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Starwave, Disney deal imminent

Starwave calls a special companywide meeting, fueling speculation that Disney is preparing to buy the rest of the Internet firm.

Starwave has called a special meeting with its workers tomorrow, fueling speculation that Walt Disney is preparing to buy the rest of the Internet company.

Executives at Starwave and Disney declined to comment on the matter. But industry analysts said that the announcement of a Disney-Starwave deal is imminent.

Last April, Disney purchased a significant equity stake in Starwave, along with an option to buy the rest of the company during the next five years. Starwave also partnered with ABC News and ESPN SportsZone to form ventures that produce original interactive programming in sports, news, and entertainment to millions of online consumers. Last year's deal called for Disney to assume operating control of Starwave.

In recent weeks, speculation has intensified that Disney is negotiating to buy the remaining stake, a deal that would bring Starwave's workforce into its fold.

A memo emailed to CNET's NEWS.COM discussed the companywide meeting tomorrow. "Please clear your calendars for an 'All Starwave' company meeting May 1," read the memo, which listed Starwave president Patrick Naughton as the author. "This is the presentation that you've all been waiting for. We're very excited about the progress we've made in the last few months and will share all of the details with you at this meeting."

The memo added the afternoon meeting would last for about two hours. Another meeting is scheduled in New York for the company's Manhattan and Bristol, Connecticut, workers Tuesday, it said.

Starwave would not confirm the authenticity of the memo or any other details. However, sources within the company said Starwave is planning such a gathering at a Seattle-area hotel, the same venue cited in the memo. Although they did not know the agenda for the meeting, the sources acknowledged that employees are assuming it involves a major announcement involving Disney.

Analysts speculate that the Disney deal is right around the corner.

"They have all their production eggs in one basket, and it only makes sense to own the basket," said David Simons, managing director of Digital Video Investments. "They can't afford anything other than to have absolute control."

Kate Delhagen, an analyst with Forrester Research, agreed: "It makes total sense. Disney has a history of owning rather than outsourcing."

Disney's desire to exercise its option to buy the rest of Starwave in only one year instead of five years also could stem from its desire to rapidly expand its Internet presence and leverage its powerful brand name against the likes of MSNBC, America Online, Time Warner, Viacom, and others.

The competition is mounting, however. MSNBC, the cable television alliance of NBC and Microsoft, bills itself as "the only news organization to embrace three media technologies--broadcast, cable, and the Internet." Time Warner is marrying cable TV and the Net by joining CNN with Sports Illustrated to create CNN/SI, a 24-hour sports news network.

In a speech Tuesday night, Disney chief executive Michael Eisner said the company plans to aggressively compete on the Internet. Eisner's comments--among his most detailed to date on Disney's Internet strategy--were a sign of the media and entertainment giant's increasing commitment to the Web, along with television, publishing, and movies.

Since its buyout of ABC/Capital Cities, Disney has added now-popular Web sites for ABC and ESPN into its empire. Disney also operates a subscription-based online service for children, dubbed Daily Blast. Its strategy has been to increasingly cross promote the editorial content and to centralize the management.

Starwave is privately owned by Disney and Microsoft cofounder and technology investor Paul Allen. Starwave was founded in 1993 by Allen.

When Disney bought a stake in Starwave last April, neither company disclosed the size of the stake or the amount paid. Analysts estimate that it was a one-third share worth $100 million, making an outright purchase potentially worth hundreds of millions of dollars.

Earlier this month, Allen announced a deal to buy all the limited partnership interests of Marcus Cable, the nation's tenth-largest cable operator for $2.775 billion--joining fellow Microsoft cofounder Bill Gates in making a cable TV investment.

One analyst speculated that the potential for Disney, through Starwave, to provide interactive programming to Marcus Cable might be a future possibility. Allen has been a big proponent of the "wired world," which he thinks will transform information, entertainment, and communication.

Allen is an investor in CNET: The Computer Network, publisher of NEWS.COM.

Jim Hu and Dan Goodin contributed to this report.