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Harry Potter's Lament

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By Rick Aristotle Munarriz (TMF Edible)
May 29, 2003

As bookstores, aspiring young wizards and curfew watchers ready themselves for next month's release of Harry Potter and the Order of the Phoenix, the mounting anticipation is warranted. The brisk pre-orders of the mammoth 896-page epic that will serve as the fifth installment in J.K. Rowling's Harry Potter series should have Scholastic (Nasdaq: SCHL) sitting pretty as the stateside publisher of all things Harry.

But in a cruel plot twist, it turns out that Scholastic isn't doing so hot. Back in February, the company warned that it would miss its fiscal forecasts as the book's release slipped into June. You can write that off to the pitfalls of ending a fiscal year in May, but things are apparently only getting worse for the struggling publisher. Last night, it announced the layoff of 400 employees worldwide.

While the staggering 8.5 million copies of the book being printed prompted Saturday Night Live to joke that Rowling's next book will be titled Harry Potter and the End of Trees, it won't be the end of Scholastic's troubles.

Sure, the book has been glued to the top seller slot on Amazon.com (Nasdaq: AMZN) for months, but there's more to Scholastic than the ongoing feud between Harry Potter and Draco Malfoy. It may seem like a cast spell's apparition, but it looks as if it will be book retailers like Barnes and Noble (NYSE: BKS) and Borders (NYSE: BGP), and series filmmaker AOL Time Warner (NYSE: AOL) that have the best shot at cashing in on Potter's success. 

Why? Well, Scholastic isn't a pure play on the power of Rowling's pen. True to its corporate moniker, Scholastic is big in the classroom. From its 35 different school-based magazines to its various teaching resources, the company knows better than to try to be a one-trick pony. It learned that the hard way when it rode the rise and fall of Goosebumps.

But with state educational budgets in tightfisted disarray and the soft economy leaving a mark on the restraint of new book purchases Scholastic is the one being schooled. Sorry, Harry. This is one class of hard knocks that even you won't be able to dismiss so easily.

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