KCET warns it may leave PBS

After negotiating with PBS for eight months over a proposal to reduce its dues and remake public TV in the Los Angeles market, the city’s biggest public station announced last week that it is preparing to completely drop out of the network.

If KCET proceeds with its back-up plan for financial relief, as of Jan. 1 PBS would be left without a station committed to air the bulk of its schedule in the nation’s second-largest media market. It would be the first departure of a major-market member in the network’s history.

KCET President Al Jerome told Current in an extended interview that he’d prefer to remain with PBS, but — if the network doesn’t budge — he has unanimous board backing to forgo the PBS brand and the icon series from its National Program Service.

The stakes are high for both KCET, where programmers are beginning a search for programs for an alternative program schedule, and for PBS, which would have to reopen combustible program pricing issues at a time when nobody in the system has spare money to cover reduced dues for a major market station in a bind.

The outcome also could help or hinder a proposed restructuring of the L.A. market, endorsed by CPB as well as KCET and informally welcomed by leaders of the three other stations, to increase cooperation and reduce program duplication among the stations (separate story).

As broadcasters inside and outside of KCET hear about the escalating tensions and see a head-on collision coming, few predict happy outcomes. One observer admires Jerome for his decisiveness while regretting what he decided. Naysayers predict the stalemate will damage either KCET or PBS or both. Some KCET managers admit their private doubts that PBS will give an inch on KCET’s complaints, and fear the station will suffer grievously by dropping PBS programming.

Doug Price, president of the Denver-based Rocky Mountain PBS, favored a scenario that few observers expect to play out. “Al Jerome is one of the sharp tactical and strategic minds in the array of PBS stations,” Price said. “It would be a disappointment for him not to be part of what we do. And PBS is one of the greatest brands. I’d hope that Al, KCET and the brand could remain part of a single package.”

Garry Denny, a top programmer at Wisconsin Public Television, expressed the traditional view of pubcasting as a collective of stations that share many objectives and often resources as well. “This is a member system,” he told Current. “KCET has been in it ever since the inception …, and is in one of the largest markets. It’s their responsibility to viewers and their community to remain a full PBS member. It’s their responsibility to other stations. That’s what we as a system need. This isn’t a commercial system. We may not agree with dues or PBS decisions, but we should stand united in service to viewers and members around the country.”

Not-so-level playing field

Jerome said he will not allow KCET to “self-immolate” under the pressure of nearly $7 million in dues — a price that rose 40 percent between fiscal years 2005 and ’09. Driving up the dues was $50 million in restricted production support that KCET raised from 2004 to 2009 for its twin English and Spanish how-to series about daycare, A Place of Our Own and Los Niños en Su Casa. The grants included two from the oil company BP that totaled $25 million.

Los Angeles has long been seen as one of public TV’s messiest overlap markets, with four stations competing for viewer and sponsor support. KCET is the primary station — a full member of PBS, with rights to the whole PBS National Program Service (NPS) and much higher dues payments than the three smaller outlets. KOCE, KVCR and KLCS are  Program Differentiation Plan (PDP)  members that buy 25 percent or less of the NPS and air the programs on a delayed basis.

Jerome objects to PBS pricing policies that require it to pay $7 million a year for the whole NPS while KOCE pays $1 million and cherry-picks up to a quarter of the NPS.

PBS said in a statement to Current that KCET paid 2009 dues equal to less than 13 percent of its total operating revenue (restricted and non-restricted funds), which “aligns closely with the overall station average for the system during the same period.”

But, as Jerome sees it, his station paid significantly more. Both he and the KCET Board insist that because the $50 million restricted production grant cannot be used to pay dues, it should not be used to calculate them. They contend that dues should be figured on net operating revenue (after expenses), not total revenues. Calculated that way, they say, the 2009 station dues of $6.95 million are 19 percent of KCET’s $37.4 million net operating revenue.

One way to level the playing field among L.A.’s PBS stations is a restructuring plan proposed by Jerome and enthusiastically supported by CPB.

A market analysis by Booz & Co., funded by the corporation, estimates that a collaborative of the four stations would bring $13 million in savings and new earnings a year. The report did not make any recommendations.

The four — KCET; KOCE, a community nonprofit in Orange County; KLCS, licensed to the L.A. public school system; and KVCR, operated by the San Bernardino community college district — have been meeting for months as part of CPB’s renewed efforts to promote collaboration and reduce competition among overlapping stations.

One idea for “free agents”

In Jerome’s proposal, the four stations would form a nonprofit consortium to coordinate operations and fundraising. Each station, including KCET, would become a PDP member of PBS and  carry a different part of the PBS schedule, so L.A. viewers would have access to the whole national lineup.

The consortium would be run by a board comprised of general managers and board chairs from each station. Jerome said the stations are currently negotiating details of how the collaboration would work.

