Feature: Millions of Us and Virtual Greats; Merchandising and Virtual Goods

Earlier this week, Millions of Us announced the launch of a new company, Virtual Greats, based on licensing celebrity- and entertainment-branded virtual goods and distributing them to various virtual world and social media platforms.  The idea of branded virtual goods isn’t entirely new, but this approach is striking into new territory.

“The key difference is that this is a transactional model,” said Millions of Us CEO Reuben Steiger. “Those prior entries into the market were promotional in nature. In some cases, I'm not going to name names, where they've been transactional it hasn't always been with correctly structured licensing. The fundamental thing here is that there's a huge value from the artist perspective to address the entire market from a distribution perspective and for distributors, the virtual worlds, to tap into a preapproved, top-level collection.”

Partners and Competition

“In the early days, it suggests there's a huge value add for a platform,” Steiger continued. “They have a thousand things to deal with, and it's nice to not have this be one.”

That’s a benefit that partners are seeing. Virtual Greats forecasts a market of at least 60 different virtual worlds and spaces, though so far only Gaia Online has been announced as a partner, set to  launch in 6-8 weeks with 3 brands. 

Many potential partners already have their own virtual goods system in place, and often with at least a few celebrity brands—Gaia recently drew 500,000 users for a prom event with Christian Siriano. Still, they see an advantage to letting Virtual Greats handle the contracts and licensing.

“Working with partners like Virtual Greats allows Gaia to focus on our core strength - creating high quality experiences for our 5+ millions users that include virtual items, storyline, and interactive social experiences,” Craig Sherman, CEO for Gaia Online, explained. “The potential cost of losing focus on crafting a great experience far outweighs the cost of working with a third party. Our partnerships are focused on expanding the foundation of what can be available to our users who are interested in a range of content and experiences including celebrities. As we continue to grow our virtual goods business, we expect that we'll enter different kinds of partnerships that will enable more of our users to acquire virtual goods that are of interest to them.”

Habbo Hotel and Second Life have been mentioned as obvious markets, though nothing has been set in stone yet.  Habbo declined to comment beyond noting that there were no plans to announce at this time. Likewise, Virtual Greats representatives declined to comment about potential partnerships other than to confirm that the company “will definitely do business on multiple platforms.”

Of the larger potential market, though, Virtual Greats is still on the look out.

“We're in talks with a select subset of that list and Gaia is our exclusive launch partner,” said Steiger. “We're going to focus on getting live deployment in Gaia in the next 6-8 weeks and start folding other distribution partners in after that.”

With all those potential partners, some, including myself, have wondered if this would bring virtual goods that users could own across multiple worlds and environments. For example, a Justin Timberlake hat bought in Facebook could be taken to deck out an avatar in Gaia Online.

That won’t be the case, though. Users won’t buy the idea behind the item, the concept of Justin’s hat, they’ll buy a virtual hat, avatar, catchphrase, etc., specifically for the world they want to use it in.

That may help cut down on competition between distributors—though Steiger doesn’t see much overlap of audience even in competing worlds like Gaia and Habbo Hotel.  Past that, users can look for a potentially different different experience in each world.

“There is always risk with partnerships that are new and relatively ground breaking,” Sherman said of the risk of competing with fellow distributors, selling the same celebrity brand to a similar audience.  “The real value of virtual items is in the quality of the integration into the respective experience. At Gaia, we always have a story to tell and how the celebrity brands and items integrate with and ad value to that story is where the real magic happens. We've pioneered a range of virtual good breakthroughs before including the ability for a user to receive the same virtual good in Gaia and MTV's The Hills, for example. In this instance, we think our users will be excited by the offering that was also launching first on Gaia. While the celebrities may be the same across multiple worlds, the related items and what you can do with them may differ.”

Taking Virtual Goods to the A List

Virtual Greats is hardly alone in the market for bringing celebrities and film products to virtual worlds. Aside from a deal between Paramount and  Habbo Hotel to create virtual merchandise based on three films, most virtual goods come as promotional items. They expose the brand to a wider audience and give that audience a reason to come back to the virtual world.

And it’s hard to dispute the appeal of celebrities.

“The appeal is all about engagement,” explained Matt Palmer, EVP and GM of Stardoll,  “On Stardoll users love the playful game of dressing-up their favorite stars in a wide assortment of virtual fashions and accessories.  This core activity has helped drive Stardoll to its phenomenon status today, with nearly 18 million registered users and 8 million monthly unique visitors.  Our users have been strong advocates for deeper celebrity ties, and weíve responded by forming partnerships directly with celebrities to deepen the engagement. It’s clear on many levels that Stardoll users both desire and adore the emotional connection we enable with celebrities.”

It’s certainly working for Stardoll. A recent 60-minute chat with Heidi Klum drew in users from 147 countries; another with Avril Lavigne generated 56,000 questions in 40 minutes.

Palmer said that Stardoll has reached out to Steiger about cooperation, provided the business side is enticing enough. If not, the Palmer says the company is still able to go it alone—and that that option may be more appealing to some brands.

“Stardoll offers a very unique opportunity to a variety of partners, including celebrities, fashion, beauty, music and entertainment brands,” he explained.  “We are a sophisticated platform in which virtual goods are one component of the opportunities we present.  Virtual Greats is a representational option to the celebrity community, but as we've proved through our multiple deals, we have a compelling offer in the marketplace and are already working with celebrities directly, which in terms of economics may be more desirable to talent and their management.”

