Can the Mouse Click on the Net?

By Maryanne Murray Buechner

With Internet companies popping up like dandelions after a summer rain--and being plucked for public offerings even before they start to flower--it's no wonder full-grown companies have been hard at work on their own Web gardens. Last week Walt Disney Co. became the latest media giant wanting to convert its Internet assets into a growth stock.

Disney is planning to buy the 57% of portal partner InfoSeek that it does not already own, consolidate its various Net properties and issue a tracking stock to take advantage of today's relatively high valuations. On their own, Disney's Net holdings would be worth $6 billion to $7 billion, according to analysts. But when they're lumped in with Disney's traditional businesses (like theme parks), that value is diminished.

And while the Net-stock craze may have cooled, a Disney Net stock would be a standout, analysts say. "If you say 'Disney Digital,' you'll get people very excited," says Richard MacDonald, managing director at J.P. Morgan.

That would not include the company's top online executive, Jake Winebaum, head of Disney's Buena Vista Internet Group, who last week became the latest and greatest of Mouse managers to leave to pursue his own Net business, free of Disney's corporate control.

Winebaum helped make Disney, though a late comer to the Internet game, a formidable player. Last year Disney bought a 43% stake in InfoSeek, a search engine that was slipping behind competitors and needed a new brand and some marketing might. Disney needed to beef up its online presence with a portal. In January the two launched the Go Network, now the fourth most popular online destination go.com) with more than 19 million visitors a month. Not bad, but far from the best. At No. 1, yahoo.com attracts close to 31 million, according to Net-traffic tracker Media Metrix. Disney's other online properties include extensions of its well-known TV and cable brands ABCNews.com and ESPN.com and its retail operations (Disney Stores Online).

Disney is not the only media conglomerate seeking to shine a light on its ventures in cyberspace. NBC is in the process of merging its Net properties with Xoom.com and Snap.com to form a new publicly traded company, NBC Internet. CBS has said it intends to spin off its stakes in Marketwatch.com Sportsline.com and other Web assets by the end of the year. And Viacom wants to do something similar with mtv.com vh1.com and other spawn of its cable holdings.

Disney shareholders could sure use the boost that a Net tracking stock would bring. Weakened home-video sales and a slowdown in merchandise licensing in the midst of Star Wars mania have hurt earnings; Disney stock is down 25% from its 52-week high. High costs for NFL games for ABC and start-ups such as Animal Kingdom and the Disney Cruise Lines have all pinched the bottom line.

And lastly, there is CEO Michael Eisner's ongoing battle with former studio boss Jeffrey Katzenberg. Hearings on exactly how much Disney owes Katzenberg continued last week. The decision could eventually cost several hundred million dollars. Says analyst David Londoner of Schroder & Co.: "It's a great company, but they're going through a soft period, and it's not obvious when they're going to come out of it." Better launch that stock soon.

--By Maryanne Murray Buechner