PBS rejects the program dues part of that plan. “There must be a primary station in a market in order for the PDP policy to apply,” PBS said in its statement.

CPB won’t take sides on the dues issue, but favors a consolidation. “We would love to see them collaborate and move toward that sooner rather than later,” said Mark Erstling, CPB’s senior v.p. for system development, who has been involved in the talks. “The more quickly they act, the more quickly they can reap the benefits.”

But PBS noted that Jerome has dramatically shifted his stance on PDP  “Until recently, KCET has been passionate about eliminating or restricting PDP policy as it would apply to other stations,” PBS said in its statement.

As for the L.A. consortium that Jerome envisions, PBS added: “[W]e are not aware of any business, operations or governance plans that have been developed, or that a timeline agreed upon by all the stations has been crafted.”

Both KCET and PBS agree that staying together would be mutually beneficial. Yet after eight months of negotiations between high-level execs from both sides, sources say, they appear far from a compromise that would prevent a split.

There’s a lot at stake. Earlier this year, PBS President Paula Kerger told the KCET Board that the station’s pullout could bring down the entire public television system, according to two sources present in the board’s executive session. Gordon Bava, KCET Board chair, characterized the board members’ reaction as, “Well, do something about it!” (A PBS spokesperson denies that Kerger made the dire prediction.)

Dropping membership is a station’s prerogative, said Elsie Garner, president of PDP station WTVI in Charlotte, N.C. “In the public broadcasting arena we are all ‘free agents,’ and [KCET] has the right to decide what works in their community.”

Neither side wins

If other overlap stations around the country use the L.A. collaboration as a template and are allowed to become PDP stations paying reduced dues — or dropped PBS completely — it would cut deeply into the support for PBS programming and services. The loss of KCET alone would cut nearly 5 percent of approximately $139 million in station dues that support 81 percent of the $172 million content spending in this year’s PBS budget.

Stations cutting back their PBS fees not only lose programming but but also network assistance with promotion, online infrastructure and broadcast distribution, the PBS statement noted.

Execs at other stations worry about a domino effect. “Stations have lots of economic challenges right now but there’s a danger if we each become too focused on ourselves,” said Jon Miskowski, development director at Wisconsin Public Television. “If enough stations leave PBS or go dark, that will have a significant financial impact on the viability of all of us. . . . The fact is that we are all tied together. Loss of stations threatens the major series that are the heart of our viewing and a critical part of our service.”

KCET’s route to the showdown was “a long, emotional process,” Jerome said. It started as early as June 2007, when he met with the PBS Station Services Committee to complain that KCET’s dues assessments were disproportionately high and other L.A. stations were overstepping their rights as PDP stations. The most competitive, KOCE, was pledging more than twice as many hours as KCET, he contended.

A subcommittee of the PBS Board Station Services Committee flew to L.A. to investigate and met with execs from KOCE and KVCR; they also met by teleconference with KLCS managers. The subcommittee concluded that all stations in the market were complying with programming and PDP policy guidelines.

Leaders of the four stations “ all knew we had to change the culture in the market,” Jerome said. Their revenues from all sources were withering and competition among them for members and sponsors was intensifying. The four stations began to talk.

Jerome returned to the PBS Board committee in December 2009, requesting a dues review. He also proposed the multi-station collaboration as a way to solve problems with KCET’s dues and the overlap situation in general.

KCET would become a PDP station, like the others, and the four stations would function in close coordination. They could merge their master controls and other operational staffs. A central nonprofit could raise and distribute funds. Each station could specialize in selected genres of programming — cultural, science, children’s and educational, news and public affairs — so L.A. viewers could see the entire PBS lineup. The stations could merge and redistribute their pool of spectrum; instead of using four 6-MHz channels, they could deploy 24 MHz as appropriate.

The PBS committee responded that PBS requires a full-member primary station in every multistation market.

Maintaining that role is no longer an option for KCET, Jerome said. “Budgets are value statements as well as financial documents, in that you are allocating scarce resources in accordance with your mission,” he said. “We feel that we must invest in Southern California as well as support PBS.”

“We’ve have done a good job cutting our expenses for several years in order to pay the full-service PBS dues,” he added, “but with the downturn of the economy over the past two years, and our net operating revenue down 27 percent from FY09 to FY11, we can no longer afford it.”

Like many other stations, KCET has indeed slashed expenses. In June 2009 it laid off 12 full-time and part-time employees, including two senior staffers, and cut pay by as much as 12 percent for remaining employees. Many were furloughed up to 10 days, and retirement plan contributions were suspended indefinitely.

At an all-station meeting late last month, KCET staffers heard that 13 more employees would soon be gone from across several departments, including a vice president. “We’ve broken our back to cut expenses and staff, doing what we had to do to costs to maintain the relationship with PBS,” Jerome said.

