Can Reuters Recover?
The Venerable Agency Needs A New Strategy for Success
On a busy day, Reuters's 197 bureaus flash thousands of corporate results to bankers and brokers who make up the bulk of its clients. Even if all 2,500 members of its editorial staff had the inclination to sit down and read all the dispatches from ninety-four countries, they probably wouldn't be able to plough through the exotic offerings in languages like Korean and Turkish that reflect the global reach of the world's largest multi-media news agency.
But last February 18, nearly every Reuters employee tensely watched a news story that appeared on computer terminals. It was about their employer, and it was ominous. Reuters announced its first pretax loss since going public in 1984, and said that to stay afloat, 3,000 employees, or 19 percent of the 16,000-member total work force, would be let go, adding to the 2,300 sacked during the previous two years. The world's leading financial news and information provider had hit the nadir of its 152-year history.
The venerable agency, headquartered in a dignified limestone building on London's Fleet Street, is trusted in the world's newsrooms for its reportage, still photography, and television footage. But 90 percent of its revenue stems from financial information provided to investors and bankers on computer terminals. So Reuters felt the fallout when the financial sector's implosion wiped out an estimated 100,000 jobs on Wall Street and in London. Some 18 percent of its contracts for terminals were canceled last year, and its share price sank 70 percent.
The collapse that has made Reuters vulnerable to takeover cannot be blamed solely on a buckled financial sector. At fault was a leadership that missed the threat of hungrier upstarts, competitors who more quickly woke up to the idea of harnessing low-cost Internet technology.
Reuters's business decline has dire implications for its general-news operation, which cannot sustain itself if the financial-data side goes under. Correspondents, so far largely untouched by the mass layoffs, fear they won't remain invulnerable forever. Although the agency's coverage of the Iraq war was widely praised, anxiety reigns. "There's a real feeling of crisis in London," says one desk editor. Reuters journalists worry that the company won't invest enough money to maintain its reputation for accuracy, objectivity, and speed.
Over the past twenty years, Reuters amassed 1,000 products, such as foreign-language data services, using diverse and sometimes incompatible delivery systems. Subscribers defected to Bloomberg and to Canada's Thomson Corporation, which launched simpler and sometimes cheaper systems to transmit information. Bloomberg's terminals are easier to use; Thompson's service costs less. Bloomberg is gaining market share; it saw a 1 percent growth in users in the first three months of this year, versus Reuters's 5 percent drop. Like so many financial analysts scrutinizing Reuters, editorial employees are wondering if the company's first American ceo, Tom Glocer, who took over in July 2001 with no editorial and scant business experience, has the talent to orchestrate a recovery.
Glocer is taking the heat, but he inherited a mess that was in the making for years. Reuters's ascent was as spectacular as its fall, and serves as a cautionary tale of how not to run a company. "They were totally arrogant and complacent," says Barry Simpson, a former media manager, who is writing a book on Reuters. "By the mid-1990s they lost any sense of direction and were making it up as they went along."
The downslide can be traced to 1973, when the company introduced a small black and green screen known prosaically as Monitor. Reuters was then a scruffy but prestigious news agency, with a heavy emphasis on business information going back to the days when it delivered stock prices via carrier pigeons. Monitor provided an electronic marketplace for foreign exchange just as the Bretton-Woods fixed-rate system ended. It became almost overnight a must-have for currency traders and bankers.
Emboldened by a windfall it never expected, Reuters embarked on a breakneck expansion over the next two decades that saw the staff increase from 2,400, mainly journalists, to 19,000, most of them on the financial-technical side. After Reuters went public in 1984, its shares soared, split, soared, split again.
In the 1980s and 1990s, the firm morphed into a global giant on a takeover spree, acquiring photo and television arms and Instinet, the (now money-losing) electronic brokerage, as well as other ventures. All the while, Reuters's executives, many of whom began as journalists, were over their heads running such a growing behemoth.
