1 / 28

Developing a Sustainable Economic Model for Public Television

CONFIDENTIAL. Developing a Sustainable Economic Model for Public Television. May 29, 2003. PROJECT ASPIRATIONS AND KEY QUESTIONS. How severe and long lasting are the financial pressures on the system?.

bevan
Download Presentation

Developing a Sustainable Economic Model for Public Television

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. CONFIDENTIAL Developing a Sustainable Economic Model for Public Television May 29, 2003

  2. PROJECT ASPIRATIONS AND KEY QUESTIONS How severe and long lasting are the financial pressures on the system? • Identify and drive major changes that will put public television on a more sound economic footing and ensure its future success Which performance improvement opportunities offer the most promise? How should we launch these initiatives and effect lasting change?

  3. CHALLENGES: BOTH STATION ECONOMIES AND PROGRAM DEVELOPMENT ARE AT-RISK • 2001 Station Assessment • 2001 Local Station Economy • 2001 National Program Funding • Currentsize • $107 M • $1.93 Billion • $450 Million • Historical growthin revenues (1990-2001) • 3.5 % per year* • 3.1 % per year** • 5.4 % per year • Prospects for future revenue growth • Decline in real terms due to falling net member revenues • Flat to very slowly growing (1% above inflation) • A system decision * Excludes capital funding for digital upgrade. Revenues not adjusted for inflation ** Growth rate from 1994-2001 Source: CPB Audited Financial Reports (AFR), PBS analysis (dues), Appendix Q from PBS SG white paper (“Funding for PBS NPS Programming by Funder Category”)

  4. CHALLENGES: ONLY GROWTH AREAS ARE UNRELATED BUSINESS AND UNDERWRITING Drivers of growth • Annual Growth % • 1990-2001 • Total PTV system revenue,* 1990 and 2001 • $ Millions • $1.88 billion • 3.8 94.5 145.6 • 3.1 259.6 • 6.6 • $1.25 billion • University 62.9 347.6 • 4.9 • In-kind 104.2 • Unrelated business 128.6 • Corporate and foundation giving 330.5 • 3.3 205.6 • Federal funding** 230.5 • 2.5 328.5 • State and local funding 249.4 • 2.9 374.0 • Member giving 273.3 • 1990 • 2001 * Excludes capital funding for digital upgrade, additional capital fundraising, endowment, and interest ** Federal agency grants for 2001 are estimated (assumed 5% growth over 2000) Source: AFR; federal reports; PBS annual reports

  5. CHALLENGES: HISTORICALLY, THE SYSTEM HAS GROWN THROUGH DIVERSIFICATION – NOW ALL REVENUE SOURCES ARE THREATENED • Future Outlook Source: AFRs; Team perspective

  6. CHALLENGES: NET STATION MEMBERSHIP REVENUE HAS DECLINED IN REAL TERMS SINCE 1990 $ Millions, Adjusted for inflation to constant 2001 $ • Gross revenues: 0.1%* • Fundraising costs: 1.0% • $17 million lost income • Net membership revenues: -0.9% * All growth rates are compound annual growth rates. Source: AFRs; Bureau of Labor Statistics

  7. CHALLENGES: DECLINES WILL CONTINUE IN NET MEMBER SUPPORT Membership Revenue Drivers Outlook Audience Size • Falling ratings likely contribute to the long term membership decline, both because the prospect pool with a connection to PTV shrinks and because membership renewal is highly correlated with audience New Member • Pledge, which is the engine of new member acquisition, has seen rising costs relative to new member yield in line with declining productivity trends outside PTV • Net renewal revenue will not offset declining acquisition • Stations already have among the nonprofit sector’s highest renewal rates • Renewal mail’s productivity is flat to declining • Declining ratings increase stations’ challenge Renewing Member Philanthropic Environment • With the number of nonprofits growing twice as fast as real household charitable giving, stations will be hard pressed to grow their share of members’ wallets Source: “Donor Centrics Comparison Report for Public Television, December 2000;” DMA Factbook 2001; Giving USA 2002

  8. CHALLENGES: STATION HAVE MET THESE CHALLENGES IN THE PAST BY CONTROLLING COSTS ACROSS THE BOARD • Stations expense, 1990 and 2001 • Percent • Annual Growth Rate • 1990-2001 • 100% = • $1.80 billion • 100% = • $1.19 billion • 7.9 • Underwriting • Program information • 3.3 • Fundraising • 3.8 • Management and general • 3.1 • Broadcasting • 4.0 Nearly 1/3 of station programming and production costs are concentrated in producing stations for national programming • 4.0 • NPS dues and services • Programming and production • 3.8 • 1990 • 2001 * Expenses do not include CPB or PBS overhead or CPB provided nonstation grants Source: AFR; PBS annual report, 2001

