As was widely rumoured a couple of months ago, Club Penguin is being acquired, but not by Sony, who was said to be deep in takeover talks with the company when I last wrote about it. Instead, the wildly successful virtual world for kids — which was started by three guys from Kelowna, B.C. as a side project about a year and a half ago — is being bought by The House That Mickey Built.

At the time of the Sony rumours, Disney was said to be interested in buying Webkinz, another Canadian-built virtual world for kids. According to the Wall Street Journal and PaidContent, the price tag on the current deal is $350-million cash plus an “earnout” of $350-million based on future performance. That’s a pretty handsome return on a little over a year’s worth of work, and from what I have been told — by at least one VC who was kicking himself for not being able to get in on the deal — ClubPenguin.com had not taken any substantial venture capital money whatsoever. The Globe did a story on the guys who created the site last fall.

Further reading:

Staci at PaidContent has a good overview of the deal (so does the Journal) including some comments from Disney CEO Bob Iger, and points out that members of Club Penguin are pretty protective of the site (which carries no advertising of any kind). Mike Arrington says that previous talks with Sony and others got derailed in part because Club Penguin donates a chunk of its profits to charity.

If online delivery of video – including streaming and downloadable TV content – is the current version of the great Internet gold rush, then Disney/ABC has just jumped into the lead by staking a major claim. The news about its free, ad-supported streaming TV show plans, which was broken by the Wall Street Journal on its website, is a substantial move forward from a major network – exploding the TV, Jeff Jarvis calls it - and has instantly become the standard by which all the other networks will be measured. As the story describes it:

“On April 30, ABC will unveil a revamped Web site that will include a “theater” where people with broadband connections can watch free episodes of “Desperate Housewives,” “Lost” and other hit shows… Episodes will be available the morning after they air and will be archived so people can eventually view a whole season. A Disney Channel version with five shows will start in June, and an ABC Family version is also planned. Disney’s Soapnet cable channel will start offering programs free on its Web site on April 17.”

Notice that it’s not downloadable episodes, but streaming content that you have to watch in the online “theatre” on Disney/ABC’s website (later in the article, someone from the network says that they are contemplating offering downloads at some point, for $1.99 without ads, or 99 cents with ads). Still, VC Fred “Microchunk your media” Wilson says it is “big, big, big.” It’s interesting to see, however, that Umair “Edge Strategies” Haque at Bubblegeneration disagrees, and thinks that Disney/ABC has done it exactly wrong.

The main reason ABC wants to keep you on the website is because the TV episodes have been specially formatted with three minute-long ads each, all from a single advertiser such as Ford or Proctor and Gamble. And while you can fast-forward the content, you can’t fast-forward through the ads. The story says:

“The ads won’t look like typical TV commercials. For starters, instead of five commercial breaks during an hourlong episode, there will be three breaks lasting a minimum of one minute each — all of them from the same advertiser…. viewers will have a choice of what type of ad to watch — for instance, a traditional video commercial or an interactive “game” commercial.”

That’s a smart move, and obviously crucial to the success of this effort – which at the moment is a two-month trial – with advertisers. But lots of questions remain, not the least of which is how many people will watch these streaming shows, as Jeff Pulver notes. And how will ABC’s local affiliates react? They make a lot of money by being the exclusive providers of those hit shows in their regional markets. The WSJ story also mentions that retailers such as Wal-Mart make a fair bit of coin selling DVD versions of those episodes – how are they going to react? Those with TiVos and PVRs will also likely be unimpressed, says Dwight Silverman.

Fun times in the TV business. And all part of the upheaval that we’re planning to take a look at as part of the “Future of broadcasting” stream in our mesh conference in Toronto May 15th and 16th – tell all your friends :-)

Update:

Staci at PaidContent grabbed a few minutes to chat with Anne Sweeney of Disney/ABC about the deal.

When it comes to Steve Jobs, most investors and even non-market watchers probably think of a single word: Apple. After all, Apple is the company that Mr. Jobs co-founded in the 1970s, when he was just a cocky twenty-something (as opposed to a cocky fifty-something). It’s also the one he has been chief executive of twice — once during its early years of success, and then more recently as the architect of Apple’s stunning metamorphosis from computer industry also-ran into personal-electronics titan. And of course, whenever Apple introduces new products to its worshipful fans, the guy at centre stage in jeans and black turtleneck is Steven Paul Jobs.

Apple’s turnaround has been an incredible success story — right up there with the rise of Google — and it has had a similar effect on the company’s share price, which has gone from a little more than $10 (U.S.) a share two years ago to a recent close of almost $80 a share. That gives the company a market value of more than $65-billion, which — as Mr. Jobs noted recently in an internal e-mail to employees — puts the company ahead of Dell, whose CEO once said Apple should close its doors and give all the money to shareholders.

Obviously, having the company you run increase in value by 700 per cent in two years has to make you feel pretty good — and Mr. Jobs has also seen his bet on Apple’s future pay off financially. Although he has taken a salary of $1 and no bonus for the past three years, he exchanged some worthless stock options for shares in the company in 2003, and those shares are now worth upwards of $800-million. Not a bad return.

Even compared with his success at Apple, however, the story of Mr. Jobs and Pixar, the digital animation company that created such movies as Toy Story and A Bug’s Life, is an eye-opener — as Paul Kedrosky points out in his own succinct way. The company Jobs bought from film-maker George Lucas for just $10-million two decades ago — the one that media conglomerate Disney has just announced it is acquiring — is worth roughly $7.5-billion, and Mr. Jobs owns 51 per cent.

He may not be as closely associated with it as he is with Apple, and Pixar may not have splashy events like Macworld where Steve shows up in jeans and a turtleneck, but he is clearly in the driver’s seat at the animation company (ironically, he is also far better compensated at Pixar, even if you exclude the value of his stock: his salary at Pixar in 2004 was $52). And he will soon be pulling a considerable amount of weight at Disney too. How will that work out, and how will it affect Apple? Interesting times are definitely ahead.

Note:

Please read the rest of this column at the Globe & Mail website.