Thursday, May 26, 2011

NPR’s Digital Services Proposal is Really a Membership Issue

The crosstalk about NPR’s Digital Services proposal ranges from practical to apocalyptic, with some parties taking a Harold Camping-like approach to inaction on the part of stations – only the date of doomsday keeps getting pushed into the future. It was supposed to be when podcasting hit, right? Or was it streaming that was going to kill public radio? No, it was television.

Anyway, the world is changing and NPR proposed imposing mandatory* fees on stations to pay for new digital services.At least that’s what it looks like on the surface. In reality, NPR is proposing a major overhaul of its membership model.

NPR’s current membership model is a very democratic approach to membership pricing and it was put in place to eliminate some inequalities that were developing among NPR member stations in the late 1980s and early 1990s.

Currently, all stations pay the same modest fee to become members of NPR. This gets each station equal representation and voting rights within NPR’s governance structure, it offsets the costs of NPR’s National Affairs Department, and covers some other shared costs of operating a membership organization. Stations are also required to pay the membership fee to have access to NPR’s programs.

NPR’s program prices are separate from membership dues. Program prices are variable based on each station’s ability to pay, and in the case of the newsmagazines, the audience they attract. There is a relationship between the value received from broadcasting the programs and what stations pay. Since all programs could be purchased a la carte, a station could pick and choose programs that created the best value for its mission.

It wasn’t always this way. A portion of the programming costs were wrapped up in the membership dues and the dues were based on total station revenues. In the 1980s and early 1990s, there was considerable concern among member stations about having the true costs and revenues of programs buried in this business model. Stations did not want their membership dues to subsidize programs they did not want.

The NPR Board adopted this principle and approved the current pricing structure. Additionally, the Board intended to develop clear boundaries between NPR’s Membership functions and its program offerings. They wanted a firewall between money collected for lobbying and more collected for programming.

The proposed Digital Services business plan erases those boundaries. If mandatory fees for Digital Services are implemented, then the NPR Board is reversing, or at least suspending, the most fundamental principles of its current pricing model.

NPR’s Digital Services proposal is not a fee-for-value proposition. NPR isn’t trying to create digital services that can survive in the open marketplace. NPR wants stations to subsidize the creation of what amount to an entirely new member services division by reverting back to the old membership pricing model. Stations must pay for all of NPR’s Digital Services whether they want them or not. Stations with more money pay more, not because they are receiving greater value, but simply because they have more money. And the budget for this new member services division inside NPR will end up being more than twice what NPR currently spends on membership. It will be as large, or larger, than the old Cultural Programming Division budget.

Kind of amazing, isn’t it? After years of trying to break free of the membership model, NPR management is turning to that model to pay for its digital offerings to stations. Not only that, it’s an open-ended subsidy model. It’s an admission that Digital Services cannot survive in the open marketplace for the foreseeable future.

The argument for making Digital Services a part of membership is that such a start-up requires subsidies and full station participation to survive its infancy. That’s a valid argument. The problem with making Digital Services a part of membership is that they will become the equivalent of an entitlement program.

The costs will rise over time. Station usage of services will wane. Like NPR’s program offerings, a few components of the service might become essential, but most will not. There will come a time when half the stations will be using only a third of the offerings. Or something like that. However, just like marginal radio programs, there will be enough stations using each component of the service that their champions will argue to keep them around.

The other problem with the mandatory-fee membership model is that there is no incentive for Digital Services to super-serve the stations. There’s no reason to embrace station success when the station has no leverage in the business relationship. There’s already evidence of this from NPR’s proposal to stations, which didn’t offer a single example of their revenue potential under the Digital Services umbrella. The effort wasn’t even made.

If NPR’s management and Board believe overhauling the membership model to support Digital Services is the way to go, then there’s still a lot of work to do. The idea itself is a major shift in the nature of the membership organization. Such shifts always require a careful reexamination of policies, governance and oversight, lines of accountability and measures of success.

For example, will the Membership Committee of the board have any oversight of Digital Services? Can member stations have direct input on the budget for Digital Services since they are now paying mandatory fees for those services? Should member stations vote on the budget or have to approve budget increases beyond the current business plan? These are legitimate questions once the membership model is invoked.

The thing is there are other, more effective ways to go about accomplishing the objectives of NPR’s digital proposal. There are other approaches that pool resources and encourage broad participation without the draconian steps of overhauling the membership model and imposing mandatory fees. They are not as simple as forcing everyone to pay, whether they want to or not, but they will foster a better working relationship with stations and result in a more robust set of services.

Hopefully, NPR’s leadership will step back and realize that while their objectives might be the right ones, the approach is all wrong. You don’t start a partnership with member stations by forcing radical changes and cost increases on their backs. The membership should be consulted on how to make this work. There are a lot of creative and smart people at stations. As partners, they can help NPR find a way.

