Difficult Pledge Drive Days Ahead?

It’s getting harder to generate contributions through public radio pledge drives.  Most stations are still getting good overall results, but the cost of getting those results is going up.

Sometimes the cost is more on-air fundraising. It is taking more of the station’s time and more of the listeners’ time to generate a contribution. Sometimes the cost is greater leverage. That is – stations are having to offer more, or more expensive, incentives to generate a contribution.

Probable Causes

Success with monthly Sustaining givers appears to be having an effect on drives by cutting into the potential number of annual renewals received during the drive. Declining AQH (Average Quarter-Hour) audience is another possible cause. Lower AQH means listeners are using the station less. That could result in listeners being less likely to give.  It certainly reduces the number of potential respondents to an on-air fundraising appeal.

There could be external factors as well. People are being asked to immediately part with their money at unprecedented rates these days. The junk mail and telemarketing calls of 25 years ago now follow us out of our homes and find us 24/7. The amount of daily asks is numbing. Public radio pledge drives appeals are fighting through much more clutter just to be considered let alone acted upon.

Measuring Pledge Drive Success

The primary metric we use to measure on-air fundraising success is Listener-Hours to Generate a Contribution. Using Nielsen Audio audience data, we answer the question, “how many hours of listening must we expose to fundraising to get someone to give?”

Or, put another way, how efficiently are we spending our listeners’ time to get a single contribution? A lower number is better. The goal is to maximize the pledge drive return against the expense of the disrupting the listening experience.

In a PPM-measured market, an efficient pledge drive for an NPR News station generates one contribution for every 300 hours of listening exposed to fundraising. That’s like putting 300 people in an auditorium and playing public radio content for an hour, except that their experience will be interrupted 4 to 5 times in that hour with 4 to 6 minute fundraising appeals. At the end of that hour, one of the 300 people will make a contribution in the amount of an average gift.

Two Trends

We see on-air fundraising following two trends. Some stations are adding more fundraising hours and exposing more listening to pledge drives to meet their goals. The fundraising efficiency metrics at these stations don’t improve, they get worse. The stations still meet their goals, or come relatively close, by applying more brute force.

The other trend involves applying more Leverage to the fundraising ask. We haven’t settled on exactly how to best measure Leverage, but we believe the broader concept is sound. For now, consider the Leverage to be the weight of the incentives offered to generate a contribution or to raise a dollar.

Here’s an example. Ten years ago a station offers a dollar-for-dollar match and the fundraising efficiency is 150 Listener-Hours (LH) per Contribution. That means the match is twice as efficient as the average hour of fundraising, which took twice as many LHs (300) to generate a contribution.

Today that match has an efficiency of 200 LHs per Contribution. It’s less efficient at turning listening in to contributions. So the station decides to offer a free tote-bag to anyone who gives during the match in addition to any other thank you gift they take. More listeners respond to the offer and the efficiency returns to its prior number of 150. The station achieved its prior efficiency by applying more Leverage.

This is happening at a lot of stations across the country stations. They are offering more incentives each drive and offering more of them  simultaneously to maintain fundraising efficiencies.

Is the Problem Too Much Talk About Stuff and Not Enough Talk About Mission?

Probably not.

Mission messages are great for convincing listeners that they should give to the station but they aren’t particularly effective at motivating people to actually pause their busy lives to give at that moment. The well-executed “Mission” focused fundraising hours tend to fall in the 400-500 LH efficiency range.

A pure Mission approach to pledge drives would likely require a plan that exposed listeners to 33% to 50% more fundraising to meet the overall drive goal. That’s like turning a 9-day pledge drive into a 12 to 14-day pledge drive. As you might imagine, longer drives tend to drive efficiencies down even more.

What’s Next?

Subsequent postings on this topic will go a little deeper into Leverage, Sustainers, and off-air fundraising including the use of email, social media and database solutions.

One final note. In the past we’ve observed that public radio might have more of a spending problem than a fundraising problem. The money stations are spending on increased local news offerings and digital initiatives is outpacing their ability to monetize those activities. They are currently money losers. That puts pressure on the core radio service to generate “profits” to subsidize those activities.

