Virtual worlds, once a niche market within the video game industry, are heading to the big leagues.
Six Degrees Games Inc., a Marina del Rey company, is planning this fall to launch a sports-based virtual world for kids called ActionAllStars.com. Members will be able to create avatars, chat with buddies as well as collect virtual trophies for competing in games based on baseball, basketball and extreme sports.
In less than two years, the tiny company has scored hard-to-get licensing deals from Major League Baseball, the National Basketball Assn. and ESPN in order to use some of their brands in ActionAllStars. In March, it hired one of the industry's top developers, David Ortiz, who oversaw production of the multibillion-dollar Madden Football video game franchise. This summer, the company landed more than $7 million in venture financing.
Virtual worlds have become the latest shiny object on the Internet, attracting more than $345 million in venture financing in the first six months of this year, according to Virtual Worlds Management, a market research company.
The reigning kings of virtual worlds for kids include Gaia, Habbo and Walt Disney Co.'s Club Penguin. Each boasts millions of players who buy virtual items, look at advertising or pay for premium subscriptions.
But there are also dozens of other sites vying for the attention of young media consumers. Virtual Worlds Management estimated there were 163 youth-oriented virtual worlds live or in development as of August, up from 113 in April. To get noticed, virtual worlds must now do more than offer cute avatars.
"The market is becoming crowded," said Minard Hamilton, chief executive of Six Degrees Games. "My sense is that it's becoming more important to differentiate yourself."
Hamilton has seen this happen before. He spent five years as executive vice president of Jamdat Mobile, which sold games for cellphones. There, the challenge was to be among the top five or 10 games listed on tiny cellphone screens. To justify top billing, Hamilton secured licenses with major league sports brands to develop mobile games.
Electronic Arts Inc. bought Jamdat in 2006 for $684 million in cash.
For his second act, Hamilton co-founded Six Degrees Games in 2007 with Ben Jones, who was Jamdat's senior vice president of sales. The two believed that online games, and virtual worlds in particular, offered a ripe playground on which they could build their next business.
"And there were a lot of similarities between mobile and online," Hamilton said.
Using the connections he had built with sports brands, Hamilton secured licenses with the NBA and MLB so that it could use team logos and jerseys in the virtual world (his company is in discussions with the National Football League). Six Degrees Games also struck a deal with ESPN to include real-time sports news and scores as well as videos related to the X Games, an extreme sports competition.
Professional sports sponsorships have another advantage -- loyal fans.
"Sports sites have a built-in audience of passionate fans," said Paul Verna, an analyst with EMarketer who estimated that revenue from ads and paid content on sports sites would hit nearly $3 billion in 2012 from $1.5 billion in 2007. "These fans have an insatiable thirst for facts, figures, statistics and trivia. And they like to share their knowledge and opinion with others."
After settling on sports as a theme, Jones, a former game industry recruiter, pulled together a team of nearly 30 developers, including Ortiz -- and the 34-year-old father of four immediately saw the appeal.
Ortiz, who was ranked No. 29 in the top 100 most influential people in gaming by NextGen, an industry news site, felt compelled to work on a game he could share with his children.
Virtual worlds share their roots with multiplayer online games such as EverQuest, which charge players monthly fees to play. In recent years, other business models have cropped up. Some, including Habbo and MapleStory, target teens and are free to play but charge for virtual items, such as outfits for the games' avatars. Others, such as Meez, generate revenue by selling advertising on their sites.
Hamilton and Jones decided a subscription model would be better suited for its audience, youths ages 7 through 14.
"We thought about selling virtual items, but we felt parents don't want to be bugged every couple of days for money," said Hamilton, who has two children ages 3 and 5. "But parents will pay for safety and accessibility."