Real money: virtual worlds a lucrative new realm for advertisers.

THERE'S always someone watching you in the virtual world of There.com.

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"It's an advertiser's dream. If you've bought Pepsi on the site, then we might send a little dog across the screen with a Pepsi drink, asking if you'd like another," said Michael Pole, chief executive of Santa Monica-based Trilogy Studio, which creates content for the site.

Here in this simulated online community, your avatar--or your online alter ego--can purchase dune buggies and race with other avatars for prizes, buy virtual real estate and start a business, or go shopping for a new virtual wardrobe.

The line between the real and unreal gets blurry when advertisers step in. Fancy a Samsung Blackjack on an avatar friend? You can get a real one delivered to your doorstep the next day, thanks to AT&T, a corporate sponsor on the site. Listening to a virtual concert by the Beastie Boys on the Web site? The band's music can be downloaded through iTunes.

With about 1.5 million registered players, There.com is one of a dozen major virtual worlds in the burgeoning industry capitalizing on people's penchant for living in pseudo worlds.

There.com's distinguishing feature is the casual games content, powered by Trilogy Studio. The company also builds content for Pimp My Ride, one of MTV's new line of virtual world sites based upon its shows.

Pole believes what are called casual massively multiplayer online games--or games that are played online and not on consoles and can support thousands of players at once--are the future of the gaming industry.

Pole recently served as senior vice president in the Santa Monica office of video games publisher Electronic Arts Inc.

"Trilogy is unique in that it comes out of the games industry and it's one of the bigger companies with real experience under its belt," said Chris Sherman, executive director for Virtual Worlds Management, which is putting on the first annual Virtual Worlds Conference and Expo in the San Jose Convention Center Oct. 10-11. "Most other players are in design development and don't have the experience to do that kind of build."

Real money

For those who live only in the real world and the word 'avatar' still conjures up images of a Hindu deity rather than an online character, the economy behind virtual worlds may be puzzling.

But it's become so big that just in Los Angeles, businesses are spinning off products designed to fuel the virtual craze.

Santa Monica-based producer LivePlanet Inc. recently launched Virtual World Productions Inc. to publish online newspapers reporting life in the virtual world. Habbo, a Finnish site where 7 million teenagers hang out, runs its North American operations also out of Santa Monica. GoPets, a South Korean virtual world for people and pets, has made its foray into the U.S. market from its Long Beach office.

Burbank's Walt Disney Co. took center stage recently when it bought Canada's Club Penguin, a universe of dancing penguins, in a deal worth $700 million. The company paid $350 million upfront with the rest expected to kick in if Club Penguin meets growth projections.

Club Penguin is already a hit, mostly among children under 14. Kids buy $2 hats for their penguin avatars and $3 tables and chairs for their igloos. That quickly adds up when the site has more than 700,000 subscribers who pay about $6 a month and 12 million registered users, mostly in the United States and Canada.

In Habbo, where teens create virtual hangouts in cheerfully decorated hotel rooms, most of the revenue comes from sales of knickknacks for avatars to wear and juke boxes and sofas for their rooms. About 2 million Habbo teens are from North America.

Teenagers can only spend up to $10 a week, however, said Teemu Huuhtenanen, president of North America Habbo. The parent company Sulake Corp. is located in Finland.

"We make sure they don't spend more than about what a movie ticket might cost you per week," Huuhtenanen said.

Teens love Habbo because of the possibilities it opens to them, he said.

"You might not be the quarterback on your high school team, but you can be a superstar on Habbo because you wrote the best music that's playing in the virtual world."

An online teen popularity contest is a smidgen of what virtual reality has become as an industry.

Led by Linden Lab Inc.'s 9 million-member "Second Life," a thriving universe of houses, cars and stores on 33,600 acres of virtual land, these online simulated communities have become so sophisticated that they have their own banks and even independent commodity market run by Mountain View-based Spatter, which dubs itself the New York Stock Exchange for the virtual world.

