CMG Reports Fourth Quarter Earnings of $1.38 Per Share

September 24, 1998

Revenues Increase 38% From Previous Quarter

ANDOVER, Mass. September 24, 1998-- CMG Information Services, Inc. (NASDAQ: CMGI) today reported net revenues of $28.1 million for its fourth quarter ended July 31, 1998, a 38% sequential increase in quarterly revenues. CMG reported net income of $31.4 million or $1.38 basic income per share for the quarter, compared to a net loss of $11.7 million, or ($0.55) basic loss per share for the previous quarter ended April 30, 1998. Fourth quarter results included a $54.0 million pre-tax gain on the sale of 950,000 shares of the Company's stock of Lycos, Inc. and a $24.3 million gain on issuance of stock by Lycos, Inc. Third quarter results included a $26.1 million pre-tax gain on the sale of 445,000 shares of Lycos stock, a $4.1 million gain on issuance of stock by Lycos, and a one-time in-process research and development charge of $18.1 million. On a full year basis, CMG reported net income of $16.6 million or $0.79 basic income per share for the fiscal year ended July 31, 1998, compared to a net loss of $22.0 million, or ($1.17) basic loss per share for the previous year ended July 31, 1997. Fiscal year 1998 revenues increased $20.9 million, or 30% to $91.5 million from $70.6 million in fiscal year 1997.

Beginning in the second quarter of fiscal 1998, when the Company's ownership in Lycos was reduced below 50%, CMG began accounting for its investment in Lycos under the equity method, rather than the consolidation method, and as such, CMG's consolidated revenues and operating expenses no longer include Lycos. On a comparable basis, CMG's fourth quarter fiscal 1998 revenues of $28.1 million represent an increase of 96% over prior year fourth quarter results, excluding Lycos revenues of $7.8 million included in Q4 fiscal 1997 results. Similarly, excluding fourth and third quarter one-time in-process research and development charges of $200,000 and $18.1 million, respectively, and excluding Lycos operating expenses of $8.9 million included in CMG's prior year fourth quarter results, operating expenses increased to $48.8 million in the fourth quarter of fiscal 1998, reflecting a 40% increase from the third quarter of fiscal 1998 and a 79% increase from the fourth quarter of fiscal year 1997.

During the Company's fourth fiscal quarter, GeoCities filed its initial registration statement for its public offering, CMG completed the acquisitions of ServerCast, InSolutions and On-Demand Solutions and its investments in Open Market and Magnitude Network, and CMG@Ventures invested in Universal Learning Technology, Visto, Mother Nature, Silknet, Reel.com, and Chemdex. In August, 1998, GeoCities successfully completed its initial public offering at a price of $17 per share. CMG@Ventures currently holds 8.8 million shares of GeoCities common stock, which it acquired at an average cost of $0.67 per share. Recently, CMG@Ventures announced the sales of PlanetAll to Amazon.com and Reel.com to Hollywood Entertainment.

Commenting on the Company's performance, CEO David Wetherell said, "CMG has seen tremendous success in a short period of time, with the public offering of GeoCities, and the sales of PlanetAll to Amazon.com and Reel.com to Hollywood Entertainment adding to the overall returns of CMG@Ventures I and II, and the momentum we're seeing in Planet Direct, Engage and NaviSite. We are very proud of the significant progress made across our portfolio of businesses during this quarter and past year. While the Company's development efforts in all businesses continue to progress, CMG added eight new investments to its portfolio during the fourth quarter. The Company in total has investments in 31 businesses at July 31, 1998."

Operating Segments

The Company reports three operating segments: Investment and Development, Fulfillment Services, and Lists and Database Services.

The Investment and Development segment results reflect the consolidated performance of majority-owned Internet companies, which during the fourth quarter of fiscal year 1998 include Blaxxun, Planet Direct, ADSmart, NaviSite, Servercast, InfoMation, The Password, Vicinity, and Engage/ Accipiter. The Investment and Development segment reported revenues of $4,170,000 in the current quarter, compared with $2,208,000 in the previous quarter ended April 30, 1998. The operating loss was $18,149,000 in the quarter just ended versus a loss of $33,704,000 for the quarter ended April 30, 1998. Third quarter operating loss included one-time in-process research and development charges of $18.1 million, primarily from the Company's acquisition of Accipiter.

