The two leading Canadian legal publishers, Carswell Thomson and LexisNexis Butterworths, have something in common – both face a major challenge for continuing relevance in the Canadian market. Interestingly enough, the real challenge does not come from each other, but from free services and technological advances, and increasingly from small but nimble legal publishers committed to the delivery of high quality competitively priced products. How each of them responds to this challenge will determine their ultimate role as providers of legal information in the Canadian legal market.
Meeting the challenge has been made more difficult because of the unrealistic expectations for growth held by their parent companies and a misunderstanding of the role of the legal publisher in the practice of law. Legal publishers are not "partners" in the practice of law but simply one of many types of service providers to the legal profession. Moreover, there really are limits on the amount a law firm or legal practitioner will pay for legal information and therefore limits on the revenue growth that can be achieved by the legal publishers.
The decline of the recycling business
As source of revenue and profit, the core business activity is in a state of decline. The main revenue stream for the two major legal publishers has always been from packaging and recycling primary legal documents, enhanced by an array of value added finding tools such as key words, classification systems, and case and statute citators, prepared by in-house editorial staff. However the need for these tools and for human editorial intervention is dissipated with each technological advance that makes searching the content of primary legal documents easier and more sophisticated, enabling new players to enter the market with competitive content at a comparatively lower cost.
To maintain their position in the market, the majors need to develop or acquire significant new product offerings that cannot be easily matched by the growing number of alternative sources of legal information. Either that, or they must be prepared to accept that they will come to play a relatively smaller role in providing information to the legal profession. If the majors do nothing more than tinker with their search engines, repackage existing content, and acquire smaller competitors that package and recycle the same content in the same way, then the battle for continuing relevance to the legal profession will be lost.
Creative juice and competitive drive
How are they responding to the challenge? What are they really up to? In Canada, both Carswell Thomson or LexisNexis Butterworths have recently demonstrated that there is still some creative juice and competitive drive left in their respective organizations. The question remains – is it enough?
Carswell's most recent initiative – the addition of Pleadings, Motions and Facta to the Litigator product – is right on the money in terms of what a commercial legal publisher can and should do. With more than 50,000 documents gathered at significant cost in time and money, Carswell has done something that no one previously thought possible. In doing so, Carswell has changed the market paradigm for legal precedents in Canada. The addition of these precedents to its online service not only brought something new and different to the legal profession, but also helped address its competitive weakness relative to Lexis which has an unparalleled collection of forms and precedents from Canada, the U.S. and the U.K.
At the same time, Lexis has moved aggressively to compensate for Butterworth's traditionally weak line up of Canadian secondary content with a progam that includes most notably Halsburys Laws of Canada and the JurisClasseur Quebec encyclopedia, as well as new editions of major Butterworths treatises like Palmer and Snyder's Collective Agreement Arbitration, that long lay dormant on library shelves. The shift in emphasis from the old Quicklaw/LexisNexis philosophy of mindlessly adding more and more primary documents for their own sake, to the re-facing or re-imaging its unmatched body of primary data with secondary content linked to primary legal documents, is a welcome change that will make Lexis more relevant to the legal profession in Canada.
Of course, another option available to the majors is to buy what they cannot create. Both Carswell Thomson and LexisNexis Butterworths continue to enrich their businesses by acquiring other businesses that provide services to the legal profession. While Carswell Thomson seems to prefer to acquire other legal publishers like Yvon Blais, and possibly Canada Law Book, LexisNexis Butterworths favours legal software businesses.
The question remains however as to whether any of these initiatives will do anything more than marginally grow revenue. Litigator is a fantastic product, but it is unlikely to generate the return on investment expected by its parent company. The market is too small. As for the rumoured acquisition of Canada Law Book by Carswell Thomson, it would spike Carswell Thomson's revenue in the short term, but add nothing significant to the business in the long term. The product offerings of the two companies are too similar to make a difference.
While Quicklaw has been dramatically improved since it was acquired by LexisNexis Butterworths, nothing can halt the decline in revenue that has resulted from the loss of its near monopoly position in the Canadian market. When you start with every possible customer and encounter real competition, you have basically two choices: generate less revenue as a result of lower prices to match the competitor, or generate less revenue by losing customers as they migrate to the competitor. Not good either way. LexisNexis Butterworths could use Canada Law Book content to enrich its databases and offer better value to its customers.
All in all, none of these initiatives are game changers. In the absence of significant innovation that adds real value to the practice of law, the upward trajectory that saw Carswell Thomson and LexisNexis Butterworths move to the top ranking positions in the Canadian legal publishing over the last three decades will likely stall and possibly even reverse itself. It is just a question of time.
Buy, hold, sell now or sell later
Both Thomson Reuters and Reed Elsevier, the parent companies of Carswell Thomson and LexisNexis Butterworths, appear to be looking in new directions. Both parents have to have become disillusioned with the growth prospects of the legal and regulatory business. Their most recent financial reports refer to "flat revenues" in one case, and revenues "being up slightly" in the other. Thomson in particular views its businesses as investment portfolios and traditionally has been prepared to shift from one business to another according to its assessment of the potential for future growth. The strategy gurus for both companies revisit their investment strategies on a continuing basis and regularly make decisions to hold, sell now, or sell later, based on their assessment. The potential for growth is a critical element of shareholder value.
In the case of Carswell Thomson, it is even now referred to as "a Thomson Reuters Business", indicating by the addition of the name "Reuters" the addition of information other than legal and regulatory information, and providing an out for the day when it may be sold. While waiting for the next big shift, Thomson continues with business as usual, including the purchase of smaller businesses that Thomson believes will strengthen its existing product mix.
LexisNexis has made a similar shift in focus by the acquisition of Choicepoint and Seisent, companies in the risk analytics business, which has become its major source of revenue and profit growth. The new mantra states that "Through risk and analytics solutions to assess risk, LexisNexis helps professionals verify identity, prevent fraud, comply with legislation, facilitate and secure commerce, conduct background screening and support law enforcement and homeland security initiatives". There is more money to be made in responding to concerns about security than there is in providing access to legal and regulatory information.
Staying relevant in legal publishing
Both Thomson Reuters and Reed Elsevier could decide to keep their legal and regulatory publishing businesses but operate them in a lower gear, with limited investment and an emphasis on maintaining existing revenue and profit margins rather than pursuing unachievable targets for growth. The two companies could even shift their pricing strategy and choose to provide their quality products at lower prices, with a new emphasis on customer satisfaction. In the short term, that would mean accepting lower revenue targets from their operating companies, something that they would be reluctant to do, but it would be the sensible option if they plan to stay in the business.
Alternatively, and perhaps more likely, Thomson Reuters and/or Reed Elsevier could decide to leave the legal and regulatory business altogether and sell their content to the truly innovative companies like Bloomberg or Google. Companies like Bloomsbury may also be interested in expanding the scope of their business. Staying relevant in legal publishing may require new owners unconnected with the traditional business, with new and different ideas as to how to run a legal publishing business. One can hope.