Yahoo’s $42 million write-down of its original video series shows it’s still struggling to work out what it’s good at

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Yahoo CEO Marissa Mayer.
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Matt Weinberger

Yahoo’s Q3 earnings call revealed the company incurred a $42 million impairment charge “related to a change of strategy on certain original long-form video content.”

Specifically, big bets like “Community” – which Yahoo scooped up after NBC canceled the show after five seasons -as well as its original shows “Sin City Saints” and “Other Space,” turned out to be big flops.

Here’s what Yahoo chief financial officer Kenneth Goldman had to say on the earnings call (as per Seeking Alpha):

We thought long and hard about it and what we concluded is certain of our original video contents we couldn’t see our way to make money over time. And so, I’m thinking of Community, I’m thinking of Sin City Saints and so forth. And so, there what we had basically had spent money and had some assets on our balance sheet, we elected to write those off. That actually helps us going forward in that we won’t have that expense to amortize going forward.

In thinking through that, we thought about not only what is the cost but also what is the cost to market and create the streams you need to make it successful. And so, again, we’re not saying we’re not going to do these at all in the future, but what we are saying is in three cases at least it didn’t work the way we had hoped it to work and we decided to move on and basically write-off those assets to balance sheet and therefore preclude us from having to amortize that going forward.

The revelation came as Yahoo reported it had missed its Q3 targets, with net revenue down 8% year-on-year. Yahoo CEO Marissa Mayer is in her fourth year of attempting to turnaround the business. But none of her big efforts appear to be paying off.

Why couldn’t Yahoo do video content?

On the face of it, it looks like Yahoo bit off more than it could chew. But actually, perhaps it didn’t bite off enough.

Ian Maude, head of digital media practice at Enders Analysis, told Business Insider: “Video is just tough, especially when you have only invested in relatively few, compared to Netflix or Amazon. When it comes to any content business – games, movies, TV – you have to place quite a few big bets and you hope that one of them will be a big hit. Maybe some of them will flop. But part of Yahoo’s problem is that it’s not a scale player and it had a lot riding on a relatively small amount of titles.”

Maude said it might have been a different story had Yahoo pumped bigger investments into 20 to 30 shows – although that may not have sat well with investors in the short-term.

Some people may remember that Yahoo has attempted to play this game before. Back in the 2000s when Terry Semel was the company’s CEO, Yahoo pivoted towards Hollywood. It opened an LA office, formed an entertainment unit, and planned co-productions and co-marketing with movie studios – Semel was a former Hollywood dealmaker. But his efforts never really took off. In late 2002 Yahoo acquired search engine company Inktomi, and in 2003 it acquired search ad technology company Overture and the company set about challenging Google head-on. That still hasn’t worked out either.

Fast-forward to 2015 and alongside Yahoo Screen, which couldn’t attract viewers for shows like “Community,” Yahoo has struggled to get its video content to work on other platforms too.

Earlier this month, Fast Company reported that Snapchat had booted Yahoo from its “Discover” section because the company couldn’t figure out how to connect with the photo-sharing app’s younger demographic.

What does Yahoo do well?

While revenue is stalling, there is no denying that Yahoo is still an internet giant. It may have missed targets, but it still booked $1 billion in revenue in the third quarter, and $76 million in net profit.

In the US, Yahoo commands a 12.6% share of the desktop search market (behind Microsoft with 20.7% and Google with 63.9%,) 48.3 million unique desktop monthly video views, and 208 million unique visitors across all its sites on desktop and mobile.

Yahoo Weather iPad

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The Yahoo Weather app.
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iTunes

Maude told us its products like Mail, its Weather app, and News are good products, with millions of (mostly older) users. But he questions why any young internet user, that doesn’t have loyalty to the Yahoo brand from its peak would choose Yahoo.

“Yahoo still hasn’t cracked it. The internet is different from the days when Yahoo was founded. It was a one stop shop that made the internet easy. Now it’s a pick and mix, you might use Google for search, Netflix for movies, YouTube for short-form video – you really need to have some kind of unique proposition,” he said.

Meanwhile, Yahoo has built and bought ad tech, refocused its advertising strategy around MaVenS (Yahoo’s acronym for mobile, social and video ads,) and launched a new ad platform called Gemini that mostly focused on the growing mobile advertising segment of the market. But it will have a tough time competiting with a market dominated by Facebook, Google, and growing independent players like AppNexus.

“Advertisers have a lot of goodwill towards Yahoo, but they really need to have that successful consumer product to retain that goodwill,” Maude said.

Therein lies the problem. Depending on which metrics you look at, Yahoo is doing well in the face of tough competition from many newcomers. But what is it doing better than any other company? Is it attempting to do too many things, diluting the products and businesses it actually does do well?

As former GE CEO Jack Welch once famously declared: “If you’re not number one or number two in your industry, there’s no point being in it.”

Business Insider has contacted Yahoo for comment and we’ll update this article once we hear back.