From Olympic Exile on the splendid South Shore of Nova Scotia, I can observe that the banking crisis continues apace, and that the original Swedish solution – put all the smelly bits into a special container called a Bad Bank and cut it free from the Mother Ship – still holds great appeal. I can also see that the  financial market analyst demand to cut media companies up into “high growth, strong margins” companies and “low growth, declining margin” companies also has great appeal. We have seen it with McGraw-Hill and now with News International. The equity market analyst’s view (and media markets are almost always at their most dangerous when those who lead companies feel forced to follow the views of those ultimate exemplars of power without responsibility – or experience) seems to be at the moment that the assets which have responded least well to the digital revolution, or have been slowest to react, should be cordoned off and cut free. Very strange: I thought the whole idea of “portfolio” in media ownership was that assets developed at different speeds, and the fast growth ones thus gave “cover” – time and capital – to allow low growth assets to become fast growth again – perhaps with the help of judicious bolt – on acquisition on the way.

And then there is the question of cycles. Some of us apparently work in mini-cycles – the turn of markets within an 18 month period according to an analyst friend – while others are “macro-cycle minded”, which is where I am apparently involved. So if I thought that the reason for McGrawHill to hold onto its Education division was that education, alongside Healthcare, is the most enduring long term growth market we have, and that the portfolio duty of Standard and Poor’s was to enable McGraw’s education unit to get back on its feet, challenge Pearson’s leadership and buy the right catalytic add-on, then I was clearly wrong. Yet it seems to me clear that the future of  rating agencies is quite as murky, from both a regulatory as well as a digital standpoint, as any other market. And is McGraw’s B2B, despite some distinguished work, really in the forefront of digital services and solutions in its verticals? Yet these are Good Bank assets, and Education is Bad Bank.

I could write the same about News Corp, television and newspapers. I am certain that no broadcast media have really absorbed the meaning of a networked society, and this is as true of the world of TV stations and cable companies as it is true of newspapers. Of course, one way around the problem is to sell while the going is good, as DMGT so signally failed to do in 2008 when they refused an offer of £1 billion for Northcliffe (regional press), an asset worth around £250m today. Sentiment forbade such a move as it once did at News Corp, so are players like DMGT destined to split to please investors? Apart from my respect for the bravery and ability to change involved in creating new B2B orientated DMGT out of old newspaper DMGT. who is to say that here no digital local manifestation can be created which will not replace traditional local newspapers? And how valuable, since they have them, would those local brands and franchises become in the new local? Especially at helping bits of B2B2C in markets like property reach ultimate consumers.

And where does the splitting end? The arguments that apply here apply equally to the Guardian Media Group, and are complicated by the fact that one investment made to give cover for the newspapers, EMAP, has faded faster than the newspapers themselves. Hopefully selling its half share of this and Autotrader will adjust the losses, and digital revenues (now up to £14.7 m and growing by 26% this year) will do the rest. But here we hit another problem: digital businesses may be more profitable, but they are also smaller. Digital newspaper ad revenue (Mail Online now stands at a forecast of £327m, with a target of £45 m in 2013) models are small, as are paywall models (Times Online now reaches £27m pa after a price hike) And the story of digital books is “less revenue, more margin, cannibalising customers to create a slightly smaller, slightly more profitable company”. What happens when we finish that short cycle?

Maybe the answer to the scale problem is that scale is becoming less important anyway. In a digital world if you have 50% of the workflow and solutions business in agriculture, why should you be in the same group as a content provider to the oil industry? Certainly our current ideas of scale came directly from the print world – you needed to be big enough to finance print runs that took, a day, a week or a year to sell. The cash flow model demanded scale. This is not so today, though I can well imagine a world where deploying common (and very expensive) technologies and having sufficient internal know-how to do so becomes a scale argument. Few B2B players “re-platforming” these days can be doing so, at quite a modest scale, at less than $1.5 m, even if their content is already in good XML order. Larger players face bigger bills, and these will be ongoing as we all go semantic web and Big Data. Then again you may need to be big to finance this as well as investing in collaboration with third parties – content-sharing, delivery mechanism-sharing, solution-sharing. And you may need to be big and diversified to fight off the next round of investors in this sector – the enterprize software vendors who will want to add your B2B solutions to their architecture (or maybe you will need to be big enough to attract them: it can be hard to tell).

So settle back for summer and await the next wave of splits rumours. Back to splitting up Informa? EMAP is already, like Gaul, divided into three parts and ready for resale. Pearson should certainly, in the analysts view, sell Penguin and the FT (despite the fact that they are appreciating nicely now, and they will only be needed as a votive offering to the markets when their sale can finance the next big education push/acquisition). Surely Wolters Kluwer should be subject to this one too – financial analysts sought the sale of its education and its academic publishing assets, and, having succeeded, still hunger for the news that Health is being sold away from law and tax.

