Disney eyes Starwave investment

Walt Disney (DIS) is negotiating to buy a stake in Starwave, a Web content, design, and management company owned by billionaire Paul Allen, according to sources close to the company.

Conclusion of negotiations between the two companies, which jointly operate ESPN's SportsZone Web site, hinges on determining the exact size of Disney's investment in Starwave. Talks could conclude within two weeks, according to sources.

Analysts place Starwave's value at between $250 million and $300 million. Starwave has annual revenue of about $15 million, but has yet to turn a profit.

The deal would accelerate Disney's plans to develop a new family-oriented online service. Those plans, as previously reported by CNET, could pose serious competition for America Online and other online services that target families.

The Starwave investment is aimed at bolstering back-end technology needed to host the planned new site, sources said.

Last year, Disney acquired the ESPN television sports channel as part of its $19 billion acquisition of Capital Cities/ABC. Analysts credit ESPN as a key factor in Disney's 38 percent jump in first-quarter profits.

Paul Allen is also an investor in CNET: The Computer Network.

Internet editor Jeff Pelline contributed to this report.