NOW can we talk about business?

The title is a riff on a Hillary Clinton's famous remark about health care. Like reforming our medical delivery system, the effort to reform public broadcasting's content delivery systems is fraught with big issues, entrenched stakeholders, and lack of action.

I have a bit of history about the business question. Within public radio circles I pass for an entrepreneur because I have co-created several businesses to augment our barely break-even income from syndication of our national program. And ever since I started thinking about the impact of the Internet on niche radio formats, stations, programs and producers, it's been clear to me that it was ultimately going to change the way we did business — with each other and with the community.

Since the demise of the PRC, the once a year omnibus Public Radio Conference, the Integrated Media Association (IMA) conference has emerged as the best place to discuss these issues. At the 2006 conference in Seattle I was on a panel and was surprised to find the moderator steering the discussion away from what I considered the burning questions. At the time, I described the avoidance of the business discussion as a "third rail" that everybody seemed afraid to touch. I even recalled Camus' remark that "there is only one truly serious philosophical question and that is suicide." To my mind, there was only one truly serious issue on the table and that was related to business models and business relationships within the system. Everything else was details. True to form, the discussion was tabled. Now another year has passed, and as far as I know, it's still not being seriously considered. Man, that third rail must be really scary.

Recently I raised the question again in email with two of my colleagues from the Public Service Publisher (PSP) group, Dennis Haarsager of Northwest Public Radio, and Tim Olson of KQED in San Francisco. Here's an edited version of that discussion, which started with Dennis bringing the group up to date on the developments announced at the CES show involving Open Media Network (OMN), the Kontiki peer-to-peer distribution technology, and VeriSign, which bought Kontiki last year. Since nobody is more aware of new technologies that affect broadcasting AND has more goodwill and contacts within the existing system, I asked Dennis for more:

STEPHEN HILL: Thanks for the update, Dennis. Indeed, exciting stuff. Makes you wonder (in the light of Rob Paterson's recent post about HBO) if anybody in public broadcasting besides you, Rob and a handful of others are paying any real attention.

In that regard may I ask for further updates?

1.   What's happening with the DDC (Digital Distribution Consortium) project and all the high-level backroom activity aiming to build a new distribution architecture? I haven't heard a thing about it since a meeting in San Francisco I attended last summer.

2.   When will there be any real, substantive discussion of the the business changes that are needed to support all of this pie-in-the-Internet-sky visioning? I'm referring (as I'm wont to do) to revenue sharing, subscription and syndication models.

3.   Any chance of these issues being raised at the IMA?

DENNIS HAARSAGER: My understanding is that Tim's group [ed: the DDC] did have such discussions that that the group felt optimistic about what their analysis showed.  Ditto the work that Mike H. commissioned on the video side.  But there hasn't been a larger discussion of which I'm aware.  There's a Thursday session at IMA called "Hybrid Business Models" with Doug Kaye, but it would appear that's the closest IMA gets to it.  The Thursday dinners look to be for various BoF sessions, so maybe we could start one on the subject - though of course that's not necessarily the "real, substantive discussion" you correctly are calling out.

TIM OLSEN:  There isn't a DDC presentation at iMA that I'm aware of.  There may have been thing moving without my knowledge, but a couple notes.. Business plan is written, for radio side at least seems to come down to a few key items.

- will NPR be the "DDC ASP" or other?
- NPR is moving ahead with phase II of podcasting, including producer sales availability
- MPR is rumored to be putting in many more podcasts into NPR podcasting, which signals potential ground for more MPR/NPR deals.  In my opinion, MPR and NPR deal is the make or break it one.  Others would follow if those two worked it out.
- If folks want someone besides NPR to be the DDC, then there needs to be a push for that.  The trouble is PRX, and PI, the two that could push for such, are busy with their "day jobs".

I'd be interested in pushing the discussion again.  Just been busy.

STEPHEN:  Here's what worries me in a nutshell: the DDC is only half the battle, and the easier half at that. MPR, PI, and PRI may quite rationally have decided that building, staffing and operating an IP distribution infrastructure is beyond their job classifications. If so fine; anything that gets these organizations to cooperate on building the machinery needed to support future services is progress, and I will be the first to applaud them for it.

