Harry Potter's no Magic for Publishers, Retailers

At last week's inaugural O'Reilly TOC Conference, Tim showed the audience one of his favorite slides, which included a quote from innovation guru Clay Christensen:

When an industry becomes commoditized, value simply migrates to adjacent levels.

Tim refers to this as the Law of Conservation of Attractive Profits, and it appears to be in full force with the latest Harry Potter release, on which according to Business Week, everyone is apparently making bundles of cash -- with some important exceptions:

Retailers, spellbound by the chance to reach millions of Potter-obsessed customers, are cost-cutting for market share to the point where many stand to lose money. For book publishers, the tsunami distorts results in Potter release years, creating wild share-price swings and a distraction from other parts of the business.

This is an indication that there seem to be some fundamental changes going on in where the money will be made on brands like Harry Potter -- brands that may well have been born in a book, but generate their real value in other forms. This is certainly nothing new, but most publishers have little experience developing content into true brand platforms (video, audio, courseware, toys, merchandising -- with books just one piece of the picture), rather than tacking on some multimedia content or maybe a CD-ROM, but keeping the book front and center (this challenge of thinking of new ways customers might engage with content was addressed quite nicely in Jon Stowe's portion of our TOC Tutorial).

The fact that Scholastic is actually making so much money off Potter directly may be masking underlying problems (such as an ailing direct business, according to the BW story), and might be better interpreted as demonstrating what they're not doing with other content and properties.