Ex-BMG exec won't Yahoo; search goes on

Former BMG Entertainment head Strauss Zelnick has turned down an opportunity to take the helm at Yahoo, citing major challenges facing the company, sources say.

Jim Hu Staff Writer, CNET News.com
Jim Hu
covers home broadband services and the Net's portal giants.
Jim Hu
4 min read
Former BMG Entertainment head Strauss Zelnick has turned down an opportunity to take the helm at Yahoo, citing major challenges facing the company, sources close to the matter told CNET News.com on Wednesday.

The refusal, which came less than a week into a high-profile executive search to replace outgoing Chief Yahoo Tim Koogle, underscores the difficulties the company faces in filling its top position from outside the company.

Yahoo this month began searching for seasoned chief executives in the media and technology industries to turn the company around after substantial setbacks forced it to lower earnings projections, putting its stock price into a free fall. But the executive pedigree Yahoo is looking for may be hard to attract given the company's current circumstances.

"Here's the problem: No CEO candidate in their right mind would accept the job right now until shares of Yahoo have stabilized," said Jordan Rohan, an equity analyst at Wit SoundView.

That doesn't mean no one is interested. Spencer Stuart, the executive search firm hired by Yahoo to find the next CEO, said it has at least five potentially viable candidates interested in the job. These candidates applied to the search firm via its Web site, where the job listing was posted.

Managing Director Jim Citrin said the potential candidates include a division president of one of the world's largest media and entertainment companies, a chief e-commerce officer at a top 10 Fortune 500 company, and a chief technology officer from one of the largest global brick-and-mortar consumer products companies.

Citrin declined to comment on Zelnick's candidacy. The BMG executive's refusal to entertain an offer from Yahoo illustrates that the job may not be perceived as a plum assignment among some of the executives most qualified to handle it.

"Yahoo is facing a real challenge right now. People need to sign up for hard, completely dedicated work in the next few years," said one person close to the executive search. "It's probably difficult to be very hungry if there's $75 million in their bank account."

Zelnick, reached by phone, declined to comment.

Sources said Citrin approached Zelnick in the first week of March and indicated the position would be his if he wished to proceed. But Zelnick declined the possibility before an official offer was put on the table.

Aside from concerns about Yahoo's business, Zelnick cited his desire to continue running ZelnickMedia, a venture that has invested in online music start-ups, the sources said. They added that he was reluctant to move his family to the West Coast.

Yahoo's ad ache Zelnick's resume includes several years' experience as a top media and entertainment executive with stints in music, television and motion pictures.

From 1998 through 2000, Zelnick was president and CEO of BMG Entertainment, the U.S. music and entertainment subsidiary of German media conglomerate Bertelsmann. Before joining BMG, Zelnick was president and CEO of Crystal Dynamics, a leading producer and distributor of interactive entertainment software. Before that, he worked for four years as president and chief operating officer of 20th Century Fox.

Zelnick resigned from BMG last November shortly after the parent company's e-commerce group inked a deal with file-swapping service Napster. BMG is a party in the recording industry's copyright infringement suit against Napster, and Zelnick himself was an outspoken opponent of the service.

Sweeping the decks
Yahoo's executive search began earlier this month when it announced that longtime CEO Koogle would step aside. The company issued a double blow to investors that day when it added that revenue would fall below expectations, sending shares on a downward spiral.

Since the summer, Yahoo's shares have fallen dramatically along with other Internet stocks because of investor concerns that the flurry of dot-com closures would hurt the company's revenue. The fears have come true. Funding for Internet start-ups dried up, causing many to run out of cash and making much of Yahoo's ad revenue recede with the market.

Yahoo stock closed Wednesday at $14.94, off 50 percent for the year and more than 90 percent from its 52-week high of $205.62.

Now the company is looking for new blood to help plug its holes and steer the business toward a more stable future. Looking outside the company has caused considerable friction for some of Yahoo's top executives, such as Chief Operating Officer Jeff Mallett, sources said.

Once considered the likely successor to Koogle, Mallett may now be looking for a way out after being passed over for the CEO position, according to sources.

Mallett declined to be interviewed for this story.

New blood from the old guard?
The board's decision to look outside for Koogle's replacement has been praised by some analysts who said the company needs fresh leadership to weather the current storm.

One industry insider described the executive decision process as too "democratic," where consensus has prevailed over hierarchy. Getting a new, seasoned CEO could change that, while causing staff unwilling to adapt to the new culture to leave.

Yahoo's upper echelon is composed of employees who have been with the company since before it went public--and who profited significantly during the peak of Yahoo's stock climb.

But the decision to pass by Mallett has sparked debate about the succession plan among some people close to the company.

Mark Cuban, a former Yahoo executive and owner of the Dallas Mavericks basketball team, told News.com in an e-mail interview that he supports Mallett for CEO.

As a "very large shareholder, I think Mallett is the best guy for the job," Cuban wrote. "He was the only one in Yahoo management that was focused and understood how the business worked. If he hadn't had to try to appease so many factions, maybe Yahoo wouldn't be in this mess."

News.com's Dawn Kawamoto contributed to this report.