A Truly New Business Model

Once again, territory we’ve covered before but it’s worth covering again.

Changing public radio’s business model requires more than fiddling with pledge drives and individual giving. It requires changing how stations spend money.

Here’s one way public radio could make more money from listeners, save stations money on network programming, and potentially cut back on pledge drives.

Let NPR raise money directly from listeners in exchange for cutting station dues and fees to an average of $100,000 per year per station. That’s it. The average station would pay $100,000 per year for everything – all programs, all services.

Here’s the math.

In FY 08 NPR will get just under $70,000,000 from station dues and fees. That number gets reduced to around $30,000,000 under the new pricing scheme.

Stations save $40,000,000 in dues and fees which can be invested in some of the local expenses stations are being urged to make -- like local news, HD Radio, and the web.

“But will stations earn as much in listener support?” you ask.

Why yes, they will.

DEI and NPR just embarked on a project to help public radio grow the number of donors from 2.5 million to 3 million annually. Industry benchmarks show this is a realistic goal.

Suppose NPR gets all 500,000 new donors through direct mail and the web. No national on-air pledge drives allowed. Results from other national non-profits suggest this is a very realistic goal.

500,000 donors at an average annual gift of $100 grosses NPR $50,000,000. NPR could spend up to $10,000,000 to earn that money (20-cents on the dollar) and break even on a net revenue basis with the current business model.

By the way, that 20-cents on the dollar is far more efficient than what stations spend to raise money. While $10 million looks like a lot of money, it's important to remember that stations currently spend about $18 mllion to raise $50 million in listener support.

It’s cocktail napkin math, but it works quite well. Will the new donors average $100 in the first year? Probably not. Will NPR get more than 500,000 new donors? That’s very likely.

Will some current station givers donate to the network? Probably. Will it be so many that the station will end up losing money in the deal? No.

Analyses of local market membership roles show that many listeners give to more than one public radio station. Research from a few years ago showed most donors won’t stop supporting one station in their market just because they started listening to and supporting another. That principle will apply in this situation as well.

And there will be new joint station/NPR fundraising opportunities in this model that could further grow station donor bases and net fundraising revenue.

We believe significantly different results require a significantly different effort. Ideas such as these needed to be tested if public radio truly wants to adjust its business model to give stations the flexibility to spend more locally, cut back on pledge drives, or both.

Simplifying On-Line Giving

On-line giving is very simple at some station web sites and an almost impossible task at others. Either way, public radio stations can make the process easier for potential givers by creating a specific web address for their secure on-line pledge pages.

It's such a simple idea it's hard to believe it's not a routine practice in public radio. We first suggested it to a client that is a joint licensee, which requested to remain anonymous for this article.

For those of you unfamiliar with the industry, a joint licensee has at least one TV station and one radio station, often bearing the same call letters. Radio and TV often share a common web address such as WXXX.org. Radio listeners and TV viewers are directed to the same web site to contribute. From there, it is up to the potential donor to find the correct links to make a radio or TV contribution. It can be quite confusing.

Web giving is made more confusing as on-line content directors update their sites with new bells and whistles. What makes for a an engaging web site can work against creating a simple, utilitarian on-line giving function.

In the past, our client created a splash page during pledge drives that give visitors the option to go to the radio pledge page or to the main site. That was a decent solution and it will remain in place.

But our client decided to make giving even easier by acquiring the web address WXXXradio.org and pointing it at the secure on-line giving page. That's the address they will promote on-air for on-line giving. It means listeners have one or two fewer clicks to navigate when trying to give.

Any station can do this, even if it isn't a joint licensee. WXXXpledge.org works just as well. It's easy enough for on-air pitchers to say and for listeners to remember. And it's a good step towards making on-line giving easier and faster.

It's a Spending Problem Too

We’ve covered this territory before but the renewed interest in listener annoyance with pledge drives makes it worth covering again.

Public radio doesn’t just have a fundraising problem. It has a spending problem. Pledge drives will never go away, let alone get better to the ears of the listeners, until some fundamental spending issues are resolved.

