Originally Published August, 2007

 

With the release of J. K. Rowling’s long-promised final installment Harry Potter and the Deathly Hallows and the release of the fifth Harry Potter movie, the impact of this franchise is far reaching. As of August 3, the movie grossed $700 million in its first month and more than 11.5 million books have been sold in the U.S. alone.

Who profits becomes a larger issue. A sure winner is Rowling, who went from being an unemployed single mother, living with her sister in Edinburgh, Scotland, to becoming the world’s first billionaire author – and reportedly richer than the Queen of England.

Publishers and booksellers however, have not faired as well. Scholastic, U.S. publisher of the Harry Potter series, hasn’t been able to leverage the advantage such a blockbuster would dictate. In fact, some critics charge that the profits from Potter mania have simply served to paper-over bad performance in other divisions. The stock has returned about 7.5% per year over the past 10 years, a little more than half what the 13% the S&P Midcap Index returned over the same period. Some minority shareholders say it’s time that Richard Robinson, son of founder Maurice Robinson, sell what is still a family-controlled firm. Meanwhile, Bloomsbury, Harry Potter’s English publisher, has fared no better: last Christmas, nearly a third of its stock price disappeared after disappointing Christmas sales.

In spite of innovations in communication and technology that enabled mass distribution of Deathly Hallows in the days leading up to its official release July 21, Potter mania may have exposed a weakness in the already struggling publishing industry. For example, take the sale price for a hard cover first-edition of the Deathly Hallows, the most anticipated book in the seven-book series. Although the book lists for $34.99, the major chains discounted the book heavily, down to about $17, forcing independents with higher cost structures to follow suit or not carry the one book millions were desperate to buy.

 

How can a book be a huge success and yet not make the bookstores any money? It may be a symptom of larger changes that are occurring in the media landscape. Jagdish Sheth, a professor of marketing at Emory University’s Goizueta Business School and corporate strategist, believes the success of the Harry Potter franchise has had a profound effect on media, helping to drive a wedge between content creation and content distribution. Besides underscoring some major changes occurring in the media industry, Sheth believes it also underscores some marketing fundamentals. In other words, media companies must decide whether they are in content aggregation (Google) or content creation (CNN, New York Times, CBS) or in the content distribution business (Comcast, AT&T, AOL, Yahoo, etc.). 

For Sheth, the success of the Harry Potter franchise is a vivid example of how innovations spread, a phenomenon that was first studied by Everett Rogers in the 1940s in his sociology classic, The Diffusion of Innovations, the book that gave marketers such essential terminology as “early adopters.” 

Rogers noted that innovations spread not just through word of mouth, but because the tool or product turns out to be better than what had been available before, Sheth says, something he believes to be the case for Harry Potter. “The idea, product or service must have several differential advantages relative to existing offerings including value, compatibility and communicability. Harry Potter met all of them,” he says.

Indeed several factors were at play to create the marketing and distribution magic. The Internet had an impact on the spread of Potter mania. Scholastic, Rowling’s U.S. publisher, has spent only $3.6 million promoting all seven of the books, according to Nielsen BookScan statistics. The rest of the momentum is a result of word of mouth – and instant messaging. Viral communication has played an important role in building and sustaining the buzz around Harry Potter, explains Benn Konsynski, a chaired professor of decision and information analysis at Goizueta.

Online sites such as The Leaky Cauldron (The-leaky-cauldron.org) have played a role in linking Potter fans together, spreading news about upcoming events, such as new books and movie releases. Some marketing gurus have also pointed to Rowling’s decision to allow fans to post their own Harry Potter stories on line as a key way in which she helped maintain interest in her characters between publications or movies.

Despite the cozy, old-English quality of the magical boarding school saga, the book’s strong sales have been driven by some of the latest trends in publishing – the growth of the large, market-dominating booksellers, such as Barnes & Noble and Amazon.com in the U.S., or Amazon.co.uk and Waterstone’s in the United Kingdom—and the rise of e-commerce, has made it relatively easy for them to deliver many books at once.

