It was a nice Thanksgiving out in the western Chicago suburbs. I ate some good food, the Chicago Bears quarterback showed some promise, and I watched more TV than I have in a long, long time.
I cut the cord on cable earlier this year. And between Baby Yoda’s appearance on the Disney+ series “The Mandalorian” and Robert De Niro’s antics in the Netflix film “The Irishman,” I was happy to sit back, relax, and binge on the streaming apps. Plus, it was Thanksgiving and as Kevin McCallister famously said in Home Alone (a holiday classic also available to stream), “I’m not driving.”
So, yeah, I’m part of the reason why Bloomberg News reported 40% of traditional pay TV subscriptions are at risk over the next five years, citing a report from research firm MoffettNathanson.
What does all this have to do with the changing Big Law marketplace? After all, selling media content is very different from offering legal advice. But at the very least, cable companies’ woes provide a case study of what business “disruption” can look like, albeit on a very different scale.
“Information providers have monopolies. Lawyers have monopolies,” said Dan Linna, a professor at Northwestern’s Pritzker School of Law who has studied innovation in the law. “Some of these monopolies are breaking down. Sometimes they break down because of regulation, and other times they break down because of better information sharing.”
Last year, the five largest U.S. pay TV providers saw subscriptions shrink 4.2%, according to Variety. It was at least the third year in a row of declines.
Things aren’t nearly as bleak for the AmLaw 100. This year, the nation’s 100 largest law firms are on pace to grow revenue around 5.5%, according to industry observers. The industry has had one year of negative growth in recent memory—back in 2009.
What would it mean if 40% of the AmLaw 100’s revenue was at risk over the next five years?
For a baseline, the country’s largest firms are on pace for combined revenue around $104 billion next year. If 40% of that, roughly $40 billion, were wiped away it would be the equivalent of eliminating the country’s 19 largest firms. Goodbye, Kirkland & Ellis? Sayonara, Paul Weiss? To again quote Kevin McCallister: “I don’t think so.”
But there are still some parallels between the pay TV and legal markets worth examining.
The Economist reported last month that the entertainment business has spent $650 billion over the past five years on acquisitions and investments in programming. Much of that jolt comes from new competitors offering cheaper, better quality viewing options for consumers. That, in turn, has increased media consumption.
In the legal industry, the corresponding investment over the past five years comes on a much smaller scale but is also relatively significant. Much has been made about the fact that $1 billion or more has been invested in legal technology and alternative providers for two years in a row. That has led to some new and more efficient offerings for consumers. Think of machine learning software’s impact on due diligence projects or contract analysis.
The cable TV world is undergoing a dramatic shift in its delivery model. For most of my life, cable packages have been the antithesis of consumer choice. Programming bundles came in a few options, the most expensive of which contained the premium channels. Now, I can rewatch “The Sopranos” on HBO NOW for $14.95 a month without paying for 100 other channels I don’t watch. It’s a great unbundling, and I am a big fan.
Liam Brown, chairman and CEO of law company Elevate Services, has a cable package that costs around $200 a month. He keeps it around for sporting events he can’t find on his streaming services, which are enabled via Apple TVs throughout his house.
That’s a good analogy for the kind of pick-and-choose model Brown sees developing in the legal services market. If the cable companies are the law firms, they will still be able to charge premiums for the most important legal advice—even if consumers want more efficiency. But players like Elevate, UnitedLex, or the Big Four will pick up some of the other work.
A similar view was expressed in a white paper released last month by Allen & Overy’s Jonathan Brayne, who leads the firm’s tech innovation space Fuse. Brayne says the industry is approaching this decade a “tipping point.” The future legal market will be characterized by providers offering a broader range of services to clients, Brayne writes. There is no clear winner yet.
“Time will reveal the extent to which those leaders will be drawn primarily from law firms as they diversify beyond their conventional resourcing, technology and business models, or whether they will fail to transition to this new world, leaving a vacuum for the Big Four or the more agile alternative legal service providers to occupy,” the report says.
Brown agreed the rate of disruption in the legal market is far different from what’s happening in pay TV. He noted that a recent Altman Weil survey of chief legal officers showed their spending on non law firm vendors of legal services has held steady around 6%.
“I actually don’t see this as the law companies trying to pursue massive market share,” Brown said. “I see law companies as a foil to allow law departments to say [to law firms], ‘If you don’t work differently, we’ll find someone that does.’ So every year, law firms will work a little better.”
The real game-changer, Brown said, is when law companies or the Big Four develop “practice of law” capabilities that rival the big firms, which requires state bar regulatory change. Brown said he doesn’t see that purchasing shift happening within his tenure as CEO of Elevate.
More likely, he said, within five years law companies will be helping law departments make purchasing decisions.
That’s a bit less dramatic than cutting the cord. But that shift would mean law firms are selling their services to a customer that demands efficiency. Law firms can start adjusting to that world now before their offerings look as outdated as a cable bundle.
Worth Your Time
On Lateral Hires: Making a move in the New Year? The ABA has some advice on the ethics involved in a transition. It’s important, for starters, that lawyers don’t forget to tell their clients they are moving.
On Forced Retirement: Armstrong Teasdale won a bias case arising from its decision to force a 70-year-old equity partner to retire. The U.S. Court of Appeals for the Eighth Circuit said his equity status meant he wasn’t an employee.
More Disruption: My colleague Brian Baxter writes about the role of the former general counsel of AOL Randall Boe in the ultimately unsuccessful effort to save the Arena Football League. The AFL, home of the “50 Yard Indoor War,” recently filed for bankruptcy.
That’s it for this week. Thanks for reading and please send me your thoughts, critiques, and tips.