Indie days may be numbered in webland

The current kid website climate has become strikingly Dickens-esque. For brand extension entities such as and, it's the best of times, as the companies refine their business models and relaunch their sites to position themselves for long-term financial health....
November 1, 2000

The current kid website climate has become strikingly Dickens-esque. For brand extension entities such as and, it’s the best of times, as the companies refine their business models and relaunch their sites to position themselves for long-term financial health. But for many of the independent players, the last six months have been the worst of times, with financial uncertainty looming large, and the prospect of more closures very real.

Based on data supplied by Nielsen//NetRatings, the top three independent sites by average unique kid visitors per month are, and (see chart on page 55). Despite their consumer popularity, these sites are finding themselves standing on sometimes shaky financial ground. Referring to independents as a whole, Isabel Hoffmann, president and CEO of Toronto-based, says bluntly: ‘We’re faring badly. Everybody is falling apart. Everybody is folding.’ In addition to blaming faulty business models and strategies that failed to convert site traffic into cash, Hoffmann says the hard times are a product of a business environment she compares-somewhat surprisingly-to the beginning of communism.

‘Communism took place in the last century because there was no middle class,’ she says. ‘There were the proletariats, the very poor people working in sternest conditions, and there were the very rich. Today, you have the same situation happening business-wise. We have the very large multinationals and conglomerates and the very small companies like the Headbones, the Nikolais and the MaMaMedias. There is no middle ground; there is nothing in between.’

Hoffmann says that the present crisis came about because the kid Internet market switched gears and caught the independents off guard. ‘Before the market crash in April, we were thinking, `OK, create brand, create reach, get out there-it doesn’t matter what the cost. The point of the exercise is not to create market share but to create mind share-two different things.’ Then the market crashed in April, and we went from creating mind share to now you have to have market share. It was absolutely devastating.’ The resulting financial crunch, she says, ‘is killing creativity, innovation and entrepreneurialism.’

Nikolai, which was originally financed with money from private investors as well as seed money from Hoffman’s company, Hoffmann and Associates, managed to stay afloat this spring only through a complete restructuring of the company, ‘to the point of losing almost all my employees,’ says Hoffmann. ‘We downsized 75%. We cut costs everywhere; marketing expenditures disappeared, and we focused only on deals that actually have a return on investment. I’m not even going to spend a minute with a barter deal.’

Nikolai wasn’t the only big-name independent player forced to restructure. Manhattan-based MaMaMedia, a privately owned independent that was originally financed through US$11 million in investor money, laid off 30 of its 150 employees in June-a 20% reduction-despite a reported US$50- million funding infusion in September 1999 led by J.H. Whitney & Co. CEO Idit Harel blames the layoffs on ‘financial troubles’ and the need for the company to ‘accelerate the move toward profitability.’

Rebecca Randall, executive VP of marketing and brand development, downplays the firings as a necessary growing pain. ‘Sometimes you have to restructure and make decisions that ensure the ultimate health of the company,’ she says. ‘That’s only smart business.’

Others in the kid website business, such as Nickelodeon Online senior VP Taran Swan, believe the investment pool is drying up altogether. ‘What’s been driving the scaling back is that if investors don’t see that their investment is heading at some point toward a return, they start putting the screws on. And that pressure leads to lay-offs. And in some cases, that pressure leads to selling or just shutting down, period. The reason all those companies started is they thought they were all going to go public and were going to get US$200 million and that would take them for five years-and that’s gone.’

At least for now, Nikolai and MaMaMedia have rebounded. MaMaMedia has a partnership with AOL and exclusively programs the Earthlink KidZone page, and Nikolai recently signed a deal with Cott Beverages to help launch Chubby, a new kids drink, in North America. In addition, Nikolai has revenue from its on-line toy store, partnerships beyond Cott and a TV series in production based on the Flash animation series Totally Neow. Hoffmann says the series is being produced in-house and will be available in traditional and interactive TV formats. MaMaMedia’s other partnerships include a cross-promotion agreement with General Mills and an alliance with the Minute Maid Company, a multitiered promotional deal that represents the first major Internet initiative for the Hi-C brand.

