Yahoo’s (NASDAQ:YHOO) new CEO Scott Thompson will need to decide sooner rather than later how much to gamble shareholders’ money on original content. Unfortunately for him, it’s not an easy call.
For years, Yahoo has been cobbling together a team of top-notch journalists who have created some compelling stories. It has launched video shows with the likes of reality show pioneer Mark Burnett and Academy Award-winning actor Tom Hanks. In 2010, the company estimated that about 10% of its content was original and expected that figure to double following the $100 million acquisition of aggregator Associated Content. That percentage is probably still climbing.
Just last week, Yahoo named Oliver Knox as its first-ever White House correspondent. Former New York Times columnist Virginia Heffernan recently was named Yahoo’s national correspondent. Its stable of writers also includes former Newsweek economics editor Dan Gross. Last year, Yahoo formed an “strategic online news alliance” with Walt Disney’s (NYSE:DIS) ABC News. And Yahoo Sports earned kudos last year for disclosing the illegal payments made to athletes at the University of Miami by a booster imprisoned for his role in a Ponzi scheme.
However, all this effort hasn’t mattered to investors, who’ve pushed the Sunnyvale, Calif., company’s shares down by more than 40% over the past five years. Yahoo may have little choice but to press on because advertisers have always been willing to pay more to sponsor content that was exclusively found on a particular website rather than generic stories.
“Yahoo is like this massive ship that is having trouble navigating narrow waterways with brisk tides,” says Adam Penenberg, a professor of journalism at New York University, in an email. “It changes too slowly and doesn’t seem to have an idea where it’s going.” The latest evidence for that lack of direction is the announcement late Tuesday that four board members — including Chairman Roy Bostock — were stepping down.
When it comes to the content business, Yahoo is a frenemy to the mainstream media. It sends their websites tons of traffic by linking to them. But offering its own original content will, of course, keep readers on Yahoo for longer periods, increasing the odds that someone will click on an ad there. And though Yahoo is fading, it remains a formidable brand. Yahoo News is by far the most popular news site of its type, and its lead over rivals has been growing, according to Tom Rosenstiel of the Project for Excellence in Journalism.
Yahoo attracted a unique audience of more than 130 million in January, trailing only Google (NASDAQ:GOOG) and Facebook, according to data from Nielsen. But its audience declined 1.1% from December, the most of its competitors. Even Microsoft’s (NASDAQ:MSFT) MSN, Windows Live and Bing services posted a 4.2% gain.
Like its rivals at AOL (NYSE:AOL) and MSN, Yahoo will need to spend more money on original content to stand out in an ever-crowded media universe. That’s great news for journalists (for as long as it lasts) because it keeps them employed. Shareholders, though, may wonder whether the costs of producing something original on the Web are worth it.
The jury is still out on whether Yahoo’s latest content investments will pay off. Shareholders have clearly grown impatient waiting for the long-promised turnaround. Yahoo, though, has to figure out how to dazzle audiences in order for it to recapture its former glory. Somehow, it doesn’t seem likely that hiring high-profile journalists is going to be enough.
Jonathan Berr is a freelance writer. He owns no shares of the companies listed here.
