Internet

WebTV to use Infoseek--but why?

The portal will pay Microsoft $26 million for a two-year exclusive deal for search and directory services on WebTV.

Web portal Infoseek today announced it will pay Microsoft $26 million for a two-year agreement to be the exclusive provider of search and directory services on WebTV, Microsoft's service that provides Internet access via the television.

Many analysts were surprised by the deal because they thought Microsoft would have chosen its own Microsoft Network portal technology, which is to be launched in the near future.

"No matter how small or large the base of WebTV users, that would have been an established number of subscribers to appropriate right away," said Patrick Keane, an analyst at Jupiter Communications.

But WebTV apparently was not quite ready to take the leap, according to James Aguilar, WebTV's senior manager for strategic partnerships.

"One of the bases for our agreement with Infoseek is that they are going to provide the search service for our consumers," he said. "The search offering from Infoseek is available for our customers today, while Microsoft's offering is still in beta.

"As Microsoft's search service becomes more refined and ready for market, we will continue to evaluate opportunities to work together," Aquilar added.

The current agreement is likely to increase Infoseek's exposure to home Internet users and allow the company to leverage its own sales force while creating a greater presence with advertisers.

"Infoseek is obviously banking on the WebTV platform becoming much larger than it is right now," Keane said.

Shares of Infoseek closed higher today, jumping 9.51 percent to reach 20.88. The stock has traded as high as 45 and as low as 6.25 during the past 52 weeks.

Under the terms of the deal, Infoseek will pay WebTV Networks a minimum of $26 million in cash over two years: $15 million will be paid in advance for the first five quarters and the remainder will be paid over the last three quarters of the agreement.

Infoseek will receive a guaranteed number of at least 4.5 billion impressions from WebTV Networks and will keep 100 percent of the advertising revenue generated up to a predetermined amount. After that, WebTV Networks and Infoseek will share revenue.

"[$29 million]looks like a lot if WebTV doesn't deliver on the impression guarantees," said Andrea Williams, an analyst at Volpe Brown Whelan. "If they do deliver on the minimum impressions, Infoseek should make money here."

Keane speculated that perhaps WebTV and Microsoft have told Infoseek that, as part of the deal, Microsoft will more aggressively promote WebTV. "Microsoft has never really got its marketing machine behind WebTV before," he noted.

Infoseek will create a separate, dedicated sales team to service the WebTV ad inventory.

"Integrating television and the Web while delivering a compelling experience to the consumer is the next step in the new media revolution," Harry Motro, president and CEO of Infoseek, said in a statement. "This agreement is a great complement to our pending relationship with the Walt Disney Company."

Infoseek's agreement with Disney also will give it exposure on national TV outlets like ABC and ESPN.

"The convergence of the Internet and television media has the potential to empower the consumer like no other media in history," Motro added.

As part of the two-year agreement with Microsoft, Infoseek will assume management of advertising sales for online search and content advertising, including banner inventory.

"Infoseek shares our desire to lead the development of interactive television and has an outstanding search product and sales team that complements our own," said Joe Poletto, vice president of advertising sales and strategic partnerships, WebTV Networks. "Through this relationship, we can continue to focus our own sales efforts on strategic interactive television relationships, while Infoseek extends this new medium to a greater number of advertisers."

WebTV Networks reported an average of more than 40 million page views per day during this past June, July, and August, according to the company. The agreement between the two companies will help Infoseek extend its reach beyond the PC into the living room and provide opportunities to increase page views and revenue.