Money markets feast on non-stop NEWS

Date: 25/07/1996

By Tim Jones

IF YOU ever take a walk in New York City and suddenly have an urge to read the news, just look up.

There, scrolling around Number One Times Square in words a metre high, are the latest headlines and, if that were not enough, share prices as well.

In 1992, when former US President George Bush slumped in his chair and vomited during a dinner in Tokyo, he took the dollar with him. News of his collapse was flashed around the world within seconds and fell squarely into European market trading time.

Times have moved on since Julius Reuter began his fast news business at the beginning of the last century by providing up-to-date closing stock prices via carrier pigeon.

The man who made a financial killing by finding out before anyone else that the Duke of Wellington had beaten Napoleon Bonaparte at Waterloo would be all at sea in the modern information age.

He would not recognise the company to which he gave his name today.

There was a time when the newspapers which kept it afloat as their news agency baulked at handing over millions of ecu in contributions to Reuters. Their attitude changed when the company was floated on the stock exchange and hundreds of millions floated into their bank accounts.

The key to its success was the financial markets. When Reuters moved into the foreign exchange and commodities markets - providing both data and news - the money started to roll in. This is where the customers with the big bucks were to be found. Newspapers and private individuals can afford to wait an hour or two for an information update, but banks and trading houses cannot. A currency dealer who found out five minutes later than anyone else that Germany's central bank had raised interest rates would soon be unemployed.

Reuters and its big rivals in financial information - Dow Jones, Bloomberg and Knight-Ridder - discovered that these institutions not only needed news and data fast but also had the money to pay for it.

But, with the end of the Eighties bull market, even the banks became penny-pinching. Instead of providing a bank of screens at each dealing room position, they began to strip some of them out.

They started to demand that the news wires just send them the raw material which they could then channel on to one screen. Each trader would be able to tap into a variety of services on one screen and would often forget who was saying what.

Mike Bloomberg, the driving force behind Bloomberg Business News, resisted this trend for as long as he could - demanding that customers bought his proprietory screen or nothing. When he finally cracked, Reuters' stock price fell because the market was becoming so cut-throat.

The sophistication of the new systems is amazing. Five years ago, dealers had a screen with real-time prices, charts and news. Now, using Windows-based systems, they can click on an area of the screen and call up video images.

Press conferences held by top economic officials are fed live over the news wires and key comments are pulled out and flashed along the bottom of the screen. Bloomberg, Reuters and Dow Jones all run constant television business news on their screens.

Even newspapers are being told to change. A report from investment bank Goldman Sachs last year sounded a warning that sales would continue to decline steadily at the expense of the electronic media.

Between 1989 and 1993, newspaper circulation in 36 countries declined by 12&percent;.

“Broadcasting and other delivery mechanisms threaten to erode the two strongest unique selling propositions of newspapers: namely regional/national news and targeted advertising, particularly retail and classified,” said the report.

In developed markets, newspapers are fighting to attract customers with new supplements, which add to newsprint costs, and severe price cuts.

The future belongs to so-called 'vertically integrated' companies which combine newspaper operations with other information delivery.

“With margins from other media higher than that for newspapers, it is only natural that more newspaper companies diversify into other related media products, particularly broadcast media, with the ability to spread news gathering and editing costs across a wider revenue base,” said Goldman Sachs.

US newspaper giant Knight-Ridder took the opposite view. Earlier this year, it completely rethought its strategy and sold its KRFN news wire to venture capital company Welsh-Carson. Knight-Ridder has since pulled out of cable television and intends to concentrate on its local newspaper core business.

But the primacy of the financial markets for the fast-news gatherers is not without its critics.

Apart from the news pollution that comes from reporting anything said by someone who holds the levers of economic power - whether it is interesting or not - the temptation to tailor the news for the markets can be overwhelming.

Delaying the release of sensitive interviews until ten minutes before the close of the financial futures markets is not unknown.

Traders, who make their living by buying or selling contracts they do not yet have, spend the last hour of market time closing up these risky positions. Hitting them with comments at this time ensures the maximum impact.

The news agenda is decided by this. If it is market sensitive, it is news. Increasingly, if it is not, it is not.

The EU beef crisis was irrelevant to the markets until it threatened the UK's public finances. After that, every development was seized upon in case it moved the ten-year bond yield by a basis point.

The risk of news distortion has never been so great.