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By Carleen Hawn I’m just as impressed as everyone else by Disney’s announcement Wednesday that it will pay as much as $700 million for the “tween” social networking site, Club Penguin. Impressed, because it’s a huge amount of money – $200 million more than what Sony […]

By Carleen Hawn

I’m just as impressed as everyone else by Disney’s announcement Wednesday that it will pay as much as $700 million for the “tween” social networking site, Club Penguin. Impressed, because it’s a huge amount of money – $200 million more than what Sony and News Corp. were rumored to be bidding for the barely two-year-old Canadian company back in May.

Impressed, but not surprised. We’ve written previously about the market value of Club Penguin, and for an earlier story in Business2.0, I got to hear from a ton of kids about why they are addicted to the game. I even picked out my own waddling avatar and played the game myself for a while.

While the notion of a virtual world based on a bunch of costumed, flightless birds and their sculpting feats with snow might sound silly (‘how long will Penguins be hip, anyway?’ critics have asked), beneath Club Penguin’s hokey animation are some wildly creative and surprisingly dynamic narratives, stimulating enough even for adults despite being so juvenile (not unlike Harry Potter).

Moreover, Club Penguin’s G-rated charm has been a nice alternative to the death-and-destruction universe of other MMOs. It turns out parents were only too happy to pony up $60 a year in subscription fees to know their kids could be online and protected from smut, violence, and commercial hucksterism.

Which raises the first of two reasons why I’m worried about this acquisition, sorry, “partnership,” with Disney.

One: In the first of two conference calls with reporters Wednesday, Club Penguin co-founder Lane Merrifield (he is one of three) insisted that Club Penguin would remain ad-free, in keeping with the site’s “integrity.”

I happened to check out Disney.com during the break. Not surprisingly, Club Penguin was all over the home page – but so were ads, including one for a Disney-branded “introductory 0% interest rate” credit card from Visa.

Now, as the 28-year-old Merrifield explained, one big reason for “partnering” with Disney is to scale Club Penguin’s user base. Speaking about “new revenue streams” and “subscriber growth” Merrifield said: “We’ve not done marketing … and still won’t … so the Disney.com home page will bring awareness.”

But given that Disney.com does shill for third parties, when my turn came, I asked Lane how it is that kids who find their way to Club Penguin through Disney.com won’t be beset with ads. There was an awkward moment before the president of Disney’s Internet Group, Steve Wadsworth, (Merrifield’s new boss) jumped in to explain:

“Disney com is a place where people go to be entertained for sure, with a broad range of media, in a range of environments, as well as to be informed. So there is advertising on Disney.com — I see a Disney visa credit card ad [there]. But in virtual world environments—having watched Club Penguin carefully and learning from them—in those immersive environments that are clearly targeted at a younger kids, like Club Penguin, Disney Fairies or Toontown, those will be ad-free … so once kids get immersed, they’re pretty clean.”

Once kids get “immersed” in Club Penguin, they’ll be protected by the same quality controls that distinguished the site from the beginning. That is nice – and I don’t doubt that Club Penguin’s three founders worked hard to make this a sticking point in the deal that could likely make them each centi-millionaires. (Club Penguin took no venture capital. Cofounder Dave Krysko primarily funded it, with smaller stakes from Merrifield and a third founder, Lance Priebe, who invented the game.) But I’m not sure it matters that Club Penguin’s site will stay “clean” if, en route from Disney.com 9-yr-olds get hawked cheap credit.

Two: I think it’s admirable that Disney, the supposed “#1 site for kids and families” (despite having botched Toontown) is now “learning from Club Penguin,” but this rather confirms my suspicion that the House of Walt is no longer a house of creativity.

Having invented animation, the company had to buy Pixar to stay competitive in it for goodness sake. The single exception might be the Pirates of the Caribbean movie franchise – but that’s a derivative product line anyway, and we all know it will be remembered for its box office records, not its wan contribution to artistic invention.

So I’m not sure who wins here. Disney is revved by the acquisition for sure, but looks slow just the same. Club Penguin’s founders are rich, but look a bit like sell-outs. It remains to be seen if the kids benefit, at all.

