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The Honolulu Advertiser
Posted on: Wednesday, April 18, 2001

Hollywood insider appointed Yahoo chief

By Brian Bergstein
AP Business Writer

SANTA CLARA, Calif. — Struggling Yahoo! Inc. picked Hollywood veteran Terry Semel as its new chief executive and chairman Tuesday and said he is expected to diversify the Internet portal's advertising-dependent business.

Terry Semel, Yahoo's new CEO and chairman, spent almost twenty years at Warner Bros.

Associated Press

Semel will take over next month as Yahoo is trying to cope with a gutted stock price and sliding sales and profits. Semel and analysts said Yahoo's size and condition is similar to the shape Warner Bros. was in when Semel and partner Bob Daly took over in 1980.

They diversified the movie studio from its one revenue stream, reshaping its music and video business, opening a licensing division and building theaters overseas. By the time Semel and Daly left in 1999, Warner Bros.' revenue had risen from less than $1 billion to $11 billion.

"Why am I here to do it all over again?" the 58-year-old Semel said in a conference call with reporters. "Frankly, the whole idea of being a part of something that was conceived to change the world is too good an opportunity to look away from."

The selection of Semel surprised some analysts, who expected Yahoo to go after an executive with more experience with advertising.

Equally surprising was the announcement that current chairman and CEO Tim Koogle, who has been with the company almost since its beginning, will be relegated to vice chairman, and only until August.

Koogle, who will remain on the board after that, said he and the rest of the board wanted to "make sure there's no doubt about who's running the company."

The appointment did not galvanize investors, who sent Yahoo shares down 31 cents to close at $17.31 in trading on the Nasdaq Stock Market. The stock is well off its 52-week high of $150, reached last June.

When Semel takes over next month, it will mark a new era for Yahoo, which began in 1994 as two Stanford graduate students' pet project and exploded into a billion-dollar business. The site claims to have more than 192 million registered users worldwide.

But with the weakening economy, the dot-com fallout and overall doubts about the effectiveness of Internet advertising, Yahoo's revenue is expected to slide 30 percent this year. Last week, the company posted its second straight net quarterly loss and announced its first layoffs, 12 percent of the work force.

To halt the slide, Yahoo is increasing the subscription-based services it offers and looking for deals to handle Internet distribution of traditional media content. Two weeks ago, Yahoo struck an alliance with Duet, a music-download service run by Universal and Sony.

"They definitely need to distance themselves from what they have been," said John Corcoran, an analyst with CIBC World Markets. "They clearly are changing, and I think it's symbolic they got someone out of one of the big media houses."

Analysts have said for months that Yahoo should consider merging with a traditional entertainment company such as Sony, Disney or Viacom to ensure long-term survival. Yahoo executives repeatedly have dismissed the idea, and said Tuesday the choice of a CEO with Hollywood connections was not an indication that position was changing at all.

The choice of someone with a background in traditional media content was "a little bit out of the box," said ABN Amro Inc. analyst Arthur Newman.

"The issue Yahoo needs to address is more on the advertising side, convincing advertisers to spend their money, rather than on the content side," Newman said. "Yahoo already has excellent content."

Jefferies & Co. Internet analyst Fred Moran said Yahoo made a wise decision, but said Semel will have to be patient and creative in finding ways to make money from Yahoo's user base.

"This doesn't mean Yahoo is out of the woods," Moran said, pointing to the rough business climate and what he said was the likelihood Yahoo's stock will continue to fall. "But Terry might be the kind of guy who can improve their prospects into next year."

Semel was just out of Long Island University when he joined Warner Bros. in 1965 as a trainee in the division that sold films to movie theaters. He rose into several sales and marketing positions there and later became president of theatrical marketing for CBS and Disney.

He came back to Warner Bros. in 1978, and two years later, he and Daly were running the company. Warner Bros. became the movie and music division of Time Warner Inc., which has since merged with Yahoo's biggest competitor, America Online.

When Semel left Warner he launched Windsor Media Inc., a privately held investment company he now will leave behind. At Windsor, Semel said he became a "student of the Internet," talking regularly with Yahoo management.

In one of those regular meetings last month, after Koogle said he would step aside as CEO to increase the company's "bench strength," co-founder Jerry Yang asked Semel if he'd consider taking over.

"It was the first time I had given it any thought," Semel said in an interview. "My immediate gut reaction was, `Whoa, this could be a fantastic opportunity."'

Semel's compensation was not disclosed. Yang said the package was heavy on stock options. When asked to specify Semel's stake in the company, Yang said only that it was less than 5 percent. In addition, Semel bought 1 million shares at Monday's closing price of $17.62.