Or maybe we should say that it is customer markets that change the size and scale of assets, not investment analysts who have a key interest in the outcomes that they recommend. Maybe we would get richer listening to our customers than listening to these back seat drivers?

It has been a month of contrasts. Good solid results at Reed Elsevier have the market analysts demanding the sale of Lexis Legal: the chief break-up irritant at Bernstein can forecast a 20% increase in value as soon as it is done. Reed Elsevier now trades at a discount to last year’s valuation as well as to the wider quoted marketplace. And how does this come about? Simply by representing the company to analysts as a diversified investment portfolio, and then disappointing them with the results, which always prompts a demand for the sale of the weakest bit and the purchase of something stronger.

Meanwhile, over at Thomson Reuters, it has been a dynamic July in terms of forward progress. You can measure that in terms of acquisitions if you like, but to me the key element is the strategic positioning of these purchases and what they do to pursue the goal of market leadership in services and solutions for corporate finance, tax and regulatory, from banking and equity trading, law and tax/accountancy in practitioner terms right across to the desktop of the corporate finance, tax and legal department at the other. If the Thomson Reuters vision works out, it will connect up all of these functions and activities into a series of solutions which will compel big and then medium and small corporates into easier methods of information handling, and methods that get easier the more reliant they become on inter-related services and solutions from Thomson Reuters. This is about integration in the face of user need, about recognizing the primacy of the network, and about bringing one huge company with many specializations into focus on the issues of service and solution. This is not a diverse portfolio of disparate elements: it buys the bits it needs and sells the bits that do not fit, but the definition of acquisition has to do with whether these global aims are satisfied as well as whether the purchase makes financial sense and the required return.

Lets take a few July examples. The headline purchase was the acquisition of FX Alliance for $625 m. Here, then, are Thomson Reuters, a leading player in the sell-side interbank foreign exchange market, one of its traditional strengths, pulling in a major player from the bank-focused currency trading business for corporates, asset managers and hedge funds. Foreign exchange is a huge diversified marketplace, involving some $5 trillions of transactions per day, and this deal gives Thomson Reuters the ability to work in both the internal institutional markets and the corporate-facing external market, using electronic platforms and high speed trading techniques all the while.

By comparison, my next two examples are smaller in scale, but demonstrate other aspects of the process that is going on . Having written extensively about the launch of the Thomson Reuters GRC division – bringing legal and tax into focus with financial services in the areas of Governance, Regulation and Compliance, I want to mark the arrival of “Eikon for Compliance Management” with a special commendation. It seems to me that this now closes a huge loop, and provides a service environment which was never more urgently needed. It is said that there are now 60 new regulatory announcements a day from some 230 regulators and exchanges in financial markets, yet less than a third of traders report having any compliance training or update in the last 3 months. But to join up solutions for your customers you need to start with a joined-up company yourself.

My last example dates back to the experience of some 25 years as an external director on the international side of the Bureau of National Affairs, which has now disappeared into Bloomberg. An issue that intrigued me there, which attracted a great deal of attention and was crying out for a service solution, was Transfer Pricing. Boring? More likely stupifying! Here was an area that always demanded a software-based solution, since most tax lawyers and finance specialists were deeply reluctant to get entrapped in its intricacies, and access to someone who knew what they were talking about was rare and expensive. BNA produced great books on the subject, and so did WK and others. But Thomson Reuters has produced ONESOURCE Transfer Pricing, with an Analyser to get update on the compliance requirement for corporates who trade across borders and a Documenter and Benchmarking solution, ensuring that users have the right forms, and, vitally, ensuring that they are benchmarking against corporations whose solutions have already been accepted by the authorities. Here then is a vital but expensively neglected field of corporate activity, which reflects on much that Thomson Reuters is now about.

The final reflection is upon “platform”. At all levels Thomson Reuters is on a multiplicity of platforms, and while content integration and re-use has led to access being eased and common metadata standards evolved, this still clearly has a good way to go. And there is strength in this multiplicity – no one wants to interrupt the steady absorption of Eikon, now beginning to fulfill expectations, or damage the market primacy of WestlawNext. I expect, however, in the age of data, to see the continuing back-end integration of this very large  player’s systems to be a continuing theme. At the moment its greatest rival is a company, Bloomberg, who is swaddled in the limitations of a Victorian corset – the Terminal. That too will have to go, as Bloomberg limit their own future through an inability to get its new plays in law and government to sell to end users who do not want even a flat-priced, all you can eat deal on a  box originally built for traders. There is a midpoint, and Thomson Reuters’ migration looks like getting them there first.

keep looking »