Tom Glocer's Blog

Sun Valley 2008

Tom Glocer — Mon, 21 Jul 2008 03:37:00 GMT

What goes on in Sun Valley, stays in Sun Valley. Those are the ground rules and I may be one of the few attendees of this, the best organized and most rewarding business conference, to respect the wishes of our hosts. However, without revealing the "who said what, " I set forth below my very personal views on some of the most urgent issues facing us today, prompted by presentations at this year's conference .

1. Energy. Perhaps the greatest of the interlinking challenges that confront us - part economic, part environmental and and part geopolitical. At an earlier Sun Valley conference, Tom Friedman posited the theorem that the democratic tendencies of any oil producing nation are inversely proportional to the price of oil. Since Tom has repeated this view elsewhere, I will raise the cone of silence sufficiently to agree with him.

While the efforts of the present US government to promote the development of alternative energy have been lacking (some would say totally absent), I am heartened to see the level of venture activity focused on alternative energy. From revisiting the basic technology employed to generate nuclear power (a Gates/Myrvold venture) to novel ways to "grow" petroleum in the lab, the incredible innovative spirit of entrepreneurs around the world is visible in the search to create new alternatives. The only sure thing is that there is no obvious solution today, and that we will be surprised by where it eventually comes from. In this, the future of energy will obey the traditional rules of technology development: We always over-estimate what technology can deliver in the short term and under-estimate what can be done over 10+ years.

2. Israeli-Palestinian Peace. The key to long term stability in the entire region and, in my view, the only way to ultimately support moderate Arab allies in the fight against Jihadist extremism. The failure to achieve the goal that Sadat and Rabin were tantalizingly close to realizing still prevents a lasting security for Israel, Lebanon and their neighbors, and lately has provided the cover for Iran to extend its influence through Syria, Hamas and Hezbollah. The high price of oil only compounds the difficulty of achieving a lasting peace.

3. The US Economy. Beyond the cyclical issues bedeviling the US economy, there are a set of long-term fundamental issues which must be confronted to give our children the chance to enjoy a standard of living at least equal to our own. Most fundamental of all, Americans consume far more international goods than we export to our trading partners. Each day the US trade deficit expands by about $2 billion, which really means that we are signing a $2 billion daily IOU to keep consuming at the level to which we are accustomed. Although the size of the US economy is vast, eventually this sort of deficit spending will bankrupt any household. While US exports have benefited from a cheaper dollar and are expanding nicely, $140 dollar oil imports have undermined this structural readjustment. This is another reason we need to solve the energy issue.

4 . Deleveraging Wall Street. This Olympic year, the Chinese are likely to surpass the US in gold medals. However, the "Dream Team" of Bernanke, Geitner and Paulson deserve great credit for their work to date in avoiding a very hard landing for the global economy. We are by no means out of the woods yet, but the weekend Bear, Stearns was rescued by a joint Fed/JP Morgan bailout, the world came within hours of a very ugly meltdown of the highly interlinked global financial system. The somewhat inevitable support of Fannie Mae and Freddie Mac continues this stewardship. The very tricky maneuver the Dream Team is trying to pull off is to permit Wall Street to massively deleverage while avoiding the twin evils of high inflation and recession.

5 . Trade. There are nasty protectionist winds blowing across what used to be know as the world's trade routes (anyone remember the "trade winds"?). While protectionism always seems to appeal to the local politician and anti-globalization zealot, it is the surest route to world impovrishment. Smith and Ricardo got it right over 200 years ago; what is needed is a social safety net to protect the individual losers in the globalization process, not a luddite ban on international trade itself. See, blog entry: London Chamber of Commerce - International Trade Dinner: Free Trade, The Environment ad Social Welfare (Feb. 2007).

6 . Multilateralism. The US has pursued a unilateralist approach to world affairs over the past seven years (if one ignores the strong-arming of super ally and "lapdog" the United Kingdom which all but cost Tony Blair his position). Our current challenges are too large to "go it alone," and the loudest voices are coming from the over-stretched US military which is valiantly trying to prosecute too many wars at the same time.

7. Healthcare /Social Security. If the explosion of the housing bubble/credit crisis does not get your attention, just wait until the US finally starts grappling with the huge looming cost of the still porous safety net. It cannot be beyond the wit of the nation that put a man on the moon to provide basic healthcare for all its citizens and a secure retirement. It does no good to point fingers at individual beneficiaries of the current insolvent system - a comprehensive restructuring of the way healthcare is delivered and financed is needed.

8. Immigration. Senator McCain was vilified within his own party for suggesting that all was not perfect with current Republican policy towards immigration. We should all celebrate the role of immigrants in building the American dream and be grateful that so many people the world over still seek our shores. Not only do immigrants add to the economic might of the US, but those that choose to return to their countries of origin spread the word that we are not the "Great Satan" we may appear if aerial bombardment is one's first encounter with the US.

