Yahoo Turns to Hollywood for New CEO
Struggling to plot a new course after a year of dot-com disasters, Internet bellwether Yahoo Inc. reached deep into traditional Hollywood on Tuesday and plucked the ultimate industry insider to lead the company in its quest to become a media giant.
Terry Semel, who led the mammoth Warner Bros. studio for two decades with partner Robert Daly, will become chairman and chief executive of Yahoo on May 1. He will replace Tim Koogle, one of the Net’s brightest stars, who transformed the hobby project of two Stanford graduate students into an Internet powerhouse--and then watched its fortunes dwindle.
Semel’s ascension heralds the transformation of the dot-com world from its freewheeling roots to an industry that now realizes it can’t change the world on its own. Increasingly, the dot-coms are turning to Hollywood as their partner of choice.
Yahoo rival America Online first signaled the extent to which Internet businesses would converge with so-called old media in a stunning $99-billion merger with Warner Bros. parent Time Warner.
Now with Semel at the helm, Yahoo is moving onto the convergence bandwagon. The company is expected to embark on the difficult task of transforming itself from a Web-based provider of information and entertainment into a full-fledged media business that more closely resembles a television network or a movie studio, analysts said. That should allow the Santa Clara, Calif., company to outgrow its dependence on online advertising, which has become so weak that the once-profitable company is now losing money and plans to slash 12% of its work force.
Some Wall Street observers questioned whether anyone has the still-undetermined combination of skills to reinvigorate Yahoo and reinvent the economics of the Internet. Semel, in particular, has some glaring shortcomings in his resume--a lack of experience in advertising and a spotty record with Internet ventures.
Privately, several analysts questioned whether Semel can make the transition from the lavish world of Hollywood to the new penny-pinching reality of dot-coms.
“He’s used to being able to spend a lot of money to make money,” said one top media analyst. “The Internet is a different model.”
But Semel, 58, brings a stellar reputation as a savvy, seasoned executive who understands both the creative side of entertainment as well as the nuts and bolts of global marketing and distribution. Most important, in a world beaten down by a year of bad news and huge losses, he is new blood.
“This is a real psychological boost for the dot-coms,” said John Geirland, a new-media consultant in Studio City. “They’ve been in this death spiral. With Terry Semel coming in to take the top position at Yahoo, it’s like they’ve regained control.”
The company has long talked of creating a new Yahoo built on a flood of entertainment that consumers have already shown their willingness to pay for. That new future includes music, video, shopping, games and a slew of other interactive services.
This is a far cry from the old days when Yahoo was a humble directory of cool sites on the nascent World Wide Web.
Koogle, 49, who joined Yahoo in 1995, a year after its launch, spearheaded the strategy of building an empire by hooking millions of faithful customers with free e-mail accounts, free Web pages and free stock quotes. Once the users were gathered, he sold lucrative advertisements to companies anxious to reach them.
The strategy became the guiding light of the vast majority of Internet enterprises and made Yahoo one of the few profitable companies on the Web.
But everything fell apart when advertisers lost faith, and Yahoo’s revenue plunged. The stock dropped from $250 in January 2000 to a 52-week low of $11.38 this month.
In the last year, Yahoo has struggled to find a new strategy. The company has introduced some subscription services, including an online music service with heavyweight partners Universal Music Group and Sony Music Entertainment. But analysts said it has lacked focused leadership, largely because the company has been run by an insular group of executives who have been together almost from the beginning.
When Semel reports for work, he probably will be among the oldest employees at Yahoo. Some observers who believe the company has suffered from management chaos said the change would be welcome.
“They get an adult who is a seasoned executive who had a lot of people working for him who liked working for him,” said former partner Daly, who is now chairman of the Los Angeles Dodgers.
Semel has immersed himself in the Internet industry since leaving Warner Bros. in 1999. “The culture of the Internet and the media business are not that different,” Semel said. “Both are focused on intellect, creativity and business experience.”
In an interview, Semel said he would aim to bolster Yahoo’s ad revenue by targeting “the top 200 advertisers in the world,” including companies such as Procter & Gamble. Yahoo’s advertising ranks are currently skewed toward slumping technology firms and dot-coms. Semel also said he planned to expand some of Yahoo’s new pay services aimed at businesses and consumers.
Those are just the sorts of things analysts said Yahoo needs. But even though Semel has done them before, “he hasn’t done it in this environment, and he has not done it on the clock speed he will need at Yahoo,” warned John Corcoran, new-media analyst with CIBC World Markets.
Investors also showed some skepticism to the morning announcement, pushing Yahoo shares down 31 cents to close at $17.31 in Nasdaq trading Tuesday.
Semel’s own track record with Internet businesses is spotty so far. At Warner Bros., he oversaw the launch of Entertaindom, a Web site featuring cartoons, 3-D animations and concert videos. The site was closed soon after America Online merged with Time Warner in January.
Semel poured a reported $2 million of his own money into Digital Entertainment Network, an ambitious attempt to merge Hollywood production values with Internet distribution. The unprofitable Santa Monica company burned through $60 million in venture capital before shutting down last year.
Through his Los Angeles-based investment firm, Windsor Media, Semel also has invested in Fandom and AtomFilms. Fandom, a Santa Monica firm that tried to create a series of entertainment-oriented Web sites, shut them down this month. AtomFilms was purchased this year by Shockwave.com, which is controlled by Macromedia, a San Francisco-based interactive software firm.
The selection of an executive with such deep ties to Hollywood reignited long-running speculation that Yahoo is positioning itself to merge with a media conglomerate, though probably not before the end of the year.
“If Terry can fix Yahoo and build it into a long-term growth vehicle, then I think he dramatically increases the chances for a major media company like Viacom, Disney or Fox to buy it,” said Jessica Reif Cohen, an analyst at Merrill Lynch.
In the meantime, Semel’s leadership “provides a very easy way for Yahoo to sit down as an equal with other large media companies such as AOL Time Warner and News Corp. and do joint ventures,” said Christopher Dixon, an analyst with UBS Warburg.
Before hiring Semel, Yahoo looked at former BMG Chief Executive Strauss Zelnick, NBC West Coast President Scott Sassa, and two senior executives at AOL, according to people familiar with the talks. Semel will receive a salary of about $300,000 and a significant batch of stock options. He already purchased 1 million Yahoo shares in a private placement, the company said.
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Times staff writers James Bates, Claudia Eller and Joseph Menn contributed to this report.
