Yahoo! stakes out new territory in Hollywood

When Yahoo! decided to lease the former headquarters of film giant Metro-Goldwyn-Mayer several weeks ago, there was an undeniable symbolism.

Ever since the start of the Internet revolution, Web-based companies have dreamed of the day when they could harness the creative might of Hollywood on a fiber-optic wire, allowing customers to call up films and television shows with the click of a mouse.

The opening of the new Yahoo! Center in Santa Monica, Calif., this April suggests that, at last, this era may begin in earnest. For now, Yahoo's goals are modest - it has no intention of producing the next Steven Spielberg film for cyberspace or poaching David Kelley to write a Web version of "Boston Legal."

Yet some analysts say the day of Internet sitcoms might not be far away, and the trend could not only transform the entertainment industry but also turn firms like Yahoo! into the Disneys of the new century.

Already, the success of Web music ventures like iTunes and Napster hints at how the Internet is changing from an information platform to an entertainment medium. As technology improves, all of Hollywood will face the same pressure to meet the demands of a generation with Internet expectations. In this atmosphere, companies like Yahoo! have a natural advantage, and many analysts expect them to parlay that knowledge into multimedia empires that reach across the entertainment landscape.

"Yahoo has positioned itself to be a major player," says Paul Saffo of the Institute for the Future in Menlo Park, Calif. "It's an information company trying to turn itself into a media company, and it has a good shot."

The first outlines are already apparent. Yahoo's music service has included music videos for some time, and the firm recently announced a deal with Showtime to webcast the first episode of the new series, "Fat Actress." In addition, Yahoo! also offers exclusive outtakes from the NBC reality show, "The Apprentice."

It's a go-slow approach, but at this point, it's about all the Web can handle. Yahoo! realizes that most Americans aren't likely to settle down in front of a computer screen to watch "Gilmore Girls." Nor are the current DSL lines fast enough for high-quality video.

Gradually, though, the technology is coming. Some analysts think it is years away. Others, however, hear about new ultra-fast Internet lines and note college students who hook up their computers to work like televisions, and are more hopeful. "It's getting there, but it's just beginning," says Robert Atkinson, a technology analyst at the Progressive Policy Institute in Washington.

Yet even at this early stage, there are signs that Yahoo! is already thinking about original content, rather than relying exclusively on Hollywood. Yahoo! will distribute short films by JibJab, an Internet animation outfit. Admittedly, JibJab is hardly the "West Wing." The animation of its political satires is on a par with "South Park" - simple photo cutouts with marionette mouths.

But it's a herald of what could come. A growing number of amateur "podcasters" are broadcasting audio shows on topics ranging from music to cooking to political discussions over the Internet for iPod users to download at their convenience. Surely, frustrated directors will do something similar when video technology catches up.

"I'd be shocked if there weren't a breakout scripted series that existed only on the Web in the next couple of years," says John Battelle, a founder of Wired magazine. "There's far too much talent not getting its notice in Hollywood."

While Yahoo! says it has no plans to go that far yet, it has been eager to dip into the entertainment world for years. Its CEO, Terry Semel, spent 24 years at Warner Bros. before making the switch to Silicon Valley. And last year, Yahoo! hired Lloyd Braun, former cochairman of ABC Entertainment Television Group, to head its media division. Now, the Media Group is moving entirely to the new Yahoo! Center.

Santa Monica "is a much better position to establish and build relations with the media and to attract the best and brightest talent," says Joanna Stevens, a Yahoo! spokeswoman. "We will be working with partners to define what the next generation of media content is going to look like."

Along the way, it could also define what the next generation of media company looks like. It is clear that Hollywood is in no hurry to embrace the Internet.

"It's a clash of open versus closed," says Mr. Battelle. Almost all media companies say, "We own the environment - it's our walled garden and everything that goes on inside we control," he adds. "But that's not how the Web works. All the control is at the point of the consumer."

Yahoo! is positioning itself to be the largest media venture that fundamentally understands this mentality - and how to profit from it. "Yahoo! comes out of this ethos," says Mr. Saffo. "It understands that this is a two-way conversation."

What, exactly, Yahoo! will become is still a mystery. Perhaps it will spread out from its Internet base across various media from magazines to TV. Perhaps it will make local TV stations irrelevant, acting as a national distributor of Hollywood fare over new high-speed Internet lines. Perhaps it will become an ABC of its own, producing programs that viewers stream onto their living-room TVs.

Much depends on the how the technology develops, and how fast. But few doubt that the Internet will eventually play a major role in the future of entertainment. To many, today harks back to the beginning of cable TV, when possibility took form in hundreds of channels waiting to be filled. In coming years, the possibility could be as limitless as the Internet itself.

"There was a lot of hit and miss in the early days" of cable, says Phil Leigh of Inside Digital Media in Tampa, Fla. "It's going to be a lot like that. It will be an evolutionary process."

[Editor's note: The original version failed to acknowledge that the Monitor has a content licensing arrangement with Yahoo!]

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