This is not an exhaustive list. There are many important issues that I have left off, but I want my next president to address at least these. Perhaps it is my Thomson Reuters commitment to independence and freedom from bias, but I am truly beyond ideology - I just want my next president to be competent.

Classical vs. Jazz

Tom Glocer — Fri, 04 Jul 2008 20:04:00 GMT

Some of the readers of this blog have asked me why I do not write more about business issues that directly affect my work at Thomson Reuters. This is a very fair question, especially since I find the issues raised by the digital content markets we serve among the most interesting business topics of our time.

My answer is two-fold. First, I write for pleasure, not for any particular business purpose. Thus, I write when I have the time (typically on long airplane trips) and when I feel I have something to say (unfortunately less frequently than my time in the air). Much as most of my pleasure reading (science and technology aside) tends to be serious fiction, or as a classical pianist might prefer to play jazz when not at work, I usually prefer to explore areas beyond my work in this blog.

Second, when I do write about the company explicitly such as in the post Intelligent Information Comes of Age, or in one of the presentations I have given in an official capacity (e.g, Trust in the Age of Citizen Journalism), I run the content through Corporate Legal and Comms. While this is good corporate housekeeping, it tends not to add to the spontaneity of the writing, so I keep it to a minimum.

If there are any particular business issues that readers would be interested in, post a reply to this entry and, securities laws permitting, I will try to address them.

Terminal 5 and Celebrating the Good

Tom Glocer — Fri, 04 Jul 2008 19:56:00 GMT

British Airways, which is probably the company I know best as a customer after my various broadband providers, recently went through a period of pretty savage attacks in the UK media for their serious operational problems opening Terminal 5 at Heathrow.

Some of this was deserved, as for several years the answer to all service issues on the ground at Heathrow was a version of, "Don't worry, Terminal 5 will solve everything." Of course, it did not. The problems were also compounded by the decision to make a big bang rather than phased transfer of flight operations to the new terminal.

That said, I have been flying in and out of Terminal 5 now for weeks and the experience is a vast improvement. The terminal itself is architecturally compelling, clearly marked and reasonably efficient. Undoubtedly, BA deserved a measure of drubbing in the local print media for building up expectations for Terminal 5 -- I have been flying long enough to remember pretty ghastly first weeks at new airports from Denver to Hong Kong . However, I can't help feeling that there was a perverse pleasure or schadenfreude enjoyed in stretching BA on the rack for its short-comings, much as the veneer of true sympathy always seemed spread quite thinly when Tim Henman would predictably exit Wimbledon before the Semis.

There are many good things in the UK worthy of praise - it is time to celebrate them.

Strange Loops

Tom Glocer — Sat, 21 Jun 2008 23:04:00 GMT

I have been reading an excellent book, I am a Strange Loop , by Douglas Hofstadter which represents a rare departure for me from the land of good fiction. Hofstadter, who is a Professor of Cognitive Science and Computer Science at Indiana University, achieved fame in the weird circles I frequent for his first major book, Gödel, Escher, Bach in 1999.

The subject of Strange Loop, like much of his scholarship, is the difference between brain and mind, the origin of consciousness, at what point along the continuum of amoeba, mosquito, human embryo, dog, chimp and the adult human being does a "soul" arise?, and perhaps the greatest of all biological, religious and philosophical issues, where does the "I" go when we die?

There has been much written, but little proved empirically on these interesting, existential questions. Unfortunately, much of the public debate in the US over the past seven years has focused on substituting a quasi-religious, political view (stem cell research violates human dignity; "partial-birth" abortions offend God , etc. ). How refreshing then to have a scientist who sticks to his subject matter and comes up with a perfectly sound set of explanations of how consciousness could have arisen in sufficiently complex brains or other computing structures. At root what is required is a symbolic or representational system of sufficient complexity that it can create and build symbols on the backs of prior symbolic building blocks, including the most complex symbol of all - the strange recursive loop we call "I".

This may all sound very esoteric and far fetched, but Dr. Hofstadter writes with a breezy, self-deprecating wit, and his musings on where a person's "I" or "soul" goes when the physical body dies is worth the read alone. As I have been spending far too much time at 38,000 feet (usually within a speeding airplane), I have had the time to read a bit more broadly than the usual .ppt, .doc and .xls..

I generally read fiction for pleasure because I find it a wonderful antidote to the endless stream of corporate-speak memoranda I need to read. I have also always found that fiction and indeed poetry can penetrate more closely to the core of the great issues human beings must grapple with (like why are we put on this earth, why do good poeple die young etc.) than even the most analytically probing non-fiction essay - somewhat akin to Heisenberg's uncertaintly principle that you can not measure both the location and momentum of a given particle..