Of course the real question is how long the independent companies can last without turning a profit. In the end, Nikolai’s Hoffmann believes the days of the truly independent sites are numbered. ‘I did think we would go public until the market crashed. Today I don’t. Today I look at it and say, will be bought out, absolutely, within a year and a half. What I think is unfortunate is that there was not an IPO done in the kids area before the shakeout. And we may never see it. We may just see the independents being bought out.’

Indeed, at press time MaMaMedia, the number-one kid site, was also rumored to be on the block. Asked whether she was actively courting buyers, Randall would only say: ‘When the strategic fit is right, two strong companies can create a kind of magic together that they would not be able to achieve alone. A variety of opportunities have presented themselves throughout the life of our company and they continue to do so. We evaluate these opportunities as they come up.’

Jim Samples, GM of Cartoon Network Online, sees truly independent sites growing more scarce as well, but says it’s a development the brand extension sites are immune to. ‘Already there are several quality indie sites that I know are closing their doors,’ he says. ‘The issue is they haven’t been able to create the critical mass to support a business model that would work-but I think we have the luxury of being able to leverage our network to build our on-line presence and our on-line presence to build the network. Branding is really the key, and we’ve been building a brand for years.’

In fact, the financial reality faced by independents is in stark contrast to that faced by brand extension sites, whether they be network extensions such as and, or corporate extensions such as (Wizards of the Coast) and (Nintendo). In these cases, with financing provided in-house, turning a profit might not even be part of the overall business plan.

‘Right now, we’re not looking at on-line as a profit center,’ says Dan Owsen, on-line manager for Nintendo’s site. ‘It’s a marketing expense entirely. The purpose of the site is to extend the brand and to get people excited about Pokémon and also provide a place for official news about new products and games-related announcements.’ Even so, according to Competitive Media Reporting, the site earned US$159,418 through ad sales over the first two quarters of 2000-fairly competitive for a brand extension site.

Nancie Martin, Internet consultant for, says her site is in a similar situation. ‘Our essential function is as a brand extension. Our kid site is good for the network and it’s good for the overall bottom line, so profitability doesn’t enter into it.’

However, not all brand extension sites are so fiscally carefree. Cartoon Network Online’s Samples says his company’s site is ‘intended to be profitable.’ While the division is technically a brand extension, Samples stresses that ‘we’re more than’re Cartoon Network Online. We’re also creating content that’s intended for distribution on new platforms, creating content intended solely for on-line.’

Nickelodeon Online’s Swan also sees profits in her site’s future. ‘We certainly have a mandate to make money. No question. All of our brand extensions are still representing Nickelodeon, but each also has to be a business in its own right. While the web is an unproven business model in general, our hope is that we can build a business from it. We have a long-range plan that shows us making money in less than five years. It’s getting very close.’

Nickelodeon’s strategy calls for both and to eventually secure revenue streams that will be split evenly between advertising on one side and e-tailing, sponsored links and licensing on the other. Nickelodeon’s new emphasis on broadening beyond simple brand extensions is reflected in ad sales for its kid sites. So far in 2000, prior to its ‘soft’ relaunch on September 15, generated US$157,572 in ad sales, compared to no reported ad sales income for 1999.

For independents, the big challenge right now is to establish a brand before the money completely dries up. ‘I’ve seen estimates that it can cost up to a half a billion dollars to build a brand name,’ says Swan. ‘I would argue, how could an independent site afford that? When you hear about companies getting private funding for US$10 million, US$20 million, even US$50 million-how long is that going to last if you have to spend US$50 million on just branding yourself? That doesn’t include building the technology and creating the content. We already have a brand, so we don’t have to do that part-we only have to make a good site, which is a hard enough undertaking.’

Adam Chesnoff, COO of believes that in the end, ‘there will be three to five key players’ in the kid space, with the majority of ‘independents getting merged with an off-line player.’ He adds: ‘I really think the Internet on the entertainment side as a stand-alone is very hard to succeed at on a long-term basis.’

