Hollywood hot for Second Life

But are virtual worlds for real?

Related content: Dialogue with Second Life CEO Philip Rosedale

If Second Life seems like it is going Hollywood, blame AOL. The Time Warner-owned brand established a beachhead in this much-hyped online virtual world in the form of a dazzling new island, AOL Pointe, complete with its own amphitheater and skate park. But one of its gaudiest attractions lies on a path just outside the skate park. It's called StarLane, and like its real-world inspiration, the Hollywood Walk of Fame, it is paved with the names of familiar celebrities.

But AOL gave StarLane a few twists. Move too fast and you wouldn't even notice that the names have been tweaked, such as Leonardo DiCamera and Sim Basinger -- a sly wink at AOL's digital digs. And because everyone is a star in this age of user-generated content, StarLane also allows users to grab their own slabs of virtual cement and plant their own pixilated palm prints.

AOL is far from the only media company hoping to leave a lasting impression on virtual ground. In recent months, rarely has a day gone by without a press release from one content company or another -- including CBS Corp., NBC Universal and Sony BMG -- announcing that they, too, have put roots down in Second Life. Other conglomerates such as the Walt Disney Co. and Viacom have launched virtual spaces of their own outside Second Life. Rumors are even swirling in the blogosphere that Google might not be far behind; conspicuously silent are News Corp. and Yahoo!

What this land rush amounts to are early experiments by media companies attempting to get their bearings on an unfamiliar platform that could be poised for critical mass, perhaps in the form of Second Life. The pressure is on to identify the Next Big Thing on the Internet without arriving too late at the party -- a bad habit Hollywood is looking to shake, according to Sibley Verbeck, CEO of Electric Sheep Co., a firm that produces virtual experiences for the likes of CBS Corp. and Sony BMG.

"They've seen YouTube and MySpace go by, and some of those cut to the heart," he says. "They're finally really ready to say, 'What can we do to participate in a new business model to make sure that five, 10 years from now, we have our business going strong?'"

But whether virtual worlds are worth the hype is a subject of considerable debate. While critics dismiss sites like Second Life as a high-tech flavor of the month, others consider them the nothing less than the leading edge of Web 3.0, an evolutionary leap that could transform the entire Internet from a relatively static collection of 2-D pages into a 3-D universe more like the real world.

Jeff Yapp, executive vp MTV Networks Music and Logo Enterprise Group, likens his company's aggressive push into virtual worlds to its flagship brand's introduction of music videos in the 1980s. "We fundamentally believe that this platform -- 3-D virtual reality -- could take us to a place that could be game-changing, that can fundamentally change our business models," he says.

That said, media companies are left with lots of questions. Given how the Internet's most recent killer apps tend to be monopolized by one dominant company -- think online video and YouTube, or social networking and MySpace -- can they afford to ignore Second Life? No matter who makes virtual worlds viable, they might have big implications for traditional methods of advertising, distribution and even production. Unless, of course, this is all just a passing fancy.

"We're experimenting at this point," says George Kliavkoff, chief digital officer at NBC Universal. "It's still very, very early to determine whether this is a huge phenomenon or a curiosity."

Brave new worlds

Imagine the premise of 1999's "The Matrix," which presented a computer-generated 3-D alternate universe where humans could interact, filtered through the bizarre sensibility of "Alice in Wonderland" and rendered with the graphics of "Grand Theft Auto," and you'll end up with something like Second Life. It is a vast digital realm that users navigate free of charge from their computers through customizable animated figures called avatars, which can chat, dance, even fly and yes, fornicate with one another other.

But it's not all fantasy: Second Life also has its own economy in which an estimated $1 million is spent on virtual property, goods and services every day. The currency is known as Linden Dollars (exchange rate: $1=274 Lindens), a nod to Second Life creators Linden Lab, the San Francisco-based company that launched Second Life commercially in January 2004 and already claims to be profitable. Under the direction of CEO and founder Philip Rosedale, the 100-employee company takes a hands-off aproach to tending to this self-sustaining world.

"One of the most important things about Second Life is it's like a country," Rosedale says. "We'll not engage in a relationship with another company that will create some sort of a polarization or position in Second Life that would disadvantage everybody else. It's the opposite of how things sometimes work in Hollywood."

Related content: Dialogue with Second Life CEO Philip Rosedale

Second Life has attracted plenty of household-name brands, including Adidas, Sears and Starwood Hotels & Resorts Worldwide Inc., but more and more of Second Life's most recent tenants are media companies. NBC Universal hosted a virtual Christmas-tree-lighting ceremony in November at a simulated edifice of Rockefeller Center that boasts its own skating rink. The company has since followed up with a promotional shoot-'em-up game inspired by Universal's January release "Smokin' Aces" and a virtual fashion show held by iVillage. Warner Bros.' Sire Records threw a listening party for new artist Regina Spektor in a digital space decked out as a hip loft apartment. CBS Corp.'s Showtime Networks opened a complex with a theme inspired by its steamy series "The L Word" and is currently developing a potential "Star Trek"-branded area.

