SANTA MONICA, Calif.--Drive about 350 miles down U.S. 101 from Yahoo's Silicon Valley campus and you'll find what CEO Carol Bartz appears to believe is the future of her pioneering Internet company.
Yes, we're talking about Yahoo's often-ridiculed Media Group headquartered about two miles from the famous Santa Monica pier and a world away from the technology-oriented plans of Bartz's predecessor, company founder Jerry Yang.
Just a few years ago, amid the ruins of the disastrous reign of former Yahoo media boss Lloyd Braun, that notion would have been laughable. Sure, lots of smart people agreed the Internet was going to be a big deal for content creators, and Braun, having selected hit show after hit show for ABC, was at one point considered one of the smartest and best-suited individuals to build a real media business at Yahoo.
But his tenure was a flop--perhaps most notable for a controversial Los Angeles Times piece that declared, among other tech industry heresies, Braun received a special parking space and a deluxe office. (The historical record was disputed by some, including All Things D's Kara Swisher.) He lasted a little more than two years, and former CEO Terry Semel soon followed him out the door. Then came Yang, a renewed focus on search as Yahoo's bread and butter, the distracting--and equally disastrous--takeover fight with Microsoft and Yang's eventual departure from the corner office.
It's possible, however, that the Internet content idea was clever, even if the execution was terrible. Bartz, the former CEO of CAD-software maker Autodesk and no tech-industry dilettante, appears to believe this. Yahoo's new strategy hinges on a basic premise that many have figured out, but some still don't get: The Internet demands a unique approach to content creation. You can't just pick up a newspaper or television and plug it into an Ethernet jack.
And you can't take the network TV approach to Internet programming, as Braun's failures demonstrated. Yahoo executives are finally trying to marry the huge audience afforded by its technology products such as e-mail and instant messaging with news and entertainment content designed for the 21st century.
We're talking about shows like Prime Time in No Time, a 3- to 5-minute recap of last night's prime-time television shows, perfect for giving you a few quips to share over the coffee machine at work without having to actually watch the shows. Or Yahoo Sports Minute, which won't get confused with ESPN's SportsCenter but gets the basics across.
The result could be a page-view machine. Yahoo lost the second round of the Internet advertising wars to Google and its ubiquitous search engine, but as Yahoo prepares for its third-quarter earnings call Tuesday it's hoping that by increasing its focus on quality, home-grown content it can attract the types of brand-name advertisers that still plow most of their money into television.
By the numbers
Yahoo has the second largest collection of Web sites in the world, as measured by unique visitors, trailing Google by 5 million unique visitors. 160 million people visited a Yahoo site in September 2009, according to ComScore, and Yahoo Media counted 85.9 million unique visitors, up from 80 million a year ago. Those sites include Yahoo News (48 million unique visitors in September), Yahoo Entertainment (44 million), Yahoo Sports (38 million), and Yahoo Finance (22 million), among others.
If it was counted as a separate entity, Yahoo Media would be the seventh-largest property on the Internet as measured by unique visitors. That's not the best way to look at it--since many of those visitors first entered Yahoo's world by checking their e-mail or customized home page--but any way you cut it, it's a lot of people.
Those visitors--a mass that covers many demographics--are the kind of people that big-brand advertisers covet. Yahoo Sports and Games get the guys, and Yahoo has launched a number of women-oriented sites over the last year--such as OMG and Shine--drawing readers, viewers, and advertisers with a conscious decision to focus on "sunny and friendly" entertainment and women's news, said Sibyl Goldman, vice president of entertainment at Yahoo. That's compared with some of the more tawdry sites in this category--think TMZ--that draw a lot of traffic but not necessarily the kinds of high-profile advertisers that Yahoo likes.
Bartz has set clear priorities for the Media group: do what you do best, and we'll find resources to invest in your business by getting rid of dead weight. Yahoo announced a round of targeted layoffs in April that were designed to funnel investment toward businesses the company wants to stay in for the long haul, and the Media group will be perhaps the largest beneficiary of that investment. And that doesn't even count the savings that will eventually be realized if Yahoo's search outsourcing deal with Microsoft is approved by federal regulators.
What does Yahoo plan to do with that money? Yahoo's content sites currently obtain their content from three different buckets: aggregation, original content created in-house, and content partnerships. At the moment, that division roughly breaks down at about 80 percent aggregation, 10 percent original content, and 10 percent content partnerships: the divisions are slightly different for different properties.
During the next year, managers such as Goldman are being asked to increase the amount of original content they produce. That means building on the success of shows like Prime Time in No Time--which Yahoo claims is the most-watched original show ever developed for the Internet--and avoiding the mistakes of the past.
