Run your business (into the ground) the Marvel Comics way

The collapse of Marvel comics in the 1990s is legend – one everyone can learn from.

Sean Howe's new book, Marvel Comics: The Untold Story, sounds like it will be an interesting read for more than just comics aficionados. The fall of Marvel in the 1990s is a lesson in failure which is applicable far and wide.

In July 1991, the company went public, with a market cap of $41.4m. The month after, it relaunched X-Men, with superstar creators Chris Claremont and Jim Lee, and, with the help of five different covers, the first issue shipped almost 8 million copies, still a record for the modern age.

But by the end of the year, Lee – along with other key figures, including Eric Larsen, Rob Liefeld and Todd McFarlane – had left Marvel over poor treatment, and just five years later, following a disastrous string of acquisitions, the company filed for Chapter 11 bankruptcy.

A large chunk of this sorry period is covered in an excerpt of Howe's book over at the Comics Journal. Their failures may seem specific to their industry, but they represent flaws in thinking which are alarmingly common.

The single biggest cause of Marvel's collapse was its desire for a quick buck. Inspired by the genuine success of X-Men #1 and its variant-cover driven sales, the company wholeheartedly embraced gimmickry. For instance, Amazing Spider-Man #365, the 30th anniversary of the character, came with a holographic cover, and an increased page count – but also a cover price of $3.95, over twice a normal issue. The results were a slow-motion car crash:

For every enhanced cover, a meeting was called to determine special pricing. It wasn’t just the cost being added, of course, but extra profit margin as well. Add in markups between distributors and retailers, and the ten-cent addition of foil on the cover translated to an extra dollar on the cover price. This, however, wasn’t a problem for Marvel — price increases had been a part of the plan all along, a promise to the stockholders. . .

[Director of Sales, Lou Bank]’s concerns weren’t rooted in some naïve idealism about artistic purity; he worried about Marvel’s long-term business interests. Field representatives had gone out to nearly forty different stores, collecting sell-through numbers — the number of copies that retailers actually sold to readers, as opposed to the larger number of copies that distributors sold to retailers — for a dozen different comics over a three-issue period. The findings were stunning.

“Every time we did one of these stupid-ass covers that caused us to increase the price by 33 percent—say issue #475—we would have a 20-percent drop-off from 474 to 476. The numbers would spike for #475, but we’d actually lose readers from #474 to #476. It was consistent with every single example.”

Of course, none of this would have an impact on Marvel’s quarterly goals. Marvel’s bottom-line reports, which only reflected distributor-level numbers, would continue to show sales and profits going up, even as the readership began to cool and the retailers, who couldn’t return unsold copies, absorbed the costs. “In the meantime,” said Bank, “we were killing the stores that were feeding us.”

It wasn't just that the gimmickry led to customers being gouged. It also piggybacked on a vision of the industry which was little more than a Ponzi scheme. Customers, both comics fans and people with little to do with the industry, were hearing stories of record-breaking sales of titles like 1939's Action Comics #1 – which introduced Superman to the world – and bulk-buying "important" issues in the hope that they could one day pay their children's college fees with the proceeds.

Needless to say, that never happened. Even 20 years later, all five covers of X-Men #1 can be found for less than £5 on eBay, and many of the lesser "events" aren't even worth the cost of postage. The speculator boom pumped huge amounts of cash into Marvel's pockets, but when the crash came, it nearly took out the industry.

Even worse, Marvel should have known it was coming. In 1991, it spent $265m on Fleer, one of the largest makers of sports cards. In the short term, that acquisition doubled its sales – but as the card market collapsed, due to exactly the the same focus on speculation and "collectibles" which would get comics years later, a large chunk of Marvel went with it.

This lack of focus, ignoring its core business for potential profit elsewhere, also led to Marvel's failed attempt to vertically integrate its business. In 1994, it acquired Heroes World Distribution to use as its exclusive distributor (these are the companies responsible for getting comics from the publisher on to the shelves of retailers). This land grab led to every other publisher to attempt the same thing, but by the end of the next year, it was clear that the diseconomies of scale that that fragmentation had introduced were unsustainable. Distributors started to fold, until just one, Diamond, was left. When an editorial initiative in early 1997 failed for Marvel, they signed up with Diamond as well, guaranteeing one company a stranglehold on the industry.

And then, of course, there's the act which is often seen as instigating Marvel's demise.

