ARTICLES
Can
Reuters Recover?
The
Venerable Agency Needs A New Strategy for Success
By
Judith Matloff
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.”
