I understand why entertainment giant Disney bought social game developer Playdom. I also understand that sometimes it’s better to buy than build, and this is probably one of those times for Disney. Disney president and CEO Robert Iger stated it clearly when he told BusinessWeek: “You don’t get the kind of growth we want by building from the inside.”

What I’m wondering is whether Playdom was worth the $563 million price tag that Disney plunked down — which will swell to $762 million if Playdom meets predetermined performance benchmarks.

Now, you might say that a few hundred million is a drop in the bucket for Disney. After all, this is a company that had $36 billion in revenues and almost $6 billion in profits in FY 2009. And Disney paid $8.1 billion for Pixar in 2006 and $4.2 billion for Marvel last year, so nosebleed acquisitions are nothing new for Mickey’s team.

Perhaps more to the point, Disney just unloaded Miramax for $660 million, so you could say it “swapped” an aging art-house film unit for an up-and-coming social game developer. Disney made a handsome profit on Miramax, which it bought for $80 million in 1993.

But the fact that Disney can afford this hefty price for Playdom doesn’t mean it makes good fiscal sense. Electronic Arts snapped up Playfish for a comparatively reasonable $275 last year — and Playfish is bigger than Playdom.

Disney is gambling on Playdom’s ability to outmatch its competition, which includes Playfish and the grandaddy of social game makers, Zynga. But Disney is also betting that social gaming won’t die off as a passing fad, and that Facebook and other social venues will continue to support these games. (If it weren’t for Facebook’s massive scale, Zynga would not be anywhere near where it is today). These are some pretty aggressive gambles.

The price tag of this deal reminds me of other notorious acquisitions of the past decade, some of which crippled their buyers: Time Warner/AOL, AOL/Bebo, News Corp./MySpace.

The latter deal didn’t seem so overblown while MySpace was riding the crest of a popularity wave during its acquisition in 2005. Of course, that was before Facebook blew it out of the water, both in user growth and advertising sales. Facebook is expected to top at least $600 million (though recent estimates put the number closer to a billion) in advertising revenue this year, while ad revenue to MySpace is expected to decline 21% to $385 million, according to eMarketer estimates. At this point, MySpace seems like an albatross for News Corp., which on multiple occasions has had to fend off rumors of a fire sale for the flagging unit.

This underscores the risks of paying top-dollar for flavor-of-the-moment properties. It’s all fine and good if those properties can retain their cool and appreciate over time. But very few do. Remember Bebo? It pioneered many of the same concepts that made Facebook successful today, and look where it ended up.

Or take Disney’s own purchase of Club Penguin for $350 million in 2007. The kids-oriented virtual world failed to meet performance benchmarks that would have sweetened the deal, and traffic to the site has been declining. Barring a stunning turnaround, it’s not looking like Club Penguin will go down in history as one of Disney’s corporate coups. Given the steep price Disney is paying, we may be saying the same thing about Playdom—another company who makes its money selling virtual goods—a few years from now.

Image courtesy of Facebook.

Speaker: Paul Verna, eMarketer Senior Analyst
What: The Evolving Online Video Landscape
When: Thursday, July 29, 2010, 1 PM ET

To listen and watch playback of the Webinar, click here. You can view the PowerPoint deck below.

Join us to find out:

• How the video content mix is changing, and why it is transitioning from user-generated clips to full-length, professional TV shows and movies
• Who watches online video today and who will watch tomorrow
• How and where video content is syndicated and monetized
• What role social networks play in video distribution
• How companies are succeeding with online video—both ad-supported and fee-based—with specific examples and case studies
• impact and influence of YouTube and how it is evolving

About Paul Verna
Paul Verna covers digital media and entertainment, including online video, music, movies, video games, user-generated content and blogging. Before joining eMarketer in 2007, Paul held leadership positions as a journalist, author and communications professional
in the entertainment industry.