However...without confronting the larger issue of the business relationship(s) between producers, production organizations, stations, networks and the national portals to public service content — I just don't see the DDC effort delivering the kind of comprehensive changes that will be needed to secure (let alone improve) the overall status of public broadcasting in the new mediascape. This kind of thinking, I believe, is exactly what Rob Paterson was trying to engender in his work with the system leaders in the New Realities workshops.

It's not that whatever they build won't get used by stations — I'm sure it will, to one degree or another. The problem is not in the back-end machinery, but in the public-facing side of things. What's the equivalent of HBO On Demand for public service content? Is it something different for every station? Or something that has a core repertoire of programming that's shared by the entire system, and is the very thing that differentiates it from a growing list of other public service programming providers? Or is is going to be happening on other portals and services?

The advantage of doing something comprehensive and highly publicized comes down to position in the new mediascape and the money from underwriting, grants and membership dollars that relates directly to that position. I just hate to see such a golden opportunity to improve the overall status of public broadcasting go by while we're talking about next generation deck chairs — sorry, distribution infrastructure.

It's overdue to be talking about service offerings: how to configure them, promote them, monetize them, and do the revenue-sharing and syndication deals of the future. It's frustrating to see a great opportunity wasted on even the best-intentioned but insufficient efforts.

TIM: so you are arguing for a aggregated portal page of all public media content, with all the bells and whistles (promotion, community rating/ranking, independent presenatations,  and for business ads, paid subscriptions... etc)?

NPR is making a play for this on music with NPRMusic.org.

You would advocate the same for news?

STEPHEN:  The PSP group discussed all the different possibilities for how a broader on-demand content offering might work. If you recall, there was no single model that emerged from those visionings as being clearly better.

Mark Fuerst seemed to prefer a central portal and argued for doing it, either at NPR.org or a newly created site; my original 'pitch' was for a distributed system (closer to what DDC seems to be talking about being the back end for) where the individual stations could easily add web content and services to their sites and use their broadcast signals as way to promote their web offerings for their own benefit as well as the brand and identity of the whole system.

And it seemed clear that there would a significant number of new aggregation points in the future at the other major Internet portals and services (like OMN) where public broadcasting content would be offered. In the end, the PSP group took a "both/and" position as far as how the system would be configured: both at station sites and portals. That's where it was left before the DDC effort.

One of the problems in dealing with a federated system like public broadcasting is that even if you could design a perfect solution, you could never get the states/stations to agree to implement it universally -- at least under normal circumstances. Only a major external threat or a clearly declining trend in market share and revenue might have the power to change that, but I wouldn't put money on how it would play out. Worst case -- the "death spiral" scenario of declining market share, advertising, and product quality now facing the newspaper industry would happen even more slowly and excruciatingly in public broadcasting.

My real 'pitch' is that there is a substantial amount of accumulated goodwill, both in brand and business terms, now shared by individual stations, programs, and the public radio system as a whole. (Public Television is another story.) There is an opportunity to build on this goodwill, combine it with a much more extensive and flexible service offering, and create a new national membership level for public radio that complements and enhances local memberships. Think of it as a paid upgrade. Public broadcasting is ideally positioned to do this because its users already are invested in its mission as well as its current service.

The question for the networks is how to aggregate a competitive digital service offering; the question for the stations is how to be part of an up-to-date public media service, whether delivered via station sites, portals, wireless b/b, preloaded iPlayers or brain implants.

The business discussion I'm pushing for is the one that would be required to support all of that -- defining classes and levels of membership, what the associated content offering(s) would be, how the system handles national and local underwriting and ancillary revenue streams -- and then the really contentious bit: how the manage the revenue splits, shares, commissions and royalties and fees to incentivise all the participants.

If NPR is doing some part of this for NPRMusic.org, it's a good example of continuing to focus on narrow opportunities, rather than imagining and implementing a broad, comprehensive solution.

The thing that bothers me most is what Paul Marzalek said in his blog a year ago: there will only be one chance to pull off anything like this and then the opportunity will be lost forever, and the system and its component entities will pay the price for years to come.

Something like what I'm talking about will be created, because it's simply the most user-friendly and efficient way to deliver a broad array of digital services. OMN should be enough evidence. At least they are a friendly potential competitor — so far. The question is whether public radio will take the opportunity and use it to better its position and secure its financial future, or whether it is content to be just another syndicator, pushing its programming to other aggregators for a royalty and/or scratching for donations. That scenario would not be a disaster, but it would be sad loss of position and potential.

