McGraw Hill CEO on Capital Markets and Educational Technology

TOM HUDSON: One of the trends that we`ve been seeing lately is companies
announcing break-ups, breaking themselves into pieces. Kraft (NYSE:KFT),
ConocoPhillips (NYSE:COP) and McGraw-Hill (NYSE:MHP) are among them. We recently spoke with McGraw-Hill (NYSE:MHP) CEO Terry McGraw about the growth potential for his
education and financial businesses.

HAROLD “TERRY” MCGRAW, CHAIRMAN & CEO, MCGRAW-HILL: What we`re seeing
is as banks are limited in terms of some of their funding for private
sector investment and getting capital to the private sector, what`s taking
over in the bond market. Right now in terms of lending in the United
States, about 50 percent of the capital being raised is coming from banks
and about 50 percent is coming from the bond market. Right now in Europe,
80 percent of the capital being raised is coming out of banks, 20 percent
out of bond markets. That will shift dramatically. And as that 20 percent
becomes 30 and 40 percent, again, we will benefit from that.

HUDSON: What about the Dodd-Frank financial reform act, specifically
the Volcker rule which would ban banks from proprietary trading, trading
with their own money. Could that impact business in the U.S.?

McGRAW: Not really. I think that what we`re going to have to see
though is some amendment to that and actually, Tom, this is a great point.
Because what we`re seeing literally around the world is individual
countries coming up with some regulation in the financial markets and for
credit rating agencies as wells and there`s tremendous uneasiness. We
need some regulatory coherence. I`d like to use the word harmonization, but
maybe we start with coherence. But we need to see a leveler playing field.
We`re not against regulation, but we need smart regulation. And what we
want to stay away from is those things that are going to hurt the markets
and create these unintended consequences.

HUDSON: On the education side of the business, I know you`re working
closely with Apple (NASDAQ:AAPL) and its iPad education initiative. What
is the growth potential for textbooks delivered electronically?

McGRAW: Absolutely huge. The digital transformation of education is
the opportunity of the century. What we`ve done with Apple (NASDAQ:AAPL)
and the higher education and professional space, that would be science,
medical and all those kind of — we`ve got about 70 professional titles for
the iPad, and we have about 50 now in the higher education space. This
project that we launched with Apple (NASDAQ:AAPL) is focused on high
schools and we`re failing our kids in America and in our K-12 space. We`ve
got to do a lot of things differently and projects like this and the use of
the iPad, the kinds of materials and the interactive content that you can
put onto this is going to open doors.

HUDSON: One of the challenges though is technology getting it in the
hands of the students. How do you address that when you`ve got so many
layers of regulations? You`ve got local school districts, state and
Federal rules.

McGRAW: We`ve got to get creative about funding obviously. But if
you`ve got an iPad, and what we`re seeing with certain high schools, what
they`re doing, is they`re giving a student an iPad at the beginning of the
semester and they take it back at the end of the semester and you`re
probably going to get a life of three, four years from that particular
iPad. So breaking it down over time, you`re going to be able to be
creative about some of the funding kinds of issues.

HUDSON: We have more of the McGraw Hill CEO interview on our website, nbr.com, including how he thinks America needs to get it`s what he calls “economic
swagger” back.


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