One player planning to be among the handful of independent success stories is, founded in 1996 by CEO Sashi Boinapalli with money secured from private investors and corporations, including Canada’s Toronto Star publisher Torstar. The secret of Funschool’s success, says Boinapalli, is that he has built a technology-based business within the context of the website.

‘This company is dramatically different from others in the kid space in two ways,’ he explains. ‘First, I founded this company as a technologist, so what we have built is an entertainment offering system that enables us to produce content that is Internet-enabled, Java-capable. On the content side, we have built a tremendous amount of content, for a small company, thanks to our proprietary technology that enables non-programmers to produce content at will. So right now, we have over 600 games at the site.’

‘About 90% of games are developed by artists only, without including engineers. And that’s how we are able to compete in the space, being a small company. Technology is our strength.’

While many other independent sites, great and small, worry about staying afloat, Boinapalli says Funschool is close to turning a profit. ‘We are not in the black yet, but sometime in 2001 we will be,’ he says. In the future, Boinapalli sees Funschool’s revenue being evenly split ‘between the technology and the business.’

‘We see ourselves producing games and entertainment for handhelds and using our technology to scale our content to that level. I think we also have compelling technology that enables us to use the subscription model because of the educational bent of our content.’

From his position, Boinapalli believes the ultimate key to success is a business model and strategy that actively incorporates revenue streams beyond advertising, such as technology development and its licensing. ‘If you are a burning US$17 million a quarter just to show a US$2-million topline, it’s going to be very hard to get financing now. If you are a sound business and can actually show profitability, it’s not as easy as it was, but it’s also not very hard. The view is back to basic business-the top and bottom lines. Not the fluff.’

KidScreen visited each of the top sites for kids to find out what they’re really like: *****

Mission: ‘A real full-service website that services all aspects of a kid’s life. We want to be the home base for kids on the web, and for us that means going beyond being a Nickelodeon promotional site.’

Vitals: Launched in 1997; relaunched June 2000. Owned by Nickelodeon (a Viacom company), based in New York.

Target: Kids ages six to 14.

Content: According to senior VP Taran Swan, ‘the approach with is to offer kids the kind of functionality and content that they want and deserve-like you would find for an adult at Yahoo!, for example-but from a kid’s perspective.’

They succeed in spades. There’s so much to do on, the biggest problem may be figuring out what to do first. In each of the main areas-All Nick, Games, Music, Web Lab, Blab and Your World-there are enough activities to appeal to a broad range of kid interests. Features include games, personal calendars, horoscopes, updates and information on Nick characters, as well as a homework research section presented in partnership with Britannica and a full slate of message boards that are ‘scrubbed’ by staff.

Because the site wants to appeal to a wide range of kids, some of the areas might feel too babyish for older kids, but every age group can find plenty of features that feel like they were made just for them. And the sound effects and music are a fun addition.

Look and feel: Everything about the site has a familiar feel, beginning with the orange Nick ball on the home page, to the cast of Nickelodeon characters who populate the site and the bright color scheme. Professionally laid-out but still kid-friendly, the site looks like it could have been designed by computer whiz-kids.

Ease of use: The different areas are well marked and easily accessed by tabs, icons and a ‘quick jump’ search box. However, the page download time can be considerable, which could send kids with itchy mouse-fingers looking for entertainment elsewhere.

Advertising: Swan says the company has made a conscious decision to limit advertising to banner ads at the top of each page for now. According to Competitive Media Reporting, the site generated only US$5,000 in ad sales revenue in 1999, which rose to US$43,518 over the first two quarters of 2000.

In short: This site provides experiences for kids that will keep them coming back-and staying for awhile when they do. ***1/2

Mission: ‘To offer a rich and entertaining time for kids while providing playful learning and increased technological fluency.’

Vitals: Launched June 1996. Based in New York, owned by privately held MaMaMedia Inc.

Target: Kids ages five to 12.