Then there is Jason Jacobs, who recently became a millionaire through his avatar "Neverdie." He collects hunting and mining taxes on an asteroid where monsters live in "Entropia." created by MindArk, a Swedish company. Entropia has about 600.000 players.

Money is collected in Entropia dollars, pegged at the U.S. dollar 10 to 1. and Jacobs earns about $12.000 a month. There's even an ATM card where Jacobs can withdraw U.S. dollars from Entropia to take his family of four out to dinner.

"Operating costs are very marginal," Jacobs said. "I just have to maintain certain herds of wild creatures that appeal to garners who go hunting on my land."

To Jacobs. this is just a typical workday, all in front of a computer in his home office.

The number of people exploring at any given time at Entropia, Second Life and Blizzard Entertainment's "World of Warcraft" with 9 million players, adds up to the size of a small country.

That's why Virtual Worlds Productions has launched two news outlets for virtual worlds-"Grid World News" for Second Life and "Azeroth World News" for World of Warcraft.

"There are more than 30 million people participating in virtual worlds and they're real people," said Larry Tanz, chief executive and president of LivePlanet, which also creates and develops traditional media properties and has a production deal with Walt Disney Co.

"We're running classified ads and syndicated columns about the going-ons in these worlds. Design a fancy shield in World of Warcraft and we may write a story about you."

About 20 reporters cover the two virtual worlds and the company expects to roll out other publications for Entropia and kid-friendly Club Penguin and adolescent Habbo.

Dirty little secret?

Although millions of people around the globe now frequent these parallel universes, once you're there, life in the virtual world can be boring, said Pole of Trilogy Studios.

"It's a dirty little secret. There's not much to do there except buying stuff and chatting," he said.

That's why Trilogy Studios is integrating casual games into the experience. It's in the process of partnering with a major media company to use a well-known character that will walk up to an avatar to challenge him or her in a game of car racing or a puzzle.

Pole's team of 25 game developers recently received $6 million in funding from Chichen Itza Ventures, a lead investor in Makena Technologies that produces There.com. The company received an additional $3.5 million from private investors in August.

Casual massively multiplayer online games are cheaper and less complicated to produce than other video games.

A traditional console game takes up to three years to make and usually costs about $30 million. A virtual world takes six months to build and costs about $3 million.

The free sites rely on revenues from corporate sponsorships and micro-transactions players make to buy virtual items.

"People ask, 'How can you just give it away?'" Pole said. "Because we can. Because it didn't cost $30 million to build it and the scalability is infinite."

Virtual worlds, real dollars: here are descriptions of the biggest virtual worlds. Most have some substantial business connection to Los Angeles.

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There.coM

The virtual social networking site has 1.5 million registered users. Users can "teleport" into a beach town or a shopping plaza, where they can crash a concert, buy a car and cruise with other avatars and go on quests. It's owned by Makena Technologies based in Silicon Valley.

Club Penguin www.clubpenguin.com

It is a world of dancing penguins for children under 14 and has 700,000 subscribers paying $6 month and 12 million registered users, mostly in the United States and Canada. Children can play games, dress penguins and decorate igloos. Walt Disney Co. recently acquired the Canadian company for $350 million.

Entropia Universe www.entropiauniverse.com

A science fiction world of monsters and asteroids with 600.000 registered users. Players

can spend the Entropia Universe currency, pegged at U.S. dollars 10-to-1, to develop their characters on the untamed planet of Calypso. The Swedish company MindArk owns it.

Habbo www.habbo.com

A universe of 7 million teenagers whose avatars hang out in cheerfully decorated hotels, go swimming together or spend hours at a roof top party. Celebrities such as Ashlee Simpson make regular appearances. Teens can spend up to $10 a month on the site, buying $2 sofas and $3 juke boxes for their rooms. Finland's Sulake Corp. is the owner.

Second Life www.secondlife.com

A 9-million resident community of houses, cars and stores on 33,600 acres of virtual land targeted at mostly adults with cold cash. Sixty-four acres recently cost about $5,000 in real-world dollars. It's owned by Linden Labs Inc. based in San Francisco.

BY BOOYEON LEE

Staff Reporter