When Kelowna residents Lane Merrifield, Lance Priebe and Dave Krysko sold their Club Penguin website to the Walt Disney Co. last August for $350 million – with the option for another $350 million if certain targets are met by the end of this year – the news splashed all over the local media.
It’s now an old story: how the trio of twentysomethings just wanted to build a safe social-networking site their kids could enjoy free of advertising; how they financed the start-up entirely with their own credit cards and personal lines of credit, maintaining 100 per cent ownership; and how, without a dime spent on marketing, in three years they attracted 700,000 kids around the world willing to fork over $5.95 US a month for a subscription – and 11 million others who signed up for more limited free access.
But once the media hype quieted, the three had to get down to the serious business of figuring out how they were going to integrate their operation with the American behemoth of children’s entertainment.
Six months after the acquisition, BCBusiness checked in with Merrifield, former CEO of Club Penguin and now executive VP of the Walt Disney Internet Group, for a reality check.Were there any immediate changes in your on-the-ground operations after the acquisition was announced in early August? Not really. In fact, they were quite passionate about not getting in the way. Several of the folks we had discussions with continue to reiterate to this day, “Don’t let us hold you guys back; don’t let us slow you down. Keep that entrepreneurial spirit.” I think we’ve added at least another 20 or 30 staff since the acquisition. And we continue to add more. In fact, Disney would love to see us grow as much we feel we need to. And there definitely haven’t been any issues with us operating up here. In fact, they see it as a huge benefit to be in B.C. We’re in a little bit of a bubble, kind of an incubator, up here that allows us to keep focused on what we need to stay focused on and not get distracted with everything else that’s going on down there.
Obviously, you’re hoping to gain some efficiencies and access to wider markets through the acquisition. Has any of that started to take shape yet?When you join a company like Disney, you’ve got a whole new set of tools at your disposal. One of the things we’re most excited about is international expansion, and this spring we’re going to be launching a dedicated U.K. version of Club Penguin. Disney has a strong staff in the U.K. that was able to find the facilities and help us with the hiring and to help us begin the process of transitioning the site to make it more locally relevant. If we had to do all of that from scratch ourselves, it would have taken years and not months.How does that affect you personally? I imagine you’d be stretching yourself pretty thin if you were to try to oversee all these expansions.Yes, we’ve definitely had to increase our staff. For me personally, it’s funny because I’ll get the odd person who says, “Well, you could if you wanted to, so why don’t you just go play golf or whatever you want to do?” To me this is like playing golf. It’s so exciting because I’m passionate about the creative, and we feel like Disney just brought along a new set of paint brushes, a lot of new canvases, and we just get to paint and create that much more.
I’m sure the acquisition has had some impact on your personal life.I need to travel down to L.A. a little more frequently. I’ll be down there a couple of days a month usually, which isn’t bad. It’s one of the things they’ve been very respectful of because I’ve got a young family. I’ve got a two-year-old and a six-year-old at home, so I want to keep my travel to a minimum. But they’ve been very accommodating about that. We’re still figuring all this out. It’s definitely a new paradigm for the family and one we’re trying to walk through carefully.The first thing I notice when looking at the Club Penguin site is that there are no ads. Will that change?Not at all. In fact, Disney has even learned a bit from us in this, and has modified one of their oldest online worlds and one of the original ones, Toontown, to have a subscription model. Disney Fairies and some of the newer virtual worlds that are going to be coming out are going to be advertising-free and financed through subscriptions.When you and your two co-founders started Club Penguin, did you anticipate it becoming a $350-million company?Never in a million years. In fact, to be honest with you, part of the reason we have not gone the route of venture funding or the standard business route is that we really started it as a kind of a side business, one that we hoped would serve our kids and our friends’ kids more than anything. It’s one of the reasons it’s as scalable as it is and as efficient as it is. We built the model with the hope of it being sustainable, never in a million years expecting that it would ever turn into this. It’s been a crazy rollercoaster. It’s been a lot fun. What do expect to be doing in 10 years, 20 years?I hope that I’m able to continue to be part of things I’m passionate about and to make some sort of a difference in the world. Other websites are maybe looking at models other than advertising for kids, and I’m excited about possibly playing a part in encouraging that.
The outside success that we’ve experienced is great, but I try to make sure that doesn’t define who I am. Whether I continue to develop websites in the future or whether I work for a non-profit, as long as I’m able to do something I really enjoy doing and as long as I’m doing it with integrity and passion, then part of the fun is not really knowing where it all might go.