Why I think Reuters won’t buy Breakingviews

By Felix Salmon
July 14, 2009

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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.

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Comments
18 comments so far

i agree with felix

Posted by Matthew Goldstein | Report as abusive

Wow. How idiotic can you possibly get? This is obviously the work of a guy who doesn’t understand why (or that) his employer is getting set to lay out some big bucks to buy a company that does samething he himself was hired to do – probably because they’ve seen how he tried to do it and weren’t very impressed.

How many just loopy comments can you find?
Ïf I had to guess… (b) faced with mounting losses Breakingviews called another meeting”– did you even read the story you are supposedly commenting on? It says they became profitable this year.

“It doesn’t make real money from those syndication agreements”– and you know this, how? I’d bet you are dead wrong about that.

“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.” This is clearly not meant to be serious. Have you seen what is happening to print mass media these days? Does The Boston Globe” ring any bells? Their analysis and commentary isn’t very valuable these days, because it costs more to make than anyone will pay for it.

“It can’t fully engage with the debate”– if this were true, why would anyone pay to subscribe, and why would your own employer be in talks to buy them? If they are as weak as you would like to think, they’d be ignored. Clearly, that’s not what’s happening.

“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.” — if you did, or even could, why then are your bosses, and their bosses, and their bosses in talks to pay real money for the same thing? You didn’t, and now management is afraid they are going to get left behind in the race to develop content on the internet that people will actually pay for, ala…. what? Oh, yeah, Breakingviews.

“The genius of Reuters?” Is that some kind of joke? The genius of Reuters is that it has spent the last two decades losing a dominant market position in a hugely lucrative market and working its way into a position of total irrelevance. It was only saved by Thomson in a “merger” (Any guesses why they don’t call it Reuters-Thomson?

The fact of the matter is that Reuters is a dying beast. In the early 90s it dominated Bloomberg in terms of installed terminals by some incredible ratio of what, 12:1. Since then, it has steadily lost its lead and now I believe lags Bloomberg because it is still offering essentially the same product that it was in 1990. Efforts to develop new products internally have apparently failed, hence the story above.

Posted by skulls | Report as abusive

I’m guessing skulls there works for Breakingviews, but I could be wrong.

He has a point or two, but mostly, he’s just flailing. Also, ranting like that isn’t going to convince anyone of anything. Just saying.

I looked at Breakingviews some time back, maybe a year or so ago, and found one of their (free) columns to be interesting and well-written enough to link to. But when I tried to copy the text, it wouldn’t let me. Plonk! I never bothered to look at it again. I see their headlines from time to time at NYT and elsewhere, but I generally don’t hear anything about them, anywhere, and I’m online swimming in business news pretty much all day every day.

Being behind a firewall when you haven’t really established a reputation may or may not be dumb (clearly SOME people, maybe a lot, seem to like the content enough to pay for it.) But offering free content and then not letting people copy it so they can excerpt it on a blog reveals a particularly clueless brand of cluelessness.

Posted by Biff | Report as abusive

Felix is just upset because he tried to get Breakingviews to hire him once he realized his blogging career was headed down the tubes. And they didn’t.

He made the jump to blogging very early, thinking it would be the next big thing (to his credit, so did everyone else). But once he realized that blogging would never really pan out as a semi-lucrative career, he resented all the snobby chaps at Breakingviews for making a lot more dough than him…by journalism standards, of course.

And the comment by “skulls” may be a bit ranty and uneven, but anyone who has read Breakingviews knows that it wasn’t one of their writers. It doesn’t have enough British-isms.

Still, this should be an interesting war of words. Nothing like watching journalists fight over the scraps of a dying industry.