By the Internet, for the Internet
Jimmy Pitaro, head of Yahoo's Media group, wants to make it very clear that Yahoo is not in the sitcom business.
Pitaro has been with Yahoo's media operation forever--or nearly forever, joining the company after it acquired Launch Media in 2001, where he had been vice president of business affairs. As a result he has seen all the ups and downs of the previous decade at Yahoo, and while he refuses to slag Braun directly he does admit that the company has learned its lessons from that era.
During a recent lunch in the restaurant below the Yahoo's Santa Monica offices, Pitaro makes roughly 5,397 attempts (perhaps a slight exaggeration) to make sure I understand that Yahoo is not going to be producing 22-minute programs with earnest moms and dads solving life's little crises, or searing crime dramas ripped from the headlines.
Instead, Yahoo wants to continue developing shows similar to Prime Time in No Time, a Talk Soup-like show featuring comedian Frank Nicotero that glibly summarizes the previous evening's prime time network shows. ("The gift that reality TV gave us," Goldman chortled.)
The company claims Prime Time in No Time is the most watched original show in the history of the Internet, with 280 million streams since it launched in early 2008 and several million viewers per day, comparable to a mid-tier broadcast network program and much easier to produce: Nicotero rolls into the office after watching the east-coast network feeds at home to tape the short show.
News and entertainment will be Yahoo's focus over the next year, Pitaro said. He wants to make Yahoo known as a source of breaking news developed by professionals, building on several high-profile scoops involving college athletics and recruiting generated by the Yahoo Sports team, which he built in his prior role as vice president and general manager of Yahoo Sports. He wants to expand Yahoo's original programming to include longer 10- to 12-minute scripted programs with more of a documentary or news magazine style. And he wants to bring in people who can offer point-of-view content, as opposed to straight news or flame bait opinion.
But whatever Yahoo ends up producing, it has to take advantage of the Internet's proclivity toward short-term attention spans and viewer participation, Pitaro said. This was the fatal mistake of the Braun-era Yahoo, which Yahoo execs tried to replicate the TV production process on the Internet.
Yahoo learned that approach is simply too expensive and too fraught with risk to work on the fast-moving Internet. TV executives green-light dozens of programs to fill out the clock, knowing full well that only a handful of those programs will turn into long-term successes. But they have to fill airtime to sell commercials, whereas Internet businesses don't need to "program" against time slots and they can develop programs that fill specific needs rather than trying to ram another hospital show down our throats.
Developing short Internet-focused scripted comedy or drama shows is equally risky. There have been a few successes, but more failures, and such programs don't necessarily fit in with the rest of Yahoo's newsy content.
Will it blend?
Yahoo's strategy with the Media group hinges on a couple of factors. One is that advertisers will increasingly invest in display ads. That's Yahoo's historical strength, but it's a category advertisers have considered less attractive than search ads for several years.
In the first half of 2009--albeit a terrible six months for Internet advertising--companies spent $5.1 billion on search ads and $3.8 billion on display ads, according to the Interactive Advertising Bureau, with search ad spending rising slightly and display ad spending falling slightly year over year. Display ad spending grew from 2007 to 2008, but search grew faster, and some analysts think that pattern will repeat as the industry emerges from recession.
Another risk is the competition: Advertisers might prefer to work with Google's YouTube as they build out their display advertising strategy: CFO Patrick Pichette said last week that Google is now monetizing 1 billion video views a week and sold out 90 percent of its home page inventory in the third quarter.
Google recently launched a revamped display ad exchange that has a long way to go to catch Yahoo but could create problems for the company if Google is able to sign more content deals with publishers to put professionally produced content on YouTube. Still, Google seems unlikely to get into the content production business itself.
A third risk comes from the establishment media: Will they finally get their act together online? At the moment, they've mainly focused on ways of getting their television content online through partnerships like Hulu, but they haven't put a strong focus on developing shows unique to the Internet, with a few exceptions like The WB that was once a television network and is now an online-only destination.
But with Bartz at the helm, Media group execs no longer feel like Yahoo's weird cousins from Southern California. "With Carol coming on board, she's providing a clarity around becoming a destination," said Kyle Laughlin, head of sports and games at Yahoo. Jerry Yang had famously attempted to describe Yahoo as "a place where you start your day," but Bartz is attempting to refine that definition by making sure Yahoo develops the kind of content that gets people in the door--any door, any time--and encourages them to stay.
And so, the fate of one of the Silicon Valley Internet industry's seminal companies might be determined by a group of Angelenos. The perennial Yahoo debate--is it a technology company or a media company?--is entering another round.