Reuters to beat Bloomberg out of global crisis - FT

Thanks to a technological shift, instead of just wholesaling news and data, wire services can in theory also sell it direct to consumers via the internet or mobile applications. But advertising is scarce and such retail schemes, which cannibalise wholesale revenues, have floundered in the past, it said.

A bigger problem is the banking crisis. Peter Grauer, Bloomberg’s chairman, believes the financial services industry will cut its information spending by 20 per cent this year.

“Such shrinkage offers a replay of the slugging match during the dotcom downturn, when Bloomberg got the better of Reuters, its duopolistic financial information rival,” the FT said.

“This time Reuters may fare better. Bloomberg can’t count on the hedge funds it courted in the 2000s to pick up the slack. It is dominant in fixed-income, not the best place to be; Reuters is stronger in forex and commodities. Furthermore, Thomson Reuters’ legal and medical information provide extra ballast. Bloomberg’s largely one-trick business model, renting terminals at $1,590 per month, hinges on body count. Thanks to savings from the merger, Thomson Reuters shares trade at 15 times forecast earnings, a 32 per cent premium to its peers. Bad news can only await such a high wire rating.”

Analysts expect the global financial crisis to have profound consequences for the industry, but what those will be is far from obvious, the FT said.

Lengthy subscriptions mean cuts by customers take time to filter through, and even in the quarter when Lehman Brothers collapsed, transactional revenues rose thanks to volatility in commodity and foreign exchange markets.

“Only now, as first-quarter figures begin to come through, are investors watching anxiously for the early signs of the credit crunch’s impact. Citigroup analysts noted last week that transaction revenues could be down 40 per cent,” the FT said.

There is considerable uncertainty about the extent to which financial companies will retain overlapping, or similar services given the pressure on services. Although at the same time heightened scrutiny on valuations and increased regulatory demands could help support the industry.

Not all are affected equally. Citigroup argued that Thomson Reuters could fare better than Bloomberg because the latter had been more exposed to harder-hit fixed-income and asset-backed securities traders and hedge funds.

One analyst, who would not be named, said Bloomberg was taking an “aggressively proactive” approach to persuading customers to keep their terminals.

The analyst told the FT that Thomson Reuters, which is less dependent on terminal sales than in past downturns, was fighting back ahead of launching its first common platform since the former Thomson Financial and Reuters businesses combined a year ago.

Thomson Reuters’ London-listed shares are now at the same level as last May. Over the same period the FTSE has dropped 35 per cent.

The London shares closed on Monday at 1,705 pence, 0.99 per cent below their 52-week high of 1,722 set nine trading days ago on 14 April. ■