  9. CHALLENGES: REVENUE DECREASES WILL PROMPT REPEATED PAINFUL COST REDUCTIONS • Illustrative expense budget for an average medium/large community station • $10.7 million • 15% revenue loss • 100%= • Station cost-cutting scenario: • Other • Educ. / outreach • $9.1 million • Reduce headcount by 26%, from 80 to 59 • Cut local production budget by 40%, reducing annual locally produced hours from 109 to 65 • Eliminate the Program Guide • Maintain or slightly decrease investment in website and education • Membership • Acquisition & scheduling • Broadcast ops • Underwriting • 76 • Website • Prog. production • 76 • General & administrative • 2001 Actual • 2010 Illustrative Source: SABS; interviews

  10. Digital Conversion • Digital • Media CHALLENGES: CAPITAL INVESTMENTS MAY FURTHER REDUCE AVAILABLE FUNDING Potential strategic investments Planned capital investments • Bringing the best of public television into a digital media world through the use of digital cable, VOD, PVRs and High Definition programming • Only $800 million of the estimated $1.7 billion goal has been raised Next Generation Interconnect • Innovating and launching new services such as distance learning or new media services that may not generate income, at least in the near term • Plans are to replace current infrastructure by 2006 using CPB’s $177 million appropriation request New Services Source: CPB; APTS Digital Clearinghouse; PBS estimates

  11. CHALLENGES: NATIONAL PROGRAMMING, LIKEWISE, FACES UNPRECENTED PRESSURES National Programming • External Pressures • Internal Pressures • Unprecedented changes in audience demographics and viewing environment • Increasing investment in programming and promotion from cable competitors • Little or no growth in traditional sources of revenue • Rising costs and new costs (such as HD production) • Responses • Introducing new/limited series and specials to slow ratings decline • Increasing funding from CPB and PBS to cover rising per hour costs • Greater reliance on fully-funded programs • Periodic cost reduction

  12. Station financial challenges make it CHALLENGES: NO RELIEF FROM TRADITIONAL PROGRAMMING FUNDING SOURCES Growth in total programming investment - NPS / Plus / SIP / Select (1991-2001) $ Millions • Prospects for future funding growth 1991-2001 Growth Rate Percent • 1991-2001 Growth Rate Source Future outlook PBS / 4 - • 5.4% • 450 stations impossible to increase assessments • 432 absent very compelling case • 379 Ability to join in recovery of TV ad market threatened by turnover of key underwriters and commercial competition Corporate 5 • 370 underwriters • 338 • 326 • 327 • 311 • 301 • 291 • 7.1% • 267 • 266 Federal deficits, fiscal environment CPB 3 threaten requested increases • Corporate, Foundation, private producer, other* Slower growth likely as foundations Foundations 9 stabilize giving levels after rapid increases in the late 1990s and shrinking endowments since 2000 Continued growth uncertain Independent 8 producers • 2.6% • Station, PBS, and CPB Threatened by government deficits Government 9 agencies Too small to make a difference Other 10 * Includes government agencies such as NSF and NEH, but not CPB appropriation Source: PBS SG’s Environmental Scan of the PBS Sponsorship Sales Model August 2002; 2002 figures are estimates as of 12/12/02

  13. CHALLENGES: INCREASINGLY, NATIONAL PROGRAMMING DOLLARS HAVE LESS LEVERAGE RELATIVE TO COMPETITION • Annual programming investment, 1993-2001 • $ Millions Programming investment of 4comparable cable nets • Growth • Rate19.9% • Average = $183M/year • 2.5:1 NPS original broadcast and re-up spending • Growth Rate4.7% • PTV investment • $450M/year • PTVinvestment • $334M/ year • 8:1 • Average investment • $41M/year Source: Kagan's Economics of Basic Cable Networks 2002; TV Program Investor; PBS

  14. CHALLENGES: INDEPENDENT COMMERCIAL BROADCAST STATIONS FACE SIMILAR PRESSURE AND ARE RESPONDING WITH SIMILAR SOLUTIONS – INCREASE SCALE AND IMPROVE PRACTICES • Industry Pressures • Industry Responses • Pressure on local news – the cash cow from: • Audience fragmentation • Greater competition • Ratings for syndicated programming down while costs are up • Decreases/elimination of network compensation • Difficult ad market • DTV mandates • Threat from more O&Os • Acquisition/consolidation to achieve scale • Program acquisition • Technology investment (e.g. traffic operations, sales systems, graphics) • Shared services (e.g. accounting, HR) • Upgrade of sales practices and systems (e.g. pricing)

