Financial Adversaries or Financial Allies?

We've heard that NPR management and the NPR board are starting a new conversation about public radio's financial future in the digital age. That's a good thing.

We think one of the critical questions to be answered is this, "are NPR and its member stations financial adversaries or financial allies?"

The obvious answer should be "allies" but that's not how it's been. Decades ago, NPR's budgeting process was extremely contentious, and often adversarial, as NPR tried to grow and stations tried to keep their NPR dues to a minimum. Tensions were reduced, but not eliminated, when NPR's fee-setting procedures were largely linked to revenue or audience performance. Tension is on the rise as NPR builds an audience and revenue base independent of stations.

Many station managers see this as a threat and NPR often fuels their fears through its actions, or inaction, regarding the future public radio business model.

But NPR is not solely to blame here. Public radio station managers have to accept that the business model is changing and that clinging to the policies and practices of the past could severely damage their futures.

The problem is that there's not enough trust between NPR and its stations to fully implement the types of changes needed to help stations thrive in the digital marketplace. We covered the trust issue in a previous RadioSutton post.

Even if NPR made all of the right moves (and it hasn't), it has developed fundraising initiatives and floated ideas that could greatly benefit stations and NPR. Many of those ideas never gain traction because of a lack of trust on the part of stations.

For public radio to move forward, more station managers have to show some leadership and take some risk by trusting NPR. No matter what NPR does, it cannot function as a financial ally to stations if station managers have already decided NPR is a financial adversary.

Then a Miracle Occurs

The current plan for public radio's financial future reminds me of this classic Sidney Harris cartoon.

DeadRadio 2020: The Financial Implications

During her interview at the D8 conference, NPR’s President and CEO Vivian Schiller talked about the death of radio broadcasting in the next decade. She referred to it as the end of the monopoly of the broadcast tower.

This posting is about how today’s public radio economy depends almost entirely on the monopoly of the broadcast tower. It is not a debate about the death of broadcasting. We disagree with Schiller's assessment. This posting further plays out the “end of monopoly” scenario.

For decades, the tower was the exclusive source of public radio’s most valuable network programs including NPR News, Marketplace, Garrison Keillor, and the Car Guys. And more recently This American Life and Wait Wait Don’t Tell Me.

Listeners donated money to preserve their stations because they would miss the programming if it were to go away. Businesses sponsored the programming because it was the only way to reach a highly desirable audience. CPB awarded community service grants to stations because they were providing public service programming on a scarce, protected public service broadcast channel.

All three of those revenue sources will be severely disrupted as stations’ monopoly on public radio content weakens. There is no way today’s public radio economy survives as it is today if, as Vivian Schiller suggests, radio broadcasting is dead in the next decade.

Listeners

It is folly to believe that, once radio towers are gone, all listeners will simply transfer their listening to a stream from their local public radio station. Based on current Arbitron AQH data, major market stations would have to support 30,000 to 50,000 simultaneous streams of programming all day long, every day for a single service. Station groups such as WNYC and Minnesota Public Radio might have to support more than 100,000. Stations in medium-sized markets would have to support up to 12,000 simultaneous streams.

That’s not going to happen. Station audiences will fragment once all listening is on the web, once the number of competitors goes from a few dozen, at most, to thousands. Some listeners will stream local stations. Some will listen exclusively to on-demand. Some will listen to out-of-market stations. Many will engage in a combination of the above.

In an all-Internet world, stations will no longer be full participants in the distribution of NPR programming. NPR’s mobile strategy is designed to corner the market for on-demand listening to NPR and minimize that listening through station sites. In fact, NPR has actively worked against stations offering NPR content on-demand.

This fragmentation will significantly reduce the number of listeners to local public media websites and listener loyalty to those outlets. It will decrease the number of core listeners to each outlet. Core listeners are the life blood of a station donor base. Fewer Core listeners on the web, combined with listeners’ ability to access the network programs in the absence of the local station, will result in fewer contributions. We touched on this in a RadioSutton posting some time ago.

Some people believe that providing local news will make-up for the loss of listening to national programs. It won’t. Local news has less drawing power, is more expensive to produce, and has proven to have less fundraising power that the network news. The combination of less audience, fewer pledges, and greater expense will not help the budgets of local public media outlets. The network programs, cheap to acquire on a cost-per-listener hour basis, provide the greatest revenue surplus to stations. Diminish those hours of listening and stations’ net revenues diminish. That will, in turn, diminish revenue to the networks.