These are just a few examples of a burgeoning category on Second Life that shows no signs of flagging, according to Reuben Steiger, founder of virtual production house Millions of Us, whose clients include Warner Bros. "We're going to double down that this is the year entertainment explodes in Second Life," says Steiger, formerly the in-house "evangelist" for Second Life. "In the last month, it's just gone haywire."

Content companies migrate to wherever the eyeballs are, and there's mounting evidence that Second Life is fast becoming a hive of virtual activity. By the end of 2005, Second Life was closing in on just 100,000 "residents," meaning how many users had signed up for the accounts necessary for access. By February 2007, that number had reached the 3 million mark. Of course, by Second Life's own estimation, only 10%-15% of people who register are active users, and the growth curve still isn't on par with the boom that propelled MySpace or YouTube.

JupiterResearch vp and senior analyst David Card cautions that corporate newcomers to Second Life might need to watch their timing. "There's definitely buzz and quite a bit of growth, but it's still a relatively small platform," he says. "So many companies are getting in now, but at some point the PR value will wear off, and these things will have to pay off on how many people are being reached."

In addition, the audience for Second Life also is dwarfed by that of "World of Warcraft" and "EverQuest," titles of a gaming genre that is a close cousin of virtual worlds and is known as massively multiplayer online games, or MMOs. MMOs have the same vividly rendered worlds as Second Life, but they fundamentally differ in that they are structured as formal games, whereas Second Life provides no particular objective.

The Walt Disney Internet Group has created several of what it calls "immersive" online environments that it classifies in neither category. They include the Virtual Magic Kingdom, a theme-park-themed area that is more social network than pure-play virtual world, as well as an upcoming "Pirates of the Caribbean" venture based on Buena Vista's blockbuster movie franchise that will have enough cannons and swordplay to satisfy gamers.

"I'm not sure where MMO games end and virtual worlds begin, and I'm not sure it matters," Disney Online executive vp and managing director Paul Yanover says. "I think what's happening is that those dividing lines are purposely getting blurry."

Stephen Youngwood, executive vp digital media, Nickelodeon and MTV Networks Kids & Family Group oversees Nickelodeon's new virtual world, Nicktropolis, an environment that allows kids to juggle an increasing variety of online tools encompassing gaming, video, community and personalization. To his mind, a 2-D environment can barely support that range of activity. "By creating a virtual world, you're bringing a bunch of things together, as opposed to what you can do on a flat Web page," Youngwood says.

Video in particular opens up an interesting range of possibilities in virtual worlds. A Second Life resident can simulate a theater to exhibit film or television, enabling multiple individuals to watch simultaneously -- a departure from the solo viewing typical of Internet media consumption. In January, the Sundance Channel held a screening of 2006's "Four-Eyed Monsters" for 300 avatars sitting in 10 different theaters online. If the notion catches on, media companies could be studying the legal and financial implications of including virtual worlds in the traditional distribution windows.

Advertising is another area that could see a bold rethinking in a virtual-world scenario. While traditional ad banners and even product placement are part of the mix, there is the opportunity to go beyond mere exposure to engagement with a brand, akin to what has long been envisioned as interactive television. MTVN's Virtual Laguna Beach has experimented with allowing major advertisers to take on unusual roles inside the environment, which offers a digital approximation of the real-life town depicted on the MTV reality series "Laguna Beach: The Real Orange County."

PepsiCo., for instance, doesn't just plaster virtual billboards on familiar "Laguna Beach" landmarks. Instead, when users attempt many of the myriad activities available in VLB, such as the gravity-defying sport of hoverboarding, they are awarded points that they can trade in for all sorts of Pepsi-branded gear. Cingular also is in VLB, but in the form of its own avatar that interacts with users.

"You turn the brand from an advertisement to content that people will interact with like all of their other content," Yapp says.

None of MTVN's virtual ventures are in Second Life, however -- a telling reminder that the hyped site is not the be-all and end-all of the category. MTVN built VLB with Makena Technologies Inc., which runs a Second Life competitor called There, and still other entities are looking to compete, including Doppelganger.

For all its success, Second Life has given media giants plenty of reasons to balk at its borders: Although "mature" areas are clearly marked, there is enough adult-oriented material on Second Life to make MySpace look like "Romper Room." Protecting intellectual property rights also is a concern as the platform enables residents to manipulate objects at will. The Digital Millennium Copyright Act covers Second Life, but it could be vulnerable to content piracy. And the biggest issue might be whether such a complex technology can scale up to meet the kind of demand envisioned by even modest growth projections.

