System costs would slightly exceed revenues in four years at present growth rates and vastly exceed revenues if stations expand digital services as hoped (dotted line), a CPB study finds. (Graphic: Current, based on CPB info.)
Fiscal outlook: ‘The trend is not our friend’
Public broadcasting’s expenses will outgrow its revenues by 2011. That’s according to a sweeping analysis of the system’s finances by the consultants Booz Allen Hamilton, hired by CPB in May [2007] to do the study.
The gap four years from now would be $7 million and growing, based on present growth rates of expenses and revenues, but it could be much bigger — as large as $300 million if pubcasting develops the added multiplatform services that it wants to provide.
Of course, the system doesn’t have a credit card big enough to stampede into debt of that magnitude, so these gaps measure postponed services and frustrated public-service dreams rather than actual budget deficits.
CPB expects to use the findings to inform decision-making and support advocacy for both the system’s service aspirations and pitches for federal funding that will help support the services and perhaps narrow a funding gap.
“The trend is not our friend,” Vinnie Curren, CPB’s c.o.o., told the corporation’s board last month.
CPB will discuss the findings at an array of pubcasting meetings in coming months, including this fall’s powwows for Public Radio in Mid-America and Western States Public Radio, and aims to fine-tune it annually so that it will have an increasingly reliable way to monitor the field’s financial health, says David Liroff, CPB senior v.p. for media strategy.
In an interview with Current, CPB gave only a handful of the study’s figures and almost no details about the specific costs or scope of the new services assumed in the projections. Officials are still pondering “how widely available we will make the model and to whom,” Liroff says.
The study offers a sobering view of what the system faces as it aims to boost its offerings with new channels and local programs, teaching tools and digital bells and whistles, Liroff says. “Every station, in its DNA, wants to increase its service to its community,” he says. “When you look at that in the aggregate, it has some awesome implications for what it would cost to do that.”
Closely examining costs associated with the “driving forces” that are redefining the field, CPB execs say, can help defog the view of the future.
The appropriation request that CPB will send to the administration this month, including its advance ask for fiscal year 2011, is “built on a firmer foundation” than in previous years “because we can demonstrate the need,” says Tim Isgitt, v.p. for government affairs. As a result of the study findings, CPB is requesting $483 million for its main appropriation in 2011, nearly 16 percent more than the $420 million that’s likely to be approved for 2010. (It’s part of a fiscal 2008 appropriation bill that is still awaiting action in Congress.)
Beyond these immediate decisions, Liroff says, doing some informed thinking about how the system should focus its resources is vastly preferable to the default “beats-the-hell-out-of-me” approach to planning.
“This is a very useful first step for us to get a handle on the demands being placed upon stations, both by the audience and by technology,” says Mike Riksen, NPR v.p. for government relations.
“Whoops! There are some gaps”
CPB execs are quick to note that the analysis, as it now stands, is a rough draft based on early cost estimates and assumptions that may completely miss at least one unforeseeable tech phenomenon—à la YouTube—that could change the scene, they say.
“More than anything else, this is a planning tool,” Liroff says.
To identify trends and a fiscal baseline from which to forecast future levels, Booz Allen analysts dug through stations’ annual financial reports from fiscal years 2000 through 2005, CPB’s survey data from stations and documents such as Having It All, a 2004 study of pubradio by Brody Weiser Burns.
Booz Allen talked to system consultants and station and network execs about known plans and consulted with them about preliminary findings to see whether they seemed more or less on target.
“This is pretty classic scenario planning,” Liroff says. “You identify the key drivers in the environment and talk about a range of outcomes.”
“You pull out the half-dozen things that are real trends that have real costs and real impact associated with them and follow that out,” explains Bruce Theriault, senior v.p. for radio. “Then you draw the lines and you go, ‘Whoops! There are some gaps here.’”
CPB’s latest count of total system revenues, based on station reports for fiscal 2005, was $2.395 billion.
For fiscal 2007, the year ending next week, Booz Allen estimates that revenue grew to $2.741 billion, slightly above expenses of $2.714 billion. But costs are growing faster than revenue, and the trend lines would cross by 2011, with revenues at $2.83 billion and expenses at $2.837 billion.
When the analysts added costs and revenues from new services that the system hopes to add by then, revenues of $2.95 billion fell short of expenses, calculated at $3.25 billion. The gap of $300 million approaches the size of the CPB appropriation of recent years.
The “key drivers” of cost growth considered by Booz Allen included increases in copyright royalties, radio news/talk programming (the analysts assumed a 10 percent jump in the total amount of news/talk program hours), public TV education offerings, projects in “emerging media,” and multiple digital channels in both radio and TV. Cost projections took into account how quickly the stations and networks expect to roll out new services. They were based on relatively modest, real-world price tags, Theriault says, not “pie in the sky” numbers. Some costs wouldn’t grow: The study assumed savings of $25 million on power bills after the shutoff of analog transmitters in 2009.
On the revenue side, the analysts assumed that major-giving income would continue to grow and that the new services included in the analysis would spur an uptick in membership dollars.
CPB hopes federal support will grow to cover at least some of the funding gap. The corporation based its 2011 funding ask on what it regards as a conservative estimate by Booz Allen that the system will need around $3 billion in income that year.
If Congress contributes 16 percent of system revenues in that year, as it does now, the appropriation will equal CPB’s next funding request, $483 million.
Beyond operating expenses, CPB will also request $40 million for digital TV and radio conversion in 2009 and $27 million for a second installment for upgrading pubradio’s satellite system.
Liroff hopes the study will help the system avoid spending scarce funds on dead-end projects. For example, while “it would be wonderful on the TV side to have original content on multiple multicast channels,” the findings suggest that stations won’t be able to afford to produce much on their own, he says.
“So that’s the kind of modeling that this helps inform,” he says. “Which is, ‘Hey guys, we’re going to have to collaborate on this because doing it on our own very quickly becomes a nonstarter.’”
Web page posted Oct. 13, 2007
Copyright 2007 by Current LLC
