AS shelf space for younger-skewing home entertainment product continues to shrink, kids IP owners may be having a tougher time locking down deals in this tentpeg category these days. Lionsgate’s EVP of family entertainment Ken Katsumoto is still bullish on the market, but has shifted his acquisitions strategy to bring it more in line with retail demand at both the sell-in and sell-through levels.

‘VOD and other delivery platforms are evolving, but evolving slowly, so retail is still the category’s main distribution driver,’ he says. ‘I’d say it’s responsible for about 95% of sales.’ But retailers are all about brand recognition now, so what’s working best for Lionsgate in the kids space are well-established brands and properties that have successful theatrical film runs in their pockets.

In this latter vein, Katsumoto points to Happily N’ Ever After as a recent success story that shows how well the strategy can work. The CGI revisionist fairytale from Vanguard Animation and Germany’s BFC grossed US$16 million at box office in the US. But the home entertainment range had already done 20% more business at press time – and it’d only been out at retail for a few weeks.

In terms of brands, Bratz and the Marvel franchise are two of Lionsgate’s strongest performers; in fact, Katsumoto says each of the three Marvel movies that have been released has sold through more than 500,000 units so far. The series is the product of a deal Lionsgate and Marvel inked to co-produce up to eight direct-to-DVDs together. The Avengers kicked things off in early 2006, and next up is Dr. Strange in August 2007. Katsumoto is about to send three more into production in the coming months.

If there’s a softer segment of the kids home entertainment market right now, it’s TV episode compilations, says Katsumoto. He says episodic releases aren’t often able to create the kind of in-store excitement retailers are looking for now. And on the consumer front, these products have lost ground with older kids, who are moving on to gaming and social networking forms of entertainment at an earlier and earlier age every year.

‘Obviously, we still believe in the episodic market,’ says Katsumoto, ‘so what we’re doing to counteract this softness is turning every three stories into a movie.’ The specific details about how this tactic would play out and what it would involve in terms of after-the-fact production work to create a seamless merge of the eps were still being worked out at press time, but Katsumoto does plan to apply this new model to select properties in the Lionsgate portfolio in the coming season. ‘This strategy tends to lead to a bigger presence at retail, and therefore, greater viability,’ he says.

Katsumoto’s plan for licensing new properties over the next year will continue to be shaped by this dual focus on theatrically led properties and brands with built-in audiences. Pitches that hail from the TV side of the business really need to come to the table with a strong broadcast partner that is willing to pitch in and promote the home entertainment release. But the ideal proposition is an IP that has a TV run, a theatrical run and special DVD runs. Basically, he’s looking for anything that has the potential to crack the top five in DVD sales.

In terms of deal parameters, Lionsgate’s contracts tend to cover all home entertainment rights ‘known and unknown,’ and this clause blankets existing digital platforms including VOD and broadband, as well as any other yet-to-come technologies that could be in the offing. Katsumoto says none of these emerging media are monetizing much of anything yet, and most astute producers know that tying up these rights with other partners (such as a broadcaster) can kill a potential home entertainment deal, so it hasn’t really been much of an issue during negotiations.