OK, I'm stirring the pot here. I'd just like to know if there is any desire to seize this opportunity, have a constructive discussion, and do something about it. If not, fine. I'll gladly give this a rest and tend my own garden.

Comments are open, please post or write on your own blog and link back.

:: SH

Comments

[Todd Mundt]

Great piece, Stephen. I think you've stated the issues quite well. There might be backroom discussions going on around the plan we put together in the DDC, but the networks feel no pressure coming from stations to force a more serious commitment to a full-service online presence. This is a moment where we need to get out ahead of our audience, but most of us seem to prefer to tag along behind, which may leave us begging for royalties when we could be leaders.

[Stephen Hill]

Thanks, Todd. You are in a far better position to judge the stations than I am, and I'm sure you're right.

Why? I can only surmise that the stations are afraid that a "full-service online presence" would be an extreme case of "bypass," rather than the vehicle that would carry them decisively into the next phase of public service media.

Unfortunately, trying to describe a comprehensive system in which the stations are key stakeholders and beneficiaries is complicated enough that it sounds like fantasy -- especially when all you are thinking about is getting through the next six months.

That kind of short-term thinking is likely to be severely punished, and could result in a sizable number of the weaker stations hitting the wall a few years down the death spiral. They would then likely be acquired or managed by the stronger stations in their regions, which would be public radio's politically incorrect version of consolidation: driven by failure instead of greed.

But even then, without a competetive online service offering the whole network would be headed toward marginal status, with the exception of the key news programs and a handful of others. The endgame would be a fight over syndication of those shows to the big aggregators at the expense of the exclusive carriage the stations now enjoy. Now THAT would be bypass.

Not a scenario I'd enjoy seeing, but very possible.

[Dennis Haarsager]

My brother thinks he's a chicken

Version with links at http://technology360.typepad.com/technology360/2007/01/my_brother_thin.html

My friends Rob Paterson (HBO Shows the Way - Public Radio) and Stephen Hill (Now can we talk about business?) are properly impatient about the snail's pace with which public radio is engaging in a new media economy. The NPR podcasting pilot was brought forward quickly and professionally and has resulted in new revenue for participants. And last summer, NPR sponsored a sort of summer camp for a handful of our best and brightest to work on these very problems (the "DDC" mentioned in Stephen's post).

But the months trudge by and it's tempting to think we're losing that momentum. On the television side, which I am also fully entangled, there is, sadly, no organizational momentum to be lost. These comments are from the perspective someone who has been engaged at both the station and national level in both media (the late Joe Welling and I are the only two people to have served on both the NPR and PBS boards) and someone who has been significantly involved over the past two years in an independent effort to build a distribution engine for public media (Open Media Network). I'd be quick to add that this doesn't make me an expert so much as someone who can speak out of both sides of his mouth on nearly any issue.

The full Groucho Marx line that begins this post's title is, "My brother thinks he's a chicken - we don't talk him out of it because we need the eggs." To move forward on this, we need to understand that public media's current economy is not the member-centric value exchange that we think it is. Public radio gets less than half its revenue from individuals and public television gets only just over a fifth of its revenue from individuals (I'm writing from home, but think these are close). Underwriting income, which is less, is also listener- or viewer-sensitive, but it's a different economy threatened by different disruptors.

The programming organizations (APM, APT, NPR, PBS, PRI, a tiny group of producing stations, and dozens of independent producers like Stephen -- who I identify because he's the rare one who's figured this out) want us to focus on this poultry economy because they need the eggs. Importantly, these organizations are also providing the programs that, in an archival new media environment, will supply the fat end of the long tail. With rare exceptions, us chickens will be supplying the long, skinny end.

Here in the coop, to the extent that we understand new media at all, we understand those last two sentences. And it doesn't take higher order mathematics to calculate that the investment in that might not be real compelling for the rank-and-file station that's trying to shore up that chicken coop. It's understandable if some worry that an investment of time and treasure in this as purely an income play might mean the quicker loss of more chickens.

