February 1, 2012

Forbes

Market Data Sales Drop In Market Slowdown

The downturn in financial markets has hit the revenues of market data providers including Bloomberg, FactSet and Thomson Reuters.  FactSet reported the number of users declined by 1,200 to 46,900 in the quarter ending November 1.  The New York Times reported that Bloomberg lost 600 subscriptions — worth approximately $1 million a month — just when MF Global went bust.  Thomson Reuters has been in turmoil with some of the top Reuters execs losing their jobs in 2011.

Firms with 16 or 17 Bloomberg terminals might decide only 6 or 7 key people need them, said Mark Coriaty, director of strategic partnerships at Eze Castle Integration, a Boston-based firm which provides a full range of trading and accounting infrastructure for buy-side firms.  Market data is now available from many sources at high quality and lower price than a few years ago, he added.  Consulting firms have sprung up to offer an evaluation of how market data terminals are used and inform firms where less expensive alternatives are available from other vendors.

“A lot of firms have used the same technologies for years and aren’t aware of what else is out there, or the price point,” he added.

Algorithmic trading doesn’t require a terminal, noted Adam Honoré, research director of the institutional securities practice at Aite Group.

“Terminals are not where people are at any more, except for fixed income.”  He doesn’t expect the reduction in terminals to come immediately, though, because firms are pokey at monitoring their infrastructure.

Coriaty said that in the past an analyst might ask for FactSet and someone would sign a contract and then forget about it.

“Then five years later they realize they’ve spent $300,000 on FactSet.”  Now firms have put controls in place to monitor the applications and market data expenditures.  “2008 made everyone think differently.”

If current trends continue with banks cutting staff and spending, 2012 is shaping up to be a tough year in finance.  Gillian Tett at the Financial Times wrote recently that 60,000 jobs were cut in the sector last year and no doubt at least a few of them had market data terminals on their desks.

Firms are cutting back, said Douglas B Taylor of Burton-Taylor International Consulting LLC, which follows the companies that feed traders their data and news.  Its annual survey, out in January, shows growth of 4 percent.  But since 2.5 percent of that is price increases, the growth was in the 1-2 percent range, positive but not spectacular in a $24.5 billion global market, Taylor said.

Thomson Reuters leads with about $7.6 billion and Bloomberg is next with about $7.3 billion. The two are the market leaders by far with about two-thirds of the total market for financial information.  (Burton-Taylor strips out earnings from analytical tools, indices, fees from ratings and other non-information assets when it compiles its rankings. Thomson Reuters just completed the sale of its Kondor-branded risk business to Vista Equity Partners.)

Thomson Reuters has had a rough couple of years with a major upgrade to its market data platform late and underperforming.  It launched a package for hedge funds in June, competing with Bloomberg’s HBOX which launched in January.  Both the head of its markets division and the company’s CEO left last year.  The CEO, Tom Glocer, was replaced by a Thomson man, James Smith.

Thomson bought Reuters in 2008 at a 40 percent premium and has seen the company’s value drop by $5 billion in 2011 alone. Goldman Sachs last week placed a Sell recommendation on the stock from analyst Brian Karimzad, the Globe and Mail in Toronto reported.

The merger had its economic rationale, said Taylor, who worked at both companies.  Thomson was strong on the buy-side and weak on the sell-side, the mirror image of Reuters.

“The assets of the two are dramatically stronger than either one was separately but to benefit they needed to put the assets together and deliver them in a single product.”

But over the last year Thomson Reuters flubbed its key new product launch, Eikon.

It came out 8 months later than scheduled and probably over budget at somewhere in the neighborhood of $1 billion, estimate Reuters watchers.  (Reuters said it was on or under budget)  Although it was supposed to be much better than Bloomberg, it had bugs and generally underwhelmed prospects.  It was launched in a very expensive extravaganza in London and then failed to live up to expectations.  By year’s end 15,000 were in operation and several tens of thousands more had been sold; implementation can take days to months, depending on the customer.  The company says its sales since the Version 2 release in December are strong.
 Devin Wenig, head of the markets division which produces the data feeds, trader desktop and news, left in July for eBay and his responsibilities were added to CEO Glocer.  Glocer was gone by the end of December.

