Lionsgate mixes kids, killers

Children's nontheatrical DVD slate grows

Although it is seen as a leader in the horror genre, Lionsgate is quietly building up an imposing presence in the lucrative children's nontheatrical DVD market, which has been growing at an annual rate of about 4% and now accounts for about $1.2 billion a year in annual consumer spending.

Just since March, Lionsgate has inked three distribution deals that collectively translate into up to 30 additional DVD releases a year, making the minimajor the No. 3 player in the children's nontheatrical market, just behind the Disney and Paramount, with its Nickelodeon line.

In March, Lionsgate acquired worldwide distribution rights to HIT Entertainment's portfolio of mostly preschool franchises including Thomas and Friends, Bob the Builder, Barney and Angelina Ballerina, as well as such newly acquired brands as Fifi and the Flowertots, Aardman Animation's "Wallace & Gromit" and the Jim Henson Co.'s "Fraggle Rock."

A month later came a deal with LeapFrog Enterprises, a leading developer of technology-based learning products, to develop, produce and distribute multiple direct-to-DVD feature films -- and take over distribution of LeapFrog's catalog once titles become available next year.

And just this month came a third deal, this one with Little Tikes to distribute all product under the new Animated Little Tikes Entertainment label of CGI-animated stories. The first release, "Little Tikes Land," is due this fall.

"Lionsgate is committed to patient, disciplined growth in all of our core businesses," said Lionsgate president Steve Beeks. "The brand loyalty, consistency and long lifespan of the children's category rewards a strategy like ours and enhances the stability of our business. We plan to leverage our blue-chip brand names into continued long-term leadership in family entertainment."

Children's product has long been a mainstay of Lionsgate, dating back to the Family Home Entertainment line, a carryover from LIVE Entertainment, the predecessor to Artisan Entertainment, which merged with Lionsgate in December 2003.

But the company's presence in children's home entertainment, previously pegged at about 9%, has consistently been overshadowed by Lionsgate's push into horror, with its "Saw" theatrical franchise and steady flow of direct-to-video horror DVDs.

With these three new deals in place, however, Lionsgate's projected share of the children's nontheatrical market will grow to 15%, just a notch below the company's 16% share of the horror DVD market.

If the new deals appear heavily tilted toward the preschool market, that's all part of the plan. Children under the age of 8 make up the fastest-growing DVD demographic, according to a Lionsgate analysis of research from the NPD Group and Nielsen. And most of this growth comes from branded franchises, which account for nearly 86% of total consumer spending on children's nontheatrical product, up from 79% in 2004. With the new deals, Lionsgate anticipates it will capture 19% of the preschool DVD market.

"Lionsgate is ideally positioned to capitalize on growth in the children's under-8 demographic," Beeks said. "Our slate of new properties from HIT, LeapFrog and Little Tikes, combined with leading brands such as Marvel, Doodlebops and Clifford, give us a rich portfolio of content to serve this lucrative and growing segment."

It's all part of what Beeks said "we do best -- distribute highly recognizable branded properties to large niches that we can serve better than anybody else."
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