In any event, it is time to return to the real world . Beam me up Scottie!

Avoiding Politics

Tom Glocer — Mon, 16 Jun 2008 23:33:00 GMT

The well-worn advice that polite guests should avoid politics and religion at the dinner table surely must apply with renewed vigor to the chief executive of an information company which prides itself upon, and is constitutionally bound to maintain, its independence and freedom from bias. The polite and editorially-minded shall not be disappointed in me. However, I must confess that I have found this to be a difficult rule for me to obey during the past seven years. My friends and family know why.

What is fully in keeping with the Reuter Trust Principles is for me to observe that the American political system, with its seemingly endless and moneyed build-up, has now served up a genuine choice for the electorate. Purists will no doubt complain that the two-party system already represents a political bias in that it excludes many along the political spectrum, from the American Communist Party to the American Nazi Party. This is no doubt true, but like many things American, the system focuses on the pragmatic: who can really be elected?

I shall cast a personal and private vote this November, but as flawed as the electoral process surely is, I am grateful that I have a clear choice to make.

Chelsea Flower Show 2008

Tom Glocer — Tue, 20 May 2008 13:52:00 GMT

This year my friend and internet ad pioneer Stephen Klein did not come to the Chelsea Flower Show. This was a shame not only because I like to spend time with Steve, but also because it reduced by 50 percent the number of attendees at the Show's opening night who actually care about flowers. Fortunately, the Queen had a more developed sense of duty.

Last night's event was quite memorable. It was freezing cold as usual for a late May evening in London, but at least it did not rain. The opening night drew the usual mix of bankers, lawyers, FTSE 100 CEOs and Chairmen, to ogle each other while pretending (not too strenuously) to view the flower gardens. From my perspective, it was reassuring to see so many Thomson Reuters clients working the crowd, seemingly unaware that the UK media had declared that the "End is Near."

Many of the gardens on display really are spectacular labors of love. My favorite, which seemed to best capture the zeitgeist of the times, was the Asian themed grass-covered rolling dunes complete with an industrial-sized espresso machine. This surely best combined the gardening and banking cultures at work at Chelsea last night.

Response to Some Recent Blog Comments

Tom Glocer — Sat, 17 May 2008 14:10:00 GMT

This post responds to a couple of comments on prior entries. First, there was a request to comment upon emerging markets in general and Brazil's Vasco da Gama football club in particular; second, another reader pointed out that the Thomson Reuters concept of "intelligent information" requires engagement with people and questioned how we would seek to achieve this.

My opinion of Vasco da Gama Futbol Club is simple: I prefer Corinthians of Sao Paulo to the Rio de Janeiro team. Corinthians have not had much to celebrate lately, but they have been home in the past to such greats as Rivaldo, Edilson, Dida and Socrates. As for emerging markets more generally, see blog entry below, Is it Brazil's Time? from April 2007, in which I express the hope and conviction that Brazil has finally emerged. Progress during the last year, including the appreciation of the Real, the merger of the mighty BMF and Bovespa, the tide of inbound FDI and the attainment of investment grade ratings, confirm these expectations for Brazil. As for other developing markets, I have found them to be rewarding, if at times volatile, markets for investment, but always colorful and personally fulfilling places to explore. This personal interest has been well aligned with a historic Reuters strength, and with what I expect will be a real opportunity for Thomson Reuters.

As for the importance of embracing human beings with the intelligent information that Thomson Reuters provides, I can understand the question given the prominence I have given to machine consumption of data in the Web 3.0 world, but I would not give up on people so fast. First, to make information truly "intelligent" for professionals, it must be created and tagged by people who truly understand what their customers do - as we say in our ads, our "people know what you do because they do what you do." Thus, the Thomson Reuters Legal business employs so many lawyers (not including me!) that it would number among the top 15 law firms in the US. Second, we work with our customers and provide them training to ensure that they get the most out of the products and services that we provide.

I see no conflict or tension between man and machine. I recognize the frustrations of everyday life in having some not as yet very intelligent machines answering customer service queries, and I am sympathetic to individuals whose jobs may have been replaced by technology, but, in general, I think the advent of technology has raised the standard of living of more of the planet than at any prior time in history, and I believe that we are only at the beginning of a very exciting era in which intelligent agents and other forms of computer technology will enrich and prolong our lives.

Intelligent Information Comes of Age

Tom Glocer — Fri, 02 May 2008 20:39:00 GMT

I thought I'd share with the readers of this blog a brief thought-piece I wrote explaining why Thomson Reuters is focused on providing what we call "intelligent information." The subject is a bit closer to my "day" job than I usually like to write about on this blog, but these days my day job is not leaving much time for anything else.

