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Disney Skips $350M Payment As  Club Penguin  Misses Profit Targets

Disney Skips $350M Payment As Club Penguin Misses Profit Targets

May 13, 2010 | By Eric Caoili

May 13, 2010 | By Eric Caoili

Thanks to profit targets set by the Walt Disney Company when it acquired Club Penguin in 2007, the media giant has skipped a $350 million earnout payment, after the kids-targeted virtual world missed profit goals twice.

Disney's purchase of Club Penguin was valued at $700 million, an amount likely boosted by the popularity of virtual worlds at the time, but the Mickey Mouse company paid only half of that total up front, promising the other half in two payments based on unspecified profit goals.

Club Penguin missed both of those targets, saving Disney from having to pay the remaining $350 million of that acquisition deal, according to a report from The New York Times.

Though marketing research firm comScore says the online world is losing monthly visitors, shedding around seven percent of its 6.7 million user count in March and another 10 percent in April, Disney claims those numbers don't match with its own internal estimates, which point to a 20 percent year-on-year increase in unique visitors.

The entertainment company also argues that the site's traffic doesn't matter, as it makes money from paid subscribers, not advertising. It did not indicate how many of Club Penguin's visitors are paying the $5.95 monthly membership fee, but it says that number, which was at 700,000 when Disney purchased the world, is growing quickly.

Club Penguin co-founder Lane Merrifield blames his company's missed targets on the economic downturn and faster-than-expected expansion overseas -- the site is now available in four languages across 190 countries. He comments, "The good news is that we're not far off [from the profit targets]."

"We set some big goals and had we met them it would have been great," Merrifield adds. "We knew from the beginning that we may never see that back half."

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