VentureBeat

While the enthusiast gaming market is somewhat stagnant, the casual gaming market is on a spurt, growing 20 percent each year. Casual games are smaller and cheaper to develop than blockbusters like Halo, but also less lucrative. However, while the profits from casual games appear smaller, their low development costs and potentially high profit margins also provide a better opportunity for startups.

“Casual gaming” is loosely defined as anything easy to learn that doesn’t require a big time commitment, like Solitaire, Bejeweled or Diner Dash. Games like those have 200 million active players, and pull in $2.25 billion yearly, according to a new Casual Gaming Association report.

By contrast, enthusiast games — the Halos and World of Warcrafts of the world — have an audience of 20 million, but manage to pull in a cool $20 billion. Yet the report, issued today, suggests that casual gaming might have the most growth potential for companies.

Pinning down exactly who receives the profits from casual gaming is difficult. While Microsoft’s famed Solitaire franchise is the most played casual game ever, with more than 400 million people having spent time shuffling their own cards, Microsoft didn’t directly profit — the game is simply a long-running perk for owners of Windows computers. Free play is typically considered a cornerstone of the casual gaming market.

Yet there are a handful of gaming portals that do profit, and account for most of those billions of dollars, including AOL Games, Club Penguin, MSN Games, China’s QQ, and Yahoo Games.

Although some money comes in from advertising on gaming sites, there are other revenue models. PopCap, for instance, distributes Bejeweled for free on PCs, but sells the game on mobile phones. Other companies allow free play on the website but charge for downloads, limit the number of levels that can be played without paying, charge for multi-player versions or sell subscriptions.

Last week, we sat down with Robert Norton, the new VP of business development at King.com, to talk about how his company is approaching growth in the market.

King.com makes much of its money from “skill games” on its own site like Cartoon Shootout, which charge players small amounts (often around a dollar) to play in tournaments against others. King.com also powers games for Yahoo, RealNetworks and NBC, among others, and just opened a new site called MyGame.

However, Norton says that in the future, players will begin to embed games on their own pages, whether that’s a Facebook profile or a personal webpage, and that casual games will become much more personalized.

Imagine uploading a picture of yourself into a game and then playing your own character, as JibJab does with its video series “Starring You”, which places a picture of your head on various dancing cartoons. It may sound silly, but Norton says the actual implementation is more clever, and well disposed to virally spreading through social networks.

Of course, professional development is still a sought-after commodity for these companies. Kongregate, home to Desktop Tower Defense, the latest casual gaming craze, has been collecting independent developers. King.com’s new site, MyGame, also seeks to recruit skilled developers, along with reaching out to users to create some content of their own.

Although Yahoo Games is the 40 pound gorilla of the casual gaming market, these companies seem to believe that players will slowly move away from casual gaming portals, and towards some of the newer ideas they’re betting on.

A final opportunity is in broadening the group that actually pays to play. Although casual game players are evenly distributed through the population, women account for 74% of all paying players, just as young males dominate the hardcore gaming market. Both segments of the gaming industry would like to move into each other’s paying base.

For more on an upcoming casual game site, check out our post on Metaplace.

Updated

Club Penguin, a virtual world for kids, has been bought by the Walt Disney Company. The deal is valued at $700 million: $350 million in cash now, and another $350 million if performance targets are met through 2009.

The company, based in remote British Columbia, has more than twelve million total users — mostly kids 6-14 in North America — and including more than 700,000 paying subscribers. It says it is completely funded through subscriptions.

Founded in March 2005, Club Penguin features avatars of animated penguins that live in an antarctic virtual world. Users can play games together, chat, and furnish virtual homes with virtual accessories.

Subscribers choose to pay between USD$5.95 per month and USD$57.95 per year to “[d]ress up your penguin, decorate your igloo, be the first to discover new areas and lots more.”

The purchase shows that Disney is hungry to get into online gaming, a market that is expected to grow significantly in the coming years. One analyst expects US spending to hit $725 million in 2008, up from $375 in 2006.

Comscore reported 217 million unique worldwide users in May, a seventeen percent growth rate from last year’s figures.

Club Penguin is one of many popular virtual worlds for kids that incorporate virtual games and goods. Another popular startup is Habbo Hotel: Instead of an antarctic theme, that site features an urban apartment theme. Another, IMVU is a small and growing startup that combines virtual games and chat with more fantastical landscapes and avatars.

Disney found the purchase appealing in part because “[i]t’s simple, it’s easy to use. It doesn’t require significant amounts of technological investment,” as noted by PaidContent.

