All right… if you read part one, I hope you now see the importance of learning an industry before entering an industry.  So you’re going to start reading Variety and/or The Hollywood Reporter and/or any of a dozen other relevant trade magazines that cover the entertainment industry.  But since trends can only be recognized by observing patterns over time, you’re at a bit of a disadvantage if you’re just joining the game today.  That’s the purpose of the next two articles – to bring you up to speed on what you’ve missed.  As I mentioned in the last article, I’ve got bad news, and good news.  This article will focus on the bad news.  I know – how exciting.  But if there’s anything I’ve learned in the last 15 years, it’s this:  Bad news is good data.  Not ‘good’ as in ‘fun’, but rather ‘good’ as in ‘valuable’.  Understanding an industry requires a knowledge of both the good news and the bad news.  Ignoring bad news is a very good recipe for making bad decisions.  Have I made my point?  Good.  Let’s move on.

So what’s the bad news?  Simply this:  If you’re looking at VeggieTales as a model for the launch of your own Christian video project, you’re barking up the wrong tree.  It won’t work.Why?  Because the VeggieTales model – raise some money to produce a half-hour animated video or two, release those videos in Christian bookstores where they’ll become wildly successful, then follow up with successful launches in Wal-Mart, Target and everywhere else – was originally developed in the early 1990s.  The calendar today reads 2007.  A decade and a half later.  Very little that was done in any industry fifteen years ago can be repeated today with the same results.  The world is simply changing too quickly.  In fact, if VeggieTales was launched today using the same strategies as in the early 90s, it would fail.  Why?  What has changed?  Let me describe the world of home video and family entertainment in the early 90s, when VeggieTales was conceived, and then compare it to the world today.

In 1990, DVD had yet to be invented.  Families were still getting used to the fun they could have with their new VHS decks.  There was only one basic access kids cable network (Nickelodeon), which at the time aired no original animated programming.  Zero.  The Disney Channel was a premium subscription service (also with no original animation), and the Cartoon Network had yet to launch.  There was one feature-animation studio in America, belonging to the Walt Disney Company, which was turning out, at most, one animated feature per year.  Hollywood had yet to move to “sell-through” pricing on VHS releases of their major motion pictures, so most movies on VHS carried “rental” prices in the range of $40 to $60 dollars.  (This pricing was geared to maximize profits from selling a limited number of copies to movie rental stores like Blockbuster and Hollywood Video.)  As a result, few families bought feature-length movies on VHS.  Movie collecting was left to well-heeled media buffs, who hated the quality of VHS tapes and instead bought even higher-priced laser discs (remember those?).  This left a huge hole in the market for affordable VHS releases for families, and gave rise to a direct-to-video industry focused primarily on kids.  Enter “Wee Sing” sing-along videos.  Enter Barney, and Sesame Street videos.  Thirty-minute, inexpensively produced videos sold like hotcakes at $14.95 to as much as $19.95, which seemed like a bargain next to a Disney movie for $49.95.  An entire company, GoodTimes Video, was built simply by making horridly cheap versions of Disney movies and throwing them onto the shelves of Wal-Mart.  One enterprising videographer built a business by videotaping construction equipment “in action” and cutting the footage into half-hour shows for kids.  And Wal-Mart stocked every one of them.  This was the world in which VeggieTales was conceived.

