When Yahoo Inc. founder Jerry Yang shocked the tech world this month by tapping former Warner Bros. chairman Terry Semel to lead the struggling Internet giant out of its economic doldrums, he set up a potentially dynamic marriage of his company's tech expertise and Semel's Hollywood connections.
He also has taken a colossal risk.
After all, Semel's largely unsuccessful Internet experience has been limited to the failed Warner Bros.-championed Entertaindom.com and a two-year dalliance at the head of his own Internet incubator, Windsor Media. That's hardly the resume one might expect from the person who will be charged with penetrating Yahoo's notoriously insular management and performing nothing less than a major overhaul of the company.
Still, Semel, who friends say has been cramming for months to prepare for his leap to the Internet world, has been getting the benefit of the doubt and then some as he prepares to take the helm of Yahoo this week. Semel's appointment is playing particularly well in Hollywood, where former associates of the longtime studio chief say his top-notch management skills make him well suited to right a foundering Yahoo ship.
More than just a pat on the back for one of their own, the solid local reviews seem to be just what Yang had in mind when he defied conventional wisdom to place Semel atop Yahoo. In addition to beefing up its B2B operations, Yahoo is poised to make a major push in the coming months to tap new revenue streams through partnership deals with entertainment companies such as Vivendi Universal SA and Sony Corp., with which it signed an music licensing deal earlier this month.
Analysts say the ubiquitous Internet portal has a long way to go to fix its revenue deficiencies and that only time will tell if Semel is capable of reinvigorating Yahoo or whether he'll preside over its demise.
"Yahoo is fundamentally flawed as an Internet media company," said UBS Warburg analyst Chris Dixon, citing the company's dependence on traditional Internet advertising. "I view it as positive that the person they put in charge understands all the issues that a traditional media company needs to understand."
Richard Rosenblatt, CEO of DrKoop.com and founder of Santa Monica-based Prime Ventures, acknowledged that Semel is likely to be out of his element at Yahoo, but that might not necessarily work to his disadvantage.
"Running an Internet company is extremely unique nothing else can prepare you for it," Rosenblatt said. "It's crucial to have a way of thinking that's out of the box."Quashing merger talk
For many, Semel's hiring presaged an impending merger between Yahoo and one of the major entertainment conglomerates Vivendi, News Corp. and Walt Disney Co. have been mentioned as potential suitors. But Yahoo insists, and Semel's friends confirm, that the 58-year-old executive intends dig in for a long-term overhaul of the company.
"The reason why Yahoo hired (Semel) is that he embodies all the characteristics essential to drive Yahoo's future success," said Yahoo spokeswoman Joanna Stevens. "Our motivation is to make sure Yahoo is positioned for long-term growth."
Even before the announcement of his hiring April 17, Semel (who purchased 1 million shares of Yahoo worth more than $17 million), has been busy meeting with Yang and other top Yahoo executives and getting a handle on the company's far-flung global operations.
Doubts persist about whether Semel will thrive where highly regarded current Yahoo chief Tim Koogle faltered, but Los Angeles Dodgers Chairman Bob Daly, Semel's co-chief executive at Warner Bros., said that his close friend is likely to surprise a few people.
"Terry has spent a lot of time with Jerry Yang in the past year. They first met at Herb Allen's retreat," Daly said, referring to the annual high-powered Sun Valley, Idaho, gathering organized by the billionaire financier. "He didn't want to do this without the support of all the board members at Yahoo...He wanted to be certain they wanted to build the company and not sell the company."
Semel's hiring he is scheduled to take the helm at Yahoo May 1 has had a negligible effect on Yahoo's stock price, which has dropped from $250 a share in January 2000 to a 52-week low of $11.38 earlier this month. As of last week it was trading at around $18.
"You might say they hired Terry Semel for his Rolodex. I can't really imagine the announcement of any CEO that would have sent their stock price up," said Dannielle Romano, an analyst with Jupiter Media Metrix. "I think it's clear, though, that they have entertainment on their mind."
Universal Pictures President Ron Meyer, said that Yahoo's selection of Semel had more to do with his management skills than his show business relationships.
"Terry's strength is that he knows business," Meyer said. "They may have liked him because of his contacts in Hollywood, but a lot of people have Rolodexes. The bottom line is that he is an excellent businessman."Cultural divide
Yahoo's Santa Clara headquarters is just a six-hour drive from Los Angeles on Interstate 101 and less than an hour by private jet but for some, the vast corporate cultural divide between show business and the tech world makes Semel an odd choice for Yahoo. Some have questioned how Semel, an executive known for his lavish lifestyle and generous deal-making at Warner Bros., will adjust to the more casual and austere corporate culture at Yahoo. The company's financial woes have necessitated a broad belt-tightening in which 12 percent of its 3,500-person global workforce is being laid off.
While praising his negotiating skills, Variety Editor Peter Bart said that the former Warner Bros. chief, whose personal fortune is estimated in the hundreds of millions of dollars, is likely to run into "a clash of styles" at Yahoo. After all, Bart quipped in a recent column, "in his former life, Semel wouldn't go from Burbank to Malibu without summoning the Warner's jet."
"He does have an M.O. that is not consistent with the sort of corporate atmosphere (Yahoo) has now," Bart said in an interview last week. "But there's no doubt that he can help forge entertainment partnerships."
But Daly said talk of Semel's extravagance has been overblown.
"Terry understands that there is a big difference between the culture of Hollywood and the Internet world, and he understands that every penny counts" Daly said. "Really, he's a laid back guy. He's not a guy who needs a large office and a lot of extras."
Paramount Pictures Vice Chairman Rob Friedman, a former head of marketing of Warner Bros., said that Semel's leadership skills will help bridge the gap.
"He's a great executive when it comes to identifying and motivating talent. There's a lot of talent at Yahoo and Terry can help them find their way," Friedman said.
Many have questioned why a man of Semel's means and experience would sign on for the Yahoo job in the first place, but Bart said it's not all that hard to understand.
"When you've been to the top of the heap as the head of a studio, nothing else is quite as attractive," Bart said. "Similarly, it's more of an adventure to take over a company with problems than one that's on top."
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