The quarterly publication of the International Legal Technology Association
Issue link: https://epubs.iltanet.org/i/11430
Law2020™ The Future Starts Now The 1990s bore out that prediction. Newspapers and media companies the world over seemed to manufacture cash. Perhaps foremost among those, at least in the eyes of the investing public, was the Washington Post Company. Warren Buffet, recognizing the cash potential of the media business, first began investing in The Washington Post in the ‘70s. By the mid-’90s, it had become one of the best in a long series of spectacular Buffet investments, one he often proclaimed a stellar choice. Newspaper and media company shareholders, board members and executives had every reason to be optimistic as the new millennium approached. The euphoria was bolstered by a history of revenue growth and increasing returns that few other industries could match. What possibly could go wrong? The first decade of the new century killed that euphoria. Advertising revenue, by far the main source of revenue for newspaper and media companies, peaked in 2000. But as the new decade progressed, those revenues began to oscillate, and then they crashed. By 2009, newspaper advertising revenues had fallen, in real dollars, to 1965 levels, as illustrated in the chart on page 44. The cause for this decline was twofold. Changing demographics undercut circulation, as younger and more suburban consumers migrated from print to online media. But the key factor undoing print media was the migration of classified advertising to online outlets. As much as 80 percent of a newspaper’s ad revenue comes from classifieds — new and used car ads, real estate ads, employment ads, and the like. Advertisers in most of those areas have now shifted the bulk of their advertising dollars online. Between 2000 and 2009, nearly 70 percent of classified advertising shifted to online outlets. A good example is auto advertising. The following chart from MarketingCharts.com illustrates the problem. eBay now dominates automotive advertising, and other major sites siphon off still more print advertising revenue. Top 10 Automotive Classifieds Websites by US Market Share of Visits % March 2010 eBay Motors AutoTrader.com Cars.com Copart Auto Auctions Automotive.com RacingJunk.com Car-Part.com Truck Paper Carsforsale.com CycleTrader.com 13.93% 5.38% 1.82% 1.70% 1.43% 1.38% 1.18% .77% .70% Source: MarketingCharts.com All Along the Watchtower Many signposts in the legal industry point to a coming transformation of significant magnitude, perhaps even one as deep and dramatic as that which befell the newspaper industry. Principal evidence of such change is the pivotal shift of attitudes among the people who are responsible for hiring and paying law firms. In a recent LexisNexis survey, 58 percent of corporate counsel believe that law firms are too profitable. That “too profitable” message is not, on its face, terribly nuanced. However, a broader look at the marketplace adds a Peer to Peer the quarterly magazine of ILTA 45 57.65% As a consequence of these steep declines in circulation and ad revenue, the newspaper industry has become an ongoing tale of woe, of death by the proverbial 10,000 cuts. Newsrooms have been double- and triple-decimated, major dailies have perished the world over, and even flagships such as the New York Times have suffered the indignities of the changing marketplace. The shape of a centuries-old industry has shifted dramatically in the blink of a decade. It is interesting to note that even in the midst of all this woe there were hopeful moments and those who, with almost all evidence to the contrary, seized on that hope. The first waves of staff and other expense cuts in the industry did indeed restore some papers to profitability. But the detrimental impact on editorial content of all those cuts merely exacerbated long term declines in readership. The Rise of the Realists The newspaper industry in particular and traditional media in general suffered greatly over the last decade, but there were winners. Some media companies anticipated the coming shift in demand among readers,¹ the fall of circulations and the flight of advertisers. Those few exhibited great flexibility and agility in shifting their businesses into areas such as cable and online outlets where demand was growing. These companies made realistic assessments of market conditions. They sought ways to syndicate content across media formats, and invested in new outlets, even entire new lines of business. Epitomizing such forward-looking businesses are companies like Rupert Murdoch’s News Corporation, which now has stakes in all forms of broadcasting, cable and satellite TV, new media outlets, as well as a small remaining stake in newspapers. Many of the top media companies have moved almost entirely out of the traditional newspaper business. It is also worth noting the impact of entirely new lines of business on the habits of news consumers and advertising cash flows. What media company has grown the most over the last decade? Google. It is the world’s largest “content mediator” (note well, the term is not “publisher”). Its ability to connect content with consumers enabled it to generate nearly $23 billion in advertising revenue in 2009, an amount roughly equal to the combined newspaper advertising revenue for the top 100 media companies in the world.