July 31, 2003

Ka-Ching!

Is this really true?

FT.com / Comment & analysis / Analysis: The internet retailer's [Amazon's] improvement on its own most optimistic sales guidance can be put down largely to currency effects and to a smash hit: the sale of more than 1.4m copies of Harry Potter and the Order of the Phoenix.

Did Amazon really sell 1.4 million copies of Harry Potter and the Order of the Phoenix in the one and a half weeks of the second quarter in which it was on sale?

Posted by DeLong at July 31, 2003 09:25 PM | TrackBack

Comments

Imagine the windfall for the postal service, or whoever they get to carry those books. And people say technology is a threat to the USPS ...

Posted by: PJ on July 31, 2003 09:54 PM

Amazon had something on the order of 1.3 million advance orders that shipped on day one.

http://www.theage.com.au/articles/2003/06/22/1056220478602.html


Posted by: Steve on July 31, 2003 10:16 PM

And as a matter of accounting, those sales would have been booked in the period when the books were shipped (and thus the money became nonrefundable) rather than the period in which the orders were made.

Posted by: dsquared on July 31, 2003 10:59 PM

dsquared -- is that correct? Do they really book the revenue only once it is nonrefundable, as opposed to booking once the orders are received with some allowance for cancellations?

Posted by: Gary on August 1, 2003 05:45 AM

Gary, that's the normal accounting procedure in the US, as far as I'm aware. If's why there's a huge end-of-year rush to get orders completed and shipped by 31 December in manufacturing businesses, for example.

You might be thinking of revenue forecasts, as opposed to what's actually recorded in the accounts in black and red.

Posted by: Bob Webber on August 1, 2003 07:26 AM

"Is this really true?"

Yes, and if I remember correctly the book was so heavily discounted Amazon didn't make a dime in profit despite the enormous sales figures.

Posted by: Pooh on August 1, 2003 08:15 AM

Re my post above:

Despite big sellers, book business lags

By Hillel Italie
Associated Press

NEW YORK -- This should be a great time for the book world.

"Harry Potter and the Order of the Phoenix" has set sales records. Hillary Clinton's memoirs, "Living History," has sold more than 1 million copies. Other recent successes include Oprah Winfrey's book club pick, "East of Eden," and Walter Isaacson's "Benjamin Franklin."

But instead of celebrating, publishers have been cutting. Scholastic, the U.S. publisher of the Potter books, announced in May that 400 employees had been fired worldwide and said that in mid-July there would be additional spending reductions. Simon & Schuster, which released the Clinton and Isaacson books, announced this week that 75 employees would be laid off.

"The fact remains that our industry continues to be challenged by any number of issues, including the most prolonged period of depressed sales in memory," Simon & Schuster CEO Jack Romanos wrote in a companywide e-mail.

For publishing people, the value of books like "Living History" and "Order of the Phoenix" isn't only in the splash, but in the ripples. The industry had hoped the Potter boom would carry over to other titles, but most report either modest increases or none at all. Once the boom receded, fundamental problems remained: a slow economy, a distracted public.

"It's not a brand new day," says Laurie Brown, a vice president for sales at Harcourt Trade Publishers. "I would guess you'll find universally cautious positions on sales figures and marketing budgets."

"It's harder for books to catch on," says Gary Fisketjon, a longtime editor at Alfred A. Knopf.

"I think the slump probably started in the (2000) presidential election that wouldn't end. And that spring (2001) was the dot.com crash. Then you have Sept. 11 and a constant war footing ever since. People are just preoccupied in all sorts of ways."

Big sales don't necessarily mean big profits, especially if everyone is expecting a hit. With Clinton receiving an $8 million advance, Simon & Schuster needed hundreds of thousands of sales to make money on the book. And Amazon.com, anticipating tremendous competition for the Potter book, offered a 40 percent discount on the $29.99 suggested price.

The result: Despite more than 1 million sales worldwide, the online retailer announced it essentially broke even with "Order of the Phoenix."

With more than 100,000 titles annually released in the United States, the industry doesn't sustain itself on high-profile books alone. It also needs steady sales of older titles and surprise hits like Alice Sebold's million-selling novel, "The Lovely Bones."

