CHARACTERS TO GROW ON

PATRICK HERNAN

1994 is shaping up as the biggest year ever for nontheatrical children's video.

Among important factors driving sales are new characters and increased advertising spending. Also boosting supermarket video revenues in this segment are increasingly sophisticated, brand-oriented marketing programs and lower price points.

"Children's is one of the fastest-growing segments," said Amy Innerfield, analyst at Alexander & Associates, New York.

Indeed, 1993 sales figures released by several industry sources substantiate the rapid growth in nontheatrical children's video.

Consumer sales of nontheatrical children's video were just a little more than $2 billion in 1993, up from $1.8 billion in 1992, said Dick Kelly, president of Cambridge Associates, Stamford, Conn., a consulting firm to the video and television industry,

Units were up sharply in 1993, to 135 million from 110 million in 1992. The Cambridge numbers include consumer revenues from sell-through, rental and direct-response marketing.

Numbers released recently by the nation's top racker, Handleman Co., Troy, Mich., serve as another indication that children's video is growing.

According to Handleman, children's video had grown from 28% of the company's business in 1992 to 42.7% in 1993. Those numbers do not reflect business the racker lost to direct sales of Disney products, noted Marc Schwarz, vice president of marketing. Industrywide, children's share of the sell-through market may be much higher.

Last year, "children's was the No. 1 category for us," said Schwarz. What's more, industry observers see this as one part of the market that will be all but untouched by the video-on-demand technologies, and enhanced by the interactive multimedia technologies.

Which children's video brand will be the next big thing? Among the many animated contenders this year are "The Flintstones," "Mighty Morphin Power Rangers," "Biker Mice From Mars," "Raggedy Ann," "Winnie the Pooh," "Exosquad" and Warner products such as "Tazmania." Familiar video names like "Batman," "Little Mermaid," "Fievel" and "Back to the Future" will build on the sell-through success of their hit movies.

The number of live action and puppet-based children's titles is on the increase. Among them are "Mickey's Fun Songs," "Beakman's World," the Joanie Bartels line, "Adventures in Wonderland" and more Muppet products.

The move to target-specific demographic groups is continuing to gain ground. In preschool, there will be many line extensions from industry stalwarts like Disney, Lyons Group's Barney, Western Publishing's Golden Video and Random House. Meanwhile, relative newcomers like "Spot," "Clifford the Big Red Dog," "Shining Time Station," "Fraggle Rock," "Trollies" and "Lamb Chop's Play Along" will fight for shelf space.

Preteen children are getting more attention from video programming suppliers who are pushing lines like "The Baby-Sitters Club," "Ghostwriter" and "Ren & Stimpy." Major studios that have not previously been strong in nontheatrical children's video are now getting more actively involved, such as Columbia TriStar Home Video with a children's line from National Geographic Video, and Paramount Home Video with "Peanuts," noted Kelly.

The studios are looking for ways to increase their business, "and one of the biggest growth areas by far is the kids market," he said. Once studios like Columbia TriStar and Paramount get a toehold in the children's nontheatrical market, they will look for more opportunities to expand, said Kelly. "They are going to be more of a force."

"We'll push anything Barney and anything Disney," said one video buyer. During the 1993 holiday season, "we sold out in both categories and could have sold even more," the buyer said.

"With the success of Barney over the past two years, people have realized that, if they create a character children can latch on to, they can make money on it. Everybody is thinking about getting a brand identity going," she said.

Long admired by retailers and competitors, Disney's ability to consistently develop characters and build brand awareness out of them was unique in the industry. Then along came Barney, the preschool purple dinosaur marketed by Lyons Group, Richardson, Texas.

Barney's achievements sent other programming suppliers scrambling to develop characters that could be sold on video and shown on television, and cross-merchandised across myriad product categories, said industry observers.

Many retailers are wondering who will be the next Barney, said the observers. But the answer is far from clear.

What is clear is that retailers will want to maximize profits on hot-selling children's titles from "Spot" to "Biker Mice From Mars." Yet, many said they expect an increasingly complex selection process to accompany the growth in branded lines, especially for sell-through.

"Everybody is trying to get on the bandwagon," said Todd Wangerin, video buyer and supervisor at Econo Foods and T&C Markets, Iron Mountain, Mich. "There are names you have never heard of, and it's getting to the point that you don't know what to buy."

Video quality ranges from "top-notch to lousy," Wangerin pointed out. "Everybody and his brother are getting in."

Demographics also has become an important element influencing the children's video mix. The industry is releasing brands and tie-ins for specific audiences. What's popular with those under 5 years old might cause an older child to yawn.

Wooing younger customers is "Thomas the Tank Engine" and Shelley Duvall's "Fairie Tale Theater," said Innerfield.

MTV's release of the old "Speed Racer" adventures is expected to draw the attention of older teen-agers and even college students. Many retailers are attempting to strike a better balance in their children's video offerings, and glean across-the-board profits.

