The book business as we know it will not be living happily ever after. With sales stagnating, CEO heads rolling, big-name authors playing musical chairs, and Amazon looming as the new boogeyman, publishing might have to look for its future outside the corporate world.

By Boris Kachka

HarperCollins occupies floors 1 through 22 of a giant steel-and-glass box on 53rd Street. But up on 26, the receptionist for a tiny offshoot of the company sits alone, gatekeeper to a few drab rows of empty cubicles. A glass container on a table holds a mysterious pile of bright-yellow lightbulbs.

“Welcome to our temporary home,” says 51-year-old publisher Bob Miller, ushering me into a colleague’s more inviting office. Inside, he and his staffers prepare to impart a cheery message: They’re going to fix publishing!

But first, a horror story. Debbie Stier, Miller’s No. 2 at HarperStudio (as this little imprint is called), has been collecting videos for their blog. “You want to see what happens to books after they go to book heaven?” she asks. On the screen of her MacBook, a giant steel shredder disgorges a ragged mess of paper and cardboard onto a conveyor belt. This is the fate of up to 25 percent of the product churned out by New York’s publishing machine.

Everyone’s eyes widen, as though watching some viral YouTube gross-out. “It’s like Wall-E,” says marketing director Sarah Burningham. “It’s depressing,” Miller adds. They had sent in a Flip camera with a warehouse worker. “You can see our books go through there,” says Stier. “The Crichton, the Ann Patchett.”

Miller recently left Hyperion, which he founded seventeen years ago, to start his own imprint at the urging of HarperCollins’s then-CEO, Jane Friedman. She was replaced in June, but HarperStudio lives on. For all its ambitions, it’s a modest outfit: Miller and three women, two of them in their twenties, hope to publish two books a month starting next May, having convinced 25 authors to forgo big advances in return for half of their books’ eventual profit. The books they’ll be doing aren’t particularly outré—Emeril Lagasse on grilling, 50 Cent is collaborating with The 48 Laws of Power author Robert Greene—but they’re hoping that their process will be revolutionary.

Over the past few weeks, Stier has turned her own Flip camera on friends and colleagues, asking them to hold up those yellow lightbulbs and share their “bright ideas” on publishing. She plays us a few of the clips, including one of a publicist who delivers Stier’s intended punch line, tentatively: “Have fewer authors and sell more books?” But the suggestion that gets the biggest laugh in the office is from Stier’s 12-year-old son, who says, “So maybe you have to turn all the books into movies so nobody has to waste their time.”

“It is a very trying time. I’m kind of down about it myself.” —JONATHAN GALASSI, PRESIDENT OF FARRAR, STRAUS AND GIROUX

The demise of publishing has been predicted since the days of Gutenberg. But for most of the past century—through wars and depressions—the business of books has jogged along at a steady pace. It’s one of the main (some would say only) advantages of working in a “mature” industry: no unsustainable highs, no devastating lows. A stoic calm, peppered with a bit of gallows humor, prevailed in the industry.

Survey New York’s oldest culture industry this season, however, and you won’t find many stoics. What you will find are prophets of doom, Cassandras in blazers and black dresses arguing at elegant lunches over What Is to Be Done. Even best-selling publishers and agents fresh from seven-figure deals worry about what’s coming next. Two, five years from now—who knows? Life moves fast in the waning era of print; publishing doesn’t.

So what’s causing this, exactly—this inchoate dread that’s suddenly turned “choate,” as one insider puts it? The anxiety would be endurable if it was just a function of the late-Bush economy: Sales at the five big publishers were up 0.5 percent in the first half of this year, bookstore sales tanked in June, and a full-year decline is expected. But pretty much every aspect of the business seems to be in turmoil. There’s the floundering of the few remaining semi-independent midsize publishers; the ouster of two powerful CEOs—one who inspired editors and one who at least let them be; the desperate race to evolve into e-book producers; the dire state of Borders, the only real competitor to Barnes & Noble; the feeling that outrageous money is being wasted on mediocre books; and Amazon .com, which many publishers look upon as a power-hungry monster bent on cornering the whole business.

One by one, these would be difficult problems to solve. But as a series of interrelated challenges, they constitute a full-blown crisis—a climate change as unpredictable as it is inevitable. And like global warming, it elicits reactions ranging from denial to Darwinian survivalism to determined stabs at warding off disaster—attempts not to recapture some long-lost era but to harness new, untapped sources of power. That is, if it’s not too late.

