Losing $21.5 million: as easy as ABCNews.com

Somewhere in the bowels of CNN, NBC and Fox, online executives are cringing, because the news is finally out. One of their competitors, ABCNews.com, has had its financials revealed, and it's not happy reading. The details emerged about a week ago in SEC documents that Infoseek released in connection with its three-way deal with Disney's online properties and Starwave. According to the documents, the ABCNews.com-Starwave venture has lost $US21.5 million since it began in April 1997

Somewhere in the bowels of CNN, NBC and Fox, online executives are cringing, because the news is finally out.

One of their competitors, ABCNews.com, has had its financials revealed, and it's not happy reading.

The details emerged about a week ago in SEC documents that Infoseek released in connection with its three-way deal with Disney's online properties and Starwave. According to the documents, the ABCNews.com-Starwave venture lost $US21.5 million since it began in April 1997. Starwave's other joint venture, with ESPN.com, lost $7.2 million over the same time.

Since many major media companies don't break out financials relating to their Web ventures, some investment analysts have dubbed Disney's figures the "Rosetta stone of the Internet." Previously, Disney had not released its Internet figures for public consumption, lumping costs into a vague category called "creative content."

Losses in the Internet business come with the territory, but they're often offset by impressive revenue numbers -- only not this time. Some observers wonder whether Disney even expects to make money on the Net.

"Perhaps Disney's main objective in its online venture is to simply have a presence in cyberspace," says David Simons, managing director of Digital Video Investments in New York. "It should be viewed as a brand preservation effort for its video properties."

Jake Winebaum, chairman of Disney's Buena Vista Internet Group, says that Disney's online losses are an investment in what he expects to be a big business. "In all of its services, Disney is pursuing an offensive, not defensive, strategy," Winebaum says. "We believe that these branded services will contribute substantial earnings."

Not only did ABCNews.com lose $21.5 million -- it only made about $9.1 million in revenue since it was launched a year and a half ago. Of $9.1 million, only about $3.9 million came from selling advertising online. Predictably, the ESPN Online venture fared better, raking in $21.5 million in total revenue, of which $15.2 million was earned from advertising sales.

"ABCNews.com is ahead of the original plan in terms of users, but somewhat behind in advertising revenues," Winebaum says. "Because we were a late entrant in a crowded field it was difficult, at first, to grab the advertisers' attention."

"We were very focused in the first 12 months of ABCNews.com on simply launching the service and catching up to our established competitors," he added.

However, Winebaum says that Disney's sites have momentum and the advertising dollars will come.

Patrick Keane, senior analyst with Jupiter Communications, says the reason ABCNews.com's losses were worse than ESPN Online's is the obvious popularity of sports over mainstream news. He also says the diversity of news sources on the Net poses problems for big media.

"The news sites target a cross section of the public -- and that isn't the early adopters," Keane says. "There's been an increasing fragmentation of where people get their news."

While there isn't a public company comparable to ABCNews, ESPN's online rival, SportsLine USA, came up short in comparison to ESPN.com. SportsLine lost $40.1 million over the same period and had revenues of $23.3 million, of which $13.5 million came from advertising sales.

Keane says the losses and the lack of advertising sales, in part, explain the reason Disney has taken a large stake in Infoseek and plans to help build a joint site dubbed Go Network. The company wants to exploit its various sites through a Web portal.

"Disney has the online valuable properties to drive traffic," Keane says. "But all the media companies realise that it's all about gaining distribution through portals."

The SEC documents also revealed for the first time that the Disney-Starwave-Infoseek deal had been in the works since February, three months before Disney bought 43% of Infoseek. Over the next three years, Disney will be able to increase its stake in Infoseek to 49.%.

According to the SEC document, Go Network will be run by Infoseek, which will report to a board of directors that includes three Disney executives: Jake Winebaum; Robert Iger, president of ABC; and Steven Bornstein, president of ESPN.

Starwave CEO Mike Slade and COO Curt Blake will not continue with the site after the merger is complete.

The other board members are Infoseek CEO Harry Motro; Infoseek chairman and founder Steve Kirsch; Matt Stover, group president of information services at Bell Atlantic; Bill Krause, CEO of Storm Technology; and John Zeisler, a partner with Interwest Ventures.

Join the newsletter!

Error: Please check your email address.
Show Comments
[]