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Microsoft, Nook: Partners Now, E-Reader Rivals Later?

Microsoft, Barnes & Nobile finalize Nook Media partnership; agreement keeps door open for Microsoft self-branded hardware that would compete with Nook line.

Microsoft earlier this year unveiled plans to manufacture its own tablet. This week, rumors emerged that it is eyeing a self-branded smartphone. Now, it appears that Redmond's hardware plans could also include an e-reader.

Microsoft and Barnes & Noble on Thursday said they had finalized their previously announced partnership, under which the companies will create a spin-off that will include Barnes & Noble's Nook e-reader and college textbook businesses. The new company will be called Nook Media, LLC.

Most of the news released Thursday simply reaffirmed information previously disclosed April 30. Microsoft gets a 17.6% stake in Nook Media. In exchange, Microsoft pays Barnes & Noble $300 million and drops patent claims it had previously filed against the bookseller. Nook Media must also pay license fees to Microsoft for technologies covered by patents that were at issue in the lawsuit.

The deal additionally calls for Barnes & Noble to develop a Nook-branded e-reader app for use on Windows 8 PCs and tablets, including Microsoft's own Surface, which will debut on Oct. 26 along with Windows 8 systems from OEMs.

[ Windows Phone 8 devices have an uphill climb against Android and iOS. See Windows Phone 8: What Microsoft Needs To Compete. ]

What may be most noteworthy to Microsoft watchers, however, are additional details about the deal contained in a document Barnes & Noble filed with the Securities and Exchange Commission this week. The heavily redacted filing hints at the possibility that Microsoft may manufacture its own e-reader, which would be powered by content from Nook Media.

"If Microsoft creates a reader, Microsoft may include an interface to the NewCo Store in that reader and may surface in that reader all Content purchased by customers from the NewCo Store," the filing states. NewCo was the temporary name for the joint venture until the companies decided on Nook Media.

While the filing does not state that Microsoft definitely plans to build an e-reader, it makes clear that Redmond's deal with Barnes & Noble does not prohibit it from launching a device that could compete with devices in the Nook line, including the newly launched Nook HD. Such a development could spark tensions between Microsoft and its new publishing partner.

Following the introduction of Surface in June, Microsoft drew flack from some PC makers, such as Acer, who were concerned about the move.

Meanwhile, rumors that Microsoft is planning its own Windows Phone 8 device gained steam this week following a report in China Times Daily, which cited unnamed sources in reporting that the company plans to build a smartphone.

Microsoft has not commented on the report.

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