“Flat is not an acceptable position. We are always expected to grow.” —CAROLYN REIDY, CEO OF SIMON & SCHUSTER

In its heyday, publishing was a vast array of mom-and-pop shops, in which the pops tended to be independently wealthy. Their competitive advantage was not efficiency or low costs but taste. Maxwell Perkins at Scribner; Bennett Cerf at Random House; Roger Straus and Robert Giroux at Farrar, Straus and Giroux; Barney Rosset at Grove; and Alfred A. Knopf epitomized the gentleman editor as gallerist, snatching up unknown geniuses. One British publisher advised an American at the time: “Take lots and lots of gambles, but small ones.” So they did. They took poor writers drinking, put them up in their homes, and defended them in court. They made handshake deals, spent their personal wealth in lean years, and built backlists out of modernist classics. Discovering Faulkner was like buying Picassos in 1910.

In the early sixties, Knopf sold out to Cerf, who sold Random House to RCA, and the era of consolidation began. Formerly independent publishers shriveled into mere imprints of massive corporations. Knopf became part of Random House; so did Doubleday and Bantam and Ballantine and dozens of still smaller shops now distinguished mostly by their names, like corporatized Broadway theaters bearing the monikers of long-gone cigar-chomping producers.

By the nineties, five big conglomerates were divvying up the spoils and their lucrative backlists. Many of the smaller companies that had been struggling, like FSG, Ecco, and Crown, were flush with corporate resources. But in exchange, they gave up final say in how they’d publish their books—or even what books they’d publish. And suddenly an industry accustomed to 5 percent margins was being run by media moguls aiming for double digits.

The corporations began by doing what they knew how to do: acquire, expand, diversify, spend. Sign up all kinds of writers, pay some of them a ton, market the hell out of them, see what sticks. It was the nineties, after all. A few books sold spectacularly, but more failed, and in the last ten years, the bill has come due. So today, the order comes down from beleaguered CEOs: More blockbuster books, fast. Which leads to cutthroat auctions and ballooning advances. You can’t win big if you don’t bet big.

Lately, the whole, hoary concept of paying writers advances against royalties has come under question. Following their down payments to authors, publishers don’t have to pay a cent in royalties, which are usually 15 percent of the hardcover price, 7.5 for paperbacks, until that signing bonus is earned back. The system is supposed to be mutually beneficial; the publishers guarantee writers a certain income, and then both parties share in the proceeds beyond that level. But it only works for publishers if they’re conservative in their expectations. As auctions over hot books have grown more frequent, prudence has gone out the window— paying a $1 million advance to a 26-year-old first-time novelist becomes a public-relations gambit as much as an investment in that writer’s future.

That money has to come from somewhere, so publishers have cracked down on their non-star writers. The advances you don’t hear about have been dropping precipitously. For every Pretty Young Debut Novelist who snags that seven-figure prize, ten solid literary novelists have seen advances slashed for their third books.

Of course, back in the boom nineties, the corporations themselves were pumping up the expectations of midlist writers. Consider Dale Peck. His first novel, Martin and John, came out in 1993 to excellent reviews, and by his third book, in 1998, he was, by his own account, wildly overpaid. Books, he says, “were like Internet stocks, getting enormous advances without demonstrating any moneymaking whatsoever.” Having rarely sold more than 10,000 copies, he took up with superagent Andrew Wylie, developed a reputation for being a “diva,” and pretty soon couldn’t sell a book to save his life. Until he started specializing in genre fiction—first children’s books, then horror. Last year, Peck sold Body Surfing, a thriller about demons exiting people through sexual release. He’s now splitting $3 million with Heroes writer Tim Kring to produce a trilogy of conspiracy thrillers.

Peck sees an increasingly hostile environment for the kind of books he used to write. “When you get $100,000 for a novel,” he says, “you want $150,000 and then $200,000, so when they pay you $25,000 for the next one, and my rent is $2,500 a month, what do you do? The system works just fine for commercial fiction. But for literary fiction, I think we had a nice run of it in the commercial world.”

The good fiction that does manage to snag a stratospheric advance is mostly either a follow-up to or a knockoff of a freak hit. The astonishing success of Charles Frazier’s Cold Mountain led to a bidding war for his second book, which Grove/Atlantic editor Morgan Entrekin lost with great regret to Ann Godoff at Random House’s eponymous imprint (known as Little Random). Lucky him. The price tag, more than $8 million, might well have sunk Grove, one of the few biggish independent houses left, because Frazier’s follow-up, Thirteen Moons, sold less than 500,000 copies, according to BookScan. Ann Godoff was fired not long after the deal was made. “It is possible they broke Little Random’s neck,” says one agent. “Frazier’s wife will not have the luxury to buy another racehorse.”

