Harry Potter Economics

After reading this post, all I have to say is that it's a bad idea when a business, any business, depends entirely on one client, one company, one product. I guess those associated with the Harry Potter phenomenon are no different.

From Businesspundit.com. . .

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.

I've seen the "one major client" problem with credit unions who started out dedicated to only one company for their membership. When the company reorganizes, downsizes, merges, or closes entirely, the credit union is in a shambles.

I've also seen small businesses fold when their one big client switches to another vendor or shuts down the project altogether. High tech companies struggle when the technology advances, usually in one big leap, that leaves them far behind in the race, if not obsolete.

As the saying goes... "don't put all your eggs in one basket." Diversify your portfolio.