Firms turn to children's websites

Ashling Cannon, 7, shows a computer screen displaying the Webkinz website and her Webkinz toys in Washington. (NICHOLAS KAMM/AFP/GETTY IMAGES)

LOS ANGELES - Forget Second Life. The real virtual world gold rush centers on the grammar-school set.

Trying to duplicate the success of blockbuster websites like Club Penguin and Webkinz, children's entertainment companies are greatly accelerating efforts to build virtual worlds for children.

Media conglomerates in particular think these sites, part online role-playing game and part social scene, can deliver quick growth, help keep movie franchises alive, and instill brand loyalty in a generation of new customers.

Second Life and other virtual worlds for grown-ups have enjoyed intense media attention in the last year, but have fallen far short of expectations. The children's versions are proving much more popular, to the dismay of some parents and child advocacy groups. Now the likes of the Walt Disney Co., which owns Club Penguin, are working at warp speed to pump out sister sites.

"Get ready for total inundation," said Debra Aho Williamson, an analyst at research firm eMarketer who estimates that 20 million children will be members of a virtual world by 2011, up from 8.2 million today.

Worlds like Webkinz, where children care for stuffed animals that come to life, have become some of the Web's fastest-growing businesses. More than 6 million unique visitors logged on to Webkinz in November, up 342 percent from November 2006, according to comScore Media Metrix, a research firm.

Club Penguin, where members pay $5.95 a month to dress and groom penguin characters and play games with them, attracts seven times more traffic than Second Life. In one sign of the times, Electric Sheep, a software developer that helps companies market their brands in virtual worlds like Second Life and There.com, laid off 22 people last week, about a third of its staff.

By contrast, Disney introduced a Pirates of the Caribbean world last month, aimed at children 10 and older, and it has worlds on the way for Cars and Tinker Bell, among others. Nickelodeon, already home to Neopets, is spending $100 million to develop a string of worlds. Coming soon from Warner Bros. Entertainment, part of Time Warner: a cluster of worlds based on its Looney Tunes, Hanna-Barbera, and D.C. comics properties.

Add to the mix similar offerings from toy manufacturers like Lego and Mattel. Upstart technology companies, particularly from overseas, are also elbowing for market share. Mind Candy, a British company that last month introduced a world called Moshi Monsters, and Stardoll, a site from Sweden, sign up thousands of members in the United States each day.

"There is a massive opportunity here," Steve Wadsworth, president of the Walt Disney Internet Group, said in an interview last week.

Behind the virtual world gravy train are fraying traditional business models. As growth engines like television syndication and movie DVD sales sputter or plateau and as the Internet disrupts entertainment distribution in general, Disney, Warner Bros., and Viacom see online games and social networking as a way to keep profits growing.

But more is at stake than cultivating new revenue streams. For nearly 50 years, since the start of Saturday morning cartoons, the television set has served as the front door to the children's entertainment business. A child encounters Mickey Mouse on the Disney Channel or Buzz Lightyear on a DVD and before long seeks out related merchandise and yearns to visit Walt Disney World.

Now the proliferation of broadband Internet access is forcing players to rethink the ways they reach young people. "Kids are starting to go to the Internet first," Wadsworth said.

Disney's biggest online world is Club Penguin, which it bought in August from three Canadians in a deal worth $700 million. At the time, more than 700,000 members paid fees of $5.95 a month, delivering annual revenue of almost $50 million.

Still, one world, even a very successful one, does not alter the financial landscape at a $35.5 billion company like Disney. So Disney is pursuing a portfolio approach, investing $5 million to $10 million per world to develop a string of as many as 10 virtual properties, people familiar with Disney's plans said.

Tinker Bell's world, called Pixie Hollow, illustrates the company's game plan. Disney is developing the site internally and will introduce it this coming summer to help build buzz for "Tinker Bell," a big-budget feature film set for a fall 2008 release.

If virtual worlds for adults are about escaping from run-of-the-mill lives, sites for children tap into the desire to escape from the confines of reality as run by Mom and Dad. "I get to decide everything on Club Penguin," said Nathaniel Wartzman, 9, of Los Angeles, who also has a membership to a world called RuneScape.

But shopping is a powerful draw, too. Most sites let children accumulate virtual points or spend their allowance money to buy digital loot. "It's really fun to buy whatever you want inside the game," Nathaniel said in a telephone interview. For his penguin, "like for Christmas I bought a fireplace, a flat-screen TV, and a Christmas tree."