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By Jim Hu and Stefanie Olsen SUNNYVALE, Calif.--When Terry Semel was named chief executive of Yahoo, critics snidely joked that the former studio chief would try to bring Hollywood to Silicon Valley.
They were right.
But Semel, who helped run Warner Bros. as co-CEO for more than two decades, is not importing the lavish parties, battles over parking spaces, or other cliched trappings of Tinseltown so mocked by outsiders. Instead, he has brought with him the raw side of the media and entertainment business, where getting fired is a way of life and big talk must be backed up by the bottom line.
Although he was initially criticized for not acting more swiftly, Semel has since turned Yahoo's culture upside down. Gone are the free-form theoretical discussions and college-like atmosphere that made Yahoo the quintessential dot-com. Employees who were once given free rein to explore speculative growth areas have been asked to justify their businesses and even their jobs. "The culture has been stagnated and isolated in Silicon Valley," one Yahoo executive said. "They know technology, but they don't know media."
An equally important point, however, is whether Terry Semel knows the Internet--or, at least, how to reverse the precipitous fall by one of its highest-flying leaders. Semel has never run a publicly held company, let alone a struggling dot-com with the monumental problems facing Yahoo today.
In roughly 18 months, the Web portal has gone from a seemingly invincible Wall Street darling to an embattled company that has seen an exodus of key executives. Revenue projections for 2001 have plummeted more than 40 percent from the beginning of the year, and last month the company announced it would lay off 400 people, or 13 percent of its work force.
The depth of Yahoo's challenge would be formidable for any chief executive, but it's even greater for someone who is parachuting into terra incognita from an entirely different industry. Semel's surprise appointment was ridiculed by many Silicon Valley elitists, who were quick to dismiss anyone not part of their inner circle. |
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In retrospect, much of the early sniping at Semel seems like sour grapes from an expanding pool of industry insiders increasingly defensive about their own worth. As one of the first high-profile outside recruits since the dot-com collapse, Semel represented a threat to the general competence of Internet executives, many of whom never showed a dime of profit despite their bluster and hubris. Semel, on the other hand, was instrumental in building Warner Bros. from a division worth less than $1 billion when he became chief operating officer in 1978, to $11 billion when he stepped down in 1999 after a five-year stint as co-CEO. Even more impressive was his tenure of 21 years in the top managerial offices of a major studio in a world where executives see their careers crash and burn every day. "He's the seasoned executive who doesn't panic under fire," said Bob Daly, Semel's partner and co-CEO at Warner Bros. "He's been through tough times in his life and knows how to keep his head." Nevertheless, skeptics point out that Semel was not known for his operational skills before taking his current job. At Warner Bros., it was Daly who ran things on a day-to-day basis; Semel was known as the schmoozer, the deal maker--an entertainment industry veteran who negotiated multimillion-dollar distribution contracts and cultivated such stars as Mel Gibson and Clint Eastwood into virtual franchises for the studio. This lack of nuts-and-bolts management experience has sometimes left Semel open to criticism that no one knows who is running Yahoo on a daily basis. For example, even those within the company's senior ranks are unsure about the standing of President Jeff Mallett, who was passed over for the top post when longtime CEO Tim Koogle announced his resignation in March. Some speculate that Semel is loath to let Mallett go because he would be ill equipped to handle the company's operations himself. (Editor's note: After the initial publication of this story, Mallett stepped down as Yahoo's president.) Semel has offered few clues about his managerial style. Associates describe him as a direct but soft-spoken man who plays his cards close to the vest and never raises his voice in anger, contrary to popular Hollywood stereotypes. He often appears indifferent in his dealings with staff, an inscrutable trait that many say is surprisingly effective in making people want to please him, perhaps just to get a reaction. This quiet demeanor is offset by a tough survival instinct born in his native Brooklyn, N.Y., and nurtured in the cutthroat back lots of major movie studios. Fiercely protective of his privacy, Semel refused to speak with CNET News.com for this article. Detractors say Semel was taken aback by the assumed familiarity common at so many Internet companies and did not know how to respond after receiving unsolicited e-mails of advice from the staff upon his arrival. But those who know him say his apparent aloofness should not be mistaken for insouciance. "We're not going to be crushed by anyone but our own ineptitude," Semel told Wall Street analysts in November, sounding more like a military field commander than a media executive. Some have speculated that it is simply the midlife folly of an ambitious man casting about for something new to do. Sources say Semel hosted a fund-raiser for presidential candidate George W. Bush--an unusually high-profile show of Republican support in the militantly liberal entertainment industry--sparking speculation that he was angling for an ambassadorial appointment.
