Telecommunications
Issues Related to the Structure and Funding of Public Television Gao ID: GAO-07-150 January 19, 2007How to fund public television has been a concern since the first noncommercial educational station went on the air in 1953. The use of federal funds to help support public television has been a particular point of discussion and debate. This report reviews (1) the organizational structure of public television, (2) the programming and other services that public television provides, (3) the current funding sources for public television, (4) the extent to which public television stations are increasing their nonfederal funding sources and developing new sources of nonfederal support, and (5) the extent to which public television benefits financially from business ventures associated with programming and how this compares with commercial broadcasters. GAO reviewed revenue, membership, and programming data for all public television licensees. GAO also interviewed officials from 54 of public television's 173 licensees, the Corporation for Public Broadcasting, the Public Broadcasting Service, federal agencies, and producers of commercial and public television programming
Public television is a largely decentralized enterprise of 349 local stations, owned and operated by 173 independent licensees. The stations' operations are funded in part by the Corporation for Public Broadcasting (CPB), a nongovernmental entity that receives federal appropriations. The Public Broadcasting Service (PBS), a nonprofit organization funded by fees paid by member licensees and CPB grants, operates a satellite-based interconnection system to distribute programs to local stations. These programs are created by producers inside public television and by outside production entities. Public television stations broadcast national and local programs and provide a variety of nonbroadcast services to their communities. PBS prime-time and children's programs account for the majority of broadcast hours, to which stations add instructional and local programs tailored to meet the needs and interests of their communities. Nonbroadcast services include educational, civic engagement, health, and emergency-alert services. In 2005, public television licensees reported annual revenues of $1.8 billion, of which 15 percent came from federal sources and the rest from a variety of nonfederal sources including individuals, businesses, and state and local governments. Federal funds help licensees leverage funds from nonfederal sources. Thirty of 54 licensees GAO interviewed said that cuts in federal funding could lead to a reduction in staff, local programming, or services. In general, smaller licensees receive a higher percent of revenue from federal sources and 11 said that cuts in federal support might force the station to shut down. Substantial growth of nonfederal funding appears unlikely. The one area with growth potential is major gifts, which many licensees are pursuing with help from CPB. Program underwriting by businesses and foundations has traditionally been an important source of revenues. A few licensees believe that these revenues could be increased if restrictions on the content of on-air underwriting acknowledgments were relaxed. Many licensees, however, believe that this would go against the noncommercial character of public television and could cause a loss of funding support from other sources. Public television sometimes benefits from business ventures associated with its programs, but these opportunities are infrequent and do not generate significant revenue. Public television does not have the financial resources to invest heavily in the cost of program production to secure a larger share of any resulting back-end revenues. Moreover, the sale of merchandise associated with a program generally returns only a small percentage of the retail price to the program's producer and investors, as is also true for commercial television programs. GAO provided CPB and PBS with a draft of the report for their review and comment. CPB and PBS agreed with the report.
GAO-07-150, Telecommunications: Issues Related to the Structure and Funding of Public Television
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Report to Congressional Requesters:
January 2007:
Telecommunications:
Issues Related to the Structure and Funding of Public Television:
GAO-07-150:
GAO Highlights:
Highlights of GAO-07-150, a report to congressional requesters
Why GAO Did This Study:
How to fund public television has been a concern since the first
noncommercial educational station went on the air in 1953. The use of
federal funds to help support public television has been a particular
point of discussion and debate. This report reviews (1) the
organizational structure of public television, (2) the programming and
other services that public television provides, (3) the current funding
sources for public television, (4) the extent to which public
television stations are increasing their nonfederal funding sources and
developing new sources of nonfederal support, and (5) the extent to
which public television benefits financially from business ventures
associated with programming and how this compares with commercial
broadcasters.
GAO reviewed revenue, membership, and programming data for all public
television licensees. GAO also interviewed officials from 54 of public
television‘s 173 licensees, the Corporation for Public Broadcasting,
the Public Broadcasting Service, federal agencies, and producers of
commercial and public television programming.
What GAO Found:
Public television is a largely decentralized enterprise of 349 local
stations, owned and operated by 173 independent licensees. The
stations‘ operations are funded in part by the Corporation for Public
Broadcasting (CPB), a nongovernmental entity that receives federal
appropriations. The Public Broadcasting Service (PBS), a nonprofit
organization funded by fees paid by member licensees and CPB grants,
operates a satellite-based interconnection system to distribute
programs to local stations. These programs are created by producers
inside public television and by outside production entities.
Public television stations broadcast national and local programs and
provide a variety of nonbroadcast services to their communities. PBS
prime-time and children‘s programs account for the majority of
broadcast hours, to which stations add instructional and local programs
tailored to meet the needs and interests of their communities.
Nonbroadcast services include educational, civic engagement, health,
and emergency-alert services.
In 2005, public television licensees reported annual revenues of $1.8
billion, of which 15 percent came from federal sources and the rest
from a variety of nonfederal sources including individuals, businesses,
and state and local governments. Federal funds help licensees leverage
funds from nonfederal sources. Thirty of 54 licensees GAO interviewed
said that cuts in federal funding could lead to a reduction in staff,
local programming, or services. In general, smaller licensees receive a
higher percent of revenue from federal sources and 11 said that cuts in
federal support might force the station to shut down.
Substantial growth of nonfederal funding appears unlikely. The one area
with growth potential is major gifts, which many licensees are pursuing
with help from CPB. Program underwriting by businesses and foundations
has traditionally been an important source of revenues. A few licensees
believe that these revenues could be increased if restrictions on the
content of on-air underwriting acknowledgments were relaxed. Many
licensees, however, believe that this would go against the
noncommercial character of public television and could cause a loss of
funding support from other sources.
Public television sometimes benefits from business ventures associated
with its programs, but these opportunities are infrequent and do not
generate significant revenue. Public television does not have the
financial resources to invest heavily in the cost of program production
to secure a larger share of any resulting back-end revenues. Moreover,
the sale of merchandise associated with a program generally returns
only a small percentage of the retail price to the program‘s producer
and investors, as is also true for commercial television programs.
GAO provided CPB and PBS with a draft of the report for their review
and comment. CPB and PBS agreed with the report.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-150].
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Mark L. Goldstein at
(202) 512-2834 or goldsteinm@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Public Television Is Structured around Local Ownership and Control of
Stations, with Assistance from National-Level Organizations:
Public Television Stations Provide a Variety of National and Local
Programs and Services:
Individuals, Businesses, and the Federal and State Governments Provide
the Majority of Funds for Public Television:
Public Television Stations Are Pursuing a Variety of Nonfederal Funding
Sources, but Substantial Growth to Offset a Reduction or Elimination of
Federal Support Appears Unlikely:
Public Television Is Unlikely to Generate Significant Additional Back-
End Revenues:
Agency Comments:
Appendixes:
Appendix I: Scope and Methodology:
Appendix II: CPB Funding Allocation:
Appendix III: Demographics of Public Television Viewers and Members:
Data Sources and Methodology:
Viewers of Public Television's Prime-Time Programming:
Viewers of Public Television Children's Programming:
Public Television Members:
Appendix IV: Sesame Workshop:
Background:
Product Licensing:
Relationship with Public Television:
Appendix V: Comments from the Corporation for Public Broadcasting:
Appendix VI: Comments from the Public Broadcasting Service:
Appendix VII: GAO Contact and Staff Acknowledgments:
Tables Tables:
Table 1: Percentage of Revenue from Various Sources and Type of Public
Television Licensee, 2005:
Table 2: Percentage of Revenue from Various Sources and Size of Public
Television Licensee, 2005:
Table 3: Percentage of Revenues from Various Sources and Size of
Television Market, 2005:
Table 4: Public Television Licensees Interviewed:
Table 5: Components of CPB's Community Service Grants:
Figures Figures:
Figure 1: Number of Noncommercial Educational Television Stations, 1953-
2002:
Figure 2: Number of Public Television Licensees, 2005:
Figure 3: WNET (New York) Master Control Facility:
Figure 4: Percentage of Total Broadcast Hours Filled from Various
Sources, 2005:
Figure 5: Types of Programming in PBS's National Programming Service
(Excluding Children's Programming), 2005:
Figure 6: Percentage of Revenue from Various Sources for Public
Television Licensees, 2005:
Figure 7: Retail Price, Wholesale Price, and Royalty Payments for
General Merchandise:
Figure 8: Sources of Revenue for Sesame Workshop, Year Ending June 30,
2005:
Figure 9: Sesame Workshop Expenses, Year Ending June 30, 2005:
Abbreviations:
APT: American Public Television:
CCC: City Colleges of Chicago:
CPB: Corporation for Public Broadcasting:
DEAS: Digital Emergency Alert System:
DTV: digital television:
FCC: Federal Communications Commission:
HDTV: high-definition television:
ITVS: Independent Television Service:
KET: Kentucky Authority for Educational Television:
NETA: National Educational Telecommunications Association:
NPR: National Public Radio:
NTIA: National Telecommunications and Information Administration:
SABS: Stations Activities Benchmarking Study:
SIP: Station Independence Program:
PBS: Public Broadcasting Service:
RUS: Rural Utilities Service:
January 19, 2007:
The Honorable Ginny Brown-Waite:
House of Representatives:
The Honorable Candice S. Miller:
House of Representatives:
From its beginnings in the 1950s with a small number of noncommercial
educational stations focused on formal instruction, public television
has evolved to encompass a wide range of cultural, educational,
entertainment, news, and public affairs programming offered by 349
stations nationwide. Public television stations were built and continue
to operate as nonprofit, community-based organizations, largely funded
by nonfederal sources. Funding for programming and station operations
has been a continuing issue, given that public broadcasting operates
outside of the advertising-based business model that sustains
commercial television. A key point in the evolution of public
television came with the Public Broadcasting Act of 1967, which amended
the Communications Act of 1934, as amended (the Communications Act) to
establish the Corporation for Public Broadcasting (CPB) and authorized
federal funding to help support public television's operations. The
Communications Act's current "declaration of policy" states that it is
in the public interest of the federal government to ensure that all
citizens have access to "public telecommunications," of which public
television is a part. The Communications Act also states that it is in
the public interest to encourage the development of programming that
involves creative risks and addresses the needs of unserved and
underserved audiences, particularly children and minorities.
In the decades since the passage of the Public Broadcasting Act, the
position of public television as the primary source of alternative
programming to the commercial broadcasting networks (such as ABC, CBS,
Fox, and NBC) has been challenged by the emergence of cable and
satellite television providers. These companies offer their paying
subscribers dozens of channels--including some devoted to subjects that
are mainstays of public television--such as nature, travel, cooking,
and drama. In fact, most households today receive television service
from a cable or satellite company. However, in an era of media
consolidation in commercial television, public television stations
continue to be locally owned and operated by community-based nonprofit
organizations, universities, and state and local governments. Another
important change in the media environment is the digital television
(DTV) transition, a federal mandate requiring stations to transition
from analog to digital transmission of television signals. Digital
transmission not only greatly improves picture and sound quality, but
it also enables stations to use the radiofrequency spectrum[Footnote 1]
more efficiently, thereby allowing stations to simultaneously broadcast
multiple program channels (known as multicasting) and offer auxiliary
services such as datacasting (the transmission of text, graphics,
software, and Web pages to designated users). Many public television
stations see the DTV transition as an opportunity to increase their
program offerings--such as formal instruction and coverage of local
government--and also enhance the services they can offer to their
communities, such as emergency communications.
Against this backdrop of change, the issue of how to fund public
broadcasting continues to be a concern for policymakers and public
television's stakeholders, as it has been for decades. Without the
financial base of advertising that sustains commercial television,
public television stations acquire their operating revenues from
diverse private and public funding sources, including voluntary
membership gifts by viewers; support from organizations and businesses
that underwrite programming and station operations; funding from
private foundations; funding from universities; and local, state, and
federal government funding. In addition, several signature public
television programs have become cultural icons and have given rise to
separate business ventures, such as sales of books, DVDs, and
children's toys, that provide additional sources of revenue. Given
these alternative sources of funding, some policymakers and public
television stakeholders have debated the continued role of federal
funding and whether public television can survive and prosper with less
direct federal support.
In response to your request, this report examines the funding and
operation of public television. Specifically, this report provides
information on (1) the organizational structure of public television,
(2) the programming and other services that public television provides,
(3) the current funding sources for public television, (4) the extent
to which public television stations are increasing their nonfederal
funding support and developing new sources of nonfederal support, and
(5) the extent to which public television benefits financially from
business ventures associated with programming and how this compares
with commercial broadcasters.
To respond to the objectives of this report, we interviewed officials
from CPB, the Federal Communications Commission (FCC), the National
Telecommunications and Information Administration (NTIA) of the
Department of Commerce, and the Public Broadcasting Service (PBS). For
the first objective, we reviewed existing literature on the foundation
and current structure of public broadcasting and reviewed relevant
provisions of the Communications Act and FCC regulations. For the
second, third, and fourth objectives, we interviewed officials from 54
of the 173 public television licensees; we selected licensees according
to their type of license, total revenues and percentage of total
revenues derived from federal funding, and by the size of the
television market where the licensee operates.[Footnote 2] We also
interviewed officials from the Association of Public Television
Stations, a membership organization representing public television
stations; the Department of Education; the Federal Emergency Management
Agency of the Department of Homeland Security; the Ford Foundation; the
National Science Foundation; the Rural Utilities Service (RUS) of the
Department of Agriculture; and the Urban Institute. Additionally, we
analyzed 177 licensees' revenue sources, membership, and programming
using CPB's Stations Activities Benchmarking Study (SABS). (In 2005,
the year for which we have SABS data, there were 177 public television
licensees; currently, there are 173 licensees.) SABS is a data-
gathering mechanism through which licensees provide information
annually on their finances and operations. To assess the reliability of
SABS data, we reviewed relevant information about the database,
including the user manual and a data dictionary, and we interviewed CPB
officials and subcontractors for information on data quality assurance
procedures. We also performed electronic testing to detect obvious
errors in completeness and reasonableness. We concluded that the SABS
data were sufficiently reliable for the purposes of this report. For
the fifth objective, we interviewed officials from organizations
producing programming for public television, including David Grubin
Productions, Ken Burns (Florentine Films), HIT Entertainment, Insignia
Films, Lumiere Productions, Scholastic, Sesame Workshop, WETA
(Arlington, Virginia), WGBH (Boston), and WNET (New York); the
Independent Television Service; commercial broadcast networks and cable
channels, including A&E Television Networks, Fox, National Geographic
Channel, Nickelodeon, and NBC; and several experts. We also reviewed
the relevant media economics literature and materials provided by CBS.
See appendix I for a more detailed discussion of our overall scope and
methodology.
We conducted our review from January through November 2006 in
accordance with generally accepted government auditing standards.
Results in Brief:
Public television evolved from a handful of noncommercial educational
television stations in the 1950s to a complex and uniquely organized
broadcasting infrastructure that spans the United States. Public
television stations are independent, locally based entities that serve
their individual communities. The initial basis for this localism was
FCC's decision in 1952 to reserve 242 channel assignments for
educational television stations in various markets across the country.
Today, there are 349 public television stations, owned and operated by
173 licensees, which reach 98 percent of the households that have
televisions.[Footnote 3] FCC licenses public television stations to
community organizations, local governments, universities, and state
governments. Through the Public Broadcasting Act, the Congress
authorized the establishment of CPB as a nongovernmental, nonprofit
corporation to facilitate the growth and development of public
television and radio. CPB's primary responsibility is distributing
federally appropriated funds to benefit public television and radio.
PBS is a nonprofit membership organization made up of licensees of
public television stations and is funded by fees paid by its member
licensees, underwriting, and grants from CPB and other federal sources.
PBS acquires children's and prime-time programming and operates a
satellite-based interconnection system to distribute this programming
to member licensees. CPB and PBS do not produce programming, but rather
they rely on suppliers internal and external to public television.
These suppliers include larger public television stations, such as WGBH
(Boston) and WNET (New York); external producers, such as Sesame
Workshop and Ken Burns; and other external suppliers, such as American
Public Television.
Public television stations broadcast a variety of national and local
programs and also provide nonbroadcast services to their communities.
PBS prime-time and children's programming accounts for a majority of
broadcast hours for most public television stations. However, stations
supplement these programs with both instructional and locally produced
programming. Local programming broadcast by stations includes a variety
of topics that represent the local interests of the community,
including history and public affairs, arts and culture, and community
events. In some instances, stations focus their instructional
programming on grades K through 12 educational material, while in other
instances, stations focus on university-level educational material. In
addition to programming, public television stations provide a variety
of nonbroadcast services. Stations provide educational services,
including programs to help prepare children for school, facilitate
teacher training, and deliver instructional materials. Stations also
provide civic engagement and health outreach services. Finally, the
Department of Homeland Security has been working with public television
stations to provide a digital emergency alert system that will improve
the ability of emergency managers and public safety officials to
rapidly broadcast emergency information, potentially enabling near-
universal service throughout the United States once the program is
complete.