So what has changed?  Well, everything.  Today there are three 24-hour, basic-access kids cable networks, each filled to the brim with original animation and even original feature-length movies.  There are more feature-animation studios than you can count, turning out, collectively, 10-15 animated theatrical films each year.  The first Shrek movie shocked the industry by hitting store shelves on DVD at $19.99, setting a new low for “sell-through” pricing for theatricals, and effectively squashing the pricing of half-hour videos down to $12.99 or less.  (Big Idea has maintained a $14.95 price for VeggieTales DVD’s only by going to 40+ minute program length, which, of course, increased production costs by roughly 1/3 without increasing revenue by a penny.  Ouch.)  On top of the price pressure, shelf space for half-hour kids videos has evaporated.  Whereas in the mid-90s a typical Wal-Mart might have eight feet of shelf space devoted to half-hour kids videos (10 Barney titles, 5 Elmo titles, 6 VeggieTales titles, etc.), today that space is just two to three feet.  What’s filling the rest of the space?  Pixar films.  Dreamworks films.  Spiderman 1 and 2.  Lord of the Rings Extended Version boxed sets.  The Simpsons Season 1, 2, 3 and 4 boxed sets.  High School Musical Collector’s Edition.  Oh yeah – and last year’s 13 animated theatrical films, on top of all the live-action family films.  (If you haven’t noticed, the family theatrical business has exploded in the last 7-8 years as Hollywood noticed the most profitable films tend to carry G or PG ratings.)  What’s more, the rapid adoption of DVD, which producers like Big Idea and Barney’s parent Lyrick Studios hoped would be a boon (“They’ll buy our new releases, AND they’ll go back and buy our old ones again to have them on DVD!”), didn’t pan out that way.  Declining VHS sales were replaced by DVD sales to a certain extent, but it wasn’t a one-to-one exchange.  Instead, each lost VHS cassette sale was replaced by one-half of a DVD sale.  Why?  Because DVD’s durability combined with newly introduced sell-through pricing on theatrical films suddenly turned families across America into movie collectors, so not only were we competing with Barney and Elmo for a sale, we were now also competing with Bambi, The Jungle Book, Chitty-Chitty Bang Bang, Gone With the Wind, The Wizard of Oz, and Raiders of the Lost Ark.  Suddenly everyone was buying all their favorite movies on DVD, and that latest Barney or Elmo title just didn’t seem quite as appealing.  DVD really became the format for collecting movies, and the half-hour video business would never be the same.  (More recently, DVD has also become the format for collecting favorite TV shows, but typically whole seasons at a time in big, fat, shelf-space hogging boxed sets.)

But wait – what about Christian bookstores?  Surely they still had the shelf space for half-hour videos, right?  Yes, they had the shelf space.  But they were suddenly missing something equally important: customers.  The mid-90s were heady days for Christian bookstores as hit products like VeggieTales videos, Left Behind books and Amy Grant CD’s were pulling shoppers into stores in record numbers.  But success brings attention.  Slowly but surely, retailers like Wal-Mart and Barnes & Noble noticed the success of Christian product in Christian bookstores, and wanted to get in on the action.  By the second half of the 90s, virtually every product that was a certified hit in Christian bookstores could be found at Borders or Target as well.  This was very good for Christian ministry, of course, as books like Rick Warren’s The Purpose Driven Life were able to reach much larger audiences.  It was not great for Christian bookstores, however, as those hit products were the keys to bringing in shoppers, who would usually pick up another book or two while they were in the stores.  Within five years of the mass market’s embrace of the Christian “hits,” foot traffic in Christian bookstores dropped nearly in half.  In one year alone (2003, I believe), 10% of all independent Christian bookstores closed their doors.  Why?  Because most buyers of Christian products only bought the “hits.”  And if they saw the new Michael W. Smith album or VeggieTales video in Wal-Mart first, that’s where they’d buy it.  Given that the average buyer of Christian products in the late 1990s walked into a Christian bookstore once a month, vs. Wal-Mart once a week or more, guess where they saw those products first?  By 2005, the average shopper of one of the major Christian chains was walking into a Christian bookstore only once a quarter.

And with that, the VeggieTales model was officially dead.  Creating shows the met the quality standards of kids raised on VeggieTales is not cheap, so new producers seeking to enter the market figured they’d need Wal-Mart sales as well as strong Christian bookstore sales to recoup their investment.  But Wal-Mart is only interested in “hit” Christian products.  And, unfortunately, Christian bookstores no longer have the foot traffic to make a new video series a “hit.”  Producers now find themselves in a Catch-22:  Wal-Mart will only take a hit, and Christian bookstores can no longer make a hit.  In the 13 years since VeggieTales debuted, only two new video series – out of probably 20 or 30 attempts – have launched in Christian bookstores with even a modicum of success.  The first is “Bibleman,” which seemed to succeed due primarily to the relentless church touring schedule of the accompanying live shows, and the second is “Hermie the Common Catapillar,” which, I believe, succeeded primarily because the cover of the video sported the names Max Lucado, Tim Conway and Don Knotts.  (Max Lucado being a hit brand in his own right, and Conway and Knotts being two comic actors older CBA shoppers absolutely adore.)  And even still, neither of these series were able to translate CBA success into mass market opportunities.

So what’s the bottom line?  If you’re hoping to launch a new video series using VeggieTales as a model, forget it.  I’m not going to say it’s impossible, but it is highly, highly improbable.  The world has simply changed too much for that model to be viable.  That’s the bad news.

So… what’s the good news?  Hang on, I’ll get to that next.

Continued in Part 3>