Disney to Buy 43% of Web Firm Infoseek

Walt Disney Co. raised the stakes in its high-profile bet on the Internet by agreeing Thursday to buy a 43% stake in Infoseek Corp. for its majority stake in Starwave Corp. plus about $70 million in cash.

Disney plans to turn Infoseek into a top Internet “portal” site, a starting point for linking to the World Wide Web’s millions of pages in an easy-to-navigate fashion. Portal sites can charge the highest advertising rates because they attract the most Web surfers. Disney expects to introduce the new Infoseek portal by the end of the year.

“From our point of view, it’s about reach and having a product that delivers the breadth of the Internet in a way that really helps people and makes their lives a little easier,” said Jake Winebaum, chairman of Disney’s Buena Vista Internet Group in Burbank.

Analysts said the deal will make Disney the most visible entertainment and media conglomerate on the global computer network. But Disney is certainly not the only traditional media company seeking to expand its reach--and its profits--on the Internet.

Just last week, NBC spent $64 million for a 4.99% stake in online content firm CNET Inc. and 19% of its navigation site, Snap. Even leading navigation and search sites such as Yahoo, Excite and Netscape’s Netcenter are looking for partners with strong name recognition, distribution channels and bank accounts.

“Most of the investments on the Internet so far have been major media companies putting a toe in the water,” said Shaun Andrikopoulos, an Internet analyst for BT Alex.Brown in San Francisco. “This is a lot more than that.”

Four-year-old Infoseek, of Sunnyvale, runs a Web search site that organizes Internet content into easy-to-navigate categories. The company has won kudos from analysts for its underlying technology, although consumers tend to favor Infoseek’s rivals, such as Yahoo, Excite and Lycos.

But that is expected to change. The new Disney-backed Infoseek will spend $165 million over five years to promote the site in both traditional and new media.

“They’re taking a No. 4 player among the group of Internet portals, and they’re moving instantaneously into a No. 3 slot, and even possibly a No. 2 slot,” said Andrikopoulos.

The Disney deal is a clear boon for Infoseek, which now enjoys a secure future. In early-morning Nasdaq trading, Infoseek shares shot up more than 20% to $42, but quickly fell back to close at $35.13, up about 2%.

Winebaum said Disney and Starwave, a new-media firm, have known for a year that they would eventually form a partnership with an Internet search and directory company.

Infoseek emerged as the most attractive candidate over the last several months based on its core technology, its corporate culture and its people, he said.

Starwave Chief Executive Mike Slade, who had worked with Infoseek President and Chief Executive Harry Motro, strongly endorsed the partnership.

One advantage for Disney in choosing Infoseek is its price. Compared with companies such as Yahoo--which is trading at 68 times revenue for the previous four quarters--Infoseek, with a multiple of 25, seems reasonably priced, said Linda Bannister, a media analyst with Edward Jones in St. Louis.

But analysts emphasized that the strategic value of the deal was more important than the price.

Disney shares fell $2.31 Thursday to close at $112 on the New York Stock Exchange.

The deal includes an option for Disney to increase its stake in Infoseek to 50.1% in three years, Motro said. Disney elected not to buy a majority stake in the company right now so that Infoseek would retain its entrepreneurial spirit, Winebaum said.

Buena Vista will continue to maintain its headquarters in Burbank, Infoseek in Sunnyvale and Starwave in Bellevue, Wash. Altogether, they will employ about 600 workers, and no layoffs are planned.