06/22/2010 05:12 am ET | Updated May 25, 2011

Zed's Dead - Law, Finance, and the Future of Online Publishing (Part One)


"Whose motorcycle is this?"

"It's a chopper, baby."

"Whose chopper is this?"


"Who's Zed?"

"Zed's dead, baby. Zed's dead."

- Quentin Tarantino, Pulp Fiction

This is a two-part essay on the future of online publishing in the US. In this essay, I argue that professional publishing companies such as Thomson Reuters and Bloomberg hold the keys to the future of the news and information industry, far more than do technology companies such as Google. The goal of this essay is to offer a plausible roadmap for navigating the toughest business challenges facing the news and information publishing industries in the digital age.

In the 1980s, Westlaw (now owned by Thomson Reuters) and LexisNexis (now
owned by Reed Elsevier) built multi-billion dollar businesses by using law firms
as data wholesalers. By encouraging law firms to charge business clients for
expensive legal research services, they extracted sizable profits and built
enormous empires that greatly exceeded the value their research was providing.

I first wrote on this topic last year in an

published in the Huffington Post. At that time, the essay
elicited some heated reaction. The Law Librarian Blog

that Westlaw and Lexis were doing just dandy, and that the threats
they faced were not from inflated online research pricing models but from
library print subscription cancellations. Lisa Solomon of the Legal Research
& Writing Pro
blog simply

that I was "dead wrong", although her argument didn't extend beyond
"like it or not, Mr. Schwartz, Knowledge Mosaic isn't the disruptive entrant
into the legal research market that you paint it to be."

Well that's fine. But here's the funny thing. On March 6 of this year, the
Law Librarian Blog reversed course and published an

arguing that the case for cost recovery of online research has fallen
apart in the 21st century. And three months before her "dead wrong" post, Ms.

, "The cost of a firm's online legal research subscription is a part of
overhead that should not be passed on to clients."

As for Westlaw and Lexis? They are not thriving. Thomson Legal's revenues
fell in 2009, particularly revenues from larger law firms. Profit margins for
both Thomson Reuters and Reed Elsevier have plunged. With Bloomberg Law now
attacking the legal research market with a pipe and a chainsaw, blood is going
to flow. One of the first casualties will be legal research cost recovery.


Why does the fate of legal research cost recovery matter? I am going to
reverse course here for a moment and appear to contradict what I've just

The fate of legal research cost recovery matters because the business of
professional publishing holds the key to the dissemination of news and
information everywhere. This is at least part of the untold story about how news
and journalism will find a sustainable business model in the 21st century.
Google is a sideshow (albeit

an interesting sideshow

Despite recent, recession-related struggles, professional publishing empires
such as Thomson Reuters, Reed Elsevier, and Bloomberg have become online media
powerhouses. Thomson shed its print newspapers only to purchase Reuters.
Bloomberg News is thriving while the Washington Post and the New
York Times
and the Wall Street Journal crater.

Professional publishing has flourished because it does not depend on
advertising for revenue. By creating information ecosystems that cater to the
specialized needs of lawyers, bankers, traders, accountants, investment
managers, and consultants, Thomson Reuters, Reed Elsevier, and Bloomberg have
been able to charge premium prices and sustain remarkable (typically 35 percent)
profit margins, which in turn has given them the surplus needed to invest in the
healthiest of the traditional news services. The strength of their financials
and the judgment of the markets confirm their emerging dominance.

Let's do the math. Newspaper publishers are media companies. Many now own
television networks (even film studios) and have significant online and book
publishing businesses. But newspapers remain the core of their identity.
Together, the New York Times Company, the Washington Post Company, and Gannett
generated $12.5 billion in revenue in 2009. They employed a total of 79,000
people and the markets valued these companies together at $10 billion. This
works out to $126,000 in market value per employee.

Now let's look at the professional publishers. Many of these are also media
companies. They manage large news organizations. But they are not identified
with consumer markets. They produce more revenue and more free cash serving
largely professional markets, and are therefore rewarded with significantly
higher valuations. Together, Thomson Reuters, Reed Elsevier, and Bloomberg LLP
generated $30 billion in revenue in 2009. They employed a total of 92,000
employees and the markets valued these companies together at $55 billion. This
works out to $597,000 in market value per employee, nearly five times higher
than the market value per employee for the newspaper companies.


Why have professional publishing companies such as Thomson Reuters, Reed
Elsevier, and Bloomberg made so much money at the same time that
advertising-driven, mass-market publications have tanked? The answer is partly
technology. Of course, Google and craigslist have leveraged the Internet to
steal advertising revenue from print publications. But traditional print
journalism is very labor-intensive and many print media companies came late to
the realization that the Era of the Internet requires fewer people, more
technology, and a new way to tell stories.

By contrast, professional publishing companies have always leveraged
technology, and as Thomson illustrates, they have shed traditional print
newspapers that did not leverage technology. Professional publishing companies
are entirely driven by documents, data, and search. The news portions of their
business are entirely different from the traditional "deep journalism" of city
newspapers, and depend instead on short-form output, quick turnaround, and
syndication revenue models.

The financial markets value professional publishing employees nearly five
times more highly than they value print media employees because the employee
base at Thomson Reuters, Reed Elsevier, and Bloomberg leverage technology so
much more effectively.

A troubling, dispiriting question endures, however. How is it that the
professional publishers can make so much money when other publishers are
struggling merely to survive? Technology alone does not provide the answer. In
fact, the financial success of these businesses challenges the nostrum that in
the digital age, information wants to be free. If you purchase from Westlaw,
Lexis, or Bloomberg, information is anything but free. If we examine the
business models of Thomson Reuters, Reed Elsevier, and Bloomberg, we would
actually conclude that in the digital age, information wants to be expensive
(please note here that Stewart Brand actually combined both statements in his

of the value of information in 1984).

What professional publishers have truly leveraged is not so much technology,
as the crazy-making financial success/excess on Wall Street, the explosion of
litigation in the United States, the high-stakes lawyering that accompanies
nearly every business transaction, and the levels of expertise required to
navigate and interpret complex layers of government regulation.

This is the dirty secret of online legal research cost recovery. Professional
publishing company profit margins aren't byproducts of value these companies
create, but of their entanglement with and enabling of a
financial-legal-regulatory complex that stifles business innovation and economic

Part Two of this essay to follow.