Disney Interactive loses Club Penguin founder Lane Merrifield

Club Penguin founder Lane Merrifield is leaving Walt Disney Interactive two years after a reorganization put him in charge of the entertainment giant’s online virtual worlds strategy.

He is being replaced by a well-regarded Disney veteran of 10 years, Chris Heatherly, according to a person knowledgeable of the changes who is not authorized to discuss the matter publicly. Heatherly originally designed toys for the company before moving to its digital games division.

Merrifield joined Disney in 2007 after its $350-million acquisition of Club Penguin, which pioneered the once popular business of virtual worlds for children -- many of whom spent their parents’ money buying digital items.

“I am incredibly proud to have been a part of Club Penguin, and I know that it will continue to grow and thrive,” he wrote in an email to employees. “Like many entrepreneurs though, there comes a time when the desire to create something new outweighs the comfort of what’s known and for me that time has come.”

Merrifield is joining an education-focused start-up, Freshgrade, in which he previously invested.

His departure comes at a time when online communities are in decline at Disney and elsewhere in the game industry. Club Penguin, a site where lovable scarf-wearing penguins cavort around an icy world, has seen its U.S. monthly traffic dwindle to 3.3 million, according to measurement firm comScore, down from a recent high of 8.5 million in December 2009.

Another highly touted virtual world overseen by Merrifield, “World of Cars Online,” closed in February 2012 – two years after its introduction. The company also has curtailed development for “Pirates of the Caribbean Online,” a massive multiplayer online computer game launched in 2007. The community has been taking on water for years – prompting an online petition by users complaining about bugs and lack of updates.

Both struggled to attract players, even though the games were based on billion-dollar movie franchises: Pixar Animation Studios’ “Cars” and the Johnny Depp swashbuckler “Pirates of the Caribbean.”

Disney isn’t alone in seeing the diminished appeal of online worlds, where millions of players can interact through digital avatars. Danish toy company Lego shut down its multiplayer game “Lego Universe” in January. Electronic Arts’ “Star Wars: The Old Republic,” an online game aimed at older players who are fans of the science-fiction fantasy films, moved to a free model this summer after failing to attract enough players willing to pay a subscription following its launch last December.

“For the youngest set, things like Club Penguin still have some attraction,” said Debra Aho Williamson, a social media analyst for researcher eMarketer. “But by the time kids hit middle school they want to be on Facebook or Instagram. The virtual worlds have a lot less appeal.”

Children also are gravitating to inexpensive games they can download and play on smartphones and tablet computers. One Disney title, “Where’s My Water?” ranks among the top 30 paid apps, according to AppData, and the company has begun to create a line of merchandise based on its central character, Swampy the Alligator.

The money-losing Disney Interactive Media Group is under corporate pressure to turn a profit by 2013. The unit has undergone several rounds of layoffs, as co-presidents John Pleasants and Jimmy Pitaro worked to cut overhead and keep up with new trends in the digital world. In its most recent quarter, the interactive group reported a loss of $42 million, a 51% improvement over the same time a year ago.

Merrifield has been described as a passionate advocate for the online community he helped to create, whose parental protectiveness sometimes put him in conflict with others in the company who didn’t share his vision. He initially resisted integrating Club Penguin with other parts of the company -- although this summer, players could dress their penguins as superheroes or villains from Disney’s hit summer film “The Avengers.”

In his email to employees, Merrifield said Club Penguin was the largest virtual world for children for seven years running and that it has maintained a “significant profit margin.”

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