Barnes & Noble stakeholder Liberty Media announced it would be shrinking its stake in the bookseller to about 10 percent of its initial investment. On top of the failure of the Nook e-reader and declining retail sales, can Barnes & Noble weather this latest bit of bad news?

Liberty Media invested $204 million in Barnes & Noble in 2011, giving the investor a 16.6 percent stake in the company. At the time, a Wi-Fi version of the Nook had just been released, and the bookseller was confident about the financial prospects of its e-reader.

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Two and a half years later, Nooks sales are tanking, Barnes & Nobles retail sales are on a steady decline, and Liberty Media is cashing out. Liberty and Barnes and Noble announced that the entertainment distribution conglomerate would be shrinking its share of the company to about ten percent of its initial investment. Both say this is an opportunity for the bookseller to diversify its future, but analysts say it will be tough to bounce back.

"By reducing our preferred position and eliminating some of our related rights, Barnes & Noble will gain greater flexibility to accomplish their strategic objectives," says Greg Maffei, president and CEO of Liberty Media in a statement.

"Liberty Media has been a strong supporter of the Company and Greg Maffei and Mark Carleton have been and continue to be tremendous partners at an important time in the Company's history," says Leonard Riggio, Chairman of Barnes & Noble, Inc. in the statement. "Liberty's decision to retain a portion of its investment and have active involvement on our board underscores Liberty's ongoing commitment to Barnes & Noble."

Mr. Riggio adds that Libertys reduced financial role will allow the New York-based bookseller to pursue more strategic options, though there was no clarification as to what those next steps are.

If the companys last financial report is an indication, the bookseller has to focus on Nook and brick-and-mortar sales. Third quarter revenue, which included the holiday season, dropped 10 percent from the previous year, and revenue from Nook was down 50 percent from the previous year. In its report, the company said the loss was due to it not releasing a new version of the device, though it plans on releasing a new Nook color device in early fiscal 2015.

In the meantime, the losses have translated to job cuts and store closings. Last summer, the bookseller announced it would be closing 15 to 20 stores, and the February report said that more job cuts came as a result of the poor quarter. This comes on the heels of a tough last few years for major bookstore chains, as Internet retailers and e-books are growing in popularity: Borders Bookstores also closed 400 stores in 2011.

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Barnes & Noble takes a hit as Liberty Media guts investment (+video)