Chrystia Freeland, US managing editor, interviewed Peter Grauer, chairman of Bloomberg. They discussed Bloomberg’s recent acquisition of Business Week, the changing media landscape and the future of for-profit journalism. This is a transcript of that interview.
Part 1: On Business Week and Bloomberg’s news ambitions
FT: Thank you for joining us, Mr. Grauer.
PG: You’re welcome. Thank you for having me.
FT: Your colleague, Andy Lack, has recently been quoted as saying that Bloomberg aspires to be the world’s most influential news organization. Is that a fair summary of your ambition?
PG: That is a fair summary of our ambition. I think it’s really multi-staged. I think the first stage is –
FT: So you’re not there already?
PG: We’re not there already, but we’re going to continue to work hard as we do every day to achieve that objective. The first stage, Chrystia, is really to become the most influential source of news for the financial and business community, and I think once we’ve accomplished that, then obviously we’ll aspire to even greater heights. I think that we are quite a long ways along that path to ultimately achieve that vision. I think it’s to the insight of Mike Bloomberg and to Matt Winkler when Bloomberg News was started 20 years ago, who would have thought that the wire services and digital delivery of news would be the wave of the future. But we’ve certainly capitalized on that and continue to capitalize on it and have built around that to try and augment our ability to get to this goal.
As you know, we just yesterday closed the acquisition of Business Week, which is very exciting for us, adds a new dimension to our news capabilities and really complements the wire line service, which is real time, our web capability, which is slightly delayed. Business Week will basically give us a weekly delivery to an entire new audience and then we have Bloomberg Markets magazine, which is a monthly publication that goes primarily to financial publications. All of this, when you also combine that with the capabilities that we have in Bloomberg television and in our web businesses, I hope will fuel us to get to that ultimate goal.
FT: And how does Business Week and this push into the consumer space more generally fit with the rest of your business?
PG: Well, everything that we do at Bloomberg is really around the core of our Bloomberg Professional Service, the Bloomberg terminal, which is what has been the driver of our business since day one, 28 years ago. And what we think Business Week specifically does for us is that we really – there is a gap in the audiences that we deliver our content to.
As you undoubtedly know, most of our users are financial professionals in over 140 countries around the world that use the Bloomberg Terminal every day as their primary source of information, news, data and analytics. But it’s a relatively small community. We have today about 340,000 users. What Business Week does for us is it basically opens up an entire suite of executives and business people, government leaders around the world that we heretofore have really not accessed in the kind of depth and penetration that we want to.
FT: Do you think we’re starting to see a sort of last man left standing phenomenon in the media space where many companies are very weakened. Some of them are shutting down, but the ones who remain are getting better access, are becoming stronger.
PG: Well, you know, the law of creative destruction I think works the same in media as it does in many other industries and I think we’re in the midst of seeing that now.
I tend to be an optimist about these things. I think maybe we’re hitting the bottom. I think what News Corp has done with Google is a very strong message that people are going to start to charge for their content.
FT: So you believe in the for-profit future of journalism. You’re not a believer in this sort of endowment or state supported future of journalism?
PG: I’m a capitalist at heart and I think that the strong will survive and prosper. I think we’ve seen that a little bit in what’s happened in the financial markets and the financial services industry over the last now almost 26 months where there are winners and losers that come out of that cycle as there will be winners and loser that come out of this cycle in terms of journalism.
FT: And what’s your view on the tough position that Rupert Murdoch has been taking vis-à-vis Google? Is now time for the content creators to fight back?
PG: I think that we all, whether it’s News Corp and its magazines, whether it’s Bloomberg, whether it’s Time Inc. or whomever it may be that produces content on a daily basis, we obviously endure substantial overhead to do that. We’re in this to try and make a profit for our shareholders and stakeholders and I think the time is right for someone to put a stake in the ground and say, “Yes, we should come up with a different model and we should get paid fair compensation for the content that we deliver.”
And so I think what he’s doing is a very good thing and it will cause others to reassess their position and I hope come in and support him so that there is a stronger groundswell going forward and it would appear, based on the little bit that I’ve read, that Google is being somewhat responsive to that.
FT: One reason I think the Business Week acquisition has been so interesting is that it marks a change from Bloomberg’s historic strategy of focusing on organic growth. Are we going to see some more big name acquisitions?
