UPDATE 2-CNN to stop using Reuters news service

Fri Aug 31, 2007 1:06am BST

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(Adds contract value from source)

By Kenneth Li

NEW YORK Aug 30 (Reuters) - The CNN cable television news network said on Thursday it would stop using the Reuters news service, ending a 27-year relationship, to contain costs and invest in its own news gathering operations.

The global television news network owned by the world's largest media company, Time Warner Inc (TWX.N), said in an internal memo that it wanted to reduce reliance on agency material while achieving better control of its growth.

"This is all about us, not Reuters. This is about content ownership," CNN spokesman Nigel Pritchard said.

"Everything is changing and content ownership is king."

Pritchard did not specify how much CNN would spend to expand its news operation.

A source familiar with the matter who asked not be named said the contract CNN had with Reuters Group Plc RTR.L was worth about $3.5 million, which the source said CNN would now invest in its news operation.

Both companies declined to confirm the value of the deal.

CNN said it would stop using Reuters text, photography and television material from Friday.

The move came ahead of a plan to broadcast CNN in high-definition this week, and CNN sources said news packages containing Reuters footage had to be re-edited, including one prepared on Princess Diana scheduled to air this weekend.

Chris Ahearn, president of Reuters Media, said in an internal memo that no commercial agreement could be reached with CNN after "a period of extensive discussions."

"In no way is this a reflection of the value placed upon Reuters editorial quality by CNN or the work that Reuters has done for them," Ahearn's memo said.

News organizations such as CNN are grappling with how best to court new generations of viewers who are as likely to get their information on cell phones and the Internet as from television.

Contracts with news suppliers such as Reuters typically grant subscribers like CNN permission to use news content for a limited period.

"To advantage CNN in the content marketplace and manage the continually rising costs associated with acquired assets, we are making significant investments in our own news gathering while simultaneously reducing our reliance on agency material," Tony Maddox, executive vice president of CNN International, said in a memo dated Aug. 29.

CNN, which said it planned a multi-million dollar investment in its news operation, will continue to use news provided by the Associated Press and Associated Press Television News, which competes with Reuters.

Pritchard said the decision should not be characterized as a cost-cutting exercise.

Maddox said in his memo: "It's a step forward to greater control of our editorial product, of the quality of the CNN services we provide and of our growth and success in the Digital Age."

Ahearn added in his note: "We are hopeful that we will have the opportunity to work with CNN again." (Additional reporting by Kristina Cooke in New York and Gavin Haycock in London)

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