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Disney Buys Ad-Free Club Penguin for $350 Million

Kid-Focused Virtual World Key to Video Games, Media Networks

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NEW YORK (AdAge.com) -- Move over, Donald, there's a new favorite bird at Disney. Walt Disney has snapped up the snow-covered virtual world/social-networking portal Club Penguin for $350 million -- and promises to pay another $350 million through 2009, depending on the growth of Club Penguin's earnings. The acquisition will be part of Disney Internet Group.
Club Penguin is an online portal whose young members assume the identities of penguin avatars living in a frozen penguin world where they can even furnish virtual igloos.
Club Penguin is an online portal whose young members assume the identities of penguin avatars living in a frozen penguin world where they can even furnish virtual igloos.

New name
Geared toward children aged 6 to 14, the site lets users adopt penguin avatars, talk to each other, play games and furnish virtual igloos. Although the URL will remain the same, the company will be renamed Disney Club Penguin and will be expanded internationally, Disney execs said on the earnings call just minutes after announcing the acquisition. The company will also use Disney Channel, Radio Disney and Disney.com to help promote the site.

The company said the price was based on the economics of growing the site's subscribers domestically and expanding outside the U.S., but "we'll see opportunities to exploit Club Penguin on other properties," said Disney CEO Bob Iger, citing video games, consumer products, possible presences in theme parks and opportunities on media networks.

"Our vision has been to create online destination where kids around the world can interact with each other and play games alongside their favorite Disney characters," he said. Disney already has ventured into the virtual world with Disney Fairies, where children can create fairy avatars. Disney Fairies will relaunch in 2008 as a more robust virtual world based around the Tinker Bell character. Later this year, Disney will release Pirates of the Caribbean Online, a project that has been in development for several years.

Dominating the under-12 set
Disney's acquisition of Club Penguin should help the company aggregate its dominance of the under-12 set online. But the tween-focused Disney brands have bought space on other popular virtual sites. Cartoon Doll Emporium, a year-old site targeting girls 6 to 16, has partnered with Disney's "Hannah Montana" and "High School Musical," with tie-ins to each show's respective musical extensions as well. The site averaged 4 million unique visitors last month.

Club Penguin earns revenue through paid subscriptions. It has 12 million activated users with access to a more limited version of the world and 700,000 paid members who have access to the full world and can increase their status. Earlier acquisition rumors reported by TechCrunch said Sony was looking at Club Penguin for a $500 million-plus price tag. Disney said the margins at Club Penguin are "significant."

So far Club Penguin has shunned advertising -- its three co-founders call that a safety decision and have said they're tired of marketing aimed at young children. (Cue irony here.)

Club Penguin competitors include Webkinz, Stardoll, Gaia, Habbo Hotel and Viacom-owned Neopets.
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