Public television receives the majority of its revenues from
individuals, businesses, and the federal and state governments. In
2005, public television licensees reported annual revenues of $1.8
billion, of which 15 percent came from federal sources and the rest
from a variety of nonfederal sources including individuals, businesses,
foundations, and state and local governments. However, the sources of
revenue vary dramatically from licensee to licensee. Licensees with
less operating revenue (small licensees) and licensees that provide
service in small television markets receive a larger percentage of
revenue from federal sources than do licensees with more operating
revenue (large licensees) and licensees that provide service in large
television markets. To help public television licensees complete the
DTV transition, the Congress has appropriated nearly $400 million for
CPB, NTIA, and RUS since 1999. Many licensees have received some form
of support from the federal government for the DTV transition. Federal
funds also help licensees leverage funds from nonfederal sources.
Thirty of 54 licensees with whom we spoke said that a reduction or
elimination of federal funding could lead to a reduction in staff,
local programming, or services; 11 others, primarily small licensees,
said that a reduction or elimination of federal funding might force the
station to shut down. Similar to licensees, PBS receives funding from a
variety of sources, including underwriting, fees from member stations,
and CPB and federal sources, and a reduction or elimination of federal
funding could negatively impact PBS programming.
Public television licensees receive nonfederal support from a variety
of sources, but substantial growth of nonfederal support to offset a
reduction or elimination of federal support appears unlikely. Between
1999 and 2005, revenues from individual member gifts of less than
$1,000--or basic membership revenue--decreased by 6 percent. According
to CPB officials, public television lags behind other nonprofit
organizations in attracting major gifts. For example, in 2005, 13
percent of revenues from members came from gifts of $1,000 or more. In
response to this situation, CPB launched a major giving initiative to
help licensees capture major gifts. Many licensees report initial
success with major giving, but see the initiative as a long-term
effort. Foundations represent another nonfederal funding source; but
foundations typically only fund capital expenditures or special
projects, and foundation support is unlikely to expand to include
general station operations. The trend in underwriting support--or
revenues derived from on-air acknowledgements of businesses providing
financial support--has been mixed, with some licensees experiencing
increases and others decreases. According to many licensees, corporate
consolidation and an increased focus on advertising among businesses
have made garnering underwriting support increasingly difficult. Eleven
of the 54 licensees with whom we spoke favor an easing of the statutory
and regulatory restrictions on on-air underwriting acknowledgments as a
means to secure more underwriting revenues. However, 19 licensees with
whom we spoke oppose greater commercialization of underwriting,
believing that it could threaten other sources of support and the
mission of public television. Finally, licensees generally receive
minimal revenues from ancillary and miscellaneous activities, such as
leasing space on television towers.
Although public television receives $7 million to $10 million in annual
revenue from business ventures associated with its programming, these
business ventures are unlikely to generate significant additional
revenue. Some television programs generate back-end revenues from
separate business ventures, such as syndication, book and video sales,
and clothing and toy sales. In commercial television, broadcast
networks and cable channels receive rights to back-end revenues
associated with these business ventures. However, the extent of the up-
front investment in the development and production of programming
greatly influences the rights to back-end revenues. Similar to their
counterparts in commercial television, CPB and PBS negotiate financing
and rights to back-end revenues with producers of programming. The
extent to which CPB and PBS receive rights to back-end revenues depends
on their up-front investment in program development and production--
just as it does in the commercial television environment--and the
importance of PBS as a distribution outlet for producers of
programming. Given its statutorily defined mission and limited
financial resources, public television is unlikely to greatly increase
back-end revenues. In particular, relatively few programs generate
significant back-end revenues. When a program is successful, the
royalties to program producers typically yield 2.5 percent to 7.5
percent of the gross retail price of the merchandise sold, and the
producers share these royalties with program investors and others.
Because of funding limitations, CPB and PBS do not make major
investments in individual programs and therefore receive a modest share
of the resulting back-end revenues.
We provided a draft of this report to CPB; the departments of
Agriculture, Commerce, Education, and Homeland Security; FCC; and PBS.
CPB and PBS agreed with the report and their written comments appear in
appendixes V and VI, respectively. The Department of Agriculture
neither agreed nor disagreed with the report, but it emphasized the
extensive burden that the DTV transition imposes on small and rural
television stations. The Department of Education, the Department of
Homeland Security, and FCC provided technical comments that we have
incorporated in this report as appropriate. The Department of Commerce
had no comments on the report.
Public Television Is Structured around Local Ownership and Control of
Stations, with Assistance from National-Level Organizations:
Many programs shown on public television stations carry the logo of
PBS, which can create the misperception that public television is a
single, national-level enterprise. However, public television is not a
single, national entity, nor is it identical with PBS. Public
television evolved from a handful of noncommercial educational
television stations in the early 1950s to 349 stations today that reach
virtually every household in the United States. The stations were built
and continue to operate as independent, nonprofit, community-based
entities offering a mix of broadcast programming and outreach
activities to their local communities. The late 1960s saw the creation
of national-level organizations to support and interconnect the
stations: CPB and PBS. With producers and distributors supplying a wide
variety of educational, cultural, entertainment, and public affairs
programs, public television today remains a locally based enterprise
with a national reach that serves the particular needs and interests of
the communities within the range of each station.
Public Television Stations Are Independent, Locally Based Entities That
Serve Their Communities:
Public television began as, and continues to be, a largely
decentralized enterprise, with ownership and control of the stations
maintained at the state or local level. The basis for this localism was
established by FCC's initial decision in 1952 to reserve 242 channels
assignments for educational television stations in various markets
across the country.[Footnote 4] These reserved channels were to serve
"the educational and cultural broadcast needs of the entire community
to which they are assigned." It was left to the local communities to
construct and operate television stations to use these reserved
channels, since neither FCC nor the Congress provided funds for this
purpose.
The growth of public television's station infrastructure has been the
work of decades, as civic leaders, universities, and state and local
governments have marshaled funding and operational support from public
and private sources to establish and operate noncommercial educational
television stations to serve their communities. Today, there are 349
such stations, owned and operated by 173 licensees, which reach at
least 98 percent of households that have a television.[Footnote 5]
Figure 1 illustrates the pace of station growth since 1953, when KUHT
(Houston, Texas) became the first noncommercial educational television
licensee.
Figure 1: Number of Noncommercial Educational Television Stations, 1953-
2002:
[See PDF for image] - graphic text:
Source: GAO analysis of PBS data.
[End of figure] - graphic text:
Most public television stations broadcast under the terms of
noncommercial educational television licenses granted to them by FCC.
Under FCC rules, licensees of public television stations must be one of
the following (see fig. 2):
* A nonprofit educational organization, such as a university or local
school board. For example, WKYU (Bowling Green, Kentucky) is a
university licensee.
* A governmental entity other than a school, such as a state agency.
For example, Mississippi Public Broadcasting (Jackson, Mississippi) is
a state licensee and WNYE (New York) is a local licensee.
* Another type of nonprofit educational entity, such as a "community
organization." For example, North Texas Public Broadcasting, Inc.,
operates KERA (Dallas, Texas).
Figure 2: Number of Public Television Licensees, 2005:
[See PDF for image] - graphic text:
Source: GAO analysis of SABS data.
[End of figure] - graphic text:
Public television stations' most visible activity is broadcasting
programs to serve the educational and cultural needs of their
communities. Each station's management decides what programs to air to
meet the particular needs and tastes of their communities. In addition,
stations are typically involved in a variety of nonbroadcast activities
that extend their educational and cultural mission and support their
local communities. As noncommercial educational licensees, the stations
must support themselves financially without reliance on the airing of
commercial advertising.[Footnote 6] Both the stations' activities and
the various funding streams that support them are discussed in more
detail in later sections of this report.
The stations' overall operational expenses vary greatly depending on a
station's size and specific activities. In fiscal year 2005, these
expenses ranged from $881,106 for WVUT (Vincennes, Indiana) to
$174,474,123 for WGBH (Boston). Stations incur expenses associated
with:
* construction and maintenance of broadcast towers and transmission
equipment;
* utilities associated with signal transmission;
* office and studio facilities;
* master control equipment to manage the station's broadcast traffic
(see fig. 3);
* production equipment, such as television cameras;
* program production and acquisition fees;
* nonbroadcast community outreach activities; and:
* salaries for station personnel.
Figure 3: WNET (New York) Master Control Facility:
[See PDF for image]
Source: GAO.
[End of figure]
Many stations have formed affinity groups, such as the Organization of
State Broadcasting Executives, the Small Station Association, and the
University Licensee Association, to deal with common concerns. Stations
may also be members of the Association of Public Television Stations, a
nonprofit organization established in 1980 to advocate for public
television interests at the national level.
The Corporation for Public Broadcasting Provides Federal Support to
Stations and Other Public Television Entities:
Funding has been a continual concern for public television. As noted
earlier, the channels reserved for noncommercial educational television
in 1952 did not come with any federal funding to get the stations up
and running. The first decade of public television saw slow growth in
the number of stations. By 1960, 49 stations were broadcasting. To spur
the construction of stations, the Educational Television Facilities Act
of 1962 was enacted to provide the first direct federal funding for
station infrastructure.[Footnote 7] The Educational Television
Facilities Act authorized a $32 million, 5-year program of federal
matching grants to licensees for facilities.[Footnote 8] The program,
however, did not cover stations' operational expenses. In 1965, the
Carnegie Corporation sponsored a commission to study educational
television's financial needs. As recommended in the Carnegie
Commission's 1967 report, President Lyndon Johnson proposed, and the
Congress enacted, the Public Broadcasting Act, which amended the
Communications Act to reauthorize funding for facilities and equipment
grants under the Educational Television Facilities Act and to authorize
additional federal funding for public television through a new entity--
CPB.[Footnote 9]
CPB was authorized under the Public Broadcasting Act to be established
as a nonprofit corporation to facilitate the growth and development of
both public television and public radio, along with the use of these
media for instructional, educational, and cultural programming. This
private corporation structure was to afford "maximum protection from
extraneous interference and control."[Footnote 10] CPB operates under
the provisions of the Communications Act, and is governed by a board of
directors consisting of nine members appointed by the President and
confirmed by the Senate. The Communications Act includes a
congressional "Declaration of Policy" stating, among other things, that
it is in the public interest to encourage the growth of public radio
and television, as well as the development of programming that involves
creative risks and serves the needs of unserved and underserved
audiences, particularly children and minorities. The declaration also
states that public telecommunications services (including public
television and radio) constitute a valuable local community resource
for addressing national concerns and local problems, and that it is in
the interest of the federal government to ensure that all citizens have
access to these services.[Footnote 11]
CPB's main responsibility is distributing congressionally appropriated
funds to benefit public broadcasting (both public television and public
radio).[Footnote 12] CPB allocates its appropriated funds (which
constitute virtually its entire budget) in accordance with the
provisions of the statute.[Footnote 13] The statute directs CPB to
allocate yearly 6 percent of its appropriated funds for "system
support" (largely royalty fees, station interconnection costs, and
projects and activities to enhance public broadcasting) and not more
than 5 percent for CPB's administrative expenses. Of the remaining
funds (about 89 percent), 25 percent is to be allocated for public
radio and 75 percent for public television. There is a further division
of the funds for public television: 75 percent is to be made available
for distribution to station licensees and 25 percent for national
programming. Because the distribution formula is defined by statute,
changes in CPB's yearly appropriation affect both public television and
public radio licensees.
The principal mechanism by which CPB distributes federal funding to
public television licensees is the Community Service Grant
program.[Footnote 14] CPB currently administers the program by
providing each licensee that operates an on-air public television
station with a "basic" grant of $10,000. In addition to the basic
grant, eligible licensees receive two component grants in their
Community Service Grant--a "base" grant and an "incentive" grant. Base
grants are determined by the statutory allocations noted above, CPB's
annual appropriation, the number of licensees eligible for grants, and
a fixed grant funding level set by CPB's board of directors. Incentive
grants are designed to encourage stations to maintain and stimulate new
sources of nonfederal funding support. Accordingly, the size of an
incentive grant depends on the amount of revenues that an individual
licensee raises from nonfederal sources.[Footnote 15] (See app. II for
detailed information on the components of Community Service Grants.)
The Public Broadcasting Service Is a Nonprofit Organization That
Provides Technical and Programming Support to Stations:
One of the goals of the Public Broadcasting Act was to establish a
system to interconnect the individual public television stations for
the distribution of programming. The Communications Act, as amended by
the Public Broadcasting Act, authorizes CPB to assist in the
establishment and development of one or more interconnection systems,
but in keeping with the concept of local control, CPB is expressly
prohibited from owning the interconnection systems or from producing,
scheduling, or disseminating programs.[Footnote 16] To fill these
needs, CPB worked with the stations and other stakeholders to create
PBS in 1969 as an entity for managing an interconnection system and
acquiring and distributing programs. PBS was established as a private,
nonprofit organization made up of licensees of noncommercial television
stations. Today, nearly all public television licensees have chosen to
be members paying assessments for access to PBS national programming.
PBS is governed by a board with a majority of members representing
stations. PBS's activities and services include the following:
* acquiring and promoting the programs for children's and prime-time
broadcast that make up PBS's "National Programming Service;"
* operating a satellite-based interconnection system for distributing
programming to member stations for broadcast to their local
communities;
* providing educational services, such as its Web-based TeacherSource;
and:
* assisting member stations with fund-raising and development support,
as well as a variety of engineering and technology development issues,
such as the digital transition.
As a result of agreements with the stations at the time of its
creation, PBS was authorized to coordinate the development of a
national program schedule, but not to produce broadcast programming of
its own. Programming comes from individual public television stations,
outside production companies, and independent producers. PBS selects
programs to be included in its National Programming Service and
distributes them to stations via the interconnection system. Stations
exercise substantial discretion over programming decisions and are free
to choose which of these programs to broadcast.
A Variety of Entities Produce and Provide Public Television Programs:
Television production involves developing and funding an individual
program or series from an initial concept to a finished product.
Producers of programming for public television are both internal to
public television, such as producing stations, and external to public
television, such as outside producers.
Producing Stations. A small number of the larger public television
stations regularly produce and coproduce programs and series designed
for national audiences that are included in PBS's National Programming
Service. Examples include WGBH (Boston): NOVA, Mystery!, Frontline, and
Masterpiece Theatre; WNET (New York): American Masters, Great
Performances, and Nature; WETA (Arlington, Virginia): The NewsHour with
Jim Lehrer and Washington Week; and OPB (Portland, Oregon): History
Detectives and The New Heroes. Other public television stations may,
from time to time, produce a show that is chosen by PBS for national
broadcast or by individual stations for local broadcast.
Local Production. Aside from broadcasting programs developed for a
national audience, stations produce and broadcast their own local
programs that are designed to meet the special needs and interests of
their individual communities. Because program production can be
expensive, the amount of a station's local production is closely tied
to its budgetary resources and underwriting support from the business
community. Examples of such locally produced programs include WVPT's
(Harrisonburg, Virginia) farm report, Rural Virginia, and WTTW's
(Chicago) showcase of local events and people, Chicago Tonight.
Outside Producers. These producers are not public television entities
but are independent production companies and individual producers who
create programming that is acquired by PBS or individual stations for
their broadcast schedules. One such production company is Sesame
Workshop, the producer of Sesame Street. Although this long-running
program has become strongly identified with public television and PBS,
Sesame Workshop is a nonprofit educational organization. (See app. IV
for a description of Sesame Workshop.) An example of a for-profit
production company is HIT Entertainment, the producer of shows such as
Barney & Friends and Bob the Builder. There are also independent
producers of public television programming, who are generally not
affiliated with a studio, a television station, or a major production
company. Ken Burns, for example, has produced some of public
television's best-known series, such as The Civil War, Baseball, and
Jazz, as well as profiles of notable Americans, such as Mark Twain and
Frank Lloyd Wright. International producers are another source of
programming. British productions, in particular, have been a regular
feature of public television for decades.
The Independent Television Service (ITVS). In 1988, the Congress
directed CPB to provide adequate funds to an independent television
production service.[Footnote 17] Pursuant to this mandate, CPB provides
annual funding to ITVS. ITVS funds, distributes, and promotes new
programs developed by independent producers primarily for public
television. ITVS looks for proposals that increase diversity on public
television and present a range of subjects and viewpoints that
complement and provide alternatives to existing public television
offerings. An example of ITVS's programs include And Thou Shalt
Honor..., which explores the increasing role of caregiving for elderly
Americans.
Non-PBS Distributors of Programming. Although PBS is the principal
distributor of children's and prime-time shows for its member stations,
other distributors also provide stations with programs. One is American
Public Television (APT), which distributes shows such as Lidia's
Italian-American Kitchen and Rick Steves' Europe. Another is the
National Educational Telecommunications Association (NETA), which
distributes shows such as This is America with Dennis Wholey. Stations
can also acquire broadcast rights from international distributors.
Public Television Stations Provide a Variety of National and Local
Programs and Services:
Public television stations broadcast a mix of national and local
programs. PBS prime-time and children's programming constitute a
majority of broadcast hours for most public television stations.
However, stations supplement these programs with both locally produced
and instructional programming to meet the needs of their communities.
In addition to programming, public television stations provide a
variety of nonbroadcast services. Stations provide educational
services, including programs to help promote literacy and facilitate
teacher training. Some stations also provide civic engagement and
health outreach services. Finally, many stations provide emergency-
alert services to facilitate communication among public safety
officials and between public safety officials and the public.
