Disney Mounts Dot-Comeback

As U.S. troops seized Baghdad last week, producers in the “virtual control room” on the third floor of the ABC News building in Manhattan were capturing their own historic moment.

Using a unique quad screen format, they simultaneously streamed over the Internet live pictures of coalition forces moving into the city, a briefing at the Pentagon, radio interviews with ABC reporters on the front lines and rolling headlines of breaking news from Iraq.

The confluence of dramatic events proved timely for ABC News Live, bringing a surge in traffic to the 24-hour online news service that was launched March 12, one week before the invasion of Iraq.

“It proved to us that even with broadcast and cable outlets devoting hours of coverage to the war, we had a substantial audience,” said Bernard Gershon, senior vice president and general manager of ABCNews.com. “Now, we’re looking at taking baby steps toward the first broadband news network.”

Having lost millions with its ill-fated effort to build a Web portal a few years ago, Walt Disney Co. is cautiously wading back into the Internet with a string of innovative online products geared to the expanding broadband market.

Those include ABC News Live; an online game called Disney’s Toontown, the first multi-player Internet game aimed at children; and a new technology at ESPN that allows users to view sports highlights that are embedded in the Web page.

Disney also is in talks with various cable and phone companies about offering a broadband package featuring more than 100 Disney games. If successful, the company may eventually add music and movie clips to the package.

The new products come as Disney and other media companies, including AOL Time Warner Inc. and Yahoo Inc., move to capitalize on the rising number of households with Internet broadband, or high-speed Web access.

Most households with computers still rely on narrow band, or the slower dial-up access, to get to the Internet. But as cable and phone companies have built fatter pipelines capable of delivering better-quality sound and video images into computers at ever faster speeds, the number of broadband users has grown rapidly.

There were about 10 million U.S. households with broadband access by the end of 2001, according to Jupiter Research. Today, there are an estimated 18 million, with that number expected to reach 21 million -- or about 20% of all U.S. households -- by year’s end.

Disney and others are encouraged by those numbers. The thinking is that broadband will change the Internet landscape, creating not just a new pipeline to distribute and market entertainment and news, but the opportunity for products built around the medium’s capabilities.

“We look at broadband as a unique medium. It’s interactive, allows for communities -- it can bring people together, not unlike going to a theme park,” said Steve Wadsworth, president of Walt Disney Internet Group. “The Internet is rapidly becoming the next major new medium. We need to be there.”

Such optimism about the Internet stands in stark contrast to two years ago, when Disney mostly shut down its Go.com Internet portal, which sought to compete against Yahoo. The portal failed to attract the vast audience the company expected and suffered from a bleak advertising market and criticism that its product was inferior.

Ultimately, Disney took more than $800 million in charges and cut its Internet workforce in half to about 900 workers.

The Internet unit has begun modest hiring again and is making a profit by concentrating business around its core Web sites: ABCNews.com, ESPN.com and Disney.com.

“Disney is being more creative than some of the other companies out there, but they’re doing it in a quiet way,” said Jim Penhune, an analyst with Strategy Analytics. “It’s a more tactical, specific and careful approach than what they have been doing.”

Other media companies also are moving to respond to the rapid adoption of broadband.

As part of a turnaround plan, Internet service provider America Online recently launched a low-cost broadband service that can be used on any high-speed connection, not just Time Warner’s.

AOL reportedly is spending $35 million to market the package under the banner “Welcome to the World Wide Wow.” The service includes entertainment, news and sports content from ABC, CNN, as well as the NFL, the NBA and the NHL.

“There’s a very real and growing marketplace for broadband in the U.S., and AOL is committed to get a much larger share of that,” said Shawn Hardin, senior vice president of broadband for AOL.

Still, the rise of broadband carries risks as well as opportunities for the big media players.

Studios have long been concerned about the possibility that putting more of their entertainment offerings on the Internet will make them more vulnerable to piracy.

It’s also unclear how many consumers will be ready anytime soon to pay for online entertainment, or whether powerful cable giants such as Comcast Corp. want to team up with content providers such as Disney, which would force them to share their broadband subscription profits.

Although several companies that gambled on the promise of broadband failed two or three years ago for lack of customers, today market conditions are wholly different, analysts say.

“The market is now big enough to justify new investments,” said David Card, an analyst with Jupiter Research. “In 2003, we’re going to hit what might be called a critical mass.”

Disney is taking a cautious, low-key approach to broadband.

The company quietly unveiled Toontown in the fall, more than a year after its planned debut was postponed because of market conditions.

Since then, Disney has rolled out ESPN Motion; a broadband version of Disney’s Blast, which is an online subscription service for kids; and ABC News Live, each targeted to specific audiences.

The economic model varies.

ESPN Motion, which debuted in February, is on the ESPN.com site and is a free service supported by advertising from the likes of Gatorade and Lexus. ABC News Live, as part of a service called ABC News on Demand, and Toontown are subscription-based, charging customers $4.95 to $9.95 a month, respectively.

Disney is shying away from the online distribution of movies through services such as Movielink. Instead, the company will test this year a service called Movie Beam that uses broadcast signals to download movies into set-top boxes on television sets.

Although Disney won’t discuss its investment level in broadband, analysts say the scope has been incremental compared with the massive amounts Disney spent on the Internet a few years ago. The initiatives won’t be a major contributor to the company’s bottom line for at least two more years, they add.

“Disney is now working from what they know: family entertainment,” said Penhune, the Strategy Analytics analyst, “and that’s a smart strategy in light of what they went through.”