The real reason behind the new Nook

September 26, 2012: 6:51 AM ET

If it wants to have any chance of succeeding, Barnes & Noble needs to build an ecosystem of services for its tablet — and quickly.

The new 7-inch Nook HD in white. Photo: Barnes and Noble

FORTUNE -- The idea of owning a thriving content ecosystem is nothing new where companies like Apple, Amazon and Google are concerned. But can a smaller company like Barnes and Noble (BKS) do the same?

Come late October, the bookseller will try when it starts shipping two new Nook tablets with revamped software built atop Google's (GOOG) Android operating system. The 7-inch Nook HD in black or white will start at $199, and at 11.1 ounces, weigh less than the 7-inch Kindle Fire HD and Nexus 7. Also onboard: a dual-core 1.3 GHz processor, 1,440 x 900 resolution display for video playback at 720p, and 8 GB of storage, with an optional 16 GB version. The 9-inch Nook HD+, starting at $269, will weigh in at 18.2 ounces with a 1,920 x 1,280 resolution display allowing 1020p playback, and 16 GB of storage, with an optional 32 GB version. Both claim battery life of over 10.5 hours in between charges.

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Equally important, if not more so, to Barnes & Noble's strategy is the introduction of a new digital movie streaming and download service which rolls out later this year. The company would not break down the size of the Nook Store's video catalog other than to say it would include "tens of thousands" of videos from major Hollywood studios. That puts it in league with competitors. Videos will be viewable on the new tablets but not on the older Nook Color and Tablet.

It's been a long time coming. While Apple (AAPL) iPad users have had access to the iTunes video catalog from day one and Amazon (AMZN) has aggressively beefed up its own Prime Instant Video selection since the Kindle Fire's launch, owners of the Nook Color and Tablet have only had Netflix (NFLX) and Hulu as legit streaming options. A large part of their success has been dependent on building a rich content ecosystem to hook users and keep them happy.

The service will also go a long way towards solidifying the new tablets as multimedia devices, which Barnes and Noble is intent on doing. If the Nook Tablet, and much more so the Nook Color before it, were reading devices that dabbled in games, music, and video, the latest crop aims to be more well-rounded and thought of as such. When we met with Barnes and Noble yesterday, the company often compared the new Nooks with the Kindle Fire HD and Nexus 7, from screen quality to processor and graphics performance.

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Barnes and Noble continues to face an uphill battle. The company's latest quarter was an improvement, with a slight uptick in revenues to $1.5 billion and earnings of $4 million compared to a loss of $24 million the same time last year. But where digital content sales surged 46%, overall revenues for the Nook business remained flat. In the tablet market, Forrester Research reports Apple dominates with 67%, followed by Amazon with 10%, and Barnes & Noble with 5%. In eBooks, Amazon owns at least 60%, while B&N trails in the low-to-mid 20s. So whether these new tablets -- and now a flusher ecosystem -- are enough to boost Barnes & Noble's remains to be seen.

The 9-inch Nook HD+ looks a lot like the previous Nook tablets.

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About This Author
JP Mangalindan
JP Mangalindan
Writer, Fortune

JP Mangalindan is a San Francisco-based writer at Fortune, covering Silicon Valley. Since joining in 2010, he has written on a wide array of topics, from the turnaround of eBay to the evolution of net neutrality. A graduate of Fordham University, Mangalindan has also written for GQ, Popular Science, and Entertainment Weekly.

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