Businesses

Radio’s ability to aggregate local audiences at any given moment will never be matched on-line. In many markets, the NPR News programs generate average audiences in the in the tens of thousands. The audience demographics are superb and businesses pay a premium to reach all of these listeners in a relatively uncluttered environment.

Annual contracts in medium to medium-large markets can exceed five figures. Six figure underwriting agreements are not unusual in large markets. Increasing the number of those contracts as the broadcast audience fragments and diminishes won’t happen. Unlike a public radio station, a local public media provider will have more competition for local ad dollars. And local public media outlet’ will be doubly hurt if they cannot put local underwriters adjacent to network content as they can today.

This brings us back to the on-demand piece. If listeners are getting their network on-demand content directly from NPR and not through local outlets, then local audiences will be smaller and much of the cache of local underwriting goes away.

The net effect is less revenue for the local outlet. Among DEI Benchmark stations, local underwriting makes up on average 39 percent of all revenues. Underwriting exceeds membership support at several stations. Major shifts in listening from the radio to the web will reduce business support at most local outlets and the trickle up effect means less revenue for the networks too.

CPB

CPB Community Service Grants exist because of the monopoly of the broadcast tower. Federal funding will come under attack as broadcast towers become less relevant. If federal funding doesn’t go away all together, CPB will be under enormous pressure to fund a wider-range of non-profit media websites that claim to fulfill the same mission currently served by public radio and public TV. Not only will station revenues go down, and network revenues with them, but public radio is also likely to get embroiled in new debates over objectivity and perceived bias in programming.

New Revenues

An argument can be made that the shift from broadcast to web-only service presents new revenue opportunities, especially from major donors and foundations. That might be true but neither of these sources should be considered long-term operations revenue. Financial sustainability doesn’t rest on a few large benefactors.

Back to the Original Point

The original RadioSutton post the death of radio stated that NPR had to be thinking about direct listener fundraising as part of its future revenue mix. We continue to believe this despite Vivian Schiller’s statement that these contributions are the domain of stations.

This year stations will pay some $68 million to NPR for programming services. Local public media outlets won’t have that kind of money to send NPR in 10 years if the radio towers are gone. It would be foolish to believe otherwise. And since NPR is unlikely to slash budgets as stations dollars shrink, there’s only one place to get the revenue -- listeners.

That day might not come soon, but it will come. NPR will accelerate the process if acts as though the towers will be gone in a decade. In that scenario, NPR cuts back or ceases to invest in radio programming , promotion, and fundraising services for stations. In that scenario, NPR continues to develop an on-line strategy that considers stations minor affiliates rather than full partners. In that scenario, NPR is unconcerned with a business model that advances the financial health of NPR and its member stations.

Or, NPR could take the posture that radio is still worthy of investment, that there is growth potential in radio. It could take the position that NPR and stations are better off if listeners can get all programming, streaming and on-demand, from every NPR-affiliated web site. It could take the position that the current public radio business model is a liability today and start working to improve it.

Imagine how much progress could be made on the difficult financial issues facing public radio if NPR put as much effort into that as it puts into developing its own on-line services.

A Leadership Crisis in Public Radio?

NPR CEO and President Vivian Schiller thinks that broadcast towers will be gone in 10 years.

The CPB/SRG Grow the Audience project calls for increasing by 50% in public radio's average audience in the next 10 years, doubling the weekly Cume, and tripling the number of weekly listeners of color. Central to that plan is acquiring more broadcast signals.

Which way are we going folks?



Note to those following this thread: The posting on financial implications of radio being dead in 10 years will go up on Wednesday.

Will Radio Really Be Dead in 10 Years?

The Internet will change radio. It already has and it will change it even more in the coming decade. NPR President and CEO Vivian Schiller thinks the change will be so rapid that traditional terrestrial radio will be dead by 2020.

The implications for public radio are staggering whether she is right or not. NPR is the 800 pound gorilla in public radio. Its corporate position and planning dramatically affect policy, funding, spending, and partnerships throughout public radio. NPR itself won’t cause traditional radio to go away but this new posture could accelerate the process and damage member stations and NPR along the way.

