Philanthropic giving has added $180 million to pubcasting income in the past decade. Now fundraisers are ...

Seeking the next $100 million

Analysis by Mark Fuerst

Public Media FuturesMark Fuerst — Current’s director of strategic initiatives on loan to the Public Media Futures project — looks at revenue successes in advance of the project’s Forum July 9, preceding this week’s Public Media Development & Marketing Conference in Seattle.

For those who question public broadcasting’s ability to react strategically to changing business conditions, I’ve got good news.

A review of public stations’ financial data over the past 15 years shows that, despite their widely divergent revenue trajectories, public radio and television have both made great progress in implementing structural and cultural changes needed to pursue new revenues. These efforts have paid off and are now generating hundreds of millions each year.

Where corporate aid shriveled, WGBH turned to major donors last year to bolster Masterpiece dramas on PBS. Bostonians Jeffrey and Jane Marshall (above with E.P. Rebecca Eaton, left), were among the first donors to the Masterpiece Trust, a new vehicle for major gifts.

In radio, basic membership revenue increased by $104 million between 1995 and 2010; radio underwriting, just at the station level, tripled to $183 million between 1995 and 2007. That’s another gain of $100 million, although radio underwriting revenues fell during the recession, to $157 million in 2010.

And finally, both radio and TV moved strategically and somewhat cohesively over the past two decades to exploit a set of “philanthropic revenues” — major gifts, endowment income and foundation fundraising. The combined effort increased annual system revenues by $186 million from 1999 to 2010.

This impressive gain understates somewhat the extent of major-gift activity because it doesn’t include grants for capital gifts, including grants for numerous new station facilities prompted by the DTV transition and radio expansion. Capital gifts are reported separately to CPB, whose annual financial reports from stations were the primary source for this analysis.

The growth in major-gift revenues grew out of changes in public media development practices, recommended repeatedly by task forces and business consultants over two decades. This strategic shift in fundraising provided a safety net for public television when its membership and underwriting revenues plummeted from their dot-com era peaks. And they boosted public radio’s revenue growth during the last decade, providing income to expand newsgathering capacity and to lay the building blocks for multiplatform service strategies.

Bar charts showing growth of philanthropic revenue for both pubTV and pubradio.

Progress in philanthropic fundraising: Three color-coded revenue categories added $186 million for pubcasting between 1997 and 2010, according to CPB financial reports. Figures compiled by Mark Fuerst are adjusted to 2010 dollars for comparability.

While concentrated among large licensees, the gains provide compelling evidence that a systematic focus on a strategic opportunity can have a profound impact on public-service media.
Without the concentrated efforts and investments of CPB, DEI and station leaders, the public media system would be much weaker today.

Equally important, a survey of front-line development officers indicated that the expansion of major-giving programs may be the single largest development opportunity for the decade ahead. The upside may be another $100 million opportunity, if stations and networks can reorganize their staffing and coordinate their activities for optimal impact.

A needed cushion during recession

Participants in this week’s Public Media Futures Forum, co-sponsored by the communication schools of American University and the University of Southern California, will brainstorm and discuss what could be the next set of game-changing strategic opportunities for public media in the decade ahead.

As I discovered in extensive interviews with public media development leaders in recent weeks, two-thirds of the professionals we contacted see strong growth potential in major-gifts fundraising and improvement in membership practices. That same group was less sanguine about the potential for growth through the improvement of “existing underwriting practices.”

To prepare for the forum and the survey of development leaders, I analyzed CPB data of public broadcasting revenue for fiscal years 1997 to 2010.

The strategic shift from reliance on audience-sensitive revenues to a more balanced model of audience-sensitive and philanthropic revenues shows up in the data that CPB itself collected through the Annual Financial Reports that each Community Service Grant recipient must file.

It is revealing to note that before 1998 CPB did not track endowment income, and it was only beginning to list major-gifts revenues as a separate line item in the 1999 reports. Before that, all individual gifts, except for capital-campaign gifts, were bundled with “subscription membership revenue” or “revenue from Friends groups.”

The revenue data reflects the realities of the system’s philanthropic fundraising: In 1998, only 85 licensees reported any endowment revenue, totaling $7.7 million. Major gift revenues were at a similarly low starting point. After a decade of major-gift and foundation cultivation, by 2010 197 licensees were reporting endowment income totaling $58.4 million.

