A long profile from Business Week:
In November 1997, on a night of pounding rain in midtown Manhattan, Rupert Murdoch threw a party for Jane Friedman, the new chief executive officer of News Corp.’s HarperCollins book division. The luminaries of the publishing business, such as Random House’s then-CEO Alberto Vitale and literary agent Lynn Nesbit, crowded into the Monkey Bar on 54th Street, with its red-leather booths and hand-painted murals of gamboling chimps. Trudging six blocks through the downpour from the Time & Life Building, Laurence J. Kirshbaum, then the powerful head of Time Warner Book Group, brought a guest: a young online bookseller named Jeffrey P. Bezos, whose ambitions would eventually end up affecting the lives of everybody at the party. “It was one of those moments in your life where you remember everything,” Kirshbaum says. “In fact, I think Bezos still owes me an umbrella.”
How times have changed. Physical book sales have been flat for a decade and are starting to get eclipsed by e-books. Friedman left News Corp. in 2008. And Jeff Bezos, who once courted the publishing aristocracy of New York, now competes against them. Last May, Amazon hired Kirshbaum, 67, to run Amazon Publishing, a fledgling New York-based imprint whose lofty goal is to publish bestselling books by big-name authors—the bread and butter of New York’s book industry. In the high-rise offices of the big publishers, with their crowded bookshelves and resplendent views, the reaction to Amazon’s move is analogous to the screech of a small woodland creature being pursued by a jungle predator.
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[Publishers are] trying to protect a century-old business model—and their role as nurturers of literary culture—from encroachment by a company that consistently reimagines how industries can be run more efficiently. Book publishing, an inefficient industry if there ever was one, seems ripe for reimagining. According to a recent report by the Association of American Publishers, sales of adult paperbacks and hardcovers fell 18 percent between 2010 and 2011. Store chains such as Borders have been cartwheeling into bankruptcy, and independent shops are struggling to compete with the advantages enjoyed by online retailers, such as their freedom from collecting sales tax in many states. The lone bright spot is the rising sales of electronic books, but even that landscape is blighted: Fierce warfare for control of the new market, between Amazon.com, Apple, Google, and Barnes & Noble, threatens to turn minor combatants into accidental casualties.
And now this. Amazon could be an unstoppable competitor to big publishing houses. If history is any guide, Bezos, who declined to comment for this story, doesn’t care whether he loses money on books for the larger cause of stocking the Kindle with exclusive content unavailable in Barnes & Noble’s Nook or Apple’s iBookstores. He’s also got almost infinitely deep pockets for spending on advances to top authors. Even more awkwardly for publishers, Amazon is their largest retailer, so they are now in the position of having to compete against an important business partner. On the West Coast people cheerfully call this kind of arrangement coopetition. On the East Coast it’s usually referred to as getting stabbed in the back.
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In the middle of this stew of rancor and mistrust sits Kirshbaum. He was once the ultimate book industry insider, widely known and almost universally liked. He has a well-honed instinct for big, mass-culture books and was thinking about e-books—and losing money on them—long before almost anyone else in the industry. Many of his former peers now consider Kirshbaum a turncoat. In interviews, more than a dozen publishing executives said he had gone over to the dark side; some said they’d conveyed that sentiment to Kirshbaum directly. (None of the executives would speak on the record because Amazon is still a vitally important retail partner.) “I have a message I really believe in,” Kirshbaum says. “Which is that we’re trying to innovate in ways that can help everybody. We are trying to create a tide that will lift all boats.”
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Bezos got on stage at the W New York hotel in Union Square in November 2007, and as part of the unveiling of the Kindle, proclaimed that he would sell New York Times bestsellers for $9.99.
Publishers were shocked, according to interviews with several industry executives. Amid all the collaborative preparations, they say, Amazon hadn’t divulged anything about its aggressive pricing plans. The worries escalated as Bezos appeared on talk shows, making promises to consumers to expect sub-$10 prices for popular digital books. Amazon itself was subsidizing the low prices and losing money on most of these titles, but publishers still had reason to be alarmed. Such a low price could set a new expectation in readers’ minds about how much books are worth and put enormous pressure on traditional brick-and-mortar booksellers selling print books at considerably higher prices.