But overspending isn’t going away, even with a rotten economy. Last month, Harvard economist Anita Elberse wrote a piece debunking the hypothesis of Chris Anderson’s anti-blockbuster blockbuster, The Long Tail (which Bob Miller acquired at Hyperion for a mere $550,000). Elberse led off with a tidbit from a study of Hachette’s Grand Central Publishing. Of 61 books on its 2006 list, each title averaged a profit of almost $100,000. But without the top seller, which earned $5 million, that average drops to $18,000. “A blockbuster strategy still makes the most sense,” she concludes.

It’s inherently risky, though. You have to wonder about the prospects for one new book that Elberse had her students case-study—Dewey: The Small-Town Library Cat Who Touched the World. Grand Central, inspired by the best seller Marley & Me, is betting on the new mini-genre of cat-related nonfiction. Grand Central initially offered $300,000, then went up to $1.25 million. Gobs more will be spent on marketing. You’ll likely be hearing about Dewey when it comes out this month, and if half a million of you still feel that you can’t get enough heartwarming pet stories, it just might earn back its advance.

So publishing ends up looking like a mini-Hollywood, but even more dependent on sleeper hits and semi-reliable franchises. Dan Brown’s The Da Vinci Code buoyed Random House tremendously in the past five years, but with Brown’s sequel delayed, sales were down 5.6 percent last year. When Simon & Schuster announced that sales were off almost 10 percent in the first half of ’08, it cited the 2007 success of The Secret as the reason for the relative shortfall. Other companies did better—but on the strength of surprise hits. Sales grew 11 percent both at Penguin and at Hachette’s U.S. division, largely on the backs of two authors—Oprah-touted self-helper Eckhart Tolle at Penguin and Stephenie Meyer at Little, Brown.

Morgan Entrekin remembers meeting Larry Kirshbaum, then-CEO of Time Warner Books, right after two of Kirshbaum’s books had been anointed by Oprah in 1999. “It’s like winning the lottery twice,” says Entrekin, “but Larry didn’t seem that happy. He said, ‘Now my bosses are going to expect me to do better next year.’ ’’ Kirshbaum eventually left to become an agent.

“If someone like Jane Friedman can’t survive the industry, who can?” —AN EDITOR AT A HARPERCOLLINS RIVAL

The ideal publishing CEO can “read vertically and horizontally,” in the words of ex-Penguin CEO Peter Mayer. But even those who clearly can do both, like Jane Friedman, seem powerless to keep their bosses happy. Friedman had an odd retirement party. It was thrown not by her former employer, HarperCollins, but by her rival and close friend, Doubleday publisher Steve Rubin. The turnout for mid-August was impressive: Power agents Amanda “Binky” Urban and Mort Janklow and legendary editors Sonny Mehta, Gary Fisketjon, and Dan Halpern all converged on Rubin’s elegant roof deck off Central Park West. They surprised the guest of honor by wearing disturbing Jane Friedman masks. Friedman herself gave a defiant speech insisting that it wasn’t a retirement party at all. “Books mean civilization,” she said, perched on iron steps that resembled a barricade from Les Misérables. Later she proclaimed, “I am not done, and I am not done by a long shot!”

Friedman was an emblem not of publishing’s genteel old days but rather its postmillennial media- and tech-savvy era. She came up through publicity at Random House, and over a decade as CEO, she turned HarperCollins from a floundering beast into the business’s tightest, shiniest ship. She also attended personally to writers. She had such a good relationship with Michael Crichton that he followed her from Random House to HarperCollins. Yet a few days after being the belle of the industry’s annual confab, BookExpo, held in L.A. last spring, she went into Rupert Murdoch’s office and was told that her own protégé, Harper No. 2 Brian Murray, was replacing her. As one editor puts it, “She went over there thinking they were going to discuss [her] contract, and instead she got a two-by-four across the face.”

Friedman was never known as a gentle soul, but her brutal “resignation” spooked the industry. What exactly had she done to deserve this? HarperCollins’s recent numbers were down but had recovered reasonably by June. With both parties refusing to comment, theories abounded, the most plausible of which is that Murdoch thought she had become more noise and trouble than she was worth, running a part of his conglomerate that, relatively speaking, isn’t worth all that much to him. There was her messy dismissal of Judith Regan following the O. J. debacle—a tabloid event that dovetailed too well with Friedman’s reputed love of publicity. Murdoch, people at the company say, didn’t like seeing Friedman’s name all over the papers.

Murray looks to be a less conspicuous character. He promises to continue Friedman’s innovations, and to accelerate a worldwide expansion of the business. “We have a green light from News Corp. to invest in our business,” he says. Friedman, meanwhile, is said to be mulling an Amazon consulting gig.

The new face at the top of Random House, who replaced Peter Olson as CEO the week before Friedman left, is 40 and has never worked in book publishing before. Markus Dohle, a veteran of Bertelsmann’s printing business, cuts quite a different figure from, say, dapper, laconic Knopf editor Sonny Mehta, a man who’s survived many a CEO and is said to have shrugged comically when he found out—via the New York Times—that Olson was out. “It’s like Dohle’s 27 years old: He sort of bounces on the balls of his feet the way college athletes do,” says one longtime industry observer.

