Is former Warner Bros. Chairman and co-CEO Terry S. Semel the right guy to fix an ailing Internet powerhouse? Yahoo! Inc. certainly thinks so. While it's not clear how much cash the 57-year-old mogul was offered to come on board, there's no question he'll supplant longtime Yahoo! boss Timothy A. Koogle, who announced his resignation Mar. 7. According to the Internet portal's Apr. 17 announcement of Semel's hire, he'll take the title of chairman and CEO, effective May 1, despite assurances in March from Koogle that he would remain in that capacity. "We want to make sure there's no question who's running the company," explains Koogle, who will stay on as a member of the board.
Semel may have the authority, but whether he has the mojo to fix this struggling Internet portal is another question. Semel, who spent 24 years helping build Warner Bros. into an $11 billion company, clearly is stepping into what's arguably the most difficult role yet of a lively career. In Hollywood, he was able to push through the wildly successful action flick Lethal Weapon, and he still hobnobs with such Tinseltown luminaries as Clint Eastwood and Mel Gibson. Semel carved out his niche in the movie business at Warner Bros., flexing his muscles less in other endeavors, such as television or music, according to media-industry insiders.
THE UN-MEDIA. All told, Semel has little experience courting big-name, traditional advertisers -- the very folks Yahoo! desperately needs to rejuvenate its business. That has some analysts lukewarm on the selection. "The movie business is not the media business," says Salomon Smith Barney Managing Director Lanny Baker. "The media business is all about selling ads. The movie business is all about spending money."
Yahoo! hopes Semel's lack of rapport with traditional advertisers will pale in comparison to the exec's Hollywood clout and strong operations experience. Yet the market for Internet advertising, which still accounts for three-quarters of Yahoo!'s business, is melting faster than butter on a hot flapjack. Yahoo!'s first-quarter revenues plunged 21% year over year to $180.2 million -- down nearly half from analyst projections just months ago. The company is in the process of trimming 420 jobs, or 12% of its staff. In addition, nearly a dozen top executives have departed since the start of the year, as Yahoo!'s stock has plunged 89% off its 52-week high.
It does seem clear, though, that Semel's appointment heralds a fundamental strategic shift at the company toward trying to become a major media player. "Until now, Yahoo! has remained agnostic when it came to content and distribution, resisting the urge to integrate or partner on a deeply committed level," Baker says. "Bringing Semel on board may indicate that it's now time to recognize opportunities rather than keep options open."
CHARGING SUBSCRIPTIONS. Even before Koogle announced in early March that he was looking for "great new talent" outside the company, the ad-revenue-dependent portal was developing additional revenue streams to better leverage the traffic and data it receives from the average 180 million people who stop by the site each month. The first public indication that Yahoo! was dressing itself up as a media company, rather than a simple content aggregator, came as early as January, when it started charging users to list items for auction. And just a day before announcing Koogle's successor, Yahoo! said its eponymous phone service, which allows users to access an aural version of their e-mail, will soon be available only by subscription.
The Web portal also recently signed a deal with digital-music service Duet, which is backed by Universal Music Group and Sony Music Entertainment, to provide online music subscriptions by this summer. And no doubt, Yahoo! is hoping the experience Semel has in media distribution will come into play in future forays into this space. "I helped build one of the world's largest media companies. Yahoo! is also a media company. I can help," Semel says evenly.
In addition, his international experience has proven enticing to Yahoo!. Semel helped push Warner Bros. into more than 50 countries, with more than half of its sales coming from outside the U.S. That's very important to Yahoo!, which has seen its international operations stagnate. More than 25% of Yahoo!'s visitors originated from outside the U.S. last year, but just 15% of revenues came from overseas. To boot, a half-dozen of the company's international execs have left since January, in part because Yahoo! has tightly managed international operations from its Santa Clara (Calif.) headquarters, say analysts.
"I'm a believer in [Semel]. I think he could turn out to be an excellent hire," says Strauss Zelnick, the former head of BMG Entertainment, who last month turned down an initial feeler from Yahoo! about the CEO job.
HEAVY HITTERS. "No one's a precise, silver-bullet remedy," Smith Barney's Baker says, "but what comes with Semel is extraordinary insight and perspective into the broadly defined media business, unparalleled experience, and relationships with the most important people in Hollywood." He's likely to bring some of these heavy hitters with him to Yahoo!'s compound.
"One of the first things he'll have to do is add people with more muscle and experience," says venture-capital celebrity Frank Biondi, chairman of Waterview Advisers and former CEO and chairman of Universal. "But he's got unprecedented media connections on an international scale." Along with his former Warner Bros. co-chair and co-CEO Robert Daly, Semel also could easily tap Jim Bannister and Jim Moloshok, both Warner Bros. veterans and former heads of Warner's now-defunct online entertainment effort, Entertaindom.com.
Adding execs will be needed sooner rather than later. The top posts in Yahoo!'s sales force and its international operations were both recently vacated. In addition, Semel is expected to start looking soon for a new No. 2 exec, as few analysts expect Yahoo! President and COO Jeffrey Mallett to stick around after being skirted for the top job. Mallett insists he plans to stay at the company.
PUBLIC-COMPANY VIRGIN. But connections and maturity aside, Semel still hails from the land of movie magic. "Semel is a good stabilizing force, but he has never run an ad-supported business or a public company," Biondi says. The age-old mantra in Hollywood is that "you have to spend money to make money," with the idea that it only takes earnings from one or two hits to make up for a fistful of flops. If Semel plans on bringing in more bodies, many of whom come from an industry known for its lavish perks, the company will have a harder time realizing the essential task of keeping costs to a minimum. And Semel himself probably isn't doing this just to while away his time.
Though Yahoo!'s challenges should more than satiate Semel's itch to immerse himself in the Internet, thus far he hasn't struck it rich. He backed the ill-fated Digital Entertainment Network, which ran out of money last May. Then, after leaving Warner Bros. in late 1999, he founded Windsor Media, plunking down investments in a number of online media companies. Without any big Net winners under his belt, the wayward portal can only hope Semel's luck is about to change.
Still, Semel has one advantage over his predecessors, Biondi points out. "Most people believe Yahoo! is a real franchise," he says. "I wouldn't even say it's a matter of finding someone to save it as much as it is a question of who can build it." For now, it looks as if one of Hollywood's most consummate aggregators is going to take a swing at transforming the Net's most consummate aggregator into a superstar. He better hope his mojo is working overtime. By Ben Elgin in San Mateo, Calif., Ronald Grover in Los Angeles, and Stefani Eads in New York