Leaving Paid Newswires for Free Twitter

Makovsky

When Goldman Sachs reports earnings on Thursday, the firm has confirmed that the news will first show up on its Twitter feed, not a traditional wire service.

News of Goldman’s plans first appeared in The Wall Street Journal last week, and while the move will give Goldman, or any company putting out earnings, greater control over the timing of its earnings release and to control risks, but it could generate unforeseen mishaps.

We don’t know the exact form Goldman’s Twitter notification/release will take. By definition, tweets are confined to 140 characters, so it seems reasonable that a tweet with a link to the news will appear at 7:30 a.m. on Thursday before the opening bell.

First, let’s look at the risks a release on Twitter addresses. The Journal article and several others have covered the news that a number of hackers have tried to get access to news on BusinessWire and PRNewswire, the two largest paid newswires, ostensibly in order to provide a window into market-moving and material information.

A Twitter release eliminates the cost of a newswire distribution, and puts its issuance directly in the company’s control. We don’t know the exact form Goldman’s Twitter-release will take. By definition, tweets are confined to 140 characters, it seems reasonable that a tweet with a link to the news will appear on the firm’s single handle @goldmansachs at or about 7:30 a.m. on Thursday. Companies with more than one handle and using this release strategy would need to be specific about the handle being used for this news.

Second, the risks a Twitter-release creates. A company will be driving traffic to its site, lots of it initially over a very concentrated period. Companies need to ask if their site can handle this increase. Of course, a Twitter release could include a multi-pronged strategy of also sending the press release to the newswires the moment it’s available on the company’s site. This would be the high-tech equivalent of faxing the news release to the wires first for them to distribute, thus covering the SEC-mandate to distribute the news broadly and simultaneously.

A primary risk of relying on a push-only strategy that doesn’t involve the news organizations is server capacity: what if the demand for the news can’t be satisfied by the company’s (or its vendor’s) server? This would be a genuine crisis arising from a move to prevent just that. (Note: We’re not predicting this at all, but believe other companies considering a Twitter release assess their infrastructure’s capacity and reliability for surges of interest. Can visitors both reach the site and download the information?)

It’s important to bear in mind that companies can’t just shift to Twitter, LinkedIn or Facebook to release material news. The SEC has said that using social media is fine to release material non-public information, but listed companies need to issue a press release telling the market that they intend to do so ahead of time. The SEC release didn’t say that companies had to specify which social media channel they were using, but good communications protocols would dictate this so that market participants know where to look.

Because so much short-form news already appears on Twitter, it’s the most logical of the major social media sites to release material news. Market participants will likely find it easy to look on Twitter for regular announcements. However, the market may be less attuned to special announcements, like acquisitions and divestitures and other special releases, appearing on Twitter during market hours.

Over the long haul, though, it makes sense for Twitter to have a separate corporate news channel. Its revenue sources have been constrained and need a growth engine. Public company earnings must be released at least four times annually. While Twitter now has no cost, it’s more realistic to expect the company to set up a separate fee-based service for the distribution of material news. With the BusinessWire distribution model so attractive that Berkshire Hathaway bought it, do we think Twitter will remain free?

– John McInerney