Dohle has spent the last three months on a listening tour, and his subjects nervously await the results. So far, many prefer his demeanor to that of Olson, a man whose voracious reading failed to make up for his coldness (an in-house joke was that he was a Swede pretending to be a German). But managerially, Olson had one saving grace. “He left people alone,” says the industry observer. “But [Dohle] doesn’t come out of a tradition of editors as geniuses who need to be left alone in a room to smell manuscripts and decide on them.”

Random House had a weak 2007, and publishing sources say Olson didn’t do enough to eliminate its endemic inefficiencies. Imprints are still allowed to bid against each other for books, thus driving up prices, and every one of them has a major problem or two. Little Random has been without an official editor-in-chief since Daniel Menaker left last year. Doubleday, post–Da Vinci Code, is overextended. And two of Random’s down-market imprints, Crown and Bantam, are said to have dragged down past earnings; Bantam Dell head Irwyn Applebaum is a frequent object of anticipatory Schadenfreude. “When business is slow, tongues are fast,” responds Random House spokesman Stuart Applebaum, Irwyn’s brother, declining a request to speak to Dohle and calling the speculation “fantasy-league Random House.” He says there is “zero change” at the imprints, and that Bantam “consistently delivers some of the company’s biggest-selling hardcovers and paperbacks.”

Dohle has been popping into editorial marketing meetings, something Olson almost never did. At the end of July, Mehta brought Dohle as a surprise guest to a Knopf meeting. Looking over a sales spreadsheet, he muttered to Mehta, “This isn’t how the other imprints do it.” Editors who were called in during the meeting hadn’t all been told Dohle would be there. One such editor, herself a former executive, said of a book with disappointing sales, “It’s dead in the water. Don’t worry about it.” Another person in attendance says, “You could see Dohle’s eyebrows going, ‘Oh boy, that was candid.’ ” What was his take on the proceedings? Where would these little observations lead, and how would they affect the people in this room? No one yet knows.

“I think agents often like for there to be problems, because they can be the stalwart support behind a writer.” —GARY FISKETJON, KNOPF EDITOR

The blockbuster era makes retaining marquee writers an increasingly complex proposition. Back when Grove’s Barney Rosset was boozing around Paris with Samuel Beckett, agents were adjuncts, the ones who handled the details (in fact, Rosset became Beckett’s agent too). The editor, both best friend and midwife to genius, had it made. The pay was awful, but what company! And all in the service of art. “We publish authors, not books,” FSG’s people like to say—and for decades, through best sellers and duds, great writers and prestigious publishers were inseparable. Some still are: Philip Roth, thus far, has stuck by Houghton Mifflin even after its painful merger with Harcourt. John Updike, at Knopf, doesn’t even have an agent. But early this year, two of publishing’s tightest bonds were broken. Richard Ford left Knopf’s star editor, Gary Fisketjon, for Dan Halpern at Ecco (Binky Urban, the agent who handled Frazier’s deal, did this one, too). And, after 42 years at FSG, Tom Wolfe left for Little, Brown.

Fisketjon, renowned for his close friendships and even closer edits (Raymond Carver, Cormac McCarthy, et al.), was more than Ford’s editor—he and the novelist “would kill furry animals in the woods together,” as one colleague puts it. But doing business together had become tricky. Ford’s literary reputation and popularity had fallen out of alignment; his last book, The Lay of the Land, sold less than 100,000 copies, per BookScan. Slow-and-steady Knopf didn’t seem fazed, but the author himself was. He thought house enthusiasm had waned, and “he never felt the money was commensurate with the work that was produced,” says the colleague. It couldn’t have been easy when the Lauren Weisbergers of the world were getting better deals than he was. “He’s 64, looking for that one last score in the literary world.” Knopf offered Ford roughly $750,000 per book, at which point Mehta capped the money, according to the source; Ecco offered $3 million for three books.

Others say that Ford had simply grown unhappy with Fisketjon’s editing. Cormac McCarthy left Fisketjon, too, but he stayed with Knopf and had Mehta edit him. When Ford decided to leave, says the source, he left Fisketjon a phone message explaining his move. It was never returned. He sent a follow-up e-mail, which Fisketjon answered with a surly note. Only Ford and Fisketjon know what exact words were exchanged (and both refuse to comment on their relationship after the move), but Ford later told someone that “Gary has to learn he’s no longer in high school.” This was business, after all.