Public Television Stations Provide a Variety of National and Local
Programming:
Public television stations produce, acquire, and broadcast programs
from a variety of sources. According to the Communications Act, public
television programming should, among other things, (1) serve
educational, cultural, and instructional purposes; (2) address the
needs of unserved and underserved audiences, particularly children and
minorities; and (3) serve local and national interests.[Footnote 18]
(See app. III for the demographic characteristics of public television
viewers.) As we mentioned earlier, each station decides what programs
to broadcast to meet the needs and tastes of its communities. Figure 4
illustrates the percentage of broadcast time filled from various
program sources. On average, public television stations use PBS
programs for 67 percent of all broadcast hours. To a far lesser extent,
stations rely on APT and NETA for nationally distributed programming.
Finally, stations dedicate about 4 percent of broadcast hours to local
programs.[Footnote 19]
Figure 4: Percentage of Total Broadcast Hours Filled from Various
Sources, 2005:
[See PDF for image] - graphic text:
Source; GAO analysis of SABS data.
[A] "PBS Non-Children's" includes programming from the National
Programming Service (excluding children's programming), the Station
Independence Program, PBS Plus, and other types of PBS program
acquisitions.
[End of figure] - graphic text:
The DTV transition expands the programming opportunities for public
television stations through multicasting. For example, in the
Washington, D.C., television market, WETA (channel 26) broadcasts 26.1,
26.2, 26.3, and 26.4, or four separate digital video signals in
addition to its analog signal, expanding the amount of programming that
WETA can broadcast. Among the stations we contacted that are
broadcasting a digital signal, most are simulcasting (or repeating)
their analog signal on one of these digital signals. Most stations we
contacted that broadcast in digital also provide additional programming
streams such as "PBS HD," PBS's high-definition programming service;
"World," an aggregation of PBS and other nonfiction programs; and
"Create," lifestyle and how-to programs. In addition, some stations
offer instructional or regional programming. For example, KET
(Lexington, Kentucky) offers two instructional channels for Kentucky
schools and KAMU (College Station, Texas) offers "The Research
Channel." KTCA (St. Paul, Minnesota) offers "Minnesota Channel," which
features a variety of programming that is from or about Minnesota and
its close neighbors, and WFSU (Tallahassee, Florida) provides "The
Florida Channel," a C-SPAN-type channel focusing on Florida. Some
station officials with whom we spoke indicated that their future
multicasting plans include providing a broader range of programming
that is more tailored to the needs of their communities. For example,
some stations indicated that they plan to offer additional programming
from packaged programming streams, such as "V-me," a channel planned
for launch in early 2007 that will feature Spanish language programs on
a variety of topics, or "MHz WORLDVIEW," which offers international
programming. In addition, some stations plan to create their own
programming streams tailored to local audiences. For example, WYES in
New Orleans, Louisiana, is collaborating with local organizations to
develop a tourist-oriented channel, and South Dakota Public
Broadcasting (Vermillion, South Dakota) is working with local and state
organizations to create a channel that would focus on instructional
programming for classroom use during the day and children's programs in
the evening.
We identified several types, or streams, of programming broadcast by
public television stations. These streams of programs include PBS non-
children's, children's, local, and instructional programming. While
most public television stations share some common programming, such as
PBS Primetime and PBS Kids, additional programming choices, such as
local and instructional programming, vary from station to station.
PBS Programming. Almost all public television stations carry PBS
programming. PBS programming represents about half of the broadcast
hours provided by public television stations and is a cost-effective
approach to acquire and broadcast programming.[Footnote 20] Most PBS
programming is provided via PBS's National Programming Service, which
features a variety of educational and cultural topics. PBS takes a
multimedia approach to expand the reach of its programming, including
Web sites, teachers' guides, and lesson plans for many programs. Figure
5 illustrates the major program themes included in PBS's National
Programming Service, excluding children's programming, which is
addressed in the next section. These themes include the following:
* Public affairs and news programs, such as The NewsHour with Jim
Lehrer, long-form coverage and analysis of national news; Nightly
Business Report, business and economic news; and Frontline, long-form
public-affairs documentaries.
* Science and nature programming, such as Nova; Nature; and Scientific
American Frontiers, covering new technologies and discoveries in
science and medicine.
* Arts and drama programming, such as American Masters, specials on
American cultural artists; Masterpiece Theatre, a drama series
featuring works by classic and contemporary writers; and Great
Performances, broadcasts of music, theater, and dance performances.
* History programming, such as American Experience, Ken Burns' American
Stories, and History Detectives.
* Life, cultural, and other programming, such as Religion & Ethics
Newsweekly, news on and analysis of religion and ethics; Independent
Lens, documentaries and dramas featuring diverse stories; and Wide
Angle, international current affairs documentaries.
Figure 5: Types of Programming in PBS's National Programming Service
(Excluding Children's Programming), 2005:
[See PDF for image] - graphic text:
Source: GAO analysis of PBS data.
[End of figure] - graphic text:
Children's Programming. Children's programming constitutes an important
portion of broadcast time, and many station officials told us that it
is one of the strengths of public television.[Footnote 21] We found
that children's programming accounts for 16 percent of all program
hours broadcast by public television stations. Children's programming
represents over 40 percent of the weekday programming schedule for many
stations. Many stations broadcast about 8 to 10 hours of children's
programming per weekday, often beginning before 8:00 a.m. and ending
between 5:00 p.m. and 6:00 p.m. Stations often design their weekday
schedule to include programming oriented toward the prekindergarten age
group during the school day and toward school-age children, after
school.
PBS Kids features nonviolent, curriculum-based content that promotes
skills such as literacy, math, problem solving, and social skills.
Several prominent examples of children's programming include Sesame
Street, which encourages the development of preschool level skills,
such as those needed for reading, writing, math, and science; Between
the Lions, which fosters literacy skills among 4 to 7 year olds; Maya &
Miguel, which encourages children to appreciate other cultures and
builds understanding of English among 6 to 11 year olds; and
Cyberchase, which promotes math problem-solving skills among 8 to12
year olds. PBS and member stations leverage the concepts taught in
these and other children's programs via Web resources, including lesson
plans, activities, parent guides, book suggestions, and links to other
resources related to the skills promoted in specific programs.
Local Programming. Most public television stations produce and
broadcast some local programming in order to meet specific needs of
their audiences. On average, local programming represents about 4
percent of total broadcast hours for public television stations. Some
stations we contacted indicated that they would like to provide more
local programming, but that local production is expensive. Although
local programming does not constitute a large percentage of the
programming provided by public television, some stations we contacted
emphasized the unique nature of public television's local programming
or the importance of local programming to their communities. Some
stations mentioned that they are the only source in their community of
local programming unrelated to news or sports. Stations we contacted
cited many examples of local programming, such as the following:
* Many stations provide programming on local and state history and
public affairs. For example, KET (Lexington, Kentucky) covers the
Kentucky state legislature live; many stations provide state election
coverage; and, of the stations we contacted, the majority provide at
least one public affairs program, such as KAID's (Boise, Idaho)
Dialogue.
* Some stations produce local programming to enhance access to arts and
cultural amenities. WBRA (Roanoke, Virginia) produces a virtual
excursion show introducing viewers to local sites, a weekly open
microphone show featuring soloists and small groups, and a weekly
concert series showcasing old-time and bluegrass music from the region.
* Some stations broadcast local events and residents that are not
covered by national networks. For example, KNCT (Killeen, Texas)
broadcast the arrivals of and ceremonies for the 1st Cavalry Division
and the 4th Infantry Division after their return from Iraq; KOOD
(Bunker Hill, Kansas) broadcasts some local high school sporting
events; and KNME (Albuquerque, New Mexico) produces documentaries on
the art, culture, history, and cultural diversity of New Mexico.
* Some stations also provide programming that gives underserved viewers
access to services and information they might otherwise have difficulty
obtaining. For example, several stations broadcast call-in shows, such
as Doctors on Call, Lawyers on the Line, and Homework Hotline, during
which viewers can ask questions of health-care professionals, lawyers,
and teachers, respectively. Other similar programs include Healthy
Minds, a WLIW (Plainview, New York) program about mental illness;
specials on methamphetamine, such as Meth in Wisconsin from WPTV
(Madison, Wisconsin); and topics such as affordable housing on KCWC's
(Riverton, Wyoming) Wyoming Perspectives.
Instructional Programming. Many public television stations provide
formal instructional programming to meet local educational needs.
Instructional programming constitutes about 4 percent of total
broadcast hours. The amount and type of instructional programming
offered varies from station to station.
* KET (Lexington, Kentucky) provides instructional programming for
students in grades K through 12 and adults. For grades K through 12,
KET produces AP courses, virtual field trips, and a news program; for
adults, KET provides programming for adult basic education, GED
preparation, workplace essential skills, and childcare certification
training.[Footnote 22]
* WETP (Knoxville, Tennessee) offers 6 hours of instructional
programming per day, 175 days per year, for grades K through 12 and
teachers. In addition, WETP provides "in-service" professional growth
programming for teachers and administrators, including programs such as
Reading Rockets: Launching Young Readers; Managing Your Classroom:
Supporting Students at Risk; and Principals & Leaders: Set High
Expectations & Standards.
* WYCC (Chicago), licensed to the City Colleges of Chicago (CCC),
offers 5 ½ hours of instructional programming each weekday. In 2 ½
years, students can fulfill virtually all requirements for an
associate's degree from CCC by participating in WYCC's telecourses.
Public Television Stations Provide a Variety of Nonbroadcast Services:
Public television stations provide a variety of nonbroadcast services
to meet local and national needs. As set forth in the Communications
Act, public television stations constitute local community resources
for using electronic media to address national concerns and solve local
problems through outreach and other community programs.[Footnote 23]
Some public television services are federally funded and centrally
facilitated, but involve some local implementation. These services
include Ready To Learn, TeacherLine, and the Digital Emergency Alert
System, which address both national and local needs, such as literacy,
teacher training, and emergency response. Other services are developed
and administered at the local level to meet needs of the station's
communities. We identified four primary types of nonbroadcast services:
educational, civic engagement, health, and emergency services.
Educational Services. Educational services extend the value of public
television's electronic resources, especially broadcast programming and
Web resources, to help fulfill a variety of local and national
educational needs. These services are rooted in the historical
education mission of public television and are the most common type of
services provided by the stations we interviewed. For the most part,
public television's educational services are designed to align with
local and national standards.
Public television's centrally facilitated educational services help
prepare children for school, train teachers, and provide teaching
resources; these services often rely on federal funding and involve
some local implementation. The Department of Education's Ready To Learn
initiative was a joint initiative of PBS and 149 public television
licensees and included educational programming, workshops, books and
magazines, Web sites, and classroom resources. Until recently, almost
all public television licensees provided local outreach in association
with Ready To Learn, including workshops for over 140,000 caregivers
and teachers annually, focusing on linking concepts presented in
programs to skill-building activities. Many aspects of the program are
being continued or modified under the new Ready To Learn and Ready to
Lead in Literacy initiatives, with less emphasis on local-level
workshops and greater emphasis on educational programming and more
geographically limited, need-targeted outreach. Another initiative
featuring PBS and station involvement is TeacherLine, which is funded
through the Department of Education's Ready to Teach program.
TeacherLine provides pedagogical and content training for teachers,
consistent with national and state standards. Over 22,000 teachers in
all 50 states and the District of Columbia enrolled in TeacherLine
courses from 2000 through 2005. While PBS provides access to the online
courses, several stations customize or supplement course modules for
teachers in their region, and many higher education institutions
provide graduate credit for TeacherLine courses. In addition to these
initiatives, PBS offers TeacherSource, a Web site that provides at
least 3,000 free lesson plans, designed to be consistent with
individual state education standards, for teachers of grades pre-K
through 12.
At the local level, stations initiate a variety of other educational
services. Station officials whom we spoke with cited many examples of
educational services, including the following:
* Stations increasingly offer instructional programming and other
instructional resources via multiple platforms, especially the
Internet. Some station officials said that they offer instructional
resources, such as advanced placement courses, in order to provide
underserved regions with more equitable access to instructional
resources.
* Many stations conduct the "Reading Rainbow Writers and Illustrators
Contest" in their viewing areas. In addition, some stations organize
and broadcast regional high school knowledge bowls. KLCS (Los Angeles)
organizes an awards program that honors teachers and students who
create videos that advance the California State Content Standards.
* Many stations, especially university licensees, provide internship
and employment opportunities for students.
Civic Engagement and Community Building. Many of public television's
nonbroadcast services foster civic engagement and community building.
For example, stations we contacted mentioned the following services:
* SDPB (Vermillion, South Dakota) provides video streams of all state
legislature committee meetings and audio streams of Public Utilities
Commission meetings on its Web site.
* KYUK (Bethel, Alaska) documents the history, culture, and lifestyle
of the Yup'ik people of Western Alaska. The station is transferring its
large archive of documentaries and raw footage--including oral
histories, traditional dances and ceremonies, meetings, and other
materials--to digital media in order to preserve these resources and
make them available.
* WKYU (Bowling Green, Kentucky) organized a "Living Will" symposium
that attracted 500 people who created living wills with the assistance
of an attorney at no charge.
Health Outreach. Many stations provide educational programming on
health issues combined with outreach programs to expand the reach of
the messages. Two examples follow:
* WTTW (Chicago) is one of many public television stations that offered
outreach in association with the broadcast of A Lion in the House, a
documentary addressing childhood cancer. WTTW partnered with the
Chicago Pediatric Cancer Care Coalition to offer referral support and
answer inquiries about childhood cancer services.
* Numerous public television stations provided outreach in association
with the program The Forgetting, a documentary about Alzheimer's
disease. WNET (New York) provided a range of services, including
screenings and panel discussions for the general public and for
community service and health-care professionals, Web materials, and
print materials for outreach events and partner organizations.
Emergency Services. Many public television stations have integrated or
will soon integrate emergency services into the public services they
provide. At least 26 public television stations in 17 states recently
participated in the pilot of a Digital Emergency Alert System (DEAS)
that is being created by the Department of Homeland Security in
coordination with other federal departments and agencies via a
cooperative agreement with the Association of Public Television
Stations. The new system will improve the ability of emergency managers
and public safety officials to rapidly broadcast emergency information
to first responders and the general public. The technology will enable
officials to pinpoint to whom the information is sent and can be
relayed over a variety of media, such as television, radio, cellular
telephones, computers, and personal data accessories.[Footnote 24] The
next phase of the DEAS program includes the extension of the system so
that all public television stations can transmit information to local
first responders and the public, potentially enabling near universal
service throughout the United States once the program is complete.
Many stations have developed other emergency services, often in
partnership with local organizations, such as the following:
* To improve community preparedness in the case of flooding of the Red
River, Prairie Public Television (Fargo, North Dakota) hosts a
"Riverwatch" Web site featuring information provided by government
agencies and commercial entities.
* Some stations, such as MAINE (Lewiston, Maine), provide AMBER Alerts,
emergency messages broadcast when a law enforcement agency determines
that a child has been abducted and is in imminent danger.
Individuals, Businesses, and the Federal and State Governments Provide
the Majority of Funds for Public Television:
Public television receives funding from many sources, the most
important of which are individuals, businesses, and the federal and
state governments. In 2005, public television licensees reported annual
revenues of $1.8 billion, of which 15 percent came from federal
sources. However, the relative sources of funds differ significantly
from licensee to licensee; licensees with less operating revenue (small
licensees) and licensees that provide service in small television
markets receive a larger percentage of revenues from federal sources
than do licensees with more operating revenue (large licensees) and
licensees that provide service in large television markets. In addition
to basic support provided through CPB, the Congress provides funds for
public television to help licensees complete the DTV transition.
Licensees consider federal funding important for their operations, and
many suggested that its elimination would lead to staff reductions and
less local programming and services. Finally, federal funds help
support PBS and the production of national programming.
Public Television Licensees Receive Funding from Many Sources; However,
Small Licensees and Licensees in Small Television Markets Exhibit
Greater Dependence on Federal Funds:
Public television licensees receive the majority of their revenues from
four sources: individuals, businesses, and the federal and state
governments. In 2005, the 177 public television licensees reported
revenues of $1.8 billion. Of the $1.8 billion, contributions from
individuals account for 25 percent, and business support, state
support, and federal support each account for 15 percent. The remaining
sources make up about 30 percent of licensees' total revenues. Figure 6
illustrates the sources of revenues for public television licensees in
2005.
Figure 6: Percentage of Revenue from Various Sources for Public
Television Licensees, 2005:
[See PDF for image] - graphic text:
Source: GAO analysis of SABS data.
[End of figure] - graphic text:
The sources of revenues vary according to the type of licensee--
community, local, state, or university. Table 1 lists the sources of
revenues for different types of licensees in 2005. Community licensees
received a significant percentage of revenues from individuals,
businesses, and the federal government through CPB. Local licensees
received a large percentage of revenues from local governments, state
licensees received a large percentage of revenues from state
governments, and university licensees received a large percentage of
revenues from universities. The percentage of revenues from the federal
government varied modestly across the types of licensees, with the
state licensees receiving the lowest percentage.
Table 1: Percentage of Revenue from Various Sources and Type of Public
Television Licensee, 2005:
Source: Individuals;
Type of licensee: Community: 30.7;
Type of licensee: Local: 14.9;
Type of licensee: State: 14.1;
Type of licensee: University: 15.8.
