Hi~
I'm an old 'mom' (51) to 4 adults and grandma to 3 (ages 1-6) and the first thing that came to mind was to keep the karaoke session all-inclusive, at least for a while. Kids nowadays are SO difficult to 'manage' (in my experienced opinion). They need to learn to sit through some things even if it's not fully entertaining to them, so I'd say, 'Now we're going to karaoke! Everyone sit in a circle on the floor.' (or however you set it up. Probably sitting on the floor would work best (unless you have an actual raised 'stage' area). My thought is that if you have karaoke as an 'option' while other things are going on, you'll have mayhem. Maybe get a white bedsheet at Goodwill (or other thrift shop) and put it on the floor with plastic underneath (maybe even in the garage if you have one) and let them paint it as a backdrop first or something.
Have fun!