Posted by Hank | Report as abusive

Felix, sometimes, you just shouldn’t post.
Yes, your experience and position permits unparalleled insight into the business questions here.
Yes, in addition to merely _being_ a blogger,
the economics and philosophy of the “new media” are obviously a deep ongoing interest of yours. In short: we know you have something valuable to say.
Don’t say it. There will be other opportunities. The
taint of self interest and self-congratulation in your article is too offputting to compensate for the positives. I even have to wonder if I’m the audience. Are you (subconciously?) talking in part to Reuters to try to ensure the deal fails, just in-case they are making a mistake and taking this seriously? I’ve read you enough to “know” that’s unlikely, but even bringing the most positive prior bias to the table I couldn’t avoid such thoughts. I doubt I’m unusual. Again: nothing you said here can’t be saved for an occasion where you are at a non-trivial remove from the dealings.

Posted by axg | Report as abusive

This is what blogging/commentary has become: a column with zero reportage and filled with suppositions about a subject that only the writer could care about.

Posted by Christopher | Report as abusive

Ah, yes. The old “I don’t care about this, but I just read it and now I’ll take the time to explain how I and nobody else cares about it” trick. Nicely done.

Posted by Biff | Report as abusive

Thanks Biff. I appreciate the encouragement.

Posted by Christopher | Report as abusive

Unfortunately, despite all the resources being poured into the Reuters commentary, all the writers are just really boring. No way will it be a “Breakingviews killer”

Posted by Dan | Report as abusive

Felix,

I hate to deluge you with comments today but I really have to take exception to this post.

One of the big problems with the financial blogosphere is that a huge part of the conversation takes place at 40,000 feet. Have you ever talked with an investor as a client?? Trust me, no one cares about inner details of financial regulations. No one! Mention M3 or whatever and you’ll put people to sleep. I care and you care, but please bear in mind how inside the bubble we are. This is heads on a needle stuff.

Investors care if stock XYZ in their portfolio is going to go up or down. That’s it. You rarely hear that sort of commentary in the financial blogoshere except with a few high profile names. I, heroically, try to be one source—and I’m the only blogger I of who posts his recommendations to be seen 24 hours a day. That’s far more important to individual investors.

Just take one example. Anyone who’s read my blog knows I’ve been pounding the tables for Nicholas Financial. It’s not a secret at all. I’ve been totally open about it and I own it. The stock is up 120% this year. Yay, I got one right. But here’s the deal: People who have experienced that gain don’t care at all about the Dow 30. They don’t care about Bernanke’s beard. It means nothing to them. When it comes to the concerns of real investors, the most you get out of most mainstream financial bloggers is some tired discussion of EMT. No real person investor cares. I can’t tell you how often I’m asked about basic stuff like how often are dividends paid or does a stock split mean I lose money.

You said that bloggers tend to offer value to the extent they’re influential. No! Dear Lord No! They’re valuable to the extent that they’re good. Period. There’s way too much information and way too little news. The people who get that will thrive. Outside of some short-term bumps, influence has nothing to do with it. Personally, I’d prefer not to be influential. Broader society is heavily biased against stock advisors, so I don’t want to deal with it. Hey, I hope bloggers and Wall Street continue to ignore Nicholas Financial.

The difference is that actionable-type blogs can be held accountable in a way others can’t. Your former boss, Dr Roubini, has said lots of things that didn’t pan out (among many more that did), but he won’t be criticized for his mistakes because he’s a big picture guy. Me? I gotta be right all the time because it’s about the little stuff with hard time deadlines.

You wanna test this? Ask smart well-informed finance people who were some Fed chairs before Volcker, then ask them about the worst stock they ever bought. QED. If anything, the market for actionable advice will grow as more investors abandon full-service firms and head to discounters. This is where bloggers should be.

An amazing rant by someone as has pointed out does seem to be from a very jealous and “failed” Journalist.

I have read breakingviews for over 3 years and do have access to Reuters and have looked at their so called attempt at trying to copy Breakingviews but hardly ever read it now as the quality does not even come close. Maybe this is the reason why they are looking to but Breakingviews after failing to build a team of quality they have to buy the quality and if Felix’s comment above is anything to go by I can now see why TR have to buy in the Journalistic talent.

