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Interview: Steve Wadsworth, President, WDIG; Lane Merrifield, CEO, Club Penguin

Disney Introduces New Acquisition Club PenguinAll too often when a seller says it’s not about the money, it’s about the money, so it was almost a shock to to get the end of a call with Lane Merrifield, one of the three founders of Club Penguin, and realize he means it. Almost — because as much as he means it, Club Penguin’s deal with Disney still comes back to money in one way or another. Money and infrastructure to expand, money for the owners’ foundation, a sale to Disney because they didn’t want certain kinds of money. I had the chance to speak with Merrifield and Steve Wadsworth, president of the Walt Disney Internet Group late Wednesday afternoon after the announcement that Disney was paying $350 million in cash for Club Penguin, with the possibility of a matching earnout by the end of 2009. Some highlights:

10 percent to charity: Merrifield and co-founders Dave Krysko and Lance Priebe each stand to receive about $115 million for the two-year-old self-funded virtual world. 10 percent of CP’s net profits already go to charity, primarily through a foundation started by the three. Merrifield confirmed that 10 percent of the amount each makes from the sale will go to the foundation — more than $30 million from the cash payout. He said it feels “a little weird” to talk about it: “It’s something we’ve done all along. We never wanted it to be seen as a marketing gimmick. … It’s part of our DNA.”

Decision to sell: From the start, the three were determined to avoid investments from VC and private equity. As Merrifield explains, “For us, it wasn’t about liquidating or exit strategy.” They self funded the startup based in Kelowna, British Columbia and kept it running that way as it went into profitability. But about six months ago they realized they had to make some tough decisions: “do what we were doing and not expand out and risk having our own success hurt us … or we build up the infrastructure ourselves and risk becoming distracted … or we find a company that already has the infrastructure in place.” Merrifield compared it to sending a kid to college — at the end of the day, do you hold on or lock them in the basement? They started talking to companies, keeping “conversations at a minimum” and focusing on the companies that from the outside had the potential. “All along Disney held true.”

Why Club Penguin? Wadsworth said Disney had been watching CP as a product and knew as soon as they met the team it would be a good fit: “A Iot of it already lines up the things we want to do.” Wadsworth echoed some CEO Bob Iger’s earlier comments about the move being complementary to a home-grown strategy for virtual worlds that they think is already working. Disney has been cautious about M&A. Wadsworth said the company has looked at opportunities along the way but generally speaking things are not either not the right fit or the “value expectations are not in alignment.”

The price: Merrifield said the company “had other opportunities that were on par” with Disney. He didn’t want to talk specifics but insisted, “At the end of the day, the dollars were not really a priority and never have been.”

Rebranding: The switch to “Disney’s Club Penguin” won’t be instant. The two said they will sort it out over time. But that’s the only obvious change planned for the virtual world. Wadsworth said Disney has “absolutely no intent to do anything that would change or get in the way.” Disney is already promoting the new addition with an animated video on the front page of Disney.com, which has been transformed into a Club Penguin world.

Building out: Wadsworth, asked about global expansion (currently CP is largely U.S. and Canada): “Certainly something that really excites us about this.” Disney has the international presence already and experience translating the Disney experience to various cultures and languages. That’s one place where CP felt stuck. Merrifield talked of having kids in Brazil struggling because they don’t know English; he wants a CP for Brazil.

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