*Mandatory - a synonym for ‘required’ but not as apologetic

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Monday, May 23, 2011

NPR Still Lacks Champions of Station Success

NPR now says that the station fees for its new digital services might not be mandatory. According to NPR Board Chair Dave Edwards, the presentation and emails calling the fees mandatory were poorly worded and the pricing model is open for discussion. The news was delivered directly to stations and reported by the industry news service Current.

Current also quotes NPR VP for Digital Services Kinsey Wilson as wanting stations to contribute to the development of new digital services “while they’re still strong in radio.” It is yet another indication that NPR’s senior management believes public radio is, or soon will be, in decline.

Stations deserve better than this. Station audiences and revenues have proved to be resilient, even robust, over the past few years in the face of tough economic times and growing competition from new distribution outlets. It could very well be that public radio terrestrial audiences will not suffer, but be enhanced by offering listeners more ways to find content.

This is the “Both/And” mentality. It looks for opportunity to grow in all possible markets, never conceding ground it owns. Instead, NPR management has adopted the “Either/Or” mentality. It is very limiting. It assumes that one action will cannibalize another. It assumes less market potential for public radio. It would be one thing if the data showed this happening to public radio. But it is not.

NPR is a membership organization. Stations send NPR around $70 million per year in membership fees and dues and directly help NPR raise another $30 million per year by creating audiences for national sponsorships. How can it be that there are no champions of station success at the executive level?

The fuss over NPR’s digital services proposal isn’t about poorly worded presentations or emails. It’s about NPR management lacking a passion for the success of its member stations. You don’t get these kinds of mistakes when that passion is there. In fact, you don’t need mandatory fees when that kind of passion is obvious to the membership.

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Monday, May 16, 2011

NPR Digital Update

--- this post was updated Tuesday May 17th at 7:35a --

Several private emails in response to the last two postings on NPR's Digital Services have said NPR's mandatory fees are for new station services and not to offset the costs of NPR's direct-to-listener digital efforts.

The emails went on to explain that NPR is trying to take a leadership role in advancing station use of digital media. The idea is that stations are expected to forgo immediate return on investment in exchange for advancing their digital capacity.

Let's take that at face value.

First, it should be pointed out that NPR's mandatory fee structure does not apply to stations with Total Revenues under $1,000,000. That will be about 70-75 stations and they get the services for free.

NPR says it is subsidizing the start-up costs for the remaining stations in FY 12 and FY 13 and that those stations will pay full freight -- $4.2 million -- in FY 2014.*

In other words, NPR is taking a leadership role now by subsidizing large portions of the initial costs and spending political capital with stations over mandatory fees. Over three years, NPR is reducing its financial risk to zero, leaving that burden to stations whether they want it or not.

What's missing from this scenario?

Accountability for results.

The business model, as proposed by NPR, shows no accountability to stations for results. The plan, as presented to stations, creates a new services division inside NPR that can be funded in perpetuity without ever delivering sufficient value to stations. That's just wrong.

At a minimum, meaningful and transparent benchmarks for Digital services should be set. Those could include product usage by stations, content consumption by listeners, and revenues earned by stations.

On the revenue side, the Digital services team should be given and held to revenue goals that lead to sustainability for the greatest number of stations. Otherwise, where's the incentive do more than just make cool stuff for the web? It's kind of like the old days, when making the radio program was enough and it didn't matter if it was heard. We're smarter than that now.

A better plan, and one that would demonstrate more leadership on the part of NPR's board and management, would be for NPR to subsidize the project at 100% for the first three years. Take all of the risk and don't force any of it on stations. Give the digital team three years to create value for stations, and then put it on the market for stations to support. If stations don't see the value after three years, then then project can go away.

$4.2 million in the third year might seem like a big risk for NPR by itself, but it's not. NPR leadership has already decided to subsidize its own digital effort to the tune of millions of dollars per year.

Surely NPR can find that kind of money to invest back in the stations that deliver nearly 30 million weekly listeners and more than than $100 million in annual revenue.

If not, perhaps NPR can adopt a true public radio funding model. Create the service, give it to stations for free, and then ask stations to voluntarily support it with a contribution. Hey, it works!


* That $4.2 million includes "digital content fees." It's not clear what those are, but they might be a second charge for the programming stations are already broadcasting on-air. This is an option NPR's digital team has raised in the past. If so, the cost of these new digital services could be reduced by eliminating the double billing.

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NPR’s New Digital Strategy Relies on Old, and Reviled, Budgeting Practices

The NPR budgeting process throughout the 1980s could best be described as torturous. The annual budget had to be approved by stations in a vote at each Spring’s Annual Membership meeting.

