Harry Potter buzz explodes with book release

But record demand for 7th Rowling book not a magic potion for profit

NEW YORK (MarketWatch) -- Move over, iPhone -- Harry Potter is the new king of hype.
In an event that likely eclipsed the hyped launch of Apple's (AAPL : Apple Inc
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4:14pm 07/20/2007

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AAPL143.75, +3.75, +2.7%) iPhone, hundreds of thousands again took to the streets around the world Friday night to snap up copies of "Harry Potter and the Deathly Hallows," the last in the seven-book series by J.K. Rowling.
The fictional boy wizard -- who launched an unprecedented number of marketing opportunities and five blockbuster movies so far-- got his final chapter in the struggle between good and evil when the book went on sale at 12:01 a.m.
Buzz surrounding the book had been so intense that several photographs of leaked pages already appeared on the Internet before the release date. The New York Times and Baltimore Sun also published early reviews of the books Thursday, claiming the novels were purchased legally.
A small percentage of books also were shipped to customers earlier this week, prompting U.S. publisher Scholastic Corp. (SCHL : Scholastic Corp
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4:00pm 07/20/2007

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SCHL33.80, -0.41, -1.2%) to take legal action. See full story.
But the threat of spoilers didn't ruin the party. Advance orders for the latest book broke records and release celebrations were held around the world.
"We expect the largest crowd in history to be at our stores Friday night at the stroke of midnight," said Barnes & Noble Chief Executive Stephen Riggio in an interview.
Potter parties
Several companies in New York City spent millions on marketing campaigns and parties for the book's midnight release.
Scholastic transformed the city block in front of their flagship Soho store into Harry Potter Place. The publisher featured attractions from the books, such as the Knight Bus and Whomping Willow, along with face painting, jugglers and stilt-walkers. Inside the store, children participated in wand making, while company executives who helped with the book's publishing and others attended a party in the VIP section on the second floor.
Author Salmon Rushdie arrived at the Scholastic Store in the early evening with his 10-year-old son Milan in anticipation of the final book.
"My son is the Harry Potter expert," Rushdie said. "He's so excited that he's made me promise not to cheat by looking at the end."
Rushdie added that because of his son, he also is a fan of the Harry Potter books and is happy with its frenzied launch. "If you're a writer, you can only celebrate that. I can't imagine the last time that so much [hype] was generated by a book and not a TV series or movie."
Outside the Scholastic Store, Justin Gray, 26, of New York, sat in line reading the sixth Harry Potter book for the fifth time. Gray got to the store after work at 5 p.m., and was ready to for the long haul until midnight.
"I've been waiting on this book for eight years," Gray said. "I don't want to wait another 30 minutes to get it."
Demand 'unprecedented'
Scholastic expects to break both printing and sales records with the seventh book. The company said it has printed 12 million copies in the U.S., surpassing records held by the sixth book, which had a first-print run of 10.8 million in 2005. More than 6.9 million copies of the book were sold in the first 24 hours.
By comparison, "a very large first printing for a children's book would be 50,000," said Maureen O'Connell, chief financial officer for Scholastic. "This is unprecedented."
In years that the books are published, Harry Potter accounts for between 8% and 10% of Scholastic's $2 billion in revenues, O'Connell said. In years without a new book, sales account for less than 1% of revenues, she said.
But while Harry Potter creates significant business for its U.S. publisher, the impact on a retail chain's bottom line is "hard to quantify," said William Armstrong, an industry analyst with C.L. King and Associates.
Retail stores are deeply discounting the book between 40% and 50%, hoping to convert the large spike in customer traffic into sales of other higher-margin items.
But the increase in hype and number of printings has meant that "with more recent Harry Potters, the number of days when you have a huge rush has been compressed, which is not favorable to them," Armstrong said.
'Deathly' discounts
Meanwhile, three hundred people lined up early outside the Borders store at Columbus Circle for the Grand Hallows Ball. The event, held at the Time Warner Center, included live performances by alternative band Lifehouse and vocalist Colbie Caillat. The ball was bathed in orange light, and magicians, palm readers, ice sculptures and floral displays were on hand.
In the second-quarter of 2005, Borders Group Inc. (BGP : Borders Group, Inc
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4:03pm 07/20/2007

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BGP18.45, -0.20, -1.1%) said that same-store sales in its book category increased by 6%, four points of which stemmed from sales of "Harry Potter and the Half-Blood Prince."
But those swift sales don't necessarily spell profits for retailers. Borders, for one, said its gross margins in the period when the last Harry book was published declined because steep discounting on the book ate into its profits.
Borders pre-sold 1.5 million copies of "Hallows" in just its U.S. stores, said President and Chief Executive George Jones in an interview at the party. That handily surpassed first-day sales of the sixth book, which including preorders totaled 850,000.