It was the most-hyped film in history; the long awaited "prequel" to an intergalactic battle waged over more than two decades. But this week British publisher Dorling Kindersley became the unlikeliest victim of Star Wars: Episode I The Phantom Menace.
A "seriously misjudged" over-investment in Star Wars` books and merchandise has left the publisher warning of before-tax losses of P25 million in the six months leading up to Christmas.
In what executive chairman Peter Kindersley described as a "hair shirt" statement, he revealed that the chief executive had quit, and the company had been forced to make provision of P14 million worth of unsold books, after sales linked to the launch of the Phantom Menace failed to meet expectations.
The group printed 13 million Star Wars books in the 18 months up to 31 December, but sold just three million. Its total loss on Star Wars merchandise, amounted to some P18 million.
Kindersley yesterday declined to elaborate on chief executive James Middlehurst`s role in the Star Wars fiasco, but admitted the company had been misled by the film`s hype, which had initially appeared justified.
"Star Wars was the most successful book we have ever published.
"We sold three million; it was on the New York Times best seller list. There was a decision made to invest in it as a Christmas seller and put a lot of marketing cash into it," he said.
"But the sales didn`t happen and it was a misjudgment on a key product E there was too much expectation. There`s a great danger in getting caught up in that sort of hype."
The profits warning sparked panic in the City and shares in Dorling Kindersley plunged by 203p on Tuesday, or 40 percent after the announcement.
But the publisher believes that by being "super-cautious" in its dealings with its shareholders, and with improving distribution, it can regain confidence. It expects to recover some sales when The Phantom Menace video is released in April. Kindersley says the company will still invest heavily in film merchandising.
"We believe that licenses are great things but you just have to judge it correctly. We`re doing Toy Story 2 at the moment and it`s fabulously successful," he said, adding that it was on a "much more modest scale".
"You have to get the quantity right, that`s the big judgment call."
It is not surprising that Dorling Kindersley still wants a slice of merchandising action; the licensing from films is big business. Deals tied into The Phantom Menace were expected to yield P2 billion, more than twice the box office takings.
But the publisher was not the only company to get its fingers burnt.
The toy maker Hasbro recently announced it was "slimming down" its brands and shifting production, partly because Phantom Menace toys failed to sell as expected. As a result the price of its New York listed shares dropped from a high of $37 to just over $20.
The Surrey-based toys and games company Character Group last week blamed a 5 percent dip in sales on overheated expectations of demand for Star Wars merchandise. It had taken an "aggressive position", developing Star Wars stationery, watches and money box toys, and suffered as a result.
Said Richard King, its chairman: "I think we all got taken along on that ride, some more than others."
Michael Savage, media analyst for Collins Stewarty, said The Phantom Menace was likely to prompt a "sea change" in film-related merchandising.
"Star Wars has a proven track record. You could understand why people would want to be associated with it.
"But Lucasfilm (owner of Star Wars` rights) were obviously aware of that and basically got greedy ." - The Independent, London