Source: Business;
Type of licensee: Community: 17.0;
Type of licensee: Local: 12.5;
Type of licensee: State: 5.9;
Type of licensee: University: 6.0.
Source: State government;
Type of licensee: Community: 11.5;
Type of licensee: Local: 8.6;
Type of licensee: State: 43.9;
Type of licensee: University: 11.8.
Source: Federal government--CPB;
Type of licensee: Community: 19.3;
Type of licensee: Local: 19.2;
Type of licensee: State: 15.4;
Type of licensee: University: 19.8.
Source: Foundation;
Type of licensee: Community: 5.5;
Type of licensee: Local: 1.8;
Type of licensee: State: 2.6;
Type of licensee: University: 2.8.
Source: University;
Type of licensee: Community: 2.5;
Type of licensee: Local: 0.6;
Type of licensee: State: 1.8;
Type of licensee: University: 34.8.
Source: Local government;
Type of licensee: Community: 2.4;
Type of licensee: Local: 36.4;
Type of licensee: State: 7.5;
Type of licensee: University: 3.7.
Source: Other;
Type of licensee: Community: 11.1;
Type of licensee: Local: 6.0;
Type of licensee: State: 8.8;
Type of licensee: University: 5.3.
Source: Total;
Type of licensee: Community: 100.0;
Type of licensee: Local: 100.0;
Type of licensee: State: 100.0;
Type of licensee: University: 100.0.
Source: GAO analysis of SABS data.
Note: The percentages refer to the mean percent per licensee to account
for differences in the size of licensees.
[End of table]
The percentage of revenue received from the federal government through
CPB decreases significantly as the size of the licensee
increases;[Footnote 25] in particular, CPB distributes funds through a
statutory formula designed to consider the financial needs and
requirements of stations and to maintain and stimulate new sources of
nonfederal support.[Footnote 26] Table 2 provides data for 2005 on the
sources of revenues for licensees of different sizes. For the smallest
licensees, those with revenues of less than $3.0 million, federal
support through CPB represented 33 percent of the average licensee's
revenues. In fact, federal support provides over 40 percent of the
revenues for 9 licensees.[Footnote 27] Alternatively, among the largest
licensees, those with revenues exceeding $10.7 million, federal support
made up about 10 percent of total revenues for the average
licensee.[Footnote 28] Large licensees received a greater percentage of
revenues from individuals, businesses, state governments, and
foundations than did small licensees.
Table 2: Percentage of Revenue from Various Sources and Size of Public
Television Licensee, 2005:
Source: Individuals;
Licensee operating revenues (in millions): Less than $3.0: 15.9;
Licensee operating revenues (in millions): $3.0 to $5.5: 23.7;
Licensee operating revenues (in millions): $5.5 to $10.7: 26.5;
Licensee operating revenues (in millions): More than $10.7: 26.0.
Source: Business;
Licensee operating revenues (in millions): Less than $3.0: 9.5;
Licensee operating revenues (in millions): $3.0 to $5.5: 12.4;
Licensee operating revenues (in millions): $5.5 to $10.7: 12.6;
Licensee operating revenues (in millions): More than $10.7: 13.1.
Source: State government;
Licensee operating revenues (in millions): Less than $3.0: 11.2;
Licensee operating revenues (in millions): $3.0 to $5.5: 12.9;
Licensee operating revenues (in millions): $5.5 to $10.7: 16.6;
Licensee operating revenues (in millions): More than $10.7: 19.5.
Source: Federal government--CPB;
Licensee operating revenues (in millions): Less than $3.0: 32.9;
Licensee operating revenues (in millions): $3.0 to $5.5: 18.7;
Licensee operating revenues (in millions): $5.5 to $10.7: 14.3;
Licensee operating revenues (in millions): More than $10.7: 10.3.
Source: Foundation;
Licensee operating revenues (in millions): Less than $3.0: 4.3;
Licensee operating revenues (in millions): $3.0 to $5.5: 2.3;
Licensee operating revenues (in millions): $5.5 to $10.7: 3.5;
Licensee operating revenues (in millions): More than $10.7: 6.0.
Source: University;
Licensee operating revenues (in millions): Less than $3.0: 13.9;
Licensee operating revenues (in millions): $3.0 to $5.5: 19.4;
Licensee operating revenues (in millions): $5.5 to $10.7: 10.0;
Licensee operating revenues (in millions): More than $10.7: 8.3.
Source: Local government;
Licensee operating revenues (in millions): Less than $3.0: 3.0;
Licensee operating revenues (in millions): $3.0 to $5.5: 2.3;
Licensee operating revenues (in millions): $5.5 to $10.7: 10.1;
Licensee operating revenues (in millions): More than $10.7: 6.0.
Source: Other;
Licensee operating revenues (in millions): Less than $3.0: 9.3;
Licensee operating revenues (in millions): $3.0 to $5.5: 8.3;
Licensee operating revenues (in millions): $5.5 to $10.7: 6.4;
Licensee operating revenues (in millions): More than $10.7: 10.8.
Source: Total;
Licensee operating revenues (in millions): Less than $3.0: 100.0;
Licensee operating revenues (in millions): $3.0 to $5.5: 100.0;
Licensee operating revenues (in millions): $5.5 to $10.7: 100.0;
Licensee operating revenues (in millions): More than $10.7: 100.0.
Source: GAO analysis of SABS data.
Notes: The number of licensees in each category is 44 for "Less than
$3.0," 44 for "$3.0 to $5.5," 44 for "$5.5 to $10.7," and 45 for "More
than $10.7." The percentages refer to the mean percent per licensee to
account for differences in the size of licensees.
[End of table]
A similar trend appears when we consider the size of the television
market where the licensee operates. In larger television markets,
licensees have access to larger numbers of individual donors,
businesses, and foundations and thus would generally be less reliant on
federal support. Table 3 provides data for 2005 on the sources of
revenues for licensees in television markets of different sizes. On
average, among licensees in the smallest television markets, those with
revenues of less than $46.2 million, federal support through CPB
represented about 27 percent of revenues. Conversely, for licensees in
the largest television markets, those with revenues exceeding $313.0
million, federal support made up an average of 12 percent of revenues.
As anticipated, licensees in large television markets received a larger
proportion of revenues from individuals, businesses, and foundations
than did licensees in the smallest television markets.
Table 3: Percentage of Revenues from Various Sources and Size of
Television Market, 2005:
Source: Individuals;
Size of television market (in millions): Less than $46.2: 19.5;
Size of television market (in millions): $46.2 to $107.6: 23.9;
Size of television market (in millions): $107.6 to $313.0: 22.5;
Size of television market (in millions): More than $313.0: 27.8.
Source: Business;
Size of television market (in millions): Less than $46.2: 8.3;
Size of television market (in millions): $46.2 to $107.6: 9.7;
Size of television market (in millions): $107.6 to $313.0: 14.1;
Size of television market (in millions): More than $313.0: 14.7.
Source: State government;
Size of television market (in millions): Less than $46.2: 10.6;
Size of television market (in millions): $46.2 to $107.6: 15.3;
Size of television market (in millions): $107.6 to $313.0: 19.6;
Size of television market (in millions): More than $313.0: 14.2.
Source: Federal government--CPB;
Size of television market (in millions): Less than $46.2: 27.2;
Size of television market (in millions): $46.2 to $107.6: 21.6;
Size of television market (in millions): $107.6 to $313.0: 14.7;
Size of television market (in millions): More than $313.0: 12.3.
Source: Foundation;
Size of television market (in millions): Less than $46.2: 2.8;
Size of television market (in millions): $46.2 to $107.6: 4.0;
Size of television market (in millions): $107.6 to $313.0: 4.3;
Size of television market (in millions): More than $313.0: 5.4.
Source: University;
Size of television market (in millions): Less than $46.2: 18.5;
Size of television market (in millions): $46.2 to $107.6: 15.0;
Size of television market (in millions): $107.6 to $313.0: 9.6;
Size of television market (in millions): More than $313.0: 9.9.
Source: Local government;
Size of television market (in millions): Less than $46.2: 2.8;
Size of television market (in millions): $46.2 to $107.6: 3.7;
Size of television market (in millions): $107.6 to $313.0: 7.3;
Size of television market (in millions): More than $313.0: 6.8.
Source: Other;
Size of television market (in millions): Less than $46.2: 10.3;
Size of television market (in millions): $46.2 to $107.6: 6.8;
Size of television market (in millions): $107.6 to $313.0: 7.9;
Size of television market (in millions): More than $313.0: 8.9.
Source: Total;
Size of television market (in millions): Less than $46.2: 100.0;
Size of television market (in millions): $46.2 to $107.6: 100.0;
Size of television market (in millions): $107.6 to $313.0: 100.0;
Size of television market (in millions): More than $313.0: 100.0.
Source: GAO analysis of SABS data.
Notes: We used total commercial television advertising revenue to
measure the size of a television market. The number of licensees in
each category is 42 for "Less than $46.2," 43 for "$46.2 to $107.6," 43
for "$107.6 to $313.0," and 45 for "More than $313.0." We did not
receive information on television market advertising revenue for four
licensees. The percentages refer to the mean percent per licensee to
account for differences in the size of licensees.
[End of table]
Most Licensees Received Federal Support for the DTV Transition:
For commercial and noncommercial television stations, the DTV
transition requires a substantial capital investment. In 2002, we
reported that stations would incur capital costs of approximately $3.0
million each for the DTV transition.[Footnote 29] Stations must
overhaul and replace the transmitting equipment, including perhaps
replacing the antenna, and studio equipment. In addition, during the
DTV transition, stations must operate both an analog and digital
transmitter, which increases the stations' operating expenses.[Footnote
30]
To help public television licensees complete the DTV transition, since
1999, the Congress has appropriated nearly $400 million for CPB, NTIA,
and the Rural Utilities Service (RUS) of the Department of Agriculture.
CPB operates the Digital Distribution Fund, which provides grants for
digital transmission equipment necessary to comply with FCC's
regulations. In 2006, CPB offered grants of $500,000 for each
transmitter, and stations were required to match 25 percent of the cost
of the project.[Footnote 31] NTIA, through its Public
Telecommunications Facilities Program, also provides grants to
licensees. In 2006, NTIA required stations to match 25 percent to 50
percent of the cost of the funded project. Finally, RUS operates the
Public Television Station Digital Transition Grant Program. This
program provides support for rural licensees and does not require
matching funds because of the financial burden of the DTV transition
for rural licensees.[Footnote 32] NTIA officials said that the agency
coordinates with officials at CPB and RUS to prevent duplication;
however, RUS officials noted that a licensee could receive support from
more than one agency, as long as the support funded different
equipment.
Licensees with whom we spoke reported receiving support for the DTV
transition from a variety of sources. Forty-two of 54 licensees
reported receiving some form of support from the federal government.
Among the three grant programs, licensees most frequently cited CPB's
Digital Distribution Fund and NTIA's Public Telecommunications
Facilities Program. In addition to federal support, many licensees
reported receiving support from a state government. Licensees also
reported receiving funding from universities, licensee capital
campaigns, licensee operating funds, and gifts.
Public Television Licensees Consider Federal Funding to Be Important:
Twenty-three of the 54 licensees with whom we spoke said that federal
funding was important for their operations. In particular, federal
funding has several positive attributes for licensees. First, licensees
have generally broad discretion with federal funds and therefore can
use these funds for general station operations.[Footnote 33] Funding
from other sources, especially foundations, is generally restricted to
specific projects or programs, potentially limiting the licensee's
ability to respond to changing needs. Second, licensees incur
relatively minimal costs to secure federal funding, compared with
funding from other sources. Finally, some licensees noted, federal
funds are a vehicle to attract other funds. For example, WVPB
(Charleston, West Virginia) said that the state government considers
federal funding a source of matching support, and the state government
is willing to appropriate state funds because the licensee will also
receive federal funding.
If federal funding were reduced or eliminated, some licensees would
need to reduce their level of service. In a report prepared for CPB,
McKinsey and Company projected that in response to a 15-percent
reduction in total revenues, licensees would need to reduce staff by 26
percent and reduce local programming by 40 percent.[Footnote 34] Twelve
licensees with whom we spoke noted that another source of funds does
not exist that could fill the void that would be left if federal
funding were reduced or eliminated. Eleven licensees said that the
station would discontinue operations if federal funding were
eliminated; these were generally smaller licensees in smaller
television markets. However, a larger number (30) said that they would
need to reduce staff, local programming, or services. Some licensees
noted that they must continue to purchase PBS programming, because this
programming attracts viewers and therefore membership and underwriting
support. Thus, some licensees would likely reduce local programming,
which is more costly to produce. Furthermore, three licensees said that
they would need to reduce or eliminate television service to more rural
areas of their service territory.
Several licensees with whom we spoke had incurred funding reductions in
the past and responded with reductions in staff, local programming, and
services. For example, according to three licensees, the state of
Tennessee reduced state funding for public television licensees by 9
percent. In response, these licensees undertook the following actions:
* WETP (Knoxville, Tennessee) eliminated instructional programming,
delayed sign-on until 3:00 pm, and reduced staff benefits.
* WCTE (Cookeville, Tennessee) reduced staff, staff benefits, and local
programming.
* WNPT (Nashville, Tennessee) reduced staff and local
programming.[Footnote 35]
In addition, WNMU (Marquette, Michigan) lost 40 percent of its state
support and eliminated 12 staff positions from a total of 36. KLCS (Los
Angeles) lost $1.3 million in support from the Los Angeles Unified
School District and eliminated 33 staff positions from a total of 76.
Federal Funds Also Support PBS Nationwide Programming:
The three largest revenue sources for PBS are underwriting, member
station assessments, and CPB and other federal sources. In 2005, PBS's
revenues were $532 million. Of this total, $192 million, or 36 percent,
came from underwriting.[Footnote 36] PBS also received $163 million
from member station assessments and $70 million from federal sources,
such as funds from CPB.[Footnote 37] In fiscal years 2000 though 2005,
PBS's annual revenues ranged between $489 million and $542 million.
During this period, member station assessments typically increased on a
yearly basis, while funding from the remaining sources varied from year
to year. Among licensees with whom we spoke, eight indicated that a
reduction or elimination of federal funding could negatively affect PBS
programming.
In 2004, PBS formed the PBS Foundation to increase the long-term
stability of the organization. According to PBS staff, the foundation
is a 509(a)(3) supporting organization and operates exclusively for the
benefit of PBS. The foundation conducts fund-raising activities to
support PBS's needs and PBS controls the foundation through various
bylaw requirements. According to PBS staff, the foundation has raised
over $17 million, including $2.4 million from the Ford Foundation for
the foundation's operating expenses.[Footnote 38]
Public Television Stations Are Pursuing a Variety of Nonfederal Funding
Sources, but Substantial Growth to Offset a Reduction or Elimination of
Federal Support Appears Unlikely:
While contributions from individual members represent a significant
source of revenue, this source is not expected to grow significantly in
the future. Alternatively, public television officials consider major
giving a source of long-term revenue growth, and CPB has initiated a
major giving initiative to cultivate major donations. Foundations
provide funding to public television, but generally only support
capital and other projects, and not station operations. The trend in
underwriting support has been mixed, with some licensees experiencing
increases and others decreases. While some licensees favor an easing of
the statutory and regulatory restrictions on underwriting activities,
many licensees do not share this sentiment. Finally, licensees
generally receive minimal revenues from ancillary and miscellaneous
activities.
Basic Membership Revenue Is Not Expected to Grow Significantly in the
Future:
Basic membership, or gifts from individuals of less than $1,000, has
been a mainstay of public television for many years. Among the 54
licensees with whom we spoke, several mentioned that their stations
began on-air membership campaigns during the late 1960s and early 1970s
to increase revenue. Almost all licensees receive contributions from
individuals, and with the exception of several local
licensees,[Footnote 39] the licensees with whom we spoke conduct
membership campaigns.
While basic membership serves as an important source of revenue for
licensees, recent trends indicate that this source of revenue is
decreasing. Both the number of members and the average gift size
determine the amount of basic membership revenue that a station
receives. According to CPB, the number of public television members has
decreased from 4.7 million in 1999 to 3.6 million in 2005. At the same
time, the average annual gift has increased from $79 to $97. As a
result, annual basic membership revenue has decreased about $24
million, or 6 percent, from $373 million in 1999 to $349 million.
Several factors appear to be contributing to the decrease in the number
of members and basic membership revenue. According to a study prepared
by McKinsey and Company for CPB, increased competition for gifts from a
growing number of nonprofit entities, more viewer choices, and less
familiarity with public television are expected to contribute to
declines in the number of members and basic membership revenue.
Additionally, the free-rider problem hinders the ability of licensees
to acquire members. The free-rider problem refers to the tendency of
individuals not to contribute to a service that they can receive free
of charge; in the case of broadcast television, individuals can view
the station's signal without contributing. Furthermore, officials at
licensees with whom we spoke said that increasing the number of members
and basic membership revenue is difficult for the following reasons:
* Competition for charitable gifts has increased because more nonprofit
entities are seeking gifts.
* Viewers have many more choices since the advent of cable and
satellite television and as a result are less familiar with public
television than in the past.
* In some areas, a poor local economy limits the number of viewers that
are able to make charitable gifts. (See app. III for the demographic
characteristics of public television members.)