This purchase is another step towards digitizing Disney’s family-focused entertainment empire, developing revenue streams beyond its TV-based business, and even its brand. Disney is highlighting how very strategic Club Penguin is becoming by rebranding the Disney.com homepage (screenshot below).

Club Penguin will not be moving its headquarters.

Latest action:

Evite vs. Socializr continued — The bad blood between Jonathan Abrams, founder of Friendster and now founder of online event service Socializr, and the lawyers at Evite, is worse than we realized. The bitterness started during the Friendster days, and worsened when Evite threatened to sue Socializr, saying the start-up had copied Evite’s templates and styles. Abrams now responds with a diatribe, saying Evite is a hypocrite and a bully. We’ve requested comment from Evite.

Voki makes a better avatar — Voki is the latest animated avatar service offered by Oddcast, and is designed for bloggers. It is free, and has made improvements over its former avatar product, called Sitepal, which was for businesses. You can leave audio clips by talking right into your laptop, and your avatar will speak your words from your blog. Fred Wilson, an investor the company, is pushing the company to let avatars speak the words you might leave it with a Twitter message. If you haven’t seen the President Bush avatar, check it out (you’ll have to wait a few seconds for the intro to stop, but then you can change his nose, skin, mouth, shoulders, color of eyes, skin, etc). Similarly, Voki gives you a dashboard that makes it easy to edit your own avatar. It is similar to Meez (our coverage).

Founders of best companies are in the mid-20s or earlier — That’s the observation made by Valleywag. This topic has been controversial for some time. Sequoia’s Michael Moritz has made a big deal about backing young founders. Can you argue with him? He made big money from YouTube, Google and Yahoo — all started by young founders.

Yahoo has a new CFO — Some say the banker-as-CFO heralds more deal-making, more acquisitions for Yahoo. Yahoo did look at Facebook last year, but it’s probably too late now to try again. There’s an independence and pride over at Facebook these days that suggests it may decide to go for an IPO or nothing.

More details on the backing of Jason Calacanis’ company — Calacanis, who is starting a new company called Kokua (scroll down), has gotten funding from Sequoia, as earlier reported, and also apparently from News Corp’s Jeremy Phillips and CBS, if you believe this report. We’re trying to confirm.

Google’s wants to watch you — At least, that’s what this patent filing suggests (see details). The patent would monitor your behavior in PC video games, and seek to serve you targeted advertising based on that behavior.

Amazon.com plans to launch DRM-free digital music store — The iTunes-like service is scheduled for later this year, and will sell songs from EMI without the anti-piracy technology currently demanded by most music labels. However, it doesn’t appear any different from iTunes, which has already announced it is doing the same. Amazon says it will have “millions of songs” without protection.

Warner Music Group sues Imeem — Imeem, a Palo Alto, Calif. music start-up, came out of nowhere earlier this year, boasting in March it was the fastest-growing company on the Web, with 16 million unique users a month. (Hitwise ranks Imeem fourth among multi-media entertainment sites, behind Google Videos, YouTube and MySpace Videos). Users create and share music playlists. The copyright-infringement suit from Warner Music could be bad news for the young start-up, which had labored for two years in relative obscurity until changing its model last year. The company did not respond to a request for comment. Morgenthaler Ventures, a backer, declined comment, as did another backer, Sequoia Capital (Sequoia, of course, backed YouTube, which is a target of a major suit from Viacom.) During the upload process, Imeem does issue a warning to users not to upload media they don’t own, but that wasn’t good enough for Warner.

Sony is in talks to buy online childrens’ game, Club Penguin for $450 million — Club Penguin is a company we’ve covered before — noting its excellent execution of an enjoyable game for kids centered around happily chatting penguins. PaidContent is reporting it has annual revenues of $60 million, and margins of 50 percent. The impressive part is, the company didn’t take any venture backing to do this.

VCs still trying to distance themselves from those job-cutting private equity guys — “We’re in two different industries,” says Ted Schlein, venture capitalist at the Silicon Valley firm Kleiner Perkins to Fortune. “We recruit. We help companies sell product. We do business development. [Private equity] is not an industry that can talk about creating ten million jobs.” The point, of course, is that any new tax, if there is one, as Washington is discussing, should be levied on the private equity guys.

In other news….
–MySpace announces more video channels featuring content from an array of big-name publishers, in an apparent move to go after YouTube.
–Google, without advertising — Really.
–Coupons, a Mountain View, Calif. provider of printable coupon marketing products, said it has acquired Consumer Networks LLC and its Boodle.com coupon service, from Gannett Co.
–Mozilla is experimenting with “Joey,” a service that lets you select portions of Web sites, including images, text, and videos, and later access them from a cell phone.