Sunday, November 20, 2011

Does Banking Have Something To Learn From Newspapers?

The November 14, 2011 issue of the New York Times carried separate articles dealing with the current state of the banking and newspaper industries.  With a career in the banking industry that in recent years included financing a newspaper chain, I read each article with interest.  The banking article dealt with how the industry is scrambling to replace the revenue now lost from the limitation on debit card transactions which comes after an earlier regulatory action that eroded income from overdraft fees.  The article actually began on the front page of the paper and continued inside the business section.  It went into detail about the clumsy and much publicized debit card fees that have since been rescinded for the most part.  When you cut through all of the article, it described an industry that was basically saying “OMG (to use today’s texting terminology), we need more revenue to cover our cost”.
The first page of the business section carried the start of an article about John Paton the CEO of Media News Group, a chain of 57 daily newspapers that is rapidly moving its business away from print to digital media.  While this transition may seem inevitable to outsiders, consider what the insiders must deal with in the process.  Digital media product generates about 10% as much income as the comparable print product.  The industry calls it trading in dollars for dimes.  But, instead of fighting the declining trend in print revenue, Paton decided "it was time to start stacking dimes”.   Contrast that attitude to the debit card fee fiasco.  Most estimates I’ve seen put the cost of a debit card transaction in the range of a few pennies.  The new limit reduced the amount charged by banks from $0.44 to $0.22.  While it’s true that profit is being cut by roughly 50%, it still leaves this as one of the most profitable products anywhere…. at least that is still legal!  So instead of discouraging the use of the product by imposing a fee, why not instead react by “stacking dimes”?
The bulk of the content of the two articles was published together on page 6 of the business section.  There, just above the banking headline was a quote from a newspaper insider about John Paton.  Paton, he said “deserves kudos for frankly acknowledging what other publishing CEOs’ won’t, which is that the cost structure will not be supported by the business model for much longer”.  After reading that quote, I went back to the banking article and read it with a fresh perspective.  What the banks were saying basically is that their customers are obligated to provide them with the necessary revenue to cover their cost structure.  No they are not.  No more than consumers of news are obligated to cover the cost of printing a newspaper in every city in America.


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