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Are kids ready for ads in virtual worlds?

At a recent conference on virtual worlds in San Jose, Calif., executives from some of the industry's biggest sites touted growing audiences of kids, who spend hours a month playing games and socializing. Some of those communities boasted of successful experiments with marketing. For example, preteens are driving virtual Toyota Scions on sites such as Whyville.net and Gaia Online, and they're wearing the latest digital fashions from DKNY at Stardoll.com. Nickelodeon also talked about coming plans to run "immersive" ads in its 3D environment for kids ages 7 to 14.

Executives at these companies, and their investors, agree that virtual worlds are engaging enough to children to provide an unprecedented opportunity for marketing. But in a nascent industry with relatively no standards for advertising, media watchdogs, educators and even some gamemakers are worried.

"This kind of marketing is designed to operate at a subconscious level. And kids don't know how to think critically about how someone's trying to get them to be loyal to a brand or buy their products," said Kathryn Montgomery, a professor in the School of Communication at American University and author of Generation Digital: Politics, Commerce and Childhood in the Age of the Internet.

Montgomery said the purpose of ads in 3D worlds is often to blur the lines between content and product marketing, and that that's not a new concept. Product companies creating branded content to appeal to kids is as old as the first days of television. But Montgomery and others say virtual worlds and related games change the equation for brand marketers because a child's interaction and emotional engagement is so high.

"This is a very powerful medium for marketing because it involves this huge engagement. It's more powerful than a sugar cereal commercial," said Bob Bowers, CEO of Numedeon, whose Whyville members spend about three and a half hours a month on the virtual world. He added: "Therefore there need to be standards."

So far, the only regulations protecting kids online are through the Children's Online Privacy Protection Act (COPPA) of 1998. The legislation stipulates that sites targeting children under the age of 13 must post a detailed privacy policy and obtain permission from parents to collect any personal information about them. COPPA doesn't deal directly with advertising.

Montgomery, through an advocacy group she helped found, the Washington-based Center for Digital Democracy, urged the Federal Trade Commission earlier this year to specifically investigate food marketers' tactics to reach children across all media, including social networks and virtual worlds. But she added that parents, educators and regulators need to be considering standards for advertising to preteens and teens in those environments.

Virtual worlds targeted at children are a relatively new market, but one that's growing quickly. Researchers expect that more than half of kids online will belong to a virtual world within four years--more than double the current figures. Ad spending is also expected to mushroom. Research firm Parks Associates expects that advertisers will spend $150 million in virtual worlds by 2012, up 10 times the spending in 2006. Though still a relatively small amount, it excludes marketers spending on their own virtual worlds, like BarbieGirls.com.

Companies like toy makers Mattel and cereal maker Millsberry have already taken advantage of direct marketing via games online and virtual worlds. Mattel.com, Hasbro.com and Millsberry.com are among the top 15 entertainment sites for kids, according to research firm ComScore.

Companies that have experimented with advertising in virtual worlds include Disney, Capitol Music Group, Kellogg's, Pepsi, Toyota and Warner Bros. In one example of such campaigns, pay-as-you-go mobile phone company Kajeet opened up a "chat factory" in Whyville this spring that allowed tweens to personalize their chat bubbles by color and border.

Club Penguin, a subscription site with no ads, is one of the top-ranked kids' virtual worlds. It attracted as many as 4.7 million users in September, up 147 percent from a year ago, and it is expected to mark $35 million in earnings--before interest and taxes--from subscriptions this year. Disney bought Club Penguin for $350 million in August. Although Disney executives have said that they have no plans to change the formula for the site, media watchdogs expressed concern at the time that the corporate company would commercialize the site eventually.

Nickelodeon launched its kid virtual world Nicktropolis in January, and 10 months later, the site has nearly 5.5 million users who spend an average of 55 minutes per visit, according to Jason Root, vice president of digital for Nick.com, which runs all of the company's online properties. He said the world aims to balance the notion of professionally created content with kids' ability to contribute to the site by uploading their own videos and avatars.

"We've had no advertising since we launched, (but we're) on the cusp of interesting advertising developments, and we're evolving with that. We're going to have a great immersive experience both with kids and advertisers," Root said during a panel at the virtual world conference.

When asked later about plans to sell ads in the virtual world, Root said the company is taking a cautious approach. It will apply the same set of standards for advertising on its site as it does in other areas of the company, he said, including ensuring that ads are clearly marked. It also does not sell product placements, according to Root.

But he admitted that marketing to kids in virtual worlds is a gray area and "it's only getting grayer."

But Whyville's Bowers said at the conference that kids are more sophisticated about marketing than people suspect. "You just need to do it in a different way," Bowers said. "It has to be something they will contribute to and own, and not to broadcast to them."

Still, Montgomery said there need to be rules of fairness around marketing to kids online. For example, advertising needs to be labeled as advertising, she said. "Kids are savvy to some extent, but they're really being taken advantage of in some ways," Montgomery said.

"The big question," she said, "is what kind of culture are we creating if it's all about the products?"


Stefanie Olsen, CNET News.com. October 16, 2007

Copyright © 2007 CNET Networks, Inc.. All rights reserved.