Analysis Of Children's Virtual Worlds

From TBI Vision:

Kids Virtual Worlds

Virtual worlds have been around in the kids industry for a few years now. Andy Fry investigates which are the most popular sites and how television producers and distributors are working with the likes of Moshi Monsters and Club Penguin to expand their brands.

There’s no standard definition or description for kids virtual worlds. But most of the major brands in the market are based around a mix of social interaction and casual game-play.

The classic example is Club Penguin, launched by Canadian entrepreneur Lane Merrifield and acquired by Disney in 2007.

In this case, children sign up as registered users and take on the form of penguin avatars. They then go to a fantasy world called Penguin Island where they can play games, customise their characters and talk to other kids disguised as penguins. Chat is moderated to ensure there is no kind of anti-social behaviour.

Registered users of Club Penguin, typically aged 6-12 with a slight skew towards girls, can get a basic entertainment experience for free. But if they want the complete experience they have to pay a subscription fee of $6-8 per month.

The difference says Club Penguin spokesperson Nicola Miller, is that members can customise their world much more comprehensively: “They can use virtual coins they earn by playing games to change their penguin’s look or decorate their igloos more than non-members. There are also special events that only members are entitled to go to. An example is the Halloween Party, when the look of the site changes totally.”

Club Penguin’s headline stats suggest that the site has 175 million registered users in 190 countries, up from around 12 million at the time of the purchase. This is good growth, but more important is the number who choose to pay. Disney is coy, but analysts estimate it is around 5-10% of users.

This is about the same as when Disney bought the site and there is evidence that the company was hoping to increase the conversion rate by now. Back in 2007, Disney agreed to pay US$700 million for Club Penguin if it hit certain profit targets by 2010. But it failed to do so, meaning the deal value dropped to US$350 million, a saving for Disney, but an indicator of how hard it is to get punters to cough up cash.

Disney has responded by trying to leverage the other assets within the parent group. Marvel Super Hero Takeover, for example, was a special event which allowed Club Penguin players to dress as their favourite Marvel Super Heroes or Super Villains and the event was the most trafficked in Club Penguin’s history, logging 20 million play sessions across 200 countries. Players spent over one billion virtual coins on Marvel gear.

When Disney bought Club Penguin, it triggered a rush of virtual world launches, with an estimated 200 up and running by 2009. But within two years, the difficulty of converting kids and parents into purchasers, combined with the cost of moderation and refreshing content, led to numerous closures and mergers.

One site that survived and is thriving is Mind Candy’s Moshi Monsters, which launched in 2007 and now has 65 million registered users in 150 countries. Like Club Penguin, Moshi makes money from subscribers, most of who are in a similar age bracket to its Disney rival. Like Disney, it doesn’t reveal what proportion of the user base pays, but Mind Candy founder and CEO Michael Acton Smith says the company is “very profitable”. Last year, analysts tagged the value of the company at US$200 million, since when it has grown considerably.

While Club Penguin sees kids become Penguins, Moshi involves kids (65% girls) choosing monster pets then nurturing them, customising them and personalising their world. As with Club Penguin, there’s interaction and games, the latter providing the currency for kids to pay for personalisation. Acton Smith calls it as “a cross between Tamagotchi and Facebook for kids”.

Of the two, Mind Candy has pushed more aggressively into merchandising, with around 100 Moshi licences ranging from plush toys to birthday cakes available via major retailers. This activity, which also includes a best-selling monthly magazine, is estimated to be worth around US$100 million at retail.

One reason that Moshi seems to have done better than others in L&M is that it has created a stronger set of star characters. While Club Penguin also has a central cast of returning characters, the fact that Moshi activity revolves around six main monsters, and a supporting cast known as The Moshlings, has created the centre of gravity to build a consumer products programme.

It has also acted as the foundation for expansion into other platforms. Last year saw the launch of Moshi TV, an online channel designed to be the home of short animations based on the Moshi Monsters world (see box). There are also IOS platform games.