It’s not always that easy, though. Steiger explains that this sort of deal doesn’t come together overnight. Millions of Us and Virtual Greats worked with Gary Stiffelman and Skip Brittenham, entertainment lawyers with connections through the industry, to establish interest. Then came the matter of bringing celebrities in and finally establishing permissions.

“This started from ground zero, explaining this really new and fast growing market and doing a ton of education,” Steiger said of the outreach to celebrities and entertainment IP holders. “They've been so far, thankfully, incredibly receptive.  We also have the good fortune to have a great team to work with. It's a completely new business model with very, very high value IP. It's a pretty amazing feat to pull off.”

Legal Issues

And, of course, dealing with the legal issues surrounding celebrity likenesses and merchandising isn’t at the core of every virtual world platform’s expertise.  The laws governing the requirements for likenesses like these vary from with jurisdictions from state to state, for different time periods, and for different purposes.

“What I find interesting is that you're seeing companies putting in these legitimate brands with avatars,” explained Sean Kane, Manager of Drakeford & Kane LLC’s Intellectual Property Practice Group. “For a year or more, I've shown that some of the avatars you can buy in worlds with celebrity avatars are potentially problematic. Many jurisdictions have protections for celebrity images, whether that's names or likenesses. [Virtual Greats is] avoiding coming into conflict by working with licenses.”

That’s true of worlds like Second Life, where copyright, trademarking, and brand protection have always been thorny issues for big businesses. As we move towards a new model of virtual goods, treating them as licensed merchandise,that might change.

“It's already starting to push change,” Kane explained. “You're starting to see video games and virtual worlds rights written into entertainment contracts. When a new movie comes out and a celebrity signs off rights to do promotions, you're starting to see virtual worlds and avatars put into those contracts. I think it's going to change merchandising only to the extent that we may see a higher level of protection for these things. As of now, there aren't a lot of real world companies playing in the space. Once you have larger companies getting involved in merchandising and using successful celebrity brands to do so, there's going to be a higher level of oversight. I could definitely see a crackdown on infringers if they're marketing these virtual goods. Something like that could open up a floodgate.”

Millions of Us declined to comment on legal matters concerning infringers, though as Steiger pointed out, the company is aware that others have worked without proper licenses.

Regardless, Millions of Us President Christian Lassonde did say that the company’s intention is always to work with users to pursue solutions before bringing in the lawyers.

A favored, though sometimes frustrating, option inside of Second Life has been to pursue recourse through the Digital Millenium Copyright Act (DMCA), notifying Linden Lab, or whomever the operator may be, of copyright infringement and having them take it down.

With celebrity likenesses, it’s a bit more complicated.

“I don't see that as a DMCA takedown. It's not strictly a copyright question,” said Kane. “What you're really dealing with is an image infringement. I think you'll have to go after them in another way. I do think people will try the DMCA because it's easier and they'll argue copyright in some way. For example, Johnny Depp is the holder of the rights in his image. However the image of [Jack Sparrow] in the Pirates of Caribbean is an image owned by Disney. If you're doing an avatar like the Pirates of the Caribbean, Disney might have a copyright claim. And Johnny Depp could also have rights to the image.”

The complicated issues may be why some providers haven’t pursued full licenses, optioning to work more informally. For example, while Stardoll cites deals with stars ranging from the Pussycat Dolls to the Olsen twins, not all of its avatars, like Paris Hilton and Justin Timberlake, are covered in explicit arrangements.

“We have deals with numerous celebrities, and expect to continue forming partnership along these lines,” said Palmer.  “Over a year ago we established an office and leadership in Hollywood with a goal to form partnerships and broaden the opportunities with all the celebrities represented on our site. […] There is tremendous interest in working with us, and celebrities, managers, agents and agencies have all responded favorably.  Conversations will continue, and in regards to Paris and Justin, they are not signed partners but we’ve spoken with their management and remain interested in working with them on a partnership level.”

The Trend

My personal interest is in whether this launches a new way of looking at goods. It seems like, if nothing else, brands and businesses are increasingly willing to experiment.

“As virtual worlds mature, you're going to see a lot more legitimate businesses moving into it,” said Kane. “You're seeing companies really understanding the value of branding their worlds and here with celebrity images.”

I’m particularly interested in how that change is popping up in consumers. Facebook gifts have taken off and virtual worlds for all demographics have seen success in monetizing virtual goods, but there’s still something that, it seems to me, just feels off to the average Joe, especially in the older generations, about paying something for “nothing.” 

Kids may see virtual goods as a logical product of their toys and imaginations, but can the new business models convince all the adults—on both sides of the cash register?

“It's still pretty early in the business of virtual goods,” explained Sherman. “Gaia has been fortunate with success, which has really been driven by the interests and enthusiasm of our users. We expect that as users continue to buy virtual goods, the business will expand and begin to provide the reassurance to the rights holders that this is a viable way to move forward.”

If nothing else, Millions of Us is optimistic.

“We're seeing a very big trend and think that's only going to continue,” concluded Steiger. “We think that this is a watershed moment. We think we have a model that has a lot of advantages—and the market will bear that out or it won't. We think it will.”