Although there were glitches in some online orders for Deathly Hallows, which were all promised before July 21, the fact that most of the books could be delivered when promised was not just because of the growth of e-commerce but recent advances in logistics. Even in the early 1990s, it would have been logistically difficult to deliver all those books in a two-day window, says Richard Metters, a professor of decision and information analysis at Goizueta.

The exponential growth of computing power in the Nineties and advances in mathematical theory changed all that, making it possible to solve logistical problems that were impossible to solve as recently as 15 years ago, simply because the computations required were too large, according to Metters. “Now, we can just run what’s called a linear program and find the answer to that in a matter of hours,” he explains.

“It’s now fairly common for a firm to decide logistics questions, such as how many warehouses to have and where they should be located, through linear programming.  Typically, a supply chain consulting firm is brought in for a project like that. The same underlying math is used by hotel chains to decide whether to accept bookings and television networks to schedule commercials – just to name a few uses.”

More fundamental to the success of Harry Potter books is that it launched a new niche, a young adult novel written for and about Millennials, persons born since 1982, says Andrea Hershatter, associate dean and director of the BBA program and a senior lecturer in organization and management at Goizueta. “J.K. Rowling created a nuanced, complex story about a magical Millennial, written for Millennials, at a time when there was not much fresh literature that was particular interesting for ‘tweens,” explains Hershatter.

Harry is a Millennial both by age and characteristics, Hershatter says. “Although he was not raised by helicopter parents, Dumbledore, Hagrid, Mrs. Weasley and Sirius fill the hovering role nicely for him. Harry actively seeks the guidance and approval of his elders, greatly values family and friends, thrives in a team setting (Quidditch, Dumbledore's Army) and cares deeply about Hogwart's institutional traditions.  Within the realm of his precarious world he has been protected to the extent it was possible, and certainly, he has been raised to believe the future of the wizarding world is on his shoulders—which, in fact, it is,” she says.

The way the story itself was discovered may owe something to Millennials as well, Hershatter says: the young daughter of Nigel Newton, the publisher of Bloomsbury, the English press that first brought out the book, reportedly read the first chapter and loved it – and persuaded her father to buy it.  “That seems to me to be a truly classic millennial story,” says Hershatter.

There is little doubt that the books gave new life to the children/young adult book market, Hershatter adds, which had been floundering. It also made publishers “aware of the potential upside of success,” she says. “Harry Potter is so much more than a successful book; it is a blockbuster brand in a way that I believe is unprecedented in the book world,” she says. It could even encourage publishers to take a look at unknown writers, “but that may just be wishful thinking.”

Harry may even have an impact far beyond the publishing world. Konsynski believes that some of the viral marketing techniques that played a key role in spreading the buzz about the Harry Potter books and movies will be an important tool in helping choose the next president.

In particular, Konsynski predicts that the same tools that have helped spread details about Harry Potter movie trailers around the Internet quickly will now be used to spread opinions about all the muggles making a run for the White House.

Expect to see campaigners try to leverage free exposure through online video libraries and sites, says Konsynski. Already, he says, John Edwards has made a “virtual world” campaign stop on the Second World virtual gaming site.Youtube.com is also being enlisted to build support for particular candidates, through such unauthorized clips on Youtube.com as the widely circulated Clinton-bashing “Think Different” spoof of Apple’s famous “1984” advertisement, or the “I Got a Crush…On Obama”  videos.  “Expect to see a lot of commentary, a lot of mash-ups,” Konsynski says. 

With seven books and more than 335 million copies sold, the reader may be the ultimate winner. For all the business reasons behind the series’ success, Hershatter argues that the most important is the stories themselves. “At the end of the day, the ‘power of the brand’ is that Rowling is truly a uniquely gifted writer and storyteller,” says Hershatter. “She weaves magic, nuance, danger and humor in a way that probably comes along only once a generation.”