Content: Founder and CEO Idit Harel says this site is all about combining play (the part kids like) with learning (the part parents like). In many ways, it has the feel of an on-line Sesame Street. ‘We are promoting an on-line experience,’ Harel says. ‘The end goal is to make your own. `Here is a character we created-create your own. Here are some space-oriented websites, go create your own spaceship art.”

Which is exactly why kids browsing through MaMaMedia will sense that this site is the kind teachers would have them looking at during school computer time. While some of the games are engaging, some of the activities smack too much of homework, albeit dressed up in colorful web pages.

Look and feel: A kinder, gentler kid space with a distinct bent towards the younger ages in the target demo. The preschool style graphics would seem to be hard-pressed to attract a sizable tween audience. The pages are informationally and graphically simple, particularly when compared to a or

Ease of use: Because of the site’s relative simplicity, navigation is easy and the pages load quickly. Kids sign up to be members using a brief information form that would probably require parental assistance for younger kids. MaMaMedia then sends an e-mail to the parent confirming the registration and outlining the site’s privacy policy.

Advertising: Consists of banner ads and sponsored areas, such as a Hi-C sponsored baseball jigsaw puzzle. CMR figures show ad sales at a sizable US$1,244,922 in 1999, and US$456,048 for the first half of this year.

In short: Adults will think this is a great site for kids, while kids may have other ideas once they get the hang of the Internet turf. ***1/2

Mission: ‘Our emphasis is on developing a rich base of content-including games, Web Premiere Toons and character sites.’

Vitals: Launched in July 1998. Primarily located in Atlanta, Georgia, with a smaller office in New York. Owned by Cartoon Network, a division of Turner Broadcasting System.

Target: Kids ages eight to 14.

Content: Divided into eight main areas-Games, Cartoon Orbit, Shop, Toonami, Web Premiere Toons, Favorites, Department of Cartoons and TV. The games feature Cartoon Network stars such as Scooby-Doo and range from brain-teasers to action games. Several cartoon intensive areas have a large selection of toons, which is good, but after a while, a sameness becomes evident.

The Department of Cartoons area offers a behind-the-scenes look at making cartoons that would be a lot more interesting if hosted by a character rather than just presented as pages to view.

The most intriguing area is the newly introduced Cartoon Orbit, a digital trading post (see ‘Cartoon bets on collectibility,’ page 29). ‘From comic books to trading cards, kids have always had a passion for collecting, trading and showing off their treasures,’ says Jim Samples, GM of Cartoon Network Online. ‘Cartoon Orbit updates this activity for the Internet age.’ In this area, kids collect and trade snippets of cartoons. Collectors can choose from the entire library of characters, which will make the game especially engrossing for kids with a trading card mentality.

Overall, the site feels more like a network extension than a new, independent Internet animal. Kids who love the network will probably love the site too.

Look and feel: Although the site will be familiar to any kid who has watched Cartoon Network, visually, it would benefit from more use of active graphics. As it is now, a lot of the pages seem static and the lack of sound effects and music on many of the pages makes for a less exciting experience.

Ease of use: The various areas are well marked, and navigation is easy. However, the loading time on the cartoon shorts was inevitably long and occasionally required refreshing-in one case, causing the computer to log off. The game downloads can also exceed 10 minutes.

Advertising: There are very clearly marked sponsored areas on each page. According to Competitive Media Reporting, the site generated US$97,500 in ad sales revenue in 1999, increasing to US$161,447 for the period of January to July 2000.

In short: Overall, the site’s look, feel and content would rate four and a half stars, but a penalty was in order for brutal download times. The site was tested on several occasions, and with a fast dial-up connection (which is what most people have these days), it can take up to five minutes just to download a regular web page. Few kids have the patience for that. ****

Mission: ‘We’re really focused on the experience-that’s the driver to what we’re doing on-line.’

Vitals: Launched in 1998. Based in Los Angeles, owned by Fox Family Worldwide.

Target: Kids ages eight to 12.

Content: The recently redesigned site is divided into seven areas: Games, Toons, TV Shows, Hangout, Magazine, Digimon and Win Big. Each offers a lot of interactive opportunities, such as an animation lab where kids can make their own cartoons, as well as cartoon and game downloads.

