Virtual Greats Supplying Licensed Virtual Goods to Facebook, App Developers

Last week, Facebook expanded its inventory of virtual goods in the Facebook Gift Shop once again, this time adding licensed music and sports-themed virtual gifts. Facebook signed an agreement with for rights to distribute “web-only” and full MP3 songs in the US, but less publicized was the company’s partnership with Los Angeles-based Virtual Greats for rights to distribute officially-licensed NBA, MLS, and college-themed virtual gifts to Facebook users worldwide.

Virtual Greats is a licensing aggregator, gathering buckets of IP from the entertainment industry on one side and sub-licensing them to virtual worlds – and now, social networks, applications, and games, on the other. It got its start by focusing on celebrities like Justin Timberlake, 50 Cent, Snoop Dogg, and Paris Hilton, but has since also secured rights for entertainment brands like the Hulk and Street Fighter.

While Virtual Greats partnered with large app developer RockYou earlier this year, this is the first deal it has signed with a major social network. Sports-themed virtual gifts that Facebook licensed from the company are now available in the “Sports” section of the Facebook Gift Shop.

“The team at Facebook has great product sense – they know what users want,” Virtual Greats’ Brett Orlanski says. “It’s becoming clear that virtual goods aren’t just popular in virtual worlds.”

While it’s still early in the game, total virtual goods sales in the US will top USD $1 billion in 2009, according to our Inside Virtual Goods report. However, only a small percentage of that number reflects virtual goods sales by major social networks like Facebook and MySpace – the majority of transactions are occurring in social applications or other online games. Nevertheless, branded virtual goods represent a significant opportunity for Facebook to grow its virtual goods business.

Most developers don’t realize how complex it is to secure entertainment IP from rights holders. Orlanski says that, in addition to securing the right to sub-license items, everything Virtual Greats creates must be approved by the IP holder. For example, it must follow strict color codes and font guidelines for Laker jerseys, and Paris Hilton and Snoop Dogg must approve how the items actually look. When you’ve only got 130 by 130 pixels, each one makes a difference.

Ultimately, it’s still early for branded virtual goods on social networks, but we believe the fundamentals make sense. People have paid a premium for branded items that don’t offer any other additional functional utility for a long time, and the same dynamics apply in many online contexts as well – Facebook included.