The larger legal publishers' 2013 half-year and interim results season was quietly revolutionary. At 80% the issue is done and dusted. The issue that has been plaguing the legal and professional publishing world for decades now can be consigned to history. With a palpable flop over the finish line, you can hear the words ‘largely complete’ panted in an exhausted and rasping whisper. The digital transition is finally finished; honest; no really; trust me – finished.
Looking back over the 15 years it has taken to get here 2 lessons are clear:
- Readers buy confidence not content; formats are secondary; and
- The worst way to deal with cannibalisation is to add complexity.
Sadly we knew that back in 1995 too. So: sorry, nothing here about destructive technologies and access to justice (yet). This is unashamed navel gazing for the suppliers to legal services businesses; a critical look at the bookish world of legal publishing, perhaps, but also an intimate one – an insider’s one. I was a publisher, publishing director, head of M&A and more throughout this period. 15 years ago I was one of the guys who had to face the London stock market analysts in the late 90’s and early noughties as they smirked and went home to revise their spreadsheet guesses down. King Content was knee deep in water and getting really quite chilly.
It is easy to forget now that CD format options were the major talking point way back in 1993-5: 20, yes count them – 20 years ago. The backlist and legacy content issues had already been quantified even then, and the plans were being tested then to leapfrog ‘the tech challenge’. The strategy of choice for most publishers during and after Dotcom was to protect revenue streams by conservatively adding on technology options. This meant that:
(a) economies of scale worked against you;
(b) marketing costs doubled (or worse);
(c) clients were confused with complexity in pricing;
(d) the technology solutions that were deployed were usually heavily over-engineered.
This meant ‘winning’ delivered only preserved sales (at best) and halved profitability (if you’re lucky).
The 2013 half year headlines from the big firms illustrate the point.
Analysts expect ‘leaders’ of this scale and global importance here to be doing 4-5% sales growth and 35% profitability:
Informa: PCI division down -4.1% on organic revenues and drops 41% profitability to 27.1%. Digital transition ‘largely complete’ (P18).
Lexis half year results show encouraging overall headlines but -1% in sales in ‘legal’ and profitability at less than half – arguably a third of what it should be at 13.3%. 80% of revenues are electronic and yet print declines still cancel out electronic gains. They blame ‘subdued’ markets, but few analysts will accept this as in effect they are missing 4.7% market growth currently; they are in effect going backwards by at least c5%.
By way of comparison, the Sage group are also in transition, but in the UK they saw 5% growth at half year, albeit weighed down by other EU performances. Profitability is 28.3%.
Thomsons(TRI)’s benchmarks for ‘legal’: 5% largely acquisitive growth (but still +1% organic); research and public sector revenues are declining by 1% typically. Adjusted half year profitability is running at 27.8% for the legal division.
WK’s legal division’s sales were down -2% and profitability of 19.1% (down 3%). Software and transactional revenues were up 8% and software and on-line revenues generally were up 4%. Print declines are -8% and 81% of the revenues are now non-print.
The markets had assumed the transition would be completed within the promised 2-5 year horizons that were initially envisaged. But that was back in 1997. Dotcom intervened; a couple of mini recessions too. Several management cycles elapsed. By 2007 the roof was still not even close to fixed and the sky started falling. So for pretty much all of the past 5-10 years the rhetoric has been about disguising the fact that the digitisation process has pretty much failed. E-learning initiatives were designated ‘electronic’ revenues; package bundling enabled some to say that whole revenue streams suddenly became ‘electronic’. Every trick in the book was deployed to talk up the ‘electronic’ flavour of the business. Playing down the monumentally widening gap between the nature of these businesses and the truly digital Googles, etc was always a mugs game. Analysts weren’t fooled, but the game is still being played out.
Discharging the patient
So now – at last – the digital transition is ‘largely complete’. The legal and professional publishing patient who went into electronic media in the mid-nineties in a blizzard of DTDs and floppy disks is finally to be discharged. It has been a traumatic series of operations. Dotcom almost panicked some into cardiac arrest. The subsequent recessions and slow-downs in the law firm market in ’03 and ’08 set all the machines beeping again; more consultants were clearly required with expertise in everything from project management to social media. But the figures for half way through 2013 show a beleaguered, limping, haggard refugee stumbling to the sliding doors, not the happy smiling BUPA beneficiary we had promised the cynical analyst community.
These firms were the golden boys of the stock market 20 years ago; not so much now. The markets took a sceptical view of ‘Content Is King’ complacency after Dotcom and have simply not believed that the professional publishers could sustain their historically very reliable dividends streams ever since. They have taken divi’s when offered and now impatiently expect cash surpluses to be given back, not reinvested (by them at any rate). Even the conservative ones are actively looking for other safe houses for their portfolios and once gone, are hard to coach back.
I remember a fairly heated discussion with a global executive in Thomson over ten years ago now, where, unless you 'got' the digitisation of content as the holy grail, you were off his map. He had a fair point at the time – given their backlist they had a mountain to climb there, and after the Dotcom storm it was all-consuming: digitise, digitise, digitise or die! The idea that this operation could be a success and the patient still die was unthinkable. Pity really, but as the old joke goes – I could have agreed with him, but then we’d both have been wrong.
Clearly, all you had to do was make the content you'd taken decades to painstakingly build more accessible through digital tools, and Tah Dah! – the second coming was just around the corner. Once you’d replaced the print cost with the digital/electronic one, normality would be restored and product development and enhancement would be ten times easier to boot.
This 'digitisis' mentality infected the professional publishing world so pervasively that it resulted in senior management taking their eye off the ball pretty comprehensively for most of the past decade. The strategic arguments 15 years ago about self-cannibalisation, reinvention, big bang, revolution or evolution were plentiful. But nobody really believed the Encyclopaedia Britannica problem would actually happen to them – lawyers were different, after all.
Thomson and Lexis suffered this 'Digitisis' really quite badly and the symptoms of this disease were pernicious. WK/CCH suffered even more, and most of the second tier legal publishers in the UK fell for the ‘lawyers want paper’ delusion. Wilmington, Informa and Jordans all missed the opportunity just as comprehensively as the big firms.
For some strange reason it missed Complinet and Practical Law Company (PLC) entirely, and it simply did not feature with SAI Global, IHS Global, ECI or Achilles. By now many legal publishers will be saying ‘Who?’. And there’s the rub. The digitisis disease that dominated the professional publishing world for so long had an unforeseen side effect: blindness.
[This is the first of three entries on the legal publishing industry's "digitisis."]