By Joseph Menn
SAN FRANCISCO (Reuters) - With two of its most distracting conflicts resolved in the past week and a half, Yahoo Inc hopes its new interim chief executive can focus on the biggest challenge of all: turning the company into a digital entertainment destination that wins back the advertising dollars flowing elsewhere.
While ousted predecessors Scott Thompson and Carol Bartz were seen as technologists, Ross Levinsohn has managed Internet efforts at such mainstream media companies as CBS and Rupert Murdoch's News Corp.
Those close to Levinsohn said he is committed to building out Yahoo's own video programming and striking more syndication deals in pursuit of ads that command a higher price. In one sign that Yahoo is thinking of itself as more of a media company than a technology company, Levinsohn will continue to live in the Los Angeles area instead of decamping for the company's Silicon Valley headquarters, according to a source familiar with his plans.
"Levinsohn is a media guy, and our business model is selling display advertising," said another Yahoo insider. "His elevation makes clear we are a media company now."
Yahoo elevated Levinsohn on May 13 -- the same day it settled a dispute with Daniel Loeb, giving the activist investor three board seats. On Monday, Yahoo inked a deal to sell half of its stake in Alibaba Group back to the Chinese e-commerce giant for more than $7 billion, monetizing Yahoo's biggest asset after years of fractious talks.
Levinsohn, 48, declined interview requests but has told staffers to expect more on his strategy within weeks.
Longtime company insiders said that while Yahoo has a hard road ahead of it, the resolution of the two battles and Levinsohn's strength in advertising give the company a better chance than it had under Bartz or Thompson, with the latter resigning after Loeb revealed that he didn't have a claimed undergraduate degree in computer science.
Industry executives and Yahoo investors said that Levinsohn has few viable alternatives other than reorienting Yahoo around media and advertising.
"When you have a turnaround situation, particularly an Internet turnaround situation, there are only a very few ways to solve the puzzle," said current News Corp Chief Digital Officer Jonathan Miller, who co-founded a venture capital firm with his friend Levinsohn six years ago. "In Yahoo's case, some of the slots you might think to take are already taken -- being a leader in the social space is taken, and being No. 1 in search is occupied. They aren't going to be the mobile platform."
"One of the things that is open and fits is digital media. I think it's the one (slot) that Yahoo has to occupy, and Ross has the background, the orientation and the skills to take the lead in that category."
Though generic display advertising has lost favor to search-based ads and other more interactive formats, it still generated $12.4 billion in U.S. industry revenue last year and should produce $15.4 billion in 2012, according to eMarketer analyst David Hallerman.
Yahoo's share of that has been slipping, however, as advertisers turn to Google, Facebook and others. Hallerman projected that Yahoo's display advertising share would decline to 9.1 percent this year from 10.8 percent in 2011.
Video ads are more promising. They made up only 6.3 percent of all U.S. online advertising dollars last year but are growing more than 50 percent yearly.
Therein lies the reason Levinsohn has been frantically inking new deals to show original content from ABC News and established Hollywood stars creators such as Tom Hanks and Ben Stiller. Yahoo now claims 21 of the 25 most-watched Web series, and in the first quarter eked out a 1 percent revenue increase, the first year-over-year gain since 2008.
"If you think of content creation in a line from the free user-generated stuff to the most expensive, like the Netflix content you pay for, Ross' vision is to move up as high as they can go on free and ad-supported, because scale matters," said one of Yahoo's largest shareholders, who declined to be identified because the investor does not speak publicly on holdings. "I think he's right about that."
Raised in suburban New Jersey, Levinson graduated from American University in Washington, D.C. and served as a young executive at media and tech properties including early search engine AltaVista and CBS SportsLine, where he was early to pick content aimed at fantasy sports league players.
Prior to his appointment at Yahoo, Levinsohn was best known as the man who brought a still-young MySpace to the attention of News Corp Chairman Rupert Murdoch, who spirited it away from the outstretched arms of rival media baron Sumner Redstone's Viacom.
Though the $580 million price was derided as exorbitant, Levinsohn soon negotiated an advertising pact with Google that guaranteed News Corp a minimum of $900 million over three years, bringing both instant profit and acclaim to Murdoch, who was heralded as the one old-school media mogul who understood new media.
But MySpace soon fell into an epic downward spiral that ended last year in a sale reportedly worth $35 million, about a third of a thousandth of what Facebook was worth when it went public Friday.
Levinsohn, for his part, was around for almost none of the MySpace collapse and gets little blame from former colleagues.
Levinsohn was strong enough at internal politics that he survived for six years amid the intrigue at Murdoch's court, but was disadvantaged because he reported to News Corp's then-Chief Operating Officer Peter Chernin while MySpace founder Chris DeWolfe spoke directly to Murdoch, who became enamored with DeWolfe and his partner Tom Anderson, coming to see them as visionaries who could do no wrong.
With Murdoch's full support, DeWolfe and his team were able to successfully resist some changes Levinsohn wanted, and as innovation at MySpace stalled Levinsohn decided to leave News Corp, joining Miller at venture firm Velocity Interactive, known later as Fuse Capital.
Levinsohn wasn't as good at early-stage investing as he had hoped to be, said a third partner from Fuse, Keyur Patel. Only a few of the companies Fuse backed have been sold, and none have gone public.
"There were very high-risk deals," Patel said. "None of those companies were a big hit."
Former underlings said Levinsohn is slow to anger and has embraced the element of News Corp culture that prizes personal loyalty above short-term performance.
Since joining Yahoo in 2010, he has overseen the acquisition of one Fuse creation, advertising technology company 5 to 1, and brought aboard his friend and co-founder there, News Corp veteran James Heckman.
He also hired another News Corp survivor, Mickie Rosen, who went on to found a price-comparison service called Tecca, which Fuse also backed.
Just days into his new role, Levinsohn told employees that the well-regarded Rosen would assume responsibility for content and business deals.
In addition, he gave Rosen control of Yahoo's fledgling effort to handle consumer transactions, which his predecessor Thompson -- a former PayPal president -- had set up on its own.
Ever the diplomat, Levinsohn disparaged neither the initiative nor Thompson, even though the latter was seen internally as a destructive force.
"Commerce is a significant opportunity for growth," Levinsohn wrote to the troops. "In order to thrive it needs to be woven throughout the Yahoo experience and close to our major traffic drivers."
(Reporting by Joseph Menn in San Francisco.; Additional reporting by Soyoung Kim and Peter Lauria in New York; Editing by Peter Lauria, Bernard Orr)