Tom Wolfe kept FSG afloat in its last decade of independence with The Bonfire of the Vanities, but Jonathan Galassi shrugs off making him a lowball offer earlier this year. Little, Brown paid about $7 million for his next novel, a Miami race parable, after Galassi reportedly balked at an early request for $5 million. “We went through a court dance,” says Galassi. “Everyone acted their part, and the result could have been predicted from the beginning.”

Wolfe says his divorce was cordial, noting that 42 years is a lot of loyalty—which, by the way, is a two-way street. “Making a living as a writer is much more like Protestantism than Catholicism. In the Catholic Church you built up your bank account through some good works, even if you’ve had terrible sins.”

A close friend of Wolfe’s says it wasn’t about Galassi, it was about Roger Straus, the charismatic old-line chairman of FSG who died in 2004. After Bonfire, Random House had offered Wolfe millions to leave Straus, but he’d refused. With his old friend gone, Wolfe relied on his most trusted surviving confidante: his agent, Lynn Nesbit.

Writers looking for a boost from a new publisher would do well to remember the cautionary tale of one Salman Rushdie, exhibit A in the case of Editor v. Agent. Sonny Mehta was his editor; they shared virtually identical tastes and backgrounds, and each had helped the other’s career. Enter Rushdie’s agent, Andrew Wylie, in the late nineties, pitching what would become Rushdie’s 1999 novel, The Ground Beneath Her Feet. “Wylie held Sonny up,” says a publisher at another house. “Sonny said no and [Wylie] said, ‘Well, cheers, we’re leaving.’ Despite low sales of Rushdie’s previous novel, Holt paid $2 million for the new one (plus some paperback rights). It promptly tanked. Rushdie eventually returned—not to Knopf but to Little Random. His career has never been the same.

Many agents contend that, with younger editors being laid off or jumping around to start new imprints, the job of nurturing an author has been left to them. “You hear every day of an editor changing houses,” says longtime agent Mort Janklow. “J. R. Moehringer [best-selling author of The Tender Bar], I sold him to Hyperion.” Two of Moehringer’s editors left the house. “Then Bob Miller decides to leave. This is a young man who writes a book about abandonment! Who does he turn to? The departed publisher?! I take care of him.”

Meanwhile, morale among many editorial staffers is dipping to all-time lows. Forget literary taste; everything is cost-benefit analysis. “What I’ve heard from editors is, ‘My judgment doesn’t count any longer,’ ” says Kent Carroll, who left his company, Carroll & Graf, after it was sold to a mini-conglomerate, and who now runs the boutique Europa Editions. “There used to be a reason to get into publishing,” says Carroll. “Whether they know it or not, they all want to be Maxwell Perkins. It’s a kind of secondary immortality. They didn’t flock to publishing because they want to publish Danielle Steel.”

“Some people say there’s not enough marketing done for a book, and I think that’s total bullshit. You do the marketing that works, and not much is working right now.” —PETER MILLER, DIRECTOR OF PUBLICITY, BLOOMSBURY

One key advantage of corporate publishing was supposed to be its marketing muscle: You may not publish exactly the books you’d like to, but the ones you publish will get the attention they deserve. Yet in recent years, more accurate internal sales numbers have confirmed what publishers long suspected: Traditional marketing is useless.

“Media doesn’t matter, reviews don’t matter, blurbs don’t matter,” says one powerful agent. Nobody knows where the readers are, or how to connect with them. Fifteen years ago, Philip Roth guessed there were at most 120,000 serious American readers—those who read every night—and that the number was dropping by half every decade. Others vehemently disagree. But who really knows? Focused consumer research is almost nonexistent in publishing. What readers want—and whether it’s better to cater to their desires or try harder to shape them—remains a hotly contested issue. You don’t have to look further than the pages of The New YorkTimesBook Review or the shelves of Borders to see that the market for fiction is shrinking. Even formerly reliable schlock like TV-celebrity memoirs doesn’t do so well anymore. And “the next thing,” as Publishers Weekly editor Sara Nelson notes drily, “is not bloggers writing books.”

Marketing a book these days is like playing a slot machine; hitting one 7 won’t get you a dime. “There has to be this constellation of events,” says Daniel Menaker, whose departure was tied in the press to the low sales of Benjamin Kunkel’s much-ballyhooed debut novel, Indecision. “Not only a Times Book Review front cover but Don Imus talking about it and Ellen Pompeo actually reading the book on-camera. And Barack Obama has just bought it.”

It’s plausible that publishing would already be in the red if it weren’t for Oprah. And “she is reportedly going off the air in a few years,” says former Simon & Schuster CEO Jack Romanos. “The most effective marketing tool they have for a book isn’t going to be there. If I were still there, I would be figuring out, now, different and better ways to market in anticipation of that being taken away.”

