Terry Semel is not in Hollywood anymore, and the obstacles he’s facing are far greater than stone-faced traffic cops. In the past year Yahoo, the once indomitable Web portal, has been decked by shifting Wall Street sentiment toward Internet companies and the total meltdown of online advertising, which Yahoo had relied on for 90 percent of its revenues. Last quarter Yahoo’s sales fell to $182 million from $273 million a year ago, and its stock price is now parked at a humbling $18 a share–down from a high of $475. Trying to stem the decline, Yahoo’s board of directors asked longtime chief Tim Koogle to resign last March, and reached out to Semel in April. Now, three months later, the 57-year-old native of Bayside, N.Y., has finished an exhaustive review of Yahoo’s business units, scoured the company for new opportunities to make money and talked to his many well-placed friends in the media world about partnerships. “I knew there would be opportunities and problems at Yahoo,” he says in an exclusive interview. “But the opportunities far outweigh the problems.”
Semel was an unlikely choice to lead Yahoo. From 1982 to 1999 he and partner Bob Daly ran Warners, making blockbuster movies like “Batman” and “Lethal Weapon.” But toward the end of their reign, they relied too heavily on formulaic pictures driven by aging stars, like Kevin Costner’s “The Postman.” The pair enjoyed lavish perks: resplendent offices, salaries of more than $10 million and their own Gulfstream IV (which they bought from Warners when they departed, and now share). Then there were the friendships with stars like George Clooney, Tom Cruise and Nicole Kidman, who all attended Semel and his wife Jane’s 20th wedding anniversary party at their Malibu, Calif., home in 1997.
After quitting Warners in 1999, Semel founded his own investment firm, Windsor Media, and immersed himself in the booming world of the Internet. But simply trying to enlarge his bank account, Semel says, left him unfulfilled. Today Semel sits in a cubicle at Yahoo’s Sunnyvale, Calif., campus, and exults over the fact that he no longer has to mediate those pesky Hollywood disputes over parking spaces. But he’s got his hands full regardless. Semel began the new job with an intense, three-week, companywide review. With the rest of his brain trust, including Yahoo cofounder Jerry Yang, Semel examined each department, “looking at everything they’re doing and everything they should be doing,” he says. The meetings lasted all day, and included three solid weeks of conference-room lunches that consisted of chips, cookies and sandwiches from the Yahoo cafeteria (“I’ve gained a lot of weight,” Semel groans).
He emerged from the review with a new plan to improve Yahoo’s bottom line by building a set of premium subscription services on top of Yahoo’s basic advertising model. Today, users enjoy nearly all of the site for free. Semel &Co. want to introduce new, personalized features–say, the ability to listen to a radio station on the Net that plays only the music that you like–that users would pay a small monthly fee to access. Recently, for example, Yahoo started charging baseball fans $4.95 to get their fantasy-league results over Web phones during the season. Similar services will be introduced in the areas of finance, entertainment and other sports.
The problem, says Scott Kessler, an analyst at Standard & Poor’s, is that users tend to find comparable features for free elsewhere on the Net. And current online premium services, such as the subscriptions offered by news sites like Inside.com, have not been successful. Not surprisingly, Semel finds inspiration in the entertainment world. “There’s lots of great programming on CBS and NBC for free,” he says. “Yet many people pay to watch ‘The Sopranos’.”
All this doesn’t mean Semel has given up on the advertising model either. Yahoo execs think the online ad market will revive next year, and Semel wants Yahoo to be ready with new, sophisticated ad technologies like the one it tested on the site on May 4. When users visited the Yahoo home page that day, a flock of animated birds (programmed in Macromedia Flash) flew across the page to a patch of seeds on the bottom of screen and ate them, revealing the Ford Explorer logo.
After finishing his review of the company and its business model, Semel faced his first major test as CEO: earnings day. Four times a year, Wall Street analysts and journalists get on a conference call to hear a company’s earnings report and ask its execs questions. At Warners, Semel worked behind the scenes, far from this kind of public stage. Despite hours of rehearsals, Semel’s inaugural effort did not go well. Wall Street analysts say privately that he stuck too closely to the prepared statement and didn’t think well on his feet during the question-and-answer session, when analysts wanted pointed examples of the types of partnerships Semel might seek out. Says one analyst who covers Yahoo, “He’s no Bob Pittman,” referring to the dynamic president of AOL Time Warner. For his part, Semel wishes he could have prepared for the earnings call a bit more, but urges critics “to look at our report card over a period of years.”
Terry Semel’s greatest asset in turning Yahoo around may be the vast network of business moguls who have known him for years and are gladly willing to talk him up to a reporter seeking character references. “He’s done every type of deal and he has the respect of everyone in the entertainment business,” says investment banker Herb Allen. And longtime friend David Geffen proclaims Semel is just what Yahoo needed when the stock was at its high and the company failed to use its lofty valuation to make a major acquisition, a la AOL’s purchase of Time Warner. “If Yahoo had Terry Semel for the last 18 months, they’d be owning the Walt Disney Co. or some other collection of great assets,” Geffen says.
While he gets to work recharting Yahoo, Semel will have to make some personal adjustments of his own. Soon he’ll move to a San Francisco hotel, to test the 45-mile commute while he considers buying a home in the city and moving his family from L.A. Then there’s the matter of adapting to those strange Silicon Valley customs. For example, the company’s publicists are still advising him when to take off the tie. And when confronted with the prospect of an evening with NEWSWEEK reporters, he has to give up tickets to the New York premiere of the new Julia Roberts movie, which were personally provided by Sony America CEO Howard Stringer. Terry Semel clearly has old-school smarts and connections. The question is whether that’s enough to rescue a company trapped in the Internet wreckage.
