Disney Trashes Its Kingdom

The clock is ticking on Disney's (NYSE: DIS  ) Virtual Magic Kingdom. The online experience -- think a family-friendly version of Second Life for the mouse-eared set -- will be shutting down next month.

The free site was launched three years ago in conjunction with Disneyland's 50th birthday. I was one of the early beta testers. It was a hoot to create an avatar and stroll through a virtual recreation of Disney's flagship theme park. Members would play games, text chat, unlock secret spells, and earn credits that could be used to deck out their online digs.

Things got even better that summer when Disney began to incorporate the experience into its theme parks. In-park kiosks would present scavenger hunts, giving players incentives to visit the parks. The game also served as a platform to promote new attractions, like the opening of Animal Kingdom's popular Expedition: Everest coaster.

Even though the family entertainment giant ran a paid membership community, Disney's Toontown, for years before VMK's arrival, the success of the new experience proved addictive to Disney. It went on to acquire Club Penguin last year, with new online communities in various stages of deployment centering around its Pirates of the Caribbean, Disney Fairies, and Cars franchises.

The new ventures make sense. They can be tied to merchandising efforts, where related playthings come with in-game codes for virtual trinkets. Toymakers like Mattel (NYSE: MAT  ) and Build-A-Bear Workshop (NYSE: BBW  ) are making inroads here, so Disney might as well tap its rich catalog of characters for similar benefits. The Mouse House certainly has advantages here that more conventional amusement operators like Six Flags (NYSE: SIX  ) , Cedar Fair (NYSE: FUN  ) , and Anheuser-Busch (NYSE: BUD  ) lack.

So why kill VMK, especially when it would have been the ideal gateway drug for families to get hooked on Disney's new line of premium membership communities?

That's what I don't get. The site's public rationale is that the community was never supposed to last forever. It was just a Disneyland milestone promotion. That's hogwash. You don't spend years shoving codes in cereal boxes and selling cards and pins in the actual parks for virtual goodies that will be deemed worthless in a few weeks. More importantly, if you want consumers to devote time to the new communities, you're setting a terrible loyalty precedent by dismantling the one that started it all. Do you think any of the ex-VMK users will trust the new vibrant worlds Disney creates if they know they can all vanish under the guise of an anniversary promotion?

Disney has beefed up its gaming efforts since VMK's launch. It struck a deal with Shanda Interactive (Nasdaq: SNDA  ) to put out Disney online games in China. It has beefed up its software development team to create in-house titles.

So why take down the flag, Disney, when the flagpole was just starting to be raised?

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