KIDS' INTERACTIVE PICTURE SEEN BRIGHT

BILL TROY Additional reporting: DAN ALAIMO

It's time for supermarkets to start looking for ways to hook their video fortunes to the rising star of interactive children's products.

Although it will take some time before interactive multimedia products become a mass market staple, strong growth is starting to happen. Retailers need to start building consumer awareness that their video departments are a destination to rent and buy these products, said suppliers polled by SN.

Video distributors are now offering compact disc-based products and Blockbuster Entertainment Corp., Fort Lauderdale, Fla., is testing them in its San Francisco area stores. While many chains have been late getting into the video market, supermarket retailers are determined not to let this next round of technology pass them by and are testing programs as well, industry observers said.

The big question slowing growth of this market is, which of the competing and incompatible formats will survive. Until this is resolved, and more of the hardware units are purchased by consumers, supermarkets will likely take a wait-and-see posture.

But the first interactive products will be educational and game titles targeting a young, family audience. That can only mean good news for supermarket video departments, the observers said.

"This could be the beginning of a whole new family market," said Shellie England Tibbitts, president of the Movie Exchange, Audobon, Pa. But, she cautioned, "supermarkets would do well to test market the products before they make full-scale commitments."

Not knowing which technologies will succeed is no excuse for supermarkets not to start going after this market, said Gene Fink, vice president of sales at Star Video Entertainment, Jersey City, N.J. "Interactive video has to be good for business eventually because it gets kids directly involved in the presentation," he said.

"How far away is it? All kinds of hardware are now coming in and, while no one yet knows which techniques will survive, it's important that supermarkets capture this market now, not later. They can start out with rental now and go to sell-through later," said Fink.

The real strength of interactive video will come in the educational area and that importance can't be overemphasized, said David Ingram, vice president of major accounts-special markets at Ingram Entertainment, La Vergne, Tenn. "We'll be cautious in our approach to the market. We know there is going to be a technological shakeout and we don't want to back the wrong horse," he said.

"One thing we're definitely looking for in supermarkets is more properly run, upscale video game sections," said Ingram.

The entertainment phase of interactive video will precede its educational potential, said Larry DeVuono, senior vice president and general manager of Sight & Sound, St. Louis. "The market for interactive children's programming is extremely exciting," he said.

"The market should be particularly good for video games and the supermarkets will have to re-evaluate how much square footage they're willing to give to these products. Through companies like Sega, the entertainment phase of interactive video should grow enormously in the next few years," said DeVuono.

It's still early in the game for the interactive market, said Des Walsh, vice president of Cevaxs U.S., Dallas, but the products are starting to move. Cevaxs' sister company, Supercomm, has launched a program offering CD-ROM (compact disc-read only memory) products from Compton's NewMedia, Carlsbad, Calif., on a pay-per-rental, shared-revenue basis where the upfront cost and the risk to the retailer are minimized, he noted.

"Probably most of the stuff that will come along this year will be aimed at older, 8- to 15-year-old kids. But we're looking hard at CD-ROM [for Cevaxs] and are about to launch some programs. These products are going to become a major factor in time," said Walsh.

Block & 'Stein, Avon, Conn., a marketing, promotions and distribution company, is already working with supermarkets on special displays of interactive products, said Ron Weinstein, president. But the success of these will be linked to the retailer's commitment to video. "If supermarkets want to get into products like interactive CD-ROM, or other high-technology children's presentations, they are going to have to set up separate video departments," he said.

The growing concern of parents over sex and violence on television is cause for optimism over the future of all children's products, including the interactive technologies, said Frank Lucca, president of Flagship Entertainment, Taunton, Mass.

"Channeling children's viewing time into preselected entertainment or educational tapes reduces their exposure to the wild stuff so often seen on programmed TV. Use of interactive video introduces the potential for a form of parental censorship that doesn't involve direct denial between parents and their children," Lucca said.

But the proliferation of incompatible interactive multimedia systems will keep many retailers on the sidelines of this market for some time to come. It will take a shakeout of the competing systems or the development of an industrywide standard to bring it to the mass market. But this is unlikely in the foreseeable future, said industry observers.

"We're looking at it," said Steve Berns, president and chief executive officer of Supermarket Video Inc., Encino, Calif. "But philosophically, I think supermarkets are reluctant to sacrifice more floor space to a market that isn't yet proven," he said.

"Right now we have our eye on the interactive market, but that's about it. The technology just doesn't seem to be in place yet," said Robert Wittenberg, senior vice president and general manager of Video Products Distributors, Sacramento.

"We're sure this interactive, high-technology stuff will have drawing power for the kids' market," said Gregg Wright, president of Video III, Orem, Utah. "But right now there are no standards, no baseline technology that has proven itself."

There also needs to be a "marriage" between the home video screen and the home computer, he added. "Until that happens, this market won't be able to tap its true potential," he said.

"There's a lot of potential on the horizon for children's video, but anyone who stakes their market to interactive products is kidding themselves," said Duncan Murray, western sales manager at J2 Communications, Los Angeles.

A recent survey showed that only 10% of American households will have video or computer equipment compatible with the new interactive technologies by 1998, he said. "We're talking about a 21st-century environment here," said Murray.

Others don't think the technology is quite that far away. "Interactive

multimedia seems to be a natural extension of the present children's video market, but it won't be a major future in the near future," said Pat Clinch, marketing manager at Selectrak Family Video, Hillside, Ill. It will take two or three years before interactive hardware arrives on the mass market, she said.

"We're going to let the smoke clear before we move in that direction. I remember the laserdiscs of a few years ago that never really took hold," she said.

Video game manufacturers are at the vanguard of the interactive multimedia market. Companies like Sega, 3DO, Atari and Philips have brought CD-ROM machines to the market and Nintendo will continue to use cartridge-based technology when it brings out its next generation of video games in 1995. Meanwhile, CD-ROM for personal computers has seen strong growth in the last six months. But none of these platforms are compatible, and this is slowing the growth of the overall category.

The development of the CD-ROM market is about on target for Sega of America, Redwood City, Calif., said Ed Volkwein, senior vice president of marketing. "We're in the second year of our CD-ROM attachment to Sega Genesis [Sega's 16-bit video game system]. We are now approaching a one-million installed base, which makes more of our third-party developers interested in creating new games for it," he said.

But some third-party game developers see CD-ROM growth as slower than expected. "Many of our products for 1994 will be available on magnetic media as well as enhanced versions on CD-ROM for the IBM-compatible computer platform," said Alan Miller, chairman and chief executive officer of Accolade, Sparta, N.J.

"We will begin to see more of a viable market for the CD-ROM format by the fall or Christmas of 1994," said Rick Mann, Accolade's director of East Coast sales.

"I don't think it is evolving as quickly as people are thinking," said Sam Goldberg, vice president of marketing at Acclaim Entertainment, Oyster Bay, N.Y. "But what is happening is there is a great awareness of it."

"The sky is the limit" for the interactive multimedia business, said Stan Roach, vice president of marketing at Spectrum Holobyte, Alameda, Calif. There are about 3 million to 5 million CD-ROM players in the market, he noted.

"We have achieved critical mass. 1994 will have a steep growth curve because there are 40 million PCs out there and only a few million CD-ROM drives. Parents can justify the purchase because it not only provides entertainment, but serves as an educational benefit to their children. We think Christmas of 1995 will be a watershed for this market," said Roach.