In his 1977 doctorial dissertation called the “Information Economy,” technology visionary Marc Uri Porat defined the information economy as occurring when labor related to the creation, processing and dissemination of information exceeds work related to the other three economic sectors – agriculture, industry and service. Based on that definition, Proat tells us that the information economy arrived in the West in 1967, when 53 percent of labor income in the total workforce was derived from the information sector.

Forty years later, information is at the core of all economic sectors in the developed world, and an increasingly influential element in emerging markets. The amount of information, how we receive and consume it and whether or not we trust it has been radically altered with the advent of the Internet. This revolution has also created a growing global need for “intelligent” information.

What is intelligent information? It is certainly insightful and well written text, but it is also dynamic content delivered in electronic formats. It is self-describing, self-organizing and action-oriented. As we pass from Web 2.0 to the semantic web envisioned for Web 3.0, intelligent information will be its common language.

Intelligent information has never been more valuable. Professionals will pay for just the right information delivered at just the right time and place in their workflow. In fact, people like lawyers, doctors, scientists, accountants and those who power the world’s financial markets will pay to be given less information – but precisely the right information that helps them make better decisions, faster.

Consider this: None of us would pay for tomorrow’s weather forecast because the information has been commoditized; it is universally available. If you are a provider of consumer-grade weather information, you have little option other than to monetize your content via advertising. But imagine that you provide very accurate long-range hurricane forecasts; now businesses such as property and casualty insurers will pay you handsomely for your professional grade information.

With the number of professionals growing, especially in emerging markets like China and India, the global demand for intelligent information is booming. The world, in a sense, is professionalizing and doing so in real time. At the same time, physical industries are transforming into information businesses. We saw this in financial markets as currencies went off the gold standard and began trading electronically. A similar transformation is underway in the pharmaceuticals industry. Once a chemical compound discovery and manufacturing business, it is now all about decoding, analyzing and manipulating the human genome.

As a result, a huge opportunity has emerged for companies that can provide access to intelligent information. The information majors are already establishing their territories.

At Thomson Reuters we are staking our claim to the delivery of the kind of critical intelligent information that professional decision-makers must rely upon to do their jobs.

We will provide this professional-grade information and related applications to businesses and professionals in the financial, legal, tax and accounting, media, scientific and healthcare markets. These markets require huge amounts of information, typically delivered in real-time, which can be consumed by machines as well as human beings.

To meet these demands, the new class of “information majors” will need to be global, highly innovative, experts in each sector they seek to serve, and able to invest in huge databases and sophisticated search and data mining capabilities.

We are building such a company at Thomson Reuters, and based on the people and assets of the companies coming together to form this new information leader, we are already well on our way.

Thomson Reuters Launches!

Tom Glocer — Wed, 23 Apr 2008 22:52:00 GMT

As has probably been evident, I have been pretty busy over the past few weeks, attending to the birth of an extraodinary new company. OKAY, I am partial, and the company is not exactly "new" as Thomson Reuters is the offspring of two proud parents with long corporate histories.

I usually try to avoid talking too much shop, as most corporate blogs bore me to death, and Thomson Reuters operates a perfectly adequate corporate site at www.thomsonreuters.com. However, the planning and launch have been so time-consuming, and I am genuinely so excited about the people, business and prospects of the company, that I can't think of anything else that is even remotely as interesting to write about.

I may have drunk the Kool-Aid, but it sure tastes good.

Work-Life Balance

Tom Glocer — Sun, 30 Mar 2008 04:12:00 GMT

I was not long in the workforce before I started hearing a lot about a certain mythic state of equipoise called the "work-life balance." The core message seemed to be that "work" was something odious to be minimized, because the only worthwhile "living" occurred out of work hours. Indeed, the data certainly support the claim that workers are putting in more hours than at any time since abolition (1865 in the US); however, I am not convinced that this always translates into an unbalanced or incomplete life.

Since the time I started working full-time in 1984, I have not shied away from hard work. However, none of my wife, kids or I believe that I have sacrificed family or personal happiness at the alter of Mammon. Rather than a very sharp, black and white separation between work and life, technology and more flexible work practices are beginning to blur the distinction between work and personal life. Taken to an extreme, the constantly buzzing Blackberry can ruin the family dinner or story-telling time; however, fax machines, laptops, Blackberries, I-Phones and home broadband have made it possible in recent years to blend work and life -- at least for many office workers.

Moreover, to insist on a rigid work-life balance always suggests to me that work is some awful Anglo-Saxon torture visited upon the otherwise "free" soul of Rousseau's natural man. I recognize, of course, that throughout my working life I have been fortunate to work in safe, relatively high-paying white collar jobs that provide intellectual challenge, but my point is that it is precisely in these environments that we hear most about "work-life balance." One need not be a Calvinist to believe that useful work can also contribute to a life well-lived.

