Monday, May 16, 2011

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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