10/30/95 PRODIGY: A 5-YEAR-OLD UNDERACHIEVER

PRODIGY: A 5-YEAR-OLD UNDERACHIEVER

When it went online in 1990, Prodigy was a true trailblazer. Corporate parents IBM and partner Sears, Roebuck & Co. had recognized the potential for bringing the information revolution to consumers. For just $9.95 a month, Prodigy Services Co. offered push-button access to all sorts of information, an electronic shopping mall, and E-mail. In two years, 1 million people had signed up.
By now, Prodigy might well have put IBM out front in the wired world of online services. Instead, with just 1.35 million members currently, Prodigy has become a distant third--after America Online Inc. (AOL) and CompuServe Inc.--and it is slipping farther behind. While Prodigy is expected to add 150,000 subscribers by the end of this year, AOL will triple, to 4.5 million, according to market researcher SIMBA Information Inc. (chart). And after plunking down more than $1 billion, IBM and Sears have yet to see a sustained profit. According to published reports, Prodigy lost $3.8 million in 1994 and $900,000 after taxes in the first half of 1995.
DEFECTIONS. The situation looks grim, and some of Prodigy's key content providers are looking elsewhere. On Sept. 28, for instance, the Los Angeles Times announced the end of a year-old exclusive relationship with Prodigy. It's moving to the fast-growing World Wide Web, part of the global Internet. There are likely to be defections from AOL and CompuServe to the Web also. But with its smaller audience, Prodigy may lose more content providers more quickly.
Prodigy's new president, Edward A. Bennett, former head of Viacom Inc.'s VH-1 cable-television channel, believes that the service still has a fighting chance. The third chief in five years, Bennett is concentrating on remaking Prodigy into a more user-friendly portal to the labyrinthine Internet. Prodigy has already developed more than 100 special-interest areas that index Web resources--on subjects ranging from accounting to veterans' affairs. Although both AOL and CompuServe also offer links to the Web, those services are just now linking Web sites to content that has been created specifically for their networks. The Internet strategy, says Michael Rogers, managing editor of Newsweek Online, is one reason the newsweekly is staying put. ``Prodigy is really way ahead'' in adapting to the Internet, he says.
Meanwhile, Prodigy is on the prowl for fresh content. It has new offices in Los Angeles and New York to woo entertainment giants. It's also trying to achieve a hipper image with a new $10 million advertising campaign, including a series of slick prime-time TV spots. And in October, the company hired several executives who may help bring in fresh material. Heading Prodigy's business development, for example, is David Friedensohn, a former entertainment-industry consultant whose clients have included Viacom New Media and NBC.
READY TO SELL? Still, that may not be enough to heal the company's ills. Several of the company's top managers have left, including No.2 Scott Kurnitt, who as executive vice-president had pushed hard for change at slow-moving Prodigy. And despite its quick adoption of the multimedia Web, the service still suffers from a somewhat stodgy image.
Clearly, Prodigy can't continue on its downward course indefinitely, and IBM Chairman Louis V. Gerstner Jr. says he will resolve the situation soon. One possible way would be to buy out Sears' half and gain complete control of Prodigy, then focus on making it work. In August, Sears announced that it was ``assessing [its] strategic position in Prodigy''--sending the signal that, for the right price, the retailer would be prepared to sell. Insiders are excited over this sellout possibility. They're hoping that IBM will then find new partners--an entertainment giant such as Viacom, for instance--that will help to restore Prodigy to its former success. Otherwise, this onetime child star might not survive into adulthood.
By Paul M. Eng in New York, with Susan Chandler in Chicago