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From left, Dave Krysko, Lane Merrifield, Lance Priebe and the virtual bird that has made them rich beyond their dreams.
From left, Dave Krysko, Lane Merrifield, Lance Priebe and the virtual bird that has made them rich beyond their dreams.

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The $350-million penguin Add to ...

But some outsiders wondered what life under Disney would really mean for Club Penguin. Despite Disney executives' assurances that the virtual world would remain ad-free, business writer Carleen Hawn posted a piece on GigaOm.com provocatively titled "Did Club Penguin sell up or sell out?"

Two p.m. outside the Landmark IV office building in Kelowna looks a lot like 2 a.m. outside the city's many nightclubs. A flood of 20-somethings - dressed mostly in black and chatting among themselves with the effervescence of the first-time employed - ebbs homeward at the end of their shift. Replacement personnel are already at their workstations - and they in turn will be met at 10 p.m. by another tide of 20-somethings, ensuring that the fun on Club Penguin remains safe and clean 24/7.

The company moved to this location in January, 2008, and its staff - which has more than doubled since the change of ownership, to about 300 - occupies three of the building's six floors. Customer service represents the single biggest contingent in the work force, with two-thirds of employees dedicated to policing the site and answering the 7,500 e-mails it typically receives in a day.

After the deal with Disney, Merrifield says he and his partners were impatient "to move on to chapter 2," beginning with setting up services for overseas users, and they've made this a priority. Club Penguin now has satellite support offices in England, Australia, Brazil and Argentina, as well as Portuguese-, Spanish- and French-language versions. They're also developing a translation application that will allow children chatting through preset menus to see the responses of other users in their own language.

Satellite offices, plush toys, trading cards, video games, maybe even a movie: None of this would be conceivable for the toddler-aged start-up if it hadn't become part of "the Disney family," as both parties cozily put it. Still, both parties also concur that Disney has been careful to not interfere with the Club Penguin product or its operations.

"Some people ask us, 'Hey, will we see Mickey Mouse in the dojo doing card-jitsu?' " says Yanover, citing some of Club Penguin's most recognizable games and features. "And the answer is: 'I doubt it, because he's not a penguin and he's not a little kid who's playing a penguin.' "Integration is around back-office-type things that are very important, like integrating customer care. But integration is not going to be done to the extent that we would blur the integrity or the story conceit of what makes products work."

Still, the true meaning in any story comes from the confrontation of challenges, and the second chapter of Club Penguin is still being written. "User churn" - in which more users start dipping out of a site than are dipping in - is a chronic problem for online sites, and Nielsen Online data has already registered occasional drops in monthly use (May, 2008, numbers were down 7 per cent, for instance, compared with April figures). Merrifield insists, however, that user churn doesn't pose the threat to Club Penguin that it does to many virtual worlds. "Yes, we have kids who grow up and grow out of it, and that's fine. Thankfully, we're privileged and fortunate to have kids who are wanting to get into it or exploring it for the first time."

The downward trend in users, for now, appears to have been successfully reversed: Nielsen Online data showed Club Penguin had 6.8 million unique visitors during the peak holiday season of December, 2008, and 6.1 million last February, its highest numbers yet. Even so, a Securities and Exchange Commission filing by Disney this past May revealed that the company had missed its profit targets for 2008, denying Merrifield, Priebe and Krysko an additional $175-million (U.S.).

Merrifield's voice takes on a slightly defensive edge as he discusses the unpaid earnout. "The good news is, we're seeing the growth that we wanted; in the process, though, of growing, we underestimated how long it would take to build out studios in other parts of the world. The other tough thing is, in this economy, all bets are off."

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