Business Model for Public Radio - The New Reality

The Kroc Gift every Year?
What would it be like for Public Radio stations and for producers if the system received $240 million a year directly from listeners? How would you feel if this began in 2008? How would you feel if  you could look further into the future and see a multiple of this number?

"There goes Rob again - whistling in the wind". "Just more of Rob's words."

But hang on a second - what if this was an entirely feasible objective? What if it was not hard to do technically or financially? What if there was a model to draw on?  What if the only hard thing about the idea was the decision to act or not?

So what has got me going like this?

About 2 weeks ago I bumped into Stephen Hill for the first time. I had missed him during the New Realities process. We had been commenting on each other's blogs and had decided to speak in person. I was talking to him on the phone in the hallway of a nursing home where my mother lay gravely ill. I was apologizing that I could not give him my full attention.

In a distracted way, I had been going through a worthy list of things that I thought that Public Radio could do to make progress. I  believed that a focused but multi prong strategy would be needed. He had been polite as I rambled on but I sensed that he wanted to tell me something important. I felt pulled back into my mother's room and excused myself. "Can we talk soon when I am less distracted ?" I asked.

So he closed quickly. He reminded me that true strategy looked for the decisive point that would unlock everything.

He told me that there was one such act for Public radio. The one act that would engage every part of the system. The one act that would establish value as the core of all relationships. The one act that would pull all the listeners into true community.

That one act was to build a direct subscription relationship with its supporters.

"Oh we know all about that" you might say. Maybe.....

Yes we have debated this as one of many ideas but we have not tried to find the one act. Nor I bet have many of us really looked at a fractal model that exists today of how this could be built, operated and sustained. We have played with the idea but we have not examined its reality.

Let's join Stephen and find out how he went to this place and see how his own struggles mirror yours. Let's find out what he did and why. Let's find out if it is working and then wonder if it could work for the larger system.

While most of my energy at the time was focused on my mother - who was so ill I thought she would not last the week (She is much better now thanks) Stephen's remarks hit me like a thunderbolt.

In my mind, he had hit the bullseye. If Public radio could pull this off - everything would change. All of public radio could participate and could benefit. Above all, the key listener relationship with those who make content and those that distribute it would shift to a relationship based on direct value. The relationship between supporters would also then open up as well.

Excited I asked Stephen if I could speak with him when I was less pulled by my own problems.

Yesterday we talked at length about his experience in building such a direct and value-based subscription service.

I asked him how he had reached the point where he decided to set up a direct subscription service.

"My motivation was financial pressure. I had to find a way to add value to my core business. I found it in the archive and I found it by listening to my listeners who were begging me to make the archive available.

My core issue is that I had to find a way of amplifying the value of our day to day business. I have always lived close to the financial bone as an independent producer.  At the peak of the show's popularity, with hundreds of stations signed up, we only had enough revenue to pay a staffer and the connect fees. To pay myself, I had to find a supporting business. For many years I paid myself by operating a record business. But, by 2000, it was clear that, in the digital age, a conventional record business was not going to pay the bills anymore. If we were going to survive, I had to find another revenue stream that I could relay on. With a bit of luck, I might find a revenue stream that might actually be better than subsistence."

So what did you find?

"I stepped back and tried my best to see where I really was. I had built a specific approach to music that was enthusiastically shared by listeners. Not all listeners. Not even a lot of them but enough to make a direct link to them interesting. I was getting a growing wave of emails asking for access to the archive. Many had tape recorded items from air but after a decade the tape was tired and who plays tape anymore anyway. They were telling me that they wanted to find the best of what we had."

So how did you go from this idea and this observation into creating a new reality for yourself?

"We started small and we never tried to do ourselves what others could do better. We used outside experts that have an existing trustworthy and reliable system to handle the payments (They are the same guys who handle the porn industry - lots of small regular payments.) We have moved on but my point is - we could not afford to build key parts of our system on our own.

It took a year and we spent $30,000 on digitizing our archive. We did not digitize it all indiscriminately. We looked for a quality that we call 'Archive Value'. Items with Archive Value are items that beg to be played repeatedly. This idea of Archive Value - items that beg to be repeated - is now an idea that I see on reflection as being key to moving ahead without over investing in areas that will not deliver a return. We were so small that we could not afford to be wasteful.

We started Hearts of Space with only 100 items. 100 items does not sound like a lot. But when did you last hear 100 songs? This again was a helpful discovery. We did not need to start with a big inventory - just a good one. We now have 800 items in inventory. We added these at a rate of about 30 at a time. So this gave us a chance to re-market every time we had a release. We learned that you do not have to start with a lot in the archive but that what you start with must have this Value. We learned that it is better to start small and then add as this gives you the opportunity to sell again and to reach new subscribers."

Just like Charles Dickens?

"Yes - he was the master of direct serialization."

He also made a ton of money and built his audience like few others over time.

"Exactly. We were making money at the outset as well. We opened with 800 subscribers. We now have about 4,000. That is 4,000 people who pay us a small amount of money every month in a reliable way that we can now feel confident can be predicted."

That does not sound like a lot of people when you think of listening to a station or who are fans of a program.

"No but 100% of the 4,000 pay!"

I see and only 10% of listeners pay

"My point"

Does not this change the relationship between you and the listener?

"Of course. With the traditional model, the premise is scarcity. 'If you don't help us you will not be able to hear X' That is simply not true any more. Soon you will be able to hear X anywhere and any time - Look at This American Life."

It also is a poor values call - it's all about guilt. I am sure that I am not the only one who hates pledge week - I feel bad.

"Yes. With subscription everyone feels good. It is based on value being given for value received. It also creates community among the subscribers who want to share their enthusiasm about what is important to them."

So a direct subscription model based on Archive Value is not confined only to the subscriber and the offerer?

"No - the subscribers need to connect to each other. By starting with Archive Value, we also add a value to the existing world and we do not take away from it but add to it. By starting with Archive, we offer something new that people seem to have no problem with paying for."

Yes - I bought the BBC's Bleak house last week on DVD. In effect I bought an archive that I could have seen for Free on PBS. I also wanted to talk a lot to others about my experience. So I went online to Amazon to see what others had thought about this particular production. I would have preferred to be in a Dickens community though.

"You've got it Rob. This does not cannibalize the existing system - it adds value to it."

So Stephen what do you see how the money might work for all of public radio?

"Well there are about 30 million listeners. Let's be very conservative. Let's say that we start with a small pilot Archive Value proposition. If 200,000 signed up for $10 a month to access a category of archive that would be $20 million a year. This could fund a lot of development!

Then let's think of only 2 million subscribers, less than 10% of the listeners, that is $240 million a year - the Kroc gift."

This does not feel aggressive to me either in numbers of subscribers nor in amounts.

"I am finding that the key is to go for the larger numbers of subscribers and to keep the payment amount as small as possible."

Yes I can see how that keeps your competition at bay and builds sustainability.

"I think that there is a lock-in opportunity if you can get a wide enough and fulfilled base. Especially if they then have an opportunity to connect to each other. So the bigger the system becomes, the more impossible it becomes for some one to try and buy their way in."

Stephen thank you very much. We have only scratched the surface but, this feels right to me.

Stephen had the following comments, clarifications and additions to my version of what we talked about  - I also attach a very complete ppt where he provides an astonishing level of detail as to how this might work