Did Club Penguin Sell-Up or Sell-Out?

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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