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Disney Closes Web Portal In Move That Will Eliminate 400 Jobs Company Is Overhauling Its Unprofitable Internet Operations Follows Cutbacks By Other Traditional Media On The Web
LOS ANGELES Jan. 29, 2001 11:06 am (CBS Marketwatch) Walt Disney Co. it will abandon its Go.com portal and convert shares of Walt Disney Internet Group stock into common Disney shares, effective March 20.
About 400 Go.com employees will lose their jobs, the company said. Disney expects to take a fiscal second-quarter charge of $790 million, or 37 cents a share, as a result of the portal's closure.
Each outstanding share of Disney Internet Group common stock will be converted into 0.19353 of a share of Disney common stock.
Walt Disney Internet Group will continue to operate under its current management structure as a unit of Disney. Sites such as Disney.com, ESPN.com and ABC.com will be more closely aligned to the company's other media and entertainment businesses. Disney Internet shares were halted in early afternoon action at $4.05; they figure to move higher when trading resumes.
"The Internet continues to be a central focus of our company's business strategy," said Michael Eisner, Disney's chairman and chief executive, in a statement. "We believe this action should help us gain greater competitive advantage as we leverage Disney's creative content, brands and other assets."
"The competitive factors that initially compelled us to establish a separately traded class of common stock tied to our Internet operations have fundamentally changed," Eisner added.
Go.com was taken public in Nov. 1999, at a point when the dot-com craze was still in full swing. When the economy began to slow down in early 2000 (culminating in a 616-point drop for the Dow Jones Industrial Average in April), investors grew impatient with Internet companies and their promises of profits far into the future.
In a Financial Times interview published over the weekend, Disney's executives had revealed their concerns about the difficulty of making money from the portal business model.
"The advertising community has abandoned the internet," said Michael Eisner, group chairman and CEO of Disney. "If a portal becomes only a search [engine] and directory, then a portal may not be what we want."
Until a few weeks ago, Eisner had said he intended to stand behind Disney's Internet investments, such as Go.com.
The news should eventually boost Disney stock, says David Miller, analyst at Sutro & Co., though shares edged just 9 cents higher to $29.90 in early afternoon trading.
"In the last year-and-a-half, there's always been a wide disparity between Disney's reported earnings per-share excluding (the Internet operations) and including (them). It could vary by as much as 10 cents, and that's a lot."
In Disney's fiscal fourth quarter, reported Nov. 9, the company earned 11 cents a share including its interest in the Disney Internet Group. Excluding DIG, the profit came in at 20 cents a share.
A retreat by one of the earliest traditional media groups to invest in Web-based operations would follow others this year: Rupert Murdoch's News Corp., CNN, the news network owned by AOL Time Warner, and The New York Times have slashed hundreds of online jobs as part of cost-cutting moves at their dot-com operations.
"All of this is going to make for a very interesting analysts' meeting next week," Miller said.
-- K. (email@example.com), January 29, 2001