Adding to Semel's enigma is his reluctance to live closer to the company. Rather than take up residence in Silicon Valley, he has chosen to keep his mansion in Bel Air--the exclusive Los Angeles County enclave that is home to many studio moguls, most notably producer Aaron Spelling with his famed 123-room estate.
For the moment, Semel seems undeterred by any questions involving his commitment, focusing instead on revamping Yahoo's business direction to wean the company away from its dependence on advertising revenue. In a fashion nothing short of brutal by Yahoo standards, he has pared 44 business units to six--listings, commerce, communications, media, access and enterprise--while cutting services including the lifestyle channel and the business-to-business marketplace.
"People were very jammed at how little time they were given to justify their existence," one Yahoo executive said. "We were in a fire drill; it definitely wasn't the old Yahoo culture. Everybody's plan was scrutinized for marketplace reality in a way they had not been in the past." Today, Yahoo is seeking to become what it calls a "principal," owning and charging for access to the content it publishes, whether it be classified job listings, specialized search results or copyrighted entertainment material.
In doing so, however, Semel must undo some basic tenets of Yahoo's philosophy as an "agnostic" aggregator of content it does not own. And while this change is deemed necessary almost universally by those outside the company, it means a fundamental shift in Yahoo's original identity as the ultimate New Media entity, one that dismissed the old ways of established publishers and proclaimed itself a primary conduit of the Information Age.
It is here where Semel faces one of his most complicated challenges, in convincing the many rank-and-file Yahoo loyalists that the company's original vision was noble but no longer makes good business sense.
"I thought it was going to be a war-torn nation," Semel said in November about the restructuring of Yahoo's senior ranks. |
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Semel has recruited some trusted allies from his Hollywood days to occupy important strategic and deal-making positions. One example is Jim Moloshok, one of Semel's Warner Bros. lieutenants who spearheaded the now-defunct Entertaindom.com site, who will serve as a full-time consultant working on striking deals with entertainment companies. Moloshok "is a Hollywood guy, and he speaks the language," said Lynda Keeler, vice president of interactive services at Sony Corp. of America, which is in a three-year, multimillion-dollar relationship with Yahoo. In 2001, the boldest move Yahoo made in this direction was its entry into the Internet access business with SBC Communications. Industry analysts say such aggressive partnerships in Net access are necessary if Yahoo is serious about finding new profits and lowering its reliance on advertising from 76 percent to between 50 percent and 60 percent of its revenue by 2004, as stated. (In 2000, 90 percent of the company's revenue was driven by advertising, with business and premium services responsible for the other 10 percent.) Further toward its ownership goals, Yahoo made a $436 million unsolicited offer in December to buy HotJobs.com, a leading site for classified employment listings. In addition, sources say the company may be exploring acquisitions of real estate site Homestore.com and online travel service Travelocity.com. "I give Semel credit for putting a new ball in motion and not being afraid to go against Yahoo's religion," Salomon Smith Barney analyst Lanny Baker said, alluding to the company's longtime status as a kind of technological Switzerland. Still, analysts are anything but certain that Semel will be able to return Yahoo to sustained profitability soon. He recently perplexed many of them with a vaguely stated promise to have 10 million paying relationships with Yahoo surfers "within a reasonable period of time."
"The story is still a show-me one," said Jeff Fieler, an analyst at Bear Stearns. "The value is there; the catalyst is not."
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View Terry Semel's report card
