Prodigy prepares to split into two online services

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Online service bets future on new Internet offering

Prodigy, in what may be a last-ditch effort to remake itself, is splitting into two online services.

This fall, Prodigy Services Co. will unveil Prodigy Internet, an Internet-based online service that will be bundled with computers from at least six marketers.

The existing Prodigy will be renamed Prodigy Classic. Classic users will have free access to the Internet service, but the ultimate goal is to phase out Classic entirely.

For Prodigy management, wiping the slate clean is the only way for the service to survive.

"Our intent is for Prodigy Internet to become the company and overtake Classic," said Will Lansing, the company's chief operating officer.

That's if Prodigy can survive that long. Sears, Roebuck & Co. wants to dump its 50% stake in the money-losing company. (IBM Corp. owns the other half.) And Prodigy management is trying to raise $250 million for a leveraged buyout.

Last week, Prodigy laid off 115, or 17%, of its 680 staffers.

With subscriber estimates that range from 700,000 to 1.5 million users (Prodigy won't divulge numbers), the service is far behind America Online's 5 million and CompuServe's 4.7 million subscribers.


"I have to operate as if my destiny is in my own hands. I have to operate the business as I see fit. I'm an operator, and I can't wait for my parents" for direction, Prodigy President Ed Bennett told Advertising Age.

All this will not be possible, however, unless Prodigy management can draw enough investors to back their buyout plan.

Management has tapped investment banker Wasserstein Perella Securities to help raise funds. What Sears and IBM think of the plan is unclear; neither company returned calls at press time.

Under the new strategy, Prodigy will operate its original service as Prodigy Classic. All new marketing efforts, however, will focus on the fourth-quarter launch of Prodigy Internet.

New users will likely pay a flat subscription fee, said Mr. Lansing. The company will consider working with a direct marketing agency in addition to agency of record Cliff Freeman & Partners, New York, Mr. Bennett said.


Prodigy Internet will be bundled on the hard drives of 95% of the computers rolled out this fall, company executives said. Marketers including Packard Bell Co. and IBM Corp. have signed distribution deals.

Content for the new service will be almost entirely original.

The Internet environment will be graphically rich, offering sound, video and text. Judging by the appearance of some of Prodigy's new offerings such as the Night People chat series and the upcoming online entertainment environment dubbed Stim, the attitude will be distinctly "downtown" and hip--reflective of Mr. Bennett's personality.

Analysts are skeptical of Prodigy's plan, however.

"I don't know if Prodigy has any Internet brands that have really made it," said Peter Krasilovsky, senior analyst, Arlen Communications.

This summer, the company will start pitching marketers on packages that include a variety of banner, content sponsorship and other advertising opportunities.

Contributing: Debra Aho Williamson.

Copyright April 1996 Crain Communications Inc.

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