A matter of scale
For fundraising effectiveness, most public radio stations are way too small
This commentary grew out of conversations between Mark Fuerst, a consultant and former manager of WXPN-FM in Philadelphia, and Steve Behrens, the editor of Current.
Cold economic realities are stretching the already-large gap between public radio's haves and have-nots, requiring closer attention to matters of scale, autonomy and collaboration.
The numbers tell us that smaller stations are not sharing significantly in the field's overall economic growth and are unable to invest in improving their on-air service or bolstering the fundraising effort that bigger stations are using to raise their service to a new level.
The system overall has never been in better shape. For many stations, listenership and financial support are at all-time highs. Private-sector support of public radio has been increasing so rapidly in the last half-decade that the system has been adding as much as $20 million a year in new private revenue. There's more good national programming than any single station can air. And station managers can command greatly improved decision-making tools, thanks to Audience 98, Target Analysis, AudiGraphics and other projects.
The effect of these agreeable economic reports is paradoxical: they offer enormous opportunity for change at the same time they reduce the urgency for change.
Urgent competitive challenges literally are on the horizon, however. Digital radio broadcasting by satellite is coming and may introduce powerful competitors into every market though that may look like a longshot right now. And the Internet, with a nearly endless variety of national and international specialty programmers, may likewise become a true competitor if it continues to change and improve at its usual pace.
Scale is a crucial element in those challenges as well as in public radio's future. If digital satellite broadcasting or Internet audio become viable competitors, it will be because of their national scale.
Producing programs at the national scale has been very good for public radio. NPR newsmagazines and a handful of other national programs account for much of public radio's high standing today. And the system benefited when John Sutton and the On-Air Fundraising Partnership worked at a national scale to do the research on pledging and create the pledge materials that stations needed.
(Just imagine what a boost public radio could give to its classical or jazz music programming, for instance, or its underwriting solicitation, if stations pooled their resources at the national scale to give a them a push comparable to the effort in news/talk programming.)
Of course, local news may become a crucial competitive advantage against new-tech competitors. Local scale is absolutely appropriate for some radio functions, including news reporting, some forms of fundraising, and perhaps for governance and ultimate control.
Moderately good sometimes excellent radio can be produced on a small scale, though the quality may drop radically with the departure of just one or two key staffers.
When you get down to basics, running a station doesn't cost very much. A station can keep going at a moderate-to-minimal level without many listeners. Very few public stations fail for lack of listeners or money.
But, as experience indicates, the leap to higher programming quality or to more effective fundraising is much more likely to occur at stations with larger scale. As we'll discuss below, locating the financial support functions entirely at the local level is hampering public radio in most of the nation's markets.
With just one or two burned-out development staffers apiece, smaller stations are running hard just to stay in the same place. The staffing doesn't give them the needed breadth of expertise or staffpower, and makes it likely that they'll see disruptive turnover. They lack the staff time to apply the most effective fundraising techniques, or to write grant applications, or even participate in CPB Future Fund projects. And despite their thin staffing, their fundraising costs rob the bottom line of a higher proportion of revenues.
What a difference five years make
The pledge-drive image of decrepit equipment and threadbare offices has some foundation in public radio's reality around the country, but on the national level, public radio has been showing some healthy growth.
In the two years after Newt Gingrich pledged to "zero-out" CPB fiscal 1995 and 1996 Community Financial Support of public radio (primarily memberships and underwriting, as defined by CPB), grew about 12 percent a year. More recent information compiled by the Station Resource Group and Public Radio Management (PRM), suggests those revenues have continued to grow at 10 percent a year through mid-FY98.
- Membership revenue appears to be growing 8 to 10 percent a year.
- Underwriting revenue may be growing as fast as 15 to 20 percent a year.
- Total audience-related revenues are increasing at the rate of 16 percent a year in the first half of FY98, based on surveys by PRM.
These figures indicate the public radio system as a whole has probably been adding about $20 million in private-sector revenue each year since FY94.