This would mean far more than just the few book “trailers” you see online. “They’re all the rage right now,” says Bloomsbury’s Peter Miller, “but I would love to see an example of one video that really did generate a lot of sales. There’s a sense of desperation.”

“We just don’t know what our business looks like without Borders. And that’s terrifying. There’s just no way of getting around it.” —SIMON LIPSKAR, AGENT

If you think marketing is impossible, talk to the people in sales. Their job—forcing books into a shrinking handful of outlets—involves all the supplication of publicity without all the fun and free booze of book parties. And it has the added bonus of bleeding their companies dry.

Borders Group, which controls 10 to 12 percent of the bookselling market, is on death watch, putting publishers in an even less enviable negotiating position with bookstores. The remaindering and shredding of books—a cost borne largely by the publisher—is a relic of a consignment model developed during the Depression that makes no modern sense. Publishers also pay for placement in big bookstores, which they call “co-op,” under a complicated arrangement meant to cover up the fact that it’s payola (or, as some call it, extortion). Those 300 copies of, say, American Wife stacked precariously at the entrance? Bought and paid for by the publisher. “You feel raped having to pay for placement in a store you’re selling to,” says an agent.

But at least with two major chains, you can play one against the other. Even in its weakened state, Borders can still boost a book into best-seller contention. If something is selling well at Borders, a publisher can pressure an increasingly stingy Barnes & Noble to reorder. If Barnes & Noble absorbed Borders’ business, it would control 30 percent of the market—versus 10 percent for all the independents combined, with big-box retailers and Amazon controlling most of the rest. (At its nineties peak, the indie-only American Booksellers Association had 4,700 member stores; today it has 1,700.) This matters because the following response from Barnes & Noble CEO Steve Riggio is only technically true: “We buy every title published—our business is a long-tail business—less than 5 percent is from bestsellers.”

Editors insist that plenty of books get skipped. Richard Nash, head of indie publisher Soft Skull Press, estimates that one in twenty are passed over, though ten to fifteen copies are shipped into their warehouses in case there’s a special order. Many more are getting smaller initial orders than ever. That’s a very long, very skinny tail.

Barnes & Noble, briefly interested in Borders, has since recanted. Recently William Ackerman, a major Borders shareholder, suggested they should sell to Amazon instead. That probably won’t happen, but his reasoning is clear. Barnes & Noble is old news. Amazon is the future.

“The fear of Google [BookSearch] is ridiculous paranoia. The fear of Amazon is enlightened self-interest.” —MIKE SHATZKIN, BOOK-INDUSTRY CONSULTANT

Attendance at this year’s BookExpo was way down, but you wouldn’t have known it if you were among the 700-odd people at a presentation by Amazon CEO Jeff Bezos. Lean, wiry, shaven-headed, and big-eared, Bezos talked up the Kindle, the new e-reader that may or may not account for 1 percent of the book market. No one knows. But while bookstore sales were to drop 7.1 percent that month, Amazon was on its way to 31 percent sales growth (albeit for all media products) for the second quarter. The audience greeted Bezos warily: His sleek, West Coast style made Jane Friedman look like Vladimir Nabokov.

In a Q&A session billed as “Upfront and Unscripted,” none other than Chris “Long Tail” Anderson quizzed Bezos on his plans. He couldn’t get many straight answers (though Bezos was delighted to discuss the suborbital space vehicle he’s working on). How many books would Bezos like to have available on the Kindle? “Well, I probably won’t be happy unless we have 20 million, but I’m hard to make happy,” he said, and then let loose a honking laugh.

Publishers have been burned by e-book hype before. A few years back, analysts were predicting we’d all be reading novels on our Palm Pilots. Barnes & Noble even began selling e-books. Though it doesn’t quite look the part, Bezos’s chunky retro Kindle is the closest so far to being the iPod of books. In mid-August, a Citigroup analyst doubled his estimate for this year’s sales of the readers—to almost 400,000.

Why weren’t publishers elated? What’s wrong with a company that returns only 10 percent of the books it buys and might eventually eliminate the cost of print production? Well, it doesn’t help that Amazon, which has been on an intense buying spree (print-on-demanders BookSurge; book networking site Shelfari), lists publishers as its competitors in SEC filings. Editors and retailers alike fear that it’s bent on building a vertical publishing business—from acquisition to your doorstep—with not a single middleman in sight. No HarperCollins, no Borders, no printing press. Amazon has begun to do end runs around bookstores with small presses. Two new bios from Lyons Press, about Michelle Obama and Cindy McCain, are going straight-to-Kindle long before publication.

Amazon, in short, plays hardball. When Hachette Livre UK couldn’t come to terms over Amazon’s U.K. payments, Amazon removed the BUY NEW button from its listings for the company’s key books. Hachette’s CEO responded with an open letter, saying, “Amazon seems each year to go from one publisher to another making increasing demands in order to achieve richer terms at our expense and sometimes at yours.”

