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THE CUTTING EDGE

Prodigy Sold to Group Headed by CEO for $200 Million

Online services: Company's fortunes have slipped in battle for members with competitors AOL and CompuServe.

May 13, 1996|JULIE PITTA | TIMES STAFF WRITER

Prodigy Services Co., a pioneer in the online services business which in recent years has been eclipsed by more aggressive competitors, has been purchased by a group of its executives and a deep-pocketed telecommunications firm for about $200 million, it was announced Sunday.

The sale of Prodigy by founders IBM and Sears, Roebuck & Co., which spent more than $1 billion on the 12-year-old venture only to see it become an also-ran in the fledgling field, closes an important chapter and opens an uncertain new one.

Prodigy's new owners, including Chief Executive Ed Bennett, are hoping the buyout will provide a fresh start and free it from the IBM and Sears bureaucracies, enabling it, in theory, to respond more quickly to changes in this fast-moving market.

Partner International Wireless of Cambridge, Mass., which owns interests in cellular properties outside the United States, is providing the financing for the buyout.

Among its shareholders is Grupo Carso, a Mexican industrial giant which has a controlling stake in that country's telecommunications giant Telefonos de Mexico. Bennett said Prodigy will expand its U.S.-only service abroad.

Bennett, who led the buyout and will remain to run the company, told the Associated Press he is optimistic that "with a real clear management structure, the cloud around Prodigy is removed."

However, analysts fear it will be difficult for Prodigy to make up lost ground at a time when the Internet, particularly the multimedia portion of it called the World Wide Web, threatens to make all online services irrelevant to computer users. Prodigy has fallen from second to fourth place this year among online services, behind fast-growing America Online with 5 million customers and Compuserve with 4 million, and newcomer Microsoft Network, the online service launched by Microsoft Corp. Prodigy's 1.25 million membership has been falling while the others raced past it.

Computer users consider Prodigy stodgy compared to the hip-looking America Online, a perception reinforced when it began censoring subscribers' comments in its "chat" areas. While America Online wooed new subscribers with free trial memberships and flashy television commercials, Prodigy did little to counter the marketing barrage.

Sears and IBM, both in the throes of painful restructurings themselves, had been looking to sell Prodigy for more than a year, unwilling to spend any more money on the chronically unprofitable venture. Money is critical to Prodigy at this juncture as it tries to transform its business from that of a stand-alone online service to an information site on the Internet.

That move will enable subscribers to link directly to Prodigy on the Internet instead of paying Prodigy for connection time. The strategy is similar to those of other online services.

With funds from Grupo Carso, the new owners plan to expand into Latin America, South America, Asia and Africa. Spanish and Portuguese versions are planned. But some questioned how much demand there will be in those markets in the foreseeable future.

"You have to wonder if there is much of a matchup between what Prodigy has to offer and where the new owners want to take it," Gary Arlen, president of Arlen Communications in Bethesda, Md., told Bloomberg Business News.

Prodigy started in 1984 as a joint venture of CBS, IBM and Sears to provide electronic home banking and shopping. Two years later, CBS pulled out. Eventually the service evolved to offer electronic mail, online newspapers and magazines, and the ability for subscribers to chat with one another live.

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