CMG's portion of the net operating performances of Lycos, GeoCities, Parable, Silknet, Reel.com, Speech Machines, Mother Nature, and PlanetAll is reflected in equity in losses of affiliates during the fourth quarter of fiscal 1998. Equity in losses of affiliates was $3,397,000 for the current quarter, compared with $3,908,000 for the quarter ended April 30, 1998. CMG's investments in Chemdex, KOZ, Softway Systems, Critical Path, Magnitude Network, and Tickets Live are carried at cost. CMG's investments in Open Market and RedBrick are accounted for as available-for-sale securities, at market value.

In the Fulfillment Services segment, revenues increased 37% to $21,776,000 in the fourth quarter of fiscal 1998 from $15,937,000 in the third quarter of fiscal year 1998. This successful growth rate reflects the acquisition of InSolutions and SalesLink's continued success in both attracting new customers and increasing the volume of turnkey business from existing customers. This milestone represents a new quarterly revenue record for this segment, its fifth consecutive sequential quarterly revenue increase and a 91% increase over last year's fourth fiscal quarter. The fulfillment segment reported an operating loss of $2,313,000 in the quarter, compared with operating profits of $1,061,000, $1,149,000 and $1,547,000 in the first, second and third quarters, respectively, of fiscal year 1998. Included in fourth quarter results is a $2,487,000 charge to cost of sales to correct prior quarters understatements of cost of sales by SalesLink's subsidiary company, PacificLink. The cost of sales understatement was caused by estimates used in determining the material content in cost of sales. The understatement was recognized as a result of the physical inventory taken in June, 1998. Such understatements arose at the subsidiary over fiscal 1998 interim periods during which a new computerized material requirements planning inventory system ("MRP") was being installed. This interim problem has been corrected by the implementation of the MRP system and adjustments to the material content cost. Had such estimates been corrected in the periods in which they occurred, fulfillment quarterly operating profits for quarters one, two, three and four of fiscal 1998 would have been $279,000, $335,000, $656,000, and $174,000, respectively. The fourth quarter sequential decline in operating performance reflects operating inefficiencies experienced during a period of high volume growth, additional costs related to PacificLink's MRP installation and physical inventory counts, and a $180,000 charge to increase allowance for doubtful accounts, partially offset by operating profits at InSolutions, which was acquired during the quarter. Additionally, fulfillment segment results for quarters one, two, three and four of fiscal 1998 include $309,000, $309,000, $309,000, and $384,000, respectively, of goodwill amortization charges related to the acquisitions of Pacific Link, (which was acquired in fiscal 1997), and InSolutions, (which was acquired during the fourth quarter of fiscal year 1998).

The Lists and Database Services segment reported sales of $2,157,000 in the quarter just ended, down $126,000 compared to $2,283,000 in the third quarter of fiscal year 1998. The segment posted an operating loss for the quarter of $439,000 versus a loss of $250,000 for the third quarter ended April 30, 1998; primarily reflecting the impact of reduced sales and increased marketing costs associated with CMG Direct's CMGexpress.net "opt-in" e-mail list service.

Investment and Development Highlights

On August 11, 1998, GeoCities successfully completed an initial public offering of 4.75 million shares of common stock at $17 per share on the Nasdaq National Market under the trading symbol "GCTY." CMG's @Ventures subsidiaries made their first investment in January 1996, and have invested a total of $5.87 million in the company. After the IPO, CMG's @Ventures subsidiaries own 31 percent or 8.8 million shares of GeoCities stock. Since December of 1994, GeoCities has grown to be the world's largest community of personal Web sites with 2.5 million members or 'Homesteaders'. Homesteaders have created an estimated 20 million pages of personalized content, attracting over 15.5 million unique visitors to, and generating over 925 million page views on, the GeoCities community, according to Relevant Knowledge in August 1998 and Nielsen I/PRO in June 1998, respectively. GeoCities was the fourth most trafficked Web site on the Internet among home users in August 1998, according to Media Metrix.