Competing in the 1994 lineup are Sesame Street, Dr. Seuss and Little People. The Kids First! collection, distributed by the Coalition for Quality Children's Videos, and Ronald Dahl stories from Strand also are out on the market, joining cable channels MTV and Nickelodeon in the race to make green on children's video products.

"Disney is always a natural," said Carl Johnson, video specialist at Harp's Food Stores, Springdale, Ark. "We always make money with Disney."

Johnson, however, said the 25-store chain will make inroads this year with a Tiny Toons' adventure series: "Fiendishly Funny Adventure," "Island Adventure" and "Big Adventure."

He pointed to MTV's "Speed Racer" cartoon series as possibly being the sleeper hit of the year.

"MTV has been playing all the old 'Speed Racer' adventures," Johnson said. "There will be 47 new adventures this year, plus all the old ones will be released on video."

Also in the works, through Family Home Entertainment, is "Speed Racer: The Movie," said Johnson, and four other episodes. "MTV is going to help produce it; they've helped acquire the rights, and have redesigned the characters [making them older] and redesigned the car.

"It's going to be a big thing with the college crowd," Johnson said, and it has good potential for parents who remember the series to pass it along to the teen crowd.

Retailers also are getting what they hope will be a sales-generating dose of merchandising opportunities from the various brands in 1994. Thoughtful displays and use of the best floor space will generate additional sales.

"Last year was a video year for the kids," said a buyer, who wished to remain anonymous. "My boss was concerned I was flooding the stores, so I pulled up the numbers and that pretty much put him at ease.

"Even titles I didn't think would do well were gone," said the buyer. Holiday titles and cartoons did particularly well, outpacing major studio releases such as "Dennis the Menace" and "Free Willy."

Like many of its competitors, the supermarket chain has adopted a wait-and-see merchandising approach for 1994. "There's perhaps not a whole lot you can do with some of them," admitted the buyer. "When Nabisco has rebates, we usually put them up."

"You can't be all things to all people," said Gary Schloss, vice president of general merchandising for Carr Gottstein Foods, Anchorage, Alaska. "We didn't get into [titles and merchandising aids] we thought were marginal to begin with.

"Of all the licensing," said Schloss, "Barney did the best. We had all of it, and all of it did well. Whoever put that package together did an excellent merchandising job. It was something young children could relate to."

Children also relate to other supermarket products, which means additional profit opportunities, noted Alexander & Associates' Innerfield. "Retailers can move a children's title that hasn't been selling into the cereal aisle. A display there may create more 'Mommy! Mommy!' sales."

"In 1993 we had 'Winnie the Pooh' stuffed animals," said Brenda Vanover, video coordinator at K-VA-T Food Stores, Grundy, Va. "Some stores did well, and some didn't. We're going to wait and see."

There is a lot of that going on, as supermarkets are retrenching for the 1994 video push.

However, Ron Weinstein, president, Block & Stein, Avon, Conn., urges retailers to implement creative merchandising strategies.

"Nothing is being done that is tremendously creative," said Weinstein. "In order to be competitive, retailers have to look at new titles and new mixes.

"They can get into value-oriented and educational programming," suggested Weinstein, and tie their in-store promotions into themes: child safety, preservation of the environment and pet care.

Nutrition also is a natural for supermarkets. "We've been trying to tie in programs on health and nutrition," Weinstein said. "Supermarkets could produce quizzes and take-home materials; if the kids answer correctly, they can get a video for $5.95.

"It can be done with Disney or any other children's video," Weinstein said. "Use the video as a prize. Moving from the mainstream helps create a need for people to come into the store."

Creating that need, retailers and analysts said, is no small task. "More and more mass merchandisers and drug stores have become involved in video," Innerfield said, "and a lot use video as a loss leader."

To protect the value of its Barney image and merchandising of the line, Lyons Group last year took action against warehouse clubs and other discounters that merchandised the line in a closeout manner by banning products.

According to a Federal Trade Commission official, such a move was legal in that it involved concerns about image and merchandising and not pricing.

However, video prices have shrunk as a result of such increased competition.

"The ceiling for children's video is $14.95," Innerfield said. "Over the past seven years, prices have declined $7." Many videos sell for as little as $4.95.

"Prices have gone down consistently," Innerfield pointed out.

Said Kelly of Cambridge, "The units [of children's video] are growing faster than revenues because the price points are dropping." Lower price points means more impulse buying, he noted.

"The value of a children's video is getting very close to the average value of a children's book. That will help to drive more purchases," he said.

But regardless of price, there is no holding out for profits, and a "dog" from MCA/Universal may help lead the way in 1994.

"Family Dog," created by Steven Spielberg, may become "a big hit," said Johnson at Harp's Food Stores. "It's from a short-lived television series that was chopped after two or three episodes. My rep highly recommends it, saying it is hilarious.

"If retailers don't pick it out," Johnson continued, "they're going to miss out on something big."