In 2001, public TV’s earned revenues (from membership and corporate underwriting) had begun declining. (All figures are adjusted to 2010 dollars.) Membership income peaked at $491 million in 1999 revenues, and underwriting topped out at $347 million a year later. But as the losses accumulated over the decade, public TV stations principally in the biggest markets stabilized their operations by successfully focusing on major gifts and foundation grants.

As this was happening, large-market radio stations also expanded their fundraising portfolios with major gifts and foundation grants but without the disruptive losses in membership and underwriting income that hit public TV.

Basic shift in revenue

The strategic shift to philanthropic fundraising, jump-started in the late 1990s through the concerted efforts of system leaders and stations, appears to have altered the basic business model of public television.

In 1997, audience-sensitive revenue made up 35 percent of public TV’s total annual revenues; by 2010, it provided 25 percent. Philanthropic income (major gifts, endowment income and foundation support) increased from 5 percent in 1997 to 15 percent in 2010.

Looking at the decade in which CPB began tracking these revenues, from 1999 to 2010, television licensees increased annual revenue from major gifts and bequests eighteenfold, from just under $3.6 million to $66.4 million. (Both figures are adjusted to 2010 dollars and exclude capital gifts.) By 2010, endowments of TV stations, many of them built by major-gift fundraising, supplied an additional $41.0 million in annual income in 2010.

Among radio stations, major gifts grew thirteenfold from $3.6 million in fiscal 2000 to $47.4 million in 2010. Endowments at radio stations provided an additional $17.3 million in 2010.
The major-gift work was complemented by increased foundation grantsmanship, again with very impressive results for both TV and radio.

Foundation grants to public television grew from $117 million in 1999 to $128 million in 2010 (again adjusted for inflation and excluding capital gifts). In the same period, radio’s annual foundation revenue doubled to $75 million.

These fundraising efforts have already shaped the content and service of public broadcasting and will continue to do so in the decade ahead.

In TV, revenues from major gifts and foundation support have bolstered community-centered engagement projects, such as the CPB-backed American Graduate initiative that seeks to improve high-school graduation rates, and local projects assisting homeowners struggling with excessive mortgage debt. Neither of these projects “pledge well” with individual donors, at least not so far, but they are well suited for the philanthropic fundraising emphasis at many public TV stations.

Although one can only imagine where the public TV system would be if its membership and underwriting revenues had stabilized or even grown, local stations have become less reliant on audience-sensitive income.

That’s good news, perhaps, for those who have long complained about Lawrence Welk reruns airing on local stations or the qualitative differences between public TV’s regularly scheduled programs and its pledge fare.

In radio, the income growth from major gifts and foundation grants has financed the expansion of local news operations and facilitated the transition to multiplatform news publishing. The cost of these investments may eventually be recovered by expanded memberships, but audience-based revenues for the expansion of digital services remains elusive.

The expansion of major gifts affected public radio quite differently. Instead of filling gaps created by membership and underwriting losses, gains in philanthropic gifts came on top of the record growth of more than $200 million in earned income from membership and underwriting sales.

It will take another decade before the long-term impact of this revenue shift plays out. But whatever happens, we can say this: The growth of major gifts, endowment income and foundation support represented an enormous opportunity that was identified by many of the field’s development leaders at the close of the 1990s. Stations, networks, DEI and CPB combined to change the system’s fundraising culture to capture this new revenue.

What about the net?

Figures available from CPB Annual Financial Reports don’t tell us precisely how much of the added revenue is left after subtracting fundraising expenses. It’s hard to know the meaning of cost figures from hundreds of stations that count costs in different ways.

It’s possible to approach net revenue by comparing two figures that may be somewhat mismatched: the costs for “fundraising and membership development” versus the revenues from memberships and major giving.

Some observers may be surprised by the resulting revenue/expense ratios, which have barely changed over 15 years, despite the growth in major gifts, which you might expect to require lower cost per dollar raised.

The cost levels from this calculation are uncomfortably high: In television, stations on average reported 47 cents of costs in “fundraising and membership development” in 1999 and a peak of 56 cents per dollar in 2007. In radio, the trend was similar, rising from 37 cents per dollar in 1999 to 43 cents per dollar in 2007.

If these ratios truly reflect the cost of fundraising, they may be slightly or considerably higher than nonprofit watchdog groups recommend. The Better Business Bureau and others tend to recommend fundraising costs no greater than 35 cents per dollar raised.

