Of Mouse and Men : As Web Riches Beckon, Disney Ranks Become a poacher ' s Paradise Media Giant Can't Compete In Giving Stock Options, And Isn't `Freewheeling' Eisner Flames the Techies

06/09/1999

For four years, while many of his fellow Internet deal makers grew fabulously wealthy almost overnight, Jake Winebaum labored within the bureaucratic bowels of Walt Disney Co. to build an online empire.

Offers to run Internet start-ups came and went, but Mr. Winebaum resisted temptation: He even passed up the chance to head the Web company GeoCities Inc., a job that could have left him a couple of hundred million dollars richer. "I, like an awful lot of people, am not necessarily in it for the money," the chairman of Disney's Buena Vista Internet Group said in late April.

But on Monday, Mr. Winebaum quit to pursue his own Internet start-up, which will be partially funded by Disney. In doing so, he follows in the footsteps of dozens of other managers at Disney and its Internet partners who have left to run their own online companies.

The departure underscores a hard truth for Disney and other media giants: A huge gap separates them from the freewheeling Internet culture. The old-line companies move too slowly, they are too risk-averse, too absorbed in protecting their established franchises and too meddlesome for the tastes of most Internet movers and shakers.

And when it comes to compensation, the media giants simply can't offer the kinds of potentially lucrative equity stakes that Internet start-ups use to lure top talent. Join a movie studio, and you may get rich enough to drive a Jaguar. But you probably won't become a multimillionaire, as is happening almost weekly at Internet start-ups.

Over the past several months, many of Disney's key Internet employees -- both top executives and low-level techies -- have moved on. Two of Mr. Winebaum's top lieutenants, Disney Online President Richard Wolpert and Disney.com chief Winnie Wechsler, took jobs with start-ups. Most of the top executives at Starwave Corp., the Seattle-based Web-site developer acquired by Disney in 1996 and responsible for hits like Disney's ESPN site, are also gone.

Disney has become a favored recruiting ground for Internet companies and venture capitalists, who are snapping up ambitious, well-trained executives from the four corners of the Magic Kingdom. One such example is Toby Lenk, a fairly anonymous business-development executive at Disney who left in 1998 to help create the hot Internet retailer eToys Inc. When eToys went public last month, Mr. Lenk's stock immediately had a market value of $573 million. Many of eToys' top staffers -- including its chief financial officer, its general counsel and a board member -- are also Disney alumni.

The story is being repeated at other start-ups like cooking.com, where former Disney executive David Hodess snared several Disney colleagues, and eStyle Inc., a new Los Angeles venture where five of the top people, including founder Laurie McCartney, came from Disney.

Mr. Winebaum acknowledges the high turnover in Disney's Internet operations but says it isn't worse than Internet industry averages, which he puts at 25% to 30% annually. "I think people naturally think that the grass is greener somewhere else," he says. "There are enough of these stories about people making outrageous amounts of money. A lot of times, they are friends of people who work here, because they used to work here."

Mr. Winebaum learned firsthand about greener pastures when he passed up a chance last year to become CEO of GeoCities, a "community" Web site that went on to be acquired this year by Yahoo! Inc. The man who took that job, Thomas R. Evans, watched his GeoCities shares and options grow in value to more than $200 million with the Yahoo acquisition. (That stake will be worth less, however, since Mr. Evans decided to leave Yahoo earlier this week.) Mr. Winebaum acknowledges that Disney pressured him to remain when he was approached by GeoCities; around that time Disney named him chairman of his division. But he says he ultimately stayed because the timing was wrong: "I felt that I'd be leaving all the people I'd hired here hanging."

Mr. Winebaum denies that by leaving Disney now he has stopped believing in the company's commitment to the Internet, or that he is only motivated by money. Rather, he says he quit to own and control his own enterprise, a joint venture with Sky Dayton, chairman of Earthlink Network Inc. Both Disney and Earthlink, a fast-growing Internet service provider, will be significant investors in the venture, called eCompanies, which will help fund and manage Internet start-ups.

Disney Chairman Michael Eisner, who declined to be interviewed, tried to put a positive spin on Mr. Winebaum's departure, saying in a statement that "it gives us the best of two worlds": a stake in Mr. Winebaum's new firm and the prospect that his successors at Disney "will keep the business growing." Disney underscored its determination to become an Internet success by disclosing Monday that it is considering ways to buy the 57% of its main Internet partner, Infoseek Corp., that it doesn't already own.

Disney's drive to stake a claim on the Internet has had its successes. It operates popular Web sites like ESPN Sports Zone and Disney.com. and has a promising e-commerce business selling Disney merchandise. It gained a 43% share in Infoseek, and the right to later buy control, by giving Infoseek control of Starwave and investing an additional $209 million in cash and warrants. Together, Disney and Infoseek this year launched the Go Network, an Internet portal meant to do battle with Yahoo, America Online Inc. and other Web stalwarts.