Peter Job, a former journalist, took over in 1991 and seemed to tack in a different direction, embarking on a risk-averse decade. Reuters resisted bold proposals for strategic purchases that could further its brand. The company rejected a chance to buy Dun and Bradstreet, the providers of international business credit information. It decided against launching a twenty-four-hour business news channel in the early 1990s, leaving the field to CNBC. Job had to be cajoled by American executives into signing a deal for Reuters to sell its material cheaply to CNN in return for getting its brand name on screen. Job balked at a chance in 1994 to give AOL $10 million (plus the money-losing software company Reality Technologies) in exchange for 10 percent of AOL. It was only in 1999 that Reuters began to take the Internet seriously. Bosses played down the threat of Bloomberg, whose terminals sprouted on traders' desks in the mid-1990s. While Bloomberg's service was more expensive and lacked the expertise and global reach of Reuters, its delivery and pricing systems were less complex. Bloomberg understood marketing — displaying its name everywhere, even if it meant handing out the service free at train stations and in newsrooms. Unlike the technicians at Reuters, the ones at Bloomberg responded quickly to breakdowns.
Reuters's management, meanwhile, alienated its own journalists as well as customers. After the company went public, a gulf widened between the general-news and financial sides, with the former complaining of second-class treatment. Job did not hide his disdain for his former colleagues, railing against them in meetings as disloyal and expensive, according to people who were present. All the while, writers were told to churn out ever more stories for an expanding array of services, with little extra compensation.
The feeling that reporters were undervalued reached a head in the mid-1990s, in what some call the Stalinist purges. Several senior journalists were pushed out, ostensibly because they were too costly. Foreign correspondents were brusquely demoted to local status, robbed of their housing allowances and business-class flights. Fearing they, too, would be sacked, more than two dozen seasoned journalists opted out from 1997 to 2001, when Reuters offered attractive retirement packages. Valuable institutional memory vanished.
Many blame the outgoing chairman of the board, Sir Christopher Hogg, for failing to settle the ceo succession issue properly during his seventeen-year reign. If Job couldn't steer the company right during fat times, his successor Glocer, forty-three, is an unlikely candidate to turn it around during the lean. His appointment was not predicated on achievements; although smart and well spoken, he was never in any job long enough during his decade at Reuters to make major mistakes. Glocer and other top executives received £2.2 million in bonuses during 2002, Reuters's worst-performing year. The staff was especially appalled that Glocer's £612,000 bonus was based partly on meeting profit-margin targets — or cutting jobs. They were galled, too, that at a time when even the fruit basket in the London newsroom was deemed too costly, and their savings in Reuters shares had evaporated, Glocer enjoyed an £816,000 salary and £230,000 housing allowance.
Glocer justified his payout on the grounds that it is tough to lead a company during hard times, and that he had spent half of it buying Reuters shares to show confidence. But shareholders voiced disgust during the annual general meeting in April and, following pressure from big investors, Reuters promised to restructure bonuses to greater reflect targets like revenue and pretax profits.
Glocer must now prove to skeptics that his recovery plan will succeed. He vows to discard three-quarters of Reuters's products and some consulting services, among other goals. In June the company announced that Chief Operating Officer Philip Green was resigning, and that his duties would transfer to a management committee headed by Glocer as part of a plan to streamline senior management.
His biggest challenge will be wooing customers back from Bloomberg. Reuters has duplicated some of Bloomberg's more popular offerings, such as instant messaging, although analysts say that move in October came years too late.
Some reporters harbor cautious optimism that editorial will remain protected, given Glocer's recent vow that Reuters will refocus more on its core business of news and data. And indeed, editorial has been largely sheltered in the most recent job cuts. A test of his commitment to news was the coverage of the Iraq war, which by all accounts was spectacular. Stephen Jukes, global head of news, says Glocer didn't flinch when told how much money was needed: "The company put its money where its mouth is with the coverage of Iraq." Reuters hurled more than £2 million and 150 of its best staff members into Iraq and nearby countries. Newspapers around the world liked Reuters's coverage as an antidote to the rah-rah patriotism of much U.S. media reporting. Photographers captured some of the iconic scenes of the war, including a marine cradling an injured Iraqi child. Hits on the Reuters Web site doubled to five million a day.
There's no guarantee that Glocer will continue to allocate resources where needed, or hold onto good staff people. Unions engaged in contract negotiations say the company is playing hardball by trying to reduce benefits.
While Jukes sees a major shift to put editorial at the center again, he is philosophical about what will happen if the business side doesn't rebound: "Of course," he says, "we don't defy gravity."
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