Paul has moderated panels for the IAB, Digital Hollywood and The Recording Academy. He is frequently quoted in publications such as The New York Times, USA TODAY and Bloomberg Businessweek and has appeared on "CBS Evening News," CNN, ABC, CNBC and FOX, among other media outlets.

Sponsored by DoubleClick

The iPhone has been slowly losing its dominance in the minds of marketers as Google’s Android operating system gained share over the past year or so. The complication of creating apps for multiple operation systems has been an issue for marketers for some time, but as Android becomes a major player in the app world marketers may also have to start thinking about the way those apps are monetized and how that fits in with the norms of different user groups.

There is evidence across several studies that Android users are somewhat less willing to pay for apps than their iPhone-loving counterparts. AdMob found in February that while 50% of iPhone owners worldwide purchased at least one paid app each month, just 21% of Android users did the same. Credit Suisse reported that less than 70% of Android users had paid for apps in the month prior to being surveyed, compared with nearly 80% of iPhone owners.

According to a May 2010 report from Distimo, an analytics tool for mobile developers, the Android Market is the only store with a majority of free apps.

That could mean Android users are simply responding to supply—a large base of free apps means less need to purchase them. Credit Suisse also found that Android users spent slightly more on average than iPhone owners did on mobile applications, suggesting that they are willing to open their wallets as well.

But the rise of an operating system whose owners are used to relying on free apps could mean a user base that is more open than average to receiving the advertising support necessary to support those apps. In-app advertising and app sponsorships tend to be especially effective forms of mobile marketing, and are also found less annoying or intrusive by mobile users. An expanding base of Android users may mean not only a larger audience of smartphone owners, but also a growing share of that audience receptive to marketing messages that support their app habit.

Christine Carter was 21 when she started Epps Consulting, advising small retailers on their marketing and promotional strategies. Now 24, Carter provides research and consulting services to retailers including marketing, advertising, public relations, promotional and brand support. I took a few minutes to chat with her about the habits and behaviors of kids as shoppers online and offline.

Here’s a snippet from the full interview available on eMarketer Total Access.
(Read more…)

Peter Pitts was associate commissioner for external relations at the Food and Drug Administration between 2002 and 2004 and helped draft the most current guidance on direct-to-consumer pharmaceutical advertising. He also testified at the FDA’s hearings on social media in the fall of 2009. He today serves as president of the Center for Medicine in the Public Interest and is partner/director of global regulatory policy and health initiatives at Porter Novelli. I recently chatted with Pitts about drug marketers participating in social media and the prospects for regulation in the space.

eMarketer: The FDA is expected to issue guidance on the use of social media this year. What do you think it will look like?

Peter Pitts:

There are a lot of ifs. The first if is, is this really a good thing? A lot of times when you ask for regulation and you get it, you may not be happy with it. If marketers are waiting for FDA guidance with the assumption that it’s going to make their jobs easier, that’s very much open to question.

When you look to a regulatory agency that is very strong on science but just mediocre on social science and you ask it to think about issues as complicated as social media, it’s a real crap shoot. Will the FDA actually choose to write guidance or will it be a draft guidance? And if so, what will it focus on? My best guess is that the guidance will deal with very low-hanging-fruit issues.

eMarketer: Do you expect that marketers will get the guidance they need to feel more secure about participating in social media?

Pitts:

If the industry thinks the FDA is going to come out with thoughtful and complete guidance on how to use social media in 110 different circumstances, it’s going be very disappointed. The FDA is going to take baby steps to move forward. Those who think that they’re going to receive a document that answers all their questions simply do not understand the FDA process.

The most important thing to understand is that everybody, including the FDA, realizes that social media is where the people are. Drug companies want to engage with people on social media sites. But I think the key question is what is and what is not regulated speech. Regulated speech is generally a very specific thing. I don’t think anybody wants the FDA to say that all health-related communications on social media is regulated speech.

