December 10, 2011

The Economist

Thomson Reuters - Screen Test

The information company, in danger of losing its top spot, gets a new boss

IN SEVEN years as head of Reuters, Tom Glocer brought the British-based news agency from the verge of bankruptcy to a state of rude health.  But he has done less well as chief executive of Thomson Reuters, the company created when Thomson, a Canadian purveyor of professional information for lawyers, accountants and others, bought Reuters in 2008.  Bloomberg, the firm’s American rival, has almost wiped out its once-clear lead (see chart).  On December 1st Mr Glocer said he would step down at the end of the year.  His replacement, James Smith, the chief operating officer, is a former Thomson man.

The revenues of the professional division of Thomson Reuters grew by 10% in the year to the third quarter, but those of the markets division—which provides financial data and services, and accounts for more than half of total sales—managed only 1%.  Last year that division launched a new information platform, Eikon, to compete with the terminals offered by Bloomberg, but just 8,000 customers have taken it up.  The company has 400,000 financial-data subscribers in all.

Thomson Reuters and Bloomberg are the big fish in the professional-publishing pond, at least eight times larger than their nearest competitor.  Bloomberg, besides expanding its terminals business, which has over 300,000 customers (at about $20,000 a pop), is pushing into government-related news and data.  In 2010 it launched Bloomberg Government, which competes with Congressional Quarterly, a sister company of The Economist.  In September it made its biggest purchase ever, spending $990m on BNA, a legal- and tax-information firm.

So what happened to Mr Glocer’s winning streak?  His allies say his departure was always just a matter of time: once a firm buys another, it completes the takeover by putting its own people in charge.  The Thomson family still owns 55% of the company, and some think the generous price Mr Glocer secured from Thomson for Reuters made him all the more vulnerable.

But he might have stayed longer were it not for a mix of bad luck and overconfidence.  Eikon, intended to replace Reuters’ grab bag of services with a single offering, was designed to be more user-friendly than Bloomberg’s devices, but it was launched hastily and with flaws.  With hindsight, a more gradual upgrade might have been more prudent.  This summer, under pressure from the Thomson family, Mr Glocer fired Devin Wenig, a close ally he had put in charge of creating Eikon, and took it over himself—tying his prospects even more closely to Eikon’s.

Perhaps Mr Smith can do better. He will almost certainly have a freer hand, and some upgrades to Eikon are planned for next year.  But these are still stormy seas.  According to Claudio Aspesi, an analyst at Sanford C. Bernstein, an investment bank, it took most professional-publishing firms three to four years to recover from the 2001 recession.  This time, Bernstein predicts, revenue growth at Thomson Reuters will not reach pre-crash levels until at least 2015.

One area of potential growth, though, is trading services.  Changes in financial regulation in America and Europe will force a lot of trading in derivatives from the murky world of private “over-the-counter” deals onto exchanges, where contracts will be standardised and prices quoted.  This presents both Thomson Reuters and Bloomberg with an opportunity to gather and sell data on these markets and perhaps to capture a share of the trade by linking banks and their clients through their own electronic trading platforms.  The market for these derivatives is gigantic. A competitive edge there could make a big difference to both companies’ fortunes.