DISNEY CO. TO CONTROL STARWAVE : COMPANIES TO PRODUCE NEW SITE ON INTERNET.

Byline: Laurence Zuckerman The New York Times

Expanding its recent embrace of cyberspace, the Walt Disney Co. announced Thursday that it was buying a controlling stake in Starwave Corp., an Internet publisher, and said that the two companies would jointly produce a new site on the World Wide Web using the resources of Disney's ABC News division.

Disney and Starwave executives declined to discuss the terms of the deal, which had been widely expected for months. But executives familiar with the arrangement said that Disney paid just under $100 million for about a third of Starwave.

However, as part of the agreement, Disney gained control of Starwave's board of directors and has an option to purchase the remainder of the company over the next five years from its owner, Paul Allen, the billionaire investor who co-founded the Microsoft Corp. Allen, who will remain on Starwave's board, retained the right to sell the company to Disney at ``fair market value'' after five years.

The deal came less than a week after Disney's announcement that it would introduce a subscription Internet service for children called the Daily Blast.

Starwave and Disney have collaborated for the past two years on ESPN Sportszone, a popular Web site that grew out of Disney's ESPN 24-hour cable sports networks. Starwave, which is based in Seattle, also produces other sites, including an entertainment news site called Mr. Showbiz, and is about to introduce a new site devoted to personal finance.

Both of those will be integrated with a new ABCNews.com site that will begin operation at the end of the month, said Tom Phillips, a senior vice president at Starwave. He will become president of the new joint venture that will oversee the ABC News and ESPN sites.

The news site will be run by Jeff Gralnick, 58, a veteran television producer who spent most of his career at ABC News and was lured back from NBC News last year to run a new 24-hour cable news network that ABC later abandoned. Now, ABC executives are saying that the Internet is a much better bet.

``ABCNews.com, done right, makes cable unnecessary because it becomes your multimedia cable network,'' Gralnick said. ``That is where this business is going.''

He said that the new site would start out with about 65 editorial employees in New York and Seattle and would use all the resources of ABC News, including its radio network. ABC News correspondents will file print dispatches to the site, Gralnick added, and will participate in on-line chat sessions.