Thursday, August 30, 2007

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.

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10 Comments:

Blogger Day of the Jackal said...

Don't want to invest in HD Radio, since it is stillborn from lack of consumer interest:

http://hdradiofarce.blogspot.com/

10:29 AM  
Blogger Aaron Read said...

Seems like a great idea, John...but I have one big issue that would have to be factored in here: What happens to smaller content providers like PRI and APM, and the dozens of really tiny independent shops? There are many shows out there that aren't produced in the big building on Massachusetts Avenue (or Culver City) but are still "NPR" or "PRI" shows.

I know that generally speaking they don't make a ton of money off affiliate fees to begin with, but I doubt they could easily afford to have that income slashed...and I would think it would have to be slashed to stay competitive with NPR's lowered rates.

This isn't meant to be a bucket of ice water...if there's a way to keep those shows in the black while drastically cutting affiliate fees, I'm all for that.

3:34 PM  
Blogger Aaron Read said...

BTW, Jackal...the HD Radio business model does not require consumer interest to ultimately succeed. Would it be better if it did get it? Of course.

But as long as more and more OEM's change over to only making HD Radio-equipped tuners (and they are slowly doing that) then ultimately HD Radio will succeed.

Also, remember that unlike satellite radio, which needs substantial listener adoption every single quarter just to stay out of the red...iBiquity can afford for significant HD Radio adoption to take 10 or 20 years. It also can afford for you to not adopt it if you so choose...whether you're a listener or a station owner; that's part of the beauty of the system. :-)

3:38 PM  
Blogger Day of the Jackal said...

Aaron,

It is up to the marketplace to determine the fate of HD Radio - consunmers have been totally apathetic. iBiquity is running out of time:

http://hdradiofarce.blogspot.com/2007/07/end-may-be-near.html

See, you are wrong.

4:18 PM  
Blogger RadioSutton said...

Aaron - There's nothing in this plan that requires APM, PRI, or others to stop charging for programming. It does make it harder for someone to charge $30,000 for a one-hour or two-hour show. But that's probably a good thing.

PRI is already asking individual listeners for donations at the end of some programs. They take pledges on their web site. Several independent producers are also soliciting listener support.

Some APM shows, like Splendid Table and Pipedreams, solicit listener support while others (PHC, for example) do not.

The industry is moving in this direction. It is inevitable. The only question is whether it will happen with the intent of helping stations.

12:11 PM  
Blogger RadioSutton said...

Whether HD radio makes it or not is really not the point here. Some stations *are* choosing to invest in it, in part, because they are being encouraged by NPR and CPB to invest in it. Same thing with local news. Neither may ever pay out a financial return on those investments. That's supposed to be okay in a public service environment. Some things make money, some lose money. I'm just trying to show ways to have more money to work with.

12:15 PM  
Blogger Aaron Read said...

It's great to help stations, but let's not screw the shows in the process. Ignore APM and PRI for the moment...they're "big enough" that they can afford to consolidate, diversify, and generally find ways to make up the lost revenue.

I'm talking more about the completely independent productions. Shows that aren't the product of a specific station, and pretty much just produce one product: their show. There's a bunch of these, and many of them depend pretty heavily on any source of revenue they can get. Slash their affiliate fees and I can see many of them going under entirely.

I'm sorry, but I think a serious by-product of your idea would be that it'd make it exponentially harder for new shows to break into the market. The fiscal bar would get that much higher.

I'm not arguing that it's not inevitable, though...I think you've got a point there. But how to do we avoid making it more and more like only the big boys can play?

12:57 AM  
Blogger PocketRadio said...

Aaron Read said...

"BTW, Jackal...the HD Radio business model does not require consumer interest to ultimately succeed. Would it be better if it did get it? Of course."

BTW Aaron,

iBiquity does need consumer interest, in order to succeed:

"IBiquity sees digital radio signaling changes to come"

"The company has yet to turn a profit and does not expect to do so in 2007 or 2008, Struble said... Mass marketing and consumer adoption is the last hurdle, Struble said... Representatives of investment firms that have spots on iBiquity's board of directors could not be reached for comment, but Struble said they are excited about the progress the company is making. The focus is not on exit strategies yet, he said."

http://tinyurl.com/3don5y

And, adoption by automakers has been a joke, and satrad is taking over in-dash, as sutomakers are major-investors:

http://hdradiofarce.blogspot.com/2007/11/ford-takes-advantage-of-free-promotions.html

What you fail to realize, is that unlike the 1960's, 1970's, and 1980's conumers no longer buy radios - seen a "radio department" in any retailers anymore?

Greg Smith
http://hdradiofarce.blogspot.com/

11:39 AM  
Blogger PocketRadio said...

Oh yes, I forgot to mention that iBiquity's fees for the HD chipsets are passed onto consumers and automakers, who have been unwilling to spend hundreds-of-millions on installing HD radios. HD radios would need to be subsidized by the radio industry, but since that industry is dying, that isn't going to happen:

http://hdradiofarce.blogspot.com/2007/11/ubiquitous-hd-radio.html

11:55 AM  
Blogger PocketRadio said...

"'You Are Listening to 98.7 HD-2'"

"Yet while various tuner displays can distinguish HD Radio stations, any future changes must be balanced against cost considerations for receiver manufacturers. Getting HD Radios in cars is critical to generate volume digital receiver sales, experts believe.

OEM receiver makers are stressing the importance of keeping costs down because automakers can veto radio features.

An auto company executive knows the selling price of a new car before it's built, Marrah said. That executive is given budgets for materials and labor.

"He's asking, 'What's going to help me sell that car?' If he doesn't perceive that (a new feature) will help bring people into dealerships, he won't spend a penny on that," Marrah said.

http://www.rwonline.com/reference-room/iboc/01_rw_multicast_4.shtml

HD Radio's licensing fees structure is partly killing HD Radio.

12:07 PM  

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