Dead End For Sesame Street?

Close your eyes in William J. McCarter's office on Chicago's Northwest side, and it would be easy to imagine a battle raging outside his window. McCarter is president of WTTW-Channel 11, Chicago's biggest public-television station. The clamor arises from construction of an upgraded production studio, his first line of defense in the war over the future of public broadcasting.

McCarter doesn't hold out much hope that federal funding for public TV and radio will survive. But he's fighting back with, among other things, the new studio, which he'll rent to commercial producers for a profit. "Hand-wringing about budget cuts is a waste of energy," he barks against the noise. "This is not a doomsday scenario."

Bill McCarter represents an aggressive breed of public broadcasting executive valiantly preparing for the day when GOP budget-cutters shut off the federal spigot for good. He is searching hard for new sources of revenue, cutting costs, and challenging many of public broadcasting's most cherished traditions--first among them the near-sacred rules about advertising.

DIFFERENT RULES. Most public broadcasting executives find it ludicrous that the U.S. can't afford less than $300 million annually to support commercial-free TV and radio. Many resent what they see as a thinly veiled political agenda behind the proposed cuts: the Republican conviction that public broadcasting is too "liberal." But as they gather in Washington on June 19 for their annual conferences, they also admit that inefficiencies abound within the system. "The ground rules are going to be different," McCarter says. "You're going to have to change your mind-set."

A close look at the business of public broadcasting, however, reveals that even if the system cleans up its act, it will have a hard time surviving as we know it today without federal support. Stations that aren't restricted by state or local charters would likely have to accept ads of some sort. Many small stations and some tough-to-finance programming would simply disappear. Lazard Frres & Co. Managing Director Steven T. Rattner, a media expert and board member of New York's WNET, says there's room for cost-cutting. But without federal funds, "there's no doubt that what the viewer sees would be very different," he says.

To realize how different, one has to understand the outsize impact federal funds have. This year, the Corporation for Public Broadcasting (CPB) will receive $285.6 million from Congress, or about 14% of public broadcasting's $1.8 billion in revenue from all sources. That's a relatively small slice, but the system's interrelated nature magnifies its importance in several ways.

First, for many small stations, federal money makes up a much higher percentage of their budget. Second, those stations use the money to purchase programming, such as Sesame Street and This Old House, produced elsewhere in the system. Finally, unlike corporate grants targeted at specific programs, federal funds are discretionary--stations can use them to fund projects that otherwise would flounder. "If that money is lost and can't be replaced," says Bernie Clark, CEO of Seattle's KCTS, "it will begin a downward spiral."

A recent Lehman Brothers Inc. study for CPB concludes that cost-cutting and new revenue sources won't replace federal funding (table). Even outright advertising, the report says, would have a negative effect, since any revenue generated would likely be offset by revenue lost when irritated subscribers bolted. Representative Jack Fields, Republican chairman of the House telecommunications subcommittee, charges that when it comes to finding solutions, "some people have been ostriches and have stuck their heads in the sand." But even if you distrust the Lehman report as captive of CPB, the evidence available supports most of its conclusions.

SAME STANDARD. Take the issue of advertising. For a while now, McCarter's WTTW and several other stations have been selling what they call "enhanced underwriting," which means they run a limited number of 30-second promotional spots for sponsors that look a lot like classy corporate-image ads. The practice doesn't break Federal Communications Commission rules, but it does run afoul of stricter standards set by the Public Broadcasting Service.

Although it has backed off for now, PBS earlier this year threatened to fine the stations for breaking its rules. Meantime, national programmers such as Boston's WGBH and New York's WNET have complained that national sponsors for their shows have been grousing openly that "advertising" in one of the more accommodating local markets would be a better deal. "We need a consistent standard that everybody sticks to," says WGBH chief Henry Becton, producer of Masterpiece Theater and Nova. McCarter's response: PBS should change, not the local stations.

Given the budget pressures, McCarter will likely prevail. Corporations, besieged by nonprofits for support, are demanding more for their sponsorships and see the opportunity to press their case. Mobil Corp. recently dropped support of WGBH's Mystery Theater and told the station it wants to "enhance" its national sponsorship of Masterpiece Theater. Says Ameritech Corp. ad director Brian Fitzgerald: "We don't want to turn public broadcasting into normal TV. But we'd like more than seeing our name in fine print."

