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Educational entertainment leader, LeapFrog Enterprises Inc. (LF - Snapshot Report), recently penned a new multi-year agreement with Lions Gate Entertainment Corp. (LGF - Analyst Report) to develop, produce and distribute four brand new animated DVD and digital movies. The movies, featuring updated characters, new adventures and new subject learning syllabus, are slated to be released in early 2014.

Lions Gate is a film studio engaged in the production and distribution of motion pictures for theater and straight-to-video release and also television programming for cable and broadcast networks. The company has a strong track record of producing small and mid-budget specialty films.

The partnership is not new to LeapFrog. The company joined forces with Lions Gate way back in 2008. Since then, the companies have released 12 animated DVDs that featured well-liked LeapFrog characters such as Scout & Friends, Leap, Lily and Tad. The new treaty portrays their commitment to children for entertaining yet educational movies which are apt for their age.

With the signing of the new agreement, LeapFrog has extended the distribution rights of Lions Gate on its movie catalog. Lions Gate now possesses the worldwide distribution rights to both physical and digital content from the new movies. In addition, LeapFrog has preserved its rights to distribute the new content on its own proprietary digital platforms.

As a matter of fact, the new agreement immediately follows LeapFrog’s recent announcement of two new programs – Magnificent Museum of Opposite Words, and Adventures in Shapeville Park. Both are due to be launched in January 2013.

We remain impressed with LeapFrog’s core strategy to boost its educational entertainment platform.  Earlier this month the company added Barbie to its award winning learning platform through the collaboration with the world's largest toy company – Mattel Inc. (MAT - Analyst Report). Till date, the company’s strong home entertainment section has sold roughly nine million units.

Emeryville, California-based LeapFrog recently reported earnings of 60 cents per share in the third quarter of 2012, which breezed past the Zacks Consensus Estimate of 41 cents. With this, the company achieved the record of nine consecutive quarters of higher earnings. At the end of the quarter, LeapFrog's products were available in over 45 countries and used by teachers in around 100,000 U.S. classrooms.

We are maintaining our long-term Outperform recommendation on LeapFrog. It carries a short term Zacks #2 Rank (Buy).

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