According to COO Adam Chesnoff: ‘We’ve come up with what we believe is one of the top models as far as leveraging our characters and series, but we’re also coming up with original properties.’ Although there doesn’t yet seem to be an abundance of original characters on the site, good use is made of familiar properties, which populate each area.

Look and feel: As soon as you arrive, the site is exciting. There’s lots of flashing and music and bright colors adding to the energy. A sharp design and easy-to-read layout make it clear there are lots of activities to choose from. Definitely has an older kid sensibility.

Ease of use: Navigation is easy, but as with many sites, the download times are considerable for the cartoons. Plus, the offered Shockwave plug-in wouldn’t load within and had to be downloaded directly from Once the plug-in is obtained, the games have variety and will keep kids occupied for hours.

Advertising: Banner ads and marked sponsored areas are seamlessly incorporated into the overall look of the page. Matt Turner, head of Fox Kids Web Net, says Fox offers advertisers more bang for their buck. ‘It’s not just about selling banners. We incorporate all of our media-radio, print and Internet, as well as both TV platforms. Our whole focus is on helping kids build interactive relationships with brands in totally unique ways.’

In short: The redesign successfully made the site more engaging and energetic. The sights and sounds are a great hook and ooze infectious energy. *****

Mission: ‘The primary purpose of is to teach and provide free educational on-line gaming for children.’

Vitals: Launched in 1997. Located in San Jose, California, owned by the privately held Corporation.

Target: Kids ages five to 12.

Content: CEO Sashi Boinapalli wanted a site where ‘kids can play and they don’t even know they’re learning.’ The site breaks its games down by grade levels, but the games don’t feel like disguised homework assignments, though adults peeking in will see the educational value. The games are fun, vary in degrees of difficulty, and there are so many to choose from that a kid could quite literally sit for hours playing. One of the better features is that the difficulty levels of the games can be adjusted, allowing kids to gauge their own improvement.

Boinapalli says, ‘I always wanted to stay on the right side of the parent and the right side of the teacher, and that’s why our content is so well accepted.’ Although his games are engaging, there’s a noticeable absence of violence-tinged action games, which may disappoint some older boy kids.

In addition to creating its own content, Funschool also licenses games from outside the company, allowing the creators to retain ownership. Because of this, the site’s library of games is always growing, and there’s always something new to do.

Look and feel: The home page makes it clear that this site is all about games for kids. The graphics are colorful without being too babyish. The overall site is playful and fun, with the game promos interesting enough to make you want to click and see what they’re about.

Ease of use: Navigation is easy and the download times are quick and painless.

Advertising: Currently, the site sports button and banner ads that blend in smoothly with the site’s overall look. However, Boinapalli says Internet advertising will evolve to fit the medium. ‘It has to go beyond buttons and banners. The way we envision the future will be to essentially make advertising interactive.’

In short: This is a site that accomplishes both its objectives without sacrificing the fun for the educational value. ****

Mission: ‘The purpose of the site is to extend the brand and get people excited about Pokémon.’

Vitals: Launched in 1998; relaunched in 1999. Owned by Redmond, Washington-based Nintendo of America.

Target: Kids and tweens ages seven to 14.

Content: ‘ is focused more on a single property than other sites, which tend to have several things going on,’ says on-line manager Dan Owsen. ‘Our site focuses a lot on the game itself, which is a role-playing game and has a lot of depth to it, so it goes a little older.’ Indeed, everything you ever wanted to know about Pokémon is on this site. The site also provides introductory material, which makes it more inclusive.

Look and feel: The site doesn’t have as rich an appearance as some of the other sites, but still projects a sense of fun. This month or next, Owsen says the site will undergo another redesign.

Ease of use: Easy to navigate.

Advertising: No ads were on the site when viewed, and according to Owsen, ‘the promotions on the site do not generate income, per se.’ The Pokémon Players’ Guide and replacement parts can be purchased through the site, but Owsen calls that ‘more of a consumer service than a revenue stream.’

In short: The site is a one-trick pony, but it’s a good, healthy pony. ****

Mission: ‘Our essential function is as a brand extension.’

