Telecommunications: Issues Related to the Structure and Funding of Public Television
Published: 2007-01-19T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: 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
section_title: What GAO Found
paragraphs: 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.

section_title: Letter
paragraphs: 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 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. 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.
subsections: section_title: Public Television Is Structured around Local Ownership and Control of Stations, with Assistance from National-Level Organizations
paragraphs: 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.
subsections: section_title: Public Television Stations Are Independent, Locally Based Entities That Serve Their Communities
paragraphs: 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. 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. Figure 1 illustrates the pace of station  growth since 1953, when KUHT (Houston, Texas) became the first  noncommercial educational television licensee.
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).
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. 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   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.
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.
section_title: The Corporation for Public Broadcasting Provides Federal Support to Stations and Other Public Television Entities
paragraphs: 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. The Educational Television Facilities Act authorized a $32  million, 5-year program of federal matching grants to licensees for  facilities. 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.
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.” 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.
CPB’s main responsibility is distributing congressionally appropriated  funds to benefit public broadcasting (both public television and public  radio). CPB allocates its appropriated funds (which constitute virtually its  entire budget) in accordance with the provisions of the statute. 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. 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. (See app. II for detailed information on the  components of Community Service Grants.)
section_title: The Public Broadcasting Service Is a Nonprofit Organization That Provides Technical and Programming Support to Stations
paragraphs: 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. 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;   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.
section_title: A Variety of Entities Produce and Provide Public Television Programs
paragraphs: 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. 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.
section_title: Public Television Stations Provide a Variety of National and Local Programs and Services
paragraphs: 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.
subsections: section_title: Public Television Stations Provide a Variety of National and Local Programming
paragraphs: 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. (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.
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. 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.
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. 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.
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.
WCTE (Cookeville, Tennessee) prodce over 200  ho of locl progrmming nnually, inclding  Upper Cumberland Business Profiles, fering  re business leder; Kaleidoscope, zine-type progrm highlighting commnity  event; Tennessee Sportsman, fering hnting  nd fihing; Heart and Soul,  concert erie; Road  Trips, highlighting regionl trvel detintion;   ook review erie; coverge of the Smithville  Fiddlers’ Joree, the Ptnm Conty Fir, nd  the Cookeville Chritmas Pde; locl high chool  nd college port; High School Academic Bowl,  covering 30 competition nnually; House Call,   medicl cll-in progrm; nd n edtionerie  on exuaabuse.
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. 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.
KLVX (Las Vegas, Nev) provide intrctionl  progrmming nd ervice for Clrk Conty viltiple medi nd mltiple delivery mechni,  inclding  medi center with over 15,000 item  ilable for dily delivery to locchool;   free-lon, cptioned medi liry ilable to def  or hrd-of-hering dent nd lt, their  prent, nd their cregiver; free video treming  of intrctionl progrmming ligned with te  ndrd; nd  “Virtual High School” with co  for dent throghot the te, ccessle vi  rodcast, DVD, video, nd the Internet.
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.
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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. 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.
section_title: Individuals, Businesses, and the Federal and State Governments Provide the Majority of Funds for Public Television
paragraphs: 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.
subsections: section_title: Public Television Licensees Receive Funding from Many Sources; However, Small Licensees and Licensees in Small Television Markets Exhibit Greater Dependence on Federal Funds
paragraphs: 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.
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.
The percentage of revenue received from the federal government through  CPB decreases significantly as the size of the licensee increases; 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. 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  revenuesfor 9 licensees. 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. Large licensees  received a greater percentage of revenues from individuals, businesses,  state governments, and foundations than did small licensees.
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.
section_title: Most Licensees Received Federal Support for the DTV Transition
paragraphs: 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. 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.
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. 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.  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.
section_title: Public Television Licensees Consider Federal Funding to Be Important
paragraphs: 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. 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. 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.
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.
section_title: Federal Funds Also Support PBS Nationwide Programming
paragraphs: 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. PBS also received $163 million from member station  assessments and $70 million from federal sources, such as funds from  CPB. 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.
section_title: 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
paragraphs: 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.
subsections: section_title: Basic Membership Revenue Is Not Expected to Grow Significantly in the Future
paragraphs: 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, 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)—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. 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.
section_title: Major Giving Is Seen as Having Potential for Long- Term Growth
paragraphs: 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. 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;   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.
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, 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.
section_title: Foundations Typically Provide Support for Projects and Capital, but Not Station Operations
paragraphs: 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.
section_title: Underwriting Revenues Are Generally Flat, and Licensees Express Mixed Opinions about Greater Commercialization of Underwriting
paragraphs: 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. 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.
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. 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; 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. The amendments authorized 10  public television stations to experiment with paid commercials for 18  months. 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.
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   would be inconsistent with the mission of public television and could  alter programming decisions.
section_title: Ancillary Revenues Are a Minor Source of Funding for Many Licensees
paragraphs: 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. 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. Licensees cited many examples of ancillary and  miscellaneous activities, including the following.
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. 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.
section_title: Public Television Is Unlikely to Generate Significant Additional Back-End Revenues
paragraphs: 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.
subsections: section_title: Television Programs Can Generate Back-End Revenues
paragraphs: 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. 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.
section_title: The Commercial Model for Rights to Back-End Revenues
paragraphs: 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. 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, 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.
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.
section_title: Public Television Negotiates for and Receives Rights to Back-End Revenues
paragraphs: 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, CPB revised its revenue-sharing policy in 1997. 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. 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.
section_title: Public Television Is Unlikely to Realize Significant Back- End Revenues
paragraphs: 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. 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.
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.
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. 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. 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.
section_title: Agency Comments
paragraphs: 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 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.
section_title: Scope and Methodology
paragraphs: 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.
section_title: CPB Funding Allocation
paragraphs: 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.
section_title: Demographics of Public Television Viewers and Members
paragraphs: 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.
subsections: section_title: Data Sources and Methodology
paragraphs: 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.
section_title: Viewers of Public Television’s Prime- Time Programming
paragraphs: 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.
section_title: Viewers of Public Television Children’s Programming
paragraphs: 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.
section_title: Public Television Members
paragraphs: 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.
section_title: Sesame Workshop
paragraphs: 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.
subsections: section_title: Background
paragraphs: 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.
section_title: Product Licensing
paragraphs: 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. In addition, the Workshop received  approximately $21.2 million in direct public support, $11.0 million from government grants, 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.
As a nonprofit organization, the Workshop uses its revenues to fund  educational research and development of programs and content consistent  with its mission. 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, 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.
section_title: Relationship with Public Television
paragraphs: 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. 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.
section_title: Comments from the Corporation for Public Broadcasting
section_title: Comments from the Public Broadcasting Service
section_title: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
paragraphs: Mark L. Goldstein, (202) 512-2834 or goldsteinm@gao.gov.
section_title: Staff Acknowledgments
paragraphs: 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.