Several licensees are adopting alternative approaches to increase the
number of members and basic membership revenues. Traditionally,
licensees purchase a package of programs from PBS--known as the Station
Independence Program (SIP)[Footnote 40]--that the stations broadcast
during their on-air membership campaigns. However, several licensees
said they do not use the traditional SIP programming. Rather, these
officials stated that airing programming that viewers most enjoy or
local programming, rather than the SIP programming package, could
attract more viewers during on-air membership campaigns and thereby
increase the number of members and basic membership revenues.[Footnote
41] Some station officials added that discovering what programming
viewers most enjoy and airing that programming could be important to
increasing the number of members and basic membership revenues. In
addition, some officials told us that involvement in community
activities is more important to attracting members and gifts than are
on-air membership campaigns.
Major Giving Is Seen as Having Potential for Long-Term Growth:
To improve the financial sustainability of public television, in 2003,
CPB launched a major giving initiative to help stations increase gifts
of $1,000 or more. According to CPB officials, public television lags
behind most other nonprofit organizations in designing and implementing
campaigns to garner major gifts.[Footnote 42] For example, in 2005, 13
percent of revenues from members came from gifts of $1,000 or more. In
contrast, CPB noted that other nonprofit organizations receive a much
larger share of revenue from major gifts.
Since acquiring major gifts requires an approach much different from
traditional membership campaigns, CPB implemented a capacity building
program for station staff. Acquiring major gifts requires one-on-one
contact with current and potential donors, instead of the retail-
oriented effort associated with on-air membership campaigns. The major
giving initiative also requires station management and staff alter
their traditional roles. For example, the station manager must focus
not just internally on station operations, but also externally on fund-
raising. The capacity building program consists of four elements:
* team leadership meetings attended by the station's chief executive
officer, board members, and chief development officer to involve top
station management;
* curricula delivered via Web lectures once a month for 6 months, with
follow-up teleconferences among various station groups to share
experiences;
* on-site consulting to help the stations implement their specific
plans; and:
* a set of Web-based tools, including (1) information about best
practices and budgeting, (2) on-air spots for station use, and (3)
videos to show at donor gatherings.
According to CPB, 110 of 177 licensees are participating in the major
giving initiative. Among the 54 licensees with whom we spoke, most are
participating, or plan to participate, in the initiative. Several
licensees had efforts under way to attract major gifts prior to CPB's
initiative; some of these licensees have joined CPB's initiative while
others have chosen to continue with their own efforts. Licensees with
whom we spoke that have chosen not to participate in the initiative
cited several reasons for their decision, including a small number of
individuals in their area that have the financial resources to make a
major gift and a lack of staff and budgetary resources to undertake the
initiative.[Footnote 43]
According to CPB, early results from the major giving initiative appear
encouraging. In 2004, licensees received $49.3 million in major giving
revenue. However, in 2005, the first full year of the major giving
initiative, revenue from this source increased by about 3 percent to
$50.8 million. Furthermore, among the first group of licensees
participating in the major giving initiative,[Footnote 44] major giving
revenues increased from $16.2 million in 2004 to $19.2 million in 2005,
or 18 percent in 1 year. CPB also cited several examples of major
gifts: KCET (Los Angeles) and WNPT (Nashville, Tennessee) both received
$1,000,000 gifts while KWCM (Appleton, Minnesota) received a $100,000
estate-related gift. Among the 54 licensees with whom we spoke, several
also mentioned early successes. For example, an official at KNME
(Albuquerque, New Mexico) told us that the station increased major
giving revenue from $35,000 in 2004 to $1.1 million in 2005.
While the major giving initiative has generated some early successes,
CPB and licensees noted that realizing the benefits of the initiative
requires a long-term effort. Of the 54 licensees we spoke with, 16 said
that major giving is a long-term effort. CPB noted that acquiring major
gifts requires a lengthy period of courtship and confidence building.
As a result, CPB said, it will take several years for the major giving
initiative to mature and CPB will not have definitive quantitative
measures until 2009. Furthermore, CPB does not anticipate that
increases in major giving revenues will offset decreases in basic
membership revenues for several years. Thus, major giving appears to
hold promise, but at this early stage, it is difficult to project how
much funding the initiative will generate and whether it will benefit
all stations, especially those in rural and low-income areas.
Foundations Typically Provide Support for Projects and Capital, but Not
Station Operations:
Most licensees receive support from foundations; but, the amount varies
significantly between licensees. According to our analysis of SABS
data, 158 of 177 licensees received foundation revenue in 2005.
However, the largest 25 percent of licensees received an average of
$2.1 million from foundations while the remaining 75 percent of
licensees received an average of $153,520. Officials from the Ford
Foundation noted that stations in large cities can more easily attract
foundation support than stations in smaller cities and rural areas.
In general, foundations provide support for specific projects, such as
capital expenditures and programming, and not for general station
operations. Among licensees with whom we spoke, many said that
foundations provide support for specific projects. For example,
officials at Prairie Public Broadcasting (Fargo, North Dakota) noted
that the station received foundation support to implement the major
giving initiative and the DTV transition. Again, officials from the
Ford Foundation said that few foundations provide general support for
public television, but that some foundations support particular
programs or projects.
From 1999 through 2004, CPB data show that foundation revenues
increased 19 percent, from $97 million to $115 million; however, in
2005, foundation revenues remained at $115 million. Among the licensees
we contacted, many said that they do not expect a significant increase
in support from foundations. Some licensees do not receive or seek
foundation support because there are no, or a very limited number of,
foundations in their local area. Other licensees said that foundation
support is increasingly difficult to obtain because of greater
competition from other nonprofit organizations for foundation support.
These officials added that many foundations seek out projects that have
a direct and measurable impact on a population and that it is difficult
to measure the impact of public television programming.
Underwriting Revenues Are Generally Flat, and Licensees Express Mixed
Opinions about Greater Commercialization of Underwriting:
The Communications Act and FCC regulations establish parameters for
underwriting acknowledgments. Unlike commercial television stations,
public television stations are prohibited from airing advertisements.
However, public television stations are permitted to acknowledge
station support and, without interrupting regular programming, may
acknowledge underwriters on air. Such acknowledgments may not promote
the underwriters' products, services, or businesses, and may not
contain comparative or qualitative descriptions, price information,
calls to action, or inducements. Within these statutory and regulatory
parameters, individual licensees develop and implement underwriting
policies for their stations. For example, in 2004, we reported that an
equal number of licensees aired and did not air or plan to air, 30-
second underwriting acknowledgments.[Footnote 45] In addition, PBS
established guidelines that govern how underwriters of PBS-distributed
programs may be identified on air. PBS guidelines specify that the
maximum duration for all underwriter acknowledgments for PBS-
distributed programs may not exceed 60 seconds, and generally the
maximum duration for a single underwriter may not exceed 15
seconds.[Footnote 46]
Virtually all public television licensees receive underwriting support,
although the amount varies greatly among licensees. According to our
analysis of SABS data, 173 of 177 licensees received underwriting
support in 2005. Among licensees with whom we spoke, 11 said that local
businesses, such as banks, legal offices, medical facilities, and
retail businesses, provided most of their underwriting support. For
licensees receiving underwriting support, the average amount of
underwriting revenue was $1.6 million in 2005. However, licensees'
experiences differ dramatically. The largest 25 percent of licensees,
in terms of total revenues, received on average $4.6 million of
underwriting support. Conversely, the remaining 75 percent of licensees
received just $544,245 on average.
Licensees with whom we spoke experienced mixed results with
underwriting. In a 2003 report for CPB, McKinsey and Company suggested
that underwriting represented a potential source of revenue growth.
Consistent with this assessment, 11 licensees said that underwriting
revenues have increased. Among factors contributing to the increases in
underwriting revenues, licensees cited hiring new staff, implementing a
packaged strategy through which companies sponsor a single program over
an extended period of time, and adding local sports to the programming
schedule. However, eight licensees said that underwriting revenues have
decreased. These licensees cited increased competition for corporate
dollars, a lack of staff or turnover among underwriting staff, and poor
economic conditions in the local area as contributing to the decrease
in their underwriting revenues.
Among the 54 licensees with whom we spoke, some noted that corporate
consolidation and an increased advertising focus among corporations
have negatively affected underwriting. Twelve licensees said that
corporate consolidation hinders underwriting activities. For example,
some licensees mentioned that corporate offices and facilities have
moved from their service area, thereby eliminating a source of
underwriting support. Similarly, some licensees said that distant
corporate headquarters limit the discretion of local branch operations
in terms of underwriting and other charitable contributions. Twenty-two
licensees said that corporations increasingly adopt an advertising
approach to underwriting. Some licensees note that corporate marketing
departments and national advertising agencies increasingly handle
underwriting activities, rather than corporate philanthropy
departments.[Footnote 47] With the greater emphasis on advertising,
corporations and advertising agencies seek out programming with high
ratings and targeted demographics.
In response to the changing environment, some licensees favor less
restrictive underwriting regulations and policies. In particular, 11
licensees favor greater flexibility for on-air underwriting
acknowledgments, including perhaps permitting calls to action and price
quotes. The licensees favoring greater underwriting flexibility serve
large television markets or an entire state. These licensees said that
greater underwriting flexibility:
* would enable the licensee to increase underwriting revenues;[Footnote
48]
* would allow corporations to use the same advertisement on commercial
and public television, thereby enabling them to avoid the cost of
developing multiple advertisements;
* would not represent a significant change, since underwriting
acknowledgments and pledge drives have already become commercialized;
and:
* would not threaten the licensee's mission, because licensees operate
as nonprofit entities and therefore would not focus on low-quality,
high-ratings programming.
In the early 1980s, public television conducted a limited experiment
with greater underwriting flexibility. In 1981, the Congress amended
the Communications Act and established the Temporary Commission on
Alternative Financing for Public Telecommunications to conduct
demonstrations of limited advertising.[Footnote 49] The amendments
authorized 10 public television stations to experiment with paid
commercials for 18 months.[Footnote 50] Following the experiment, the
commission concluded that potential revenues from advertising were
limited in scope and that the avoidance of significant risks to public
broadcasting could not be ensured. However, one licensee with whom we
spoke that participated in the experiment said that all sources of its
revenues increased, including both membership and underwriting
revenues.[Footnote 51]
Among licensees with whom we spoke, 19 oppose greater flexibility.
These licensees said that greater underwriting flexibility:
* would not generate increased underwriting revenues, since
corporations and advertisers desire programming with high ratings and a
targeted demographic, which some licensees said public television
cannot deliver;
* would upset viewers and contribute to a decline in membership
support;
* could threaten a licensee's ability to receive financial support from
a state government; and:
* would be inconsistent with the mission of public television and could
alter programming decisions.
Ancillary Revenues Are a Minor Source of Funding for Many Licensees:
Ancillary and miscellaneous revenues represent another nonfederal
funding source. According to our analysis of SABS data, 151 of 177
licensees received ancillary and other miscellaneous revenue in 2005.
Although many licensees receive ancillary and miscellaneous revenues,
these are generally not significant sources of funding. On average,
these sources contributed $691,648 per licensee in 2005.[Footnote 52]
However, just as it does from underwriting, the amount of funding from
these sources varies significantly across licensees. Whereas the
largest 25 percent of licensees receive approximately $2.3 million on
average in annual ancillary and miscellaneous revenue, the remaining 75
percent of licensees receive $141,936 on average.
Among the 54 licensees with whom we spoke, 30 mentioned receiving
ancillary and other miscellaneous revenues. Sixteen of these licensees
said ancillary and miscellaneous revenues constituted a relatively
minor source of revenue.[Footnote 53] Licensees cited many examples of
ancillary and miscellaneous activities, including the
following.[Footnote 54]
* Tower leasing was the most frequently mentioned source of ancillary
revenue. A television station installs its antenna on a tower to
facilitate the distribution of the station's video signal. If the
station owns the tower, the station can lease space to other companies,
such as other television stations, cellular telephone companies, and
other organizations that use wireless technologies.[Footnote 55] These
leases represent a source of ancillary revenue; however, in one
instance, the licensee leases tower space to state government agencies
at below-market rates, thereby lowering the possible tower leasing
revenue.
* Licensees sell videos of various programs and events. For example,
KLVX in Las Vegas sells Spanish language and parenting skills videos.
WKYU (Bowling Green, Kentucky), licensed to Western Kentucky
University, sells videos of the university's commencement.
* Several licensees also reported receiving revenues from leasing
excess office space and providing access to the station's production
facility; for example, a company might pay a licensee to produce a
training video at the station's production facility.
* WYES in New Orleans operates YES Productions, a for-profit
subsidiary. This subsidiary produces most of the sports-oriented
programming in the New Orleans metropolitan area, including the
National Basketball Association Hornets games, as well as concerts and
other entertainment events. According to WYES staff, YES Productions is
the largest source of revenues for the licensee.
Public Television Is Unlikely to Generate Significant Additional Back-
End Revenues:
Some television programs generate back-end revenues from separate
business ventures, such as syndication, the sale of books and videos,
and the sale of clothing and toys. In commercial television, broadcast
networks and cable channels receive rights to these back-end revenues,
and the distribution of these rights depends on the relative amount of
up-front investment in the development and production of programming
that each participant contributes. In public television, CPB and PBS
also negotiate for and receive rights to back-end revenues. The extent
to which CPB and PBS share in the back-end revenues depends on the
relative amount of up-front investment and the importance of PBS as a
distribution outlet for producers of programming. While CPB and PBS
receive between $7 million and $10 million annually in back-end
revenues, a significant increase in this source of revenues appears
unlikely.
Television Programs Can Generate Back-End Revenues:
Some television programs generate back-end revenues, which arise from
separate business ventures associated with the program. Such business
ventures include syndication, sales of books and videos, and sales of
clothing and toys.[Footnote 56] For example, Sesame Street generates
back-end revenues from the sale of books, clothing, DVDs, and toys; and
Seinfeld, a situation comedy broadcast on NBC from 1990 to 1998,
generates back-end revenues from syndication and the sale of DVDs.
The Commercial Model for Rights to Back-End Revenues:
Broadcast networks and cable channels produce some, but not all, of the
programming they distribute. Traditionally, studios, such as television
divisions of movie studios, produced the vast majority of programming
for broadcast networks.[Footnote 57] Today, broadcast networks and
cable channels have several ways to procure programming, including
purchasing the programming from an external supplier, such as a studio;
entering a joint venture with an external supplier; or producing the
programming internally. Broadcast networks typically produce
programming for certain parts of the day internally, including morning
shows, news and new magazines, and sports; daytime, prime-time, and
children's programming are more likely to be externally produced. Among
the three cable channels we contacted, one relies primarily on internal
production while the other two primarily purchase programming from
external suppliers.
In commercial television, investment in the up-front development and
production of a program influences the relative distribution of back-
end revenues. We were told that the financing and rights associated
with a program are as unique as the program itself, and therefore each
financing and rights structure arrangement is unique. However, the
extent of up-front investment in the development and production of
programming greatly influences the financing and rights structure.
Because of the large costs and risks associated with developing and
producing television programming,[Footnote 58] entities providing a
significant share of the funding and assuming the financial risk seek
and generally receive a greater portion of the rights to back-end
revenues. Thus, we were told that the more funding an entity provides,
the greater will be its share of back-end revenues. Descriptions follow
of the primary approaches to funding commercial television programs and
the associated back-end rights.
* For internally produced programming, the broadcast network or cable
channel funds the development and production of the program. The
network or cable channel assumes the financial risk associated with the
program and retains the back-end rights and associated
revenues.[Footnote 59]
* For externally produced programming and coproductions, the broadcast
network or cable channel funds a lesser portion of the program
development and production. For externally produced programming, the
network or cable channel pays a license fee for the program, which may
cover one-half to two-thirds of the production costs; for
coproductions, the network or cable channel provides funding in excess
of the typical license fee. However, in either instance, the external
supplier must arrange financing to cover the remainder of the
development and production costs, referred to as the production
deficit. If the network or cable channel pays only the license fee, it
may not receive rights to back-end revenues, although it may share in
back-end revenues with coproductions.
Public Television Negotiates for and Receives Rights to Back-End
Revenues:
As we mentioned earlier, public television acquires programming from a
variety of sources. PBS does not produce programming but rather
acquires programming from two primary sources: producing public
television stations and independent producers. WETA, WGBH, and WNET are
the major producing stations. The producing stations operate as a
production company, producing programming internally and also
coproducing programming with outside suppliers. Independent producers
deliver programming directly to PBS or producing stations. For example,
Ken Burns, Scholastic, and Sesame Workshop produce programming for
public television.
Much like their counterparts in commercial television, CPB and PBS
negotiate financing and rights arrangements with producing stations and
independent producers. One academic expert with whom we spoke said that
two factors influence the rights structure: the size of the up-front
investment and the importance of PBS as a distribution outlet for an
outside supplier. For public television as for commercial television, a
larger up-front investment generally leads to a greater portion of the
back-end rights and associated revenues. The importance of PBS as a
distribution outlet is such that, several producers said that they
prefer to distribute their programming through public television. For
example, two producers of children's programming said they prefer to
distribute their programs through public television because of the high-
quality, education-based programming distributed by PBS and public
television. In these instances, CPB and PBS might receive a more
favorable back-end rights arrangement than the extent of their up-front
investment would ordinarily warrant because these producers desire PBS
distribution for their programs.
