A New York Times article last Monday, More Cracks Undermine the Citadel of TV Profits, offers the legal market lessons on how unbundling can shake-up established players.
With the growth of media delivery options, consumers no longer must buy bundles of channels from cable companies. They can watch what they want, when they want, on the screen they want, without buying more than they want. Incumbents fight this trend but the bundle likely will not survive:
“[T]he concept of the bundle has been foundational. Ads go with editorial content in print, commercials go with programming on television and the channels you desire are paired with ones you did not in your cable package. People were free to shop for what they wanted, as long as they were willing to buy a bunch of other stuff they did not [sic]…. though bundles may be a handy way of protecting things, they also tend to obscure the weaknesses within. Those flaws are becoming more apparent as the practice of bundling comes under attack…. once the consumer decides, it doesn’t matter what stakeholders want. They can’t stop what’s coming…. The advent of the Internet presented an existential challenge to bundles. Once consumers got their hands on the mouse and a programmable remote, they began to attack the inefficiencies of the system…. Change often comes very slowly, but then happens all at once.”
Substitute a few words and this could describe the market for corporate legal services. BigLaw still dominates but the unbundlers have arrived:
- Alternatives to law firm such as legal process outsourcing (LPO) providers, document review companies, and Axiom Law and its competitors. (For an excellent discussion on Axiom, see Richard Granat’s April 8th post, Is Axiom Law a Law Firm?)
- New types types of law firms such as boutiques (BigLaw expertise without its overhead) and new model law firms such as Clearspire (US) and Riverview Law (UK), which offer fixed fees and lower overhead.
- Law firms that offer unbundled services: Several US firms offer document review service from low-cost service centers. Multiple UK firms run their own alternates, with document review and paralegal support from low cost centers in Belfast, Scotland, or the north of England.
- The Big 4. At The Georgetown Law “Shrinking Pyramid” conference on April 12th, I tweeted “@PaulLippe reports each Big 4 does $2-4B of ‘legal systems’ work adjacent to what law firms do. BigLaw lost out. #LawShrink“. (Note: that revenue likely dwarfs all the the alternatives combined.)
In the media market, consumers eagerly lap up unbundling. In the legal market, general counsels say they want lower cost so one might guess they too lap up the alternatives. But their appetite seems not nearly as voracious as media consumers. An April 19th Legal Week article (subs. req’d), Feeling the squeeze – GCs under pressure to cut costs are pushing for more value from their external lawyers, explains that, in spite of the drive for value, GC are surprisingly conservative about exercising the unbundling choice. It notes
“bringing more work in-house is the most preferable option to help cut legal spend… most GCs feel the easiest way of reducing legal spend is for law firms to cut their charge-out rates and offer alternative billing…. When it comes to outsourcing, in-house lawyers are still sceptical… [and] equally reticent about a new legal services venture set up by Carillion [an innovative ABS]”
So, will unbundling undo BigLaw? Partner profits in BigLaw remain healthy but under pressure. Firms have imposed cost controls and staff hiring freezes. Moreover, BigLaw continues to face an overcapacity problem, which drives a long-term issue of smaller new associate classes and the more immediate issue of “Suicide Pricing” (see Above the Law, Buying In: Suicide Pricing (16 Apr 2013 ) and Bruce MacEwen (Adam Smith, Esq.) in a Bloomberg Law interview, “Suicide Pricing” on Bloomberg Law (12 October 2012).)
As the Times notes, “change often comes very slowly, but then happens all at once.” Only time will tell if BigLaw will face the same challenges as Big Media. Even if it does, it’s worth noting that much of Big Media remains profitable. But the media players and industry structure keeps changing in unexpected and sometimes – for the players – terrifying ways.