Monday, June 06, 2011

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.

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2 Comments:

Anonymous Stephen Hill said...

John,

I'm not sure what was so controversial in my previous comment but since you seem to be moderating them, this one is just for you.

The revenue-sharing scheme you propose here is completely sensible and a step in the right direction, but stops short of addressing the business problem comprehensively. Practical revenue-sharing is one of the three core ideas in the paper I sent you, but to get the revenue where it really needs to be, much more has to be done with digital services.

I hope we can talk about this after you've digested the rest of the ideas in the paper.

:: SH

4:14 AM  
Anonymous Anonymous said...

John, your plan makes much more sense to me than the one proposed by NPR. If the folks in D.C. are confident that this digital package will make $15 million annually, there should be no hesitation in meeting the member stations in the middle with this kind of revenue sharing. My belief is that NPR wants to force member stations to subsidize this new investment in NPR Digital because they have yet to see a return on investment online.

Bryan

10:06 AM  

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