"No other company has the brands, the technical prowess, the marketing power and the quality of content provided in this partnership," said Jake Winebaum, chairman of Disney's Buena Vista Internet Group unit. "We could not have a stronger team," added Infoseek CEO Harry Motro. "We believe with this announcement we're re-setting the playing field for the entire Internet industry."
The highly-complex arrangement calls for Disney to acquire a 43 percent stake in Infoseek in exchange for its ownership position in Starwave, plus $70m (£43m) in cash. The three-way partnership with Disney and Starwave also expands the reach of Infoseek, a company long rumoured to be a takeover target. The Infoseek Web site boasts 14 million unique users per month, while Disney's Web services are drawing about 9 million.
Starwave, founded in 1993 by Microsoft co-founder Paul Allen, co-produces with Buena Vista a host of high-visibility Web sites including ABCNews.com, ESPN.com, and the National Football League and National Basketball League sites.
The new entity, to be known as Infoseek, will merge Starwave and Buena Vista's ABCNews.com and ESPN.com sites with Infoseek.com, officials of the companies said. The deal also calls for Infoseek to purchase from Disney $165m (£101m) in "aggressive, targeted" promotional support for the entity's planned portal site, Winebaum said.
Disney, which will receive 23.2 million shares of Infoseek stock, will also hold three of the eight seats on the Infoseek board of directors. Disney will also have the option to buy a majority 50.1 percent stake in Infoseek over three years. Shareholders of Disney and Infoseek must still approve the deal which is expected to close in about three months.
The as-yet-unnamed portal site will launch later this year Winebaum said. The portal will offer the depth of Starwave's and Disney's content combined with a Web interface that will leverage the strength of the Infoseek search and directory technology, Winebaum said.
During the Internet's "first wave", search engines were "powerful but one-dimensional", Infoseek's Motro said. "In the second wave, last year, services like chat and commerce were added to the portals, but it was nowhere close to what a media company like Disney could offer." The Disney deal "sets the stage for the third wave", Motro said, in which the companies are hoping to wrest control of the portal space from several powerful rivals, such as Yahoo!, America Online and Microsoft, which this week debuted a beta version of its portal site.
Over the last year and a half, Buena Vista officials "met with everyone in the (portal) space," Winebaum said. Infoseek was chosen because Disney and Buena Vista officials were impressed with its management team, its technology and its long-term vision, he said.
The Infoseek partnership will "provide never-before-seen integration between content, search and other services, and this is not possible through a distribution alliance" such as the Excite deal, according to Winebaum. The companies see an almost unlimited promotional potential in their partners, the ABC and ESPN broadcast television networks, he added.
Disney opted against making an outright purchase of Infoseek because "like with Starwave, we wanted to be the rocket fuel behind a pure Internet company", Winebaum said. "That kind of a company can be nimble and move fast enough to compete in this marketplace."
Observers believe the Internet market is poised for a spate of major consolidations. Recently NBC bought a stake in CNet's Snap! Web portal site and AT&T was rumoured earlier this week to have been in talks to acquire America Online. "We're just at the beginning of very significant merger and consolidation activity," particularly in the portal space, said Jim Breyer of Accel Partners, a venture capital firm in the U.S.
"Everyone believes, correctly, that the Internet will change consumer behaviour in various ways," Breyer said. "Increased Internet use may be coming at the expense of other industries, like television, and the leaders in each of these other industries need to put together an effective Internet strategy."
Reuters contributed to this report