Here's where I think that's wrong. If we're only 20-50% in the individual giving business, then what business are we in? The rest of the money (50-80% of the public broadcasting economy) comes from foundations, corporations and taxpayers -- just as it does for all non-profits -- in support of a mission that demonstrates a public benefit. While, like Groucho's brother, we stations are off thinking we're chickens, it might just be that we're neglecting what the Brits would call the "remit" -- expectations that the public has about what we deliver in exchange for public support. While I'm glad we don't have such a formal requirement in the U.S., the lack of that has arguably led to mission drift.

It is in the area of engaging our communities to solve problems and have better cultural resources that the new media platforms can be hugely useful -- much better in the long run than a broadcast platform that must be programmed more at the hit end of the tail and which has scarce air time in any case. That will surely result in revenue enhancement, or at the very least revenue sustenance, for stations that define their missions with the local component first.

The good news is that the same distribution architectures that help national producers and distributors will also help local stations be more mission-driven and less driven by the other siblings who need our eggs. And the rest of the good news is that we can go out and do this tomorrow -- we don't need, IMHO, an expensive and time-consuming process of building consensus and building from scratch a new vehicle for this.

Just do it. --Dennis Haarsager

[Stephen Hill]

Amen, Dennis.

One thing I did not stress in my post was that it is precisely the stations in the public broadcasting system that are the most vulnerable to disruption from new media.

A chillingly instructive comparison is underway in the music business, and I'm talking only about the legal disruption, not the illegal one still flourishing on the P2P darknets.

The digital music 'value chain' starts with the artist, then moves through the record label, the distributor and the music retailer to reach the end user. By definition, dis-intermediation occurs in the middle of the chain and has had the most serious effect on traditional music retailers. c.f. Tower Records and thousands of smaller retailers, now bankrupt or consolidated into a dying business model.

The major labels now deal with digital retailers direct; the Indie artists and labels (less than 25% of the business but the bulk of the long tail) via a small number of digital distributors like IODA and CD Baby. iTunes, Rhapsody, Napster, Emusic and a handful of large digital retailers now account for something over 95% of the legal digital download business.

If the same pattern is repeated in American public radio and television, the disruption will occur mainly at the expense of the stations. Yet with a few exceptions they are still acting as if their old monopoly on key programming will last forever.

The major program distributors (NPR, PRI, APM) will not be seriously affected as long as they can control access to their key program brands, can acquire new fat-end-of-the-tail programming as it emerges, and continue to add enough value in the funding, production, promotion and marketing process.

By some exercise of cosmic justice, for once independent and small station producers will benefit from the general leveling of the playing field and the existence of new services and aggregators online. Our world is certainly not flat -- getting anything established is still an uphill journey -- but the angle is less steep than it was in the days of limited broadcast air time, reductive formats and a small number of outlets.

But the existing stations can expect that unless they can achieve the kind of hyperlocalization that Terry Heaton has been advocating, their function will slowly be replaced for fat-end-of-the-tail programming by a small number of giant media aggregators and large specialty portals -- one of which could be NPR.org! In this world, independent producers have everything to gain and nothing to lose, and the network level distributors will only see the value of their brands increase.

All this leads me to conclude that the political push for wide angle, aggregated on-demand public media services must come from the stations and be designed to benefit them as well as the mission of public service media. In fact, in a truly well-designed system, everyone would win.

[Robert Paterson]

Thank you for this stirring of the pot - I have been feeling very depressed.

I look forward to seeing you all in Boston.

I think that if a few good men and women can agree on doing the right thing in Boston we can light the blue paper

[John Proffitt]

Speaking from a small-/mid-market dual licensee (Anchorage, AK -- we can reach about 350,000 citizens), I can tell you that our radio and TV leaders are virtually unaware of even the business model questions you pose, Stephen. It's the third rail to the big players, but stations like ours thought there were only two rails for this train! ;-)

I say that not just to make a joke, but because I agree with your and Todd's assessment that pressure to change the model must come from stations. But of the four classes of stations I can see, I don't think any of them will rise up to ask for the renegotiation of business models you recommend.

The smallest stations, like our bush radio stations in Alaska, are unaware of any of this discussion. They won't ask about it and wouldn't understand such a discussion if it came up. They will do whatever the CPB will fund.

