At this month's Consumer Electronics Show in Las Vegas, the tech-minded, digitally obsessed masses were joined by a different breed: book publishers, whose interest in digital products is growing with the increasing number of e-readers set to hit the market in all shapes, sizes, and color capabilities. And the children's sector of publishing is taking particular notice of how to use this emerging technology to capture the youngest audiences.%%DynaPub-Enhancement class="enhancement contentType-HTML Content fragmentId-1 payloadId-61603 alignment-right size-small"%% By now, it's a cliché that children are tech-friendly, if not tech-savvy: astonishingly adept at figuring out computers and smartphones faster than grown-ups. And even though e-books still make up a tiny fraction of the books published annually, that 3% to 4% is set to grow, especially as new devices increasingly incorporate splashy color, video capabilities, and other doodads that aren't available on e-Ink-based readers like Amazon's (AMZN) Kindle, Barnes & Noble's (BKS) nook, or Sony's (SNE) Reader.

E-Reading with Elmo

A number of companies and publishers have been preparing for the day when children gravitate to digital reading as naturally as to printed books. One of the most forward-thinking is Sesame Workshop, which late last year announced a line of digital books targeting children between 2 and 6. Sesame posted five free e-books, including Jon Stone's 1971 The Monster at the End of This Book, its bestselling title, on a dedicated Web site. Its titles will also include highlighting and audio options.

"We're always trying to introduce new readers to books," Scott Chambers, Sesame's senior VP of worldwide media distribution, told The Wall Street Journal. "We also see this as another revenue stream to support our efforts in the U.S. and outside the U.S."

Because the e-books include extensive color images, they're only available online and cannot be downloaded to current e-readers. But that may change this spring, when Sesame Workshop plans to offer at least 100 downloadable e-books to subscribers, at a price still to be determined. These books can be read on computers and may ultimately work for color e-readers and tablets.

The WSJ also reported on Sesame Workshop's new iPhone app, which launched with a four-book series (at $1.99 a pop) about Elmo looking for a lost puppy. Sesame could change its plans as soon as e-readers with sufficient color capability to support its digital books reach the market.

From Dickens to Hannah Montana

Nintendo (NTDOY) may be more associated with e-bowling and e-yoga than e-reading, but its DS handheld console has made it a viable player in the e-books market. Nintendo in late 2008 introduced DS editions of classics by the likes of Jane Austen and Charles Dickens, and last fall, Electronic Arts announced FLIPS, an e-book program tailored to the DS touchscreen and stylus, featuring titles by Enid Blyton and Eoin Colfer. Children can interact with FLIPS books with quizzes, animation, pop-up character boxes, codebreaking games, and even cupcake recipes. The sole drawback for consumers is price: each FLIPS, made up of six to eight books, is priced at $24.99, which is pricey for a one-time purchase.

Also last fall, children's juggernaut Walt Disney Co. (DIS) got into the game with Disney Digital Books, an online library of 500 titles for children between 3 and 12. Titles include early childhood classics (Cinderella, Pinocchio) to teen favorites (Hannah Montana, High School Musical). Kids "can browse titles according to their reading level," according to Web site Publishing Perspectives, "and can then either read the story themselves, have the computer read to them, or try a third option called 'Story-Builder,' which deletes words from the text and invites the child to insert their own."

Like Sesame Workshop, DDB offers a subscription model: $79.95 per year, or $8.95 per book. Disney Worldwide senior VP Jeanne Mosure explained the strategy to Publishing Perspectives: "We realized early on that single book purchases for children weren't viable, and at the same time we didn't want to compete with our own retail model, so we decided on subscription."

Regardless of age or demographic, publishers and e-book companies must remain nimble, anticipating which hardware and software platforms will lead the category, and which will die off; which devices will best handle color illustration and video interactivity; and which elements kids decide they want in a digital reading experience that keeps them coming back.

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