Digital Revenues and Localism

Years ago, public radio researcher, innovator, and winner of the industry’s Edward R. Murrow award David Giovannoni made the point that “programming causes audience.” To those new to public radio, particularly in those working in digital services, this point might seem so obvious that it isn’t worthy of the industry highest award, but it is.

The entire body of knowledge behind “programming causes audience” helps us understand the relationships among listeners, their listening, and the revenues listeners create for public radio. That knowledge and understanding still applies today, even in the digital space. It is summed up in the Top 10 Truths About Public Radio from Audience Research Analysis (ARA).

ARA’s Top 10 Truths About Public Radio

1. Programming causes audience.
2. Listeners choose programming that resonates with their values, interests, and beliefs.
3. Listeners develop loyalty to a station with consistent appeal.
4. Appeal can transcend program genres and format types.
5. The programming most often chosen by public broadcasters appeals most strongly to well-educated Americans.
6. Public radio listeners generally perceive themselves to be citizens of the world.
7. Public service begets public support.
8. Fundraising is the catalyst that triggers giving, but personal importance and reliance are their primary causes.
9. Listeners trust public radio to be their sanctuary from commercialism.
10. Public support begets public service.

Truths 2, 6 and 7 are particularly important as public radio pursues a digital strategy. The current audience base comes to local public radio stations for their global perspective and their breadth of programming. This is the foundation of stations’ public service and the listener support stations receive.

Local programming, on the other hand, does not generate as much audience loyalty or listening as the top network news and entertainment programs. Listeners place a lower financial value on local programming than the top network news and entertainment programs. This has been researched and verified in multiple studies including Audience 98.

Local programming might make a respectable enhancement to a station’s public service and revenue portfolios. It will never be a substitute or replacement for lost listening to national programming.

That’s why it is vital for stations to offer all of their current content across all media platforms - over air, on-line, mobile, streaming, on-demand - under the same branding model that exists today.

Stations need to be just as important to listeners on the web as they are over the air. That only happens through the programming stations offer today.

- Programming causes audience.
- Listeners choose programming that resonates with their values, interests, and
beliefs.
- Public radio listeners generally perceive themselves to be citizens of the world.
- Public service begets public support.

Any strategy that moves listening to network programming away from stations will harm stations, and ultimately, the networks. Any strategy that assumes local content is the future for public radio stations is a strategy that assumes stations will raise less money in the future. Not only does that mean less money for stations, it ultimately means less money for the networks.

Miscellaneous Thoughts on NPR Digital

It’s difficult to find anyone who disagrees with the notion that public radio listeners would benefit from a truly collaborative NPR/Member Station digital network. At issue is how that network comes together.

I've written that this is a significant membership issue and more work needs to go into this before the NPR Board decides how to fund Digital Services. Mandatory fees are generally bad policy and implementing such a policy without a permanent President/CEO in place is a bad idea.

Here are some additional thoughts on the situation.

Mandatory fees don’t mean universal participation. Even if economies of scale can be realized on the NPR expense side of the ledger, NPR Digital Services could still fail to generate enough station participation to leverage significant revenue opportunities. We’ve already heard that several major market stations will opt out of some revenue options.

Once NPR starts collecting mandatory fees from stations, there is no going back. Even if the service fails to live up to its promise, future NPR Boards will never vote to give up at least $5 million per year in station revenues. Stations will be stuck giving this money to NPR pretty much forever.

If it chooses to collect mandatory Digital Services fees from Member Stations, then isn’t this NPR Board obligated to do so with a policy that requires management and future Boards to protect the best interests of the stations? For example, it is very likely that the cost delivering digital services will go up and the Board will be asked to tax the stations even further. How will the Board protect stations from being asked to pony up another $1,000,000 in the fourth or fifth year of this?

The revenue discussion has been woefully inadequate. It’s hard to believe that NPR, with access to the best minds in digital media including the folks at the Harvard’s Nieman Journalism Lab, haven’t been able to put forward even one hypothetical revenue model showing station income potential by revenue stream over the next 3 to 5 years.

More on the revenue piece of the equation in the next posting.

NPR Digital: After All These Years, What's the Hurry?

A recent article published by Harvard University's Nieman Journalism Lab touted the great potential of NPR's Digital Service plan, saying the time is right for NPR to create a massive digital network with its stations. The author, Ken Doctor, gets it half right.

NPR and stations should collaborate on a digital network. Public radio’s success is built on the economies of scale created by NPR/station relationship. Mr. Doctor contends the time for such collaboration is now. Well, yes, but not necessarily this month or in the next few months.

The time was really several years ago, but NPR President Vivian Schiller and NPR VP for Digital Services Kinsey Wilson weren’t interested in collaboration when they first arrived at NPR. In fact, they made a concerted effort to separate NPR and stations in the digital space. So stations started coming up with their own digital solutions.

NPR’s executive leadership is now sounding an alarm about this fracturing of the system, as though it could not have been anticipated. It is, in fact, a circumstance largely of NPR’s own making. The solution on the table is also of NPR’s own making. Stations weren’t consulted in the creation of the plan and it shows. There is so much missing from the plan, conceptually and operationally, that could make it stronger for stations and NPR.

Collaboration on a digital network is a great idea, but it has to be true collaboration and not NPR forcing a top-down plan on stations.

It’s worth noting, as Kinsey Wilson has during NPR’s road shows, the current Digital Services plan was conceived under Vivian Schiller's leadership. It really begs the question, why would the NPR Board potentially saddle its next President with a plan that was conceived by a past-President who never really understood the NPR/station relationship?

The Great NPR/Station Digital Network has waited years to happen. It can wait a little longer for a better plan than current one.

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.

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

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.

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.

The 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.

It’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.