Disney Buys Kids' Social-Network Site - WSJ.com
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August 2, 2007
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Disney Buys Kids' Social-Network Site
By MERISSA MARR and PETER SANDERS
August 2, 2007; Page B4
Walt Disney Co.'s purchase of the child-oriented Club Penguin online community aims to give the entertainment giant a lift into the social-networking world with a brand that has become hugely popular in just two years. Disney said it paid $350 million for closely held Club Penguin, whose founders stand to make another $350 million if they meet performance targets through 2009.
DISNEY'S SEGMENT EARNINGS
Division Media Networks Parks Movie Studio Consumer Products * in million dollars FY07 FY06 Change 23% 13% (20)% 12%
MORE ON CLUB PENGUIN
• Virtual Worlds Now Cater to Kids4 4/30/07
$1,358 $1,105 $621 $192 $118 $549 $240 $105
PRODUCTS & PROFITS
'Pirates of the Caribbean'1 bolstered results in the studio division.
The deal came as Disney reported stronger-than-expected earnings for its fiscal third quarter, bolstered by double-digit growth in operating income in three of its four major divisions. A 23% increase in operating income, to $1.4 billion, in the company's media-networks business helped spur the results. Operating income fell in the studio-entertainment unit. Revenue rose in all four divisions.
Fiscal third-quarter net income rose to $1.18 billion, or 57 cents a share, from $1.13 billion a year earlier. Revenue rose to $9.05 billion from $8.47 billion in the period ended June 30. Attendance and consumer spending rose at Disney's U.S. theme parks, Walt Disney World in Florida and Disneyland Resort in California. Founded by three Canadian fathers in late 2005, Club Penguin has quickly rocketed to prominence by offering children the ability to customize their own virtual penguins in an online community. Armed with their penguin avatars, children can chat with friends, play games and earn coins to buy items such as furnishings for their igloo homes. Disney, preferring to take an in-house approach to building its Internet presence, has sat by in the past couple of years as rival media companies snapped up online social networks and virtual worlds. In a key move earlier this year, the Burbank, Calif., company relaunched Disney.com with its own social network, featuring chat rooms, games and personalized pages. But new virtual worlds such as Club Penguin have
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Disney Buys Kids' Social-Network Site - WSJ.com
http://online.wsj.com/article_print/SB118599768804085026.html
surfaced to pose serious competition in the target market of 6- to 14-year-olds. Disney Chief Executive Bob Iger said the Club Penguin acquisition would add to profit from the first year. Disney plans to throw its global marketing might behind the site, which employs 130 people. Mr. Iger noted that Club Penguin already has a strong following without much marketing effort and stands to benefit from a more aggressive push, especially overseas, where it has a limited presence. Disney has an arsenal of weapons -- including the Disney Channel and the Radio Disney network -- that have been effective in creating other kids phenomenons, such as "Hannah Montana" and "High School Musical." Club Penguin doesn't feature advertising, but paid subscribers jumped to 700,000 from 400,000 last year, making it one of the most popular virtual worlds on the Internet. Subscriptions to virtual communities have soared in the past couple of years and major marketers have scrambled to feature their products in online communities such as Second Life. The site will be renamed "Disney's Club Penguin" but Disney doesn't plan to change it in any significant way. Club Penguin's founders will continue to run the site out of their headquarters in Kelowna, British Columbia, and the site will remain advertising-free. Both companies say they are conscious of the need to tread carefully in bringing Disney into the Club Penguin world. "If it doesn't enhance the experience, it won't be brought into the site," said Lane Merrifield, co-founder and chief executive of Club Penguin. Mr. Iger said it was important "to preserve the integrity of the experience," but Disney will take full advantage where introducing its content makes sense. Mr. Merrifield said the founders had decided to sell now because the company had got to a point where it needed a partner to grow. They spoke to several companies but felt Disney shared the same values. Mr. Merrifield is a former Disneyland employee and admits that "quite a few elements of Club Penguin were pulled from my experience there." Still, the virtual community and social networking world is a fickle one. Kids can trade in one favorite site for another, almost overnight. Mr. Iger said it was important to constantly reinvent the site, something Club Penguin has done successfully to date. He added that the benefit of the Disney brand is that it tends to "prolong the lifespan" of a product.
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Disney Buys Kids' Social-Network Site - WSJ.com
http://online.wsj.com/article_print/SB118599768804085026.html
Write to Merissa Marr at merissa.marr@wsj.com2 and Peter Sanders at peter.sanders@wsj.com3
URL for this article: http://online.wsj.com/article/SB118599768804085026.html Hyperlinks in this Article: (1) OpenWin('http://online.wsj.com/public/resources/documents/info-pp-070801-pirate.html','pp','740','628','off','true',20,0);return false; (2) mailto:merissa.marr@wsj.com (3) mailto:peter.sanders@wsj.com (4) http://online.wsj.com/article/SB117789256385586480.html
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