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Disney buys stake in Starwave

The entertainment giant makes a major investment in the Web content, design, and management company.

Walt Disney (DIS) has bought a stake in Starwave, the Web content, design, and management company owned by billionaire Paul Allen, its second move onto the Net this week.

The deal, previously reported by CNET's NEWS.COM, is no surprise. In February, Disney and Starwave had been negotiating such an investment and talks were expected to conclude within weeks, pending approval by antitrust regulators.

Disney has been negotiating to buy about a one-third stake in the privately held company, worth perhaps $100 million, and take management control of it.

Disney would say only that it bought a "significant stake" in Starwave and that Allen remains the largest stockholder. The company holds an option to buy Allen's remaining stake in Starwave, exercisable over the next five years, and Allen holds an option to sell his interests to Disney at fair market value after the fifth year.

Disney said it will retain Starwave's senior management, including chief executive Mike Slade. "Starwave and Disney combining forces makes for the perfect partnership on the Internet", he said.

Disney wants to tap Starwave's expertise to launch a newly designed Web site with ABC News, providing competition to MSNBC, the joint cable news venture of Microsoft and NBC. Starwave designs and operates ESPNet SportsZone, one of the Web's most popular sites. Disney bought ESPN as part of its $19 billion buyout of Capital Cities/ABC last year.

Founded in 1993, Starwave also runs the official NBA, NFL, and NASCAR sites, as well as services such as Mr. Showbiz, Celebsite, Family Planet, and Outside Online. Allen, the company's founder, is also an investor in CNET: The Computer Network.

This spring, Starwave enters the fray of "push" broadcasting with Starwave Direct, which will use the new technology to push to users' desktops its growing arsenal of news, entertainment, and sports services.

The Starwave investment marks Disney's second expansion on the Web this week. On Monday, the company confirmed an earlier report by NEWS.COM that it was launching Disney's Daily Blast, a children's entertainment site with games, stories and comics. Daily Blast will be offered on the Web and through the Microsoft Network online service and will feature sports from ESPN and news from ABC.

With both deals, Disney is building a presence in cyberspace to bolster its media and entertainment empire in broadcasting, print, movies, theater, sports teams, and theme parks. Its major competitors, Time Warner and News Corporation, are undertaking similar strategies. They all see the Internet as a high-growth market and potential moneymaker.

Last month, for example, ESPNet teamed up with CyberCash to charge single-day access to its sports content. Using CyberCash's "cybercoin" system, fans can enter the site and pay about $1 a day to see RealAudio broadcasts of NBA games or sort sports statistics.

Online competition among media companies is mounting. For instance, CBS Sports made its first venture on to the Net by acquiring a 22 percent stake in SportsLine USA to create CBS Sportsline. In turn, technology companies such as Microsoft are expanding into media.

Later this month, ABCNews.com will launch on the Web and through America Online, the nation's largest online service. The new site will offer up-to-the-minute national, international, and local news, as well as sports, entertainment, business, and technology reports. The site also will offer live chat and slide shows with ABC correspondents.

Netscape also will create a spot on its home page that links to the site. ABCNews.com will be the preferred news channel in its new "constellation" software, pushing the news to user's desktops. Tom Phillips, formerly senior vice president of products and services for Starwave, is the president of the ABC News-Starwave joint venture.

"The Internet really represents what news on demand is all about," ABC News chairman Roone Arledge said in a statement. "And ABC News is committed to establishing the world's premier 24-hour Internet news service."

Despite these rapid expansions into cyberspace, success is not guaranteed. Time Warner's Pathfinder has run into criticism by some Netizens for being disorganized and hard to navigate, and analysts say it is still losing money.

Others wonder whether Disney can pull off its ambitious expansion into cyberspace. The company has run into technical problems with its digital products, such as the first release of its Lion King CD-ROM. In addition, Disney, which has built its reputation over strict control of its content, must adapt to the free-wheeling nature of the Web.