Will Disney's Go Network pay off?

Three months after Go Network's unveiling, questions remain as to whether it makes sense for one of the strongest brands in the world to focus all its Web efforts on a new company.

Jim Hu Staff Writer, CNET News.com
Jim Hu
covers home broadband services and the Net's portal giants.
Jim Hu
6 min read
Disney, one of the most widely recognized brands in the world, is pinning its Internet hopes on a newborn brand: the Go Network.

But three months after Go Network's unveiling, questions remain as to whether it makes sense for the entertainment giant to focus all its Web efforts on a new company and a new brand. Is Disney making the right decision by folding some of its most powerful sites--such as ABCNews.com and ESPN.com--under the management of Infoseek? And can Disney separate its family-friendly image from the darker side of the Web?

According to analysts, the jury is still out. To many observers, the Go Network is a big gamble that could either mark the success of media-Internet partnerships or go down as another expensive rebranding attempt from a traditional media company trying to figure out the Web.

Disney's portal play is centered around the 43 percent stake in Infoseek that it took last June. With the investment, Disney put its dollars behind Infoseek to develop and run a portal that would wrap its Web sites--such as Disney.com and Family.com--with Infoseek's search engine technology and content channels. Disney also dealt ownership of Starwave to Infoseek, which added ABCNews, ESPN, and additional technical expertise to the project. Six weeks after the deal closed in November, the new venture launched the Go Network.

Infoseek was not Disney's only choice when it was shopping around for a portal. Jake Winebaum, chairman of Buena Vista Internet Group, Disney's Web arm, said Disney was in discussions with other undisclosed companies, but those talks never reached a serious level.

A commitment to Go
In the end, Disney decided on a company that had distinguished itself as a search engine but was left behind when its search rivals grew into larger media assets. Winebaum said Disney wanted Infoseek's search brand, its search technology, and its user base as a foundation for the Go Network.

"It's more than faith," Winebaum said. "We're putting our company behind Infoseek."

Patrick Naughton, Infoseek's executive vice president of products, added, "Infoseek is Disney's big bet on the Internet, and we're creating the Go Network.

"Disney's going to contribute their brand power, their marketing power, and their power through television networks and other consumer channels," he added. "But its employees are not building it. They're making it possible for us to build it."

Disney's commitment to the brand was underscored in February at its annual shareholder's meeting, according to Winebaum. Disney chief executive Michael Eisner presented the company's assets through the Go Network. Eisner noted during the presentation that "the significance of the Internet cannot be overstated."

Trying to put it together
But early indicators show that the Go Network is off to a slower-than-expected start and is facing some hurdles in the road.

The Go Network is under threat from a trademark lawsuit filed by search engine GoTo.com. The suit Go Network and GoTo.com
logos seeks to remove the Go Network's logo because it allegedly creates confusion with GoTo's own logo. GoTo is even seeking Eisner's deposition to determine his involvement in choosing the logo. Both logos feature the name of the Web site with white lettering in a green circle on a square yellow background.

Infoseek and Disney declined comment on the lawsuit.

And last week, Infoseek posted $30 million in quarterly revenue, which was flat from the previous quarter. Infoseek's first full quarter reported since Go Network's launch in January also deepened its losses to $56.9 million, or 93 cents per share, from $1.8 million, or 6 cents a share, a year earlier, after factoring in all charges.

Infoseek treasurer Dave Allen acknowledged that "a number of advertisers took a 'wait and see' attitude after the Go launch," but added that "issues of seasonality" also played into the mix. In addition, Allen said Infoseek's decision last December to drop pornography advertisers had a minor impact on its revenue. Disney and Infoseek are trying to create a more family friendly environment on the Web and have instituted a filtering system for adult material.

In response to last week's earnings report, Volpe Brown Whelan analyst Andrea Williams reduced her rating of Infoseek to "neutral" from "buy," while BT Alex. Brown analyst Shaun Andrikopoulos downgraded his rating to "buy" from "strong buy."