Even if the system can't maintain this pace, and growth slows to 7 percent in FY99, the system will have added $90 million in gross annual revenues, compared to FY95, when Gingrich went on the offensive. And even when you subtract millions in additional fundraising costs, the net gain for public radio is substantial. This is an historic achievement. In five years, public radio's community supporters, volunteers and staff collectively will have added to the system's resources an amount nearly equal to the approximately $70 million a year that CPB was spending on public radio in FY95-96.
Buoyant economic conditions and improved practices created a rising tide of system revenue. Speaker Gingrich provided a sense of urgency, and stations translated the threat into new members and new fundraising efforts. Unified by a sense of external threat, system leaders supported the redirection of $15 million to revenue-producing investments the CPB Future Funds and backed the first performance standards for CPB grant eligibility.
Yet most public radio stations have hardly grown at all, if you estimate the real dollars available for them to provide new services.
While many of the largest stations added $500,000 to their annual budgets in FY96, the average small station has added only about $50,000, according to CPB. Subtract the cost of fundraising, and the revenue shrinks to a net gain of perhaps $35,000. Inflation takes a piece of that. The NPR program fees formula takes 10 percent of any gross revenue increase. And federal funding declined over the period, both because of a 12 percent congressional cut and a simultaneous expansion of the number of radio grantees. So, after four years of extraordinary growth in private-sector revenue, most public radio stations are running in place.
Why? Because many small stations operate on a scale that prevents them from making a financial breakthrough. The current "atomic structure" of public radio fundraising, with professionals dispersed among hundreds of relatively autonomous stations, is neither effective nor efficient. The system is helpless to redirect resources to areas of need or opportunity, or to avoid enormous duplication of effort.
If the system is to overcome this problem, it must reorganize itself to give small stations more fundraising oomph at less cost in much the way that the creation of NPR provided better programming for more stations.
Larger stations are seeing revenue gains from the kinds of detailed fundraising improvements that a one-person development office often can't get around to. Growth in membership revenues is coming primarily from improvements in design and execution of on-air drives; increasing use of installment pledging; expansion of mid-level gift programs ($250-$1,000), and improved renewal practices. The underwriting growth can be traced, in part, to expanded sales staffing, including the recruitment of personnel with commercial radio experience and sophistication.
To look at the disparity in growth in FY95 and FY96, let's zoom in on two groups of public radio stations arbitrary choices, but illustrative of the issues:
- Seven stations whose total FY96 NFFS was "just below" $300,000 ($280,000 to $300,000).
- Three stations whose FY96 NFFS was just below $2 million ($1.8 million to $2 million).
For the seven smaller stations, total Community Financial Support grew by only $10,400 (about 2 percent). (The numbers might have come in higher if CPB had not changed accounting rules.) Three of the stations actually reported less CFS in FY96.
Compare this to the three larger stations, which altogether advanced by almost $1 million in the same period.
Smaller scale, higher costs
This disparity in growth unfortunately conspires with higher fundraising costs to deliver a double whammy to the bottom line of small stations. Two surveys of fundraising costs at member stations of the Station Resource Group have found that:
- Smaller stations with CFS below $500,000 tend to have direct fundraising costs around 35 percent of gross revenues.
- Very large stations with CFS over $4 million are much more efficient at fundraising, with direct costs around 20 percent.
The big ones have more money to invest in expanding and improving services to their communities as well as in additional long-term endowment and major-donor fundraising efforts that characterize civic institutions.
What makes this analysis so important is the fact that the overwhelming majority of public radio stations are relatively small.
Using FY96 figures (the most recent official CPB numbers available), one can divide the stations into four large groups, based on the amounts of nonfederal financial support (NFFS) that they raise:
- 193 (43 percent of the total) are small stations, with NFFS of less than $500,000,
- 121 (or 27 percent) are lower-mid-sized, with NFFS of $500,000 to $1 million,
- 96 (22 percent) are upper-mid-sized, with NFFS of $1 million to $2 million, and
- 35 (8 percent) are large, with NFFS over $2 million.
