In his keynote to the SIIA conference, Reuters (NSDQ: RTRSY) CEO Tom Glocer promised he wasn’t just there to deliver a commercial for the planned merger with Thomson (NYSE: TOC). Instead, he touted the planned company indirectly, making the provocative argument that consumer media companies are ill-suited to the public market, but that professional media firms won’t face the same issues. (Glocer repeatedly referred to Thomson-Reuters as though it is a done deal but the merger is still awaiting U.S. and EU regulatory approval.)
– Consumer media: After thinking about industry trends, Glocer says he’s “come to the conclusion that consumer media companies are ill-suited to be public companies over the long term.” Reasons: pace of change is rapid, investments in new platforms are sky-high and payback periods are extremely long. Example: BSkyB (NYSE: BSY), which has gone from a money loser to a behemoth: “The early days are spent building up audience reach and the platform build-out costs dwarf the early revenues.” The companies facing the same issue now include newspapers, which are undergoing a “negative arbitrage,” subbing online classifieds for print classifieds. He also mentioned NBCU CEO Jeff Zucker’s recent comments about subbing dollars for pennies. The core problem of consumer companies is the time-horizon mismatch. Later on, ex-WSJ publisher Gordon Crovitz asked from the audience: “How long is it going to be in this new world, before there is a new normal?” Not surprisingly, Glocer wouldn’t commit to a specific number of years, except that it would take a lot of patience. He joked that it’s not easy for managers of public companies to tell investors that things would be rough for a long time, but that everything will be okay, because they “have a vision.”
– Family control: Given this mismatch, it’s not surprising that many media companies have been family controlled, even if they’re public. “It would have been really difficult for most public companies to justify the multiple that Rupert paid to his favorite newspaper… But I think the transaction will ultimately yield value for News Corp (NYSE: NWS). shareholders, or at least their children.”
– Professional media: Glocer laid out reasons why professional media, like Thomson-Reuters, isn’t in the same position. Advantages: The information is more vital to doing business, as it fits into a professional work flow. Furthermore, third parties often pay the bill. “It would be verging on professional negligence not to use Westlaw… or maybe Lexis.” He then got into his direct pitch, explaining the strategic synergies of Thomson-Reuters: distressed bond traders can quickly get information from bankruptcy courts via Thomson’s legal databases. Pharmaceutical company traders can get drug information directly from Thomson scientific. Also, because Thomson-Reuters will continue to put an emphasis on machine-readable news, investors can plug news directly into their trading schemes (cites Reuters’ NewsScope service)
– Priorities: “Enormous value that can get created just from the integration of Reuters and Thomson Financial… those two business are so complementary.” Glocer sees synergies on costs and greater revenue. The next most important priority is the internationalization of the companies. The third priority is in extension of key platforms, such as professional search, across multiple verticals.