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4 Key Takeaways from Yahoo’s $42 Million ‘Community’ Debacle

4 Key Takeaways from Yahoo's $42 Million 'Community' Debacle

With yesterday’s news that Yahoo lost $42 million in the third quarter in its bid to become a major player in the streaming TV space—which CFO Ken Goldman attributed to a failure to monetize its revival of NBC’s “Community,” as well as original series “Sin City Saints” and “Other Space”—it’s clear that even companies with a one-billion-user footprint are not guaranteed success in the current, ultra-competitive landscape. But dig into the details and the picture becomes more complicated. Here are our four key takeaways from the Yahoo debacle:

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1. Content is (still) king.
Though “Community,” Dan Harmon’s acclaimed, knowing spin on the network sitcom, set at a Colorado community college and peppered with pop culture references, brought with it a passionate following, it was never going to be enough to transform Yahoo from a lumbering Internet giant into a nimble new media company. Notably, Yahoo’s other big get, “global news anchor” Katie Couric (“The TODAY Show,” “CBS Evening News”) was also brought over from network television—hardly the obvious choice for viewers consuming news online.

The result was a strangely backward-looking slate, one unaided by the fact that Yahoo’s original content, “Sin City Saints” and “Other Space,” barely registered with either critics or audiences. Without bringing novel, buzzworthy programming to the table, the company was unable to shake its reputation as the relic of an Internet age long since past, and so failed to build on the cult following for “Community.” Remember, Netflix attracted attention for bringing back “Arrested Development,” but it made its name with original series like “Orange Is the New Black.”

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2. Subscription is the future.
Because Yahoo was new to TV, it may have underestimated what increasingly seems like a fact on the ground when it comes to audience engagement. People hate ads, and are willing to spend money not to see them. After years of DVR use, the shift online meant, for a time, that both network websites and streaming services like Hulu could plug the leaks in their ad revenue, and when the NFL delays “The Good Wife,” putting up with pre-roll may still be my only option.

But with Netflix, Amazon, and Hulu Plus weakening viewers’ aversion to paying for TV, and HBO Now and Showtime Anytime turning ad-free premium channels into digital outlets, it’s clear that subscription-based services are on the rise. (YouTube is set to offer its own subscription-based platform, the $9.99/month Red, beginning Oct. 28.) Yahoo’s first, and possibly only, venture into streaming TV didn’t fail because of advertising, of course—I mean only that Yahoo, angling under CEO Marissa Mayer to become a stalwart of the next Internet, may have misread the tea leaves. As I wrote for The Week this summer, “the sense of freedom that accompanies cord-cutting is an illusion,” but for providers, subscriptions are a smart move: by requiring viewers to pay up front, they protect against certain of the short-term vagaries of Nielsen ratings and web traffic, such that the costs of no single series (ahem, “Community”) are as likely to weigh down the balance sheet.

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3. Size doesn’t matter.
Well, not above a certain threshold, at least. That Yahoo was unable to turn one billion users into a viable market for streaming TV suggests that branding is at least as important, and “Community,” Katie Couric, and two little-watched original series did not amount to a strong identity. In fact, Yahoo executives’ conclusion that the company’s disappointing performance is the result of a lack of “focus” may indicate that Yahoo never quite had a clear vision for its original content.

Compare this with Netflix and Amazon—both behemoths as well, in their own way—which nevertheless continue to make relatively bold and varied choices in the realms of production and acquisition. Netflix’s apparent confidence in content chief Ted Sarandos, like Amazon Studios’ hiring of former Variety critic Scott Foundas to work with indie film booster Ted Hope, evince a very serious understanding of Lesson #1. Original scripted series and exclusive film distribution rights are not a license to print money, whatever the size of the company behind them, if there’s no clarity to how those films and TV series will differentiate you from the rest of the pack.

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4. This isn’t yet the beginning of the end for “peak TV.”
Though it’s tempting to say the Yahoo news is the leading edge of a looming contraction, I think that assessment is premature, or at least overly simplistic. For one thing, when it comes to streaming TV, Yahoo is still a bit player, and in retrospect the company’s embrace of “Community” seems much more like a failed experiment than the collapse of an industry-wide business model. At least for now, original scripted series continue to proliferate, and none of the major outlets, whether broadcast, cable, premium, or streaming, seem to be in danger of a sharp decline.
For another, Yahoo clearly has other problems, from tax issues related to its stake in the Chinese company Alibaba to missteps with its advertising platform, Gemini, to criticism of Mayer’s leadership. Indeed, the combination of the company’s $42 million content write-off, its lack of “focus,” and its intransigent identity as an Internet giant unable to adapt to a fast-changing world may add up to a fifth lesson: the TV business these days is not for the faint of heart.      

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