PG: Well, we have, you are absolutely right, over our history our growth has been solely driven by organic growth going forward. We have historically looked at acquisition opportunities. We did a small acquisition in 2005, a company called Brain Power in Switzerland, which provided us not only with search technology, but some portfolio analytic capabilities we didn’t have on the terminal that we were going to develop, but it gave us an opportunity to jump start that development curve by about two years.
When I hired Dan Doctoroff almost two years ago to come in as my partner and our president and one of the things that we did in 2008 as you may know is we did something called – we did the largest reorganization in the company’s history. And as part of that reorganization, we identified that we should be more open minded in looking at acquisition opportunities going forward, but they have to fit strategically. They have to fit operationally and they certainly have to fit culturally. You’ve had an opportunity to walk around a little bit.
This is kind of a different place and we are very, very proud of the culture that Mike started in 1981 and built until his departure in 2001 and we’ve been lucky enough to carry on going forward. And so, those three criteria are critical for us going forward. They also have to be compelling in the nature of the acquisition and so it’s got to be something that gets us to a destination quicker than we would get to before and Business Week we think does that. And so I think it’s safe to say that we will continue to look at acquisitions.
FT: In the current media landscape, is it an advantage for you to be essentially funded by content sales rather than advertising? Is that going to be the stronger model that emerges?
PG: We are, I think, blessed with a model where we have a monthly subscription and a two-year contract that our customers pay us. Our customers tend to stay with us for a very, very long period of time and that model has now proven over a 28 year timeframe since the company was started by Mike in October of 1981, that not only is it a viable model, but it gives us the wherewithal to continue to invest very aggressively in our businesses going forward. And so I am a very strong believer that we are blessed with a subscription-based model that is unrivaled by virtually any other competitor that we have in the marketplace.
Part II: On Bloomberg’s sales, new products and culture
FT: You’ve been working on services for lawyers, for real estate agents. Is your goal to get them to buy the full Bloomberg Terminal, or will you offer them some sort of Bloomberg Light?
PG: The – what we are good at is taking very large amounts of difficult data and converting that data through the application of technology, analytics and news over our delivery platform and getting that information to our customers around the world and what we’re doing basically with Bloomberg Law and what we’re looking at in the real estate field, although we’re still in the very early stages of the real estate field is we’re looking at ways to again use those core competencies in a new segment in adjacency to our existing markets to try and help us drive revenue growth going forward. In the case of Bloomberg Law, what we have developed is a web-based product. It’s the first web-based product. We now have many, many free pilot trials out in the marketplace, particularly in New York because it is basically focused on New York law and securities law and so there’s a relatively tightly defined community that we’re trying to service with that.
And ultimately, when we are successful, and I’m confident that we will be successful with it, it will be a charging model based on those services, and there is a very modest amount of Bloomberg information, primarily some news and some company information. It is focused primarily on the legal profession. We don’t look at it as a Bloomberg Light Terminal. We have no interest in producing a Bloomberg Light Terminal. We still think there is plenty of growth opportunity in our core business with the Bloomberg Professional Service.
In the real estate community, it is, as you know, a very large asset class around the world, particularly in New York, in the city of New York, and we think it’s an underserved asset class. And again, we think we can bring our core competencies to bear to not only provide customers with better service than they have today, but also with another adjacency revenue opportunity for us to help us ultimately continue to grow our revenues at a faster growth rate than the markets and than our competitors.
FT: And would that also be web-based?
FT: The number of installed terminals is going to fall this year for the first time. Is that right?
FT: Are you worried about that. Is that possibly a sign that these expansion plans that we’ve been talking about also contain a risk that you’ll take your eye off what has been such a powerful central principle, which is the focus on the terminal.
PG: No. Number one, Chrystia, you raise a very, very good question and a good point, but there are several phenomenon that exist at Bloomberg. One is I say this about our colleagues. We have 10,600 people that work with us around the world and that is the people that come into work here every day don’t think they’re as good as they are and that there is a healthy component of what I call constructive anxiety that exists at Bloomberg. What that basically means is we are always focused on looking around and making sure we understand what’s changing competitively and what we need to do differently.
We continue, although we are a large player in the delivery of financial information around the world, there continues to be a huge amount of growth opportunity for us. As I mentioned earlier, we’re in the final stages of completing our 2009 strategic planning cycle. We looked at some 70 new investment opportunities going forward and are in the final stages of concluding which of those we will fund and there will be a considerable amount of them. We have never had more opportunity available to us as a company than we have today.