In addition to follow-on investments in Chemdex, Silknet and Reel.com during the fourth quarter of fiscal year 1998, CMG@Ventures II, LLC invested $2 million during the quarter for an initial 23% ownership interest in Mother Nature, $1.5 million for an initial 6% ownership in Visto and $1.25 million for an initial 12% ownership in Universal Learning Technology. Mother Nature is an e-commerce company in the vitamin and natural supplement market. Visto provides a service called Visto Briefcase Pro which allows users to store files on a secured Web-site account and synchronize those files with any PC. Universal Learning Technology is a provider of Internet-based interactive teaching and learning software and tools. In addition to its CMG@Ventures investments, CMG's investments during the quarter included the acquisitions of InSolutions for approximately $14 million and On-Demand Solutions for approximately $7 million, as well as the purchase of minority stakes in Open Market, Inc. (NASDAQ: OMKT) for $5 million, and Magnitude Network for $500,000. InSolutions is a provider of turnkey services, which include supply chain management, inventory management, manufacturing assembly, CD-ROM duplication services and demonstration disks. On-Demand Solutions is a supplier of e-commerce fulfillment solutions and turn-key supply-based management services. Open Market is a leading provider of Internet commerce software, and Magnitude Network delivers value-added Internet solutions to broadcasters, broadcast advertisers, and merchandisers.

During the fourth quarter of fiscal year 1998, NaviSite acquired Servercast Communications, a leading developer and integrator of Internet applications. The acquisition expands the range of NaviSite's SiteHarbor high-end Web hosting service to include e-commerce, ad serving and content management solutions. On July 13, 1998, NaviSite and Open Market, Inc. announced that they had entered into a comprehensive strategic partnership under which NaviSite has licensed Open Market's Transact ™ software to provide Internet commerce services to its hosting customers. Additionally, NaviSite will become a preferred Open Market Commerce Hosting Partner, enabling the company to run Transact for those customers who wish to outsource their Internet commerce infrastructure. On September 1, 1998, NaviSite announced agreements with Competitive Local Exchange Carriers (CLECs) Taylor Communications Group, in Texas, and Global NAPs, in Massachusetts and New York. These agreements extend the coverage area of NaviSite's dial-up networking services (GeoDial) for ISPs to immediately include Massachusetts and New York, as well as Texas and Southern California by October of 1998, and extend NaviSite's local dial coverage to 30% of the US population. Recently, NaviSite announced that e-Parcel, LLC, MotherNature.com, and Student Net Publishing's Student.Com have selected NaviSite to provide high-end Web hosting and server management services. In addition, the company also announced plans for immediate expansion of its Andover data center by 50% to meet the rapid growth in customer demand for its high-end Web hosting services.

During the fourth fiscal quarter, Engage Technologies, Inc. announced several landmark agreements, including a multi-million dollar joint venture agreement with Japan's Sumitomo Corporation to establish Engage Technologies Japan. The joint venture will host a separate database of Engage.Knowledge anonymous profiles built from Web visitors to sites located in Japan and will have exclusive license to sell Engage.Knowledge subscriptions in Japan as well as sole distribution rights for all of Engage Technologies' products in Japan. Also during the quarter, Engage announced a strategic partnership with Open Market, Inc. to integrate their respective technologies, which will enable Web sites to offer personalized online retailing promotions to Web visitors. During August 1998, Engage announced a strategic partnership with Net Perceptions, Inc. Through this partnership, Web visitor profiles are created and updated by Engage's precision profiling technology each time a user returns to a site and Net Perceptions' recommendation engine technology uses these profiles to analyze individual interests and make recommendations to ensure a visitor quickly and easily finds information and events of interest to them. Also in August 1998, Engage announced the release of Accipiter AdManager 4.0, which combines Engage's precision profiling technology with Accipiter's ad serving software to create a comprehensive, industry-leading online advertising solution with an easy-to-use interface. Engage also announced during August that its Engage.Knowledge database had grown from 12 million to 30 million anonymous Web user profiles in just over two months. By building the Engage.Knowledge database entirely on anonymous profiles, Engage believes it has established itself as an industry leader in the growing area of privacy concerns. Without tracking user identities, Engage's patent pending "dual-blind" identification technology provides the infrastructure to address the needs of online marketers for robust Web visitor data as well as the individual's right to privacy.

