Why I think Reuters won’t buy Breakingviews
Cyrus Sanati confirms that my very own employer “is in preliminary discussions” about buying Breakingviews. Needless to say, I have no first-hand, or even second-hand, knowledge of such matters — nobody tells me anything, and nor should they. But I can say that this smells of desperation on the part of Breaking Views, and I will also confidently predict that the deal is not going to happen.
If I had to guess, I’d say that (a) Breakingviews has had talks with Thomson Reuters in the past, before we set up our own commentary service; that (b) faced with mounting losses Breakingviews called another meeting; and that (c) it then promptly leaked that meeting to the Times, characterizing it as “preliminary talks”, in an attempt to scare up some other buyer.
When I joined Reuters’s commentary group, it was clear to me that we were a Breakingviews killer: we were going to provide better commentary than they do, at the unbeatable price of $0.00. Reuters can afford to do that because journalism is always a loss center here: the profits come from terminal sales, and introducing a commentary service adds value to the terminals and makes them easier to sell. It doesn’t need to be priced separately.
What’s more, Breakingviews never really came to terms with the inherent tension in any subscription-based commentary service: analysis and commentary tends to be valuable and important insofar as it’s influential, and you only get influence when you have a large number of readers. The FT’s Lex column, whose alumni are now running not only Breakingviews but also the WSJ’s Heard on the Street column and the Reuters commentary group, became influential for one main reason: it was read by substantially everybody in the City of London, normally during their commute into work. Similarly, it’s hard to imagine Thomas Friedman having a fraction of his current influence if he didn’t work for the NYT.
After you have a wide readership, it then becomes possible to have some market-moving effect, at least in the short term — which is how the WSJ’s Foster Winans ended up being jailed for insider dealing after leaking the contents of his column to his stockbroker. But that was in the early 1980s, and it’s far from clear that the value of tomorrow’s Heard on the Street column has held up since then.
I fear that the Winans case had much more far-reaching effects than anybody suspected at the time: people started to believe that there was immediate cash value to analytical financial journalism, and such journalism started concentrating increasingly on “actionable” content: advice that Company A is overpaying for Company B, for instance, and that therefore its shares might fall, or that if you look at Company C based on this ratio or that sum-of-the-parts analysis, it turns out to be worth much more than the share price is indicating.
The problem is that this kind of valuation analysis is just a tiny and not particularly interesting subset of what a good commentary service can and should do. If your column is very widely read and therefore influential, then occasionally such a column might move markets — a bunch of smaller investors are liable to read it, find it compelling, and start buying or selling the stocks in question. Similarly stocks move when they’re plugged by Jim Cramer or other guests on CNBC; sometimes they even move when they’re not so plugged. So in today’s media-saturated world, amid the noise of Yahoo forums and CNBC talking heads, it behooves more highbrow media outlets to concentrate on more substantive subjects, especially when we’re in the middle of a crisis and there’s important reporting to be done about massive issues like regulation, economic policy, and the solvency or otherwise of systemically-important financial institutions.
To their credit, Reuters and Heard on the Street and Lex have all been moving in that direction: when the whole world is falling apart, it’s silly to care overmuch about this or that stock going up or down a buck or two. Even Breakingviews has been doing the same thing. But you can’t put a dollar value on big-picture analysis in the same way that you can try to put a dollar value on “actionable intelligence”. And so, especially in a world of unprecedented banking-sector consolidation, it becomes increasingly difficult for Breakingviews to charge premium rates for its content. After all, these questions are being debated on blogs and on op-ed pages and in conferences and at lunches across the world — and that puts Breakingviews in an invidious position. It can’t fully engage with the debate, because it has hidden itself behind a subscription firewall (and has a serious allergy to ever linking to anything). And essentially no one is going to engage with Breakingviews, for much the same reason. The site therefore becomes hermetic, and easy to ignore.
Breakingviews has attempted to address this problem, by syndicating content to major newspapers around the world (the NYT, the Telegraph, Le Monde, El Pais, Handelsblatt). It doesn’t make real money from those syndication agreements — indeed, Rupert Murdoch is now one of Breakingviews’s largest shareholders, because Breakingviews gave Dow Jones an equity stake when the WSJ started running Breakingviews columns. (That practice stopped abruptly when Murdoch took over.) Breakingviews hopes that its newspaper columns give it enough readership that it becomes influential — and that somehow any value it gets from such influence will spill over into the non-syndicated, subscriber-only content which accounts for substantially all of its revenues.
In reality, however, Breakingviews columns only have influence insofar as they’re publicly available — either syndicated in a major newspaper, or else made freely available on the Breakingviews website. And since the company’s subscribers won’t pay good cash for content they can read for free, Breakingviews is in a serious bind. Today is not 1983, when the importance of Foster Winans was related to the fact that he could move stocks the morning that his column came out. Instead, the importance of any columnist (or blogger) is much more directly related to that individual’s influence in and around policy-making circles. You can’t be influential behind a massive subscription firewall; in the age of the hyperlink you can only be influential if you’re available for free. (Every so often there’s an exception to this rule, like Matt Taibbi’s Goldman Sachs article, but look more closely and you’ll discover that the article is influential only insofar as it was circulated for free, in samizdat format.)
The genius of Reuters setting up a commentary team is that we can offer our content at a marginal cost of zero. Once the commentary is available on the wire, for the benefit of subscribers to the terminals, those subscribers want it made available as widely as possible for free — because that way it becomes maximally influential. (That’s my argument, anyway, we’ll see how much traction it gets.) In that sense, commentary is the opposite of news.
Terminal subscribers love it when they have privileged access to a news feed, because it means that they know something which their competitors don’t. That’s the paradigm which built the old “actionable intelligence” business model behind Breakingviews. The new world, by contrast, is built around linking and influence: it’s a world of network effects and positive-sum games, rather than a world of jealously guarding information and trying to prevent other people from accessing it. In that world, the content on a Reuters terminal has value not because it is unavailable elsewhere, but rather because it’s very easily accessible on that terminal, alongside all the other information you might ever want. (It’s worth noting that Bloomberg puts all of its columns online for free, and Bloomberg is no great friend of the web — but it knows that a columnist who isn’t online is a columnist nobody wants to read.)
To Reuters, then, the value of Breakingviews can be broken down into three parts. There’s the value of its contracts; the value of its brand; and the value of its journalists. The contracts are clearly a wasting asset; the brand is associated with an outdated and increasingly quaint business model; and the journalists, insofar as we want them, can be much more easily hired individually and incorporated into the existing commentary group, rather than trying to engineer an awkward merger between two very different teams.
Before the Reuters commentary team was built, there was a case to be made that Reuters should buy Breakingviews and get a fully-formed commentary team with a certain amount of reputation which it could then repurpose to its own ends. The company didn’t go down that route, and — wonderfully — decided to build its own commentary team instead. At that point, any hope within the group of Breakingviews shareholders that it could exit via selling out to Reuters must have died. And I trust that’s what Reuters told Breakingviews at that “preliminary discussion”. If Breakingviews is looking to sell out, they should hope to find a different buyer.