Watch out, Hollywood. There's a new player in town.
In fact, Yahoo has already arrived -- physically at least. The Sunnyvale, Calif.-based company signed a huge lease last month to take over most of the former headquarters of Metro-Goldwyn-Mayer Inc. in Santa Monica, which will soon be known as Yahoo Center.
Lloyd Braun, a veteran TV executive, will run the new division, Yahoo Media Group, that will be based there. He plans to move some employees from Silicon Valley and aims to poach Hollywood talent to build a media powerhouse.
"It's the way people must have felt at NBC in the late '40s or early '50s," Braun said recently. "You really have an opportunity to have an impact on an exciting, vibrant, exploding medium."
Countless dot-coms, including Yahoo, tried, and failed, to break into show business in the late 1990s. This time Yahoo has a running start: Over the last couple of years, the company -- which has 165 million users and $3 billion in annual advertising revenue -- has become a valuable partner in Hollywood, publicizing TV shows on its websites in cross-promotional deals with studios and producers.
Yahoo's ambitions are much bigger than that. The firm is experimenting with putting original entertainment on its sites and is trying to sell talent agents and producers on the idea of creating short, Internet-ready programs specifically for Yahoo.
Headed by Chief Executive Terry Semel, a former movie mogul who still lives in Los Angeles, and entertainment industry veterans including Braun, Yahoo sees itself following the path of television networks like MTV, which built its business promoting the music industry through videos before it began bankrolling its own shows, such as "Beavis and Butt-head" and "The Real World."
"I think Yahoo will follow that pattern fundamentally," Semel, who was co-chairman of Warner Bros. for five years and a top executive there for two decades, told investors at a conference last month.
Yahoo -- which attracts users by serving up news stories, sports scores, movie trailers, Web search and e-mail all in one place -- faces fierce competition in its pursuit of Hollywood. Rivals include not only Time Warner Inc.'s America Online Inc., Microsoft Corp. and Google Inc. but also the online businesses of the media companies that Yahoo plans to challenge for viewers and advertising dollars.
Some in town haven't forgotten the Internet companies' hubris in the late 1990s, when Yahoo and others tried to conquer Hollywood. Talk of "digital convergence" was all the rage back then. But the only thing that ad-supported ventures such as Digital Entertainment Network and Time Warner's Entertaindom.com proved was that original programs on the Web couldn't attract large-enough audiences to support a business.
Yahoo itself produced finance and shopping programs and streamed them live over the Web starting in 2000, but the effort never made any money and the company shut down the programs.
Things could be different this time.
Perhaps most important, the picture quality of Internet broadcasts has improved. By next year, more than half of U.S. households and nearly all businesses are expected to have high-speed connections, which make video clips crisper and less jumpy.
Beyond that, the proliferation of high-speed wireless networks -- so-called Wi-Fi hotspots -- has made it easier for people to tap the Internet as they lounge with a laptop on their sofa, in a coffeehouse or at other places more comfortable than a desk.
These days, Internet companies have the cash to back up their visions. Advertisers from Hollywood to Madison Avenue are expected to spend more than $11 billion on online marketing this year, with an increasingly large portion coming from video-based ads that resemble TV spots.
Yahoo, which turned an $840-million profit last year thanks to the Internet ad resurgence, can now afford to experiment with new kinds of programming. (Yahoo Media Group will also run the company's games and news, sports and business coverage from Santa Monica.)
"The entertainment industry took a deep breath -- almost a sigh of relief -- upon the burst of the bubble, saying, 'We are still kings, and the Internet isn't what we thought it was going to be,' " said Jack MacKenzie, senior vice president at Frank N. Magid Associates Inc., a media research and consulting firm. "It turns out the Internet is exactly what everyone thought it was going to be."
As chairman of ABC Entertainment Television Group, Braun oversaw development of the hit show "Desperate Housewives" and championed "Lost" before being forced out in a management shake-up. Considering his background, "Lloyd Braun didn't come to Yahoo to sell banner ads," said Jeff Lanctot, a vice president with Avenue A/Razorfish, an interactive-ad agency. "It's clear [Yahoo] will be competitive in some way."
Yahoo's mode has been collaborative; it has courted Hollywood by creating and managing websites for shows, including "The Apprentice" and "The Contender."
In the case of "The Apprentice," Yahoo executives bypassed NBC and struck a deal with the show's creator, Mark Burnett Productions. Burnett, the reality-show guru who also created "Survivor," said it made sense to have Yahoo operate the main site for the show.
"The numbers and reach with Yahoo were unparalleled compared to anything we could do, and quantum leaps above NBC," he said.
Burnett's company gives Yahoo outtakes, extended scenes from the show and other footage that isn't available anywhere else; the two firms share revenue from the ads that run on the site, apprentice.tv.yahoo.com. A pitch for Yahoo appears during every episode of "The Apprentice," and Yahoo promotes the show on its various websites.
Yahoo also has a deal with Viacom Inc.'s Paramount Domestic Television to promote "Entertainment Tonight." And it has just agreed to run the voting website for "Nashville Star," a country music talent show on NBC Universal's USA Network.
When he watches his three young children surf the Web, Burnett thinks Yahoo is onto something in its quest for original programming.
"These kids, even at age 7, would just as happily go online as watch television," he said. "If you get something as innovative as a 'South Park' that [developed] a cult following, there's no reason it couldn't work."
Jim Moloshok, Yahoo's senior vice president of entertainment and content acquisition, thinks he may have found something along the lines of the animated series "South Park." He saw "This Land," a two-minute animated film lampooning the presidential candidates, rocketing around the Internet and called its creator, Santa Monica-based JibJab Media Inc. They struck a deal, similar to a television contract, giving Yahoo the exclusive rights to distribute JibJab's next two films.
"JibJab is one of the first branded content companies that has really crossed over from the Internet to the mainstream," Moloshok said.
The Internet giant is also trying its hand at producing its own shows. Yahoo Sports hired journalists and retired professional athletes to analyze sporting events in video clips on its website. Launch, Yahoo's streaming music service, invites musicians to its Santa Monica studio to record performances and interviews that users can listen to on their computers.
For Yahoo, the challenge will be competing for programming that people will watch online, without replicating the hit-or-miss way Hollywood does business.
"My only caution would be to not start throwing money around for directors, actors and producers and fall into the Hollywood business-model trap, which is [to] pay a bunch of money upfront and cross your fingers," said MacKenzie, the media consultant.
Yahoo executives don't have the answers yet, but they see themselves as leading the next big media shift, from television to the Internet, just like TV pioneers did decades ago when they figured out what they could offer that radio couldn't.
"It's not going to be a place where we're going to do our version of 'Alias' or 'Lost' or any of those shows," Braun said at a recent conference for TV executives. "My job is really to define -- with this group of executives that I have -- what is Internet content going to be?"
On the Internet, as on TV and radio, he said, "if you have unique, compelling content, you're going to win."