On May 17, the KCET Board voted unanimously to give Jerome the authority to do what most affiliates would consider unthinkable: leave the Public Broadcasting Service after four decades.

KCET will pay PBS assessments only through Dec. 31.

“We did not reach this decision lightly or without a thorough understanding of the implications,” said Gordon Bava, KCET Board chair. “We’d had enough.”

Bava said he’s puzzled by PBS’s reluctance to put the four stations on equal footing to achieve the collaboration. “If that is the reaction we’re getting from PBS on a proposal that appears to be so clearly beneficial to the system, why would we want to continue operating as an affiliate?”

“The dues thing”

Dues. Stations gripe about them, PBS needs them to survive. Most station chiefs contacted by Current declined to discuss the fees for publication.

But top station execs routinely talk with David LeRoy of TRAC Media Services, the major audience analysts for public TV. “If I were to read the system by the managers I’ve talked to,” he said, “I’d say in a way they’re pulling for Al, because they’ve all dealt with the dues thing.”

PBS uses a Byzantine formula — “sophisticated” and “nuanced” are PBS’s adjectives — to calculate the amount of the assessments paid by each station.

A PBS Board task force headed by Vermont PTV’s John King has been working for months to determine whether PBS should change the formula for fiscal 2012. PBS decisions not to increase its dues from FY09 through FY11 were “in recognition of the difficult financial climate,” it said in its statement.

One major factor in the dues formula is a calculation of past revenues raised locally by a station. CPB calls this measurement nonfederal financial support (NFFS) and uses it in its own formula for calculating a station’s annual Community Service Grant.

There’s a three-year average and lag time built into the PBS formula. A station’s assessment for fiscal year 2011, for example, is based on the average of its 2006, 2007 and 2008 NFFS amounts. More up-to-date figures are not always available.

So whenever a station takes on a big project like KCET’s twin daycare series, it risks a big leap in its dues. A station with a steady level of grant-based productions will have stable NFFS and predictable bills from PBS, but when a “second-tier producing station” such as KCET docks a rare boatload of production money, its budget spikes, Jerome said.

“If you’re getting a big infusion of NFFS, it’s going to swing your budget in wild directions,” said Steve Bass, president of Oregon Public Broadcasting, which produces PBS programs including History Detectives. “Let’s suppose we got $3 million tomorrow to do a production. We’d have to look very carefully down the road for two or three years to see how it would impact our PBS dues and CSG.”

Jerome and Bava said they realized that big bills would be forthcoming from PBS and attempted to plan accordingly. But their maneuvering room became tight as the recession squeezed KCET’s operating revenue.

KCET’s operating revenues — which don’t count restricted grants — declined from $35.9 million in fiscal 2006 to $31.3 million in FY10 and a projected $27.3 million in FY11.
KCET’s leaders had to pay PBS dues from operating revenues because the production grant money that had swelled the station’s gross revenues was restricted. But those monies, even though they were off-limits, inflated their PBS dues from $5.2 million in FY06 to $6.9 million last year.

There is another potential source of financial relief for KCET, although it’s unclear whether station leaders are pursuing it. Since 1971 the station has owned a five-acre Sunset Boulevard movie lot that has been used for film and TV productions since 1912.

Although the Hollywood property’s value was recently assessed, Jerome strongly denied that it is for sale. The assessment was done as a routine matter, he said.  But station insiders and others familiar with the property insist the lot is on the market with a price tag of some $50 million.

RELATED STORIES

Smaller KCSM in Bay Area finds there is life after PBS

Los Angeles stations tried collaboration in 2000. Despite CPB’s financial support of just over $1 million, nothing came of the effort.

KCET’s twin programs for daycare providers, A Place of Our Own and Los Niños en Su Casa, brought in the station’s biggest production grants — BP gave $25 million — and raised its PBS dues thereafter. Story published in 2004.

The PBS Board didn’t raise dues income again for FY11. Kerger warns public TV may lose capabilities and impact, April 2010.

HOW PBS SETS DUES

How does PBS figure the program dues (officially “assessments”) that it charges to stations? The formula, presented as clearly as Current could figure it, takes into account various measures of stations’ size, plus a thicket of intricate adjustments resembling the work of the House Ways and Means Committee. PDF here.

JEROME TO KCET VIEWERS

“We know that this entire situation has caused some justifiable unrest, and we want to provide you with an easy way to express your feelings and ask me questions. We’ve set up this forum on KCET.org where you can comment, ask questions, and get answers. I meant it when I said I wanted to start a conversation with you. I hope you’ll participate.”

RELATED LINK

The Los Angeles Times summarizes: Struggling KCET examines its options, Aug. 4, 2010.