Costs continue to grow. Network programming is becoming less profitable as it takes up a larger share of station budgets than it did a decade ago and as stations fill that programming with more local content. Stations are being encouraged to spend more money on local programming, which often does not pay for itself, especially after the initial funders (foundations and major donors) turn their attention to the next new cause. Stations are spending on HD channels. That’s going to be a net revenue loss for the foreseeable future. Stations are spending more on their websites even though those sites can’t pay for themselves.

The typical station is spending around 36 cents in direct expense to raise a dollar in listener support. That’s astonishingly high given that the full costs of pledge drives are not included in that number. We like to think that public radio saves money by raising money on-air, but the numbers suggest that’s not the case.

It’s nice to think that we could address listener annoyance with on-air fundraising without considering the spending side of the equation. Experience suggests otherwise. Over the years several stations have cut way back on pledge drives only to have those gains undone by spending practices that outpaced improved fundraising efficiency.

In the end, station managers almost always decide that making budget is more important fundraising-free programming, even if those budgets are inappropriately high.

Spending too much money? Just add some on-air fundraising. That’s part of the public radio culture. It doesn’t get better for listeners until that part of the culture changes.

More Technology, Fewer Givers

It wasn’t supposed to work this way. The web was supposed to help public radio get more donors with less expense.

That might be happening at some stations but, according to industry numbers, public radio as a whole is raising more money from fewer donors. After more than half a decade of making web giving available to listeners, the technology hasn’t fulfilled the promise.

Some stations report that donors who give via the web are less likely to renew than donors who give via direct mail. That’s really no surprise since so much web giving is due to on-air drives. On-air givers are also less likely to renew than those who give through the mail.

That pretty much sums up the situation. Most web giving is nothing more than self-service pledging during on-air drives. Usually, the web is a substitute for picking up the phone in response to a pitch break. Some listeners respond to the occasional e-mail notifying them of a pledge drive “special” (challenge grant, sweepstakes, or premium). Either way, the gift was generated because there was a pledge drive on the air.

I recently received two e-mails from a public radio station in the middle of a summer pledge drive. The first e-mail implored me to act fast because “the premiums were flying off the shelf.” The second e-mail encouraged me to contribute while I still had the chance to be entered into several sweepstakes.

Neither e-mail asked me to give because I liked the programming. It’s almost as if the author of the e-mail did not believe the station’s programming was worthy of listener support. No technology can overcome that lack of trust in the listeners. But I digress.

The station continues to use these techniques because it earns enough money from them to pay the bills. That’s the definition of “what works” in public radio fundraising. Even when good metrics are available, they are usually ignored. The fact is this station is not among the top performers in listener fundraising. It does fine by public radio standards but its use of the web is not helping it excel at fundraising.

Perhaps five years isn’t enough time to learn how best to use new technologies. After all, there are stations that still haven’t mastered pledge drives or direct mail. It’s disconcerting, though, to think that all the money and time invested in the web hasn’t even helped the industry hold on to the donors it had.

Sign of the TImes

My three year old son doesn't understand why my phone doesn't take pictures.

More On Listener Attitudes About On-Air Fundraising

Sometimes we forget what we already know.

More Expense, Less On-Air Fundraising?

Listeners’ dislike of on-air fundraising is in the industry news again. Much to no one’s surprise, participants in NPR’s underwriting research project took the opportunity to tell NPR how annoying on-air pledge drives can be. NPR is responding by conducting more research, some of which will be available in January.

Addressing listener annoyance with pledge drives might prove to be more difficult now than ever before. Programming expenses, including the fees stations pay to NPR, PRI, and APM, continue to rise. Stations are also being urged to invest more money in social media and local news.

Our experience is that stations tend to add pledge drive days when costs go up. It will be a challenge to get stations to cut back on pledge drives without an alternative source of cash.

We’ve always been advocates of doing as little on-air fundraising as possible and of embracing public radio’s core values, including great production, when producing on-air drives. So we hope NPR will go beyond publishing research results that say “do less on-air fundraising” and choose to help stations raise money more efficiently by providing new fundraising tools and services.

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Click here to learn about reducing an entire pledge drive to one day

Click here to learn about raising a day's worth of money in one hour

Coming soon: How to raise all the money in half the time

Click here to read the Listener-Focused Fundraising Report: a comprehensive study on listener response to on-air and off-air fundraising strategies and tactics

Click here to read the Listener-Focused Fundraising Focus Group Report by Walrus Research