KIDVID CONUNDRUM

LAS VEGAS -- The children's video category is a study in contradictions.More titles are targeting specific demographic segments like infants, toddlers, preschoolers, tweens and teens.At the same time, the higher-profile programming is addressing an ever-broadening audience of families seeking entertainment all members can enjoy.While studio executives interviewed during last month's Home Entertainment

LAS VEGAS -- The children's video category is a study in contradictions.

More titles are targeting specific demographic segments like infants, toddlers, preschoolers, tweens and teens.

At the same time, the higher-profile programming is addressing an ever-broadening audience of families seeking entertainment all members can enjoy.

While studio executives interviewed during last month's Home Entertainment 2004 show here of the Video Software Dealers Association, Encino, Calif., seemed to disagree on how to define the children's market, there was consensus on a number of points:

DVD is taking over more slowly than other video genres. This is a potential advantage to supermarkets that continue to stock VHS.

For children's product, brands and recognizable characters can be as important as box-office performance is for a theatrical hit.

In supermarkets, children's continues to be a strong category, especially for those establishing it as a destination section designed for time-starved parents and taking advantage of cross promotions.

"Overall in children's video, the retails are coming down. That makes it more viable for the grocery retailers to buy them," said a nonfood executive with an east Texas retailer. "In the supermarket, children's is a great category because you've got the mother shopping there," said Jeff Manning, managing partner, F&M Merchant Group, Lewisville, Texas. "If you've got the variety and get out in front of the mother at a good value, she should pick it up, and you've got the best shot at a sale." Manning, along with retailers and wholesalers in this report, was interviewed during a recent conference of the General Merchandise Distributors Council, Colorado Springs, Colo.

"Children's video products have always been popular in supermarkets because the genre is a perfect fit for impulse purchases," said Bill Bryant, vice president, sales, Ingram Entertainment, La Vergne, Tenn.

"Children's and family titles still represent the best opportunity for supermarkets to be in the video business on a day-in, day-out basis," said Steven Feldstein, senior vice president, marketing communications, Twentieth Century Fox Home Entertainment, Beverly Hills, Calif.

Because of the convenience of one-stop shopping, supermarkets "are uniquely situated to take advantage of that consumer," said Scott Guthrie, vice president, sales and channel development, Buena Vista Home Entertainment, Burbank, Calif.

Observing the video trends of his company's retailer customers, Larry Ishii, general manager, GM/HBC, Unified Western Grocers, Commerce, Calif., noted the inevitable move of children's video from VHS to DVD. While some parents may be more comfortable with VHS for their children's videos, Ishii pointed out the technological sophistication of kids today. "Just as soon as they can sit up and put their hand on a mouse, they're on the computer. So it's going to continue to grow and continue to be an opportunity for operators," he said.

"The video new releases are hot," said Rex Harcourt, president, Carter's Food Centers, Charlotte, Mich. "We do a real good job with all the new movies that come out for sell-through." Children's videos in a shared-revenue rental program do well for Carter's, too, he said.

While Bashas', Chandler, Ariz., has had problems with theft on mainstream movie releases, it continues to carry children's products, mostly on in-and-out displays, said Bryon Roberts, vice president, general merchandise. The right timing for the right programming is key, he said. For instance, the retailer planned to put in videos appropriate to the summer when school let out, and will have others displayed for stocking stuffers as Christmas approaches. "I don't do them consistently, but I do them often," he said.

Lanny Hoffmeyer, corporate director, wholesale general merchandise, Supervalu, Eden Prairie, Minn., said previously viewed DVD is a growing segment. "I would point to previously viewed titles as the most exciting, whether for children's videos or other genres."

Among the summer theatrical releases that will appeal to the children's and family markets on video are "Spider-Man 2," "A Cinderella Story," "Shrek 2," "Harry Potter and the Prisoner of Azkaban," "Garfield," "Scooby-Doo 2: Monsters Unleashed," "Home on the Range," "The Princess Diaries 2: Royal Engagement," "Shark Tale," "Two Brothers," "Yu-Gi-Oh!" and "Benji: Off the Leash."

Beyond the box office, there are many direct-to-video titles, re-released movies and character-driven franchises in the children's genre. Retailers are looking forward to re-releases of "Aladdin" and the "Star Wars Trilogy," direct-to-video "Barbie as the Princess and the Pauper" and "Care Bears, Journey to Joke A Lot," and more from established brands like the Wiggles, Barney, Bear in the Big Blue House, Bob the Builder, Bratz, Clifford, Blues Clues, SpongeBob SquarePants, Teletubbies, Veggie Tales and Thomas the Tank Engine. In addition, infant- and toddler-targeted video series, such as Brainy Baby, Baby Genius and Baby Einstein, are rapidly gaining in popularity.

"The studios continue to provide strong products specifically targeting children, such as Bratz, Clifford, Barbie, Care Bears and SpongeBob," said Leslie Baker, vice president, sales, grocery and drug, Ingram Entertainment. "Studios are also providing an aggressive line-up of titles that appeals to a broader audience, such as 'Shrek 2,' 'Aladdin,' 'Shark Tale' and 'Two Brothers,"' she said.

