Amazon Gets Back to Its Roots

Amazon.com (Nasdaq: AMZN) used to be a humble online bookstore. It has left those days in the dust, but has never forgotten them, as evidenced by the company's multiyear effort to create its own publishing arm. With its tentacles wrapped around retail, tablets, streaming video, and cloud computing, it seems that Amazon might not stop until it's taken over our lives. Amazon's track record of success elsewhere should have other publishing houses worried.

To boldly go
Amazon's latest effort is a sci-fi, fantasy, and horror imprint called 47North, named after Seattle's (and Amazon HQ's) latitude. It joins five other imprints in the Amazon stable, which range from mystery to romance to foreign translations, all available for the Kindle as well as for your old-fashioned physical bookshelf. The sci-fi and fantasy genres are big business, accounting for a quarter of Amazon's top 20 best-sellers. Three of those are part of the Hunger Games series by Suzanne Collins, published by Scholastic (Nasdaq: SCHL).

Amazon's ability to compete at this level will hinge on its willingness to pay a premium for top talent, as Collins earned a six-figure deal for her trilogy. Amazon's current lineup isn't quite there yet, but its headlining title, The Mongoliad, is an ambitious experimental work of digital fiction that could blur the line between storytelling and interactive spectacle. If this is the sort of risk Amazon's willing to take, it stands to reason that they'd also aggressively court the author of the next Hunger Games.

May the odds be ever in your favor               
The rise of Amazon already sounded the death knell for Borders, and Barnes and Noble (NYSE: BKS) shareholders haven't fared much better, as that stock has shed 70% of its value in the past five years. Amazon publishing might distribute through B&N, but why would it need to? Amazon is its own greatest advantage, with a massively popular online storefront that supports millions of customers. All it needs is the financial commitment to attract the best writers and the hottest topics.

Eliminating the publishing middleman would also be a direct attack on News Corp. (Nasdaq: NWSA) imprint HarperCollins, CBS (NYSE: CBS) imprint Simon & Schuster, and Pearson (NYSE: PSO) imprint Penguin Group. Amazon has also demonstrated its proclivity for ushering drastic change into industries. Its Kindle and now Kindle Fire seek to help push the agenda of the tablet and e-reader. However, Amazon might want to be careful not to anger News Corp. or CBS, which control libraries of original videos that Amazon could use in its streaming video war against Netflix.

Armies of failed books
Amazon has some strong industry headwinds to push through, however. Out of at least 1.2 million titles published by the entire industry over the course of a year, almost 80% sell fewer than 100 copies. Only a few books at the very top of the sales lists make any real impact. One analysis estimates that only the top 3,000 or so books on Amazon's sales list will sell 100 or more books a week, depressingly low figures when stretched out over a full year. Top e-books don't fare much better -- the top 1,000 best-sellers sell perhaps 500 copies a week.

The answer to the ultimate question
Amazon's got to be smart with the authors they pursue. One Suzanne Collins is quite literally worth hundreds of subpar novels, and no amount of shameless promotion will make a best-seller out of a terrible author. I take that back -- it might work one or two times, but at the cost of the company's integrity. Amazon shareholders should hope that its publishing bosses have an eye for talent to match their CEO's skill at promotion, and the resources to bring it aboard.

Will the entrenched lords of old media fend off Amazon, or will the muscular upstart conquer another kingdom? Add these publishing powerhouses to your Watchlist to keep tabs on the latest tales of corporate triumph and tribulation.