When it comes to guidance, the problem is that the FDA embraces ambiguity because ambiguity gives it tremendous power and elasticity to change its mind given the circumstance. What pharmaceutical marketers are doing is waiting to see what the FDA says and then they’ll act accordingly. However, if the guidance the FDA comes out with isn’t some King James version of the Bible that everybody’s hoping it’s going to be, and it certainly will not, the question then becomes, which marketers will step forward and choose to be more aggressive than they previously have been?

eMarketer: And what is your best guess on possible scenarios?

Pitts:

My best guess is that what the FDA says is going to clarify some things, muddy others but not really give anybody a sense of clarity. Then it will be up to the individual drug companies to decide how they choose to move forward. The most important thing is to use social media to advance the public health. To let the issue lie because of inarticulate, ambiguous regulations certainly is in nobody’s interest.

The key point is what is regulated vs. unregulated speech. If I am a patient with arthritis and I am speaking on a social media site to another patient who has arthritis, that is not regulated speech. If, however, I am talking to one patient who has arthritis and I have arthritis and we’re speaking on a site that is sponsored by a drug company, is that regulated speech? That’s very much up in the air.

If people talk to each other and there’s no money exchanging hands, that is not regulated speech. Whenever the FDA has been taken to court on First Amendment issues, it loses. So the FDA is being very cautious about avoiding what’s called “regulatory creep,” which is a way of trying to regulate things that it is not intended to regulate.

eMarketer: Presumably your clients are all at different stages of their social media usage. How do you advise them?

Pitts:

They need to ask whether the program is good for marketing and good for the public health. If they can’t answer yes then they shouldn’t be doing it. But if they can honestly say “Yes, our program in social media advances the public health, helps to educate the public, helps to move safety and compliance forward,” then they should go ahead and do it with appropriate safeguards in place.

So it isn’t simply a question of looking at social media and viewing it as a powerful marketing tool, which it is. We advise our clients to look at it simultaneously as a strong public health tool.

eMarketer: In your mind, how closely tied are online advertising and social media issues for pharma marketers?

Pitts:

They have been linked but they need to be completely different. There are rules in place that govern advertising, whether it’s on a billboard or on television, magazines or online. And those rules apply regardless of media and they work. When you think about an online banner ad or a sponsored Google link, those things are not social media, those things are advertising.

Social media means something completely different. Assuming that they’re both the same thing because they both are on a digital format is a tremendous mistake. From a regulatory perspective, it’s very clear that a sponsored Google link is a paid ad. Online advertising is regulated the same way as any other advertising is regulated right now. I don’t see any need for more rules. The current rules fit and apply very nicely.

eMarketer: How and when should manufacturers be responsible for correcting misinformation on internet properties they don’t own?

Pitts:

Right now, a lot of companies feel that if they go onto a site to correct a mistake they will be seen as being responsible for everything else on that site. So, for example, a drug company goes on a website and says “Hello, my name is Tobi Elkin and I work for Pfizer. I saw something on your website that’s not correct.” You can offer the site a link that goes directly back to your website, which is vetted by your attorneys and completely appropriate. That’s what I would call a regulatory green zone—total transparency. I would like to see more of that.

Even something as simple as that is oftentimes seen as overly aggressive by a lot of companies. There are other companies who have as their official procedure that they will not monitor sites that they don’t control for fear of unearthing an adverse event. That may put them in compliance with the letter of the regulation, but if a reporter from The New York Times called and asked “Do you have a policy of not looking for adverse events on the internet?” and they said “Yes,” they would look pretty silly and it would sound even worse in front of a congressional subcommittee.

So the concept of being in compliance vs. doing the right thing for the public health cannot be contrary to each other and right now they are. The issue is to step up to the plate and do what’s right instead of what is legally conservative.

The full version of this interview is available here, to eMarketer Total Access clients only. Every day they have access to new interviews with digital marketing leaders and trendsetting entrepreneurs.

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