One of the possible answers to slipping pledge drive efficiencies is to reduce the revenue burden they must bear through smarter spending on local news and digital.

Keeping It Real

On Friday, This American Life retracted its program about working conditions at the Foxconn factory that makes Apple products due to embellishments and inaccuracies in the story. This American Life also produced new reports and interviews to set the record straight and to explain how its fact checking process went wrong.

Also on Friday, many public radio stations were running Fresh Air's rebroadcast of an John Updike interview. Early in the conversation, Fresh Air host Terry Gross asked Updike about the virtues of accuracy in writing novels. While they were talking about literature, Updike's response very much applies to the news business.

Updike: "The literary art is a parasitic one in that it's energy comes from the energy of the real and so accuracy is one way of describing the close approximation to the real that we all sort of live for."

It's a good reminder that as news storytellers, we in public radio are responsible for uncovering the realities of the world, not defining them.

Our listeners come to us because they want to be as close as possible to what's real. It's how they come to understand the world, their place in it, and if they so choose, how they can make it better. They trust us to be accurate.

We should be proud of This American Life for pioneering new forms of journalistic storytelling. It brings listeners closer to what's real. And we should be proud of This American Life for retracting its Foxconn show. It lets the world know that accuracy trumps agendas.

It's better to not make mistakes at all but how we respond when we are wrong is just as important to maintaining our bond of trust with listeners as getting the story right in the first place.

You can hear the Updike interview here. The section on accuracy begins at 4:21 in the show.

RadioSutton Blog: 7th Anniversary

This is the 7th anniversary of the RadioSutton blog. Thanks for reading and writing back over that time. Your support and participation has been invaluable.

We blogged a bit less in the past year than usual due to so many client commitments. It's a good problem to have but I hope to post more in 2012.

The first posting, other than our welcome message, can be found here. In that posting, I wrote that the blog would " consider how we might better tap public radio’s vast knowledge of its listeners, fundraising, and finances. We’ll look at opportunities for individual stations and the industry as a whole. We’ll tackle tough issues including the competing priorities of public radio stations and national entities such as CPB and NPR."

More so than any other time we see 2012 as a year when competing priorities among CPB, the networks and stations will define the future of public radio. A couple of examples:

CPB will again be fighting for its life. As has been the case over the past years, it's funding decisions will be heavily influenced by what plays well on Capitol Hill, not necessarily what best serves stations or their listeners.

NPR will continue to pursue digital strategies that discourage listeners from getting NPR content on-demand via member stations.

Stations will continue to be encouraged to make unsustainable investments in local content creation based on flawed assumptions about the audience.

The entire industry will continue to leave its revenue potential unfulfilled by hanging on to old fundraising models.

We will take on these issues and many others in the coming months. They won't be easy issues to discuss, but they will be important discussions to have. We invite your participation in the discussion.

Is Triple A Music Becoming the Soundtrack of Our Lives?

Triple A isn’t just for Starbucks anymore.

• Coldplay can be found in your grocer’s freezer section
• Tom Petty & the Heartbreakers pump it out at the cardiologist's office
• The locksmith grooves to The Black Keys while waiting on customers
• White Stripes are what’s hot in the home decorating department
• My Morning Jacket now available for all sizes at the Gap
• Train tracks play in Grand Central Station

You hear it in your local grocery store, almost any neighborhood bar without a jukebox and at your chain restaurants. From TGI Friday’s to Chili’s to Outback Steakhouse the speakers bleed Triple A .

It makes us wonder. Public radio news stations thrive by offering a valuable public service that isn’t available anywhere else.With Triple A turning up everywhere, is it making it more difficult to raise money around this music?

Where were you surprised to hear Triple A? Let us know.

Radio Camp for Kids

Great idea from WFDD in Greensboro/Winston-Salem, NC. Radio camp for middle school kids. Something many stations could put together for next summer.

Good Fundraising

The Fall fundraising season is off to a very strong start with most stations we've worked with meeting or exceeding goals. Some stations have exceeded last Fall's results by a lot.

It is especially important right now to remember that programming is the cause of giving, not the premiums or sweepstakes prizes. The news over the past 10 months has been extraordinary and public radio's coverage of it has been exceptional. Any fundraising message helping listeners recognize the value they've received from listening is fundraising time well spent.