But Go Network, now the centerpiece of Disney's Internet efforts, is struggling. It has enjoyed an enviable marketing push from Disney, which has plastered Go logos all over its ABC and ESPN networks and other Disney properties.

While Go enjoyed a 36% increase in traffic during its first quarter of operation, it recorded flat revenue-a troubling sign indicating that advertisers were skeptical. The portal also has been somewhat glitchprone, with e-mail malfunctions and information such as news headlines not being updated for days at a time.

Infoseek Chief Executive Harry Motro says that traffic to the Go site should improve when a television ad campaign begins this summer. He is also planning new services, such as auctions, and a redesign of important parts of the site, such as sports and news.

Infoseek workers have been rattled by Disney's influence -- or, as they see it, interference -- with their work, according to several current and former employees. Even Mr. Eisner weighs in, sometimes on seemingly minute matters. In e-mails he zings at Infoseek executives, Mr. Eisner picks at Go's flaws. In one recent dispatch, he complained that Go's personal stock tracker wasn't recording the value of his own holdings properly. The problem: The system rejected the commas that Mr. Eisner was using. Mr. Motro says he welcomes Mr. Eisner's input and laughs off the incident, noting that Mr. Eisner's portfolio "has a lot of commas, I guess."

Many at Infoseek have complained that the relationship with Disney has slowed their ability to make deals in the fast-moving Internet arena. With Disney owning a large, but not controlling, stake, nearly every design and feature of Go had to be cleared by Mr. Winebaum. Infoseek managers joke about the new "Disney math": 43%=51%.

No deal having to do with children's sections on the site can move forward without Disney involvement. Disney also makes sure Go's programming and design emphasize the content from its other properties, such as ABCNews.com.

While Disney can't require that Infoseek get approval from it for every deal, not keeping Disney in the loop creates tension. Disney officials were irked by one deal signed by Infoseek to exclusively offer credit cards from MBNA Corp. because Disney has important ties with American Express Co. for other parts of its empire, people close to Infoseek and Disney say.

Mr. Motro denies that Disney is meddlesome. "I think it is an honor to work with the finest media company in the world, and we want them to be as involved as possible," he says. While many of his employees say morale has never been lower, Mr. Motro, who engineered Infoseek's alliance with Disney, argues that "growing pains" are typical at Internet enterprises.

More troubling than the questions of corporate meddling has been the compensation issue. In fact, Disney got a whiff of the trouble to come shortly after acquiring Starwave: That company's chief technology officer, Patrick Naughton, told Mr. Winebaum that his team didn't necessarily expect high salaries. But in three years, he added, "They want to live in Michael Eisner's house."

The get-rich-quick promise of Internet start-ups has made it hard for Disney to keep even those workers inclined to stay. Rob Chmiel, for example, followed Mr. Winebaum to Disney. Yet despite his faith in his boss and Disney's Internet strategy, he couldn't resist when the recruiting firm SpencerStuart sought him out to become the chief financial officer for Barnesandnoble.com a year ago.

"It was a terrific opportunity for me to get some equity upside," Mr. Chmiel said. "I could have stayed at Disney forever and that might have never happened. It was the opportunity to be compensated more like my brethren in the Internet business."

Disney has used any number of tactics to keep its Internet employees from jumping ship. In transferring ownership of Starwave to publicly traded Infoseek, for example, it was in part trying to give Starwave employees equity comparable to their industry peers. Many Starwave workers had griped, and some even left, because Disney's acquisition of Starwave nixed a public offering in the works.

Disney Online and Disney.com workers have received big pay raises during the past year, with some getting bumps of 30%. They work miles from Disney's Burbank, Calif., headquarters in an attempt to shield them from the company's bureaucracy, Mr. Winebaum notes.

"We're not on the lot, which is by design," he says. "People come here when they need to come here. We don't get a lot of drop-bys." And the company has quietly begun awarding Disney stock options to much lower-level workers than in other Disney operations.

The problem is, with Disney's oncehighflying stock stalled, the awards often aren't attractive enough to keep key people. At the same time, the options set Disney up for corporate envy. For example, Mr. Motro holds options on one million Infoseek shares worth nearly $49 million, making him better compensated than many top Disney executives.

Disney also tries to keep Internet employees happy by giving them the chance to act as entrepreneurs, launching Internet businesses and using Disney's strategic-planning department as their venture capitalist. There is one key difference, however: Disney retains ownership of the ventures.

Scott Bushman, who has held a variety of Internet-related jobs at Disney since 1995, says he is sticking around because of the opportunity to lead one such venture, a new Disney Web project aimed at teenagers. "If in two years or five years I find that it's important for me to make my start-up money," he says, "I think it will still be there."

Still, there are those who doubt that any amount of effort will allow Disney to re-create the freewheeling atmosphere of a Internet start-up. Tom Phillips, who was a top Starwave manager in charge of the ESPN site, says he left soon after the Disney-Infoseek deal was struck to run Dejanews.com, now called Deja.com, a New York-based community site that offers user-generated reviews of products and services. (Disney says he left by "mutual agreement.")