And why would MTVN need Second Life anyway? VLB scored 367,000 users in three months, a sum Second Life took several years to reach. MTVN attributes that to several factors, including a more intuitive interface; many observers contend the biggest barrier to entry at Second Life is that it can take dozens of hours to truly understand how to navigate. MTVN made it simpler.

"With phenomenons like YouTube, MySpace, even iTunes, they spend a lot of time getting that interface easy to use and accessible for everybody," Yapp says.

In addition, MTVN has the promotional power of its own TV programming to raise awareness for its virtual ventures and has drummed up plenty of interest with minimal marketing. This ability raises another important question: Do media companies need Second Life, or might it be the other way around?

"I think there's only so many people that are going to come into Second Life to wander through this scattered, hard-to-know-what's-in-here world," Sibley says. "What's going to bring mainstream users into the virtual world and other platforms is going to be media companies."

But Gartner research vp Mike McGuire questions whether virtual worlds really have anything distinctive to offer media companies. "Are they bringing something truly differentiating, or are they just putting something in a 3-D wrapper?" he says. "I don't think they will help grow the audience. It will take creative thinking on the (part of the) media companies to make sure they're not part of scenery."

The connection between programrs and virtual life also might portend innovations in programming itself. Consider another MTVN simulated property, Virtual Hills, where the cast members from the MTV reality show "The Hills" head online with their avatars and interact with users. Where the program ends and its virtual extension begins could end up blurring traditional notions of programming; does a show ever truly get canceled if it lives on virtually? MTV is only just starting to explore ways to bleed the two together, according to Yapp. "It's not like it's a one-off console-game experience based on a TV show," he says. "It's connected 24/7."

Virtual worlds in and of themselves can be programming. In the Netherlands, home base to unscripted production giant Endemol, a virtual-only version of international franchise "Big Brother" launched online in December, cloistering avatars together in a virtual enclosure. Musicians from Jay-Z to Ben Folds have gotten into the act as well, actually performing in the form of avatars.

"By this time next year, some very large percentage of celebrities will have avatars," Steiger predicts. "Whether they'll personally operate them, I don't know."

The trend extends to amateurs as well: Second Life residents can create their own programming by capturing video of their environment. Examples of this kind of avatar-populated animation, already known in the video-game world as machinima, are sprouting all over YouTube, and media companies also can get creative here instead of simply extending offline fare into virtual territory. "We look at this as a viable medium in its own right," Yanover says. "It could be the birthplace of a new franchise."

But Jupiter's Card believes there are just so many programming assets suitable for that kind of treatment. "'Star Trek' lends itself to enveloping yourself in an environment that is this world," he says. "I have hard time seeing how you extend the life of (feature films like Fox's) 'Borat' or (New Line's 'Little Children')."

Virtual land grab

So far, media companies have treated Second Life and other such virtual worlds as a platform for placing content, but could a bolder move be afoot to acquire such a platform or develop a dominant one themselves? Dennis Miller, general partner at Spark Capital, which invests in media properties, has serious doubts but allows that anything can happen in a media sector positively "frothy" with marketing and advertising possibilities.

"There's maximum paranoia and minimum clarity," Miller says. "Everybody has their nose up looking for the next aggregated audience accumulating in a viral way. There's a lot of tire-kicking."

But Miller also believes media companies might not have the stomach for such a fundamentally different business, drawing a comparison to how scant an ownership stake Hollywood took in the now-gargantuan video-game business. "The traditional media companies -- at their core, their DNA is still in creating longform linear product," he says. "I don't think they're particularly ripe for success in the virtual world."

There's been little precedent here besides Viacom's $160 million purchase of Neopets in 2005. Nevertheless, the example set by News Corp.'s audacious acquisition of MySpace might embolden a conglomerate. "The challenge is when you're trading low-teen multiples and the acquiree is doing limited revenue at this point in time, how many people will take the step like (News Corp. chairman and CEO Rupert Murdoch) did and take clever ways to monetize this?" Miller asks.

"You'll see the same old story repeat in virtual worlds," Steiger says. "Some will take leadership positions, and there will be a group of people who will see this as a real threat, and they'll do nothing until their hands get forced and they come kicking and screaming into the new era."

As for Second Life, Marcien Jenckes, vp of AOL's instant messaging and social-networking initiatives, cautions that not every Web property that draws buzz keeps it going in the long run. "If someone had been looking at the social-networking space when Friendster was getting a lot of traffic, they may have drawn the same conclusion, but it turned out Friendster wasn't the solution. The same could apply for this space."
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