noble and Microsoft are hoping to find salvation overseas. The Nook will launch in the U.K. this fall — first through an online storefront, nook.co.uk, though B&N promises that well-known retail partners will be announced soon. And Microsoft will spend $25 million a year for five years on international launches. But Kindle has already been in the U.K. for two years and recently partnered with British bookstore chain Waterstone’s to sell Kindles in its stores. Rakuten’s Kobo is already in the U.K., too, and both companies are expanding rapidly to other countries. Microsoft’s $25 million payments could help B&N catch up, but it is already far behind.

Slowing ebook sales

In Tuesday’s earnings call, B&N’s Lynch said apps and digital newsstand sales growth is “a little higher” than ebook growth. Lynch noted that book publishers are also seeing slower ebook sales (and here are Publishers Lunch’s recent findings on that). Nook’s ebook market share is still between 25 and 30 percent, the same as it was a year ago. It’s nice if apps and newsstand can drive some sales. But Barnes & Noble is going to have an even tougher time competing on those products than it does on ebooks. Apple and Android have the app market cornered, and digital magazines make up just a tiny sliver of overall magazine sales.

Resources

Barnes & Noble Q1 2013 earnings report (our post here)

Earnings call transcript

An earlier version of this article stated that Barnes & Noble’s app and digital newsstand *sales* are higher than ebook sales. That is incorrect and I apologize for the error. Lynch was referring to the growth rate, not overall sales numbers.

** Or they’re down: The Digital Reader points out that Barnes & Noble previously reported Nook sales of $277 million for the period ending July 30, 2011, but now says they were $191.4 million. A Barnes & Noble spokesperson said the discrepancy is due to accounting for agency pricing and the $191.4 million reflects the actual selling price of ebooks.

In addition, the company promises that the e-readers “will also be available through partnerships with leading retailers” with “established physical and online channels” and those partnerships are expected to be announced “shortly.” Details on availability and pricing will also be announced “in coming weeks.”

However, it is unclear who those partners will be. Barnes & Noble and leading UK bookstore chain Waterstones were widely expected to announce a Nook partnership earlier this year. Instead, to the surprise of many, Waterstones partnered with Amazon to sell the Kindle in its 300 stores. (Amazon launched its UK Kindle store in August 2010.) Smaller e-reader player Kobo partnered with bookstore chain WH Smith last October. Assuming that WH Smith won’t sell e-readers from another brand, that leaves general retail or electronics chains like Tesco, Asda, Currys PC World and John Lewis as possible partners for Barnes & Noble.

Microsoft invested $300 million to spin off B&N’s Nook and college businesses this past April, and will spend $25 million a year for the first five years to help cover the costs of the new company’s international expansion. Barnes & Noble has around 25 percent of the e-reader market in the United States, compared to Amazon’s estimated 55 to 60 percent.

Barnes & Noble will announce its Q1 2013 earnings Tuesday morning.