Thomson Evolves from Newspapers to New Media
Transforming Banks for a Digital Future: The Winners, The Losers, and the Strategies to Beat the Odds
In January 1997, when Michael Wilens returned to the Thomson Corp. as CTO of the legal publishing group, the Internet hadn't yet changed everything. The Nasdaq Composite Index was at 1290, and Amazon.com was still a private company. Yet Wilens, who had left Thomson just 16 months earlier to pursue an opportunity to work in Europe, felt something was different.
Sure, Thomson was still a multibillion-dollar, highly diversified conglomerate with far-flung interests in everything from specialized information publishing to the leisure-travel business in the U.K.not to mention the company's core North American newspaper group, which published 68 papers with a collective circulation of nearly two million. But something was bubbling under the surface of this unwieldy beast. The then 63-year old, Stamford, Conn.-based media giant was on the cusp of a radical transformation.
Fast-forward eight years to today, and the Thomson Corp. is almost unrecognizable as the old-media company founded in 1934 by Roy Thomson, a Canadian, who acquired his first newspaper after unsuccessful forays into selling car parts and running a radio station. The company is still majority owned by the Thomson familybut gone are the newspapers, gone is the travel business, and gone are all of the trade and specialty publications that didn't fit into president and CEo Richard Harrington's long-term vision. That visionto create a leaner, more focused provider of electronic information to professionals in targeted, vertical industriesgenerated $8.1 billion in revenue and more than $1.1 billion in free cash flow last year. Thomson Corp. is now traded on the NYSE, and has a market cap of more than $21 billion.
Thomson's radical transformation away from the print business is a study in the challenges and opportunities the Internet has foisted upon nearly every industry in the past decade. The lesson learned? Embracing change early is essential, resistance is futile.
Even with 20/20 hindsight, Thomson's new business can't be measured against the old, because they are essentially two completely different companies. Clearly, however, Thomson is better positioned for growth in a knowledge-based economy. The new company hasn't yet matched its 1997 revenue total of nearly $8.8 billion-which included nearly $3 billion from Thomson Travelbut it is solidly more profitable, and positioned for more consistent and sustained growth. Its adjusted operating profitsexcluding amortization and restructuring charges from its relentless acquisitionstopped $1.6 billion in 2004, compared to less than $1.2 billion in 1997 on almost $700 million more revenue. The restructured company has achieved compound annual revenue growth of more than 8 percent over the past five years, while adjusted operating profits grew nearly 12 percent annually from 1999 through 2004.
Company Thomson Corp.
Corporate Headquarters Stamford, Conn.
Senior Vice President of Technology Joe Rhyne
Revenues $8.3 billion(trailing 12 months)
EBITDA $2.3 billion (ttm)
Stock Price $33.23 (June 24, 2005)
52 week high-low $36.48$31.09
By contrast, advertising spending for daily newspapers has yet to recover to its 2000 peak, according to figures from the Newspaper Association of America. And just last month, Merrill Lynch media analyst Lauren Rich Fine issued a cautionary report to investors suggesting that, even at currently low valuations, newspaper stocks may be priced too high in relation to their less-than-stellar growth prospects. "We do not think there are any cliffs on the horizon, but we do see a gentle long-term descent," the report concludes.
With Thomson's transition to the electronic services business, IT became suddenly and irrevocably important. Emblematic of that change is Michael Wilens himself. When he returned to Thomson in 1997, he was CTO of West Group, the company's legal publishing arm. In January of this year, he was named president and CEO of the North American Legal unit of Thomson Legal & Regulatory, the company's largest operating unit. Wilens is the new breed of Thomson executivea manager who came up through the technology organization and blends both technical and business acumen. "Thomson is a harbinger of what's happening [in] industries that are increasingly making technology part of the product," he says. Wilens is the most prominent of several former technologists who've risen to executive posts running significant portions of Thomson's business. "In the old publishing world, it was editorial or salesthose were the only two functions that had guts," Wilens recalls. "Now there are the extroverts in technology who like doing the marketing and the operations, and they're stepping forward because the organization encourages it. Seven years ago, it was the opposite. It was discouraged."
As part of Thomson's broader metamorphosis from an old-line publishing company into a provider of integrated information services and software, the company has developed a culture that not only encourages and rewards business-savvy technologists, but actively cultivates them. (See Viewpoint, page 54.) Of the company's 40,000 employees, about 9,000 are technologists, and an increasing percentage of those are in "front-office" roles developing and supporting technology for customers, rather than back-office positions supporting internal Thomson IT.
"As we've headed into online services, technology isn't just business systems," explains Joe Rhyne, senior vice president of technology at Thomson. "It's everything. It's the product. It's the distribution channel. It's the factory that produces the product."
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