PBS predicts a larger budget for fiscal year 1997
'Station equity model' is already working, says Duggan
Excerpted from Current, Feb. 12, 1996
By Steve Behrens
Next year's draft PBS budget grows 30 percent--by $52 million--while asking stations for a program dues increase of 2.6 percent, approximately the inflation rate.
The budget growth for fiscal 1997, without a huge dues hike, "is a dramatic statement that the Station Equity Model is already working," said PBS President Ervin Duggan in an interview last week. Duggan introduced the model during the Fall Planning Meeting last November as a framework for thinking about the increasingly active role he advocates for PBS.
The PBS Board on Jan. 27 approved sending the budget proposal to stations, and the Executive Committee will consider adoption of a budget March 28.
The big assist from Reader's Digest
Where will PBS come up with an additional $52 million while increasing program dues by just $2.9 million?
Nearly all the growth comes from three categories of revenue that fit the broad Station Equity Model:
- $22 million growth in the revenue of PBS Learning Media, largely from sale of videocassettes,
- $10 million in projected growth from other self-supporting enterprises, including sale of satellite services and the new fundraising software now being tested by several stations, and
- $15 million pledged by Reader's Digest Association as part of its $75 million program partnership with PBS.
As in many nonprofits, most of PBS's budget growth will be spent to provide the services that earn the additional money, but the network's self-supporting activities are beginning to show surpluses that can subsidize programming to a relatively small degree.
With its larger budget next year, PBS will add about 20 staff positions, estimated Executive Vice President Bob Ottenhoff. The network now has about 370 staffers. Most of the new people will work in national underwriting, program business affairs, programming and self-supporting activities, he said. "We're investing in people who will help make us self-sufficient."
Videocassette sales and other self-supporting activities next year are projected to generate net income of $8 million--10 times the surplus budgeted this year--and PBS proposes to put $3 million of that into programming
Though the profit-making side of PBS may be starting to roll, if these improved income projections come true, the figures emphasize the importance of a major influx of programming money like the Reader's Digest deal. PBS's National Program Service budget is projected to grow by $18 million next year, but just $3 million is from other entrepreneurial ventures and the rest comes from Reader's Digest.
The text of the draft budget repeats PBS's pledge, first announced last November, that it will boost annual funding of National Program Service programs and promotion from $110 million to $165 million, mostly from outside sources, by the year 2000. The Reader's Digest commitment already closes a quarter of that annual gap.
PBS will boost program spending while holding dues increases to the inflation rate, Duggan pledged in the budget.
He said there are other possibilities for big program partnerships like the one with Reader's Digest, but he can't reveal ongoing negotiations. "We would not have made the pledge to grow the National Program Service," he said last week, ". . . unless we believed those potential partners are there."
One such deal that may never come to pass, however, is the partnership with MCI announced in March 1995. The plan had been that MCI would invest at least $15 million in a joint online venture with PBS and additional funds in programming. John Hollar, PBS's executive v.p. for Learing Ventures, reported that the tentative arrangement has not "gone forward," while the big telecom company has announced bigger online deals with Rupert Murdoch's News Corp. and, more recently, with Microsoft. "They really are wrestling with their own strategies," said Hollar. PBS meanwhile is talking with other online and interactive companies about collaborations.
What is this equity thing?
PBS's recent summary of the Station Equity Model, more than 50 pages of large print and charts, may help explain the model to station executives who were scratching their heads when they left the Fall Planning Meeting last November.
It will be a harder task to calm the fears and quiet the complaints from executives of major stations, some of whom still see Duggan's initiative as an unwise expansion of PBS's power.
"There's a lot to be admired in the plan," said Bill Kobin, president of KCET in Los Angeles. "It's the product of some strong, positive, creative thinking." But he and managers of other large stations in the informal Community Station Resource Group worry that the "highly centralized" model that consolidates fundraising, program oversight, distribution and back-end rights at PBS "could pose serious threats to the system."
