Why Yahoo’s Foray Into Original TV Series Failed

Marissa Mayer Yahoo TV Production failure
AP Photo/Eric Risberg

Yahoo has flunked out of Greendale Community College. Its failure to forge a business from the revival of Dan Harmon’s cult comedy “Community” and two other scripted series is emblematic of the once-mighty Internet company’s muddled biz strategy overall.

The botched run at programming at primetime-level costs, which was supposed to draw on marketers’ TV budgets to reach Yahoo’s billion-user global base, is another black eye for CEO Marissa Mayer. While most investors aren’t clamoring for her head yet, the clock is ticking for Yahoo to prove its ability to grow profitably.

Mayer and chief marketing officer Kathy Savitt — the lieutenant who oversaw Yahoo’s content efforts until quitting last month to join independent studio STX Entertainment — had ballyhooed “Community” as anchoring a bold new premium-content strategy to round out its live and short-form video pillars.

But viewers, and the ad bucks to support the shows, weren’t materializing at the pace Yahoo had hoped, especially considering the seven-year horizon laid out to recoup the cost of the productions. On its third-quarter earnings call last week, the company revealed that it took a $42 million write-down on “Community,” basketball comedy “Sin City Saints” and “Other Space,” a sci-fi spoof from Paul Feig.

“We thought long and hard about it, and what we concluded is … we couldn’t see a way to make money over time,” chief financial officer Ken Goldman told analysts concerning the three series.

With Yahoo’s change in strategy, it has dropped plans for twentysomething comedy “The Pursuit,” from exec producers Scott Stuber and Dylan Clark, and director-exec producer Beth McCarthy Miller.

Yahoo isn’t officially calling it quits on big-budget originals. But “we are taking a pause on long-form scripted content,” said Lisa Utzschneider, Yahoo’s chief revenue officer, adding that the company has no plans to order additional content for “Community,” produced by Sony Pictures TV.

Yahoo didn’t spend much to market the shows, largely counting on “Community” fans to rally after NBC axed the sitcom. Meanwhile, Yahoo fronted a relatively small lineup amid an intensely crowded market for high-caliber TV content, and it simply doesn’t have a brand people associate with lean-back entertainment. “TV is not their core competency,” said John Blackledge, senior Internet analyst at Cowen & Co. “They don’t have the budget to go after the best content against Netflix, Amazon, Hulu or the networks.”

Ultimately, Yahoo didn’t have the time — or the willingness to make long-term investments — reach the scale to make ad-supported TV shows work, lacking subscription revenue or pay-TV fees the traditional ecosystem relies on. The dilemma is that if Yahoo had acquired additional shows, the endeavor might have been an even costlier debacle.

“On the one hand, Yahoo’s been the only digital-first media company to meaningfully pursue television (advertising) dollars,” said Brian Wieser, senior analyst at Pivotal Research Group. “But the reason nobody else has done it is because the economics are terrible.”

If Yahoo’s entertainment woes invoke a sense of deja vu, that’s because this isn’t its first failure in that arena; when former Warner Bros. CEO Terry Semel ran the company 10 years ago, ambitions to be more like TV were similarly thwarted.

And Yahoo appears to have had another money-losing fumble on its hands with the free livestream of the NFL’s Oct. 25 Bills-Jaguars game from London. Yahoo reportedly paid the NFL at least $15 million for streaming rights, and the companies claim to have garnered 15.2 million unique viewers worldwide.

But exactly how long those users watched the game on average was unclear, given that Yahoo auto-played the livestream on several destinations. Factoring in production and streaming costs, “There was no way for them to make back” the investment, said streaming-industry expert Dan Rayburn.

The $42 million charge for the three shows contributed to another disappointing quarter for Yahoo. It reported Q3 revenue of $1.23 billion and adjusted earnings per share of 15¢, vs. Wall Street expectations of $1.26 billion in sales and EPS of 17¢.

Worse, the company cut its fourth-quarter revenue forecast to between $1.16 billion and $1.2 billion, compared with average analyst expectations of $1.33 billion.

“The core business is decaying faster than they think,” Blackledge said.

The poor results and outlook led Mayer to promise that the company will focus on fewer products in 2016. Compounding her headaches, Yahoo has seen several recent high-level exec departures. In addition to Savitt’s exit, last week Jackie Reses, formerly Yahoo’s chief development officer, left to run the business-financing group of Jack Dorsey’s Square, while product senior VP Mike Kerns joined Chernin Group.

The departure of Savitt may have helped prompt Mayer, in triage mode with Yahoo’s larger financial woes and still struggling to prove the value of its $1.1 billion acquisition of Tumblr, to pull the plug on the scripted-originals strategy. Yahoo now has put Martha Nelson, previously a longtime Time Inc. senior editorial executive, in charge of its overall media strategy, including video.

There’s urgency for Mayer to demonstrate a clear and credible path forward. Yahoo’s spinoff of the remaining 15% stake it owns in Chinese e-commerce giant Alibaba Group, previously expected to close in Q4, may be delayed until January.

Once that happens, investors will fully focus on Yahoo’s business metrics, and the strategy (or lack thereof) to fix them.