The ultimate fear is that the Kindle could be a Trojan horse. Right now, Amazon is making little or nothing on Kindle books. Lay down your $359 and you can get most books for $9.99. Publishers list that same Kindle version for about $17.99, though, and—as with all retailers—charge Amazon roughly half that price for it. Which means that Amazon keeps only a dollar on each book, while the publishers make $9.

But Amazon may be offering a sweet deal now in order to undercut publishers later. If their low, low prices succeed in making e-books the dominant medium, they can pay publishers whatever they want. “The concern is they want to corner the market,” explains one books executive, and then force publishers to accept a genuine 50 percent discount. “If they took over as little as 10 to 20 percent of the market,” says an agent, “publishers simply would not be able to exist.”

“We’re an industry more willing to watch the boat sink than rock it a wee bit.” —ONE FRUSTRATED PUBLISHER

While many in publishing wait in their bunkers, HarperStudio and a few others forge ahead. Back in February, Bob Miller and Jane Friedman met at the bar of the Omni Berkshire hotel for one of their freewheeling chats. “How would you do it differently if you could start all over again,” she asked him. He said he’d try to reduce advances and returns, put out only a few books, and focus on cheap Internet marketing. “Why don’t you do that?” she asked, and within a week they had a deal.

Miller has worked out separate contracts, co-op and all, with booksellers and authors—capping advances at $100,000 and reducing returns. Their list now includes not just 50 Cent but Michael Eisner, his former boss at Hyperion; John Lithgow (a memoir); and Isabella Rossellini adapting her short-film series on bug sex. All these authors will contribute to their own pre-publication marketing.

Miller doesn’t wait for agent submissions, instead accosting writers at conferences, telling them how much more a writer can make under 50-50 profit-sharing. He’s even throwing in something literary, 22 previously unpublished stories by Mark Twain, who, Miller points out, ran a profit-sharing publisher that made a killing on Ulysses S. Grant’s memoirs. “If he were alive, this is exactly the deal he’d want,” Miller says brightly.

Other industry folk, while supportive, note that precious few writers—except those with trust funds—would forgo advances, and that it generally works best for those who have a pre-existing fan base that will gobble up their books. As for Miller’s other key ingredients, profit-sharing is not a new concept, and online marketing is catching on everywhere. If there’s anything Miller shares with the departed Friedman, it’s a knack for making restructuring look like revolution. But in a business as illogical as publishing, maybe it is.

One indie publisher has been pitching an imprint around town that would go beyond what Miller’s doing—expanding into print-on-demand, online subscriptions, maybe even a “salon” for loyal readers. He envisions a transitional period of print-on-demand, then an era in which most books will be produced electronically for next to nothing, while high-priced, creatively designed hardcovers become “the limited-edition vinyl of the future.” “I think they know it’s right,” the publisher says of the executives he’s wooing, “but they don’t want to disrupt the internal equilibrium. I’m like the guy all the girls want to be friends with but won’t hop into bed with.”

Nearly all of these new ideas already exist in some form or another at independents like Dave Eggers’s brainchild, McSweeney’s. But can they survive inside a corporate, blockbuster-bound culture? “You can’t turn a camel into an alligator,” says longtime agent and former Grove editor Ira Silverberg. “I’d rather we have several soft years when investors get out and people who care about the values in the business reinvest.”

But going back in time isn’t an option. A hundred Bennett Cerfs wouldn’t save the current publishing model—not without a hundred Bob Millers puzzling out the way forward, unhampered by fear or complacency. The kind of targeted, curated lists editors would love to publish will work even better in an electronic, niche-driven world, if only the innovators can get them there. Those owners who are genuinely interested in the industry’s long-term survival would do well to hire scrappy entrepreneurs at every level, people who think like underdogs.

It’ll be rough going in the meantime; some publishers will transform, some will muddle through, some will die. And there will, no doubt, be a lot of editors for whom even this diminished era will look like the last great golden age, when some writers were paid in the millions, some of their books produced in the millions, and more than half of those books actually sold. Book publishing is still a big-league business, and that’s a hard thing to let go of. “There’s something terrible,” says an editor at a prestigious imprint, “about admitting that you’re not a mass medium.”