Some of public radio's most severe tensions arise directly from this disparity. Staff and management at smaller stations often feel neglected in public policy decisions that seem skewed to benefit large stations. This sense of inequality is based on fact.
Public radio and all forms of national media are dominated by large stations operating in heavily populated areas. They're are crucially important to the well being of public radio they deliver the lion's share of audience and private-sector funding. In FY96, the 35 largest stations brought in 40 percent of all nonfederal revenues.
At the same time, though the smaller stations aren't growing as fast and don't always get together to wield their leverage in the system, they are essential in their large numbers to support national services and provide the geographically universal service that Congress can support.
How to break through?
If the recent good times haven't significantly increased the financial capacity and thus the service capacity of the majority of public radio stations, what will?
One clear possibility is the creation of regional and local alliances along the lines of the most successful state networks, including New Hampshire, Vermont, Minnesota and Wisconsin. These organizations are well positioned for the future. They have established themselves as valuable public institutions. They provide highly proficient on-air services, competitive with nearly any likely challenger. They can attract high-quality staffers.
In large part this is because they can count on reasonable economies of scale in both programming and financial development. Unfortunately, only a few stations are so blessed.
While the public radio system celebrates the local autonomy of stations, the flip side of this set-up is economic isolation one of the system's greatest weaknesses.
How does public radio re-calibrate its view of itself so that it can balance the legitimate desire for local autonomy with the improvements in service that are made possible with cost-effective scale?
Anyone familiar with the political dynamics of American life at-large or public radio in particular can see why our leaders have avoided confronting these issues. For Congress, it has been easiest to let local initiative determine where stations are located, dispensing funds through CPB and PTFP with minimal thought about cost-effectiveness of broadcasting service or fundraising.
Public radio's own national officials end up "leading" as if that were possible the proverbial herd of cats, who are finicky, sometimes aloof and always independent. Trying to impose discipline or to shape a national consensus is exhausting and sometimes impossible. Still, the issue will not go away.
Platitudes about the importance of localism do not mask the less appealing aspects of station autonomy, which become more obvious and sometimes ominous over time.
Public TV has had to take up this issue because it hasn't clearly differentiated the services where multiple stations are seen in dozens of metropolitan areas. CPB has stepped in to encourage consolidation and coordination of service.
So far, public radio has avoided this public pressure to reorganize by claiming, with good justification, that "radio is different."
Regardless, some of the same pressures that have constricted public TV's evolution are at work in public radio. Economically isolated small stations pay for their autonomy with handicaps. Many cannot afford the salaries required to attract highly qualified staff or keep them, by offering "career tracks" and upward mobility. For many professionals, the only way up is out.
Stations licensed to colleges and other institutions are often further handicapped by being forbidden to solicit major gifts; some have only recently begun seeking underwriting or doing much pledging.
Public radio's atomized structure takes a toll on creativity. For all the talk about the freedom and diversity of local control, small, autonomous stations have very little capacity to absorb risk. Their revenue sources are less diversified; they can't offset losses in one area with gains from another part that's thriving. And even where stations face competing signals with the same programming, they sometimes believe they can't afford to change; they can't imagine surviving the six to 18 months of disruption that comes with a major format change.
On a national scale, the dispersion of authority among hundreds of program directors is one reason but not the only one why the major NPR newsmagazines remain largely unchanged after 20 years. Launching major new program initiatives is almost impossible. Anyone who has attempted this knows that it is just too hard to get dozens and dozens of individual stations to simultaneously take a risk on a new venture.
Put your methods on trial
If small scale and excessive decentralization are problems, simple centralization is not necessarily the solution. For each of the problems associated with station autonomy, one might easily create an equal list of problems associated with centralized program scheduling and bureaucratic inertia of large broadcast organizations. What public radio needs are organizational structures that balance the benefits and economies of scale with the positive features of locally focused broadcasting.
Building one autonomous local station at a time was a good way to establish public radio, but it isn't the best structure for its evolution and survival. Similarly, NPR's membership structure and non-exclusive programming contracts may have been exactly the right way to build a national program service, but may be the wrong way for public radio to operate on the national scale.
