Small Makers of Children's DVDs Unite to Take On Big Rival
Distributor Bundles Products to Appeal To Large Retail Chains
By RAYMUND FLANDEZ

In his recent State of the Union address, President Bush gave a nod to the remarkable
success of a once-small company called Baby Einstein Co., a maker of children's
educational DVDs and videos. The brainchild of small-business owner Julie Aigner-
Clark, Baby Einstein was bought in 2001 by Walt Disney Co., which then built the series
into a $200 million powerhouse. With Disney's deep pockets and distribution reach, most
smaller rivals have been boxed out of big-box retailers -- until now.
To go up against Baby Einstein, competing baby-DVD creators have banded together and
are bundling their products under a single name: "Little Steps." What's more, they've
aligned with a big distributor, Topics Entertainment, which is repackaging their disparate
content into boxed sets under the Little Steps brand and paying each producer a licensing fee.
Started last summer, the Little Steps DVD line retails for about half the cost of the market
leader and is already at various retailers, including Costco, Best Buy, Fry's Electronics,
Borders, BJ's Wholesale Club and Sam's Club.
"We just think ... there's room for two players in this market," says Greg James, chief
executive officer of Topics Entertainment, a Renton, Wash.-based multimedia publishing
company and distributor of special-interest videos.
Executives at Baby Einstein weren't available to comment.
The decision of the small players to band together highlights a business model that is a
calculated gamble and, in some ways, flies in the face of the entrepreneurial spirit of
going it alone. Under the Little Steps deal, each player traded some autonomy, branding
opportunity, and potential revenue for the chance to get a foot in the door of chains where
they had met roadblocks.
For producers looking to make a name for themselves, the decision isn't without risks.
For instance, while the individual producers are credited on the back or inside flap of
boxes, it's the Little Steps name out front. And while nothing in their Topics contract
precludes them from also trying to sell their DVDs solo to retailers, including those
carrying Little Steps, it's unlikely a store with limited shelf space will stock the same
content under different names.

PACKAGE DEAL
• The Situation: Small producers of children's educational DVDs are struggling to
compete with Walt Disney's Baby Einstein brand. The main problem: They can't get into
large retail chains.

• The Plan: The producers have joined forces to launch the Little Steps DVD line, which
features their products and is being sold by one distributor.

• The Risks: The companies give up autonomy and possibly the sales from independent
stores that can't compete with big chains.
But the benefits for these small players are that they're now selling their wares on a
broader basis and each are collecting some money, typically 10% to 15% in wholesale
costs, or the amount it costs to produce a DVD. What's more, there's the hope that wider
access to their content will eventually pay off for them as creators.
"Obviously it gives them visibility and placement with a very wide footprint for their
products," says David Weinstein, president of Chicagoland Entrepreneurial Center, a
Chicago-based venture-development firm that helps entrepreneurs with sales and
financing. "The downside is that you may lose some control ... and it might take some
time to find the right distributor and structure for that arrangement."
Mr. James of Topics Entertainment says he met several of the producers at the annual
American International Toy Fair in New York about five years ago. He says it was a
classic case of small businesses trying to get into the major retailers with a limited
product line and no networking relationship with the store buyers. "You don't stand a
snowball's chance in hell," he says, if a product, even one better than Baby Einstein,
doesn't get into big-box retailers and, ultimately, into the hands of consumers.
But Topics Entertainment says it has the distribution experience and existing
relationships with major stores to make that happen. Its strategy: Pretty up the packaging
and cut prices. Single Little Steps DVDs retail for $9.99 and a complete box of three
DVDs sell for $19.99. In contrast, a single Baby Einstein Baby Mozart Music Festival
DVD sells for $19.99.
One of the producers in the alliance, Barbara Candiano-Marcus, founder and creator of
Baby Prodigy Co. of Valencia, Calif., says the Topics arrangement has freed her from
having to worry about distribution and focus more on content for her line of infantdevelopment
videos and brand building outside of Little Steps. When her first video came
out in 2003, it was distributed among independent stores and even sold at Wal-Mart
Stores Inc. for six months. But she says she wanted her product to sell at more than one
mass retailer.
Keri Mann of Las Vegas founded Babyscapes Inc. in 1996 with a line of videos featuring
high-contrast images slowly moving and morphing to classical music. Despite making
some inroads, she says, after Disney bought Baby Einstein it became harder for
Babyscapes to garner entry into the major retail stores. "My biggest problem was with
distribution," she says, "I just couldn't do it all."
When Scott Tornek and his wife, Alexandra, started So Smart Productions, a West
Chester, Pa., company that makes animated programs for babies, toddlers and preschool
kids, in 1997, they had no idea how retail and distribution worked. The line won
numerous national awards and was even in Toys "R" Us Inc. stores. But they had to deal
with two, sometimes, three distributors to get their products into as many stores as
possible.
When Topics approached the couple, they say they immediately liked the idea of bundled
box sets. "I thought that they understood how to market the product against stiff
competition," Mr. Tornek says. "This is freeing us to make more products."
But as these small producers' DVDs find their way into bigger chains, that's putting
pressure on their longstanding relationships with independent retailers who've been their
bread and butter.
"We can't have the same products as mass markets do," says Gary Green, owner of the
Toy Box in Asheville, N.C., who is selling Little Steps single DVDs in his store for
$9.98. "That's a constant problem with us. We have to find a product that doesn't have a
wide distribution in mass-market stores in our area. ... Our sales will slow down to the
point that we have to find something else."

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