In a similar camp to Club Penguin and Moshi Monsters is Habbo, launched by Finland’s Sulake Corporation in 2000. It has about 230 million registered users across 11 language sites in 150 countries.

Habbo CEO Paul LaFontaine says Habbo differs from the other sites in a number of ways, starting with the fact that it is targeted at an older age-group: “We mainly cater for 13-16 year-olds who want socialise in a safe space. Because of the age group, our emphasis is more towards social interaction than gaming,” he says.

With its older age group, Habbo is also able to run a different business model. Instead of subscription, “95% of our income is from the sale of virtual items which users buy to customise their avatar or their rooms,” LaFontaine says. “The remainder mainly comes from areas like in-game advertising. We’ve worked with brands that will create virtual versions of their products for the site.”

It has been a challenging year for Habbo, which was the subject of scrutiny by Channel 4 News in the UK over significant lapses in moderation. As a result, the site closed down its chat functionality while it tightened up its security procedures. Now, though, chat is back and there are signs that the site has ridden out the storm. These include the launch of a Turkish version and “explosive growth in Latin America,” says LaFontaine.

But it isn’t easy, he continues. “It takes a unique set of skills to manage such an open ended proposition,” he explains. “Running Habbo is like governing a virtual online nation.”

Arguably, Habbo is dealing with the toughest of all age-groups, since it is dealing with kids that are looking to challenge parental authority and test the outer edges of legally-permitted behaviour. At the same time, it is beginning to crossover with more mainstream social media. In developed markets most kids are already on Facebook and Xbox by this age, giving them alternative means of peer interaction.

Nevertheless, LaFontaine is optimistic about the future for the model, saying that Habbo’s focus on ID anonymity for teens makes it unique among virtual worlds in the West.

Asia has also seen a virtual world boom in the last decade. One of the leading players is China’s Taomee Holdings, which has 43 million kids playing in its virtual worlds, according to chief financial officer Paul Keung. “Our most popular worlds are Mole’s World and Seer. The first is based around moles, the second is about robots exploring distant galaxies.”

According to Keung, kids don't have to spend anything to play games but around 9% pay a small monthly subscription. Unlike Western sites, Taomee's are closely monitored in terms of playing time. “Sites switch off at midnight. There are also limits on how long kids can play for.”

Significantly, Taomee's sites have spawned spin-offs, with Mole's World and Seer both being turned into books, movies, magazines, events, mobile Apps and two seasons of animation. There has also been expansion into Taiwan. Deals for Korea, Japan and Southeast Asia are also in place: “We've been genuinely surprised by the success of the sites,” says Keung.

Players outside the core demo of 7-12 are getting involved. “We really think the world of Seer is something that people might play their whole lives. There’s great spin-off potential because it is about so many galaxies,” Keung adds.

The sites mentioned above were all independent start-ups with no previous brand history. But the fact that Disney acquired Club Penguin shows that the big studios are keen to be involved in this space. The strategic question for these big IP-owning companies, however, is whether to launch brand new concepts or utilise their existing content assets.

Back at Disney, for example, Miller points to Superbia as an alternative way of approaching the space: “With Superbia, you can create and personalise an avatar, but it isn’t based around interaction with other kids. Instead, it’s about connecting with Disney shows like ANT Farm, Wizards of Waverly Place and Hannah Montana. Kids can play games decorate their rooms in the style of characters and find out information about shows.”

Turner Broadcasting’s Cartoon Network, meanwhile, has FusionFall, a concept that allows users to take on the form of an avatar and then play a sci-fi-style adventure game alongside popular Cartoon Network characters like Dexter and Ben 10.

Viacom-owned Nickelodeon has tried all kinds of variants over the last decade. In 2000 [2005], it acquired Neopets for US$160 million. Now available in ten language versions, the site allows kids to own virtual pets and buy them items with virtual money. This money can be earned by playing games or it can be bought with real-world currency. Much more recently (2011), the company launched Monkey Quest, a virtual world set in the land of Ook. Using the familiar formula, users can play a basic set of games for free or pay a subscription which will allow them to interact with other users and go on quests.