Sebold's book, published a year ago, was the literary event of 2002 and cost a fraction of the Clinton book to produce. But more than halfway into 2003, no new literary novel has had any significant impact, despite books from Robert Stone, Norman Rush, Don DeLillo and Jane Smiley.

"The fiction market in general has been very sluggish," says Jonathan Galassi, president and publisher of Farrar, Straus & Giroux. "I don't think there has been a book this year that really took the world by storm. That's what it takes, something that lights people up."

http://www.floridatoday.com/!NEWSROOM/peoplestoryA7364A.htm

Posted by: Pooh on August 1, 2003 08:27 AM

Is it true that Amazon sold HPatOotP with 40% discount, without profit?

I think that internet book selling may be a problem for publishers. Brick and mortar booksellers allow people to brouse, read excerpts, wander aimlessly around, and perchance to buy some books they never heard about. Hence ripple effect. Amazon tries to do some of that, but physical contact works better.

Posted by: piotr berman on August 1, 2003 09:33 AM

The SEC on revenue recognition generally:

The staff believes that revenue generally is realized or realizable and earned when all of the following criteria are met:

- Persuasive evidence of an arrangement exists,

- Delivery has occurred or services have been rendered,

- The seller's price to the buyer is fixed or determinable,
and

- Collectibility is reasonably assured.

---------------

Seems Amazon should not book revenue until the book ships. By the way, Amazon should be able to recognize the sale even if the customer has the right to return the book.

http://www.sec.gov/interps/account/sab101.htm

Posted by: richard on August 1, 2003 09:39 AM

Piotr,

On almost all items I would agree that brick and mortar means better sales. But I find the exact oppostite to be true for books and computer games. For those items browsing and seeing things you might otherwise never have heard of is actaully more likely online. Amazon will throw up recommendations that are only tangentially related that might be in a section of a bookstore I'd never bother to visit. Plus, you can get some reviews and read excerpts without feeling like you might break the spine on a book you're not sure you want. Book/software shopping for me is the single area in which online far outstrips the experience of buying it in the store other than, of course, the joy of instant gratification.

And I'm sure that if they didn't make money directly on Harry Potter, they made some indirectly. You had to buy a second book if you wanted to hit the $25 free shipping threshhold, and I'm sure I was not the only one of the 1.3 million people buying the book who just made a larger order to get that.

Posted by: Magenta on August 1, 2003 10:02 AM

Amazon sold 1.3 MILLION copies of HPOP and STILL did't do more than break even?
IIJM, or there something flawed in the business model here?
No wonder publishers are going bust!

Posted by: Jay C. on August 1, 2003 11:14 AM

"Amazon sold 1.3 MILLION copies of HPOP and STILL did't do more than break even?
IIJM, or there something flawed in the business model here?"

This lack of pricing power, which is typical of so many industries in the U.S., is surely symptomatic not so much of a flawed business model but of the serious deflationary environment that Roach has been banging on about for so long.

Posted by: Pooh on August 1, 2003 12:14 PM

Tangential, but Amazon actually makes it explicit in its T&Cs that a contract only exists with the buyer once s/he is notified that an item has been shipped. This is to prevent it being legally bound to deliver on items that are ordered en masse because a misplaced decimal point in the DB prices that $1000 digital video camera at $10.

Posted by: nick sweeney on August 1, 2003 07:27 PM

"Amazon sold 1.3 MILLION copies of HPOP and STILL did't do more than break even?

"IIJM, or there something flawed in the business model here?

"No wonder publishers are going bust!


There's plenty that's flawed in publishing, but there's also a big disconnect in the comment above. Amazon is a retailer, not a publisher.

Posted by: Patrick Nielsen Hayden on August 2, 2003 06:43 AM

Patrick:
quite right: what I was trying to connect to was Amazon's loss on HPOP, vs. some data I had read re the poor business performance of various publishers - this despite the huge sales of some "blockbuster" books. I know Amazon is a retailer: however, it seems SOMEONE's business model is askew if a retailer can move 1.3 of anything, and still not make money. Although, as Magenta points out above, Amazon seems to build in a "margin" of sorts in its shipping charges.
(yet another tech-age business model).
Sorry for the confusion.

Posted by: Jay C. on August 2, 2003 07:58 AM
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