The next smallest stations, like ours, might be coaxed into understanding the new media models, but pretty much wait around for the networks to tell us what to do or wait to see what the large stations do first. We're financially strapped and spend all our time holding it together, not advancing the cause in any particular direction. Sadly, our station (and perhaps others in our position), are shells of our former selves. We're little more than NPR/PBS repeaters anymore.

The state or regional networks might be best suited to ask for this reengineering of the business model. I wonder whether their own internal politics might direct their attentions elsewhere, however.

The major producing stations and networks are large enough to reengineer the compensation and distribution models nearly on their own (or at least in small groups), and they have the professional staff and money (or access to money) to make it happen. Seems to me that's the DDC group. They don't really need to change the business model too much, and to change it a lot would threaten their dominant position in the market. In effect, you're asking these players to confront the Camus question you cited. Human nature suggests they won't do that if they don't really have to.

I'm wholeheartedly in your camp here -- this business model question and the question of who "owns" the relationship with the audience are the most important ones. The distribution technologies will shift around year after year. They're important, they're certainly complicated, but ultimately manageable.

I'm going to IMA this year with an eye toward business models. I expect to ask Doug Kaye a question or two. My future may very well be found in creating a new public media entity rather than riding the bumpy downward spiral with stations that didn't even realize the business models of public service media were changing.

[Stephen Hill]

John,

Your on-the-ground assessment of the station situation is of great value to those who are agitating for change, because it indicates the scope and difficulty of the problem. So I hope you continue to express yourself among your station colleagues publicly and help to educate them to the real challenges they face. They need to feel the urgency that the rest of us do or nothing significant will happen.

Those of us who've been at this for a while now (5 years, give or take) were pretty sure from the beginning that this would be a difficult transition and a hard sell. Because of this, our initial strategy was to target a group of progressive stations from the top three of the four station groups you identify — small, medium and large. We knew that regardless of the general status quo, we could find a group of at least 20 stations who would take the leap into the future as a considered experiment. If success could be demonstrated and steps could be taken toward the necessary infrastructure, we felt the model would then be in place for wider adoption and fuller realization.

That never happened — for several reasons which I won't recount here. I mention it because it is still the likely means by which any substantial modernization of the system will occur, but it has to be done along with a major effort to centralize services and content distribution at the core of the system. As I've expressed here and in the next post "Seize">http://heartsofspace.typepad.com/spatialrelations/2007/02/seize_the_day.html">Seize the Day," this means a lot more than simply expanding the Content Depot or any other digital distribution or web syndication scheme.

The current situation is that some additional services from NPR online, Public Interactive and Gather.com have been made available to stations in the last two years. But even if these scattered efforts become a real trend, the system will still have to confront all the business structure and revenue sharing challenges I sketched here, and stations of all sizes would have to reform themselves radically to take full advantage of them.

It will sound hard when I say this bluntly, but in my opinion a large number of the smallest stations are doomed as independent entities — UNLESS they can find a way to engage their local communities more effectively than they do now by providing truly useful localized online services. I have no doubt this will happen in a few exemplary cases, but the vast majority will not even try for the financial and cultural reasons you cite and lack of the requisite skills — unless they have the tools and the money to do it given to them by some external entity, plus plenty of peer pressure.

These are the stations that are likely to wind up being taken over and managed externally, either by their regional networks or by the larger entities in the current system like Minnesota Public Radio. Whether these entities would support an effective modernization effort is an open question, and your skepticism about the politics involved is well placed when you know the history of these organizations. At the very least, this scenario is likely to lead to a net decrease in local service.

As for the other classes of stations you've identified, what will happen is anybody's guess at this point. IF a strong enough case can be made for a comprehensive service platform, IF it can be built quickly and effectively, IF everyone is ready to give up a little of their current ground here and there in exchange for strengthening the entire system, IF the mission is more important than the existing political relationships...IF — a lot of ifs.

But something could happen if the stars align correctly and the system "thought leaders" get behind it, and I would feel remiss if I wasn't one of the voices calling for it.

:: SH

[John Proffitt]

Thanks for your very thoughtful response. I fear I currently work at a station that's ripe for consolidation. Our local service is pretty much composed of bringing national content to our area and beaming it out over the airwaves. We seem to be the ClearChannel of public broadcasting in our town. We just aren't owned by NPR. Yet. Can we get them to preemptively buy us out? ;-)