NPR Digital Services: Show Stations the Money

Word from the NPR Orlando road show is that the Digital Services revenue estimates for the first few years aren't quite solid yet. That makes sense given that the Digital Services team hasn't been able to deliver a revenue plan to stations.

Further, it sounds like NPR's $15 million first-year revenue estimates included what they expected stations to earn locally.

At the Charlotte road show, stations were told that 20% of those $15 million would come from national underwriting. That explains $3 million and leaves unexplained the sources of $12 million.

To borrow a concept from the Internet-boom days, these are vapor dollars. There's lots of talk about potential but no concrete plans to show.

It appears that NPR is counting on stations to bring in up to $12 million in new revenues through its Digital Services offerings. That number could be reduced if NPR received some foundation money to support this initiative but so far there is no news of that.

These new financial numbers don't kill the Digital Services business model proposed in this blog. NPR can still take all of the financial risk here. Two components change. First, it takes a few more years for NPR to break even. Until then, the Board can subsidize the project as it was planning to do in its mandatory fee model. Second, stations get less direct money from NPR in out years since NPR expects them to be making more money locally.

How Will Stations Make Money?

Those who follow public radio finances know that the two primary sources of station income are listener contributions and underwriting (business support). At many stations, those two sources of income are nearly equal.

Using that model -- where donations and underwriting bring in equal revenue -- NPR's Digital Services offerings would have to generate $6 million from each source in new revenues for stations.

The word new is highlighted because we've encountered stations that try to count web contributions during fund drives as web income, not fund drive income. As accounting tricks go, it's pretty lame.

So the question is how does NPR Digital Services help stations generate 60,000 brand new $100 contributions, outside of pledge drives, in its first year? A similar question can be asked on the underwriting side. How does NPR Digital Services help stations generate 2,000 brand new $3,000 underwriting contracts in its first year? The numbers and ratios can vary but you get the idea.

Apparently no one at NPR is asking these questions. Or, if they are, they aren't willing to commit to answers.

Stations deserve better than that if NPR is going to impose mandatory fees for its services. These are not difficult problems to solve. All they require is a passion for station success and a little creativity. So far both have been absent in this process.

In the next posting on this topic, we're going to look at an article on NPR Digital Services published by Harvard University's Nieman Journalism Lab and why the author got it half right.

An Alternative Revenue Model for NPR Digital

The NPR Digital Services road show rolls on with NPR telling stations that it will consider alternative revenue models. However, station folks at the latest road show were told the "mandatory fee" model was the best idea NPR could come up with.

Here's a better idea.

NPR covers all of the costs of the new Digital Services, offers them to all stations for free, and takes a piece of all new revenues to cover the costs.

NPR's revenue projections for these new Digital Services peak at $50 million annually after five years. The first year is supposed to generate $15 million. Its costs appear to be around $5 million annually.

The business model is simple. NPR Digital Services gets the first $5 million of all digital underwriting and merchandise sales annually to cover its costs. After the first $5 million, NPR Digital gets 1% to 2% of the remaining revenues. NPR also gets a small transaction fee on all member pledges generated by the new service from the outset. Plus, NPR would have revenue from any foundation grants it secures to launch and sustain the service.

The payment system to stations would work like an inversion of the current fee structure for the NPR Newsmagazines. Every participating station would receive a base payment. That's incentive to participate. The remaining revenues would be distributed to stations based on digital audiences, digital ad placements, merchandise purchases, etc.

It's a very fair model. NPR takes the initial financial risk but is first in line for revenues. NPR has great incentive to get stations to participate. And once it earns its costs back, NPR even makes a little extra money that can be used for R&D, to cover cost increases, and implement a bonus structure for Digital Services staff. There's even more incentive to serve stations well.

Stations get all services for free. That creates instant cost-savings. They start making money once NPR is reimbursed. Stations that aggressively implement, promote, and service their digital offerings will have larger digital audiences and earn more money.

One key to this plan, of course, is NPR's revenue projections. If $15 million is a reliable floor, then there's enough money for stations to create incentives to participate. If $15 million is not a reliable floor, then no plan is worth implementing. It wouldn't even make sense to implement mandatory fees for so little gain.

The other key to this plan is a paradigm shift on the part of NPR's Board. Right now, the Board believes NPR's direct-to-listener digital offerings are so important it is willing to subsidize them to the tune of $6 million per year. That's how much money NPR's current digital offerings are losing at this point. The Board is so committed to NPR Inc's digital future it is willing to make this extraordinary investment.

Right now, the NPR Board's commitment to the digital future of stations is not nearly as strong. It is willing to offer some subsidies at the outset, but it wants to wash its hands of any financial obligation to stations' digital success by FY 2015.

There's an old saying that, "budgets reflect priorities." Through its digital proposals and budgeting process, the NPR Board is saying NPR Inc's direct-to-listeners digital services are a greater priority than those of its member stations.

That thinking must change for any station digital services proposal to succeed. If the Board can't find money for this proposal until it pays for itself, then stations' digital success must not be a priority. And if the NPR isn't willing to take the long-term financial risk on this, how can it justify imposing that risk on stations?

Granted, this proposal probably still needs a lot of work, but it's better than taxing stations in perpetuity for services they might not want or use.

Context for NPR's Proposed Digital Revenue

NPR is telling stations its proposed mandatory digital service could bring in as much as $50 million in new revenues five years from now. The revenue floor is projected at $15 million annually.

Now $50 million is a lot of money, but it is not as much as you might think.

Currently, public radio stations bring in around $500,000 million dollars in listener-sensitive income. That's listener donations and underwriting.

So NPR believes that new digital revenues will be somewhere 3% to 10% of what stations currently raise from their communities.

If you add in public radio's tax-based funding, foundation support, and other income, then the $50 million per year in new digital revenues is just 5.5% of all public radio revenues.

All of a sudden, $50 million isn't so much especially if digital audiences and revenues are supposed to replace current revenues as audiences disperse to web-based listening.

$50 million is basically growing the current annual listener-sensitive revenues by two percent per year over the next five years. That's assuming things go really well and the majority of stations buy in to the plan. And for this the NPR Board wants to impose a mandatory tax on stations.

Really?

Nationally, $50 million annually is small thinking. Really small thinking. Stations deserve better than this.