Labels: business, Stuff

Ever since its inception, one of the internet's most commonly used features is the limitless pool of jokes and wacky pictures. Millions of people around the world devote large chunks of time to this phenomenon, particularly college students who can't get enough of dorm room gags, especially if they involve beer, bloopers, and topless girls. In the winter of 2000, connoisseurs of college humor and aspiring business students Josh Abramson and Ricky Van Veen created a website that would cater to this discerning demographic of 18 to 24-year-olds, giving students a forum for their often tasteless, crass comedy. The pair, friends since the sixth grade in Baltimore where they grew up, had the goal of finding enough online advertisers to pay for their beer (a considerable campus expense) and creating a website fully dedicated to grinding your academic efforts to a halt. There was never a business plan. The greatest thing about starting a business in college, says Abramson, is that there is very little risk. There was a $30 a month server fee and that's it.

CollegeHumor.com was launched with $200 of savings. Abramson and Van Veen spent their summer in a basement. They made flyers and let their campus know what they were up to. The workload was minimal until the pair started getting swamped with videos and photos of campus life from across the country. Only a month after it launched, CollegeHumor.com needed its own dedicated server to cope with traffic. Their hunch about the demand for the site was clearly spot-on. Van Veen says: "We just made it available to everyone. We just lifted up a rock and it was there".Their job is to filter the material photos, movies, links, and columns and serve it up on the basic website. Not that the filter is that rigorous. Expect to find plenty of photos of drunk students, animal bottoms, silly signs, and stories on such things as an outbreak of chlamydia at a San Francisco zoo. The CollegeHumor.com team has a list of things that aren't funny that includes midgets, Bill Gates, pimps, and Helen Keller jokes, but there is still a lot of room for bad taste.

Within three months it became clear that this business could pay for a lot more beer than Abramson and Van Veen could drink. The site gave advertisers direct access to the hard-to-please 18-to-24-year-old demographic of technology savvy, early adapters who were bombarding the site every day. The pair received several early offers to buy the business (one for $9 million), but Abramson and Van Veen were not interested. They were having too much fun. We'd be doing this if we were making less money. The point is we are doing something we enjoy,says Van Veen. The buy-out offers inspired them to take the project more seriously. We thought we could feed ourselves if we went full-time at it, says Van Veen. In 2003, revenue reached $250,000, and in 2004 it climbed to $2 million.

Early on, Abramson and Van Veen made an alliance with Zilo, a media company that specifically targets college and young adults through television, live events, and its online presence. They never put us as a priority, says Abramson, who has constantly had to deal with not being taken seriously because of his age. While young people don't necessarily have the experience to do certain things, this has no impact on their ability to be creative and have ideas.” The Zilo alliance did not last.

Today, CollegeHumor.com is based in New York in a $10,000-a-month Tribeca loft, and the founders, now graduates, have been joined by Zach Klein and Jakob Lodwick. Advertisers on the site include DreamWorks, Toyota, Coca-Cola, and sports betting agencies that pay up to $60,000 a month. 2005 revenues are forecast to tip $5 million, a slice of that coming from the sales of irreverent Tshirts (What would Ashton do?). The site receives around 600 pictures and 100 movies every day. It has 6 million unique visitors each month and 200 million page views. Staff numbers have deliberately remained low and margins, says Abramson, remain high. The partners apologize for some of the site's disorder. This is how the Internet works when you have four people running a site that should have two dozen.

CollegeHumor.com now has a parent company, Connected Ventures (run by Van Veen and Abramson), that collects the advertising revenue and product sales from the various websites it runs including Busted Tees (for all those crass T-shirts), Big Shocker (an in-joke hand signal that has been made into a range of Big Shocker products), a college dating site, and various other CollegeHumor spin-offs including video file sharing and a forum for music writers. In August 2006, InterActiveCorp bought a majority stake (51%) in the business. Abramson remains president of Connected Ventures, Van Veen content editor. The boys are living the fantasy life of every college student, New York loft, flatscreen TVs, positive cash flow, and meetings with high-level entertainment industry executives looking for ways to leverage the very marketable CollegeHumor.com brand. There are books, a possible Paramount movie in the pipeline, and a steady increase in advertising revenue for the site.

Abramson, an accomplished jazz pianist who used to work in a piano bar, was always seen as an entrepreneur. He went to the Robins School of Business at the University of Richmond, but does not rate this academic experience as contributing anything significant to his business career. His former professor of economics Robert Dolan describes him as a very laid back guy on the surface, but he was definitely someone with a plan. “You can tell the wheels are churning. He's an entrepreneur, he says. Abramson was selling string bracelets in high school, and later on he worked out that he could earn more in one night as a DJ with some sound equipment than his buddies were making in a fortnight as employees. "Ever since I was little kid it was my dream to run a company," he says. Abramson is one of those who believes that the entrepreneurial spirit is something some people have while others don't. Some people have the natural ability, some people don't. It is a way of looking at an opportunity. You could study business your whole life and still not get it. By Emily Ross & Angus Holland, exclusive online extract from 100 Great Businesses & the minds behind them. Buy online

Labels: business, Stuff