Carleen Hawn is the editor of FoundRead.com. Prior to editing Found|READ, she was an Associate Editor with Forbes, and a Senior Writer and West Coast Bureau Chief for Fast Company.

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  1. my boys used to love this site…one still loves penguins, though it was heartbreaking when i had to explain to him what penguins are really all about – not the idealized and house of worship embraced “march of the penguins” version, but the real ‘penguins in the wild’ reality…

    …and the reality serves as a great truth to consider in this acquisition/deal: real penguins: kill other penguins, steal their children, steal spouses, abandon families, commit transgressions that in our society would land them in a lifetime of jail and suffering…oh, and of course, tons of sexuality issues that the ‘march of the penguins’ crow carefully avoided in all open discussion of the film….

    so take it for what it’s worth: one big company gets a better landing pad for abducting the attention of a nation’s children in a thinly veiled effort to corral marketing dollars and sell more shit to more people more often without regard for promoting a digital lifestyle and tendency toward isolation and living in anonymity that may leave the entire generation of club penguin users unable to live here, in this real world…these are young children that are being bought and sold here, not teens and college students…i’m talking about 2nd graders through 5th graders…

    doesn’t it all kind of bother you? sure they need a ‘safe’ place to go online, but should they be pushed so early to believe that living online is what they should be doing at all?

    the mouse is a fucking monster, don’t ever think otherwise…

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  2. The ad. angle is a potential concern. However, if Disney knows what is good for it, it will leave club penguin alone. People will be unhappy paying subscriptions if they start start putting up ads as well. And we hope this will not go in the way of marketing Disney gear as well – I don’t think we all want club penguin merchandise pushed upon us in the way of all the Disney princess gear has been.

    http://www.bizorigin.com/2007/disney-buys-club-penguin-tweens-rule/

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  3. Club Penguin Disney Credit Card Picker Upper -GigaOm

    Club Penguin, a "kid-friendly virtual world where children can play games, have fun and interact with each other"…. did Did Club Penguin Sell-Up or Sell-Out when it sold itself to Disney the other day for 700 million bucks as reco…

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  4. [...] GigaOM Carleen blogged that she thought that Club Penguin sold out to Disney and it might ruin Club Penquin. I think she [...]

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  5. Hi Carleen,

    I think you come close on a couple points, but there is more to it as I elaborate here.

    -Marty

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  6. Janko Roettgers Sunday, August 5, 2007

    I don’t think this is just about ads. Disney has to be very careful in keeping the integrity of the game. I just talked about that with my eight year old niece, who is a huge Club Penguin fan. She knew about the acquisition, and she was afraid that soon Disney characters would pop up in in the Penguin world, which, in her words, would be “weird”. She and her friends already have accounts with a couple of other MMOs, so they could leave the ship any time …

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  7. Robert Dewey Sunday, August 5, 2007

    My cousins are the core demographic – they all played “Club Penguin” up until the Zwinky and Webkins commercials started rolling. Now they don’t even visit Club Penguin.

    I asked my cousins why they left, and they said Club Penguin had a very limited amount of activities compared to Zwinky and Webkins.

    If Disney advertises their new purchase on the Disney Channel AND can create a more diverse set of activities (how long can you play “catch the coffee”?), then they might see regrowth.

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  8. [...] a more interesting post came from Carleen Hawn doing a guest column on GigaOM about the sale. In her post she outlined two things that worried her about this partnership between Disney and Club Penguin but it was a line in her [...]

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  9. Will the penguins all start to grow mouse ears I wonder?

    On a more serious note, I would love to have seen the “build v buy” analysis on this one – $700m !

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  10. To Disney’s credit, they’re pretty good at leaving the artistic integrity of their acquisitions in tact; I’ve heard all these concerns before from fans of Hayao Miyazaki’s animated films, most of whom like and appreciate Disney’s distribution of them in North America. (Prior to that, most of those fans had to acquire the films through underground means, translated and subtitled by amateurs and in comparison, as quite a sub-par product.)

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  11. [...] Did Club Penguin Sell-Up or Sell-Out? – Interesting piece even I disagree with part of the article’s view (e.g. there is nothing wrong for Disney to learn from others. It will be worst they suffer from  NIH “not-invented-here”.) [...]