The studios are monitoring some broader trends. "In general for supermarkets, there's a very unique opportunity coming in children's," said Glenn Ross, president of the Family Home Entertainment division of Lion's Gate Entertainment, Santa Monica, Calif. Children's video has been lagging the market in moving to DVD and, once it catches up, the same kind of explosive growth that has happened in DVD sales of other genres can be expected for children's, he said.

For example, on some of Lion's Gate's titles, 90% of the orders can be DVD, but in the children's area, it remains around 50%, Ross said. "So there's that huge growth potential for kid's product on DVD. We believe that the children's DVD market share will grow from 17% in 2003 to 28% by 2007," with children's DVD shipments growing from about 176 million units in 2003 to 476 million in 2007, he said.

Ross said FHE predicts children's non-theatrical titles on DVD to grow 47% between 2003 and 2007. "So there's a huge opportunity for growth here and, quite frankly, supermarkets are the perfect environment for kid's products because that's where mom is and she's probably taking the kids shopping with her," he said.

"The big trend is still that conversion from video to DVD, and preschool children's has not converted as much as the rest of the marketplace," said Debbie Ries, senior vice president, sales, HIT Entertainment, Allen, Texas. However, with many retailers -- notably the big electronics chains -- abandoning VHS, it has become a challenge getting the videotape format to consumers. Supermarkets can take advantage of this market void, she said.

At HIT, about half the sales are on DVD, with the other half on VHS. "Supermarkets can stay in it longer. Grocers understand moms probably the best," Ries said.

For the very young parents now having babies, "I think they're starting out with a DVD format. But the people who are in the midst of their preschool years are mostly staying with VHS. They don't want to replace their library. They've got their VHS player set up, and they want to continue to buy VHS. So I think that it's a challenge to keep retailers on board with VHS as long as consumers are on board," she said.

"I think the biggest trend in children's video is finally the conversion to DVD," said Ted Green, chief executive officer, Anchor Bay Entertainment, Troy, Mich. "Last year at this time, VHS was still 60% to 65% of the [children's] market, and we are seeing that it is 50% now and increasing rapidly," he said.

To take full advantage of the children's video market, supermarkets need to present shopping solutions to time-pressed customers, said Buena Vista's Guthrie. "It's actually a fallacy that when you've got young children, you shop more, because the parents just can't keep ahead of it. They're in more, but they're shopping less, and they're looking for solutions. They're looking for things that can help make their lives easier," he said.

For instance, stores should put the preschool line of videos near the diapers, Guthrie said. "Make it easy for them. That's why we're seeing some really good traction on getting some outposting and moving some sales into other parts of the store."

Low-priced VHS children's titles in clamshell cases are still very strong for UAV Entertainment, Fort Mill, S.C., especially for animated product, said John Stewart, proprietary marketing manager. "DVD has the market for some of older age group titles," he noted.

Lower-priced, direct-to-video releases of recognizable brands or characters help address consumers' growing appetite for purchasing DVD, particularly in the children's and family segment, said Bill Sondheim, president, GoodTimes Entertainment, New York. "I really believe this lowering of the economic threshold with direct-to-video plays extremely well into the general trend of where DVD collecting is going," he said.

"I also believe that the majority of those purchases are being made by the mothers of the households and that that puts the supermarket trade in an unusually strong position if they're more aggressive about making sure those mothers know about this product," Sondheim said.

Branding is key in children's video, said Dan Gurlitz, vice president, video, Koch Entertainment, Port Washington, N.Y. "Why does Barney work? It's branded. Why does Strawberry Shortcake work? She's branded. Popular Mechanics for Kids is branded in a different way." Products like these are trusted by parents, he said.

Movies Broaden Target Audiences

The distinction between children's and family video products is blurring, said Scott Guthrie, vice president, sales and channel development, Buena Vista Home Entertainment, Burbank, Calif.

With family-oriented series like "Spider-Man," "Harry Potter" and "Shrek" appealing to both young and old audiences, it's harder to identify such movies with one segment or another.

"I'm not sure that children's means anything anymore, or it's blurred to the point where it's very difficult to differentiate," he said.

Meanwhile, the rating boards are taking a harder line with movies, "and that's a good thing," Guthrie noted. "The ratings are much different than they used to be even 10 years ago."

As a result, he urged retailers to take that into account when making buying decisions about movies. For example, some retailers may only buy G-rated movies, but "that is really going to limit your opportunity," he said.

Movies like "Shrek" that appeal on different levels are changing the market, said Ted Green, chief executive officer, Anchor Bay Entertainment, Troy, Mich. At the same time, children are becoming more sophisticated at a younger age, largely because of their use of computers and the Internet. "Who would have thought of your two- or three-year-old playing computer or video games? Well, they do. The level of sophistication has changed so much that I think the lines are indeed blurred," Green said.

"More families are trying to do things together as a family unit," said Bill Sondheim, president, GoodTimes Entertainment, New York. Therefore, some family members have to compromise some of their preferences so the younger children can share the movie experience, he said.