Monday, June 11, 2007

Harry Potter and the Vanishing Profit Margin

The girlfriend works for a big book chain and is therefore in countdown mode to the publishing event of the year (decade? century? millennium?!?) - the July release of the final installment in the Harry Potter saga, Harry Potter and the Deathly Hallows. One would think that such a huge seller - Amazon reports 1 million pre-orders, Barnes & Noble 500k - would be a license for the book sellers to print money. One would be wrong. As this Reuters report explains, the big sellers are offering such staggering discounts on the book that they will make little, if any, profit on the transaction:

'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.
It's so bad that some independent bookstores won't even sell the tome, as they can't afford the discounts to compete with the chains.

So what's the play? Why would companies supposedly in business to make money be giving stuff away? They hope customers will buy other things and/or sign up for customer loyalty cards (Borders's is free, people!) and generate future business. Will it work? Who knows. If the American auto industry's similar pattern of offering gobs of cash back and selling new cars below value is any indication, it can't work for very long.

Regardless of profit, let's hope that Harry's saga has a more satisfying ending than The Sopranos.

1 comment:

jedijawa said...

I liked it. A real bloodbath!