Business Pundit

Businessweek has a look at the twisted economics of Harry Potter. While the book has been a financial windfall for some, it's been painful for others.

What should be a pot of gold for Harry's business partners is turning into an empty cauldron for many of them. The most successful literary brand in recent history has made its author a billionaire, but others have not fared so well. 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. Even Warner Bros. Entertainment Inc. (TWX ), which has made billions off the Harry Potter movies, saw sales and profits drop last year and in the first quarter without a fresh Potter offering in the mix.

When an industry relies on a few blockbusters for most of their profit, some participants will do whatever it takes to gain market share and use the blockbuster as a loss leader. Then it becomes a race to the bottom where the winner is whoever can sustain losing money the longest.