Consolidation of children’s software companies through acquisition, a lowering of hardware prices and a subsequent broadening of consumer tastes in the children’s software market have all contributed to a ‘maturation’ of the business from a niche industry into one with mass-market status.

Such changes in the interactive business, and the latest offerings in children’s software, will be evident at the fourth annual Electronic Entertainment Expo (E3), taking place from May 28 to 30 at the Georgia World Congress Center in Atlanta.

Among the most recent examples of consolidation are The Learning Company’s acquisition of Mindscape, publisher of The Complete National Geographic Collection, in March, and of Creative Wonders, publisher of Sesame Street titles, last December. Acquisitions such as these by The Learning Company and Cendant Software have propelled them into dominant market positions in the kids educational software market in the last year.

One result of the consolidation will be a lower number of attendees at E3, dropping from over 400 in 1997 to about 350 this year, although the overall floor area will be the same. Doug Lowenstein, president of the Interactive Digital Software Association, which owns E3, says, ‘While we’ve seen a lot of companies drop out, we’ve also seen some fairly large new players . . . who’ve more than made up for the reduced space that we’ve lost from some of the smaller companies going out of business.’

Increased sales of computers in the under US$1,000 range in the past year have given a greater number of households access to interactive technology. As more and more families become first-time buyers of computers-and of software-the taste and trend in children’s titles moves increasingly toward products based on familiar characters and brands from other media. For Hasbro Interactive, this has spelled enormous success with its CD-ROM versions of the popular board games Scrabble and Monopoly and the toy line Tonka.

Competition among children’s educational and entertainment software companies led to last year’s price wars, peaking with extreme rebate offers that effectively reduced certain CD-ROMs’ prices to zero for consumers. Such short-term marketing techniques appear to have leveled off. However, ‘the pricing issue is one of the most challenging issues of our business because people . . . say, `How come it’s only 15 or 16 bucks for a music CD and 30 or 40 bucks for a [CD-ROM]?’ . . . It is a real challenge for companies to manage product development costs at the same time that they’re producing a game that is top-notch. . . . So it’s a very delicate balance,’ says Lowenstein.

In such a climate, smaller publishers have had to be innovative to stay afloat, often aiming for well-known properties from other media and broader markets through strong distribution companies.

Palladium Interactive, licensee of the Wishbone television series for CD-ROMs, changed distributors, signing with GT Interactive early last month to gain access to larger markets. In addition, the company recently acquired interactive publishing rights to Lisa Frank, a popular line of activity-based toys aimed at girls age six to 12. The company will present several Lisa Frank titles at this year’s E3.

Humongous Entertainment, known particularly for its original characters including Putt-Putt, Pajama Sam and Freddi Fish, broke the company mold late last year when it signed a five-year deal with Nickelodeon to create a line of Blue’s Clues CD-ROMs, based on Nickelodeon’s popular television series of the same name. The first title will be featured at this year’s E3.

Even bigger companies are tapping into other well-known properties. For example, Hasbro Interactive, recently purchased Atari game properties, including Centipede, a video arcade game that was popular in the `80s. Hasbro Interactive has also signed a deal with DreamWorks Interactive for software publishing rights to titles based on Small Soldiers, a feature film from DreamWorks SKG.

With hundreds of software titles flooding the market each year, ‘people increasingly make decisions about purchasing software in a very similar way that they make decisions about purchasing a book or a videotape, . . . based on recognition from their experience of the same brand or license in another medium,’ says Ed Bernstein, president and founder of Palladium Interactive. ‘The economics of the software business don’t allow national television advertising for most products, so really, you have to partner with someone who has that kind of national visibility going in.’

Other companies have found success with original products by targeting a niche audience. Purple Moon, launched in 1997, will follow its first-year success in the girls software market by continuing to target girls age eight to 12. It will showcase two new follow-up CD-ROM titles-Secret Paths to the Sea and Rockett’s Secret Invitation-and a series companion product Rockett’s Adventure Maker at E3. The company is also introducing its first sports series for girls, The Starlites Kick-Off Challenge.