SARA FISHER

Staff Reporter

Walt Disney Co.’s Internet division is not the happiest place on Earth these days.

With its head Jake Winebaum on the way out and its much-touted Go Network stagnating, the Buena Vista Internet Group finds itself with the daunting task of trying to adjust course midstream.

And despite a lightning-quick management reshuffle and current talks to fully acquire Infoseek Corp., industry experts are skeptical about whether Disney can go head to head with its stronger Internet competitors.

“Disney has put the brakes on Go amid the current imbroglio, and they’re in the process of reevaluating their strategy,” said Aram Sinnreich, an Internet analyst at Jupiter Communications. “You can bet that they are camped out behind closed doors right now.”

Indeed they are. Neither Disney nor Infoseek executives would comment.

Launched in January as a joint project between Disney and Sunnyvale-based Infoseek, the Go Network is envisioned as the centerpiece of Disney’s Internet strategy. The portal features a search engine and serves as a starting point for the companies’ Web properties, including ESPN.com, ABC.com, Disney.com and Mr. Showbiz.

But revenues for the Go Network have been flat at a time when the leading Internet portals are exploding. And the number of Go’s unique visitors reached a record low of 21.5 million in April, down from a peak of 24 million in March. By comparison, industry giants America Online and Yahoo! Inc. attracted 35 million visitors and 38 million visitors, respectively, that month.

The flat revenues reflect advertiser ambivalence. At the PaineWebber Growth & Technology Conference in early June, Infoseek President and Chief Executive Harry Motro acknowledged that the venture had experienced trouble converting traffic into advertising revenue.

He assured conference attendees that the company was overcoming this problem, without giving any details. Motro did tell analysts that Infoseek will announce shortly as many as 50 product enhancements in a bid to kick Go into high gear.

Even that may not be enough to propel Go forward.

“Every mid-tier portal thinks it’s on the heels of Yahoo and AOL, but they’re simply not,” said Chris Charron, a portal analyst for Forrester Research Inc. “Yahoo and AOL have extended their already considerable lead in this industry substantially over the last six months or so. Having said that, the game is not quite over. There is room for another player to break into the big leagues.”

Given Disney’s enormous power in the offline world, why hasn’t the Go Network gotten off to a better start? After all, it’s backed by Disney money, Disney marketing power (the Go Network is being heavily advertised on ABC) and the coveted Disney creative content.

The problem lies partly in a name.

Instead of leveraging the known brand name of either Infoseek or Disney, the partners chose a new, generic name a decision that the industry has lambasted. Building brand awareness from scratch is such an expensive and difficult undertaking that many industry experts believe the Go Network will never break into the top tier of portals.

Also, some analysts say that Go will not be a success unless it differentiates itself from the rest of the pack. Trying to be a portal with mainstream appeal only serves to make it blend into the background.

“Go has to either sell itself as a clear source for the best content for the family, or for entertainment, or something distinct like that,” Charron said. “But to be everything to everybody is too expensive and improbable.”

Disney is in negotiations to acquire the remaining 57 percent of Infoseek, worth about $1.5 billion based on current share values. Disney bought its initial 43 percent stake in the Sunnyvale company last fall for $860 million.

Disney’s decision to fully own the company is being interpreted as a desire to streamline the decision-making surrounding Go. Infoseek employees and management have publicly complained that their relationship with Disney has slowed their ability to make deals not related to the joint venture. Disney Chairman and Chief Executive Michael Eisner himself has been vocal, sending numerous e-mails nitpicking at small issues that have slowed down development.

But full ownership also would expose Disney to Infoseek’s losses, which in keeping with the Internet industry are considerable. For the second quarter ended March 31, Infoseek posted a net loss of $56.8 million (93 cents per share), compared with a net loss of $1.8 million (6 cents) for the like period a year ago. Revenue was $29.6 million vs. $14.4 million.

Along with the expected Infoseek acquisition, Buena Vista Internet Group which oversees the Go Network, as well as Disney’s Web sites and online Disney Store is hammering out a restructuring. According to analysts, Winebaum left the company primarily because he was unhappy with the way the restructuring plans were headed.

Winebaum quit abruptly on June 8, after being the company’s driving force for four years, in order to co-found a new Internet incubator along with EarthLink Network Inc. Chairman Sky Dayton.

Steve Wadsworth, formerly senior vice president and chief financial officer, was immediately named the new president of Disney’s Internet division.

Wall Street has given the anticipated buyout of Infoseek its seal of approval. Upon receiving word of acquisition discussions, Infoseek’s stock bounced up by 17 percent, to $50.25. Disney’s shares tipped up modestly, rising to $31.25 before settling back down to the $29 range.

More exciting to the Street is the likelihood that Disney will either spin off its Internet holdings into a separate company or into a distinct tracking stock.

Brian Eisenbarth, a portfolio manager at Collins & Co., said he and many colleagues see such a spin-off as advantageous. It would serve to get Internet-related losses off of Disney’s main books, and let the spin-off benefit from the high valuation Internet stocks still enjoy on Wall Street.

“The Internet business doesn’t generate any money for Disney right now, is showing no growth in that segment, and is sucking resources out of the company,” he said. “(The Internet division) is still a sideshow for them.”