Why is Thomson Reuters’ profit margin for tax and accounting resources and services so much lower than its legal resources and services division?

At the close of 2016, Thomson Reuters reported that the operating profit margin excluding fourth quarter charges for Thomson Reuters Legal was 30%. For Thomson Reuters Tax & Accounting, the operating profit margin excluding fourth quarter charges was 20%. This 10 percentage point difference is not atypical in the Company’s annual financial reports for both divisions. Some years the difference is even greater. But why?

I believe there are sufficient similarities to compare these two markets. Consumers in both markets are, for example, information and analytics intensive professionals. Both markets acquire similar information resources with (presumably) similar publishing costs. And both markets are dominated by a small number of very large and expensive value-adding suppliers who offer a similar mix of resources and services in print and digital formats.

Is the answer to the question “why?” that Thomson Reuters’ faces stiffer competition from specialty law publishers like Wolters Kluwer and Boomberg BNA to produce a 10% percentage point profit margin differential? Or is it that tax and accounting information consumers are better price negotiators than we are? I think both come into play. But since one can negotiate better pricing — one has greater bargaining power — in a more competitive market, competition from well-entrenched specialty tax and accounting providers probably is the primary reason Thomson Reuters’ profit margin is 10 percentage points lower that its legal division.

Being privately held, we have no financial data for Bloomberg BNA but we do for Wolters Kluwer. In 2016, Wolters Kluwer’s operating profit margin for its Tax & Accounting division was 26.9%, almost 7 percentage points better that Thomson Reuters’ Tax & Accounting division. One can almost say that Thomson Reuters is an also-ran in the tax and accounting market. Of course, one can also say that Wolters Kluwer is also almost an also-ran in the more general law and regulatory market because that market is dominated by LexisNexis and Thomson Reuters. (Wolters Kluwer reported an operating profit margin of only 12% for its Legal & Regulatory division. Remember, Thomson Reuters Legal reported a 30% profit margin.)

In a practice I would recommend to library budget managers because of the insights to be gained, I have followed the financial reporting of RELX Group (for LexisNexis), Thomson Reuters (for TR Legal) and Wolters Kluwer for several years now, since the beginnings of the Great Recession in fact. This information is handy to have for background purposes when representatives from our very expensive value-adding providers of law and law-related information knock on your office door to discuss their latest offer. — Joe

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