There is little new in this. At college (university for those outside the US), my classmates divided quite evenly between those who left dorm room or apartment to go work at the library, and those of us for whom reading Balzac did not seem to be hard labor to be performed only in a salt mine, and who happily stayed at home balancing "work" and "life."

Lest this post appear like a paid advertisement by the Business Roundtable on the rewards of capitalism, I remind you that no businessman has ever declared on his deathbed that his life would have been fulfilled had he only had time for one more conference call.

Video Games and the Allegory of the Cave

Tom Glocer — Sat, 15 Mar 2008 20:50:00 GMT

I continue to learn interesting lessons observing my kids playing with technology and new media. My son Walter, age 8, has suddenly woken up to the joy of sports for young boys. He plays soccer and tennis, skis and swims well, and in general seems quite athletic. This pleases his aging athlete dad no end.

Walter has also taken to watching live sports on TV with me (everything from NFL to X Games), which, among other benefits, means we now have the votes to turn off Sponge Bob in the family room. Walter is also addicted to playing soccer and American football games on his Nintendo.

What is really interesting about this to me is that when Walter "makes" a great play on the video game, he often runs over and wants me to watch a replay. At first, I sort of ignored this with my Digital Immigrant worldview that this was somehow not "real." However, I came to realize that for Walter, the simulated actions of Ronaldinho on his Game Boy were no less "real" than a television replay of a great goal actually scored by the "real" Ronaldinho. This epiphany for me must be obvious to every gaming industry developer.

It reminded me in my usual warped, hyper-linked way of the allegory of the cave from Plato's Republic -- yes, we really did read the classics at Columbia. In his Socratic investigation on the meaning of reality, Plato tells the story of prisoners who were chained since birth in a cave and only permitted to see shadows of puppets projected onto the back of the cave wall. When one prisoner finally emerges from the cave, he does not recognize the "real" figures in the flood of sunlight .

At Reuters, I encouraged our participation in various online worlds, including most famously, Second Life. One of the reasons I thought such experimentation would benefit the company was that the generation of gamers today would expect far more participatory graphics environments when they came of age professionally. So for example, I imagine that the current generation of teenagers reared on World of Warcraft, the Sims and Second Life, would find 2D financial graphics pretty lame. What I overlooked was the wonderful focus group growing up in my own house.

Many thanks Walter - let's look at that Ronaldinho goal one more time.

Think Positively and Good Things Will Follow

Tom Glocer — Tue, 11 Mar 2008 06:48:00 GMT

According to a recent book The Geography of Bliss by former New York Times reporter, Eric Weiner, the British rank among the least happy people on earth. Weiner writes: "In Britain, the happy are few and suspect. For the British, happiness is a transatlantic import. And by transatlantic, they mean American. And by American, they mean silly, infantile drivel."

Now, I will confess that I have sometimes felt a bit self-conscious in Britain about my general state of optimism. I once had a distinguished City banker advise me to stop smiling so much because investors and analysts would find it incongruous with the weak state then of Reuters. However, I have also known some hugely positive, optimistic subjects of the Queen. In Britain, it seems to me that individuals can be quite positive, but there is a social dynamic that compels them to veer to the negative when they form groups. In part, this produces a delightful self-deprecating humor and an absence of the prideful boasting to which my American compatriots have been known to fall prey. However, unchecked, group negativism can undermine performance.

There is now a substantial body of scholarship which supports the seemingly obvious point that people are attracted to high-energy, positive individuals, and that a positive attitude can be demonstrated to improve performance. See Positive Leadership: Strategies for Extraordinary Performance by Kim Cameron. In medicine, the placebo effect is well documented. However, the power of positive suggestion can perhaps be seen at its strongest in sports. Does the coach instruct his promising pole vaulter to envision herself failing to clear the bar as she runs down the approach? When the star athlete is in "the groove" does she imagine that she can never achieve her objective? Of course not. The same principle can be seen in business. So for example, few great salesmen boost their confidence before a key client meeting by reminding themselves that the product they are selling sucks and that no one is likely to be interested in it.

In the British boardroom, a great deal of activity seems to be focused on avoiding the negative. Required standards of corporate governance not only create a strong Chairman to oversee the Chief Executive, but also a Senior Independent Director to oversee the Chairman. Why, I often wonder is there not a need for a Super-SID to oversee the SID, and so on? Similarly, much executive compensation policy seems to focus on avoiding that cardinal sin, a "payment for failure," rather than on providing a large upside to incentivize extraordinarily good performance. Could it be that business is seen as something inherently bad that needs to be constrained?