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  12. It doesn’t really concern me that 9 yr. old’s be presented with credit card offers…The Disney ads seem relatively harmless. There are much worse alternatives.

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  13. Everyone is concerned about advertisements on Club Penguin. Disney will end up using advertisements but it will be relevant like upcoming movies for kids. Maybe even create new ‘islands’ and characters BEFORE the movie comes out. Maybe create a ‘creative’ component that allows kids themselves to create the sequel to a movie.

    As for valuation, $350M is HIGH. There is only so much money you can generate from kids (parents have to buy them). But I think Disney understands from their failed foray into social networking and will use Penguin people to not just build out Club Penguin but by using the same platform, expand into pre-teens, and teen markets.

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  14. Will the penguins now sprout mouse ears?

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  15. Ypulse Essentials: Athletes Blogging, Teens Blab About Brands, Disney Goes To The Y

    Out with the old (Tina Wells laments the negative feeding frenzy around young Hollywood and tells marketers to look to emerging talent for celeb-replacements. I have a feeling she won’t be a fan of Starvstar, “a fantasy-sports-meets-celebrity-scandal…

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  16. Ypulse Essentials: Athletes Blogging, Teens Blab About Brands, Disney Goes To The Y

    Out with the old (Tina Wells laments the negative feeding frenzy around young Hollywood and tells marketers to look to emerging talent for celeb-replacements. I have a feeling she won’t be a fan of Starvstar, “a ‘fantasy sports meets celebrity…

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  17. What a irresponsible column! Carleen should be ashamed of herself. The headline might as well be “BREAKING: Disney.com has banner ads!”

    Give me a break.

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  18. “…despite having botched Toontown”? What does that mean? From my vantage point, Toontown has been a pretty successful and popular game.

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  19. [...] Written by Anne Zelenka Sunday, September 9, 2007 at 3:10 PM PT | No comments Economy watchers see recession as more likely after Friday’s weak jobs data. What does this mean for Web 2.0 hopefuls, now readying themselves for the fall conference season and dreaming of a Club Penguin style acquisition? [...]

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  20. [...] virtual items, while at the same time drawing criticism from some sectors as being too consumerist. Club Penguin is only the latest hot player in a group that includes heavy hitters like Mattel and its Barbie [...]

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  21. [...] kid-oriented MMOs have the most active users and thus seem like the safest bet, for example, as FoundRead editor Carleen Hawn suggests, they’re also fragile ecosystems that can fall apart with too much outside interference and [...]

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  22. Just more ways for Disney to make more money. Disney is too smart and they will do anything to take away your money and put it in their.

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  23. [...] of these deals have been written about here, or at the mother ship, GigaOM. (For example: Club Penguin by Disney, also here; Photobucket by Fox Interactive; and StumbleUpon by eBay). Steve includes [...]

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  24. i just love club penguin

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  25. I don’t worry about my nine yr. old playing on this site because you do not have to be a member to play. I gave her ultimate- safe chat and told her to be wise on Club penguin. I have had no problem with her playing on this website because she just goes on there to make friends. I even watched her play once.

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  26. [...] was sure it was a good thing when Disney bought the popular world of Club Penguin last August. Many took a wait-and-see approach to the news; and one year later, some users still don’t like it, while others have embraced [...]

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  27. I play Club Penguin and I remember joining just after Disney bought it. It was ultra-fun. Now they have added so much crap it’s sad. I also found the word ass in a corssword puzzle. It was so freaking small it had to be on purpose.

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    1. i doubt it was on purpose, however, you can email cp about it, their responses to things like that are pretty funny!

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  28. [...] more than $1.4 billion in 2007 (their estimate), a figure that was hugely skewed by Disney’s purchase of kid’s world Club Penguin for nearly $700 million. While there weren’t any acquisitions of that size in 2008, much of [...]

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  29. [...] the more than $1.4 billion in 2007 (their estimate), a figure that was hugely skewed by Disney’s purchase of kid’s world Club Penguin for nearly $700 million. While there weren’t any acquisitions of that size in 2008, much of last [...]

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