  15. OPTIONS: WE BEGAN THE PROCESS BY DEFINING A SET OF CRITERIA • Criterion 1: Likely, large, and near-term: represents >$10M net per year within 5 years, based on clear business case from compelling internal examples or relevant external benchmarks • Criterion 2: Under PTV control: Achieving the opportunity did not rely solely on a “happy accident” outside of the system’s control • Criterion 3: No major strategic issues: pursuing this would not require major consultation to reassess/reaffirm the strategy, mission, positioning of PTV

  16. C. Technology A. Third Party Funds A. Membership C. Individual Programs B. Rights Mgt. A. Other Platforms A. New Services • Video/DVD • Licensing • Domestic Syndication • International Sales • Cable • VOD • Tivo • Online • Interconnection • Asset Management • Master Control • Distance Education • Datacasting • Homeland Security • ISP • Workforce Training • Government Services • Nonprofit Services • Member Subscriptions • TV Multicast • Lower Per-Hour Cost • Increase Repeats • National Programming Fund • Co-Production • Retention • Major Gifts • Costs of Membership B. Underwriting • National Sales • Unwired Network Sales • Local E. Federal Dollars • Dept. of Education, NEA • Spectrum Auction • Tax on Internet OPTIONS: A BROAD RANGE OF IDEAS WERE COLLECTED THAT WE BELIEVED MIGHT MEET THE CRITERIA Traditional Revenue Sources Ancillary Sources System Efficiencies A. Improve Lower Performing Stations B. Collaboration • Master Control • Commercial Partners • Membership/Underwriting Sales C. Foundations Digital Television D. Local Partnerships Programming B. Change Programming Mix B. Federal Support

  17. OPTIONS: WE ANALYZED THE IDEAS AGAINST EACH CRITERION • Major gifts • Member retention • Membership cost • National underwriting • Local underwriting • Foundation fundraising • Cable Channel • Domestic windowing • VOD/TIVO • New digital services • Increased federal support for DTV • Rights management • System efficiencies • Major gifts • Member retention • Membership cost • National underwriting • Local underwriting • Foundation fundraising • VOD/TIVO • New digital services • Increased federal support for DTV • Rights management • System efficiencies • Major gifts • Member retention • Membership cost • National underwriting • Local underwriting • Foundation fundraising • New digital services • Rights management • System efficiencies • Major gifts • National underwriting • Foundation fundraising • Rights management • System efficiencies • Criterion 2: Under PTV control • Criterion 1: Likely, large, near term: • Criterion 3 - No major strategic issues • Cable Channel • Domestic windowing • VOD/TIVO • Increased federal support for DTV • New digital services • Member retention • Membership cost • Local underwriting • Need a strategic plan to pursue • Prepare for but avoid over- investment • Good ideas but insufficient to secure financial health

  18. OPTIONS: THREE POTENTIAL SOLUTIONS PASSED EACH SCREEN • Expand major and planned giving efforts • Pursue cost savings through station and system efficiencies • Improve model for National Programming

  19. SOLUTIONS: MAJOR GIVING HAS A POTENTIAL IMPACT – $20-$35 MILLION NET REVENUE • Major giving revenue • Giving pyramid for typical station before launching major gift effort* • Giving pyramid for typical station after launching major giving effort • 6% • 13% • If all stations could see comparable improvements, system could raise $20-35 million net revenue • 94% • 87% * Based on case study stations, including KUED, OPTV, KNPB, and WGBH Source: Station interviews; McKinsey Nonprofit Practice

  20. SOLUTIONS: CASE STUDIES OFFER USEFUL ROLE MODELS FOR STATIONS LAUNCHING HIGH TOUCH DEVELOPMENT EFFORTS • KNPB’s major giving effort was successful because they aggressively targeted high net worth individuals for large gifts • $ Thousands • KLRU’s major giving effort grew ~3 times as fast as their regular membership efforts • $ Thousands • Growth Rate • Growth Rate • 28.9 • 14.0 • Cost per dollar raised • Percent • Number of major donors • 6.5 • 4.7 • 6.0 • 2.0 • 1.6 • 1.6 • .9 • -17.2 • 27 • 47 • 71 • 75 • 90 • 113 • 106 • 25.6 • Oregon has been successful because they expanded a full range of high touch development efforts, including major giving, planned giving, and an endowment fund • $ Thousands • KUED’s long-term investment in major giving has led to a ten-fold increase in this revenue • $ Thousands • 8,495 • Growth Rate • 7,853 • 25.5** • 4,519 • 3,790 • 3,054 • 2,174 • Endowment • 1,420 • Number of major donors • 7 • 34 • 63 • 80 • 85 • 82 • N/A • 122 • 95 • 112 • 127 • 33.6** • Planned giving • Major giving • Midlevel giving • Cost per donor • $ • 0 • 1,701 • 814 • 787 • 575 • 460 • N/A • 615 • 960 • 697 • 632 • -10.4*** Source: Station data (KLRU, KNPB, Oregon PTV, and KUED)

