Club Penguin has failed to hit profit milestones set by the Walt Disney Company when it purchased the youth virtual world 2007, according to the New York Times. Club Penguin's failure to meet these targets will affect $350 million planned payouts to the virtual world's founders. This effectively slashes the price tag Disney paid for the virtual world in half.
When Disney paid $700 million for Club Penguin two years ago, only half of the money was paid up front. The rest was to be paid to the Club Penguin founders in two payments based on the virtual world's future performance. According to an SEC filing by the Walt Disney Company, Club Penguin failed to meet the first target. Disney confirmed to the NYT that Club Penguin had missed the second one, as well.
It is not known by how much Club Penguin missed its growth and profit targets. The virtual world's traffic is was down 10% year-over-year to 6 million monthly active users in April, according to comScore. Disney contests those numbers and claims, based on internal numbers, that Club Penguin's MAU was actually up 20% year-over-year.
That said, Club Penguin isn't an ad-supported site, so sheer traffic numbers aren't the metric Disney is likely looking at for measuring growth. The figure that is likely to be most important to Disney is the total number of paying monthly subscribers. Co-founder and current Disney employee Lane Merrifield claims this number has "grown quickly," but apparently not quick enough.
Club Penguin had about 700,000 subscribing users when it was purchased in 2007. In Disney's last quarterly financial report, the company credited increased subscription revenue from Club Penguin with reducing losses from the Disney Interactive division that's responsible for the company's game and virtual world strategy.
Merrifield attributes Club Penguin's under-performance to rapid expansion overseas. Since being bought out by Disney, Club Penguin's been localized into three new languages and become available in over 190 countries worldwide. Localization into two more languages is on the way. Despite the numbers not hitting milestones, Disney has successfully rolled out waves of Club Penguin merchandise and video games.
Analysts quoted in the NYT report attribute Club Penguin's underperformance to the global economic downturn, which negatively affected performance of virtually all children's virtual worlds. Traffic to Webkinz.com was down 50% year-over-year in April to 3.8 million MAU while Neopets was down 39% to $1.5 million.
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