Wednesday, March 01, 2006

Shared Sacrifice

(Updated March 2, 8:20a)

Our previous posting mentioned that NPR and stations would have to make some sacrifices if NPR's flagship news programs were to appear on satellite radio in real time.

The sacrifice for stations is obvious. They will receive more competition for their current audience and that creates financial risk.

NPR's sacrifice is on the financial side as well.

These days, NPR brings in essentially the same amount of money in corporate underwriting as it does in station fees and dues.

NPR's program pricing policy allows NPR to charge stations up to 50% of the gross financial value stations derive from NPR's newsmagazines.

Put another way, NPR has staked itself a 50% claim on all individual contributions and business income stations raise on-air and off-air due to programs such as Morning Edition and All Things Considered. NPR doesn't charge that much today, but for some stations, it's getting close.

So NPR gets to keep 100% of the money it raises by selling station audiences to national underwriters. It gets to keep 100% of the money it raises by selling books, CDs, and t-shirts to station listeners through the NPR on-line shop. It is allowed to charge stations up to 50% of the money NPR newsmagazines generate locally.

That means in the NPR-Station Partnership, where one needs the other to raise significant funds, NPR is entitled to around 67% of the money. (note: the original post stated 75%, which was based on a different set of assumption than the ones used here.)

That wasn't a good economic model to begin with, which is why NPR has had to offer dues relief to stations for several years. It's an even worse economic model for stations when listening to public radio is in decline and NPR wants to reach listeners directly via satellite. Those changes are direct threats to station revenue.

Certainly, changing the NPR-Station financial equation to help stations has it risks. And it won't be as easy to do as it is to write about. But the whole reason for getting NPR newsmagazines on the satellite is to grow public radio's public service to the nation and the world. If NPR isn't willing to take a financial risk to do that, why should stations?


Anonymous Man With Tuna Cans said...

Can you post some examples of how commercial radio's financial model for syndication works? How exactly do shows like Rush and Dr. Laura, or Stern (pre-Sirius), make their money for themselves, their syndicators, and their affiliates?

I have a pretty good idea, but I'd like to see it contrasted with NPR's model.

10:00 AM  
Blogger RadioSutton said...

Other than endless commercials?

The strongest syndicated programs make most of their money through commercial sales but do command syndication fees. In return they offer market exclusivity, something NPR does not offer. The lesser programs are often free to stations. Some syndicated programs pay for air time.

Stern provides an interesting example because his show was in AM drive where profits are needed to fund the rest of the station operation. His top station fees were reported at up to $3,000,000 per year. That delivered up to $10,000,000 in ad revenue for what was essentially a turnkey program.

That's a much better finanical return than Morning Edition, especially now that stations believe they have to invest more dollars in ME to localize it further. And the cost of sales in commerical radio is far less than the cost of fundraising in public radio. So on a net basis, the hefty fee for Stern was a bargain.

It used to be that way with Morning Edition, but increasingly, that's not the case. This has to be corrected before Morning Edition can go live on the satellite. Otherwise, stations will suffer from increased costs, less listening, and less revenue.

2:49 PM  
Anonymous man with tuna cans said...

Sounds like the exclusivity is the obvious target for change. The limitations on underwriting...both from the FCC and from the "listener acceptable" windows of time per hour...are too strict to permit either the syndicator or the affiliate to make money solely off underwriting.

I do vaguely remember reading somewhere that even at his peak, Stern only had something like 40 affiliates? Granted, they were all the biggest signals in each market, but I don't think it was that many stations. Is that correct?

11:57 AM  
Blogger RadioSutton said...

Correct. Stern had a small affiliate list relative to Rush, etc. One other difference to note between Stern and the NPR model. Increasingly, NPR is raising money from station listeners. Today, it is major donors. Someday soon, all listeners. At the risk of fanning the flames, that *could* be good if there was a radically different business model in public radio -- like NPR giving its programs to stations for free in exchange for the right to raise money from listeners (no NPR pledge drives, though). But until then, NPR raising money from station listeners is like Howard Stern selling the local inventory on his affiliate stations. It's taking money from the affiliates without creating new value for them.

2:53 PM  

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