January 29, 2001 1:45 PM PST

Disney to shutter Go.com portal

Walt Disney said Monday that it will discontinue operations of its troubled Go.com Web portal, becoming the latest big media company to fold its Internet efforts back into core TV businesses.

Go.com's entire work force, about 400 employees, has been laid off with the closure, said Disney spokeswoman Susan Murdy. The layoffs will shut down the portal's Sunnyvale, Calif., office, where the majority of its employees were based. The laid-off employees were given severance packages that included 60 calendar days of pay and benefits, according to one source.

In addition, Infoseek, a search engine in which Disney acquired a controlling interest in 1998, will likely disappear if the company can sell its technology to a third party, Murdy said. The company may also sell the site's traffic, giving the rights to redirect people who visit Infoseek to another Web site, she added.

Disney's decision follows similar moves by other big media companies. Creating hub Web sites to vault people to other content sites may be an ill-fated strategy, analysts say, adding that Web users, like TV viewers, go to brands they trust.

"The belief in centralizing and forcing people into one media entity is a fallacy," said Charlene Li, an analyst at Forrester Research.

Disney will convert all outstanding shares of Disney Internet Group, the tracking stock for its Internet operations, back into Disney common stock effective March 20. Each share of Disney Internet Group stock will be converted into 0.19353 for every share of Disney common stock.

Disney Internet Group nosedived from reports that hinted at the restructuring Monday morning, sliding as low as $3.68. The stock shot up once the Go.com closure was announced. Disney Internet Group closed down 8 cents, or 1 percent, at $5.86, while Disney shares gained $1.01 to $30.82.

With the Go.com closure, Disney will incur charges in the second quarter of this fiscal year. The charges include a noncash write-off of $790 million, or 37 cents a share for intangible assets and between $25 million and $50 million in costs related to severance, fixed-asset write-offs and other items.

The company said it will focus on the individual Web sites instead of growing the Go.com umbrella site. These sites include Disney.com, ESPN.com, ABC.com, ABCNews.com, Movies.com, Mr. Showbiz, NFL.com and Family.com.

"The Internet continues to be a central focus of our company's business strategy," Disney Chief Executive Michael Eisner said in a statement. "We believe this action should help us gain greater competitive advantage as we leverage Disney's creative content, brands and other assets."

Go.com, Disney's most aggressive attempt to compete for online market share, was conceived as Web media companies such as America Online, Yahoo, Excite.com and Lycos were blazing trails on Wall Street. Disney used assets from Infoseek and its Starwave subsidiary to launch Go.com in January 1999.

A year later, however, it made little sense to spend millions to promote a new umbrella brand. Instead, the company tweaked Go.com's focus and attempted to devote the site to "entertainment and leisure." Executives said at the time that the move would differentiate Go.com from the portal leaders, but analysts viewed the changes as an admission that competing against existing Web portals was an expensive--and losing--battle.

Go.com woes may not be limited to strategic lapses. Disney may simply have jumped into the game too late, analysts say.

"I think this was more a question of timing," said Jordan Rohan, an analyst at Wit SoundView. "If they were first, it may have worked. (But) if you're not a No. 1 or No. 2 business in Internet, it's nearly impossible to break even."

Go.com becomes the latest casualty of big media Web flops. The most notable example was Pathfinder, the expensive Web gateway that Time Warner created to promote online content from its family of Time Inc. magazines, such as Time, Sports Illustrated and People. Time Warner eventually shut down Pathfinder, saying that most readers were going directly to the magazine Web sites.

In addition, several companies have recently announced plans to let their respective TV or magazine brands run their Web sites instead of maintaining separate Internet operating divisions. News Corp.'s Fox division recently disassembled its Internet division and folded its Web sites back into its TV properties. Viacom's MTVi Group also lost sole control of the media giant's Web operations.

The newly merged AOL Time Warner could be planning to take another stab at the umbrella idea. The company is moving to make Netscape a hub that features the company's content properties, including CNN and Time Inc.'s publications.

 

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