There's Gold In Them Thar Penguins -- Part II

Back in May, I first brought this up. 

Well, now we can answer the question, "How much gold?"  It turns out, somewhere between $250 and $500 for every single current paying user.   As in, about 3-6 years worth of revenue from each of them. 

That is to say, between $350,000,000 and $700,000,000. 

Various news outlets announced today that Disney has bought Club Penguin for $350M in cash, with the rest of the deal being worth up to another $350M over the next two years.  For those doing the math exercises at home, the company has three founders who reportedly own all the equity.  They will become part of Disney.  Disney has said it has no plans to change Club Penguin at all, other than to add the Disney name to it.

But other than really good times in British Columbia, what does this mean?

I asked a similar question back in May when the rumors of Club Penguin being acquired for $200M-$450M first surfaced.  I think we all agree now that browser-based MMOs are not a fluke, not a negligible also-ran trying in vain to compete with their big 3D brothers (yes, there's WoW, but there's also LOTRO, DDO, and on down the line to Matrix Online and Auto Assault).

Does this potentially signal the start of serious M&A activity in MMO-land, or possibly people finally getting the idea that 2D is not necessarily less than 3D except in visual dimensions?   

If you were betting on a new MMO, would you bet on a scrappy, quickly deployed no-download, no-choking-on-retail, low-cost world, or one that sucks up $50M and five years on a roulette-like bet?  Maybe those are the extremes, but I have to think that the bar for what might be considered to be viable worlds has just been lowered, and in a very good way.

Comments

[greglas]

1.

/agree -- this is a good thing for more variety in MMO startups.

Kudos to Club P for holding out for the right buyer. (Presumably they negotiated the charity provision effectively with Disney.)

However, I really doubt it will take long before you see Disney IP poking up around the island. As I understand it from the WSJ article, they're not making major changes to the structure, but they fully intend to add the Disney touch. I give it no more than 6 months before all penguins get free Mickey Mouse ears.

[Gabriel]

2.

$350 million is a pretty tidy sum, but it's money that could be spent better elsewhere. This is not about 2D or 3D. Dimensions are irrelevant.

Club Penguin is lacking two things that are essential to a meaningful virtual world experience. There is very little in the way of user-generated content, and there is no overarching story or narrative to capture the hearts of players.

Imagine a massively multiplayer game with no limits on user-generated content and a massive storyline in which each characters actions effect the world for the other players... Now that would be worth $350 million. At least.

To answer your question, Michael, I would invest my money in the scrappy startup any day of the week. It's a no-brainer.

[Marty]

3.

Greglas,

I do not think you will see a tone of Disney IP around Club Penguin right away. If anything I think you will see a lot of marketing of Club Penguin in other vertices's as is mentioned here.

That said it would be silly to not expand and evolve the franchise.

-Marty

[Marty]

4.

Gabriel,

Having done some of this sort of work for Disney I can tell you that user generated content has a lot of pitfalls and ends up being very expensive for this demographic. Even disregarding pornography and predators, COPPA requires that all content be scrubbed of any personal information.

As for which to invest in, I have to agree, go for the scrappy startup.

-Marty

[Darniaq]

5.

Gabriel wrote: Club Penguin is lacking two things that are essential to a meaningful virtual world experience. There is very little in the way of user-generated content, and there is no overarching story or narrative to capture the hearts of players.

Club Penguin is only one of a big slew of Flash/browser-based MMOs coming fast, cheap, and with major IP behind them. And they all lack the two characteristics you list.

In this age, kids do not pile all their online hopes into a single experience. We're a long way from people wanting to paint in UO :) Nowadays, players have fun in individual environments but collaberate laterally with other tools. This is beyond using AOL IM in UO. This is gaining money in CP, posting pictures of your house on Flickr, showing videos of your friends on YouTube, twittering about it, all of that. Kids are getting their usergen needs fulfilled by a raft of opportunities. Club Penguin fulfills their desire for social gaming.

It's about the adjacencies in my opinion. What else is the target market of your game doing and how can you leverage that.

[Mike Sellers]

6.

Good meaty Web 2.0 + MMO thoughts there, Darniaq.

[Dr. Cat]

7.

Scrappy startup projects have always been viable in gaming, from the 70s to the present. Big budget successes simply distract our industry (and potential investors) from that reality. But it's always been there, as long as I've been making games. (Twenty-five years now.)

If you look at non-computer games, it's been that way even longer. I've got a great hardback book in my downstairs bathroom that covers the creators and early history of many of the tops toys and games of the 20th century. When the schoolteacher that invented Candyland started getting royalty checks, she initially spent all the money on buying more school supplies for all the schools in her district. Bless her heart. And the first prototype Nerf ball, hand-cut out of a block of foam with scissors, is taken out of its mahogany box every December by the family of the inventor, so it can adorn the family Christmas tree.

It's all about figuring out what parts of an experience would be the most desirable to players of your game, and focusing your limited resources on making those parts first. While tens of millions of dollars worth of gorgeous visuals is clearly one thing that audiences want sufficiently for it to be potentially profitable (see "the movie industry" for proof of this), it's not the ONLY thing that can be profitable. Ask any best selling novelist, or the authors of games like Tetris.

[greglas]

8.

/agree (except for the bit about Alexey Pazhitnov -- didn't seem like he got any great reward. (At least not a *financial* reward in the short term.)

[Gene Endrody]

9.

"Club Penguin is lacking two things that are essential to a meaningful virtual world experience. There is very little in the way of user-generated content, and there is no overarching story or narrative to capture the hearts of players."

Essential? Somehow it attracts 5 million monthly unique players and is able to pull in over $30 million in profit every year. The success speaks for itself. Runescape, WOW and Club Penguin all lack UGC, but succeed anyway, despite not being the MMOs that we like to have intellectual conversations about. Profit is not the only way to judge a VW, however it's a good indicator of future trends. It may not indicate a future that makes for as much interesting speculation, however nothing is "essential" for VWs - despite being the popular conversation topic of the moment.