Packing a one-two punch that couples hot licensed characters with format innovation, licensed books are really starting to heat up the kids publishing market. In fact, most major publishers are reporting steady double-digit gains in the category and have been setting aside more catalogue space for licensed books in hopes that the boom continues.

Ipsos BookTrends, a 20-year-old consumer panel study that tracks literary spending in 16,000 U.S. households, pegs the value of the overall kids book market at US$2.1 billion and reports that sales grew by 10.5% in 2003. The report also estimates that 52.3 million books based on TV shows airing on the big U.S. kidnets – Nick, PBS, Cartoon Network and Disney Playhouse – moved at retail in 2003, up slightly from the previous year.

From a publisher’s point of view, licensed books are an increasingly important part of the equation. Jen Bergstrom, Simon & Schuster’s VP and associate publisher for media and teen non-fiction, says her division’s licensed book sales have grown by 284% since 1996, with 2003 sales up 13% over the previous year. From March 2002 to March 2003, the company moved more than eight million units of its top-selling Dora the Explorer line through retail, book clubs and cross-promotions with packaged goods partners. Second in line at Simon & Schuster was the SpongeBob SquarePants range with a one-year tally of 7.7 million unit sales.

Bergstrom predicts that category growth will start to level off this year because of the sheer number of licenses coming into the marketplace right now. Despite this potential, Simon & Schuster isn’t holding back on introducing its new titles, with releases based on Marathon’s Totally Spies! (airing on Cartoon Network) and Magnus Scheving’s Lazy Town (launching on Nick Jr this season) on the horizon.

Penguin Young Readers Group president Doug Whiteman, meanwhile, doesn’t think the category will stall at all. ‘We’re at the crest of a wave,’ he says. ‘I expect to see continued growth this year just because the licenses we’re involved with [Dick & Jane and The Wiggles, for example] have such strong marketing plans over the coming 12 to 18 months.’ Moreover, Whiteman sees lots of opportunities opening up for licensed books at mass retail thanks to this distribution channel’s interest in new book treatments that build in play value as well as reading hooks.

Licensed books hit their first market peak in the ’80s, when mass retailers relied largely on character-based coloring and activity books as their impulse-buy staple. With print runs in the millions, this type of low-end book that sells for under US$5 a pop remains a core category. Grosset & Dunlap, an imprint of Penguin that specializes in these books, has four million copies of 15 Strawberry Shortcake titles in print, as well as three million copies of 10 Bratz coloring and activity books.

But Felicia Frazier, VP of brand management at Random House, says that with today’s consumers wanting to feel that they’re getting extra bang for their buck, licensed books need to do more, have more and be more to make the connection.

To that end, HarperCollins is releasing a glittery My Little Pony book (SRP US$6.99) in the fall that doubles as a themed backdrop for fantasy play – the book itself unfolds to create either a castle room or the castle’s exterior, which little girls can use to act out the story. And this past winter, Reader’s Digest Children’s Books created a new line of US$24.99 Movie Theater Storybooks based on Nickelodeon characters. These hardcover books include a movie projector and 10 picture disks that displays images illustrating the story on the wall. RDCB had sold close to two million copies of these books worldwide – including its inaugural U.S. titles for Disney Princess and Disney Animal friends – prior to picking up the Nick license.

DIC’s Strawberry Shortcake line includes books with glitter and pop-ups, and there’s even a cookbook that comes with measuring cups. Meanwhile, a number of HIT’s Bob the Builder books from Simon & Schuster are shaped like Bob’s tools, and the latest addition to the Wiggles line is a guitar-shaped book that let’s kids play along with Murray.

Licensors should note that production lead times on these jazzier licensed book formats are much longer than traditional picture books – in fact, it takes some SKUs up to two years to go from concept to retail shelf.

There is some industry debate about whether these souped-up formats and electronic learning platforms like LeapFrog’s LeapPad and Fisher-Price’s Powertouch should be merchandised alongside traditional licensed books. These new additions may not look like books, says Christina Miller, HIT Entertainment’s senior VP of global creative, but they’re good for the industry as a whole because toyetic books and ELAs have the potential to reach into other aisles in-store, like the toy section at mass or gift sections in book stores. This expansion increases awareness and exposure of licensed book properties, she contends.

In terms of what’s on the category’s horizon, retailers are clamoring after licensed formats that reach beyond the typical five to 12 kids reading demo. Bergstrom says Simon & Schuster recently received retail requests for more bath and cloth books from its preschool-targeted Blue’s Clues and Rubbadubbers lines because these products are selling beyond projections.

Teenagers are also on buyers’ radars, but they pose a very tricky proposition for publishers. HarperCollins editorial director Emily Brenner says teens are a tough sell because characters and properties don’t consume them in the same way they do younger kids. Margaret Milnes, director of Nickelodeon’s book publishing division, says she’s made some headway with this difficult demo by partnering with L.A.-based manga publisher Tokyopop to produce cine-manga graphic novels – a relatively new format.

These books feature popular characters from shows such as SpongeBob SquarePants and Fairly OddParents in a cool, comic-book style that appeals to older readers. At US$7.99 a pop, the books have been selling well since their fall 2003 rollout, says Milne. Tokyopop’s SpongeBob: Friends Forever has moved 87,000 copies, and based on that level of sell-through, SpongeBob: Crime & Funishment hit stores in April with a 275,000-copy print run. Plans are underway for nine additional cine-manga titles based on these two licenses in the upcoming year.

But publishers aren’t relying solely on new formats. The traditional 8×8-inch storybook still sells. Typical print runs for 8x8s average between 50,000 to 100,000 copies, depending on the popularity of the license. The average price of these books, roughly US$4, appeals to consumers and puts them into impulse-buy territory. Retailers also appreciate the fact that 8x8s fit in standard spinner racks, showcasing the covers prominently in stores and freeing up shelf space for other book formats like oversized hardcovers and non-rectangular novelty titles.

One of the few roadblocks that licensed books face at retail is that they must stand alone since they’re not typically merchandised with other licensed product. ‘It’s hard to pair plush and books together because we need to keep the price points low,’ Bergstrom explains. But publishers are working to get more exposure for their products by partnering with companies that can make an impact beyond the book aisle.

Boxes of General Mills’ Kix cereal on U.S. grocers’ shelves right now feature a side panel mail-in option to get two Dora the Explorer Sticker Books for US$6.99. The titles, Dora’s Treasure Hunt and Dora Saves the Prince, have a retail value of US$12.99. Home entertainment is another ripe cross-promo sector for licensed lines. Many publishers are doing deals to splash book promos as a trailer on DVDs and video games in return for advertising these products in the book. HarperCollins’ Brenner says the DVD cross-sell helps licenses linger longer because children will watch DVDs over and over, each time taking in a reminder to buy the books.

At the end of the day, though, cross-promotion and format innovation doesn’t mean squat without the right licenses, and all the major kids publishers are taking a more proactive approach to hunting down potential hit properties at an earlier stage. Simon & Schuster’s Bergstrom, who attends TV markets like NATPE, MIPCOM and MIPTV regularly as part of her scouting regimen, says she typically looks for strong, identifiable characters that appeal equally to boys and girls and can work on multiple mediums ranging from TV, to toys, to books. She shies away from gimmicky or overly didactic properties. Penguin’s Whiteman, meanwhile, says he’s after properties with educational qualities that translate into print because parents need to perceive that a book has learning potential before they’ll pick it up for their kids.