I will readily admit, that US corporate governance has historically been too permissive of large exit payoffs for non-performing executives and clubby boards dominated by CEOs, but this has been changing in recent years. However, I think that fundamentally, Americans believe that business is a good thing for society, and that notwithstanding its Enrons, Worldcoms and sub-prime crises, it should be encouraged and not unduly restricted by rules seeking to prevent the odd abuse. Much of the debate on Sarbanes-Oxley turns on whether the US has now gone too far in seeking to constrain malfeasance.

So perhaps societies tailor their laws and attitudes to business to suit their national character. An optimistic, "sky's the limit" bravado for the Americans, and a somewhat dour, "avoid the worst" demeanor for the British. This might explain why the US is plagued by so many corporate scandals, but also why it has the most successful venture capital industry. Each culture has much to learn from the other, but it may turn out that the students are not "wired" to learn the lesson.

The Innovator's Legal Dilemma

Tom Glocer — Sat, 23 Feb 2008 23:02:00 GMT

In The Innovator's Dilemma, Clayton Christensen explained why it is so difficult for large, successful companies to innovate and grow new businesses. Professor Christensen's insightful analysis is no longer controversial. We understand why a large computer company like IBM needed to separate and ring-fence its entry into the personal computer market, and conversely, why so few of the great mini-computer makers made it into the PC era.

To this important piece of scholarship, I offer a minor corollary from the media world. I am often asked why all the innovative services in media and entertainment originate in small companies rather than the established titans which have all the resources, including brand. The principal answer to this question remains the classic Innovator's Dilemma. However, I think one additional factor is at work in the content industries: good legal departments.

When you think of innovations in the music industry like the original Napster or KaZaA or the phenomenal rise of YouTube, one understands why it is not Universal Music or NBC which blazes the trail. In the content world, it must be admitted that a fair number of start-ups adopt a legal position that could be best described as "we will worry about copyright infringement when we are successful". Indeed, that is precisely what is going on now as Google is regularizing YouTube's content relationships.

Since I practiced law for many years I offer this defense of my former colleagues: Don't blame the lawyers for once. If a product manager at NBC called upon the formidable GE legal department and presented a business plan that was based on ripping-off copyright until the service was so popular, fearful content owners would no longer complain, he would be laughed out of Fairfield. Big companies with stringent compliance policies and now Sarbanes Oxley controls to attest to are just not going to take these risks. Nor should the junior product manager just not consult the lawyers for fear that he will get the "wrong answer".

We must recognize that there are often legitimate structural reasons why most challenges to the established order come from outside the firm. This is also not a bad thing as it quite naturally serves as a check on the dominance of large organizations -- perhaps far more effectively than antitrust policy.

SIIA Speech -- Should Consumer Media Companies be Publicly Owned?

Tom Glocer — Thu, 31 Jan 2008 17:56:00 GMT

I gave the follwing speech this week at the Software Information Industry Association. I chose to be intentionally provocative setting out an argument that traditional consumer media companies (newspapers, broadcast TV, etc) should not be publicly owned because the public equity markets do not have the patience to support a company through the transition to new digital revenues.

I am glad that it has stoked a good debate, both at the SIIA and beyond. What I failed to say in the speech, not wanting to do any more advertising for Reuters, was that our own consumer media business, being already 100% digital and ad supported, did not have this painful transition to make and therefore could happily remain public.

Here is the speech.

SIIA KEYNOTE

Ladies and gentlemen, it’s a pleasure to be here with you this morning at the crossroads of the software and digital content industries.

When Ed Keating asked me last year whether I would come speak at this event, my first reaction was to do what I’m doing a lot of these days, which is to say that I’m really busy combining Reuters and Thomson, and couldn’t I just take a raincheck until next year. However, I then thought the better of it.

We are building Thomson Reuters to be the leading provider of information and related applications to professionals and businesses around the world. What better forum than the SIIA, an organization dedicated to promoting the interests of these industries, to talk a bit about my new company and the trends affecting our markets.

But I don’t think you invited me here to just deliver an advertisement for Thomson Reuters. So first what I would like to do is to continue a dialog that I’ve been putting forward on the forces shaping our industry and what the media company of the 21^st century might look like. And if I have time later I’ll get to the ad.

At conferences like this one, in panel discussions like those in Davos last week, and in my blog and other media, I’ve been pursuing a conversation – really just thinking out loud, about topics in our industry that interest me.

So, for example, I’ve spoken and written a lot about the personalization of media – our increasing ability to each receive the custom tailored content we want, in the form we want it, anywhere and anytime we want it. I’ve talked about the creation of the “two-way” pipe – busting the monopoly that publishing companies have had on the means of publication and distribution since the era of Gutenberg, and I’ve talked about the importance of social networking and other Web 2.0 technologies in allowing upstart new competitors to disrupt established media giants.