In addition, combining sales forces from Starwave and Infoseek has not been smooth sailing. Analysts said Infoseek's lower-than-expected revenues showed the integration of the two different companies was focused primarily on launching the Go Network and not on working out finer details in its sales force structure. This could have made some advertisers hesitant about signing deals.

"While we remain long-term believers in the strategic, and ultimately financial, benefits of the company's partnership with Disney, it appears that the integration of the two companies' online assets is taking longer and is proving more difficult than previously expected," Williams wrote in an analyst note.

Jennifer Klein, an equity analyst at Nationsbanc Montgomery Securities, said that "Disney got a lot of hype out of [the Go Network's launch], and page views did grow, but in terms of revenue, advertisers were standing on the sidelines."

Brand building or dilution?
Disney still faces a number of integration issues that could potentially slow its Web play. In particular, some analysts question the strategy of dragging well-known brands, like ESPN.com and ABCNews.com, under the Go Network umbrella.

"The strength is in those brands," said Mark Mooradian, director of the consumer content group at research firm Jupiter Communications. "Disney is making a mistake in not marketing the singular properties that they have as branded properties."

Other analysts, however, see strengths in the networked-properties model, noting that users increasingly are seeking one entry point to all their Internet experiences. The move may dilute the brands to some degree initially, they say, but could add value over the long haul.

"As long as the Go Network is not cumbersome and doesn't impede the ability of a user to get the information they want," then it's a good move, said Brian Eisenbarth, an analyst at Collins & Company. "Even with clear divisions between ESPN.com and ABC.com and their other content, there can be cross-pollination of all the Disney properties."

But some analysts wonder whether Disney and Infoseek's choice to create a whole new brand is wise.

"Brand equity is extremely valuable on the Internet and extremely costly to build," said Montgomery's Klein.

Would sticking with Infoseek--a recognized Web brand--have made better sense?

According to Infoseek, the answer is no. Disney and Infoseek wanted to fit their existing brands into designated slots: ABCNews in the news section, ESPN for sports, Disney.com for kids, and Infoseek for search only. Branding the portal under one of those properties would be a stretch, the company said.

"Developing or establishing an Internet brand that resonates with consumers is top priority on our list," said an Infoseek spokeswoman. "None of these [other] brands represent the entirety of the Web."

Infoseek also faces its own branding issue: what to do with its current name. While Infoseek was in the early pack of leading search engines--along with Yahoo, Excite, and Lycos, which went on to become huge portals--Infoseek has become only a search brand since Go Network launched.

Infoseek executives said the company has considered changing its name to Go Network.

Disney-fying the Web
It remains to be seen whether Disney can capitalize on the family friendly Web environment it set out to create. Can Disney uphold its child-friendly image in a medium known for its darker, freewheeling side? The answer is not whether Disney can tame the Internet but whether Disney's users want a tame Internet.

In contrast to many other Web portals, the Go Network does not allow adult advertising. It has set up Go Guardian, an optional filter that blocks keywords deemed inappropriate for younger surfers. Without Go Guardian, the search engine presents a warning page before giving search results for adult-oriented terms.

Although it is unclear what effect this has on traffic to the Go Network, Allen acknowledged that dropping pornography advertisers affected its revenues.

"We could have had better revenues, but that's not the course we wanted to take," Allen said.

Analysts are uncertain whether the policy is sound for the nature of the Internet.

"I was surprised to see Disney [filter]," said Mooradian. "They are a media company in a business that is as cutthroat as any, and you have to span all types of audiences."

No turning back
At this point, there's no turning back for Disney. All its Web properties have already added a "go" in their URLs (such as "disney.go.com"). Brand dilution or not, the game already has begun, and it could take a great deal of time and money to see whether its promotional onslaught will effectively tap the number of Americans still not on the Internet.

"In fact, it will only increase in terms of the promotional weight behind it," Winebaum said. "We will do everything in our power to make sure that happens."