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.

The not-so-mad scientists at YouTube—aka, Google’s video laboratory—just launched Leanback, their latest beta project.

As the name implies, Leanback looks to get online video viewers to sit back and just watch a bunch of videos—no mousing needed. The specific videos that YouTube shows are based on past YouTube viewing experiences (for registered users), or can be further personalized by linking YouTube with Facebook accounts.

As a regular YouTube viewer, my first Leanback experience meant a bunch of older video clips, since I like watching jazz musicians from the 1940s and 1950s, and bike mechanic instructional videos, since I always have a bike or seven that need tuning up. Sounds nice, but part of the problem is that all the videos were shown full-screen, and even with my high-res 24-inch iMac screen, none of the videos were suited for enlargement. However, other than arrow keys for going forward and back along the Leanback queue, I couldn’t readily find a way to change video sizes.

What’s more, it’s questionable how much people want a lean-back experience when watching video on the web. While the service reminds me of Pandora, the online music service—giving you related content based on your interests—unlike music, video doesn’t lend itself to such passive consumption.

However, if new YouTube services are truly part of Google’s test lab for Google TV—and if the content available is bulked up with more professional-level video—then Leanback video could be a useful incentive when people watch internet-based video on their big-screen TVs.

As I said to Laurie Sullivan of MediaPost, “It would make sense for Google to try out these incremental changes on YouTube first before integrating them into Google TV. These features could integrate into a larger package later on.”

For more info about YouTube’s Leanback, here’s their blog posting about it.

A big day: Experian Hitwise announced that social networks attracted more UK online traffic than search engines in May 2010. Since May of last year, social network visits have climbed from about 10% of all UK site visits to 11.88% of the total. During the same time, traffic to search engines fell from about 12% to 11.33% of all visits.

Google UK remained the most popular site overall among UK Web users, representing more than 90% of searches in May, said Hitwise. But Facebook ranked second in popularity, and accounted for 55% of all UK traffic to social network sites. YouTube claimed 16.5% of social network traffic, and Twitter placed third, with just over 2%.

These Hitwise results bear out some of the first rankings from the recently launched UK Online Measurement company (UKOM), which bases its audience estimates on Nielsen panel data. UKOM found that Google was indeed the top Web brand in April 2010, attracting 35.3 million unique visitors. The combined audience of Microsoft’s MSN, Windows Live and Bing search engine registered 28.3 million users, ahead of Facebook with 25 million.

These audience figures go some way to explaining why Facebook is also being widely credited with saving the display ad industry virtually single-handed. According to comScore’s Ad Metrix, the leading social network delivered almost 21 million display impressions to UK Web users in March 2010. That was more than 30% of all display ads served that month, comScore reported.

With the 2010 World Cup fast approaching, it’s a good time to reflect on how this event will unfold online, and how much the digital world has changed since the last time soccer’s global superpowers convened four years ago.

Back in June 2006, independently owned YouTube was getting about 100 million video views per month, compared with 6 billion in January 2010. Facebook was a closed network for college and high school students. Twitter did not exist as a public entity. World Cup organizer FIFA did not stream live games, so any streaming happened on P2P or pirate networks. There was only a smattering of post-match highlights on the Web.

Fast forward four years, and we can expect a surfeit of digital activity, starting with the live streams of the matches. In the US, ESPN/ABC and Univision have broadcast rights in English and Spanish, respectively, and those rights extend to the Web. Both entities will be streaming every match live on their digital platforms.

With ESPN, this comes with a catch. The company’s parent, Disney, has been in a stalemate with some ISPs over carriage fees, so ESPN3 (formerly ESPN360.com) is not available on, say, Time Warner Cable. This shuts out tens of millions of potential streaming customers. Univision, on the other hand, has no such restrictions, so anyone willing to stream matches in Spanish will be able to do so.

Both ESPN and Univision will carry the streams for free on an ad-supported basis. In global soccer, that means discreet banner ads that don’t interrupt the flow of the game – great news for fans, not so great news for marketers.

