Yahoo Inc.'s decision last week to replace former Hollywood executive Terry Semel as its chief executive has put the Internet titan's Santa Monica-based entertainment media business squarely in the crosshairs, according to industry analysts.


The June 18 appointment of co-founder Jerry Yang, a technologist, has fueled talk of Yahoo pulling back on its entertainment media business and investing more on developing new technology. That leaves the 1,000-person entertainment media operations in Santa Monica vulnerable.


"Terry Semel's grand vision of marrying Yahoo and Hollywood never really panned out," said analyst Larry Witt of Morningstar Inc. "I wouldn't be surprised if the company doesn't focus more on core technology. The entertainment arm mainly based in Santa Monica could suffer."


Under Semel, the former chief executive of Warner Bros. Entertainment Inc., Yahoo built a media company that drives traffic with celebrity and entertainment content, while Google Inc.'s site drives traffic with its search engine and ever improving algorithms. Google has cashed out on its business model; Yahoo has not.


Charlene Fitzgibbon, a Yahoo spokeswoman, rebuffed any notion that the entertainment media operations were imperiled. "Yahoo remains committed to its media strategy and has no intention of scaling back on our priorities out of our Santa Monica offices," she said in a statement.


In 2005, Yahoo set up the media group in a Santa Monica complex to house its games, news, sports, finance, movies and music services and to court Hollywood.


Charlene Li of Forrest Research called Yang's appointment a "pleasant surprise," and Semel's resignation expected. Semel has subsequently been named non-executive chairman.


Witt said the company has been so fixated on being the entertainment site that they've missed out on other business opportunities. "If the company hadn't focused so much on entertainment, it could have bought YouTube. It could have bought MySpace," he said.


The popular social networking site may still be in Yahoo's horizon. News Corp. reportedly is considering giving MySpace to Yahoo in exchange for a 25 percent stake of Yahoo. The future of the talks, which began before Semel announced his resignation, however, is uncertain.


"I think there's been a lot of pressure for change at the top of the company, primarily because of performance and lack of strategic direction," Li said. "But the fact that he is not leaving the company shows that this is not an ouster. He brought tremendous skills as a leader."


The good news, Li said, is that Yang is not only someone who knows the company intimately, but is also a technologist. "Technology is an area where Semel has been weak," she said.


Li said Yahoo's strategy has had strong focus on content, such as its Yahoo Tech, Yahoo Food and Yahoo Games features. "That's not what its major competitors are," Li said, referring to Google and Microsoft Corp. "It'll be interesting to see how Yahoo defines its role among the competitive set, what Jerry Yang comes up with, and whether the new strategy will be technology-oriented."


Analysts said a general lack of innovation is what keeps Yahoo trailing Google, which brought in $10.6 billion in revenue last year. Yahoo reported $6.4 billion.


For example, Yahoo had "pay-per-click" Internet advertising before anyone, with the 2003 acquisition of Overture Services Inc., a Pasadena-based Idealab spinoff. Yahoo's search marketing business in Burbank now staffs about 1,000 people, and will not likely be negatively affected by the new leadership, analysts said.


Also in 2003, Google bought Santa Monica-based Applied Semantics, which became a predecessor to its AdSense program unveiled two years later. Now, AdSense is a leader in monetizing content with contextual text-based advertising and far outpaces Yahoo's search marketing business.


Paul Keung, analyst at CIBC World Market, said while the company must remember that an Internet business is a technology business, media is its platform.


The gap in search growth between Yahoo and Google speaks for itself, he said, but that doesn't mean the company should pull back on media content.


"Content is critical. The marriage of great content and great technology is what makes an ultimate win," Keung said.

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