Disney to Shut Down, Lay Off 400


Acknowledging a humbling defeat in cyberspace, Walt Disney Co. said Monday that the company will shut down its flagship portal site, take more than $800 million in charges and lay off about 400 employees.

The decision marks a major retreat for Disney, which launched two years ago to compete head-on with major Web portal sites that serve as entryways to the Internet operated by Yahoo Inc., America Online Inc. and Microsoft Corp.

Instead, became a symbol of how vexing the Internet has been for traditional media companies, costing Disney hundreds of millions of dollars and failing to attract the vast audience the company expected.

In an interview Monday, Disney President Robert Iger acknowledged that failed because its content and services were inferior, online advertising slumped and Disney underestimated how much ground the company had to cover to catch Yahoo.


“We were wrong,” Iger said. “We couldn’t attract enough consumers, even with the might and marketing clout of the rest of the company. And we couldn’t attract enough advertising revenue.”

In December, attracted 19.7 million visitors, making it the ninth-most popular Web site, according to research firm Jupiter Media Metrix. By contrast, Yahoo attracted nearly 52 million.

Analysts estimated the cost of the Internet venture to Disney at $500 million to $750 million in various stock transactions, cash expenditures, advertising allowances and other deals Disney cut in assembling the site.

The closure of is the latest in a series of online retrenchments at major media companies that just a few years ago were scrambling to stake their claims to the stock market riches of the dot-com world. Those visions have vanished in recent months, as stock valuations and online advertising rates have plummeted. As a result, News Corp., NBC and Time Warner have laid off hundreds of employees at their Web sites.


As part of the shut-down, Disney said it will write off about $790 million in intangible assets in its second fiscal quarter. Severance packages for laid-off employees, as well as other expenses, will cost between $25 million and $50 million.

Disney will also be scuttling its Internet tracking stock, a separate issue the company created to reflect the performance of the Disney Internet Group. On March 20, investors in that tracking stock will receive 0.19353 shares of Disney common stock for each of their shares in Disney Internet Group.

Disney created the tracking stock largely so that it could capitalize on the frenzy for Internet-related issues. But like many Internet stocks, Disney Internet Group shares have plunged in value. The stock closed at $5.86 on Monday, far off its all-time high of $37.69 on the day it started trading, Nov. 18, 1999.

Disney said most of the 400 employees who will be laid off work in Sunnyvale, the Silicon Valley headquarters of Infoseek, a search engine company that Disney acquired as the foundation for its portal site.

Even without, Disney will have a stable of popular Internet sites. Disney’s, and are among the most popular sites in their respective sports, family and news categories. Iger said Disney will now focus its energies on sites directly tied to the company’s television and film properties.

Disney’s chairman Michael Eisner launched amid great fanfare, declaring that he was “hellbent on not being a railroad car as jets fly over us.” Disney was counting on its ability to promote throughout the company’s television, theme park and retail empire to help lure more Web traffic than Yahoo.

But Disney made a series of missteps with The company had to abandon the green traffic light logo it created for the site, after being sued by another company using a similar image. In 1999, one of’s top executives, Patrick J. Naughton, was caught in an FBI sting trying to seduce a teenage girl online. Naughton was convicted of crossing state lines with intent to have sex with a minor, but did not serve any jail time because he helped develop computer programs for the FBI to catch sexual predators on the Internet.

And often seemed an inferior imitation of its rivals. Iger pointed out that never offered instant messaging, one of the most popular services on AOL and Yahoo.


Last fall, Disney retooled to focus on such company strengths as travel and family entertainment. But recently, Iger said, Disney concluded it “couldn’t give [] forever to prove itself from a business standpoint.”

Like most online ventures, never came close to reaching a profit. For the year ended Sept. 30, Disney’s Internet group posted an operating loss of $242.1 million on revenue of $392 million.



Critics say Disney’s cautious growth strategy has become a hindrance. A1