Microsoft Corporation  (NASDAQ:MSFT) sealed a partnership agreement with Barnes & Noble, Inc. (NYSE:BKS) in NOOK Media LLC, a subsidiary created by the world’s largest bookseller, to provide excellent digital reading experience to customers across the globe.

Microsoft Corporation (NASDAQ:MSFT) invested $300 million for its 17.6 percent equity stake in NOOK Media LLC, which comprises the digital and college businesses of Barnes & Noble. The bookseller holds an 82.4 percent stake in the subsidiary.

Microsoft

Of course, the primary product of NOOK Media would be the Barnes & Noble e-reading application, powered by the new Microsoft Windows 8 operating system. In a statement, William Lynch, chief executive officer of Barnes & Noble, said,  “As demand for digital content continues to increase, we are focused on bringing ground-breaking reading and learning content and technologies to more people in more formats than ever before, including the imminent launch of our exceptional NOOK reading application for Windows 8. We look forward to working closely with our new partner Microsoft to add value to their innovative new platform, by bringing great reading experiences and one of the world’s preeminent digital bookstores, to millions of Windows 8 users.”

On the other hand, Andy Lees, president of Microsoft Corporation (NASDAQ:MSFT), recognized NOOK Media’s leadership in developing the next generation of digital reading. He also expressed excitement for the subsidiary’s product roadmap and worldwide expansion, citing NOOK Media’s launching in United Kingdom. Lees said, “NOOK Media is a leader in developing the next generation of digital reading, and we look forward to the company bringing one of the world’s largest digital libraries to Windows 8 devices, via their upcoming Windows 8 app.”

According to Barnes & Noble, Inc. (NYSE:BKS), it has no timetable to review strategic options for its investment in NOOK Media. The company also said that there is no assurance that the review will result in a strategic separation or establishment of NOOK Media as an independent public company.

Last April, Microsoft Corporation (NASDAQ:MSFT) and Barnes & Noble, Inc. (NYSE:BKS) announced their decision to form a partnership in creating a new company, to accelerate the transition to e-reading based on both companies’ history of strong innovation in digital reading technologies. Back then, Lynch pointed out that its partnership with Microsoft is an important part of its strategy to take advantage of the rapid growth of its NOOK business, and to strengthen its position in the market of digital content for consumer and education segments.

Meanwhile, Microsoft Corporation (NASDAQ:MSFT) is scheduled to launch its news Windows 8 operating system during a special event in New York City on October 25. The company is also expected to introduce its Surface Tablet, the first all Windows-based table computer. The price range for the device would be from $300 to $800.

Stifel Nicholas notes,  the finalization of the deal is a slight net positive, removing the small chance the deal would never get done. Sum-of-the-parts can still be seen as compelling for BKS (as mentioned above, today’s mark-to-market values the bookstores at zero despite $260-$400+ mm annual EBITDA from that segment in last few years). But this depends, of course, upon what NOOK Media is worth in the future. Competitively, MSFT brings deep pockets which should give the efforts durability (we note additional $60 mm and $25 mm annual payments originally outlined), BKS had held its own against Amazon.com, Inc. (NASDAQ:AMZN) and AAPL (most recently with the introduction of NOOK HD), and now support from Microsoft Corporation (NASDAQ:MSFT) should put NOOK on a more stable playing field.

But competition against Amazon.com, Inc. (NASDAQ:AMZN) and AAPL will remain fierce and expensive – even with MSFT backing. Google Inc (NASDAQ:GOOG) is also now a hardware (with Nexus) and content (with Google Play) competitor. We have seen e-book price compression since the DOJ settlements. We also worry about a slowing of both new e-book users and e-book sales (some mixed evidence in the marketplace this may be occurring). But publishers are clearly looking, incrementally, for choices in e-book distribution, and NOOK via Windows 8 represents a substantial expansion of NOOK distribution. We continue to believe that NOOK customers are higher volume readers than those on the Amazon.com, Inc. (NASDAQ:AMZN) or AAPL platforms.