August 15, 2012
As far as its customers are concerned, the value of the agency's services is diminishing
It is 161 years since Paul Julius Reuter, a German-born entrepreneur whose first venture in the news business was sending carrier pigeons across Europe, installed himself in the London Stock Exchange, called himself the Reuter's Telegram Company and started selling the latest market-moving information from around the world to the City's share traders. His company has never since questioned the value of being first with the news. Perhaps until now.
Reuters was the agency that broke the news of President Abraham Lincoln's assassination in 1865, hours before its competition in Europe, as it has never tired of repeating.
Today, 2,800 journalists globally feed information back for sale to the descendants of those Victorian traders, through news and data software on the desktops of bankers and fund managers. Except that the relative value of breaking news is diminishing, Reuters' financial customers are retrenching and, thanks to a string of operational mis-steps since the company was taken over five years ago by Canada's Thomson Group, the historic business is facing an unprecedented identity crisis.
As far as Thomson goes, the £8.7bn acquisition has been a disaster, with the Reuters financial data and news business still dragging down otherwise decent results from the company's other (smaller) units, which sell legal and intellectual property databases and accounting software. The Canadians initially ceded the top jobs to Reuters executives but, since ousting chief executive Tom Glocer last autumn, the controlling Thomson family has finally asserted itself. With shareholders expressing impatience, and the Thomson team in charge, under new boss James Smith, many aspects of the old Reuters are up for review. What happens next?
"There is no question that the Thomson culture and the Thomson business sense is running the group now," says Douglas B Taylor, who has previously worked as a director of product marketing at both Thomson's old financial division and Reuters and who now runs Burton-Taylor International Consulting LLC. "Thomson makes smart, unemotional decisions. If Thomson stays in the news business, it is because it is a smart business decision, not a political or agenda-driven decision. What is relevant to Thomson is the future of the company and the question of how shareholders are going to be satisfied."
Right now, satisfied, they ain't. "I've been covering this stock since 1992 and sentiment has never been as bad as it has over the past year," said Tim Casey, an analyst at BMO Capital Markets in Toronto. "Nobody likes this name."
Thomson shares are bumping along at levels not far from the nadir of the credit crisis, after an annus horribilis in 2011. The company attempted to make a big leap forward last year, promising to shift its customers from a hodge-podge of different software platform from the old Thomson Financial and from Reuters, onto a single, new kind of terminal called Eikon, which promised to put all the latest financial news and data at financiers' fingertips. But the take-up not only failed to live up to the hype, the product was so buggy it actually hurt Reuters' reputation – driving customers further into the arms of arch-rival Bloomberg.
In its 2011 results released this February, Thomson Reuters wrote down the value of the Reuters business by $3bn, but even that line in the sand has been washed away. Less than two weeks ago it warned it would have to jack up spending on customer service to fend off the Bloomberg challenge.
BMO's Mr Casey goes on: "Though quantifying market share is very hard, there is no doubt that Bloomberg has the momentum. The most obvious way you can tell that is by listening to customers bitch about their Reuters terminals. The buy side loves Bloomberg; you would have to pry their Bloomberg terminals out of hedge fund managers' cold, dead hands. That forces the sell side [brokers] on the platform, too, because their customers are on there."
The Thomson Reuters market news and data division – now renamed the Financial & Risk division – is trying to regain its footing at a time when its Wall Street customers are searching for cost cuts to replace money lost because of post-credit crisis regulation and financial turmoil in Europe. The company said this month Eikon is making slow and steady progress, and that it was also working on a new generation of products, too – though Mr Smith added "one lesson we have learned from the past is that we're not going to be trumpeting new products before we know that they're scalable and they're ready to be released on the market".
The news operation is facing questions of its own now it has lost its champion in Mr Glocer who steeped himself in its history and traditions. Stephen Adler, who was appointed editor-in-chief last year, set out his philosophy after two months on the job: "We must be second-to-none in speed, accuracy, relevance, and fairness, but also – and crucially – in enterprise, insight, analysis and originality."
Mr Adler has set Reuters to compete for other consumers of news beyond the confines of the feeds into financiers' desktops, and engaged in what Mr Taylor called a "byline arms race" with Bloomberg, hiring commentators such as Anatole Kaletsky from The Times.
Mr Taylor said: "It is the perennial debate within Reuters, how important is the news operation to the value of the financial data business... Now Twitter and other places on the web serve as a place where events are announced, and you are as likely to hear about an earthquake somewhere else before Reuters or Bloomberg."
Meanwhile, as news is being re-evaluated in the context of the Financial & Risk business, that division is being re-evaluated in the context of the wider Thomson Reuters group.
Mr Casey asks: "Is the financial business going to have more capital allocated to it, or will they take capital out of it? My guess is that it will be a relatively smaller part of the business."
by Stephen Foley
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