FT: You’ve talked about the ambition to be the world’s most influential news organization. How is Bloomberg doing outside the United States and does being based, founded in the US make it difficult for you to expand outside?
PG: Yeah. Well, just to give you an idea, we have 57 percent of our revenues are outside of North America today, just to give you an idea from a geographic concentration point of view. The Americas represent 41 percent of our revenue stream. Europe represents 39 percent. Asia represents 17 percent and the Middle East, North Africa and south Asia represent about 2 percent. Those numbers should add to 100. We are totally global in scope. It just so happens that we are a company that was started, build and headquartered in New York City, but about 43 percent of the people who work for us work for us outside of the United States.
As you can imagine, reflecting the concentration of our business, we have more people in Europe than we have in Asia at this stage, but we also have people in the Middle East and we have people – we have ten separate regional hubs around the world that kind of drive our business around these 142 offices and 72 or 73 countries. So we are global in scope, number one. Number two, we have very specific business plans for a number of both developed and emerging markets around the world.
For example, we continue to believe that Japan will for at least the foreseeable future be the most important part of Asia and so we recently completed a five year Japan plan. We’ve done the same thing for India and China and Russia, for the Middle East and Brazil. In our planning cycle for 2010, we’re looking at a number of other next generation of emerging markets around the world, all of those markets were basically in today, but we see growth in capital markets. We see the need for our services, both news, data and analytics in those markets and we’re going to continue to try and do the best job we can to take advantage of those growth opportunities.
FT: Shareholders and boards of directors can be kind of tough on management in publicly listed companies today, as we’ve seen recently with GM and with Reed Elsevier. How does being privately held affect Bloomberg?
PG: Well, it – I think it is certainly one of our most important competitive advantages. While some of the companies that you just describe and our competitors who are public worry about quarter to quarter earnings performance, their CEOs spend an inordinate amount of time with the institutional investment community and the research community. They have the pressure of watching their stock price every single day. We don’t have that and what we do have is an unrelenting focus on building our business over the longer term.
We are in a position where we can make long-term decisions today. I’ll give you a perfect example. When we all went through September of 2008 and the last quarter of 2008, we were in the midst of our planning cycle. It would have been very easy in the face of potentially declining revenues and our installed base to have said, “Let’s pull back.” On the other hand, we made the decision to be bold and invest aggressively for 2009 and over that period of time, agreed to hire just over 1,100 new people on a base going into the year of about 95 or 96,00 people and all of the overheads associated with investing in those new people around the world. We will, I’m confident, have a similar investment profile for 2010.
What that means to us is we will sacrifice some short term margin performance in lieu of the longer term opportunity that that investment will make for us. As a public company, we probably wouldn’t be quite that bold or quite that aggressive and so for us, being private, having one very large shareholder, having a very effective board of directors combined with both internal folks and external people, I think allows us to be not only very agile, but also at the same instance take a longer term view and do some things that we think are bets for the constituencies that we serve and for our shareholders. Whereas as a public company, we might not make the same decision.
Part III: On the global economic outlook after Dubai
FT: Your business gives you a really powerful insight into what’s happening in the economy. What is happening in the economy?
PG: Well, I can talk about it in two different ways. I can talk about it from the financial services industry, which is obviously what we serve and what we are closest to every day, and what we have seen since August is an up tick in not only the – actually, the sales of our terminals started to pick up in June. The installation of our terminals which is there’s a slight lag between the two, started to pick up in August of this year and we have has positive install months through the last – so August, September, October, November, the last four months and we’ll have a positive month in the month of December. What basically shows and just to give you – put this in a frame of reference for you, there is a function on the Bloomberg Terminal called WDCI which tracks all the job losses on the sell side and all of the capital impairment charges that have been taken and that number as if yesterday was 347,000 jobs and $15.9 trillion in capital impairment - $1.6 trillion, excuse me, of capital impairment charges.
That’s – a lot of that’s behind us now and with the solid operating performance in the first, second and third quarters of this year, our major customers on the sell side, the big banks and brokerage firms, have started to hire again and have started to reinvest in their businesses and so we’ve seen them come back into the market.
FT: Are you worried that Dubai could be a little bit of a –
PG: I think it is a very good question. I was – I’ve been in Dubai twice in the last seven weeks meeting with the sheikh and then his former lieutenants and –
FT: Will they keep their terminals?