The next few RadioSutton postings will explore the implications of NPR’s new position and will test some of the assumptions being made by NPR and others on the future of public radio.

Today -- will radio really be dead in 10 years?

A large part of Schiller’s logic rests on the assumption that bringing the mobile Internet to cars will kill the need for broadcast towers. Built into that assumption:

• By 2010 every vehicle – or at least the vast majority -- will be equipped with the technology to receive mobile web services, even if it’s just a mini jack for a mobile phone
• A vast majority of vehicle users will be willing to pay fees to access the those services in every vehicle
• A vast majority of people will replace the 3 to 5 radios they have in their homes with wireless Internet audio devices
• Portable radio use – such as listening on a walk, at the beach, or at a ball game – will occur completely on mobile Internet devices or go away all together

Let’s do some numbers.

There are 254 million passenger vehicles registered in the U-S today. The median age of cars on the road today is 9.4 years. The trend is for people to hold on to cars longer these days but let’s assume the median age of cars doesn’t change in the next decade.

In 2020, half of all cars on the road will be from model year 2011 or older. Put another way, almost half of all cars expected to be on the road in 2020 are on the road today.

A small fraction of cars in 2011 will come with pre-installed mobile Internet devices. All of them will come equipped with radios. That trend will continue for several, if not many, years.

Implicit in Schiller’s vision is that cars will eventually come without radios at all. Why put a radio in a car if there are no towers? That argument assumes there will be a tipping point when listeners across almost all demographics and all radio formats, commercial and non-commercial, will abandon the free radio on the dashboard for mobile content that costs money in the form of data usage. The argument assumes the same behavior will simultaneously occur in the home over data networks and personal wireless networks.

Based on Arbitron data*, some 228,000,000 people age 12 and older use broadcast radio each week. Billions of time each week, they choose to turn on the radio. They spend more than 3.8 billion hours listening to broadcast radio each week.

How much of that behavior has to change and how much of that consumption has to go away to kill the entire radio broadcasting industry? Technology itself won’t be enough to drive the change. Certainly not in just 10 years. The listening experience has to be better too, worth paying for with at least data costs. That’s not going to happen in the next decade either. The overall marketplace will change some, but not that fast. Radio will still be around.

Public radio stations will still operate their transmitters in 10 years. The question now is whether it will be economically viable to broadcast NPR News over those signals. That is in Vivian Schiller’s hands today. More in the next posting.

* Source: Arbitron Radio Today 2009

Vivian Schiller: Public Radio Over in a Decade

NPR President Vivian Schiller must know that the 34 million people who tune to NPR stations each week do so by listening to radio waves. She must know that the 27 million people who hear NPR programming each week are not really a single "national" audience but an aggregation of local station audiences. She must know that the $68 million in station revenue NPR receives annually is dependent on the quality of station broadcasts and fundraising. She must know all of these things.

And Vivian Schiller believes all of that will be gone in 10 years.

Yesterday at the D8, the Wall Street Journal's All Things Digital conference, Vivian Schiller stated that radio towers will be gone in the next decade and that listening will move on-line, with mobile playing a key role. She also said that stations' roles will be to do what NPR can't -- provide local, regional and state coverage.

It's an incredible statement given that Schiller also said NPR is not trying to do an end run on stations.

How can that be?

NPR's strategic thinking clearly does not include radio audiences or radio revenues in 10 years. It can't. Not if the towers are gone. So what replaces the $68 million NPR now gets in station revenues? It's not all business support.

That kind of money comes from listener contributions.

With member stations out of the way, NPR has to be thinking about direct listener fundraising. There's no other model.

The implications for strategic planning are incredible. Most stations believe they still have a few good decades left in them. Vivian Schiller is betting against that.

It will be interesting to see how the NPR Board balances the interests of NPR's member stations against a corporate vision that financially requires the near-extinction of those stations and the migration of their listeners to NPR platforms.

This American Life and Direct iPhone Fundraising

This American Life is generating some buzz with by fundraising with its iPhone app. At issue, TAL is pushing fundraising appeals to iPhones when users are not even listening.

Read more at artstechnica.com.

As noted in a recent posting, NPR is outpromoting most stations on their own airwaves. Is this the beginning of networks and program producers outfundraising stations on the web as well?