The turnover at the top combined with the recent uptick in money make this an ideal time to heed the advice of Peter Drucker, writing about the need for continuous change:
"Systematic sloughing off of the old is the one and only way to force the new. There is no lack of ideas in any organization I know. 'Creativity' is not our problem. But few organizations every get going on their own good ideas. Everybody is much too busy with the tasks of yesterday. Putting all programs and activities regularly on trial for their lives and getting rid of those that cannot prove their productivity work wonders in stimulating creativity even in the most hidebound bureaucracy."
Ideas for change are not lacking in public radio, either. Many people in the field know what needs to change and have at least partial solutions. What is missing, more than anything, is the motivation to change.
In some corners of the field, change is occurring because professionals have begun talking about what can be done. Some of the motivation to change development practices is coming from development staffers, who are burning out on pledge drives. They are not satisfied to be buried permanently under mountains of pledge slips and membership renewals, with no hope of building other revenue lines. Dozens of development directors have expressed support for the Development Exchange's MemberShop project, which will create a multi-station membership service bureau possibly one of many regional operations that could operate in the system.
For collaboration in underwriting sales, some of the motivation is coming from new sales staffers, who see the enormous potential for multi-station one-stop underwriting collaboratives and statewide sales bureaus. And some motivation is coming from the CPB Future Fund, which has backed a number of collaborations in underwriting, membership and management.
Responses to the haves/have-nots problem will surely be on public radio's policy agenda. We can expect combinations of:
- calls for larger stations to assume a larger share of shared services, such as NPR programming,
- attempts by smaller stations to merge or share fundraising and other functions to improve their economies of scale,
- reallocation of CPB funds as the federal appropriation adds $12.5 million to fiscal year 1999 radio system revenues encouraging interstation collaborations and/or giving extra help to small and moderate-size stations.
The latter does seem attractive in its simplicity. Unfortunately, changing CPB's federal funding patterns can be just as difficult as reorganizing station alliances, however. More importantly, reallocating funds doesn't solve the problems of scale.
Additional federal investment can only make a difference if there is an efficient, sustainable way to increase the locally derived resources, and the local management wants to change. While a few small and mid-sized stations might be transformed by an infusion of federal dollars, most small stations would remain relatively small because:
- they reach thinly populated areas,
- they provide duplicated service to a moderately populated region, or
- their licensees impede the investments in fundraising that they need to expand their capacity.
In each case, the stations' long-term prospects remain unchanged.
Meanwhile, public radio stations are hearing about and experiencing a variety of collaborative efforts often, happy ones, so far which may open up a widely shared view of the future: a mental map of alternative structures that need not look like public radio's past.
With an accumulation of these experiences, we may see system planners or groupings of stations begin to sketch new collaborative options that recognize the advantages of scale: local scale for local service, regional and national scale for other operations as appropriate for cost-effectiveness. Stations will not give up their individuality, but they may be willing to increase their interdependence, once they see the benefits.
With notable exceptions, the system has been stuck in place for years. It's had a dilemma like that of individual stations that know they should change their programming formats, but fear the disruption. Some staff members will be displeased. Some listeners will say things were better the way they were. Some will see sinister motives behind the changes.
But the evidence is clear. Most public radio stations and their listeners and potential listeners are not benefiting from the current atomic structure for the system's financial support. A few large stations are getting larger and probably stronger, but even they may need new alliances to gain access to capital and the economies of scale that will allow them to operate successfully in the next decade.
For a restructured public radio system, the upper limits are speculative. But we already are becoming intimately familiar with the upper limits of the present structure.
The co-author, Mark Fuerst, is a partner in
Public Radio Management, Inc., and former g.m. of WXPN-FM, Philadelphia.
He worked on the DEI MemberShop project aimed at creating a multi-station
membership-fundraising service bureau. His Public Radio Management
Report tracks current-year finances of 28 public radio licensees.
He recently served as a consultant to CPB in its radio policy review.
Web page posted Oct. 30, 1998
Copyright 1998 by Current Publishing Committee