06/23/2010 05:12 am ET Updated May 25, 2011

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


"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

In Part One of this essay, I argued that the market valuations of
professional publishing companies such as Thomson Reuters and Bloomberg -
particularly in relation to the valuations of traditional media companies such
as the New York Times Company, the Washington Post Company, and Gannett -
display the emergence of professional publishers as the most powerful
force in online and digital media. However, these companies depend on the
nation's banks and law firms to sustain the fat profit margins
that fund their media empires. If the shower of money dries up and profit margins fall
into more "normal" ranges, their imperial ambitions may falter. In Part Two of this essay, I address questions of
justice and fairness, and the response of the American business community to the
pound of flesh routinely exacted from them by the financial-legal-regulatory
complex, and alternatives for imagining the reinvention of online media that
draw lessons from the success of the professional publishing companies without
depending on them for the solutions.


Is there justice in mortgage loan fraud? Is it fair that massively parallel
trading systems that serve no social purpose hide their light under a bushel and
reap their harvest under a cover of darkness? Does the righteousness of the law
imbue those who parcel their time out in 6-minute increments? In the era of
liquid information, are $500 database searches and 35 percent profit margins
necessary to sustain the authoritativeness - and therefore the legitimacy - of
the law (stare decisis!)?

Perhaps it doesn't matter. The markets will decide. And when the markets
function poorly, the government will step in, should step in. That is the dance
of democracy.

However, don't for a moment delude yourself into believing that the American
business community hasn't noticed that it has been taken for a ride by the
banks, the traders, and the law firms. And don't for a 6-minute increment
believe that the American business community hasn't also observed the enabling,
supporting role in the sponsorship of this mayhem of the professional publishing

Let me give you two examples.

In its

State of the Legal Industry Survey
, LexisNexis reports that
corporation counsel believe law firms are too profitable and that they are not
doing enough to reduce costs and fees. Many corporation legal departments have
shifted legal work in-house and taken steps on their own to reduce spending on
outside counsel. In response, law firm attorneys say that corporation clients
should worry less about cost and more about quality.

But if dry survey results don't turn your crank, maybe

will. At the Future of Education Conference sponsored earlier this
month by Harvard Law School and New York Law School, United Technologies General
Counsel Paul Beach went medieval on both law firms and (another enabler) law
schools. Here are some choice morsels from Beach.

We don't allow first or second year associates to work on any of our matters without special permission, because they're worthless.

I'm passionate about killing the billable hour.

I want to destroy the large pyramidal law firm structure.

I don't mind paying [lots of money] for world class experts ... but I'm not interested in the whole tail of associates that comes with world class experts.

And what of Westlaw and Lexis? Let's just say that corporate legal
departments don't like paying astronomical legal research fees any more than
they enjoy getting soaked by the hour for legal advice, or losing access to
credit when the debt markets freeze up after another Wall Street bacchanalia.

Evidence for this antipathy isn't limited and anecdotal. It is rife,
plentiful, and unassailable. Law firm attorneys and librarians themselves freely
admit that Westlaw and Lexis as necessarily evils, more focused on extracting
incremental revenue with the exquisite precision of a proctologist than on
delivery value that exceeds the cost of their products (the true measure of a
useful business). We may notice the irony of these remarks, and wonder if the
pot is not calling the kettle black. But nonetheless. Legal research cost
recovery is administratively burdensome, it poisons relationships with clients,
and it no longer pays the bills.

Specifically, the internal dynamics of large law firms dictate that cost
centers such as libraries experience enormous pressure when the bons temps
cease to roulez. In this pressurized environment, Westlaw and Lexis are
not viewed as allies in efforts to manage the cost of information, particularly
as historically successful cost-recovery systems based on billing research
charges to clients have crumbled. Corporate legal departments often simply
refuse to pay these charges, leaving the law firms to support massive legal
research expense burdens. That was never part of the bargain they made with
Westlaw and Lexis.

As an aside, law firm librarians and attorneys are interested in and excited
about Bloomberg Law as a research platform, but none would pretend that
Bloomberg will ease their budgeting burden.


The (w)reckoning, should it come, will happen this way.

First, financial regulation will

and sequester financial engineering so that speculative derivative
transactions no longer drive the markets while hiding in plain sight. Banks will
have to return to making money the

old-fashioned way
, by serving the needs of real customers, not by gaming the
markets. In theory, the great Wall Street money machine will shrink back to
something closer to what it used to be, when it represented an integral, but not
outsized (metastasized), element of the national economy.

Second, the legal profession will realize that its days of wine and roses may
also be numbered. The delusional - if not smug -

in the industry press about how the only challenges corporate law
firms face are to develop more transparent billing practices for their
corporation clients entirely miss the point. The great market unraveling has
shredded the conditions that supported the traditional (pyramidal) law firm
business model - unconditional client dependence on the oracular expertise of
attorneys uniquely trained to navigate the complex mysteries of the
financial-legal-regulatory complex.

And this returns us to our friends at Thomson Reuters, Reed Elsevier, and
Bloomberg, who - no less than their financial institution and law firm customers
- will have to face the reality of a shrinking market for their services. Senior
executives at these publishing companies continue to assume profit margins will
return to "norms" of 35 percent. But the market for legal and financial research
will probably never recover sufficiently to support anything close to these
margins. And with Bloomberg Law determined to lay imperial claim to the existing
market for high-priced legal research - they smell blood - we will now witness a
Shakespearean struggle of these three titans to seize control of a blasted
landscape. Will anyone even envy the winner?


About 30 years ago, professional publishing companies struck a Faustian
bargain with financial institutions and corporate law firms. Like the pilot fish
humping along behind a ship and inhaling the blowback from its turbines, these
publishing companies became dependent on financial extravagance, massive deal
flow, complex litigation, and intricate regulation produced by the
financial-legal-regulatory money machine. The publishing companies cannot
sustain their profit margins if this money machine ceases to exist as it has for
the past 30 years.

In the market for legal research, the money machine grinds to a halt when law
firms can no longer pass through expensive research costs to customers and have
to absorb these costs as law firm overhead. If this trend continues,
professional publishing companies will not generate the kind of surplus cash
that has given them the recent ability to reinvent themselves as media

The technology advantage of professional publishing companies is real. Now
and in the future, the dissemination of news and information will occur via
sophisticated search; instant delivery of documents and data; and deep, defined
analysis of bounded information domains. The old style of print journalism will
never really return - the new model will embrace verticals and mine data and
tell stories based on that data.

In the digital age, information does not want to be either free or
expensive. Information merely wants to be.

For this reason, their technology expertise notwithstanding, it is not a
given that the professional publishing companies will dominate the media
landscape. The organizational foundations of professional publishing companies
are expensive to support. Their cost structures require that information also be
expensive. However, Thomson Reuters, Reed Elsevier, and Bloomberg have no
monopoly on the technology, and the technology to create new information and
news delivery platforms is not expensive.

In this respect, the professional publishers have returned to being merely
ordinary companies. In the future, they will compete with new rivals without the
structural advantages that have until now fueled their growth and reinforced
their market position. This is good news for the American business community,
and for the future development of a vital, healthy, and prosperous news and
information industry in the United States.