Vitals: Launched in 1999 by The WB Network, a subsidiary of AOL/Time-Warner. Located in Burbank, California.

Target: Kids ages six to 11.

Content: As a brand extension, the website succeeds: Anything anyone wanted to know about the Kids’ WB! lineup and shows can be found on this site. It is, for the most part, a cleverly packaged Internet infomercial for the network, with a few activities thrown in. Most of the content deals with promotions, albeit subtly presented. Even the games revolve around the characters featured in Kids’ WB! shows. What you see here is what you get.

Look and feel: The site looks great, with bright colors and a cast of familiar characters greeting on-line visitors. The site would be further enhanced by some music and more animated graphics.

Ease of use: The site is very easy to navigate, with reasonable download times.

Advertising: Although does support promotions, Suzanne Colb, senior VP of marketing, says the site isn’t running any banner ads for the time being. ‘This is largely because we are a broadcast network,’ says Internet consultant Nancie Martin, ‘so we are subject to FCC rules in terms of how we promote. We have a marketing component, but we essentially just do programming.’

In short: You couldn’t ask for a better brand extension, but given the rich cast of characters Kids’ WB! has access to, the site should push the envelope a little more. ****

Mission: ‘To be an on-line network for kids.’

Vitals: Launched in 1995. Based in Toronto, Canada, the site is owned by Hoffmann & Associates, a private company.

Target: Although it claims a two to 12 target demo (centering on nine-year-olds), Nikolai seems heavy in the tweens (10 to 12) group.

Content: In spirit, is more akin to than the educationally bent Funschool and MaMaMedia. Site areas include the Clubhouse, Games Galaxy, Bookshelf, Rumpus Room, Neowsworld and the Attic. There is also an on-line toy store for more consumer-minded kids.

At first glance, because of the graphics style, the site seems to be more for younger kids, but if older kids take the time to navigate through the areas, they will find the site full of fun games and interesting activities, such as the Bookshelf, which offers stories to both read and have read to you. Neowsworld is a smorgasbord of current events that offers a kid’s eye view of the world. It’s hosted by the site’s two ubiquitous characters-a 10-year-old boy named Nikolai (named after founder Isabel Hoffmann’s son) and his feline pal Neow-Neow.

Look and feel: The content is great for tweens, but the site has the look of a space intended for younger kids.

Ease of use: Signing up for the necessary membership is easy. Once a member, navigation through the site is self-explanatory and page download time is minimal.

Advertising: Other than a banner ‘ad zone,’ there isn’t much advertising on the site.

In short: The more you browse, the more it grows on you. As an on-line network for kids, Nikolai quietly works. *****

Mission: ‘We’re definitely a site for the players. We’re for the fans.’

Vitals: Relaunched in 1999. Owned by Renton, Washington-based Wizards of the Coast, a subsidiary of Hasbro. Wizards is perhaps best known in kid circles for its Pokémon and Magic trading card games.

Target: The Pokémon area is aimed at kids ages eight to 12; other areas are aimed at kids, teens and adults.

Content: ‘We consider ourselves a content-rich site with a depth for each of the games,’ says Wanda Gregory, director of on-line media. ‘And now we’re going more towards developing our own publishing system and publishing tools, simply so we can deploy content. We’re really on the edge of that.’ For older kids, and surely many adults, this site is gamers’ heaven, with areas that include Trading Card Games, Role Playing Games and Traditional Games.

Look and feel: Has an edgy, slightly darker look and feel that adds to the sense of excitement. A little more attention to music would have gone a long way.

Ease of use: For a gaming site, is remarkably easy to navigate. It has surprisingly reasonable download times for such a graphics-rich site.

Advertising: Although does have some advertising, promotions such as their November Creature Contest (where users can create a Magic card to do battle with a computer opponent), rule the site. Gregory says the prime objective of the 1999 relaunch was to integrate the site’s e-commerce areas with the interactive content. Now shoppers can sample and learn about the games before they buy on-line.

In short: This site succeeds as the haven for serious gamers.

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