Liberty Sees Opportunity For Nook Software On Tablet Devices

John Malone, chairman and controlling shareholder at Liberty Media Corp. (LCAPA, LINTA, LSTZA), said Monday he believes Google Inc.'s (GOOG) Android mobile operating system, which powers Barnes & Noble's (BKS) Nook device, could dominate the e-book market in terms of unit sales.

Malone and Liberty Chief Executive Greg Maffei signaled that the potential for the Nook platform to become the e-book application of choice for consumers on all Android-based tablet devices is a key reason for the company's bid for the ailing bookstore chain, which values Barnes & Noble at $1.02 billion.

With Barnes & Noble's retail business in steep decline and its Nook device playing catch-up with Amazon Inc.'s (AMZN) Kindle, Liberty's offer of $17 a share for 70% of the book chain surprised investors--many of whom were betting that Barnes & Noble shares would continue their slide after the company held a failed auction for itself while its chief rival, Borders, filed for bankruptcy.

In his first comments about the deal, Malone was quick to point out that his interest in steering Liberty into the rapidly transforming book business is merely a side project in comparison to the company's other sizeable holdings in the media and ecommerce sectors.

"Yes, it's a meaningful amount of money, but no, we're not betting the company on it," Malone said.

He also noted that Amazon's strong lead in the nascent e-book market could be hampered by the publishing industry's interest in not allowing one retailer to become too powerful.

"The publishing industry has a vested interested in not allowing one player to have too strong a hand, and that should play well for Barnes & Noble," Malone said.

As for the potential of the Nook software business for selling e-books, Malone compared it to Gillette's success in selling razors, but he noted the business could be scaled across any Android device without being limited to those made by any one company. That said, he stressed his belief that the financial woes of its chief retail competitor, combined with its strong brand and store presence, will give the company's physical stores an enduring role.

"I've been a Barnes & Noble customer myself for many, many years," Malone said. "The stores will shift around, but there will be a physical presence for a long, long time to come, and it will be a profitable presence."

Even if e-books swamp the market for physical books as many observers expect, Maffei said Barnes & Noble stores could continue to have similar role to Apple Inc.'s (AAPL) stores, which have been successful in selling the company's popular devices despite the digital nature of the company and its customers.

Barnes & Noble is expected to release a new version of its Nook device this week. Maffei noted the company has the largest selection in the e-book space, and that the Nook already has captured an estimated 25% of the e-book market--an impressive figure that has been met with skepticism from observers who believe the company's actual market share is smaller.

"It's an estimate," Maffei said. "We believe they've captured meaningful share."

Maffei said it's likely that Liberty would spend less than $500 million in cash to complete the transaction if a deal is done, but that would depend on conditions in financial markets at the time the company seeks financing.

Malone said he expects to resolve negotiations with Barnes & Noble over Liberty's offer in a matter of months, if not weeks.

"We're coming in after a failed auction to execute what the board has sought," Malone said. "The issue is the price or whether there are other bidders who were stimulated by our bid to come in with a higher price."

-By Nat Worden, Dow Jones Newswires; 212-416-2472; nat.worden@dowjones.com

Liberty Media Corp. - Liberty Starz Class B Common Stock (MM) (NASDAQ:LSTZB)
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