NEW YORK — The race among media majors to establish a foothold on the Internet intensified Thursday when Walt Disney Co. agreed to acquire a 43% stake in Internet navigation service Infoseek Corp. for an effective cost of about $370 million.
Disney’s investment in Infoseek follows NBC’s acquisition of a minority stake in another Internet navigation Web site, Snap!, and its parent CNET for $37 million last week, and AT&T Corp.’s reported attempt to buy America Online this week, indicates that Internet sites used as navigation guides by consumers are becoming highly prized.
The race for the Internet is sending stock prices soaring. Disney’s stake in Infoseek was valued at $903 million on Infoseek’s closing price Thursday of $35.12, up 62¢. Disney got such a good price because it paid for its stake largely by transferring its Internet production business Starwave to Infoseek — Disney paid only $300 million for Starwave but the deal valued it at closer to $900 million.
Disney and Infoseek say they plan to pool their resources to design what they claim will be a new kind of Web site bringing together Disney’s Web sites, such as ABCNews.com and ESPN.com, as well as other media information. An Infoseek spokesman declined to reveal more about the new site, which will be launched by the end of the year.
The bottom line for most media companies, analysts say, is that a presence on the Internet will be increasingly important as consumers spend more time online and less on traditional media.
“They see attention shifting away from the places where they are strong, such as TV and movies, towards the Internet, so they want to make sure they continue to receive their share of the attention,” said PaineWebber analyst James Preissler.
“As people look to the Internet to find information and explore new ideas, the media companies have … content that can be repurposed and add value,” said an Infoseek spokesman.
At the same time, the Internet sites want the promotional power the media congloms bring with their well-known brand names. As part of the Infoseek deal, Disney has agreed to provide $165 million in promotional support for the new Internet site. The form of the promotion may include advertising on Disney’s broadcast and cable networks, a spokeswoman for Disney said.
“Disney has the things that can set Infoseek ahead of the pack, which is fantastic proprietary content and tremendous promotional power,” PaineWebber’s Preissler said.
He added that the services offered by different Internet sites can be duplicated easily, which means their future will be determined by their ability to have proprietary content.
Similarly, CNET hopes that NBC’s promotional strength will build Snap! into a leading Internet directory. CBS, for its part, acquired a minority stake in SportsLine in March last year and has helped make that site a leading sports site, partly with content.
In all three deals, the media companies have the ability to increase their equity to a controlling position within a few years. Disney has a warrant to increase its stake to 51% by paying a maximum of $750 million within three years, Infoseek said.
The beauty of these deals, analysts say, is that the price of the investment has been relatively low in all cases because the value of the Internet sites flows largely from the Webs’ brand names.
The Internet companies’ revenues are still relatively small, albeit growing quickly. Infoseek’s revenues more than doubled in the first quarter to $14.3 million. Infoseek chief financial officer Les Wright said that as “more and more commerce is done on the Internet, that will bring more media dollars.”
“This agreement stakes out an even more ambitious role for Disney in this promising medium,” said Disney chairman Michael Eisner in a statement. “We have made great strides as a sports, news and entertainment programmer on the Internet over the past four years. Through our association with Infoseek, we are now well-positioned to take advantage of the Internet as it evolves into commercial maturity.”