In response to criticism about its arrangement with the producer of
Barney & Friends,[Footnote 60] CPB revised its revenue-sharing policy
in 1997.[Footnote 61] The stated objectives of the revised policy
include ensuring the availability of quality programming, reflecting
consideration of producers' objectives, and capturing windfall
revenues. To fulfill these objectives, CPB created three categories of
programming, each with a somewhat different rights structure.
* Children's Programming. For 15 years, CPB receives a 50/50 share of
the net proceeds from the program, after the producer recoups any
production deficit. For example, the 50/50 share implies that if CPB
provides 25 percent of the project's cost, CPB receives 12.5 percent of
the net proceeds. The net proceeds represents the revenues less the
expenses associated with producing, marketing, and distributing the
ancillary products and uses. Between years 15 and 20, the producer may
retain CPB's share of the net proceeds as long as the producer applies
those proceeds to future children's programs. Otherwise, CPB receives
its share of the net proceeds.
* Major Events. This category includes programs with a production
budget exceeding $500,000 per hour or music, theater, and similar genre
programming. CPB receives a 50/50 share of the net proceeds from the
program for 20 years; the producer may be allowed to recoup the
production deficit before sharing the net proceeds with CPB.
* Other Programs and Series. This category includes all other
programming, which CPB reports would include the majority of its
programming. For 15 years, CPB receives a 50/50 share of the net
proceeds from the program, after a $250,000 threshold. The producer can
retain the $250,000 threshold amount as long as the producer uses the
proceeds for any public television purpose.
Like CPB, PBS negotiates for back-end rights with producing stations
and independent producers. PBS staff said that the organization does
not take a formulaic approach to rights management. Rather, the rights
structure varies from program to program.[Footnote 62] In general, PBS
holds rights to back-end revenues in perpetuity. However, several
factors influence the percentage of back-end revenues that PBS
receives. According to PBS staff, these factors include the extent of
PBS's investment in the production, the program genre and existence of
a production deficit, and obligations to third parties. The program
genre is a factor because PBS typically receives a larger percentage of
back-end revenues from children's programming than it does from prime-
time programming. PBS believes that its distribution adds considerable
value to children's programming; and therefore, it possesses greater
leverage with producers of such programming. This allows PBS to
negotiate a more favorable rights structure for children's programming,
compared with prime-time programming. With prime-time programming, PBS
frequently allows producers to recoup much of the production deficit
before PBS begins sharing the back-end revenues. With children's
programming, PBS frequently receives a share of back-end revenues
proportional to its up-front investment and typically receives these
revenues sooner than it would with prime-time programming.
Public Television Is Unlikely to Realize Significant Back-End Revenues:
CPB and PBS both receive back-end revenues. CPB reports receiving
between $100,000 and $300,000 annually from back-end sources since
2003. According to PBS staff, since 2000, PBS has received between $7
million and $10 million annually from back-end sources.[Footnote 63]
PBS's back-end revenues exceed CPB's because (1) PBS funds a greater
percentage of children's programming, which more frequently generates
back-end revenues; and (2) CPB allows PBS to retain and reinvest CPB's
share of back-end revenues earned on many programs that CPB funds
through PBS. Thus, in aggregate, CPB and PBS receive about $7 million
to $10 million annually from back-end sources.[Footnote 64]
Commercial broadcast networks and cable channels also receive back-end
revenues. According to some networks and cable channels, ancillary
revenues from product sales are not a major source of revenue. Cable
channels rely on advertising and subscriber fees for revenue and do not
depend on ancillary sales for financial sustainability. For example,
one cable channel told us that ancillary product sales represent about
1 percent of the channel's total revenues. However, syndication can
represent another source of revenue for broadcast networks.
Given its statutorily defined mission and limited financial resources,
it would likely be difficult for public television to substantially
increase back-end revenues. We identified four constraints to public
television's realizing significant back-end revenues: (1) relatively
few programs are successful, (2) net proceeds are a small percentage of
gross retail sales, (3) public television does not generally make
significant up-front investments in program development and production,
and (4) public television faces competition in the distribution of
programming.
Few Programs Are Successful. In commercial television, relatively few
programs achieve long-term success. A broadcast network might receive
500 to 800 proposals yearly for new programs, and of these, the network
might place orders for 12 to 14. Furthermore, only about one-third of
new programs return the following year. Thus, we were told that picking
a hit is risky. To earn syndication revenue, a program generally must
air for 4 years. Regarding ancillary product sales, we were told that a
couple of programs might yield most of a cable channel's revenues.
Because success is infrequent and uncertain, commercial television
production is a portfolio business, and a company must have many
programs in the pipeline at any given time to ensure that some are
successful.
Officials from CPB and PBS, as well as major producing stations WGBH
and WNET, said that their organizations do not base funding or
programming decisions on the potential to generate back-end revenues.
Rather, these organizations make funding and programming decisions that
further the mission of public television. As a result, most public
television programs do not generate significant back-end revenues. We
were told that children's programming and Ken Burns' productions have
the greatest likelihood of commercial success. However, these programs
are anomalies and are not guaranteed to generate back-end revenues. For
example, WGBH staff mentioned that Between the Lions generates little
back-end revenue, even though it has been successful in attracting
viewers. Similar to the experience of commercial networks and cable
channels, PBS staff said that in 2005, 90 percent of their
organization's back-end revenues came from just 23 series.
Net Proceeds Are a Small Percentage of Gross Retail Sales. For both
commercial and public television, we found that the net proceeds to
producers and investors in program-related business ventures are a
small fraction of the retail sales prices. For general merchandise
associated with a television program, such as toys, the producer enters
into an arrangement with one or more manufacturers. The manufacturer
produces and distributes the merchandise and pays the program producer
a royalty for the sale of merchandise associated with the television
program. These royalties are typically 5 to 15 percent of the wholesale
price, which is typically 50 percent of the retail price. Thus, for
example, on a $20 sale, the royalty will typically be $0.50 to $1.50.
The difference represents reductions for manufacturing, distribution,
and retail. Figure 7 depicts this relationship.
Figure 7: Retail Price, Wholesale Price, and Royalty Payments for
General Merchandise:
[See PDF for image] - graphic text:
Source: GAO.
[End of figure] - graphic text:
Similar discounts apply to other business ventures associated with
television programs. According to CPB staff, a video distributor
generally pays the producer 15 percent of the wholesale price for video
products associated with a television program. For books, the producer
typically receives between 5 and 10 percent of the retail price.
Finally, when a producer syndicates a television program, the producer
usually receives 50 to 65 percent of the sales price, and the
syndication agent retains the remainder.
In some instances, the producer does not own the underlying
intellectual property associated with the program. For example, Norman
Bridwell created Clifford the Big Red Dog and Marc Brown created
Arthur. In these instances, the authors and owners of the intellectual
property must be paid from the royalty proceeds.
Public Television Does Not Generally Make Significant Up-front
Investments. In general, CPB and PBS contribute less than 50 percent of
the production budget associated with programming. PBS staff said that
the organization generally provides seed money to producers, who must
leverage these funds with funds from other organizations. From 2000
through 2005, PBS contributed between 22 and 27 percent of the total
production budgets for nationally distributed programs. Producing
stations and independent producers confirmed that CPB and PBS
contribute relatively modest amounts to programming. PBS provided about
25 percent of WNET's total production budget over a 3-year period, and
PBS's net contribution to Sesame Workshop is less than 10 percent of
the total production costs for Sesame Street.[Footnote 65] Thus, CPB
and PBS appear to contribute less to the total production budget for
programming than is typical in commercial television, where the license
fee may cover one-half to two-thirds of the production costs.
Since CPB and PBS contribute modestly to up-front program development
and production, the organizations must share the resulting back-end
revenues with other participants. As discussed above, rights to back-
end revenues are positively correlated with the share of up-front
investment. Given their relative contributions to program development
and production, it is not surprising that CPB and PBS share in the
rights to back-end revenues. Because CPB and PBS provide a modest
portion of the up-front program development and production budget,
producers must secure the remaining funds from other sources, perhaps
requiring the producers to establish relationships with many
organizations. For example, WNET said that it cannot fund its
productions with just one or two major participants.[Footnote 66]
Producers may also sell some of the rights to back-end revenues in
return for up-front funding or in-kind support. Finally, some producers
are unable to obtain external funding for an entire program and thus
incur production deficits. In these instances, the back-end revenues
allow the producer to recoup the production deficit. According to PBS
and one producer, most programs are deficit financed.
Increasing the proportion of up-front investment in programming appears
to be beyond the financial capacity of CPB and PBS and could expose the
organizations to significant risks. First, PBS supplies programming for
over 170 public television licensees. To accomplish this, CPB and PBS
provide some funding to producing stations and independent producers,
and rely on these organizations to secure the remainder of the
necessary funding. We were told that CPB and PBS do not have sufficient
resources to both contribute significant amounts to individual programs
and ensure adequate programming for the remainder of the broadcast
year. Second, investing in program development and production involves
risks. As noted above, relatively few programs are successful, and it
is difficult to predict which programs will be successful. Thus, as one
broadcast network told us, television production is a portfolio
business in which a few winners offset losers. Without a significant
pool of resources to develop a portfolio of programming, CPB and PBS
could be exposed to significant financial risk if the organizations
made relatively large investments in a small number of programs. In
particular, if the organizations made relatively large investments in
programs and those programs did not generate sufficient back-end
revenues, the organizations might be unable to adequately supply
programming for the remainder of the broadcast year.
Public Television Faces Competition in the Distribution of Programming.
Even with their modest up-front investments, CPB and PBS could seek
greater rights to back-end revenues; however, it is unclear whether the
organizations could receive greater rights because of the presence of
other distribution outlets. We were told that if CPB and PBS became too
aggressive in seeking rights to back-end revenues, producers could
distribute their programming through alternative outlets, such as cable
channels. For example, Nickelodeon represents an alternative
distribution outlet for children's programming. In fact, Sesame
Workshop already distributes two programs--the Upside Down Show and
Pinky Dinky Doo--through cable channels. Other producers confirmed that
they distribute programming through other outlets besides PBS as well.
Agency Comments:
We provided a draft of this report to CPB; the departments of
Agriculture, Commerce, Education, and Homeland Security; FCC; and PBS.
CPB and PBS agreed with the report, and their written comments appear
in appendixes V and VI, respectively. The Department of Agriculture
neither agreed nor disagreed with the report, but it emphasized the
extensive burden that the DTV transition imposes on small and rural
television stations. The Department of Education, the Department of
Homeland Security, and FCC provided technical comments that we
incorporated as appropriate. The Department of Commerce had no comments
on the report.
As we agreed with your office, unless you publicly announce the
contents of this report earlier, we plan no further distribution until
30 days from the date of this letter. At that time, we will send copies
of this report to the appropriate congressional committees and to the
Secretary of Agriculture, the Secretary of Commerce, the President and
Chief Executive Officer of the Corporation for Public Broadcasting, the
Secretary of Education, the Chairman of the Federal Communications
Commission, and the President and Chief Executive Officer of the Public
Broadcasting Service. We will also make copies available to others upon
request. In addition, the report will be available at no charge on the
GAO Web site at [Hyperlink, http://www.gao.gov].
If you have any questions about this report, please contact me at (202)
512-2834 or goldsteinm@gao.gov. Contact points for our Offices of
Congressional Relations and Public Affairs may be found on the last
page of this report. Contact information and major contributors to this
report are listed in appendix VII.
Signed by:
Mark L. Goldstein:
Director, Physical Infrastructure Issues:
[End of section]
Appendix I: Scope and Methodology:
This report examines the funding and operation of public television
throughout the United States. In particular, the report provides
information on (1) the organizational structure of public television,
(2) the programming and other services that public television provides,
(3) the current funding sources for public television, (4) the extent
to which public television stations are increasing their nonfederal
funding support and developing new sources of nonfederal support, and
(5) the extent to which public television benefits financially from
business ventures associated with programming and how this compares
with commercial broadcasters.
To respond to the overall objectives of this report, we interviewed
officials from the Corporation for Public Broadcasting (CPB), the
Federal Communications Commission (FCC), the National
Telecommunications and Information Administration of the Department of
Commerce, and the Public Broadcasting Service.
For the first objective, we reviewed existing literature on the
foundation and current structure of public broadcasting and reviewed
relevant provisions of the Communications Act of 1934, as amended, and
FCC regulations.
For the second, third, and fourth objectives, we interviewed officials
from 54 of the 173 public television licensees (see table 4). To ensure
a diversity of views, we selected licensees according to their type of
license, total revenues and percentage of total revenues derived from
federal funding, and by the size of the television market where the
licensee operates. We also interviewed officials from the Association
of Public Television Stations, a membership organization representing
public television stations; the Department of Education; the Federal
Emergency Management Agency of the Department of Homeland Security; the
Ford Foundation; the National Science Foundation; the Rural Utilities
Service (RUS) of the Department of Agriculture; and the Urban
Institute.
Using data from CPB's Stations Activities Benchmarking Study (SABS), we
analyzed 177 licensees' revenue sources, membership, and programming.
(In 2005, the year for which we have SABS data, there were 177 public
television licensees; currently, there are 173 licensees.) SABS is a
data-gathering mechanism through which licensees provide information
annually on their finances and operations; licensees must complete the
study to receive their yearly Community Service Grant, which is the
mechanism through which CPB distributes federal funding to licensees.
To assess the reliability of SABS data, we reviewed relevant
information about the database, including the user manual and a data
dictionary, and we interviewed CPB officials and subcontractors for
information on data quality assurance procedures. We also performed
electronic testing to detect obvious errors in completeness and
reasonableness. We concluded that the SABS data were sufficiently
reliable for the purposes of this report.
For the fifth objective, we interviewed officials from organizations
producing programming for public television, including David Grubin
Productions, Ken Burns (Florentine Firms), HIT Entertainment, Insignia
Films, Lumiere Productions, Scholastic, Sesame Workshop, WETA, WGBH,
and WNET; the Independent Television Service; commercial broadcast
networks and cable channels, including A&E Television Networks, Fox,
National Geographic Channel, Nickelodeon, and NBC; and several experts.
We also reviewed the relevant media economics literature and materials
provided by CBS.
We conducted our review from January through November 2006 in
accordance with generally accepted government auditing standards.
Table 4: Public Television Licensees Interviewed:
Licensee or station: KYUK;
Location: Bethel, AK;
Type: Community;
Total revenues (thousands): $1,116;
CPB funds as a percentage of total revenue: 58.
Licensee or station: WCTE;
Location: Cookeville, TN;
Type: Community;
Total revenues (thousands): 1,554;
CPB funds as a percentage of total revenue: 41.
Licensee or station: KNCT;
Location: Killeen, TX;
Type: University;
Total revenues (thousands): 1,859;
CPB funds as a percentage of total revenue: 50.
Licensee or station: KOOD;
Location: Bunker Hill, KS;
Type: Community;
Total revenues (thousands): 1,944;
CPB funds as a percentage of total revenue: 35.
Licensee or station: WNMU;
Location: Marquette, MI;
Type: University;
Total revenues (thousands): 2,047;
CPB funds as a percentage of total revenue: 34.
Licensee or station: KWBU;
Location: Waco, TX;
Type: Community;
Total revenues (thousands): 2,490;
CPB funds as a percentage of total revenue: 28.
Licensee or station: WKYU;
Location: Bowling Green, KY;
Type: University;
Total revenues (thousands): 3,096;
CPB funds as a percentage of total revenue: 33.
Licensee or station: WDSE;
Location: Duluth, MN;
Type: Community;
Total revenues (thousands): 3,189;
CPB funds as a percentage of total revenue: 22.
Licensee or station: KUSM;
Location: Bozeman, MT;
Type: University;
Total revenues (thousands): 3,228;
CPB funds as a percentage of total revenue: 22.
Licensee or station: WVPT;
Location: Harrisonburg, VA;
Type: Community;
Total revenues (thousands): 3,490;
CPB funds as a percentage of total revenue: 19.
Licensee or station: WPBA;
Location: Atlanta, GA;
Type: Local;
Total revenues (thousands): 3,632;
CPB funds as a percentage of total revenue: 20.
Licensee or station: WYCC;
Location: Chicago, IL;
Type: University;
Total revenues (thousands): 3,681;
CPB funds as a percentage of total revenue: 19.
Licensee or station: KCWC;
Location: Riverton, WY;
Type: University;
Total revenues (thousands): 3,695;
CPB funds as a percentage of total revenue: 15.
Licensee or station: WETP;
Location: Knoxville, TN;
Type: Community;
Total revenues (thousands): 3,835;
CPB funds as a percentage of total revenue: 18.
Licensee or station: WBRA;
Location: Roanoke, VA;
Type: Community;
Total revenues (thousands): 4,149;
CPB funds as a percentage of total revenue: 18.
Licensee or station: NOVA;
Location: Falls Church, VA;
Type: Community;
Total revenues (thousands): 4,200;
CPB funds as a percentage of total revenue: 6.
Licensee or station: WUFT;
Location: Gainesville, FL;
Type: University;
Total revenues (thousands): 4,555;
CPB funds as a percentage of total revenue: 17.
Licensee or station: WYES;
Location: Metairie, LA;
Type: Community;
Total revenues (thousands): 4,869;
CPB funds as a percentage of total revenue: 10.