The fundraising tactics -- premiums and giveaways and challenge grants -- help motivate listeners to give at specific times and in certain ways. That's important, but don't lose sight of the value of programming.

It is also important to again note the excellent work on sustaining giving by MPR. Today, sustaining giver plans are one of the most powerful approaches to attracting new members and reducing dependency on pledge drives.

Fundraising messages that link public radio's extraordinary news coverage to monthly giving are particularly effective right now. Arbitron data show that Core listeners engage with their stations 40 to 60 times per month. In that context, $5 or $10 is an exceptional investment.

Good fundraising to you.

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.

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 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.

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.

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.

Are On-Line Listeners Even More "Elite?"

Among the comments AIR Executive Director Sue Schardt made to the NPR board is that NPR has attracted an audience that was "predominately white, liberal, highly educated, elite."

Elite is such an interesting word to use to describe public radio listeners, especially in the context of diversifying the audience.

What make them elite?

Certainly not being white. What about being liberal?

NPR refutes the claim that the audience skews liberal, showing a relatively even distribution of political orientation among its listeners. What about age?

It turns out that the median age of the NPR listener is 50, just 5 years older than the national average. Does being slightly older make one elite? Probably not.

What about education level? Does being well-educated make one elite?

NPR Podcast users are much younger than public radio users (33 vs 50), yet are more likely to have a college degree (83% vs. 68%).

If elitism and education go together, then public radio's on-line audience is shaping up to be more elite than its radio audience.

Maybe it's money that makes public radio listeners elite. The median household income in the U.S. is $53,600. For public radio users its $90,000 per year. For NPR Podcast users its $76,000. 33 years old and making $76,000 per year. Imagine how much money they will be making when they are 50.

If elitism and income go together, then public radio's on-line audience is shaping up to be more elite than its radio audience.

All of this runs counter to the rhetoric in public radio that on-line services are the answer to diversifying the audience. If anything, the current trend is for on-line to attract a younger, more educated, and wealthier version of the current audience.

NPR hasn't released data on the ethnicity of on-line listeners, it might not have that data, but that doesn't really matter. Even if the skin color of on-line listeners is more diverse, it doesn't mean those listeners will be less elite.

If the goal to diversify public radio by making it less elite, then the public radio's on-line efforts might be hurting rather than helping the cause.

Grow the Audience: A Disappointing First Year

The SRG has issued a one-year update on the CPB/SRG Grow the Audience project. The report, to say the least, is rather disappointing.

It's largely a technical explanation about why national audiences are difficult to measure given Arbitron's conversion from diary measurement to PPM measurement. It offers no reports or updates on specific efforts nationally, regionally, or locally to actually affect audience growth.

In fact, since the initial Grow the Audience report was published a year ago, the project has released nothing about CPB's investments in meeting the project goals. There's nothing on the CPB site about the Grow the Audience project and its efforts to affect audience growth. This report appears to be an update on nothing but the hope that the audience might be growing.

On a larger scale, there's no system buzz around the Grow the Audience project. The project was absent at the Public Radio Programming Conference. It has little or no buy-in at the station level.

What started out as an attempt to pull the system together with a common goal has failed to do that in its first year. Grow the Audience has no champions. It has no cheerleaders, not even among the people who conceived of and funded the project. And that's the biggest disappointment of all.

Trust the Listeners

In an e-mail to NPR station managers this weekend, Interim NPR CEO Joyce Slocum said last week was a "bad week for public radio."

It probably felt that way to many people who work in the industry, but it is unlikely listeners think of it that way.

Listeners' perceptions of public radio are shaped almost exclusively by what they hear on the radio. They are further shaped by their experiences with public radio web sites, mobile apps, emails, and direct mail letters. Lastly, and in minuscule amounts, listeners' perceptions are shaped by what they read or hear about public radio's inner-workings.

