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.