Since the previous quarter, Planet Direct has signed over 110 new Internet Service Providers (ISP) affiliate partners in key U.S. markets to offer its personalized Web service for subscribers. Over 390 ISPs, reaching more than 3-million Internet users, now offer Planet Direct's personal Web service. Among the new partners are Cybergate, the largest ISP provider in Florida and ExecPC, Wisconsin's largest ISP provider. Planet Direct is now represented by a consortium of ISPs who collectively control 60% or more of the local consumer ISP market in over 20 states including: Alabama, Arizona, California, Connecticut, Florida, Georgia, Illinois, Indiana, Kentucky, Massachusetts, Michigan, Minnesota, New York, Nevada, North Carolina, Ohio, Oregon, Pennsylvania, Virginia, Washington and Wisconsin. In addition, 10 affinity partners have been signed during the quarter. On August 31, 1998, Planet Direct announced that it has surpassed a major milestone of 750,000 active registered users and more than doubled the number of page views of their Web service over the previous 30 days. According to the July Relevant Knowledge report, users of Planet Direct spend an average of over 40 minutes per month on the service, placing Planet Direct third overall among the portal sites on the Web. In addition, Planet Direct announced the addition of fifteen new content services including a live feed from The Traffic Station, providing local online traffic reports, Worldly Investor and Fination.com, providing new financial content to its personal online service. Planet Direct also recently teamed with Critical Path to become the first portal to offer free Web-based email to its members, and partnered with Stockpoint™ to offer free real-time stock quotes as part of its financial services content offering. On August 11, 1998, Planet Direct introduced its new model for one-to-one marketing, which combines profiling, collaborative filtering and ad serving, resulting in a personalized and targeted delivery system which will provide Planet Direct users with content and ads specifically and personally applicable to them as unique individuals. In marketing to the ISP/ access channel and emerging affinity markets, CMG is able to bring together a wide variety of Internet capabilities to develop and deliver bundled and integrated capabilities (on-line services) for individual market segments.

On August 4, 1998, CMG @Ventures II announced it had signed a merger agreement to sell its 25 percent stake in PlanetAll, the Web-based contact management service, to Amazon.com, Inc., (NASDAQ: AMZN.) This CMG @Ventures II sale will be made in conjunction with Amazon.com's purchase of 100 percent of PlanetAll in exchange for 800,000 shares of Amazon.com stock plus assumption of all outstanding options. Beginning with its first investment in June of 1997, CMG @Ventures II has invested a total of $4.5 million in PlanetAll, and will receive 225,000 shares of Amazon.com stock pursuant to this transaction.

On July 30, 1998, Hollywood Entertainment, Corp. (NASDAQ: HLYW), d.b.a. Hollywood Video, the second largest video rental chain in the United States, announced that it has signed a definitive agreement to acquire Reel.com, Inc. Pursuant to the terms of the Merger Agreement, the value of the deal is approximately $100 million, and CMG@Ventures II will convert its 34 percent stake in Reel.com into stock in Hollywood Entertainment. Concurrent with the sale of Reel.com, CMG will purchase additional shares of Hollywood Entertainment stock, making CMG one of the largest shareholders in Hollywood Entertainment.

Lycos reported fourth quarter revenues of $19.0 million, which represented an increase of 26% over the third quarter of fiscal 1998 and an increase of 145% over the fourth quarter of fiscal 1997. Before amortization and one time merger related expenses, Lycos reported a loss of $1.6 million for the fourth quarter as compared to a net loss of $2.4 million for the third quarter of fiscal 1998. During the fourth quarter, Lycos completed a secondary public stock offering of 2.3 million shares, raising approximately $115 million. Lycos also declared a two-for-one stock spilt which was paid on August 25, 1998. In June 1998, Lycos acquired Guestworld, the Web's largest provider of free online guestbook services. Also in June 1998, Lycos Online Powered by AT&T WorldNet Service was launched. During the quarter, Lycos was issued a patent by the U.S. Patent and Trademark Office covering the company's "spider" technology which recognizes the proprietary and unique nature of the Lycos spider technology and gives Lycos exclusive rights to its spider search capability. Lycos also announced several e-commerce agreements during the fourth quarter, including Fragrances Online, Test Drive, GetSmart and Realtor.com. Lycos signed e-commerce agreements totaling over $100 million during the year ended July 31, 1998. Lycos' deferred revenues increased more than 238% during fiscal 1998 from $17 million as of July 31, 1997 to $57 million at July 31, 1998. Lycos more than doubled its number of advertisers during fiscal 1998 and now has over 850 advertisers. In August 1998, Lycos announced the acquisition of WhoWhere?, raising the Lycos network to the fourth most popular Web destination with a reach of more than 32% (MediaMetrix 7/98).

Financials (Excel Format)

CMG Information Services, Inc. is a leading provider of direct marketing services, investing in and integrating advanced Internet, interactive media and database technologies.

Forward looking statements in this release are made pursuant to the safe harbor provisions of the Private Securities Litigation Act. Investors are cautioned that actual results could differ materially from those anticipated by such statements and are advised to consult CMG's current SEC filings for additional information concerning risk factors that affect the Company's business.

Email:[email protected] Tel: 978.684.3832 Fax: 978.684.3672