Still, the potential streaming audience in the US is huge. While the stereotype is that most Americans don’t care about soccer, the reality is many do, especially expatriates of foreign Fútbol powerhouses. Out of the 32 teams competing in the tournament, 11 have US-based populations of at least 1 million, according to Census Bureau surveys of ethnicity and ancestry in the US population.

Some of these groups will be more transfixed by the tournament than others. I expect the vast majority of the 30 million Mexican Americans in the US to follow the team’s every move. It’s telling that Mexico played a round of pre-World Cup exhibition games in the US, where it drew sellout crowds in Chicago, Houston, New York and even Charlotte, N.C.

Other nations with large US immigrant populations—Germany, England, Italy, France, the Netherlands—will also create a huge demand for World Cup streaming content. However, the numbers of these nations’ US-based contingents are harder to gauge. The US Census Bureau estimates that 50+ million people in the US self-identify as having German ancestry, but does that mean they’ll all be waving the flag when Germany takes the field? Probably not.

The same could be said for the 27.5 million people of English ancestry, the 17.7 million Italians and the 9.4 million French. These ethnic groups are well-assimilated into the general population, and they don’t identify with the motherland to the extent that other, smaller groups might. That’s not to say there won’t be huge numbers of rabid German, English, Italian and French fans cheering on their teams.

Then there are the Americans. Historically, the World Cup has not sparked the passion of US fans, even when the championship was held in the States in 1994. Then again, the U.S. hasn’t played particularly well in past cups, so a stellar performance this year could ignite a frenzy along the lines of the “miracle on ice” of the 1980 Winter Olympics, when the US defeated arch-rival the USSR to take the gold medal in men’s ice hockey.

Outside the US, the potential streaming audience is essentially as large as the Internet penetration levels of participating countries, plus those of soccer-crazed nations like China. Easily in the billions. However, it should be noted that in most countries, it’s entirely acceptable to stop everything to watch World Cup games on TV. Work comes to a complete standstill, so there’s no need to “sneak a peek” at lunch time the way US employees do during March Madness. In 2006, the World Cup Final drew more than 700 million TV viewers worldwide, compared to an estimated 154 million total viewers for the 2010 Super Bowl.

In Argentina, for instance, the minister of education authorized the country’s schools to broadcast World Cup games to students during the school day. His rationale (as if he needed any) was that watching the games had “pedagogic” value. In the same breath, he admitted that without such a policy, kids would skip school with “total complicity” from their parents.

Even if live streaming isn’t as important to global audiences as it might be to immigrant populations in the US, you can fully expect the global Web to light up with millions of post-game highlight videos and social media updates during the course of the tournament.

FIFA expects 5.5 billion page views on its site alone, up from 4.2 billion during the 2006 World Cup. And this is just the tip of the iceberg. Other sports sites with larger audiences, such as ESPN.com, will see much more activity than they do on a regular basis.

So what is the value of all this content? Hard to put a number on it, but a study by Global Web Index—a joint project by Lightspeed Research and Trendstream—estimates that FIFA is “undervaluing online World Cup rights” by bundling them into broadcast deals. The study’s author believes that significant numbers of people around the globe would pay to stream the World Cup and that FIFA is missing an opportunity to squeeze more revenue out of this content.

“This research shows that online football rights for the 2010 World Cup are massively undervalued,” said Tom Smith, Director of Global Web Index. “There is proven appetite for streaming all sports online and more importantly, consumers are increasingly paying for it. There’s a whole new generation of younger consumers, as well as specific markets like China and South Korea where paying for sports online is quickly becoming the norm. This research shows that the days when online sports rights are thrown in as a sweetener with the TV rights may be about to be shown the red card.”

Does this mean that FIFA will charge users for streaming the 2014 World Cup? I can’t imagine it hasn’t crossed their minds.

Score another one for paid content. Just after The New York Times confirmed what we’d all suspected (is “feared” too strong a word?) — that it’s going to charge for online access again — YouTube became the second media giant in a week to announce a shift from free access to paid content. The user-generated video specialist is launching an experimental digital movie-rental service, and its first venture into transactionable content. But will it work?

(Read more…)