Another increasingly obvious challenge documented in the CPB figures is the uneven distribution of financial gains among the stations.

New revenue from major gifts is concentrated among the largest stations. In 2010, the 50 public TV stations that earned the most gross revenue took in 80 percent of all major-gift dollars; the smallest 100 stations took in 10 percent. In radio, distribution of major-gift revenue was slightly less concentrated. The largest 50 stations took in 70 percent of all major-gift dollars in 2010; the smallest 200 stations took in 7.5 percent.

Both questions — the cost of fundraising and the distribution of revenues — are intimately connected to issues of long-term sustainability and the need for greater efficiency in a time of fiscal austerity.

The next game-changer?

Over the past month I interviewed 15 public broadcasting executives and development professionals, and surveyed 27 others, to learn where they see the major areas for growth in the coming decade.

Their responses, to be explored in more depth during the forum this week, show:

  • broad agreement about the potential for continued growth in philanthropic and member revenues;
  • shared concern about the high cost of fundraising and the range of capacity across the system; and
  • optimism about potential digital revenue, though without plans for specific strategies to pursue it.

Extend major-gift work

Without question, continued expansion of major-gifts programs will remain a top priority for most development professionals we contacted. Two-thirds of those who contributed suggestions, through interviews or the survey, identified major giving as their first or second priority for revenue expansion.

Many recognize that the success achieved so far is just a start. They believe that major-gift work is just beginning to flourish and most see enormous potential for extending it through wider adoption of the basic techniques and a continued emphasis on training.

Training is a key element in this view. Norm Silverstein, chief executive at WXXI in Rochester, N.Y., suggested that “the best thing that CPB ever did was fund the Major Giving Initiative,” and he favors renewing that effort.

Over the last decade, hundreds of development professionals and station chief executives received basic training in major-gifts fundraising, and the practices they learned are now becoming embedded in the culture of local stations. The traditional notion of a general manager deeply involved in daily operations is receding as the concept of the “g.m. as civic leader” emerges. In addition, more stations have adopted the practice of involving board members in major-gift fundraising.

These changes coincide with the demographic trend that presents a huge opportunity in major-gift fundraising: the aging of millions of baby boomers, many of whom are loyal listeners and donors to public radio, and the estate planning that occurs as they approach retirement.

“We know the audience has the wealth indicators,” said Mikel Elcessor, g.m. of Detroit’s WDET and a DEI Board member. “What we need to do now is invest in and behave in a manner that is consistent” with the size of the opportunity.

Fundraising consultant Helen Kennedy proposed that public stations set a specific goal for expanding their major-donor programs. After looking over the Target Analysis fundraising reports of her clients, she said that major-donor programs provide no more than .6 percent of the contributors in public stations’ donor files. “I certainly think that many of these stations could aspire to a goal of 1 percent of the total membership in the major-donor category,” she said.

Rethink membership

Others see a big upside potential in strengthening stations’ basic and mid-level membership efforts. Many stations have established sustaining membership programs over the last few years. But fundraising consultants Barbara Appleby and Valerie Arganbright, who built a successful program for Minnesota Public Radio, are now recommending that stations restructure and refine their programs to make recruitment and retention of sustainers their top priority. (See their commentary in Current, July 9, page 13.)

Though the figures give cause for optimism for both major gifts and membership expansion, some fundraisers are also concerned about the high cost of membership fundraising, especially in TV, where premium-driven pledge drives have become the norm.

Digital systems are not in place

The most perplexing revenue area highlighted by the survey is the seemingly unlimited but elusive opportunity of digital media. Stations continue to see digital as a high-expense, low-return service, at least for now.

This has not stopped many of the most ambitious stations from making large and expensive online investments, but many question both the strategy and the tactics. One prominent consultant, who asked to be anonymous, chuckled as he described digital as  “the new opera.” Station leaders feel that they should be investing in digital, just as some once felt they should broadcast more opera, but they’re not sure what they, or their audiences, would get from it.

But a third of survey participants are persuaded that digital services have great importance and potential. A full 33 percent of the professionals we contacted said developing digital-media revenue was one of their top two revenue priorities.

EARLIER STORY

Recession is just the latest thing to go worse for public TV than for public radio. Fuerst’s review of system finances for the years 1995 to 2010 shows that public TV’s revenues fell $291 million while pubradio’s rose two-thirds to $355 million.

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