Malibu Graphics and the eight Marvel émigrés announced that the artists were forming their own imprint, to be called Image Comics. Although Malibu would be the publisher of record, each artist would own his intellectual property and have editorial control of his work. The press release emphasized that Lee, Liefeld, and McFarlane had been the men most responsible for Marvel’s recent record-breaking sellers, and played up the idea of Image as a refuge for creators who wanted to retain creative and economic rights. By the time Image’s maiden title, Youngblood, was published, its advance orders had nearly reached the one million mark. Todd McFarlane designed T-shirts to promote Image’s second release, Spawn, which would showcase the character he’d already slyly previewed in his Comic Book Greats interview with Stan Lee. Somehow they were managing to be the hot new thing and the underdog all at once. For the first time in its history, the media was painting Marvel as a Goliath and not a David.

The lessons for business are simple, really. Know your product. Treat your staff well. Respect your customers. And don't put Captain America in body armour, because really, that's just silly.

Rob Liefeld's Captain America, an infamous example of 90s excess.

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Let's turn RBS into a bank for the public interest

A tarnished symbol of global finance could be remade as a network of local banks. 

The Royal Bank of Scotland has now been losing money for nine consecutive years. Today’s announcement of a further £7bn yearly loss at the publicly-owned bank is just the latest evidence that RBS is essentially unsellable. The difference this time is that the Government seems finally to have accepted that fact.

Up until now, the government had been reluctant to intervene in the running of the business, instead insisting that it will be sold back to the private sector when the time is right. But these losses come just a week after the government announced that it is abandoning plans to sell Williams & Glynn – an RBS subsidiary which has over 300 branches and £22bn of customer deposits.

After a series of expensive delays and a lack of buyer interest, the government now plans to retain Williams & Glynn within the RBS group and instead attempt to boost competition in the business lending market by granting smaller "challenger banks" access to RBS’s branch infrastructure. It also plans to provide funding to encourage small businesses to switch their accounts away from RBS.

As a major public asset, RBS should be used to help achieve wider objectives. Improving how the banking sector serves small businesses should be the top priority, and it is good to see the government start to move in this direction. But to make the most of RBS, they should be going much further.

The public stake in RBS gives us a unique opportunity to create new banking institutions that will genuinely put the interests of the UK’s small businesses first. The New Economics Foundation has proposed turning RBS into a network of local banks with a public interest mandate to serve their local area, lend to small businesses and provide universal access to banking services. If the government is serious about rebalancing the economy and meeting the needs of those who feel left behind, this is the path they should take with RBS.

Small and medium sized enterprises are the lifeblood of the UK economy, and they depend on banking services to fund investment and provide a safe place to store money. For centuries a healthy relationship between businesses and banks has been a cornerstone of UK prosperity.

However, in recent decades this relationship has broken down. Small businesses have repeatedly fallen victim to exploitative practice by the big banks, including the the mis-selling of loans and instances of deliberate asset stripping. Affected business owners have not only lost their livelihoods due to the stress of their treatment at the hands of these banks, but have also experienced family break-ups and deteriorating physical and mental health. Others have been made homeless or bankrupt.

Meanwhile, many businesses struggle to get access to the finance they need to grow and expand. Small firms have always had trouble accessing finance, but in recent decades this problem has intensified as the UK banking sector has come to be dominated by a handful of large, universal, shareholder-owned banks.

Without a focus on specific geographical areas or social objectives, these banks choose to lend to the most profitable activities, and lending to local businesses tends to be less profitable than other activities such as mortgage lending and lending to other financial institutions.

The result is that since the mid-1980s the share of lending going to non-financial businesses has been falling rapidly. Today, lending to small and medium sized businesses accounts for just 4 per cent of bank lending.

Of the relatively small amount of business lending that does occur in the UK, most is heavily concentrated in London and surrounding areas. The UK’s homogenous and highly concentrated banking sector is therefore hampering economic development, starving communities of investment and making regional imbalances worse.

The government’s plans to encourage business customers to switch away from RBS to another bank will not do much to solve this problem. With the market dominated by a small number of large shareholder-owned banks who all behave in similar ways (and who have been hit by repeated scandals), businesses do not have any real choice.

If the government were to go further and turn RBS into a network of local banks, it would be a vital first step in regenerating disenfranchised communities, rebalancing the UK’s economy and staving off any economic downturn that may be on the horizon. Evidence shows that geographically limited stakeholder banks direct a much greater proportion of their capital towards lending in the real economy. By only investing in their local area, these banks help create and retain wealth regionally rather than making existing geographic imbalances worce.

Big, deep challenges require big, deep solutions. It’s time for the government to make banking work for small businesses once again.

Laurie Macfarlane is an economist at the New Economics Foundation