The rollout of Monkey Quest has been spearheaded by Nickelodeon senior VP Kyra Reppen who, at launch, said that the site was intended to offer younger audiences the kind of sophisticated gameplay and collaborative approach usually found in adult virtual worlds such as World of Warcraft.

At the same time, the goal was to provide more of a console-style gaming experience, reflecting the growing influence of platforms like XBox and Playstation.

It’s still early days for Monkey Quest, but by utilising its other channels for promotional purposes the company has managed to attract more then 10 million registered users. It has also started building the brand out across other channels, with a mobile app called Monkey Quest: Thunderbow. There are also rumours that sister company Paramount Pictures is making a Monkey Quest movie, though speculation about a TV spin-off has so far attracted a negative response from Reppen.

Strictly speaking, you could argue that the absence of peer-to-peer social interaction disqualifies sites like Superbia and FusionFall from being “virtual worlds”. But there’s no question that the combination of avatar customisation plus game-play (without moderated social interaction) is an important area.

One reason for this, says Kindle Entertainment’s Anne Brogan, is that sites based around established TV or film characters have a different narrative dynamic. “We are working with Plug-In Media on a 3D online game for our children’s animated series Leonardo (based on the life of Da Vinci). In this environment, the goal is to upgrade Leonardo’s vehicle designs in order to finish games faster. This focus on the relationship with Leonardo is different from a site where the emphasis is more on the narrative that is developed between the children.”

There’s also a commercial angle, adds Zinkia’s MD of brands and business Maria Doolan: “We launched a virtual world for our preschool title Pocoyo when the market was buoyant. It has been a great brand-building platform for us but they are expensive and time-consuming to run. In the current climate, I can’t see companies outside the big studios going this route, particularly now there are established brands.”

It’s not just the fact that virtual worlds are expensive to run, adds Doolan, but there’s also the fact that content owners now have the option of going down the mobile app route instead.

While there’s also a cost consideration with apps, properties like Capcom’s Smurf Village have generated huge revenues from virtual product sales without needing to go social. Other big brands are moving this way too. Interactive entertainment company Ludia and Universal Partnerships & Licensing have just launched the Jurassic Park Builder game app for iPhone, iPad and iPod touch. Based on the film franchise, players build their own Jurassic Park from the ground up, covering everything from building roads to breeding species. In addition to the basic mechanic, there’s multi-player gameplay and built-in social features, the ability to visit, help and gift friends.

As this market expands, properties associated with the internet like Zynga’s Farmville have struggled to keep up their momentum. According to research firm AppData, the number of people who play FarmVille each month peaked in January with 34 million people. At last count it was down to 18 million although it hopes to reverse that trend with Farmville 2.

High-profile casualties that show how tough the online virtual world market has become include Lego Universe, which was shut down earlier this year. Explaining its rationale, Lego says: “We didn’t do this lightly – it was a big decision and one we simply had to take eventually as after one year the game has nowhere near as many subscribers as we needed to be able to keep it running. We thought about (keeping the game running without adding new stuff), but pretty soon (users) would have been bored playing in the same areas again and again.”

Saban Brands president Elie Dekel has one of the great kids brands in the shape of Power Rangers, but he too believes the classic virtual world play is now a tough one. “Kids want to dive deeper into brands they love, but a virtual world is not always the right approach. They’re content hungry operations that involve a lot of time and effort to build and sustain.”

Dekel says the Power Rangers brand over-indexes in digital and has enough content assets to work well in that space. But instead of a virtual world, Saban’s approach has been to partner with Nick, the broadcaster of its series. “Kids who want more of Power Rangers go into the Nick Clubhouse where there are dedicated portals, which provide interactive content based around the network’s leading shows. I think the message in the market right now is that you don’t need a virtual world infrastructure to build out a brand, established or otherwise. You can do it as efficiently but more cheaply in other ways.”