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The economics of the new Harry Potter book...

PostPosted: Sun Jun 10, 2007 9:41 pm
by -Papa Gino
...without too many numbers.

Caught this on Reuters today. It's been a while since I've strayed into the bookselling business (or general retail, for that matter) - but this looks to me to be a classic example of Big vs. Small. That is - Big Retailers sell a product at cost or even at a loss just to get people into the store (where they'll hopefully buy other, more profitable products - basically not unlike Walmart's approach to retailing), and in the process the Small are squeezed out because they can't spread the costs of a Harry Potter rollout quite as efficiently and haven't the liquidity to absorb any associated negative cash flow.

Capitalism at work, boys and girls. Nothing to do with "competition", either - the system is built such that over time, oligopolistic relationships and behaviors trump everything else. [In other words - Walmart Always Wins.]

On the bright side - for small book retailers - used book trade is still doing quite well (so far as I can ascertain), and there doesn't seem to be a replacement for Potter books (i.e. Huge All-Ages Hits) on the horizon.

By Justin Grant
Mon Jun 11, 3:10 AM ET

NEW YORK (Reuters) - Harry Potter has no spell for bookstore profits.

Millions of people will descend on stores for a copy of "Harry Potter and the Deathly Hallows" in July, but deep discounts mean many will struggle to turn a profit from the jamboree.

"Everywhere you go there is huge, ridiculous discounting by the chains," said Graham Marks, children's editor at the British-based trade magazine Publishing News.

"They are literally not going to make one penny out of the book. It is stupid -- just throwing money away ... The world has gone mad."

Online retailer Amazon.com and Wal-Mart Stores Inc. have slashed nearly 50 percent off the book's $34.99 list price, forcing many independent booksellers to follow suit to stay competitive.

Barnes & Noble Inc. and Borders Group Inc., the world's largest booksellers, are selling it at 40 percent off.

Such price cuts drive sales, but usually result in minimal profit margin, something Jefferies & Co analyst & Co. analyst Tim Allen said typically happens on every bestseller.

"It's so discounted, there's minimal, if any, gain," Allen said. "Retailers try to make up the shortfall by marketing loyalty cards, which they hope will entice shoppers back into their store."

The conclusion to J.K. Rowling's saga about the boy wizard's battles with the forces of evil could be among the fastest-selling books in history, and some large retailers have broken records for orders well ahead of its July 21 release.

Amazon.com boasted more than 1 million advance orders for the book, easily besting advance orders for Rowling's 2005 release, "Harry Potter and the Half-Blood Prince."

In April, Barnes & Noble said advance orders for "Deathly Hallows" topped 500,000 copies, breaking the bookseller chain's record for advance sales.

But with widespread discounting biting a gigantic chunk out of any potential profits, many booksellers are not enthused about its release. And for smaller, independent book stores, the discounting makes for a hard calculation.

"The bookselling trade has lost millions by having to discount Harry Potter as heavily as they do," said Caroline Horn, children's editor at Bookseller, a British trade magazine.

"A lot of independent bookstores won't be selling Potter. They say it would be cheaper to buy it from a supermarket than the publisher."

The Chapter One Bookstore, an independent bookseller in Hamilton, Montana, is selling the book at full price and donating $7 of each sale to a library of the buyer's choice.

"The discounting -- online and at the chains -- does affect what you think you can sell," said Russ Lawrence, head of the American Booksellers Association and part-owner of the Chapter One Bookstore.

"Each bookseller has to decide how to deal with that."

MAGICAL INVENTORY

Scholastic Corp. -- the U.S. publisher of the "Potter" series -- is planning to release a record-breaking 12 million copies of "Deathly Hallows," so retailers expect no problems getting inventory.

"We placed our orders for them and they've guaranteed us we'll get them," said Dara La Porte, the children's book manager at Politics and Prose, an independent bookstore in Washington, D.C. "The last couple of Harry Potter titles -- we've gotten them within 24 hours of when it released."

Borders has been taking reservations for "Deathly Hallows" since December, giving the company a solid gauge for what it will need to order from Scholastic, company spokeswoman Ann Binkley said.

"As we get a little closer to (July 21), we'll sit with Scholastic and talk about what our reserves are ... We partner very closely with our vendors."

NATIONAL BOOK CLUB

Whether the book has a happy ending for Harry Potter and his wizard friends is still not generally known, but booksellers say the series has been able to create millions of young readers in an era of video games and the Internet.

"We get to host a party in July for probably 200 kids who are excited about a book. And that's a real opportunity for us to promote the whole idea of reading for pleasure," Lawrence said of plans for the Chapter One Bookstore.

Since bursting onto the scene in 1997, the Harry Potter series has sold more than 325 million books worldwide, spawning four feature films.

The fifth film, "Harry Potter and the Order of the Phoenix," will hit theaters a week ahead of the new book's arrival.

"There's people informally chatting about a book everyone is reading that normally wouldn't do that," said Mark Suchomel, president of Chicago-based Independent Publishers Group.

"For a few weeks, it's almost a national book club."

(additional reporting by Paul Majendie in London)