It’s unclear just how the fast-growing digital video space will figure in to Yahoo’s business going forward. “We’ll continue to invest in short-form video content, which is strategic for us,” Utzschneider said. Yahoo earlier had hinted it might pick up another season of “Community”; sources said Sony TV still has a film adaptation in play.

“They were sort of dabbling in long-form originals,” said VideoNuze analyst Will Richmond of Yahoo. “They’re dabbling in news with Katie Couric, and dabbling in sports with the NFL game. But it’s hard to do any one of those things well unless you’re all-in.”

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  1. With Yahoo’s live concert channel, they are spending on average $7M a year to wire up venues, and produce shows with manned crews. The problem is you cannot build a go-to network for live concerts dropping $20,000 on a manned crew for a show you can only live stream + rebroadcast once (music rights).

    In addition, a live concert channel is not enough. Do you think Pandora would work if you couldn’t select a channel to match your tastes?

  2. CommunityFan says:

    For Yahoo to have gone to the trouble and expense to produce original content, and then not make the content easy to find and play is a bush-league mistake. Fundamental web-design/marketing 101.

  3. Anonymous says:

    They almost bought ENLISTED which would have yielded more disaster. OTHER SPACE was like a school play, from a very bad school.

  4. Choosing “Community” as some sort of major draw was a big mistake. The sitcom was already on it’s way out, having never recovered from the original fracas with producer Dan Harmon. Even after he returned the magic was gone, along with several of the original cast, which was sad for me as a major fan. As far as the other series, I didn’t even know they existed, clearly due to them choosing not to spend promotional money. The only time in several years that I even visited Yahoo.com was due to a surprise Prince Live stream special, which was rumored to be a major event but ended up being about 10 minutes of Prince live and 50 minutes of a studio tour by an overwhelmed inexperienced hostess. And I have to agree with the comment on the poor media player, when the actual music started, most of my view was refreshing the player/page to get the stream to cooperate.

  5. John says:

    The only thing Yahoo! does is nowadays is keep changing format of their home page, which became more confusing and irritating to viewers. They should have sticked to what they did best, being an media information site, and kept their classic page layout which was easy to access, and viewer friendly. And Yahoo! was once the top website for movies, everyone went to Yahoo! to get information on showtimes, trailers, and reviews. When Yahoo! shifted their focus away from movie content, it lost hundred of millions of viewers daily. Marisa Mayer is just living in our own zone, out of touch with mainstream consumers.

    If you go to the Japan Yahoo! homepage, it still has the same layout from the original design, and guess what’s the top information site for Japan? Yahoo!

  6. nerdrage says:

    There are two viable strategies for digital video (outside of sports/news):

    -Customer-centric. This is ad-free and subscription supported, focusing on quality drama, comedy and documentaries. Netflix, Amazon, HBO Now, ad-free Hulu all fit here.

    -Advertiser-centric: Ad-supported, subscription-free, aimed at corralling the young audience advertisers want. The content won’t look like what we’re used to on TV. The “digital stars” of YouTube are a much better example. YouTube, Go90 and Watchable all fit here.

    Anyone who doesn’t fit well into one of these camps will be on shaky ground. That includes ad-based Hulu, ad-free YouTube and Amazon trying to do an ad-based version of Netflix. The audience is splitting into these camps, successful business models must follow.

  7. BillUSA says:

    I can’t really fault Melissa because Yahoo is still in business in spite of itself. I’m still a member of one of it’s sites since 2006 and that has been a debacle since Day One. Why do I stay? Out of sheer delight in seeing them squirm for relevance. The site hardly serves it’s mission as people have been leaving in droves due to it’s perplexing notion that the best way to moderate competing users is to allow those same competing users to do it for them.

  8. Franklin says:

    The Yahoo player sucked hardcore. HARDCORE!!!!

  9. Jedi77 says:

    User interface friendliness is everything.

  10. Lee says:

    How come no one except the commenters ever mention yahoo’s shitty player as one of the factors. Fans wanted to support the show and made an effort to watch on the yahoo player, but it was so trying, I’m not surprised people just chose to watch it somewhere else.

  11. Sliksmiley says:

    IMO the main issue was their terrible player and ability to actually find the shows. I had the app available for download on my TV, but it only offered random show clips and I couldn’t find any full episodes of shows. I tried finding it via my web browser and again had no luck getting to what I wanted. And I was likely one of the few that actually tried a few times before giving up b/c I wanted to watch Community. Finally just found other ways to watch it online. Sorry Yahoo.

  12. Adam says:

    I think this is mostly a case of Netflix and Amazon beating Yahoo to the punch very early on and now it’s too late.

    • Anonymous says:

      Does anybody even know if original programming is profitable for Netflix or Amazon?

      • nerdrage says:

        Netflix is not profitable yet, but that’s because of their expensive global expansion, which in turn is a good investment, to lock in Netflix = streaming like Google = search worldwide, and ramp up so they can amortize expensive content costs across a huge audience. This is their whole strategy and it remains to be seen whether it will work because everything is not yet in place. In a couple years, we’ll get a better read.

        As for Amazon, their business model is different: their core business is selling goods, so for all we know, they regard streaming video as a way to lure in more customers for their real business. If that’s the case, they might not need streaming to be profitable in its own right.

  13. lindsey says:

    talk about their tech – their player sucks and it no doubt impacted how many people watched their offerings

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