Member stations, usually through the regional organizations, weighed in on specific spending items and whether they really belonged in the budget. The proceedings were time consuming and often contentious as stations and NPR managers wrestled over expenses as small as a few thousand dollars.

NPR adopted a new budgeting process in the early 1990s called “the lockdown.” It was designed to take confrontation out of the budgeting process. Its goal was to provide NPR with stable income and stations a predictable fee structure that allowed for better budget planning.

Proposed by the Station Resource Group (SRG) on behalf of its member stations, “the lockdown” business model was built on a very simple idea. Stations would pay a fixed percentage of their revenue to NPR – 10.1% for the Newsmagazines – and NPR would have to live within that budget. It was revenue-based budgeting. If station revenues grew, NPR’s budget grew. If NPR signed up more stations, its budget grew.

In exchange for a predictable dues structure, stations conceded their right to haggle over every budget item. In exchange for budgeting freedom, NPR gave up its right to dramatically increase its spending and then lay that burden on stations. It was a change that significantly improved NPR-Station relations.

There was a second important change to NPR’s pricing policies in the 1990s. That was the unbundling of program packages. It used to be that if a station wanted to buy Car Talk, it was forced to buy the entire package of Cultural and Arts programs from NPR. It didn’t matter if a News station didn’t want to buy World of Opera, it came with the package. Deciding this wasn’t fair to stations, the Board required NPR to change that pricing practice and allow individual program purchases

With its new digital strategy, NPR management is trying to selectively suspend the principles of revenue based budgeting and unbundling. The proposed digital strategy is a throwback to a late 1980s business model. Actually, it’s a 50% throwback. NPR wants the luxury of laying the financial burden of fledgling projects on stations without station oversight of its spending.

And what exactly is that burden? It’s hard to tell. This year, the budget for NPR Digital is around $16.5 million. Corporate sponsorships for digital are estimated to be $9.1 million. That’s a $7 million shortfall. Foundation grants, major gifts, and sales income make up some of that shortfall, but NPR must be filling the gap with surpluses from programming sales to stations and broadcast program sponsorships, which is exactly the right way to go about it.

It appears from the digital tax proposal that NPR cannot or is no longer willing to use those surpluses to cover the entire revenue gap. That’s likely to be millions of dollars annually. It raises an important question. If NPR doesn’t want to subsidize digital with the money its earned, why does it believe stations should bear that burden?

As has been noted many times before on this blog, public radio’s revenue issues are often not fundraising problems, they are spending problems. Everyone believes it is important to invest in digital, but at what price? Perhaps some belt tightening at NPR digital is in order before bringing back the toxic budgeting practices that caused so much damage to the NPR-Station relationship in the past.

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Saturday, May 14, 2011

NPR Plans Mandatory Digital Tax on Stations

NPR is unveiling an expansive network-station digital strategy at a series of meetings around the country. NPR is promising the moon to stations and ending the presentation with a “business model” that is nothing more than a mandatory tax on all stations for NPR digital services, whether the station uses the services or not.

That’s right, NPR management wants to force stations to buy its digital services package for up to $99,500 per year even if the station doesn’t want to use those digital services.

he presentation suggests that stations will earn revenue by using NPR’s digital services, but no revenue projections are given. A station paying nearly $100,000 per year has to take it on faith that it will see a return on its mandatory investment in NPR services.

t’s clear that NPR’s primary goal behind this strategy is to raise cash for its national digital services, which continue to lose money. NPR wants stations to believe, without showing revenue potential, that they can profit through NPR’s digital services even though NPR itself cannot.

When the NPR board adopted listener-hour pricing for the newsmagazines, it established the principle that the return on investment for stations should be at least 100%.* That same principle should apply to NPR’s digital services.

A true business model would show stations a meaningful financial return on their investment through new revenues, not cost-savings. Heck, a true business model would require NPR digital services to compete for a piece of the station’s budget. Instead, the “business model” taxes the revenues stations raise from their broadcast operations to fund NPR’s money losing, direct-to-listeners programming service.

None of this should be surprising, however, given NPR’s approach to digital in the past 24 months. Every time NPR has talked about partnering with stations on digital, it has talked about charging stations money.

That’s not partnership talk. Think about it. How many businesses talk publicly about taking money out of their partner’s wallet? Even fewer talk about forcing their partners to give them money when the partner doesn't want to participate in the venture.

It looks as though the Vivian Schiller station-relations philosophy has yet to leave the building.

* Stations currently derive a larger gross return on investment on the newsmagazines. The 100% return rate is actually too low on a gross-revenue basis to sustain stations so the pricing model never reached that threshold. If NPR ever pushed rates that far, many stations would have to drop All Things Considered and maybe even Morning Edition.

Disclosure: JSA provides consulting services to Sky Blue Technologies which offers Listener Interactive mobile apps and web streaming services to public radio stations.

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