If CPB is defunded, 130 stations are ‘at high risk,’ Booz report finds

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What if Congress stopped allocating federal aid to pubcasting? The latest bleak financial analysis from CPB, released last week, adds some specifics about how service would be affected in dozens of congressional districts across the land.

Fifty-four public TV licensees in 19 states and 76 public radio operators in 38 states would be “at high risk of no longer being able to sustain operations” if federal aid ends, CPB asserts in a report backed by Booz & Co. and delivered to the appropriation committees June 20. Congress asked CPB for a report on the field’s economic options when lawmakers approved the most recent advance appropriation in December. The full report is posted on CPB’s site.

Most stations have moved closer to the fiscal precipice since the recession hit. More than 60 percent of pubTV and radio stations were operating in the red in fiscal years 2009 and 2010, CPB says.

Switching to commercial advertising would result in a net loss for public broadcasting, Booz analysts find. For public TV, ad sales would exceed the present revenues from underwriting, but a partial desertion by individual donors, foundations and underwriters would more than offset that gain. Booz estimates that the system would lose $62 million a year in donations — setbacks of 15 percent to 40 percent in those giving categories.

Those projections assume that pubcasters wouldn’t change their programming. But in time they would, CPB predicts. Pubcasters that didn’t go dark after losing federal aid would alter their offerings and plunge into “a chase for ratings.”

“Booz confirmed something that is easy to forget: The commercial media market is not well suited to much of the program content found on public broadcasting,” says Mark Fuerst, a longtime pubradio exec who has studied system finances. (Fuerst also is working with Current as its director of strategic initiatives.)

A federal pullout would affect pubcasters very unevenly, Fuerst observes. “In some places, the commercial media market doesn’t support any local broadcasting at all.” Booz says that 60 percent of the at-risk stations serve rural areas.

Taxpayer subsidies to public media “have been in place so long that it’s natural to wonder if they might have outlived their usefulness,” Fuerst says. “The Booz report answered that question. Take away the incentives and subsidies and the system just does not work very well.”

Though weaker parts of the system would feel pain first if federal funding ended, the big cutbacks would set off a domino effect leading to system collapse. “A cascading debilitating effect” would spread to remaining stations and cut into budgets for PBS and NPR national programming. “At bottom, the loss of federal support for public broadcasting risks the collapse of the system itself,” the report says.

What about spectrum billions?

Though CPB speaks up for continued federal aid, the report doesn’t spend much time on taxpayer-based support. That role was taken up the next day, June 21, by a research paper from the New America Foundation that proposed a 5 percent annual fee on commercial broadcasters to help sustain public media, broadcast and other. This would replace the planned “reverse auction” of TV spectrum that Congress authorized in February. The New America Foundation report, by staffers Benjamin Lennett, Tom Glaisyer and Sascha D. Meinrath, is posted on the progressive think-tank’s website. .

CPB and Booz aren’t keen on the planned spectrum auction either, even though stations would have options to sell or keep their channels. Citing a bramble-patch of unknowns, Booz declines to predict whether many pubTV stations would earn the one-time infusions of cash from the auction, which would provide spectrum for the FCC to sell to wireless companies. Booz can’t predict whether prices will be high enough to motivate sales, or whether the auction will succeed at vacating much spectrum. For the public TV field in particular, the gain may be limited if proceeds go only to individual licensees, or if some licensees keep the money for unrelated purposes.

Retrans fees from cable?

Public TV might get another opportunity for revenue that’s open only to TV, though it has big downsides: negotiating with cable and satellite carriers to receive per-subscriber fees for their retransmission of pubTV channels.

Many of the more assertive commercial TV stations are earning, altogether, $700 million a year that way — 5 percent to 21 percent of the revenues of big station groups that Booz looked at. Cable and satellite carriers typically paid fees of 40 to 60 cents per subscriber per month.

Booz calculates that public TV would get $32 million to $121 million a year — if the law allowed it to bargain for retrans fees. The option isn’t available now to pubTV, which operates under a different FCC legal framework for retransmission: In exchange for consenting to retransmission, it gets must-carry status.

The retransmission-consent option wouldn’t be worth much to public TV anyway, CPB says, unless the system holds “considerable leverage” in negotiations with cable and satellite distributors. And it doesn’t, CPB adds, because withholding its programs from the public would go against public TV’s grain. And getting the fractious stations to agree on a negotiating strategy would be “a major (and expensive) challenge.”

If the fees “are deemed an appropriate source” of pubTV funding, CPB hints, earning significant amounts from them could require Congress to mandate retransmission fees for public TV stations.

CPB finds that diligent mining of the system’s existing revenue sources “could, over time, conceivably generate up to an additional $23 million a year” in net revenue — nowhere near CPB’s $444 million annual appropriation.

Selling subscriptions?

