Around the world, business leaders rely on the financial acumen of the journalists at Dow Jones & Co. to give them an edge. So it's no small irony that the company itself is facing a financial embarrassment.
The Wall Street Journal's publisher also owns the Telerate real-time financial-data service, which has lost market share as competitors offered more technologically advanced products. On Jan. 20, Dow Jones said it will spend $650 million to overhaul Telerate, acquired for $1.6 billion in a series of transactions that ended in 1990. The news sent the long-depressed shares of Dow Jones down an additional 16% by Jan. 22. The company's market value is now $2.6 billion, compared with $5.4 billion a decade ago.
Trouble is, there's no guarantee that Dow Jones can revive Telerate even with $650 million. The financial-information services unit, which is made up of Telerate and the Dow Jones news services, saw its operating income fall 21% in 1996, to $156 million, on revenues of $980 million. Rivals Reuters Holdings PLC and Bloomberg Financial Markets have flourished by offering what Telerate does not: the ability to trade many securities, pull up extensive historical data, and perform complex financial analysis. Telerate's strongest franchise is its data on government bond trading. "It sounds like they're waking up to the competition now," says Michael J. Wolf, who heads the media practice at Booz, Allen & Hamilton Inc. "But this effort may come a little bit too late."
A TINY RETURN. Dow Jones President Kenneth L. Burenga is confident Telerate can be revamped. "Telerate has been a good business for Dow Jones," he says. But many analysts say it is worth less than what Dow Jones paid for it. Its margins have slipped from about 20% in 1995 to 16% in 1996 and just 14% in 1996's fourth quarter, while rival Reuters routinely posts margins above 20%, says Oppenheimer & Co. media analyst Edward Atorino. "Telerate has sort of fallen apart," he says. Although Telerate is still profitable, it's delivering just a 4% return on investment after taxes, Atorino estimates.
While Telerate is far behind its competitors in some services, Burenga says he is leading a technological overhaul that will replace its current practice of essentially broadcasting fixed pages of data to subscribers' screens with a new Internet-based system that will distribute easily manipulated data via a secure Dow Jones intranet. Subscribers will also be able to communicate with one another and trade over the system. The company is searching for a top technology executive to handle the transformation. Reuters' subscribers can already tap into historical and analytical data, as well as execute foreign-exchange and NASDAQ equities trades. Bloomberg also offers extensive historical and analytical capabilities, as well as the ability to trade securities.
Burenga says that the market for financial information is booming to such a degree--from $6.5 billion to $8.5 billion in the next four years, he predicts--that the revamped Telerate doesn't have to beat the competition to survive. "This plan is not predicated on dislodging Reuters or Bloomberg," he says. "We will benefit from market growth."
But Telerate is so far behind that Burenga may be wrong in thinking it can regain the ground it has lost. It had one of the first foreign-exchange transaction services, but the company closed it down years ago because of losses. "Once they failed at it, they didn't try again," notes Schroder Wertheim & Co. analyst Michael W. Ellmann. And then, instead of building a Treasury-bond trading service as an outgrowth of its preeminence in bond-trading data, Dow Jones instead tried such niche offerings as online trading of power plants' surplus electricity.
Strangely enough, Dow Jones is apparently facing little pressure from its directors over the Telerate mess. The board voted unanimously at its meeting on Jan. 15 to approve the additional Telerate investment. The majority of the descendants of company patriarch Clarence Barron, who hold 4 of the 17 board seats and have voting control of about 70% of the stock, also appear to be firmly behind management, though Fortune recently detailed dissatisfaction among younger heirs. Nonetheless, the company's annual meeting on Apr. 16 should make for some interesting copy. While the family and other outside directors seem willing to stand pat, expect to hear some loud complaints from less patient shareholders who want to pull Telerate's plug.