Disney Cans Go.com in Net About-Face

Everything looked dandy at Walt Disney Internet Group in November, when the company was hot off the relaunch of its Go.com portal and boasting of big revenue increases driven by Web advertising.

"We are pleased to have met a number of critical objectives in our first fiscal year, notably consolidating operations, successfully relaunching Go.com and building our leadership positions across our Disney and Family, ESPN and ABC-branded sites," WDIG chairman Steve Bornstein wrote in announcing the company's year-end results. "We are now well-positioned to pursue the growth of Disney's Internet businesses during fiscal-year 2001."

Last week, Bornstein naturally took a more bleak tone in announcing the layoffs of 400 Go.com employees-and the eventual sale of the portal, which Disney bought from Infoseek Corp. in 1999.

"This is a difficult decision, as it impacts both our employees and Go.com users," Bornstein said last week in a statement regarding the layoffs and the closing of the former Infoseek headquarters in Sunnyvale, Calif. "However, the Internet environment has continued to shift and change, and therefore our strategies must also change."

Disney will now focus on its content sites, which can be more closely aligned with the company's media assets, such as ESPN.

In a statement, Disney chairman Michael Eisner added, "We believe that our core assets will reap some of the greatest benefits of the Internet going forward as we exploit new opportunities in areas such as video-on-demand, interactive television, broadband, wireless and content repurposing."

Founded in 1993, Infoseek was one of the first search engines widely credited with driving the growth of the Internet in the mid 1990s, along with Yahoo!, Lycos and Excite.

Disney's strategy, from which it is now retreating, was to transform Infoseek from search engine into a portal that would drive traffic to its many branded Web sites, such as ABCNews.com, ESPN.com, Family.com and MrShowbiz.com.

Unlike the recent significant layoffs at Cable News Network and News Corp.'s News Digital Media Division, WDIG will continue to oversee the Web sites for the broadcast and cable networks owned by Disney. When CNN and News Corp. cut their interactive divisions, the companies transferred control of Web sites such as foxnews.com and cnn.com to their respective programming networks.

Bornstein, who was chairman of ESPN and president of ABC Inc. before joining WDIG (then called Buena Vista Internet Group) in September 1999, has made several cuts since taking over the Internet division.

In December, WDIG sold Infoseek Japan to Japanese e-commerce company Rakuten Inc. for $81 million. Bornstein shed the company's Ultraseek Corp. search software unit last July to Inktomi Corp. for a pre-tax gain of $152.9 million. But the company took an undisclosed loss when it shut down its toysmart.com retail site last June.

WDIG said Bornstein wasn't available last week to discuss why his optimism for the Go.com portal faded so soon after the November earnings. But spokeswoman Michelle Bergman noted that, "at the time he made the statement, our relaunch was less than a month old."

Bergman said WDIG is looking to sell all of the Go.com assets, including hardware, software and the Go.com domain name.

It can even sell the traffic generated by users that point their browsers to a dormant Go.com to another Web site, which would then receive the hits, she explained.

As part of the restructuring, Disney plans to convert all outstanding WDIG shares to Disney common stock on March 20. Each WDIG share will be converted into 0.19 of a share of Disney stock.

The company said it expects to issue 8.1 million new shares of Disney through the conversion.

WDIG shares have fallen sharply during the last year along with the rest of the Internet sector. The stock dropped from $26.13 on Jan. 3, 2000 to $5.83 last Wednesday.