Today what I want to do is move this debate forward, and throw out some new ideas I’ve been mulling-over in the hope that I can provoke an interesting debate among us. I recognize that it’s early on a Wednesday morning and for those of you not on European time like me, I’ll take on the assignment of laying out a strawman for us all then to debate.

It’ll come as no surprise to you I’m sure that, faced with the not inconsiderable challenge of planning the integration of Thomson and Reuters, I’ve been giving a lot of thought to the economics of our industry. While as I will argue later, the economics of professional publishing are sound, I have come to the conclusion that consumer media companies are ill-suited to be widely-held public companies over the long run.

My central point is that the pace of change is so rapid in the consumer space and the investments required to keep pace are so large and the payback periods so long, that it is very difficult to reconcile these attributes with the relatively short-term focus of the public equity markets.

In a recent piece in the FT, Jeff Zucker of NBCU complained that the problem with new media is not that they were not attracting viewers at an impressive rate, but rather that traditional media companies were replacing eyeballs which could be monetized in dollars for newer eyeballs that could only be monetized in pennies.

I think Jeff is absolutely right about this. It is certainly not a problem isolated to NBC which, in fact, has been one of the more progressive traditional media companies. You can see the same trend at play at newspapers which are feeling the pinch of a negative arbitrage between print classifieds and online ads, as well as with everyone’s favorite canary in the coalmine, the music industry, which is having to sell a whole lot of 99 cent downloads to make up for the loss of hard-to-pirate CDs.

Let me give you an example of a company that has bucked this trend – BskyB in the UK. British Sky Broadcasting was the News Corp. unit which pioneered satellite subscription television in the UK and over the last 18 years or so has gone from a weak, money draining endeavor which almost sank all of News Corp., to a hugely profitable $9 billion behemoth that dominates the industry.

The pattern is a familiar one to anyone who has followed the media model from the creation of the first broadcast TV stations, through cable TV and now onto the internet. The start-up costs of these endeavors are huge. The early days are spent building up audience reach, and the platform build-out, content and marketing costs dwarf the early revenues.

Now I don’t think it’s a coincidence that a large number of these media companies are either family owned or controlled through a variety of dual class equity or similar structures. In last year’s acquisition of Dow Jones by News Corp. we can see both sides of the equation at work.

It would have been very difficult for most public companies to justify the multiple that Rupert paid for his favorite newspaper – even the Pearson owned FT, which had the strongest synergy case, couldn’t justify the price. But I think the transaction will ultimately yield value for News Corp. shareholders – or at least for their children.

On the other side of the equation, it is precisely because the Bancroft and other Dow Jones controlling shareholders no longer were unified in their defense and promotion of a long-term objective for Dow Jones that they failed to stay the course to transition the WSJ from print to online. Once their will was broken, the market did its job.

Now I happen to believe that, in general, the pressure of being a publicly listed company exerts a positive force on managers like myself. This has certainly been the case at Reuters and I expect it to be at Thomson Reuters as well. However, as I will argue in a moment, I believe that professional publishers like Thomson Reuters, are more suitable entities to be publicly owned.

The core problem of consumer media companies is a mismatch in time horizons. It works well enough for a start-up which can point to leading indicators of revenue such as subscriber numbers or page views, but it works very poorly for established media companies which find they need to transition in a hurry from the old model to the new. Once this transition is underway there is just no way that the new revenues from, say, online advertising, are going to replace the disappearing old revenues from newsstand sales within any given budget year. As Jeff Zucker says, we’re trying to replace dollars with pennies.

Now, the proponents of efficient capital markets hypothesis among you will say that the problem lies not in the core economics, but in the communication to the market. And I acknowledge that, in theory, shareholders should be able to recognize the long time that is required for new media revenues to grow, and give the company

in transition the benefit of the doubt. Unfortunately, I have the public market CEO scars to cast doubt on this.

What I would like to do now is shift gears a little and explain why I think professional publishing businesses are different and perfectly well suited to public ownership – unless of course you believe that we too will have to go to an all-advertising-supported model in a hurry.

For me, the key distinctions are:

1. That this is must-have information and software to do your job;

2. That your professional reputation and millions in value are at stake;

3. That it is often your employer or even an ultimate third party that pays the bill;

4. That you want just the right amount of information, and not too much information, and you want it in a hurry; and

5. That it is delivered at precisely the moment and in the format that fits your professional workflow.

Let me use Thomson Reuters as an example of some of the differences between the consumer media and professional publishing worlds.

