Yahoo's CEO reaches out to Hollywood

Semel has been discussing strategy with a group of former top managers from Time Warner's defunct Entertaindom Internet venture, according to knowledgeable sources, while key members of Yahoo's old guard have moved into new roles.

Most significantly, Chief Operating Officer Jeffrey Mallett has passed off many of his day-to-day responsibilities to focus on developing Yahoo's international businesses, according to a company spokeswoman.

Day-to-day responsibilities now largely fall to Gregory Coleman, North American operations executive president, who joined the company from Reader's Digest in April. Coleman continues to report to Mallett.

The transition comes as Yahoo struggles to reverse a string of setbacks brought on by the sudden downturn in the online advertising market. Filling the CEO slot with Semel, a former Hollywood movie mogul, has raised a cloud of speculation over the company's possible direction--ranging from an outright sale to the development of new premium services focusing on the entertainment market.

Mallett's position is among the most closely watched in the company. Credited with helping lead Yahoo's meteoric rise but partially blamed for its recent setbacks, Mallett was passed over by Yahoo's board of directors after former CEO Tim Koogle stepped down, sources close to Yahoo said.

Yahoo denied that the shift signaled Mallett's waning influence in the company.

"We just put in another layer so (Mallett) can focus more on global and high-level strategy," said the Yahoo spokeswoman. "All those people that used to report to Jeff now just report to Greg, and Greg has a direct line to Jeff." Farzad Nazem, the company's chief technical officer, will also report to Mallett.

Who's on first?
Yahoo's management changes have been kept quiet until now, but analysts expect the full scope of the transition to come into focus within the next few weeks. Semel is expected to shed light on his plans when Yahoo reports its second-quarter earnings July 11.

Though Yahoo has denied that Mallett plans to leave the company anytime soon, the selection of Semel was widely seen as a slight that could cause him to reassess his future with the company. Mallett could not immediately be reached for comment.

Meanwhile, Semel is tapping some former Hollywood associates to help resuscitate the company, sources close to Yahoo said.

Semel has been in contact with former Warner Bros. confidantes, including Jim Moloshok, the former president of Warner Bros.' shuttered Entertaindom Web site, and Jim Banister, Entertaindom's former vice president.

Semel is considering hiring the two executives for positions at Yahoo, according to sources, but has not made a formal offer. It also is not certain whether the two executives would accept job offers, the sources added.

Moloshok and Banister left Entertaindom shortly after Time Warner scrapped plans to spin off the site as a publicly traded company. Both executives have worked closely with Semel at Windsor Digital, Semel's online investment company.

"I almost definitely think he will bring more people" from Hollywood, said Safa Rashtchy, an equity analyst at U.S. Bancorp Piper Jaffray. Rashtchy anticipates that Semel will disclose more details about his plans when Yahoo reports earnings.

Semel has already hired Jeff Weiner, former chief operating officer at Entertaindom, as part of Yahoo's corporate development department. Semel also brought in Toby Coppel, a former banker at media power broker firm Allen & Co. Both carry the title "corporate development Yahoo," according to the company spokeswoman.

She added that Weiner, Coppel and most of the corporate development team will report to Semel and Jerry Yang, a co-founder of Yahoo. Yang previously focused much of his attention on international growth, especially in Asia, and on big-picture strategy for the company.

The appointments could be a sign of things to come. Formerly, Ellen Siminoff, now the senior vice president of entertainment and small business, served as the head of corporate development, which was a separate department in the company. A Yahoo spokeswoman in April said the company had broken corporate development efforts to individual divisions. But it's unclear whether that still holds true, given the roles assigned to Weiner and Coppel.

Winning over Wall Street
Semel was primarily tapped to help Yahoo stem a steep decline in online advertising. Since the beginning of the year, the company--once a Wall Street darling--has reported two consecutive quarters stained by revenue warnings and the resignation of longtime CEO Koogle.

Yahoo shares closed at $19.14 Tuesday, down from a 52-week high of $142.68. The shares traded around $17.50 when Semel joined the company.

Wall Street has continued to express skepticism about what Semel brings to the table. Despite his distinguished career as the longtime Warner Bros. studio chief, analysts have questioned whether his lack of advertising sales experience could be a liability as the company attempts to fix its immediate problems.

But having Hollywood connections may not be all bad, especially given Yahoo's increased entertainment focus. The company already has a deal with Pressplay, the online music-subscription service from Vivendi Universal and Sony. It also recently relaunched Yahoo Broadcast, which streams video and audio clips over the Internet. Exclusive content could also serve as a foot in the door to streaming content on a subscription basis, which would help Yahoo diversify its revenue.

The question now turns to how much Semel might bring Hollywood culture into one of the emblems of Silicon Valley, and whether that culture could give Yahoo what it needs to turn around.

Wit SoundView equity analyst Jordan Rohan questioned Semel's appointment as weak on experience in advertising sales--Yahoo's main source of revenue--while downplaying the short-term importance of entertainment programming for the portal.

"That business model hasn't worked for a lot of people. I'm not optimistic that it would work for Yahoo," he said.

Rather than citing the Hollywood connection, Rohan pointed to former Reader's Digest executive Coleman as an example of the kind of management the company might benefit from now.

"I view him as somebody who understands what advertisers really want, who will embrace the advertising community, and who will in turn improve Yahoo's long-term position," Rohan said. But, "that's not a change that will occur overnight."

Semel himself has yet to officially leave Hollywood's confines, still spending his weekends at home in Bel Air, Calif., though he intends to move to Silicon Valley, the Yahoo spokeswoman said.

When he was appointed to the position, Semel highlighted certain areas in Yahoo that he wanted to grow. One of the most important areas was in premium services for which the company can charge people. Yahoo already has premium services in areas such as e-mail, sports and finance. But these are paid features added on top of existing free ones.

Meanwhile, analysts said the company has been more low-key with Wall Street than ever. Besides the most obvious question of how Semel plans to stem Yahoo's falling revenue and exposure to a weak advertising environment, there are certain key executive positions that remain open. Vacant positions include top executives in sales and international, and general managers in Asia and Europe, to name a few.

The Yahoo spokeswoman said the company is in the process of recruiting to fill those positions, but analysts are beginning to grow restless.

"My sense is if they don't have status updates in terms of who they're putting into those chairs, people will start to wonder why they're having such a difficult time filling them," said Jeffrey Fieler, an equity analyst at Bear Stearns.