Netflix, Hulu and ... Yahoo? Why Marissa Mayer Wants Original TV Programming

What's This?

Yahoo CEO Marissa Mayer, smiles during a session at the World Economic Forum in Davos, Switzerland, Saturday, Jan. 25, 2014.

Image: Michael Euler/Associated Press

By Seth Fiegerman2014-04-07 18:15:22 UTC

Marissa Mayer may soon take a break from acquiring companies and instead acquire some TV shows.

Yahoo is "close" to ordering four high-quality online TV series with budgets of as much as a "few million dollars" per episode, according to a recent report in the Wall Street Journal. This would effectively put Yahoo in competition with a different group of Internet companies, including Netflix, Hulu and Amazon.

See also: Katie Couric's Move to Yahoo: Desperation or Inspiration?

The Internet giant has offered original programming in the past, though for the most part it has come in the form of shorter web series. The decision to invest more on TV caliber programming is likely part of the company's larger goal to double down on quality online video. Yahoo announced an exclusive deal for the entire video catalogue of Saturday Night Live around this time last year and followed that up a few months later with the hiring of news anchor Katie Couric.

"While our video offering is still nascent, we have made some good progress in 2013," Mayer, Yahoo's CEO, told investors in an earnings call in January. "With our continued commitment to expanding our video offering, we believe we are well positioned to grow video revenue in 2014."

Yahoo appears to be considering a few different approaches to boost its video offerings: buying up original programming, trying to attract popular personalities from YouTube and acquiring a significant online video service. Yahoo was first rumored to be looking to buy Dailymotion; now it's reportedly looking to buy News Distribution Network (NDN).

Yahoo declined to comment for this story.

Brian Wieser, an analyst with Pivotal Research Group, argues that this could serve as an effective two-pronged approach to attract advertisers. By purchasing a video service like NDN, he says the company would improve its perception among advertisers in the short-term by increasing its video inventory, which "would allow it to tell a story about how great it is in video." High-quality original content, on the other hand, might lead to more "durable" revenue growth in the long-term. But the latter comes with some significant risk.

"You can produce a good long-term business, but you should have a fully baked out strategy. Otherwise there will be a lot of money lost making something that most people would deem successful," Wieser says. "If you are spending a couple million dollars on a half-hour episode, you can't afford to have misses. You need to have hits."

That is, of course, easier said than done. Even Hulu, Amazon and Netflix have had their share of flops when it comes to original programming. "Until I'm persuaded otherwise, I suspect that what [Yahoo] thinks will make them stand out from the pack is old media celebrity names," says Andrew Tyndall, a media analyst.

Yahoo's video audience in the U.S. increased by 14% year-over-year, according to data from comScore, though it remains well behind competitors like Google, Facebook and AOL — the last of which already offers original series. Yahoo may not be able to overtake Google or AOL in scale, but it could overtake them in quality, which would help drive up its ad revenue.

"Scale is important, but the quality can potentially be a differentiator," says Andrew Lipsman, VP of industry analysis at comScore.

That might sound obvious, but it would represent a notable change in strategy for Yahoo, whose strength was often seen as one of reach thanks to its massive user base — 800 million worldwide, as of late last year.

"The senior management are learning about their business still. Certain signs have suggested that they have come to understand the gravity of their situation," says Wieser, the Pivotal Research analyst. "Their business is utterly commoditized and the scale of users is no longer unique in the eyes of advertisers."

Topics: Business, marissa mayer, Media, Television, Yahoo