Old Reuters hands tended to be journalists or have a strong respect for the business and never regarded Thomson financial as strong competition, said one alumni.

“Thomson Financial on the buy-side had good product, everything else was just rubbish.  But somewhere in the mid 90s, he added, Reuters began paying less attention to editorial content.

“The company started hiring people who were not very good, and they in turn hired people who were even worse.”

Now Thomson people are in control and the merger was clearly an acquisition.

Meanwhile, as Thomson Reuters struggled, Bloomberg continued to have a high regard for content.

“Bloomberg is losing less (in number of terminals) than the other vendors, and they are keeping an eye on the market; they are working with the financial markets to give people what they want and they are introducing new good products,” said another analyst.

Thomson Reuters is in a competitive market, added Taylor, who said that Bloomberg expected a great year.

“Their order management system and other non-terminal businesses aren’t growing as strongly as they could have liked, but they are still taking business from Thomson Reuters; the whole market is a beneficiary from Thomson Reuters, especially FactSet and Bloomberg.  Whatever new business is out there, Reuters isn’t winning as many of the bake-offs as they used to.”

This week Bloomberg opened its market data interfaces for use by technology professionals globally with plans to make it an open standard.  Now in addition to Bloomberg Professional service subscribers, non-Bloomberg customers, vendors and software developers can use the interface, BLPAPI as an alternative to proprietary technologies for market data distribution.

“It’s a great idea,” said Aite Group’s Honoré.  “Companies which are using feed handlers could code to the Bloomberg API.  And who doesn’t use Bloomberg?  You can write your own feed handler.  There are people who buy feed handlers to access Bloomberg and consolidate it with someone else — this take that whole market away.”

This is part of the commoditization of market data, he added.

“You will see market forces driving change.  As technology becomes available to support more open infrastructure and companies look to outsource more because their infrastructure is too expensive to maintain, market pressure will drive change.  Bloomberg is responding to this very well.”

Taylor at Burton-Taylor International Consulting, said the months ahead for financial information providers could be tough.

“Companies are starting to see some pain.  The first half was bad enough but people were managing their business and seemed steady, but for the last 2-3 months it had gotten to be really painful.  It takes a year for pain to hit because they have one- or two-year contracts, so their revenue won’t stop until next year.”  Also, firms have room to cut back.  In the good years, many will have two or more systems — a Thomson Reuters and a Bloomberg. In tough times they cut back.”

Being a supplier to the finance industry today is not a good spot, said another former Reuters employee.  Some big enterprise deals that Reuters signed for or five years ago will be coming up for renewal and he expects customers will look for ways to cut their bills substantially.

Smith, Thomson Reuters’ new CEO, apparently also expects tough times ahead. In an address to the company’s 55,000 employes last Thursday he said that 2012 will be another challenging year.

“Market conditions remain uncertain in many places and quite difficult in others.  The lagging nature of our subscription-based business model means that it takes time to turn the ship, especially in choppy seas.”

Anthony De Rosa, the Reuters social media editor who came from Bristol Myers Squibb of all places, extolls the Reuters.com website as the best news site in the world.  His post appeared on The Baron, a site for Reuters people which carries lots of lively and often critical commentary about the company.

“We’ve got things like Counterparties, created by Ryan McCarthy and Felix Salmon ,that does a great job at bringing news from around the web to our readers.”

But then he laid out a stark view of the future:  “Our direct competitors are two guys in a basement somewhere are already developing tools to be the next generation newsroom. If we’re not busy doing the same thing, we’re dead.”
by Tom Groenfeldt, Contributor