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In early 2010, a few weeks before Steve Jobs introduced the iPad, publishers met with Apple to hammer out prices for books on the forthcoming tablet. Publishers were happy to see the Kindle get some competition, and Apple needed happy publishers willing to sell their titles on the iPad. So Apple agreed to let the publishers set the prices for their e-books. The publishers decided they wanted the same arrangement—known in the business as “agency pricing”—with Amazon.
John Sargent, the plain-spoken chief executive of Macmillan Publishing, was the first to get on a plane to Seattle to inform Amazon of the decision and to threaten to withhold Macmillan’s books if Amazon did not agree to the new pricing model. Bezos and his colleagues reacted angrily by removing options to buy Macmillan’s books directly from Amazon. Amazon eventually relented, and e-book prices on bestsellers jumped from $9.99 to $12.99 or higher. (The publishers’ move has triggered ongoing antitrust investigations in Europe and Washington, D.C., over whether book publishers and Apple illegally colluded to raise e-book prices.)
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[A]n Amazon recruiter sent an e-mail to several editors at big publishing houses, looking for someone to launch a new New York-based publishing imprint. “The imprint will be supported with a large budget, and its success will directly impact the success of Amazon’s overall business,” read the e-mail, which was obtained by Bloomberg Businessweek.
Kirshbaum, who left Warner Books in 2005 to become an agent, was helping Amazon’s Jeff Belle, in an unpaid capacity, to recruit editors for the new publishing effort. In the middle of that process, Belle asked Kirshbaum if he himself wanted to come aboard to lead the new effort. “Well, the thought had crossed my mind,” Kirshbaum replied.
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As he began to work on Amazon’s behalf last summer, agents, at least, were excited, because getting deep-pocketed Amazon into the game of bidding for books could translate into larger advances. “I want to do business with Larry wherever he is,” says agent Scott Waxman, who sold Amazon the Bob Knight book. “Do I think this is something that would make the Big Six publishers uncomfortable? Yes, with a big capital Y.”
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When Kirshbaum started at Amazon, he found big-name authors who shared Konrath’s willingness to try a nontraditional approach. Tim Ferriss’s books, The 4-Hour Workweekand The 4-Hour Body, were published by Random House, and both appeared on the New York Times bestseller list. Amazon will publish his new book, The 4-Hour Chef, in September. “For me it was a choice between publishers embracing technology and a world-class technology company embracing publishing,” Ferris says. “The latter will give me more of a chance to improvise and experiment.”
It’s becoming clear what Amazon and its authors mean when they talk about experimentation. In November, Amazon introduced a free e-book lending library. Members of its Prime two-day shipping program who own a Kindle can select one book at a time and download it for free. Big publishers, who already didn’t like the $9.99 price, reacted badly to the proposed $0 price and declined to participate in the program. Amazon’s own books, of course, will be a part of the lending club. In the future, Amazon could also do things like preview chapters of its forthcoming books to sell individually as “Kindle Singles” or package an e-book together with an audio book and sell it at one price, so that readers can switch between the two formats as they’re on the move.
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Kirshbaum’s rivals predict, perhaps wishfully, that Amazon is about to get an education in the burdens of book publishing. “They will understand there’s a reason publishers exist, and it’s not just to hike up prices,” says Morgan Entreken, the president of Grove/Atlantic. The late-night phone calls from neurotic authors, the frantic edits on awful manuscripts—this is a business that demands more handholding than Amazon generally seems comfortable with. Then again, Amazon can deliver a trampoline or a 20-pack of ramen in 24 hours, so it’s fairly comfortable with complexity.
Critics even whisper that Kirshbaum has, in fact, already failed, because he has yet to lure a true franchise novelist, a Stephen King. Jeff Belle, the Amazon vice-president, shrugs that off. “Larry just sat down in his chair in July, when there was literally no chair to sit in. He is starting up a new business, hiring a team, and acquiring books all at once.”
Link to the rest at Business Week and thanks to James for the tip.