Generative AI may be a net positive for information companies

This analysis is by Bloomberg Intelligence Senior Industry Analyst John Davies. It appeared first on the Bloomberg Terminal.

Generative AI may create new revenue for information companies and lower the cost of research while improving product quality, though less-specialized customers may be at higher risk, with Pearson relatively exposed. Most information companies may deliver steady revenue growth in 2025; Relx may again meet 7-8% expansion, far above its pre-2020 4% norm.

Relx revenue expansion better founded than Pearson’s

Information providers Relx, Pearson, Wolters Kluwer and Informa have diverging revenue prospects, though they all enjoy operating leverage with sticky cost bases. Relx is pivoting further away from print and into digital delivery of higher-growth areas such as big-data driven decision support for financial services clients, which could mean its 2025 revenue is 35% above 2019’s.

In contrast, Pearson suffered from a decline in its US higher education courseware business pre-Covid and may be set for a 3% decline between 2019 and 2025, despite a push for Pearson+ (direct to consumer), testing growth, English-language teaching and M&A.

Informa is relatively exposed to in-person events, explaining the sharp decline in 2020, yet could be set for high-single-digit organic growth following 2022’s large disposals.

Open access threat could be manageable

A push to make research results freely available could dent profitability for academic publishers including divisions of Relx, Informa and Wolters Kluwer, though implementation has been slower than some hoped and the companies are working with research-funding partners to change revenue models. Publishers point to the superior quality of “their” research, backed up by citations data — this looks to be a plausible argument.

Publishing isn’t free nor a core skill set for academics. Editing, proofing and organizing a peer review is done more efficiently by outsiders so there may be an ongoing role for publishers despite many academics’ desire to bypass them. These bring extra speed yet increase the volume of research, making it harder to filter for quality — compounded by “paper mills” producing often fraudulent research.

Event revenue growth sustainable given broad demand

Relx and Informa’s events businesses delivered trade shows and industry events above 2019 levels in 2023, expanding further in 2024. Both companies saw strong demand limited by restrictions on gatherings and travel, but this may have only delayed revenue rather than created absolute losses. Consensus calls for an ongoing rebound, expecting Relx’s 2024 event sales will reach £1.24 billion only fractionally below 2019’s £1.27 billion.

Informa’s in-person segments generated 70% of 2023 sales from exhibitor and attendee fees, up from 62% in 2022. Its acquisitions of Ascential (completed in Oct.) and TechTarget (planned in 4Q) reinforce this.

Generative AI benefits could outweigh risks

Large language models (LLMs) like Chat GPT may give information providers, including Informa, Pearson and Relx, more powerful products. Companies are offering services to summarize documents, draw up first drafts of agreements and greatly improve search. The data already available to the companies is a key advantage, carefully curated and in many cases protected by copyright (Informa booked significant revenue in 2H). Information providers have all invested in generative AI — Relx’s legal product is one of the more mature.

There may be a threat from publicly available LLMs to less-specialized knowledge areas, with Pearson the most exposed with its higher-education courseware business. Yet even here Pearson has solid arguments against LLMs, including factual inaccuracies in some outputs and a resulting lack of trust.

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