Harry Potter's Corporate Parent

Behind the Harry Potter juggernaut is a London-based company that is rewriting the rule book in publishing. Its formula: Stay nimble, share the wealth, and work the way your authors do.

Pausing at the top of the stairs in a drafty Georgian house in London, Nigel Newton sighs wistfully. If it's true that everyone has a book in them, he says, he wishes his could be a sweeping classic -- something like The English Patient, written by his friend Michael Ondaatje.

The 46-year-old entrepreneur may have to settle for something a bit more prosaic, however. Perhaps an autobiography called The English Publisher: How a Minnow Swam Against the Tide and Rewrote the Rule Book. While Newton's tale isn't likely to garner literary kudos or movie deals, the plot is gripping nonetheless.

In 1986, Newton, a California native living in London, gathered a trio of British publishing's brightest stars and set out to create a humanly scaled publishing house in an industry that was increasingly preoccupied with megamergers and media Goliaths. They named their new enterprise Bloomsbury Publishing PLC, in honor of the famed London literary circle and the neighborhood that they lived in. They announced that their company would be an old-fashioned independent devoted to quality work -- competitive with the big houses, but small enough so that senior managers could discuss quotidian details like the type size on book jackets, and inclusive enough so that authors would be consulted at every stage of a book's production.

For writers who were dismayed by the commercialization of the book industry, Bloomsbury was an instant best-seller. The publishing house, led by Newton, Liz Calder (the farsighted editor credited with discovering Salman Rushdie and Julian Barnes), and David Reynolds and Alan Wherry (two of British publishing's most entrepreneurial minds), was soon punching above its weight, attracting the likes of Margaret Atwood, Nadine Gordimer, and John Irving. At the same time, it refused to be tagged as a niche outfit, building a broad bookshelf on which Snow Falling on Cedars sat side by side with Linda McCartney's Home Cooking.

The company took a few chances, too. One book, on the Falklands conflict, sparked a war-crimes inquiry. Another prompted the brokerage firm Nomura Securities to sue (unsuccessfully) for libel. Bloomsbury even announced a brash plan to publish the first major new thesaurus since Roget's 1852 masterpiece created the category and then broke the mold.

In the process, Bloomsbury transformed its initial investment in intimacy and risk into literary acclaim and commercial success, reeling in some of the world's top writers, racking up Nobel, Pulitzer, and Booker prizes, and singlehandedly revitalizing children's literature with one magical sensation: Harry Potter.

Not surprisingly, some critics sniff that without Potter, Bloomsbury would still be a marginal indie at best. Others even discount Newton's foresight in signing Potter creator J.K. Rowling, then an unknown, when no one else would. "By the time Rowling got to Bloomsbury, she had already written the first chapter. Anyone who read it would have signed her up," says the disgruntled CEO of one of London's biggest publishing houses.

The desire to brand Bloomsbury a one-trick pony is understandable. Today, seven years after the company went public, annual revenues are still relatively small -- about $71 million -- while the Harry Potter effect on company value, including the sure-to-be-blockbuster movie debuting in November, has been immense, making millions for Newton and his colleagues. In addition, almost three-quarters of Bloomsbury's employees have shares or share options in the firm.

But the critics underestimate Newton's talent as a publisher and the special alchemy that sets his company apart from the competition. For one thing, operating outside of the conglomerate cabal has allowed the company to stay nimble and entrepreneurial. The Potter effect (105 million books have been sold worldwide) has helped Newton open a U.S. subsidiary, acquire Who's Who publisher A&C Black, and indulge his passion for online selling and multiplatform publishing. And then there's the electronic licensing deal with Microsoft to publish the Encarta World English Dictionary, as well as an agreement with Perseus Books and Economist.com to produce next year's Business Bible. If that isn't enough, an agreement with Hollywood's Creative Artists Agency to turn more Bloomsbury books into movies will surely sweeten the pot even more.

But the real magic of Bloomsbury, says Newton, is that editors there are focused not on quarterly earnings but on something decidedly more ephemeral: turning relationships into friendships. "Writing a book for two years alone in a garage, you need someone who cares about you as a person as well as a writer," Newton says. "That relationship is the single most important factor in producing a book."

Indeed, authors respond to such intimacy with loyalty, says Louise Barton, a publishing analyst with the London brokerage firm Investec, whether their books are best-sellers or midlist mainstays. "I don't think it matters how much money bigger publishers offer Rowling," Barton says. "I can't see her quitting Bloomsbury."

In fact, Bloomsbury has tried to incorporate that kind of intimacy in every aspect of its business. "Publishing is a human-scale activity, and our principal suppliers -- writers -- are human beings, not companies," Newton says. "So we choose to occupy the same universe as they do. Most of our authors write from home, for example, so we operate from an 18th-century house, rather than an impersonal office block."

And while analysts like Barton expect Bloomsbury to increase profits by at least a quarter this year, Newton keeps his editors focused on another sort of fraction altogether: He expects them to fail with a third of their output. "You have to take big and small risks in this business," says Newton. "If you're not having a fair degree of failures, you're not exposing yourself to the upside of getting it dramatically right on dark horses. If you don't like going home at night with a feeling of uncertainty, then you're not cut out for it," he adds.

Uncertainty, he says, is what leads to discovery: "If you try too hard to improve your failure rate, you become afraid of your inbox, terrified by the proposals made by authors and their agents. You end up having either no output or a book that is so bland that no one will want to read it. Discovering J.K. Rowling has reminded me of the sheer fun of knowing long before anyone else that you have something that will change the world."

Contact Nigel Newton by email (nigel_newton@bloomsbury.com), or learn more about Bloomsbury on the Web (www.bloomsbury.com) .

Sidebar: Publishing Wizard

Nigel Newton, chief executive and chairman of Bloomsbury Publishing PLC, has made his money in magic and authored a new chapter on publishing. Here are four lessons from his school of wizardry.

Make quality your quest. "We were told trashy books would rule the day," says Newton. "But the best-seller lists are dominated by good books that command higher retail prices. There's just as much effort in shifting books at the lower end of the market, but there's a much smaller reward."

Cast your own die. "Don't be enslaved by professional advisers. Recognize when an entrepreneurial decision is required. We IPO'd in 1994, a year in which at least 200 floats were pulled. Make a big step in your company's history because it's right for you and it's right for the firm, not because it's right for the market."

Take risks -- within reason. "We're in the business of portfolio management, laying off risks at different levels. Our mission is to be a great publisher of literary fiction, reference books, and nonfiction. But we have never strayed outside the areas that senior managers have experience in."

Be the best, not the first. "Many of our rivals got stung pouring money into CD-ROMs. It's a much better idea to back the market leaders who will fight platform wars for you. E-books might be a phenomenon waiting to happen, but there will be no prizes for being first. The public wants the greatest books -- not the books from those publishers who happen to be first."

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