Chasing Sweet Semel of Success Takes Yahoo! to Hollywood

Yahoo! (YHOO) may be based in Silicon Valley, but it's on its way to Hollywood.

That's the upshot of Yahoo!'s Tuesday announcement that former Warner Bros. co-CEO Terry Semel is taking the helm, says one entertainment and new media analyst.

Sure, Semel may not have the advertising sales background that people were expecting of the new chairman and CEO. And yes, Semel has the talent to build Yahoo! into a larger, more successful international operation, just as he built up the business of the AOL Time Warner (AOL) unit with partner Robert Daly over the past two decades.

But the real issue, says UBS Warburg entertainment and new-media analyst Christopher Dixon, is how Semel will lead Yahoo!'s transformation from the text-based Internet to one that's a platform for audio and video entertainment.

By hiring Semel, Yahoo! has ensured that whatever happens in the world of entertainment on the Internet -- say, the development of real commercial standards for buying and listening to music via the Internet -- the Internet bellwether will be there as part of the media oligopoly.

"By hiring one of the respected members of the media universe," says Dixon, "Yahoo! has assured itself a seat at the table."

On Tuesday, Yahoo!'s shares fell 31 cents to close at $17.31.

Developing the Internet into a true entertainment medium may take a few years, says Dixon, who rates the company a hold and whose firm hasn't done banking for Yahoo!. But Semel, with his contacts among the world's half-dozen biggest entertainment conglomerates, has the power to make things happen and keep Yahoo! at the center, says Dixon, through measures such as joint ventures with other companies and the acelerated deployment of copyrighted material across the Internet.

Start, for example, with the issue of Internet music, where the five companies controlling the world's largest music labels -- including Warner Bros. parent AOL Time Warner (AOL) -- have split into the separate camps of two different music systems, Duet (which has a deal with Yahoo!) and MusicNet.

"How do you really create an open, online music standard?" asks Dixon. "Terry at least can get everybody on the phone together and that's a great start."

Dennis McAlpine, director of research at Auerbach Pollak & Richardson, agrees that Semel is well-positioned to work with the music industry. "There's no question that Semel is a known entity in those communities," says McAlpine, who doesn't follow Yahoo! and whose firm hasn't done underwriting for the company.

If such a peacemaking gesture is on Semel's agenda, he isn't talking. In a conference call with reporters today, the executive, who officially starts May 1, scrupulously avoided saying anything about his plans for the company beyond that he would spend the next 60 days on a "listening and learning" tour and that Yahoo! has "a basket full of opportunities."

He also has had a chance to learn at close hand about the hazards of crossing the usually utilitarian Internet with the world of entertainment. Before he left Warner Bros. 14 months ago, the company launched an entertainment-focused portal called Entertaindom; AOL Time Warner shut the operation down in January. What lessons did Semel learn from Entertaindom's rise and fall? "The Internet is just begun," Semel said on the conference call Tuesday. There are certain things in the beginning, such as Yahoo!, that are great services, he said, and there are other things the Internet is not ready for -- Entertaindom, for one. "A little too soon, a little too early, perhaps someday," he said.

But Dixon isn't the only person who sees such media opportunities for Semel. Yahoo!'s reach will be extremely valuable to media companies, says Neil Braun, a former president of the NBC Television Network and now president of Internet informational video provider VastVideo.

Semel "is in a very good position to build alliances companies that own content and want to figure out how to make the experience interactive and immediately reach large numbers of viewers," says Braun. "It's not about competing with the entertainment industry; it's about about bringing Yahoo!'s reach to help extend the franchises that the entertainment industry owns."

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