Walt Disney Co. is no stranger to fantasy worlds, transporting audiences -- whether to a cottage in the woods with a young princess in "Snow White and the Seven Dwarfs" or to the Great Barrier Reef aboard the Finding Nemo Submarine Voyage ride at Disneyland.
Now, Disney is spinning its tales in the newest mass medium -- online virtual worlds, where children adopt cartoonish avatars and play games.
Disney and other entertainment companies are rushing to capitalize on the latest Internet phenomenon: the rise of virtual worlds for kids. Online haunts for grown-ups, such as Second Life, grab the attention of corporate marketers. But digital playgrounds for the juice-box set -- such as Disney's Club Penguin and Ganz Inc.'s Webkinz -- are drawing bigger crowds.
As many as 20 million children and teens will visit virtual worlds by 2011, up from 8.2 million in 2007, according to research firm EMarketer Inc.
"You're seeing a more than doubling in projected growth, between 2007 and 2011, in the number of kids and teens visiting these worlds," EMarketer analyst Debra Aho Williamson said. "That's why you're seeing Disney making so many investments. . . . All the major media companies are making virtual worlds a big focus of their activities going forward."
Some parents and advocates worry about the commercial aspects of these sites, which either charge a monthly subscription fee, serve up advertising or both. Several sites, including "Pirates of the Caribbean Online," offer a basic game for free but require payment for more advanced play.
"It's sweet-tasting candy that kids are going to want to have," said Warren Buckleitner, editor of the Children's Technology Review. "Give a free sample. Once you get started, it's hard to stop."
Online games that invite multiple players into virtual worlds have been around for more than a decade. What's new is the increasingly younger audience. Disney's Toontown Online was among the first to target tots, but since then, Mattel Inc.'s BarbieGirls.com, Nickelodeon's Nicktropolis and others have popped up, attracting children as young as 3.
Disney plans to spend $5 million to $10 million apiece to develop as many as 10 virtual worlds built around familiar Disney characters and franchises.
"We're creating virtual theme parks, but much more accessible," said Steve Wadsworth, president of Walt Disney Internet Group. "You don't have to get in a car or a plane."
Worlds of revenue
Disney's acquisition of Club Penguin in August for as much as $700 million accelerated the online strategy. Club Penguin attracted nearly 7.9 million visitors in December, according to ComScore Media Metrix, ranking it second in popularity among children's virtual world sites only to Webkinz.
And unlike social networks for grown-ups, such as Facebook.com, Club Penguin has no trouble finding a business model. For a monthly fee of $5.95, kids can waddle to their hearts delight in the snowy world, play games and earn coins that enable them to buy clothes or furnishings for their igloo. At the time of the acquisition, Disney said Club Penguin had about 700,000 subscribers. That would represent about $50 million in annual revenue.
It is just this kind of lucrative subscription-based revenue stream that is luring investors and developers, said analyst Billy Pidgeon of technology research firm IDC. But what they often underestimate are the costs of keeping these virtual worlds running smoothly. "World of Warcraft," for example, requires more than 1,700 full-time customer service employees to maintain the site.
"People just have unrealistically high expectations for these models and don't consider the expenses of maintaining these games," Pidgeon said.
Paul Yanover, executive vice president of Walt Disney Internet Group, acknowledged that "virtual worlds are more elaborate than running a traditional website." But Disney, he said, because of five years of experience from Disney Toontown Online, also understands "the costs of operation and maintenance" and is assured there are "really healthy businesses in online entertainment for kids and families."
Kids at least appear to have a healthy appetite to play online. Eight-year-old Madison Magursky of Irvine said she plays Club Penguin for 10 minutes every day after school, once she's done her homework. She even asked her mother to subscribe for her.
"I told her I wanted to be a member, because you get to buy fantastic gifts and decorations for your house and stuff," Madison said. "And you can do certain things . . . that other people who aren't a member can't."
"But she said 'no.' "
Setting a hook
Disney is counting on parents being more pliant than Madison's mom.
In October, it launched "Pirates of the Caribbean Online," a game that lets players live out their swashbuckling fantasies. Players take on the identity of a pirate and interact with characters from the film, including Jack Sparrow and Davy Jones.