Microsoft, Disney in Internet Alliance
Learning from the mistakes of chief rival AOL Time Warner Inc., Microsoft Corp. on Thursday announced a low-risk partnership with Walt Disney Co. in the first of what could be a series of deals with entertainment companies.
The deal with Disney creates a jointly branded version of MSN that gives consumers a modest amount of Disney content along with the regular MSN offerings for the standard MSN monthly fee of $21.95.
The service, called Disney on MSN, includes customized pages for kids and links to Disney movies and activities. It became available Thursday.
The Redmond, Wash.-based software giant might expand its relationship with Disney, and Microsoft Chairman Bill Gates said his company is working on other alliances to secure more content for MSN in exchange for driving Internet users to selected media sites.
None of those deals would involve Microsoft getting into the content business, as AOL did by buying Time Warner for $99 billion in stock. AOL planned to tap Time Warner movies, music, magazines and other content for its No. 1 online service, but that strategy has yet to bear fruit: AOL’s Internet entertainment offerings are bringing in little profit.
“There’s a big difference between how we’re going about it and how AOL’s going about it,” Gates said in an interview. “Microsoft is fundamentally a software company, but we know there’s a lot more that can be done to find the best content. We’re in constant dialogue with leaders in the media business.”
Financial terms of the Disney deal weren’t disclosed. Analysts surmised that Microsoft might be offering Disney nothing more than free advertising.
“Microsoft is providing a highly trafficked medium on which Disney can provide images,” said Prudential Securities analyst John McPeake, who owns Microsoft shares and recommends them. “I wouldn’t be surprised if it came down to bartering.”
The Disney branding came as Microsoft released MSN 8, a significant improvement for the online service with 9 million subscribers. MSN 8 adds junk-mail filters and MSN’s first serious controls to limit children’s access to Web pornography, hate speech and other categories that parents select.
Disney Chief Executive Michael Eisner said his company has been searching for several years for an Internet service provider partner that would provide a home for Disney content. MSN was an appealing choice because of its new system for parental controls, he said.
“It gives us the ability to deliver our entertainment and our education and our Disney environment in a way that’s completely safe,” Eisner said in an interview.
McPeake said the Disney pact “gives a wholesome blush” to the revamped MSN that will help it compete against AOL, which long has offered effective but less easily modified parental controls.
Gates acknowledged that MSN will continue to lose money for some time. But analysts said its real importance is as a link to future services involving Microsoft software.
“Its profitability as a stand-alone business is probably secondary,” said Sanford C. Bernstein analyst Charles Di Bona, who doesn’t own Microsoft shares. Bernstein does no investment banking business with Microsoft.
For Disney, the venture is an admission the firm should stick to creating family entertainment instead of trying to be a major Internet player, analysts said.
Disney spent more than $500 million trying to build its Go.com portal to compete with Yahoo, according to analysts’ estimates. But Go.com never attracted the vast audience Disney expected, and the venture came to symbolize how vexing the Internet has been for traditional media companies.
Disney’s Internet Group has retrenched in the last 18 months, laying off more than 500 workers and leaving just a shell of the site.
Instead of marketing an all-purpose Internet portal, Disney now is focused on building up its existing Web sites. Disney.com, ABCNews.com and ESPN.com are among the most popular sites in their categories. The Internet Group recently recorded its first quarterly profit.