Setting up pay channels for pubcasting fare would raise only “modest” income of $3 million to $9 million a year, the Booz report estimates.

Again, this assumes no huge change in the nature of programming. Booz says pubcasters’ programs score low in four characteristics found in content that can be monetized — supporting a customer’s career; enhancing a serious hobby; providing substantial entertainment or value; and being delivered in a distinctly desirable way, such as Amazon’s easy downloads of Kindle e-books.

While selling pay-TV subscriptions would help producing organizations, only a fraction of the revenue would go to stations because producers hold rights to most programs, Booz observes.

Stations would find it hard to adapt because their member-donors expect free access. If members lose free access, some would stop donating. And many would shout that putting programs behind a paywall doesn’t square with the mission of pubcasting.
However, Booz suggests that stations develop “paid” content and give it away free as an incentive to donors, just as they have used premium merchandise as an incentive for pledging.

Beyond that, the report points to promising results from a few subscription offers. Disney grossed $50 million to $150 million from Club Penguin, a game site where kids pretend to be penguins, according to an estimate cited by Booz. And the New York Times reportedly generates $80 million to $100 million a year from the turnstile in its website paywall.

Going commercial

Booz doesn’t shy away from looking at the nuclear option: dumping “noncommercial” status and selling ad time. The consultants calculate “best,” “likely” and “pessimistic” consequences for revenues and found positive results only under the best-case scenarios. The profits dissolve away entirely under the likely and pessimistic scenarios.

In the likely case, public TV would sell $239 million in commercial time but end up with $54 million less revenue overall. Booz figures that business underwriting would shrivel 40 percent as corporations convert to ads or drop public TV, foundations would cut grants by 25 percent, and individual donors would reduce their giving by 15 percent — an estimate that CPB calls conservative.

Public radio would have a smaller loss under the “likely” scenario — $7 million a year — but, like public TV, it would be saddled with a new set of incentives to cater to mass audiences already courted by hundreds of commercial media ventures. Losses would be concentrated in rural and small-audience stations that have less to gain from the switch; many would close. The public radio system and NPR would be fragmented as stations chose whether to go commercial.

Booz also holds out little hope for revenues from political and issue advertising, which public stations will be able to sell if an April federal circuit court ruling is upheld. “Many if not most” public stations will spurn the ads to avoid legal issues and audience reaction, Booz predicts.

Tweaking the present economy

CPB puts in a good word for its facility consolidation projects, merger matchmaking and reporting centers without hazarding projections of what could be saved.

The report says its Joint Master Control Initiative could help set up five or six TV centralcasting hubs that “could replace more than 100 separate master control facilities” at stations and become “the backbone of the future interconnection system.” The corporation already has funded multistation hubs in Syracuse, N.Y., and Jacksonville, Fla.

Booz also finds that the system could earn some comparatively small change, about $23 million, from several of its present sources:

  • Online advertising: $13 million a year more than now. The best chances belong to NPR and other program producers. Stations’ potential is limited because many are already using online ad inventory to sweeten on-air underwriting deals. They also fear a backlash that would come if they fully commercialized their websites.
  • Selling production services: $5 million to $7 million more from renting out excess production facilities and selling services. But some stations could not join in, Booz adds, because of rules against competing with private businesses.
  • Transmission tower leasing: $2 million to $3 million more, counting the whole country. CPB sees even less potential gain than Booz does, saying that pubradio stations already exploit most opportunities.
  • Event sponsorship: Booz endorsed selling tickets to station-sponsored events as a revenue source. A festival with Texas thought-leaders earned $500,000 last year for the nonprofit Texas Tribune.

Other revenue sources hold even less promise:

  • Renting donor lists to direct marketers: Booz says stations could earn a dollar a year per name from their member info, but the downside is steep, with many Americans demanding privacy and CPB opponents watching for a repeat of the 1999 list-swapping scandal.
  • Selling program-related licensed products: Profits go to those who take the greatest risks, Booz says — namely retailers, who get half the loot for stocking products such as Elmo dolls, and manufacturers, who usually get 45 percent for making them. That leaves just 5 percent for the producer and PBS to share. Even Sesame Workshop, with its atypical success in product licensing, earns enough from such deals to cover just a third of its costs.
  • On-demand audio and video: PBS already has deals with major on-demand distributors Netflix, Hulu Plus, Amazon Prime and Apple’s iTunes, Booz reports, and “additional upside revenue possibilities are limited for the foreseeable future.” Booz says. Amazon and iTunes keep 30 percent of the viewer’s fee, while PBS and the producer split the rest equally.
  • DVD and CD sales: With the shift to file-based distribution reducing compensation, shipments of PBS Video DVDs will fall from 3 million to 2.1 million by 2015, Booz expects. The value of discs as pledge premiums also will decline.

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