The Twisted Economics Of Harry Potter

Call it the curse of Hogwarts. It turns out that--at least for some in the wizarding world--it's tough to make money out of magic. Harry Potter has fans clamoring in excitement as the seventh and last book in J.K. Rowling's hit series, Harry Potter and the Deathly Hallows, lands worldwide on July 21. With the fifth movie due out in weeks and the recent announcement of an Orlando theme-park attraction that could cost half a billion dollars, Pottermania is at an all-time high.

But 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.