July 15th, 2011

Studio Tries to Keep Boy Wizard in Business

The Wall Street Journal

For weeks, billboards promoting the finale of Warner Bros.’ Harry Potter film series, which opens today, have sought to lure viewers with the prospect that one of the most lucrative properties in Hollywood history is about to conclude, declaring: “It All Ends.”

But for Warner Bros., the task is now the opposite: make sure the business of Harry Potter doesn’t end, even without another blockbuster film in the works. That will take some magic.

Over the past 10 years, Time Warner Inc.’s Warner has turned the popular books by J.K. Rowling into an enterprise that spans videogames, toys, a theme park and other businesses. It’s a machine that has spawned nearly $20 billion in retail sales for Warner and its partners and added $1 billion to the studio’s bottom line, making it one of the most valuable film franchises in modern Hollywood.

In interviews this week, Warner executives outlined plans for how they hope to maintain their Harry Potter business after the final film installment. The plans include a likely expansion of Harry Potter theme parks around the world and new investment into Harry Potter-related online businesses and videogames.

The bet is that instead of the franchise slowly fading away, as many do once big screens go dark, Warner can profit from the boy wizard far into the future. “We obviously think Potter is an evergreen property,” said Barry Meyer, Warner Bros.’ chairman and chief executive. “This is not something that ends with the film franchise.”

Still, the studio faces risks as it tries to continue the business following the last film. The success of the franchise came in part through stringent control by Warner and Ms. Rowling of how Harry Potter characters and stories were used. As Warner tries to stretch the brand to new businesses such as theme parks, it will need to balance the desire for commercial success with the integrity of the story.

Company executives admit they have no idea whether Ms. Rowling will write another installment. “Your guess is as good as mine,” said Jeff Robinov, president of Warner Bros. Pictures Group. “If Jo [Rowling] doesn’t write another Harry Potter book, there isn’t going to be a new Harry Potter movie.”

And without new Harry Potter books and films to extend the storyline, the brand could become stale, according to Allen Adamson, managing director Landor Associates, a brand consulting firm.

Tom Felton talks about his last time playing Draco Malfoy, one of Harry Potter’s nemeses, in the final installment of the series, “Harry Potter and the Deathly Hallows Part 2.”

“Many dimensions of the story are timeless but there is a challenge in how do you keep it relevant and fresh,” Mr. Adamson said. “Not a year from now, not three years from now, but five years from now, 10 years from now.”

For fresh sources of Harry Potter-related material, Warner Bros. is eyeing two properties in particular: Ms. Rowling’s “Fantastic Beasts and Where to Find Them,” a companion book published in 2001, and “Quidditch Through the Ages,” published the same year. While executives didn’t specify plans, the studio owns the audio and visual rights to both books, which are filled with creatures and games related to Harry Potter.

By next April the company plans to transform the London studio where it filmed the eight films into a museum-style tourist destination. Other initiatives include a coming 3-D home-video release of the seventh Potter film, which was released only in 2-D in theaters.

The goal, they said, is to have the assorted Harry Potter activities feed each other, creating a virtuous circle for Warner Bros. and its partners: Books spawn viewership for movies, which feeds attendance at parks and the buying of merchandise, which in turns helps sell more books. If successful, a new Web site developed by Ms. Rowling and Sony Corp. called Pottermore, could keep readers engaged with Harry Potter stories and help drive readers to Warner’s films, the executives said.

The outcome will have a measurable impact on Warner. Harry Potter-related businesses have helped the studio increase its operating income to $1.1 billion last year, from $450 million in 2001, the year the studio released its first Potter film. The studio doesn’t break out the financial contribution of individual films, but the various Potter businesses have generated around 15% of the studio’s operating income annually, estimates Morgan Stanley analyst Benjamin Swinburne.

The plan is being closely watched in Hollywood, which increasingly depends on franchises amid skyrocketing costs for producing and marketing movies. The handful of franchises studios have been able to nurture over decades include Winnie-the-Pooh, Star Wars, James Bond and Batman. All have relied on a mixture of fresh material and ancillary products to remain viable.

Watch a scene from “Harry Potter and the Deathly Hallows: Part 2,” the final film in the series. Video courtesy of Warner Bros. Pictures.

The last Warner film, “Harry Potter and the Deathly Hallows Part 2,” seals a 10-year run of eight Harry Potter films that have grossed $6.3 billion dollars world-wide to date. By Thursday, advance ticket sales had reached over $32 million, a sign that the film is on track to become the highest-opening film in the Harry Potter franchise, exceeding last year’s $125 million opening for “Deathly Hallows Part 1.”

To prepare for a film slate without Harry Potter, Mr. Robinov said in an interview that starting next year he plans to increase the number of Warner’s “tentpole” movies to between six and eight films a year, from four or five currently. In other words, the studio expects it will take two typical blockbusters to replace one Harry Potter.

“You can’t base a strategy on finding another Harry Potter,” Mr. Robinov said. “We bought Harry Potter before it was Harry Potter and part of the game is you get lucky sometimes. But we also did a good job of managing the franchise.”

In 1998 when Warner signed its deal with Ms. Rowling, the Harry Potter books were just taking off. The studio’s initial approach to licensing the property to a broad range of product makers alarmed Ms. Rowling, known as a staunch defender of how her story and characters are used outside of the books.

As a result, Diane Nelson, the Warner executive who oversaw much of the studio’s Harry Potter business, took a more stringent approach to licensing, foregoing souvenirs and fast-food tie-ins for “artifact” products like magic wands, “quidditch” broomsticks and other items that were more closely associated with the world Ms. Rowling created.

Studio executives said the strategy meant missing out on some sales, and created tensions with Warner departments that wanted to more aggressively license goods. Mr. Meyer, the Warner chairman, said that restraint helped keep the Potter brand from being overexposed, increasing its long-term value.

Maintaining that restraint will be crucial as Warner pushes into theme parks, a foundation of its post-film strategy. Last year the company opened a Harry Potter theme park within Universal Orlando Resort’s Islands of Adventure in Florida, which consists of three rides and a variety of Potter-themed stores and restaurants. To ensure that the play area was consistent with the look of the Potter films, Universal built the site with input from movie series’ production designer, art director and Ms. Rowling.

Warner is looking at taking the concept elsewhere in the world, though executives said no final decisions have been made. “I do think it’s the next significant opportunity for Warner Bros that’s far-reaching,” said Brad Globe, president of Warner’s consumer products group.

The company is also in the process of turning Leavesden Studios, where the eight films were shot, into an 85,000 square foot attraction. Fans will be able to take walking tours through set pieces like the Great Hall and Diagon Alley, see props up close and learn about the making of the movie. The exhibit is expected to open in April 2012 ahead of the Olympic games in London.

Even so, Warner Bros. executives long to conjure up a ninth film. “I wish there were more,” Mr. Robinov said.

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