If you did take a look at the website it is a subscription service as people are willing to pay for it and if you did take a close look at the testimonials on their home page you can see the quality of the readership.

If Breakingviews is taken over by TR – I hope the quality of the fine Journalism does not change and if ever I open my Breakingviews email and see a story by Felix I for one along will be cancelling my teams subscription.

Posted by Roberta | Report as abusive

You’ve done it now, Felix. I’m immediately demanding that Reuters add a “write longer stories” clause to my contract.

On a more germane note, whatever you think of the validity of Felix’s arguments, it’s good to see it in this format, where other people can trash them, augment them, respond to them, add their own information, thoughts and such. News flash: blogs good!

PS – Can’t we all just get along?

Posted by Robert MacMillan | Report as abusive

check out Mr Glocer’s reader list:
http://tomglocer.com/about/default.aspx

if the price is right, why not?

Posted by fxtrader | Report as abusive

Echoing Robert MacMillan, the key point that Felix makes is that the platform and the audience does matter.
This type of online conversation couldn’t occur on Breakingviews (in their present form) because it’s not an open site and they can reach only a small audience.

For those (anonymous) posters who simply say these are the gripes of a writer who feels threatened, I’d encourage you to read Felix’s past posts at Portfolio; blogonomics is not a subject that he’s just picked up on. Whether you agree or disagree with his beliefs, he has been consistent in voicing them.

After the Spitzer settlement, numerous independent investment research shops opened their doors, yet few have figured out how to become profitable, sharing commentary with only a small set of users.
Breakingviews puts out a quality product, but it’s not a scalable business as presently constituted. It’s likely that T-R or another company will acquire them, perhaps changing the business model or possibly using a freemium approach (beyond what they’ve done with syndication so far). But I think this debate in the comments validates the benefits of open publishing platforms like this one.

This article was so long, and so were the comments, that I sometimes wonders who actually has time to read all this.

Posted by Jimbo | Report as abusive

Whether or not you agree with Felix, the fact that this discussion is taking place in this forum is remarkable in itself. Kudos to Reuters for allowing Felix to operate unfettered. This is a far cry from the hermitically sealed one-way financial newswire traffic of old.

As someone who experimented some years ago with adding commentary to a newswire (full disclosure – Felix was involved in this with me and others at BridgeNews) I can vouch for the challenge of making it work well. People have been willing to pay, sometimes handsomely, for “premium” commentary from a third-party source, but not for similar content when it comes from a newswire company, no matter how good. It seemed that “premium” content was valued because it was expensive.

That may be changing and the existence of blogs provides new opportunities for experimentation. One key change is the increasing importance of the personal perspective that blogs allow. For example, I’d guess that many of people reading Felix’s blog on Reuters followed him there from Portfolio as a result of the personal reputation he built and are interested in what Felix has to say, not necessarily in what Reuters blogs and commentary offer in general. Other Reuters blogs may have their own ardent followers, the point being that they are being followed for their individual insight. Reuters is smart to recognize this and give them free rein.

The growth of free, insightful financial blogs like this one only makes life more difficult for premium commentary providers such as breakingviews.

Angus Robertson,

I followed a link from Free Exchange’s Link Exchange because “Felix Salmon always has very interesting things to say about the economics of media.”

Do you know if Advanced Publications is going to relaunch Portfolio.com sometime in the near future?

http://www.portfolio.com/views/blogs/dai ly-brief/2009/05/20/acbj-to-relaunch-por tfoliocom

“…the consumer is now part of the communication, and that social media could be used to develop metrics based on information and opinions that people volunteer…“When social media works is when a brand can join a conversation and add something to it, and provide utility to the user base.”… “The savvy marketer … can maintain their customer loyalty through a conversation… They want value from understanding more, they want to understand the brand, they want to communicate more.” He cautioned, however, that once a brand begins this kind of conversation, it has to be prepared to stay the course and continue it…” http://www.thearf.org/assets/am-09-inma- report

Posted by ac | Report as abusive
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