Imagine you’re a lawyer preparing for a big court hearing. Imagine one day 99% of all cases and other precedents you need are available online for free, and imagine you can search for them without the first 10 results being Wiki entries or paid retrievals. Would you risk your professional reputation and fee on your opponent not having the one-in-a-hundred case that blows away your argument? Not if your client was paying the research bill. It would be verging on professional negligence not to use Westlaw or perhaps Lexis.

The mission of Thomson Reuters will be simple – to be the number one provider of information and related applications in each vertical industry where knowledge workers need intelligent information to fulfill their professional obligations and do their jobs. Information that is “intelligent” because it provides insight to humans and, importantly in the Web services world, because it can be processed and used by machines. Information that is easily searchable by its tags or metadata, that is expressed in a logical data model and is distributed via published APIs.

I think everyone is pretty familiar with the concept of machine consumption of data – so, for example, it’s not particularly surprising that a majority of foreign currency trading is now handled electronically. Machines on the sell-side called pricing engines which are programmed to spit out two-sided prices all day, and machines on the buy-side – so-called algorithms – which are programmed to execute against this stream. At Reuters we’ve been providing such systems and data for a long time.

It is more unusual that machines are entering into the production and consumption of news. So at Reuters we’ve just introduced a product called Newscope, which uses computers to “sentiment score” news stories so as to permit clients’ trading algorithms to make buy and sell decisions off stories written by journalists.

I give these examples to explain what we mean by “intelligent information”. Once we open our eyes to a world in which not only human beings are potential consumers of, and purchasers of, our information, but the multiple computers and agents that will assist us in everything from our investment activities through our healthcare choices, the opportunities for professional publishers become enormous. And because this intelligent information is needed to make vital, time-critical decisions, as opposed to only entertaining us, individuals and firms are willing to pay real money for it.

From Day 1, Thomson Reuters will deliver intelligent information in each of the Finance, Media, Legal, Tax & Accounting, Scientific and Healthcare markets. Although finance professionals have traditionally paid the most for mission-critical content and applications, lawyers, accountants, research scientists and healthcare professionals will also pay for services that give them the knowledge to act and make them more competitive.

In addition, we will add extra value by providing the platform that lies across these verticals and by combining (or mashing-up) content from different fields to create powerful new services. So, for example, only Thomson Reuters will be able to satisfy the investment needs of investors in the pharma industry with not only traditional financial data, but also indepth content from Thomson Scientific on (say) the probability of success of a given compound in its Phase III trials. Similarly, we will be able to deliver the latest bankruptcy court developments to the distressed debt trader.

These are only a couple of examples of the synergies we expect when we combine Thomson and Reuters early in the second quarter.

I could not be more excited about the road that lies ahead, and am grateful that I have been given the chance to lead what I believe will be the model of the digital content company of the 21^st century.

OK – so that was my intro. I now would like to open up the discussion to the floor. I have been intentionally provocative to get a real debate going this morning, so please don’t disappoint me.

Davos Part 2 - Keeping Perspective

Tom Glocer — Thu, 31 Jan 2008 08:39:00 GMT

The third party service that hosts my blog has been down for a couple of days, so I am only now posting items from last week's Annual Meeting in Davos. The mood was a bit somber despite sunny weather in the Alps. One commentator observed that the Fat Cats who attend Davos are always in a good mood because they do well in up or down markets, while "normal" people fear for their jobs. There is unfortunately some truth to this, but I think it under-estimates the sincerity of many of the attendees to tackle issues larger than where their next paycheck will come from.

I noted that it was distinctly unfashionable to be optimistic this year, but I think this is attributable in part to the natural tendency of CEOs and other leaders to not want to come off as naive or out of touch. So, for example, everyone remembers the ill-timed proclamation last summer by Chuck Prince, the ex- CEO of Citicorp, that his institution was "still dancing" as the financial services world was about to tumble into the nasty sub-prime crisis.

I think the danger here is that a recession will become a self-fulfilling prophecy. Ever since Bretton Woods and the abandonment of the gold standard, currencies and economies have relied on trust that the little pieces of paper they printed actually stood for value. The mood of a nation often determines how much it will spend, and hence the health of its economy. This is perhaps why there are so many consumer and ceo confidence studies.

What happens at events like Davos is that microphones are thrust in front of business and other leaders, and they are asked their views concerning the health and direction of the economy. I think it is of little surprise that the answer is often quite negative these days. Just consider the rewards. If one is a little too conservative and the economy turns out to be better, no one will complain about the out-performance. On the other hand, if one paints an overly rosy picture (no matter how fact-based at the time), one will be described as being "out of touch" or "not in control" of the business.

Thus, I believe that the payoff matrix is skewed in favor of being overly negative, even if actual signs of a recession have not yet shown up in the figures. My suggested response is to listen carefully to the facts recited, but not to assume everything is as negative as leaders will say publicly at an event like Davos. Value of course lies where the herd fears to roam.