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Yahoo Loses $42 Million on ‘Community,’ 2 Other Original Series

Internet media company announces new search pact with Google, as Q3 earnings miss Wall Street expectations

Reviving “Community” has been a costly adventure for Yahoo — and might spell the end of its foray into big-budget original series.

CFO Ken Goldman revealed during Yahoo’s third-quarter earnings call Tuesday that the company took a $42 million charge on “Community” and two other original series as it couldn’t effectively monetize the programming.

Yahoo recorded a $42 million impairment charge in Q3 on the value of its video assets, and Goldman specifically singled out “Community,” as well as original shows “Sin City Saints” and “Other Space,” when asked what went wrong. Writing off the cost of the shows — $41.699 million to be precise, according to Yahoo’s financial statements — removes them from the balance sheet so they won’t be amortized over time.

“We thought long and hard about it, and what we concluded is (for) certain of our original video (series), we couldn’t see a way to make money over time,” he said.

Continued Goldman, “We’re not saying we’re not going to do these at all in the future. But what we are saying is, in three cases at least, it didn’t work the way we had hoped it to work, and we’ve decided to move on.”

Yahoo debuted season six of Dan Harmon’s “Community” exclusively on its video platform Yahoo Screen in March following NBC’s cancellation of the show after five seasons. Yahoo landed Honda as a launch sponsor for “Community,” which is produced by Sony Pictures Television. But apparently it couldn’t gather enough of an audience, or long-term commitments from advertisers, to make the investment into original content at that scale pay back.

Yahoo previously teased that it may be renewing “Community” for a seventh season, or even take part in a movie deal with the Greendale Community College gang. That may appear less likely with Tuesday’s disclosure, but insiders tell Variety that a “Community” movie is still in play — with or without Yahoo.

The exec who had led Yahoo’s charge into originals with TV-size production budgets was chief marketing officer Kathy Savitt, who in September joined independent studio STX Entertainment as president of its digital unit.

The revelation came as Yahoo turned in another quarter of financial results that failed to meet Wall Street expectations, leading CEO Marissa Mayer to promise that the company will focus on fewer products in 2016 to try to right the ship.

Yahoo posted third quarter 2015 revenue of $1.23 billion and adjusted earnings per share of 15 cents; analysts had expected $1.26 billion in sales and EPS of 17 cents. And the company reduced guidance for the fourth quarter: It expects revenue to be between $1.16 billion and $1.2 billion, compared with average analyst expectations of $1.33 billion.

“As we move into 2016, we will work to narrow our strategy, focusing on fewer products with higher quality to achieve improved growth and profitability,” Mayer said in announcing the results.

Yahoo also announced a new pact with Google for search results and ads. That agreement will “complement” the search services provided by Microsoft and Yahoo’s own search technologies and ad products, according to the company.

Yahoo has been hit with a wave of recent high-level exec departures. In addition to Savitt’s exit, this week Jack Dorsey’s Square announced the hiring Jackie Reses, formerly Yahoo’s chief development officer, to run its business-financing group, while product SVP Mike Kerns joined Chernin Group in July as president of digital.

In addition trying to improve the metrics of its core businesses, Mayer called out as a top priority Yahoo’s planned spinoff of Aabaco Holdings, representing the remaining 15% stake it owns in Chinese e-commerce giant Alibaba Group. That transaction is still pending regulatory approval, and Yahoo said it was moving forward with the plan despite the IRS denying a request to rule the spinoff tax-free. Yahoo had expected that to close in Q4, but Mayer said on the earnings call that the spinoff may not be completed until January.

Mayer noted that Yahoo’s total Q3 revenue grew 7% year-over-year, while the strategic “Mavens” businesses — comprising mobile, video, native ads and Tumblr ads — rose 43% from a year earlier, to $422 million. But audience acquisition costs in the latest period soared to $223 million (up from $54 million), and Yahoo remains heavily reliant on desktop PC users.

Yahoo’s stock fell as much as 2.8% in after-hours trading Tuesday, after closing regular trading down 2% to $32.83 per share.

Janko Roettgers contributed to this report.

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