Licensee or station: WNPT;
Location: Nashville, TN;
Type: Community;
Total revenues (thousands): 5,174;
CPB funds as a percentage of total revenue: 18.
Licensee or station: WHUT;
Location: Washington, D.C;
Type: University;
Total revenues (thousands): 5,698;
CPB funds as a percentage of total revenue: 17.
Licensee or station: KAMU;
Location: College Station, TX;
Type: University;
Total revenues (thousands): 6,065;
CPB funds as a percentage of total revenue: 18.
Licensee or station: KLCS;
Location: Los Angeles, CA;
Type: Local;
Total revenues (thousands): 6,189;
CPB funds as a percentage of total revenue: 11.
Licensee or station: KAID;
Location: Boise, ID;
Type: State;
Total revenues (thousands): 6,390;
CPB funds as a percentage of total revenue: 18.
Licensee or station: SDPB;
Location: Vermillion, SD;
Type: State;
Total revenues (thousands): 6,421;
CPB funds as a percentage of total revenue: 18.
Licensee or station: WVPB;
Location: Charleston, WV;
Type: State;
Total revenues (thousands): 6,615;
CPB funds as a percentage of total revenue: 15.
Licensee or station: HPTV;
Location: Honolulu, HI;
Type: Community;
Total revenues (thousands): 6,679;
CPB funds as a percentage of total revenue: 14.
Licensee or station: WKAR;
Location: East Lansing, MI;
Type: University;
Total revenues (thousands): 6,700;
CPB funds as a percentage of total revenue: 21.
Licensee or station: PPB;
Location: Fargo, ND;
Type: Community;
Total revenues (thousands): 7,344;
CPB funds as a percentage of total revenue: 12.
Licensee or station: MAINE;
Location: Lewiston, ME;
Type: Community;
Total revenues (thousands): 7,417;
CPB funds as a percentage of total revenue: 14.
Licensee or station: KNME;
Location: Albuquerque, NM;
Type: University;
Total revenues (thousands): 7,633;
CPB funds as a percentage of total revenue: 10.
Licensee or station: KLVX;
Location: Las Vegas, NV;
Type: Local;
Total revenues (thousands): 8,699;
CPB funds as a percentage of total revenue: 13.
Licensee or station: WFSU;
Location: Tallahassee, FL;
Type: University;
Total revenues (thousands): 9,009;
CPB funds as a percentage of total revenue: 12.
Licensee or station: WPTV;
Location: Madison, WI;
Type: State;
Total revenues (thousands): 9,818;
CPB funds as a percentage of total revenue: 12.
Licensee or station: KOCE;
Location: Huntington Beach, CA;
Type: Community;
Total revenues (thousands): 10,285;
CPB funds as a percentage of total revenue: 15.
Licensee or station: NETV;
Location: Lincoln, NE;
Type: State;
Total revenues (thousands): 10,912;
CPB funds as a percentage of total revenue: 15.
Licensee or station: WNYE;
Location: New York, NY;
Type: Local;
Total revenues (thousands): 11,355;
CPB funds as a percentage of total revenue: 0.
Licensee or station: KUED;
Location: Salt Lake City, UT;
Type: University;
Total revenues (thousands): 11,364;
CPB funds as a percentage of total revenue: 13.
Licensee or station: METV;
Location: Jackson, MS;
Type: State;
Total revenues (thousands): 11,642;
CPB funds as a percentage of total revenue: 12.
Licensee or station: WLIW;
Location: Plainview, NY;
Type: Community;
Total revenues (thousands): 12,338;
CPB funds as a percentage of total revenue: 7.
Licensee or station: KERA;
Location: Dallas, TX;
Type: Community;
Total revenues (thousands): 13,443;
CPB funds as a percentage of total revenue: 10.
Licensee or station: WHYY;
Location: Philadelphia, PA;
Type: Community;
Total revenues (thousands): 18,308;
CPB funds as a percentage of total revenue: 10.
Licensee or station: KPBS;
Location: San Diego, CA;
Type: University;
Total revenues (thousands): 20,481;
CPB funds as a percentage of total revenue: 10.
Licensee or station: IAPT;
Location: Johnston, IA;
Type: State;
Total revenues (thousands): 21,603;
CPB funds as a percentage of total revenue: 13.
Licensee or station: CPTV;
Location: Hartford, CT;
Type: Community;
Total revenues (thousands): 22,589;
CPB funds as a percentage of total revenue: 8.
Licensee or station: KTCA;
Location: St. Paul, MN;
Type: Community;
Total revenues (thousands): 26,554;
CPB funds as a percentage of total revenue: 8.
Licensee or station: KET;
Location: Lexington, KY;
Type: State;
Total revenues (thousands): 26,881;
CPB funds as a percentage of total revenue: 11.
Licensee or station: MPT;
Location: Owings Mills, MD;
Type: State;
Total revenues (thousands): 28,746;
CPB funds as a percentage of total revenue: 9.
Licensee or station: KQED;
Location: San Francisco, CA;
Type: Community;
Total revenues (thousands): 30,420;
CPB funds as a percentage of total revenue: 9.
Licensee or station: NJN;
Location: Trenton, NJ;
Type: State;
Total revenues (thousands): 32,751;
CPB funds as a percentage of total revenue: 8.
Licensee or station: WTTW;
Location: Chicago, IL;
Type: Community;
Total revenues (thousands): 33,137;
CPB funds as a percentage of total revenue: 8.
Licensee or station: WETA;
Location: Arlington, VA;
Type: Community;
Total revenues (thousands): 59,012;
CPB funds as a percentage of total revenue: 6.
Licensee or station: KCET;
Location: Los Angles, CA;
Type: Community;
Total revenues (thousands): 64,487;
CPB funds as a percentage of total revenue: 7.
Licensee or station: WGBH;
Location: Boston, MA;
Type: Community;
Total revenues (thousands): 161,750;
CPB funds as a percentage of total revenue: 5.
Licensee or station: WNET;
Location: New York, NY;
Type: Community;
Total revenues (thousands): $173,728;
CPB funds as a percentage of total revenue: 8.
Source: GAO analysis of SABS data.
[End of table]
[End of section]
Appendix II: CPB Funding Allocation:
On the basis of statutory provisions and the receipt of an annual
federal appropriation from the Congress, CPB makes an annual Community
Service Grant award to each eligible licensee of one or more
noncommercial, educational public television station(s). Table 5
summarizes the criteria for awarding funds through each of the three
component grants of a Community Service Grant. In addition to the
Community Service Grant, CPB provides Criteria Based Grants, including
the Local Service Grant and the Distance Service Grant; the latter
grant provides additional funds for licensees operating multiple
transmitters, which extend television service to outlying areas.
Table 5: Components of CPB's Community Service Grants:
Basic grant;
Eligibility criteria:
* The entity must operate a full- power noncommercial educational
television station licensed by FCC;
* The public television station must be "on the air.";
Grant amount determination:
* $10,000 is awarded to each licensee;
Exceptions: Not applicable.
Base grant;
Eligibility criteria: Same criteria as for the basic grant plus:[A];
* The licensee must receive a minimum level of nonfederal financial
support during a designated previous fiscal year;
* The licensee must maintain transmission and production capabilities
that meet FCC requirements for a noncommercial educational television
station;
* The licensed station must have broadcast 365 days during a designated
previous fiscal year and for a specified minimum number of programming
hours;
* The station's daily broadcast schedule must be devoted to programming
that is responsive to the "demonstrated needs of the community" and is
noncommercial and educational, informative, or cultural in nature;
Grant amount determination:
* Based on the amount of the total appropriation received by CPB from
the Congress;
* Based on the act's allocation of 75 percent of public television
funds intended for distribution among licensees of stations;
* Based on a predetermined amount for each grant set through CPB's
periodic review of the Community Service Grant program;
Exceptions: The Base Grant will be modified if:
* More than one licensee has a station operating in the same market
(known as an "overlap" market);
* A licensee raised nonfederal financial support in excess of a maximum-
specified level.
Incentive grant;
Eligibility criteria: Same criteria as for the base grant;
Grant amount determination:
* The total of all nonfederal financial support raised by public
television station licensees is determined;
* The percentage share of total nonfederal financial support is
determined for each licensee;
* Of the funds not already distributed through the basic and base
grants, each licensee receives a percentage of remaining funds that
match the licensee's share of total nonfederal financial support
raised;
Exceptions: The Incentive Grant will be increased if a licensee that
operates a station in an overlap market differentiates its programming.
Source: CPB.
[A] Nine other eligibility criteria for the base grant are specified by
CPB, including licensees' compliance with regulations on equal
opportunity employment, Internal Revenue Service requirements,
provisions of the Communications Act, and regulations on the use and
control of donor names and lists.
[End of table]
[End of section]
Appendix III: Demographics of Public Television Viewers and Members:
This appendix discusses our analysis of the demographic characteristics
of public television viewers and members. Specifically, we discuss (1)
our data sources and methodology, (2) the demographic characteristics
of viewers of public television's prime-time programming, (3) the
demographic characteristics of viewers of public television's
children's programming, and (4) the demographic characteristics of
public television members.
Data Sources and Methodology:
We required several data elements to assess the demographic
characteristics of public television viewers and members. The following
is a list of our primary data sources.
* We obtained data on a sample of households in the United States from
Knowledge Networks/SRI, using Knowledge Networks/SRI's product The Home
Technology MonitorTM: Spring 2005 Ownership and Trend Report. From
February through April 2005, Knowledge Networks/SRI interviewed a
random sample of 1,501 households in the United States. Knowledge
Networks/SRI asked participating households a variety of questions
about their television viewing, including how many nights per week that
the household watched various television networks (such as ABC, CBS)
and public television. The questions also addressed the household's
demographic characteristics.
* We used information from the U.S. Census Bureau to obtain demographic
information for the U.S. population.
The Knowledge Networks/SRI's product The Home Technology MonitorTM is a
survey of a probability sample of telephone-owning households in the
continental United States. To assess the reliability of Knowledge
Networks/SRI's data, we reviewed data documentation on survey
methodology and sampling, e-mails with company officials regarding data
procedures and weighting, and additional information from a previous
reliability assessment. We also performed basic electronic testing to
detect obvious errors in completeness and reasonableness. We concluded
that these data were sufficiently reliable for the purposes of this
report.
To assess the demographic characteristics of public television viewers
and members, we conducted t-tests with a Bonferroni adjustment. These
tests allowed us, for households responding to Knowledge Networks/SRI's
survey, to compare the demographic characteristics of households that
viewed certain public television programming with households that did
not view the corresponding programming, and to compare the demographic
characteristics of households that are members and former members of
public television with households that have never been members of
public television.[Footnote 67]
Viewers of Public Television's Prime-Time Programming:
We found that households viewing public television's prime-time
programming are more likely to be older, to be African American, and to
have children under the age of 18, and are less likely to be Hispanic
than are households not viewing this programming. A greater proportion
of prime-time viewers are age 50 or older, compared with nonviewers in
this age category. However, a greater proportion of prime-time viewers
also report having children under the age of 18; 37.0 percent of
viewers report having children under the age of 18 compared with 33.5
percent for nonviewers. While 5.3 percent of nonviewers are African
American, 9.4 percent of viewers are African American, indicating that
African Americans are more likely to watch prime-time public television
programming. By contrast, Hispanic households make up 8.8 percent of
viewers, compared with 12.3 percent of nonviewers. Prime-time viewers
are more likely to have some college education than nonviewers; 73.6
percent of viewers have some college education, compared with 68.7
percent of nonviewers. Finally, we did not find a significant
difference in the income level of viewers of public television's prime-
time programming and of nonviewers.
Viewers of Public Television Children's Programming:
Households that watch public television's children's programming are
more likely to have low-incomes, to be African American and Hispanic,
and to have children under the age of 18 than households that do not
watch this programming. Of households that watch public television's
children's programming, 9.5 percent report household income of less
than $10,000, compared with 6.1 percent for nonviewers, thereby
indicating that the low-income households are more likely to view
public television's children's programming. Households viewing public
television's children's programming are also more likely than
nonviewing households to rely on over-the-air television, rather than
cable or satellite television. Both African American and Hispanic
households are more likely to watch children's programming; 13.7
percent of households viewing public television's children's
programming are African American, compared with 6.2 percent of
nonviewers, and 17.4 percent of viewing households are Hispanic,
compared with 8.2 percent of nonviewers. Finally, and as expected,
households watching public television's children's programming are more
likely to have children under the age of 18, compared with households
not watching this programming.
Public Television Members:
Unlike viewers, current and former public television members are more
likely to be older, white, and report higher levels of income. Compared
with households that have never been members of public television, a
larger percentage of current and former member households are age 50
and older. Furthermore, 80.7 percent of public television members are
white, compared with 74.7 percent of nonmembers, indicating that the
white households are more likely to be current or former members of
public television. Current and former public television members also
report higher income levels than nonmembers; 25.6 percent of current
and former members report household incomes of $100,000 or more,
compared with 11.2 percent for nonmembers, and 43.1 percent of current
and former members report household incomes below $50,000, compared
with 56.0 percent of nonmembers. Finally, current and former public
television members are more likely to have college degrees, compared
with nonmembers.
[End of section]
Appendix IV: Sesame Workshop:
Sesame Workshop (the Workshop), the producer of Sesame Street and
several other children's programs, is an independent 501(c)(3)
nonprofit organization; the Workshop is not affiliated with public
television or any government agency. To help ensure its financial self-
sufficiency, the Workshop licenses the distribution of products, such
as books and videos, associated with its television programs. The
revenues derived from these product licensing activities offset some of
the production and educational research expenditures associated with
the Workshop's programs. Today, public television pays less than 10
percent of the project costs associated with Sesame Street.
Background:
The Workshop was founded in 1968 as the Children's Television Workshop.
The Carnegie Corporation, CPB, and the Ford Foundation provided the
initial start-up funding for the Workshop. At the time, the Workshop
was affiliated with National Educational Television (NET) for
organizational support. Sesame Street premiered on November 10, 1969.
Following the first season, the Workshop severed its ties with NET and
organized as a separate entity. Today, the Workshop is an independent
501(c)(3) nonprofit organization and is not affiliated with public
television or any government agency. In addition to Sesame Street, the
Workshop produces several programs for distribution though public
television and domestic cable channels, including Dragon Tales, Pinky
Dinky Doo, and the Upside Down Show. The Workshop also produces
programs for international distribution.
Product Licensing:
The Workshop has pursued a course for financial self-sufficiency to
fulfill its mission. To this end, the Workshop has partnered with
companies, such as Fisher-Price and Random House, for the distribution
of products associated with the Workshop's television programs. These
products include books and magazines, clothing, toys, and videos. For
the year ending June 30, 2005, the Workshop received approximately $54
million from its product licensing activities.[Footnote 68] In
addition, the Workshop received approximately $21.2 million in direct
public support, $11.0 million from government grants,[Footnote 69] and
$20.3 million from program services including government fees and
contracts. In total, the Workshop reported revenues of $107.0 million.
Figure 8 illustrates the percentage of revenues derived from the
various sources for the Workshop.
Figure 8: Sources of Revenue for Sesame Workshop, Year Ending June 30,
2005:
[See PDF for image] - graphic text:
Source: GAO analysis of Sesame Workshop's Return of Organization Exempt
From Tax Income Tax (I.R.S Form 990).
Note: "Program services" includes revenue derived from government
contracts and fees.
[End of figure] - graphic text:
As a nonprofit organization, the Workshop uses its revenues to fund
educational research and development of programs and content consistent
with its mission.[Footnote 70] For the year ending June 30, 2005, the
Workshop reported expenses of $107.4 million. Nearly three-quarters of
the Workshop's expenses consisted of program production, product
licensing, and educational research and marketing. Program production
expenses were approximately $47 million, educational research expenses
approximately $6 million,[Footnote 71] and product licensing
approximately $15 million. The product licensing expenses include
licensing; quality control of general merchandise; and administration,
development, and distribution of programs for international television.
Figure 9 breaks down the Workshop's expenses.
Figure 9: Sesame Workshop Expenses, Year Ending June 30, 2005:
[See PDF for image] - graphic text:
Source: GAO analysis of Sesame Workshop's Return of Organization Exempt
From Tax Income Tax (I.R.S Form 990).
[End of figure] - graphic text:
Relationship with Public Television:
Since the Workshop and the Public Broadcasting Service (PBS) are
separate organizations, PBS negotiates with the Workshop for the
broadcast rights to Sesame Street and other Workshop programs.
According to the Workshop's Return of Organization Exempt From Income
Tax (I.R.S. Form 990), the Workshop incurred direct production expenses
of about $13.3 million for Sesame Street. Additionally, the Workshop
incurs expenses associated with educational research for the
development of program content and with its acquisition of the Sesame
Street Muppets characters.[Footnote 72] According to Workshop
officials, PBS pays the Workshop a license fee for Workshop
programming. In return, PBS receives (1) exclusive rights to the
distribution of the programming for 2 years and (2) a back-end
participation in revenues arising from the sale of general merchandise
and underwriting. Considering both the license fee and offsetting back-
end revenues, Workshop officials noted that PBS's net contribution to
the production of Sesame Street for public television is less than 10
percent of the project's expenses. Officials from CPB also mentioned
that the Workshop bears all the financial risk associated with its
production. Thus, the ability of the Workshop to generate revenues from
product licensing helps offset the project expenses associated the
programming and outreach provided by the Workshop for public
television.