  21. SOLUTIONS: SUCCESS REQUIRES SIGNIFICANT ACTION • Stations segmented by major gift efforts • Opportunity • Potential • 176 • $374M • Total= • Establish full range of high touch development efforts (i.e., major giving, planned giving, endowment development) • $10-20M net revenue • Limited major gift effort* • Raise current efforts up to best practice (e.g., improve existing major giving, expand menu of high touch development offerings) • $8-15M net revenue • Some major gift effort** • Continue efforts to achieve full potential • Total unknown • Strong major gift effort*** • Number of stations • Total member revenue • $20-35M+ * Defined as stations with no or limited major giving efforts or reporting, less than 6% of total member revenues from major gifts) ** Defined as stations where major giving revenues account for 6-13% of total member revenue ***Defined as stations where major giving revenues account for +14% of total member revenue Source: SABS

  22. SOLUTIONS: MEMBERSHIP STAFF OUTNUMBERS MAJOR GIVING STAFF OVER 6:1 Serve over 1.5 million members and over $120 million in revenue Serve 8500 major givers and over $40 million in revenue Source: SABS

  23. Creation of a National Environment for Success Benchmarks to Focus Our Efforts Communication Campaign to Ensure Buy-in Toolkits to Support Implementation • ID major giving cohorts • Set key station benchmarks • Track improvement • Clear understanding of our past • Identify change agents and early adopters • Identify station success factors • Design and implement new programs for GMs and Board Members • Create an inventory of “what we know” • Create copy points, job descriptions, etc. • Peer-to-peer GM networks • Launch national campaign • Addt’l financial incentives • Identify economies of scale in membership to free up resources SOLUTIONS: KEY ELEMENTS OF OUR PLAN WILL INCLUDE DEVELOPING CAPACITY AT STATIONS – WITH GMs AND BOARDS, AS WELL AS WITHIN DEVELOPMENT DEPARTMENTS

  24. McKinsey assumptions & analysis CPB round tables 2-3 common cause projects Full PTV implementation? 12-18 months Tech Conf presentation Expand working team Track booked cost savings CPB SABs data Communicate value to stations Review projects quarterly Previous studies TDC Review Review past OE projects Station memos Develop implementation plan SOLUTIONS: BROADCAST OPERATIONS WORK FLOWS PROJECT ANALYSIS & PLAN DEVELOPMENT COMMUNICATIONS LAUNCH IMPLEMENTATION DECISION

  25. Research • Strategy/ schedule planning • Commissioning/rights acquisition/ funding • Sponsorship sales/ int’l post sales • Promotion/ station outreach • Back end rights exploitation • Not done and/or no clear leader today • PBS leads today • Stations lead today • Potential connections SOLUTIONS: NATIONAL PROGRAMMING’S OBJECTIVE – IDENTIFY IMPROVEMENTS IN VALUE CHAIN (NEW PROCESSES, DIFFERENT ROLES) • Fund-raising • Set priorities/ agenda • Set strategy • Research/ develop projects • Review external project proposals • SG sells additional sponsorship • Inventory • Fall/Spring schedules set in May • Distribution agreements made • Schedule and pop outs announced (Jun) • Commission projects/ analyze results • Define future schedule plan/goals • Commission project • Local underwriting spots sold • Inventory/ manufactured stocked • Green light for national schedule • International post sales • Synthesize all findings • Devise metrics to measure success • Station “tool kits” assembled • Sales • Negotiate contract: CPB/PBS/ producing station • Negotiate contract w/producers • Share/ distribute findings • Green light CPB/PBS financial contribution • Green light producing station financial contribution • Domestic program sales

  26. NEXT STEPS: TIMELINE AND DELIVERABLES July/August May June September Development Conference Steering Committee meeting Annual meeting Build Capacity for Launches • Major giving internal campaign launched for first set of stations • Build major giving project capacity • Develop structure for station efficiencies effort • Design initial programming needs and evaluation research • Develop content and approach for local boards • Project vision and progress shared with full station community • Launch programming research effort • First wave of efforts developed (e.g., early major giving adopters) • Review of suggestions and concerns from Round Robin meetings • Refinements of analysis and plans • Commitment from key stakeholders confirmed (e.g., GMs for Major giving, technology community)

  27. DISCUSSION QUESTIONS • Do you agree with the financial findings? • What questions do you have about the analysis? • What will be required for success in major giving? Station efficiencies? • What role can your functional areas play in ensuring success?

More Related