The Walt Disney Company (NYSE:DIS) has been strengthening its 300-employee Disney Online Studios Canada division in Kelowna, which operates children's virtual reality game Club Penguin. The game has 175 million users but the division had appeared to be struggling.
Club Penguin was founded in Kelowna in 2005 by Lance Priebe, David Krysko and Lane Merrifield, who is still with the company. Disney paid $350 million in 2007 to buy the avatar-based, alternative reality game from the founders and angel investors.
The entertainment behemoth agreed to pay an additional $350 million for Club Penguin if the site met profit targets by 2010. The division failed to meet those targets, however, saving Disney $350 million. The site lost 200 of its 500 employees.
Disney generates revenue from the Club Penguin game when users buy subscriptions, which start at $5 per month. Both subscribers and non-subscribers are able to earn coins by playing the game. They then spend those coins to dress and accessorize their avatar penguins. Subscribers have a larger catalogue of potential products to buy.
Club Penguin also holds virtual-reality parties at which Disney can leverage its other brands – for example, by having a Marvel superhero theme. Club Penguin subscribers who were at the Marvel party were able, on a short-term basis, to buy a costume of a Marvel Entertainment superhero such as Captain America or the Avengers. Disney bought Marvel Entertainment for US$4.24 billion in 2009.
"Over the past two months we've thrown the largest [virtual reality] parties ever," Brian Nelson, Disney Interactive director of communications, told Business in Vancouver.
"Kids love the parties. It's a huge driver of ongoing interest. It keeps the experience fresh and new. The reason to have the parties is not [just] to sell costumes for a limited time."
Another Club Penguin party is called the Ultimate Jam and is an annual music event. That party enabled Disney to release a Club Penguin song by DJ Cadence, which is on top of the iTunes chart for children's music.
Disney has been racking up record earnings per share. However, its interactive media division was its only operating segment to lose money last year. That division's US$308 million loss in the year ended October 1, 2011, was 32% more than its US$234 million loss in the previous year.
That segment includes video games as well as Club Penguin.
