Harry Potter's Corporate Parent

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."