Clearly, stations could squeeze more money out of sponsors if PBS eased its standards. But even if that didn't scare off subscribers, most agree the revenue impact for big stations would be in the thousands of dollars, not the millions. Small-market stations would see even less impact, and many outlets, owned by states, cities, and schools, by charter simply can't take advertising. "It's not a silver bullet," says WNET President William F. Baker.

Silver bullets are hard to come by. That's why most smart station managers are trying to create as many new revenue streams as they can. McCarter, who already produces for MTV and Lifetime, lately signed a production contract for his upgraded studio with Walt Disney Co.'s Buena Vista television unit. Seattle's Clark has also pushed heavily into production of shows for others and scored big in 1993 by selling a syndicated program called Bill Nye the Science Guy to the Disney Channel.

WGBH in Boston and KCET in Los Angeles have both launched chains of retail stores with partners that supplied the initial capital. LearningSmith Inc. and Store of Knowledge Inc. sell educational products based on PBS shows, and both plan to expand by linking with local PBS affiliates. KCET, for instance, has teamed with WHYY in Philadelphia to open a WHYY Store of Knowledge. The Philly station gets a sliver of revenue and in turn promotes the store.

GETTING FLEECED. Other ideas range from creating CD-ROMs and other multimedia products to renting out satellite time on PBS transponders. But while some stations have gotten a solid boost from entrepreneurial endeavors, most of them have not. Finding the resources to start new ventures is out of reach for many stations. Even big ones such as New York's WNET have problems. Bill Baker, the station's president, would love to leverage WNET's rich library of series such as Nature. But, he says, "the rights to many of them were sold up front to fund production."

PBS has been accused of dropping the ball most egregiously when it comes to merchandising its kids properties. The case of Barney gives critics some ammunition. PBS is getting fleeced by the show's producer, Lyon's Group. It has gotten only $1.6 million from Barney home video and foreign rights since 1991. Worse, PBS gets no money from Barney toy sales. That makes the show a money-loser for the network since it paid $2.7 million during the same period to acquire the broadcast rights.

POLITICAL MIRACLES. A new contract will improve the take but not dramatically. The problem: PBS doesn't own or produce the character, so even under the best of circumstances, it can't expect a huge gain. The same holds true for Sesame Street. Moreover, most public broadcasting fare doesn't lend itself to merchandising. Says WGBH's Becton: "That's not what we're here to do."

The best hope for public broadcasting is twofold. First, it will have to reorganize by eliminating overlapping stations, cutting the system's administrative bureaucracy, and figuring out how small stations can share in the wealth of big ones. Second, it will have to tap the potential of digital technology.

Many markets have more than one public-TV station, and viewers in big cities such as Washington, D.C., and New York can see as many as six signals. The system can't afford all the duplication, but because many stations are owned by cities, universities, and other institutions, deciding which should go isn't easy. Even friendly mergers can be difficult. Connecticut Public Broadcasting Corp. actually asked to merge with larger WNET six months ago. So far, talks have gone nowhere. Mergers will happen, though. Most predict that as the pressure builds, CPB will force them to. Also likely to be debated: whether to merge National Public Radio and Public Radio International.

Most promising would be tapping into the digital future. Digital compression will soon allow any television or radio station to beam six channels instead of one. If regulators let public stations sell the extra spectrum to commercial programmers, they could pay for noncommercial programming easily.

The trouble is, digitization is years away, and solutions currently on the table hold much less promise. They include a $6 billion federal trust fund that would kick off enough interest income to keep CPB going. Where would the money come from? A fee from commercial broadcasters, which would require a political miracle, or a tax on TV sets, which would take divine intervention.

That's why many public broadcasting executives are quietly hoping budget-cutters will simply be kind. "Our feeling is, some support will continue," says WGBH's Becton. "My question is, are people really going [to cut us off] for the equivalent of $1 a year per citizen?" That's not entirely clear. But the world of public broadcasting would do well to prepare itself for the worst.

The Dilemma

A recent Lehman Brothers study done for the Corporation for Public Broadcasting concludes that, even using optimistic forecasts, no mix of cost reduction and revenue en-hancement could replace lost federal funding.



-- Station mergers $34.6

-- Automation of station

operations 60.9


-- New underwriting revenue

given relaxed standards for

sponsorship plugs 64.7

-- Rental of extra satellite

transponder space 6.8

-- Income from merchandise

licensing 5.2

TOTAL $172.2


*By year 2000


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