[End of section]
Appendix V: Comments from the Corporation for Public Broadcasting:
Corporation for Public Broadcasting:
Patricia de Stacy Harrison:
President and Chief Executive Officer:
December 18, 2006:
Mr. Mark L. Goldstein:
Director, Physical Infrastructure Issues:
United States Government Accountability Office:
441 G Street, NW:
Washington, DC 20548:
Dear Mr. Goldstein:
The Corporation for Public Broadcasting appreciates the thoughtful
analysis by the Government Accountability Office in its draft report,
"Issues Related to the Structure and Funding of Public Television." We
would like to take this opportunity to underscore several of the key
points you have made.
As you note, public television stations are the last locally owned and
locally operated media outlets in many communities. Their local
programming reflects local interests and needs, such as health
information, coverage of local news events, and arts and cultural
programming. Public television services go beyond broadcast, and
include educational services at all levels, civic engagement and
community building, and emergency services.
CPB distributes its funds to public broadcasting stations under a
statutorily mandated formula. As prescribed in CPB's authorizing
legislation, the formula includes criteria that are established in
consultation with the public broadcasting community and designed to
maintain and stimulate non-federal support for the stations. Although
federal funding accounts for only about 15 percent of public television
revenues, it is critical to the financial health of most stations,
particularly small and rural stations where it represents a greater
proportion of revenues. Stations have broad discretion over the use of
federal funds and incur minimal costs to secure them. Beyond that, the
fact that funds are approved two years in advance allows stations to
leverage additional state, foundation, and other funding. This advance
appropriation is especially important to producing stations, as the
process of raising funding for productions can be a long one.
Finally, there are simply no other sources of funding that could
replace federal support. Thanks to a CPB-funded project, stations are
already taking steps to reap more support from major gifts, one area
where public television lags other non-profits. Most other sources of
income are likely to remain flat. In particular, as you note, back-end
revenues from syndication or from sales of books, toys, and other
merchandise, are unlikely to increase; program successes that generate
large amounts of income are rare; and CPB and PBS cannot make large
enough investments in individual programs to receive a significant
share of any revenues.
Again, we greatly appreciate the time you have taken to understand
public television's financing and the valuable report you have
produced.
Sincerely,
Signed by:
Patricia de Stacy Harrison:
President & Chief Executive Officer:
Corporation for Public Broadcasting:
[End of section]
Appendix VI: Comments from the Public Broadcasting Service:
December 18, 2006:
Mr. John Finedore:
Assistant Director:
Physical Infrastructure Team:
U.S. Government Accountability Office:
441 G Street NW:
Washington, DC 20548:
Dear Mr. Finedore:
Thank you for sharing the draft report entitled, "Issues Related to the
Structure and Funding of Public Television," prepared by the General
Accounting Office ("GAO"). We are pleased to provide you with our
feedback.
As the GAO's research demonstrates, federal funding is critical to
public television in the United States. Every year, PBS and its member
stations take the funding they receive from the government and leverage
it several times over, allowing us to deliver programming like "Sesame
Street," "The NewsHour with Jim Lehrer," "Nova" and other television
programs and services to the public.
The GAO report effectively clarifies that funding for public television
in the United States is dependent upon a mix of public and private
support. From our perspective, the continued viability of our system
requires maintenance of this delicate balance of public and private
funds. PBS is able to make programming commitments to producers often
as a result of having federal funds as seed money. This PBS commitment
enables station and independent producers to leverage that funding to
secure revenue from private, non-governmental sources.
We strive to be good stewards of the federal investment we receive.
Although we often are a minority funder in the programs we distribute,
and therefore are often unable to control all ancillary uses of
programs, we have increased the annual return on investment in
ancillary exploitation of programming from $339,000 in 1994 to $8.3
million in 2005. Programming decisions are not made on the basis of
revenue-generation potential because that would compromise our mission.
However, we also understand that we have a responsibility to the
American people to increase our self-sufficiency, whenever possible.
I commend the GAO for its professionalism and thoroughness in preparing
this report. PBS deeply appreciates the federal government's financial
support, and I am confident your final report will reflect this. Until
then, if I or any member of the PBS team can be of assistance to you,
please let me know. Thank you.
Sincerely,
Signed by:
Wayne Godwin:
Chief Operating Officer:
Enclosure:
[End of section]
Appendix VII: GAO Contact and Staff Acknowledgments:
GAO Contact:
Mark L. Goldstein, (202) 512-2834 or g [Hyperlink, goldsteinm@gao.gov.]
oldsteinm@gao.gov.
Staff Acknowledgments:
Individuals making key contributions to this report include John
Finedore, Assistant Director; Allison Bawden; Michael Clements; H.
Brandon Haller; Laura Holliday; Michael Mgebroff; Lisa Mirel; Anna
Maria Ortiz; and Mindi Weisenbloom.
(543159):
FOOTNOTES
[1] The radiofrequency spectrum is a natural resource used to provide
an array of wireless communications services, such as mobile voice,
radio and television broadcasting, radar, and satellite-based services.
[2] We used total commercial television advertising revenues to measure
the size of a television market.
[3] Throughout the text, when we refer to a specific licensee or
station, we use the name or abbreviation of the licensee or the station
call sign, whichever is most appropriate for the organization.
[4] In addition to the 242 noncommercial assignments, FCC's order
allocated 2,053 commercial stations. Since then, the number of reserved
channels has been increased incrementally. Sixth Report and Order, 41
FCC 148 (1952).
[5] Licensees can operate more than one station, such as licensees
chartered by a state to operate a statewide network. An example of a
state network is the Kentucky Authority for Educational Television
(KET), which has 16 stations on the air throughout the state.
[6] Advertisements are any message or other programming material that
is broadcast or otherwise transmitted "in exchange for any
remuneration" and is intended to "promote any service, facility, or
product" of for-profit entities. 47 U.S.C. §399b(a). See, also 47
C.F.R. §73.621(e).
[7] Pub. L. No. 87-447, 76 Stat. 64 (1962).
[8] This program was originally administered by the Department of
Health, Education, and Welfare to provide grants. It was later moved to
NTIA in the Department of Commerce, which administers the program
today.
[9] Public Broadcasting Act of 1967, Pub. L. 90-129, 81 Stat. 365
(1967).
[10] 47 U.S.C. §396(a)(10).
[11] 47 U.S.C. §396(a)(1-10).
[12] In passing the Public Broadcasting Act, the 90th Congress saw
annual appropriations for CPB as a temporary measure for providing
funding support for public broadcasting pending the development and
adoption of a long-term financing plan. Various long-term financing
proposals have been suggested over the years, without a consensus being
reached. In the absence of a long-term financing plan, CPB has
continued to receive nearly all its budget in the form of annual
federal appropriations. Since 1976, the Congress has provided a 2-year
advanced appropriation for CPB.
[13] 47 U.S.C. §396(k).
[14] Statutory provisions requiring CPB to distribute funds directly to
licensees were first enacted in 1975. See, Public Broadcasting
Financing Act of 1975, Pub. L. No. 94-192, 89 Stat. 1099. 47 U.S.C.
§§396(k)(5), (6) and (7).
[15] For a more detailed explanation of the allocation and distribution
process, see GAO, Telecommunications: Issues Related to Federal Funding
for Public Television by the Corporation for Public Broadcasting, GAO-
04-284 (Washington, D.C.: Apr. 30, 2004).
[16] 47 U.S.C. §396(g)(3).
[17] 47 U.S.C. §396(k)(3)(B)(i).
[18] 47 U.S.C. §396(a).
[19] Other sources of programming include Annenberg Media; other public
television stations; and international sources, such as the BBC.
[20] In 2005, stations paid approximately $86 per hour for PBS
programming versus an average of $1,785 per hour for local programming
that they broadcast.
[21] "PBS Kids" programs constitute most of the children's programming
broadcast by public television stations.
[22] KET developed much of its programming for Kentucky, but other
public television stations throughout the United States also broadcast
its programming.
[23] 47 U.S.C. §396(a)(8).
[24] Participation of commercial mobile service providers, such as
cellular telephone companies, is dependent on agreements between those
companies and FCC and the Department of Homeland Security.
[25] For purposes of classifying the size of licensees, we consider
total licensee operating revenues.
[26] 47 U.S.C. §396(k)(6)(B).
[27] These licensees were KYUK (Bethel, Alaska), KEET (Eureka,
California), KSMQ (Austin, Minnesota), KRSC (Claremore, Oklahoma), WCTE
(Cookeville, Tennessee), KCOS (El Paso, Texas), KMBH (Harlingen,
Texas), KNCT (Killeen, Texas), and KOCV (Odessa, Texas).
[28] While federal support accounts for a smaller percentage of total
revenues for large licensees than for small licensees, large licensees
nonetheless received more federal support, on average, than small
licensees. Licensees with total revenues less than $3.0 million
received $656,573 on average from CPB while licensees with total
revenues greater than $10.7 million received $2.5 million from CPB. CPB
staff attributed this outcome to the Incentive Grant component of the
Community Service Grant, which is designed to encourage licensees to
acquire nonfederal support.
[29] See, GAO, Telecommunications: Many Broadcasters Will Not Meet May
2002 Digital Television Deadline, GAO-02-466 (Washington, D.C.: Apr.
23, 2002), p. 16.
[30] In the Digital Television Transition and Public Safety Act of
2005, Congress set February 17, 2009, as the end date for the DTV
transition. Following this date, television stations will no longer
transmit an analog signal. Pub. L. No. 109-171, title III, 120 stat. 4,
21 (2006).
[31] CPB can reduce or waive the matching requirement on the basis of
need.
[32] In general, the cost of the DTV transition is independent of the
size of the licensee--measured in total revenues. Thus, the DTV
transition can prove relatively burdensome for licensees with small
budgets.
[33] For example, licensees can use CPB's Community Service Grant funds
for the following expenditures: programming and production;
broadcasting, transmission, and distribution; program information and
promotion; fund-raising and membership development; underwriting and
grant solicitation; management and general; and purchasing,
rehabilitation, or improvement of capital assets.
[34] Developing a Sustainable Economic Model for Public Television,
March/April 2003.
[35] In response to the state funding reduction, WNPT increased fund-
raising, which contributed to a slight increase in membership.
[36] According to PBS, underwriting includes the imputed value of
contributions made by corporations, foundations, and others to
producers. Thus, it represents the difference between the value of PBS
productions and PBS grants to producers. PBS recognizes the
underwriting revenue and offsetting expenses when PBS receives the
initial program.
[37] PBS received $107 million in revenue from video, royalties,
license fees, investment returns, and other sources. In some instances,
these revenues were largely offset by corresponding expenses.
[38] PBS staff said that National Public Radio's (NPR) experience with
its foundation, the NPR Foundation, greatly influenced PBS and the PBS
Foundation. NPR established its foundation in 1993, and in 2003, it
received a gift exceeding $200 million from Joan Kroc; today, the $300
million foundation provides resources for NPR to expand its news
operations.
[39] Since these licensees rely on local tax dollars for support, they
do not ask viewers, and thus taxpayers, to fund the station again
through donations.
[40] SIP includes research, programming, and promotional materials for
stations to use during on-air fund-raising.
[41] Public radio adopts this approach to on-air membership campaigns.
[42] Public television considers gifts of $1,000 or more to be a major
gift.
[43] CPB imposes no fee on licensees participating in the major giving
initiative. However, licensees must fund their own personnel and a
portion of travel-related expenses.
[44] The first group consisted of 79 licensees.
[45] GAO-04-284, p. 94.
[46] An exception to the 15-second limit, and the 60-second total
limit, applies in the case of corporate underwriters that contribute
$1.5 million or more per year to a program or program series. A single
underwriter in this category may be acknowledged by way of a 30-second
credit. In such a case, PBS's guidelines allow no more than 60 seconds
total for all corporate acknowledgments, but provide that the total
credit limit can extend to 90 seconds if necessary to acknowledge
foundation, government, and other nonprofit funding. This exception
does not apply to children's programming, where the 15-second limit
applies.
[47] For example, one licensee noted that corporations are less
interested in brand or image advertising and more interested in
advertising that moves products.
[48] Officials from three licensees said they would be willing to
forego part or all of their CPB grant in exchange for greater
underwriting flexibility.
[49] The Public Broadcasting Amendments Act of 1981, Pub. L. No. 97-35,
§1221-34, 95 Stat. 725, 736 (1981).
[50] The amendments also authorized an advertising experiment involving
up to 10 public radio stations, but such stations chose not to
participate. See Temporary Commission on Alternative Financing for
Public Communications, A Report to Congress of the United States
(October 1983).
[51] This licensee also cited its experience with its public radio
station. The station receives no federal or state government support,
and is thus commercial, but it operates as a nonprofit station with
member support. The station also generates underwriting revenues with
"ads" that include calls to action. The licensee said that the radio
station is thriving and that a similar model could work for public
television.
[52] As we mentioned earlier, the DTV transition provides an
opportunity for television stations to use a portion of the spectrum to
provide ancillary services, such as datacasting; stations must annually
remit a fee of 5 percent of the gross revenues derived from these
services (47 C.F.R. §73.624(g)). According to FCC, for the 12 months
ending September 30, 2005, 37 public television stations reported
providing ancillary services with the digital spectrum and received
$10,861 for these services. Similarly, 10 commercial television
stations reported providing these ancillary services and received
$165,914. Thus, at this point, ancillary services provided through
digital television spectrum do not appear to represent a significant
source of revenue for either commercial or public television stations.
[53] Illustrating the importance of all revenue sources for small
licensees, KYUK, a licensee in Bethel, Alaska with total revenues of
$1.1 million, said that the station's Friday night bingo games
represent an important source of revenues.
[54] Licensees also mentioned receiving revenues from vehicle donation
programs, a state lottery contract, online stores, and a cell phone
recycling program.
[55] If a station does not own a tower, it must place its antenna on a
tower owned by another company and, in many instances, pay to lease the
space on the tower.
[56] Syndicated programming includes reruns of previously broadcast
programming and original programming, such as game and talk shows,
licensed to local television stations and international networks. For
this discussion of back-end revenues, we consider only the reruns of
previously broadcast programming.
[57] Prior to its repeal in 1995, the Financial Interest and
Syndication Rules (Fin-Syn rules) limited the amount of prime-time
programming that broadcast networks could produce internally. The Fin-
Syn rules also prohibited broadcast networks from owning any
syndication interest in programs they distributed.
[58] In the early 2000s, broadcast network programming production cost
approached $2.0 million for an hour-long program and $1.5 million for a
half-hour situation comedy. For cable channels, production costs can
vary between $175,000 and $800,000 per hour.
[59] The broadcast network or cable channel might share a portion of
the back-end rights and revenues with guild producers, writers, actors,
and others.
[60] Some critics maintained that Barney & Friends generated
substantial back-end revenues and that public television did not
properly receive a portion of those revenues. See, Congress, House of
Representatives, Committee on Appropriations, Downsizing Government and
Setting Priorities of Federal Programs: Hearings before the
Subcommittees of the Committee on Appropriations, 104th Cong., 1st
sess., 1995.
[61] See, CPB Television Revenue-Sharing Policy, adopted January 27,
1997.
[62] CPB and one producing station noted that PBS takes a more market-
oriented approach to rights management.
[63] Prior to 1999, PBS received less than $2 million annually in back-
end revenues.
[64] Major producing stations also receive back-end revenues. For
example, in 2005, WGBH received $18 million in royalties, video, and
foreign distribution revenues. However, station expenses offset these
revenues.
[65] In some instances, CPB and PBS provide a larger percentage of
funding. For example, one producer said that CPB funded the entire
production costs for a film. However, this was a special project,
funded by a grant awarded through a competitive request-for-proposal
process.
[66] WNET reported that it had 23 funders for Great Performances, 17
funders for American Masters, and 11 funders for Nature.
[67] Throughout this appendix, the differences we cite are
statistically significant at the 5 percent level, unless otherwise
noted. This means that 95 percent of the time we would not expect to
see such differences if there were no differences in the population.
[68] In general, program producers, such as the Workshop, receive
between 5 and 15 percent of the wholesale price as a royalty payment.
However, the wholesale price is generally 50 percent of the retail
price. Thus, producers generally receive 2.5 percent to 7.5 percent of
the retail price. If the Workshop received 5 percent of the retail
price, the estimated gross retail sales of all Workshop-related
products would be $1 billion.
[69] These government grants apply primarily to the Workshop's
international programming.
[70] The Workshop also maintains an investment portfolio to help ensure
the organization's long-term financial viability, provide an operating
reserve, and finance educational activities; the Workshop reported an
investment portfolio balance of about $140 million on June 30, 2005.
[71] The marketing component of educational research and marketing
expenses was about $8.8 million.
[72] Program expenses included about $7.1 million in amortization
associated with the Workshop's acquisition of the Sesame Street Muppets
characters. Following the death of Jim Henson, the Workshop acquired
the Muppets characters associated with Sesame Street; The Walt Disney
Company acquired the Muppets characters created for other programs.
Thus, the Workshop does not receive revenues associated with the
activities of certain Muppets characters, such as Kermit or Miss Piggy,
which the Disney Company owns.
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