The Magic of Licensing: Harry Potter
One of the hottest properties in merchandise licensing is Harry Potter, which has grossed
bil-lions of dollars in global retail sales. Not bad
for a bespectacled 11-year-old boy. The fictional Harry has come a long way since he first
appeared in a 1998 children’s book, the first of seven by then-unknown author J. K.
Rowling. In novels that appeal to both children and adults, Harry evolved from an unhappy
orphan to a confident young wizard. Globally, Potter books have sold more than 500
million copies in more than 80 languages in some 200 countries. Warner Brothers, which
purchased exclusive licensing rights to the series, produced and released eight Harry Potter
movies, all of which rank among the 30 top-grossing films of all time. In total, the movies
have generated more than $8 billion in worldwide receipts, the second-highest-grossing film
series of all time.
426 Warner allows companies worldwide to use Potter-related images on manufactured
products such as game software, children’s furniture, school supplies, toys, and clothing in
exchange for a royalty, a percentage of the sale generated by the licensed product that the
manufacturer pays to the licensor. The ability to associate these images with manufactured
products greatly increases the products’ sales potential, allowing them to command high
prices. Licensing deals (and book sales) have made Rowling one of the wealthiest women in
the United Kingdom. Warner licenses Harry Potter to many companies around the world
by using contractual entry strategies. Some companies produce artifacts, products seen in
the films that do not have Harry’s name on them. California’s Jelly Belly Candy Company
created Harry’s favorite candy, Bertie Bott’s Every Flavour Beans, in flavors such as earwax
and sardine. LEGO makes construction kits for kids to build their own Hogwarts castle.
Mattel makes Harry Potter toys, including card games, play sets, chess sets, and action
figures. Electronic Arts (EA), the popular software game producer, paid Warner for a
license to develop and market video games that are played on the Internet, video game
consoles such as Sony’s PlayStation, and cell phones. Fans can play a virtual version of
Quidditch, which is like aerial polo with contestants flying on broomsticks. EA released a
total of eight games based on the films and books. Hogwarts Mystery and Wizards Unite
were re-leased in 2018 for iOS and Android smartphone platforms. Goodwin Weavers, a
home furnishings company, also has a Harry Potter license and produces Potter tapestry
throws, wall hangings, decorative pillows, pillow buddies, and fleece. P. J. Kids made a line
of Potter beds that sold extremely well despite a price tag of nearly $2,000, demonstrating
the magic of licensing a popular brand. Warner also sells licenses to service firms. For
example, the theme park attraction the Wizarding World of Harry Potter is a key attraction
at Universal Orlando Resort in Florida.
The licensing process has been self-generating—each new Harry Potter book yielded a
movie, which boosted book sales, which promoted sales of Potter-licensed products and
services. Warner reports the top markets for Potter-licensed products are the United States,
United Kingdom, Germany, Japan, France, South Korea, Russia, and China. Rowling and
Warner have exercised restraint. They don’t want to license Potter to just anyone, though
experts estimate the hot property may have generated 300 product licenses in the United
States alone. One risk that Warner faces is intellectual property violations. These occur
when a firm or individual uses the licensed item to create profits without permission from
the property’s owner. For example, some 80 percent of recorded music and business
software sold in China is pirated. Fake DVD versions of Potter movies are sold on the
streets of Chinese cities for as little as one dollar, often before the films have their official
premieres there. Unauthorized foreign translations of the books posted on the Internet
diminish future book sales. To combat book counterfeiting, the series’ official Chinese
publisher printed the Potter books on green paper and advised the local media—
newspapers, magazines, television—how to recognize the real version.
Questions
1. How does Warner generate royalties by using contractual entry strategies?
2. What are the advantages of licensing as described in the case? 1
3. What risk(s) does Warner face from licensing Harry Potter?
SOURCES: Brian Bethune, “The Afterlife of Harry Potter,” Maclean’s, July 18, 2011, pp.
52–54; Ben Charny, “EA Bets on Harry Potter to Help Sell More Games,” Wall Street
Journal, May 13, 2009, p. B1; Carter Dougherty, “One Hot List You Don’t Want to Be
On,” BloombergBusiness, March 5, 2015, www. bloomberg.com; “Harry Potter and the
Publishing Goldmine,” Economist.com/Global Agenda, June 23, 2003, p. 1; Tony Lisanti,
“Warner Bros. and the Magic World of Harry Potter,” License! Global, June 2009, pp. 66–
70; Liam Martin, “Forget Pokemon Go, Niantic Drops HUGE Harry Potter Wizards Unite
Release Date Update,” Sunday Express, January 5, 2018, www.express.co.uk; Lauren
Parker, “Not Just for Kids: Harry Potter Rolls Out New Licenses and a Retail Concept,”
Accessories, October 12, 2017, www.ac-cessoriesmagazine.com; Lauren Schuker, “Second
‘Harry Potter’ Park Planned,” Wall Street Journal, December 1, 2011, p. B6; Tom
Stieghorst, “Harry Potter’s Popularity Key to Universal Orlando’s Plans,” Travel Weekly,
January 27, 2014, pp. 6–38