The English legal / publishing press are taking Reed Elsevier's current travails to speculate whether the RoI of legal publishers is sustainable.
In previous economic downturns, the London firms have not responded by making cuts to legal information budgets. This time, perhaps with the transformations that have come with with the rise of free public legal information and increased client scrutiny of disbursements, it appears to be happening.
I recall one indiscreet Canadian legal publisher tell me that their company had been profitable since inception, including the Great Depression.
Here is the English take on the issues, from the Guardian and The Times:
Reed's legal business set to suffer, predicts broker
Publisher Reed Elsevier could be heading for tough times in its legal publications unit as a large proportion of law firms say they consider its products poor value for money, according to a survey from broker Execution.
Giasone Salati an analyst at Execution has published research today which also describes Reed's margins as "unsustainable". The broker notes that Reed's margins are also the highest in its peer group – including Informa, Pearson and Thomson Reuters – further underlining that the risk is on the downside.
Salati comments:
"The company may have to step up investments significantly to restore double digit EPS growth. Eventually Reed Elsevier may become an interesting restructuring story but, at present, the risk/reward balance is unattractive."
Turning to the outlook for Reed Elsevier's business supplying legal information – which on Execution's estimates generates 30% of operating profit for the group - Salati is just as downbeat:
"Our quarterly survey of large law firms' librarians shows a marked worsening in expectations: the information budget is now expected to drop by 12% in 2009. Reed Elsevier will lose market share, based on the survey as about half of the respondents consider Reed Elsevier's products poor value for money, and a third of respondents indicated that they would cut Reed Elsevier's products first if they needed to achieve cost savings."
Legal publishers suffer as law firms cut library budget by 12%
As law firms look to drastically slash their cost base, no expenditure is safe. And the pain of the cutbacks is flowing through to companies that depend on them.
The Guardian's markets blog, citing analysts reports, says that Reed Elsevier, which owns Lexis Nexis, is having a particularly tough time.
It would be interesting to review the survey prepared by Mr. Salati. Butterworths products are generally held in the highest regard and, in many instances, they set the standard by which legal publications are judged worldwide. Researchers may indeed consider that some products are poor value for them money. That may relate to the obsolescence of certain formats worldwide, i.e., why buy Halsbury's Statutes and Regulatory Instruments in print if the same content is available for free online? The apparent fact that "Reed's margins are also the highest in its peer group" suggests that the market has recognized their value heretofore.