Amazon's Harry Situation

You don't need to be a wizard to know why Amazon.com (Nasdaq: AMZN  ) is just wild about Harry Potter. The clock is ticking toward the release of the seventh and final book in the young wizard's series, and Amazon is sitting pretty as one of its biggest beneficiaries.

Yes, Time Warner (NYSE: TWX  ) is obviously enjoying itself, too. The fifth film adaptation in the series was this weekend's top-grossing flick. The movie has been screening at the local multiplex for just five days, and it's already rung up $140 million in domestic box office ticket sales.

Electronic Arts (Nasdaq: ERTS  ) releases the film's licensed video games, though EA is too large a company for a hit Potter title to move the needle. This isn't Take-Two (Nasdaq: TTWO  ) , which revolves around Grand Theft Auto IV. EA's got its own Madden, Sims, and Ultima franchises to count on, even if Potter games do happen to sell briskly.  

Scholastic (Nasdaq: SCHL  ) is also a big winner, as the stateside publisher of the series. It even bumped up the price of the 784-page epic earlier this year. The problem with Scholastic is that investors are already worried about what the company will be able to do for an encore.  

The same thing can be said about Amazon, but as a merchant, it'll be there to cash in on the next big franchise, no matter the publisher. The only difference is that with every passing Harry Potter book, Amazon has become more and more ubiquitous.

As of a few hours ago, Amazon has received 1.3 million pre-orders for Harry Potter and the Deathly Hallows. The company guarantees release-date delivery to anyone who orders by noon tomorrow, so expect that number -- updated hourly on its Muggle Counter -- to keep inching higher. 

Scholastic is printing 12 million books in its first run, topping the 10.8 million it put out for the sixth book two years ago. Amazon will be good for at least 11% of those books.

Globally, Amazon has received more than 2.1 million pre-orders. Compare that to the 1.5 million it clocked in with in 2005, and you have a potion so potent, it would even impress the dour Severus Snape. 

Don't expect to see that Potter Power directly fuel Amazon's second-quarter report next week. Pre-orders aren't booked as sales until they ship out. However, a lot of shoppers who've come to Amazon to pre-purchase the book in recent months have probably been stuffing their virtual shopping carts with items that did ship in April, May, or June.

Winning over shoppers, one muggle at a time
Amazon is certainly doing its part to make sure that buyers make the site the hub of all things Harry. Offering guaranteed Saturday delivery will give Potterphiles one less reason to deal with the crowds at Barnes & Noble (NYSE: BKS  ) on the book's release date. It doesn't hurt that Amazon's also offering free delivery on a book that it has priced $3 cheaper than Barnes & Noble's pre-orders. 

The e-tailer also peppered its sale with a contest to find the Harry-est Town in America. The city with the highest rate of pre-orders per capita -- Falls Church, Va., as it turned out -- received a $5,000 charitable donation to a nonprofit group serving the town's residents.

The last carrot in Amazon's arsenal is a brilliant one. It's giving every Deathly Hallows buyer a $5 gift certificate. The catch? It must be spent in August on orders of $20 or more. In other words, at least 1.3 million domestic buyers will have a good reason to come back to Amazon.com in the traditionally sleepy month of August.

Can Amazon.com turn a profit on the book? Free shipping, atop the already marked-down price of $17.99, won't make it easy. However, a look at the bigger picture shows Amazon gaining far more than just a flurry of margin-munching sales.

Amazon as the purer Potter play
Yes, Time Warner has two more films to put out. This franchise will serve the studio well, not only over the next few years, but possibly even longer, as DVD sales and broadcasting rights keep trickling in.

However, Amazon has used each of the seven books to reach a wider audience. The same can't be said for Time Warner, where subsequent films have failed to top the domestic take of the 2001 original.

Amazon is proven and profitable now. Like Harry in his seven years of wizardry school, the company has learned plenty along the way. Naturally, all bets are off on this comparison should J.K. Rowling kill off her series' hero in the final book, as many predict. But Amazon and Potter both seem to have the magic touch right now. They each also carry a scar to remind them of times past, when things didn't go so well.

Amazon, Electronic Arts, and Time Warner have been recommended to Motley Fool Stock Advisor newsletter subscribers. Mere muggles like you and me can check out the newsletter for free with a 30-day trial subscription offer.

Longtime Fool contributor Rick Munarriz has barely skimmed the Potter books, though his wife is caught up and fearing the worst this weekend. He does not own shares in any of the companies in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


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