PG: We sure hope so. Fortunately, the government doesn’t have all that many terminals, but they’ve got –
FT: Maybe that was their problem.
PG: I think you’re right. Could well be kind of the Madoff affair all over again. But you know, more than ever they need the Bloomberg Terminal today because of what’s been happening with the value of their debt. But, you know, I think the world understood that Dubai was probably way over valued and out in front of itself. I don’t think it’s indicative of the fact that we are back in crisis mode the way we were beginning in the summer of 2007 and certainly with the late summer of 2008 when Lehman and the other problems occurred. So I don’t think Dubai is going to – is a meaningful hiccup at all in terms of getting back onto a reasonable growth curve going forward. We’ve seen a couple of phenomenon come out of this downturn, but we see this in every downturn and that is out of consolidation comes fragmentation. We’ve seen a dramatic proliferation of second and third tier broker dealers, so people who’ve left the big forms, have a broken business, have gone out and basically started new firms. They are all Bloomberg users. They come to us first. We put them in business.
We have order management systems that can help them basically execute their trades every single day. The second thing that we’ve seen is a proliferation of and a great need for information amongst government agencies and regulators around the world. So our business, whether it’s with the new York fed or whether it’s various other regulatory agencies in the United States or elsewhere around the world, central banks, finance ministries, we’ve seen a dramatic upturn in our business there.
FT: Could you imagine creating a new product for government?
PG: We have thought about it. We’ve looked at it and we continue to think about it. On the by side, we have obviously seen haemorrhaging in the hedge fund community turnaround in their operating results and their investment results are much better in 2009 than in 2008. The number of deaths in the hedge fund community are now down dramatically. We’re seeing new formations of hedge funds.
That’s good for us ‘cause we have very high penetration in that sector and we’ve seen most of our medium and small asset managers, conventional investment managers basically have weathered the shock and are now back in a mode where their assets under management are appreciating and they’re starting to hire people and invest. We also have seen very solid growth, as we talked about before.
Our business in China has been up very nicely. Our business in places like South Africa or Brazil, Chile, Israel, Russia have all done very well for us. So we’ve seen this kind of coming out of the period beginning, for us, November of last year through the first seven months of this year. So I think from a financial services industry point of view and the vantage point that we have on that, I think next year will be a better year than this year.
From an overall economic point of view, there are signs that things are getting better, but I do think that there is systemic damage that has been done to the global economy that will take us an extended period of time to recover from. The US consumer, your organization writes about this all time, is sorely damaged. They saw a dramatic amount of their savings taken away as the market values came down. They’ve seen the equity in their houses disappear.
I was at a dinner ten days ago and Andrea Jung from Avon was talking about recent psychographic surveys that they’d done that for the first time in the history of these surveys of some 30 or 40 years, they see the US consumer now more concerned about losing his or her job and more frugal in their approach to spending and consumption than they’ve ever been in the history of these surveys. So I think the US consumer, which as you know accounts for in excess of 70 percent of GDP, is kind of on the sidelines.
Until that consumer gets back into the game, I think that’s going to be a problem for economic growth in the United States. There is lots of discussion now with India and China coming out much more quickly and getting back on a growth curve faster than the United States that decoupling is really starting to happen. We may actually be at that inflection point in economic history that that’s going to happen. But I think we are in for a period of slower, longer growth to kind of come out of this cycle. It’s going to take us longer to get back to kind of historical norms if we ever get back there, and I also think we’re in for a period of extended conservative consumption.
FT: You’ve said that terminal sales have been rising since August. Will you give us another hint of what your year-end numbers are going to look like?
PG: I would love to, but you know as a private company, that’s another one of the advantages. We don’t have to share our financial information with people, but we will be up modestly in revenue terms over 2008 and 2008 was the best year in our history.
FT: Thank you very much Mr. Grauer.
PG: Thank you.
Long / Short
FT: Now we’re going to play long short Mr. Grauer. Are you ready?
PG: I’m ready, Chrystia.
FT: Goldman Sachs.
FT: New York Times.
FT: Thomson Reuters.
FT: News Corp.
FT: Time Warner.
PG: Go back to New Corp. I’d probably short News Corp. Time Warner hold.
PG: I’d be long – long term. I think Ozzie Grubel can get it done.
FT: And GM.
PG: I’d be long.
FT: Thank you very much.
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