The producing stations, he added, have a separate concern that PBS will pay them at the cost of production instead of the higher amount that they could earn from fully exploiting successful programs. They need the surplus as seed money for future production, he said.
Duggan said the budget gives "immediate fiscal relief" to all stations--by giving them more services with only a small program dues increase--and also provides them with a predictable picture of similarly small increases until the millenium.
The budget document is peppered with quantified goals, and Duggan promises to "hold ourselves strictly accountable" to stations for promised advances.
PBS Learning Media, for example, sets a goal of boosting its revenue, largely from videocassette sales, by a full 50 percent between fiscal 1996 and 1997, and its net income by 20 percent. PBS Online will begin exploring ways to earn revenue on the Internet.
The network also aims to increase station participation in Ready to Learn preschooler programming, now at 57 percent of the population, to 100 percent by the end of fiscal 1997.
Most stations will be pleased with the budget and like what they've heard about the Station Equity Model, according to sources outside of Washington. A major thrust of the model is to give all stations a share of ancillary revenues from successful programs that previously were kept entirely by producing stations.
Though Duggan said that PBS will be fair in paying higher amounts and sometimes full cost to producing stations, PBS also pledged "more proactive and efficient program contracting" and abandoning its old "low-leverage" negotiations. Skeptical producers take that to mean "nickel and diming" them to death and taking away their seed money for future productions, according to prominent station people.
PBS sees the relationship changing. Instead of being "patron" for producers, giving them grants in exchange for broadcast rights, PBS will become a partner in their projects, bearing "greater responsibility" for financing and distributing the programs.
Duggan said the coordinated national underwriting sales assistance, proposed in the papers mailed this week, has been endorsed by the producing stations, which want more collaborative activity.
The first tasks will be to determine what kinds of grantseeking assistance the producing stations need, research potential prospects, and help producers keep the underwriters they already have, according to Duggan and Ottenhoff.
The underwriting salespeople may find it easier to sign up contributors, thanks to a revision of PBS underwriting rules adopted by the PBS Board at its San Diego meeting two weeks ago. PBS will accept as many as three 15-second credits for multiple underwriters of a national program instead of one, two or three 10-second credits. The change was recommended by the PBS membership policy task force, which is expected to have further proposals.
Doesn't affect every program
PBS officials say the Station Equity Model won't swoop into the production world like a hurricane. The PBS Board directed staff to pay more attention to ancillary rights back in January 1994, and recent contracts for Barney & Friends and Wishbone contain stronger ancillary rights deals for PBS and the consuming stations, Duggan said.
PBS will seek broader rights only in projects that have enough revenue potential, Ottenhoff said. Many whole genres, including classical music performances and public affairs documentaries have little or none.
"The Station Equity Model will evolve program by program, project by project, deal by deal," said Duggan. "We will not look at every program as a potential producer of returns, and every contract will not look like every other contract."
The objectives are not only maximizing revenue to the stations that own and support PBS, but also preserving "public television's uniqueness" by keeping rerun rights in the family.
PBS wants to "stabilize" program franchises by spending $68.5 million on existing signature series next year, according to the budget.
"One of the things we want to do if we can is get [signature programs] off the starvation diet they've been on the last few years," which has cut back their numbers of episodes produced and spending per-episode, said Ottenhoff, who is acting program chief for the network.
The budget document says that PBS will also stake out new program territories, including high-visibility mini-series, and take "initial steps" to strengthen production of domestic drama and performance programming.
Decisions on fiscal 1997 renewals are a full year behind schedule because of federal funding uncertainties. PBS said it is counting on a continuing annual sum of $27,520,000 from CPB in its budget projections, but only $17.1 million is confirmed so far.
The 1997 budget also seeks an 8 percent increase in the optional SIP fees to build a larger purse for big "event" programs for pledge drives.
Duggan is also putting $3 million more into National Program Service advertising and promotion, ramping up promo spending from 6.5 percent of the NPS budget to 8 percent next year and 10 percent in 2000.
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Duggan outlines Station Equity Model, November 1995.
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