Last week, while public radio employees rightfully fretted over Schiller Theater, listeners were hearing exceptional international news coverage from Egypt, Tunisia, and Japan. Listeners stayed informed of the battle over collective bargaining rights for public employees. They heard about Supreme Court rulings, discovered new authors and artists, laughed with the Car Guys and Keillor, yelled out the answers to Peter Sagal, and sat transfixed at the stories spun by the folks at This American Life.

Last week was a very good week for public radio listeners. As most weeks are.

And it was a good week for stations doing pledge drives, at least the ones we know about. Our company had a few clients finishing up pledge drives and The Schiller (times two) news had no discernable effect on the results.

Why should it? Imagine the listener who hears that some NPR executives screwed up and were subsequently terminated from their positions. Listeners hold the entire organization to the standard of excellence set by the programs. If some execs failed to meet that standard, then it makes sense that they had to go. It's not like NPR fired Bob Edwards again.

That brings us back to the programming. It remains exceptional. Listeners know that. and they will remain listeners even when we practically beg them to go away -- like during pledge drives or when we suddenly fire the person they woke up with for more than a decade.

Nearly 30 million strong, public radio listeners are the foundation of our industry. They ultimately hold the cards when it comes to public radio's financial future. That's true whether the revenue source is donations, underwriting, or tax-based funding. It wasn't a bad week for them. And everything will work out as long as public radio keeps on delivering good weeks of listening.

Trust the listeners. They will not let you down.

Turns Out People DO Know About Public Radio

One of the great myths around public radio is that audiences would be bigger if only more people knew about it. If only public radio could advertise with the big boys...

Researcher David Giovannoni challenged this thinking beginning in the 1980s. His point, which is proven once again by the 170 Million Americans project, is that public radio's total audience is much bigger than the Weekly Cume audience.

Giovannoni pointed out that Weekly Cume audience estimates are a necessary, but artificial snapshot of the audience. The Weekly Cume is necessary for advertising and public relations. People need a number they can wrap their heads around and compare to other stations and media outlets. The Weekly Cume is artificial because it stops counting new listeners to the station after seven days -- as if everyone who might listen to a station absolutely will listen within a seven day period.

Giovannoni called this the Cume Trap. The concept is simple. Public radio leadership could get trapped in its thinking about its public service potential if it gave too much weight to the Weekly Cume versus other, more useful public service metrics.

In one of his Radio Intelligence* reports for the industry newspaper Current, Giovannoni showed how public radio's audience was likely to grow if measure by the month or even the year. The Monthly Cume, based on Arbitron's diary measurement system, would be somewhere around 42% larger than the Weekly Cume.

Fast forward to today. The Station Resource Group (SRG) just put together a monthly audience estimate for all of Public Media as part of the effort to defend Federal Funding. Using Arbitron PPM and diary measurements, the SRG puts the monthly audience for public radio at 64.7 million listeners. That's more than double the current weekly audience of 30 millions listeners.

Imagine! There are twice as many people who know about public radio than reported in the Weekly Cume. Some of those are passive listeners. They are exposed to public radio through someone else's listening in a car or at work. But most of those listeners know about public radio and where to find it on the dial. They simply choose to listen less than once per week.

This group of people, they represent growth potential. Public radio just has to give them reasons to listen more frequently. This is not a new concept.

These very fringe listeners have always been the source of public radio's audience growth. They knew about public radio before the first Gulf War and when it broke, they turned to public radio for the news. They knew about public radio before 9/11 and when their understanding of the world was shaken apart, they knew where to turn to piece it together again.

They come when they need public radio and, unlike audiences for many of the cable news networks, many stay in the Weekly Cume. They value the news. They get hooked on the entertainment programs. They become Core listeners. They give.

Some don't stay. But they will listen on occasion. Right now, the SRG is saying that there more than than 30 million of these very fringe listeners who are only partially served by public radio. Who are these listeners? Are they older? Younger? From different ethnic groups? What brings them to public radio? What keeps them from listening more?

As the industry ponders how to Grow the Audience, they seem like a very good place to focus the effort.

* Read Radio Intelligence at ARA's website. Click this link then scroll down to and click on the the PDF for Radio Intelligence. Page 27

Public Radio News Still Under the Radar?

Interesting article on Mashable.com -- 10 Predictions for the News Business in 2011. But not a mention of public radio news.