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THE MORNING BUZZ: When the Market Changes, the Tables Can Turn.

19 Feb, 2002 By: Holly J. Wagner

There's an interesting phenomenon going on in the toy world.

Toy manufacturers used to compete more for master licenses for popular children's characters and, while those investments have always been subject to the caprices of the market, it's a sign of the times that studios have to promise more now to get toy makers interested.

It doesn't take much to explain why toy makers want assurances that film and video franchises will go on long enough to keep their companion toys and games popular. Last week at the Toy Fair in New York, studios had to pony up promises of long-running series like Harry Potter or Lord of the Rings and direct-to-video sequels like Lilo & Stitchto get toy makers on board.

To understand how the situation got where it is today, a little history lesson is in order

I'm a member of the Schoolhouse Rock generation. When we grew up, there was a federal law that required TV stations to ensure that a certain percentage of programming aimed at children was educational. The little Schoolhouse Rock mini-cartoons that used to air Saturday mornings in between the regular cartoon shows were a result of that law.

In the early 1980s the country's new president, Ronald Reagan, championed the interests of his friends in the broadcasting industry and helped to repeal the law about educational programming.

Before long, the cartoons on network television began shifting away from the Hanna-Barbera, Jay Ward and Warner Bros. fare we'd grown up on, giving way to what critics soon began to call the "program-length commercial."

The first domino in the chain was Strawberry Shortcake. The toys went to market before the cartoons ever showed up on TV. Over time that got increasingly common – the Care Bears, Rainbow Brite and other franchises followed.

And why not? For the toy makers this was a brilliant ploy. Instead of paying for Saturday morning advertising time, they could create a half-hour cartoon show and get the networks to pay them to air what was essentially an infomercial for the apple juice set.

Today many of those deals are struck in advance so the toys are ready and on the shelves on or before the day a movie or TV show debuts.

When the franchise starts with a book, like Harry Potter or Lord of the Rings, it's especially important to have merchandising in place ahead of the movie date to generate buzz and renew interest among the literary fans so they'll want to see the movie and buy the video.

Whatever way the deals are cut, the studios are shouldering the risk with the toy makers more now. Licensing characters gives them a cut of sales for items that advertise their movies, while the toy makers benefit from the popularity of a film or video to sell more toys.

It may be small comfort, but the video industry is not the only one in which the studios are starting to pay for deals they made with the devil when they had more control.

Tastes change. Formats change. Economies change and tables turn. In the end, it's all about leverage.

Now, back to the lessons of the Toy Fair. Maybe the moral of this story should be "Be careful whose patootie you kick on the way up because you might have to kiss it on the way down."

It seems the toy makers have gained an upper hand. Is "The Revenge of the Indies" far behind?

For a while it might have looked like studios becoming media giants would make them impervious to the needs of a few one- or two-store video dealers. But lately it's looking less and less that way. Video revenues account for a substantial percentage of many studios' overall revenues.

Indies don't have the same muscle as mass merchants -- when Wal-mart or Target talks, studios can't afford not to listen. Indies' only advantage is strength in numbers. Riding out the VHS-DVD transition will depend on working together to create and advance an agenda for their considerable portion of the industry. You can be sure nobody else is going to do it.

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