Telecommunications: Issues Related to the Structure and Funding  
of Public Television (19-JAN-07, GAO-07-150).			 
                                                                 
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							 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-07-150 					        
    ACCNO:   A64985						        
  TITLE:     Telecommunications: Issues Related to the Structure and  
Funding of Public Television					 
     DATE:   01/19/2007 
  SUBJECT:   Broadcasting					 
	     Digital television 				 
	     Educational television				 
	     Federal funds					 
	     Financial management				 
	     Licenses						 
	     Locally administered programs			 
	     Nonprofit organizations				 
	     Public television					 
	     Television 					 
	     Television broadcasting				 

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GAO-07-150

   

     * [1]Report to Congressional Requesters

          * [2]January 2007

     * [3]TELECOMMUNICATIONS

          * [4]Issues Related to the Structure and Funding of Public
            Television

     * [5]Contents

          * [6]Results in Brief
          * [7]Public Television Is Structured around Local Ownership and
            Control of Stations, with Assistance from National-Level
            Organizations

               * [8]Public Television Stations Are Independent, Locally Based
                 Entities That Serve Their Communities
               * [9]The Corporation for Public Broadcasting Provides Federal
                 Support to Stations and Other Public Television Entities
               * [10]The Public Broadcasting Service Is a Nonprofit
                 Organization That Provides Technical and Programming Support
                 to Stations
               * [11]A Variety of Entities Produce and Provide Public
                 Television Programs

          * [12]Public Television Stations Provide a Variety of National and
            Local Programs and Services

               * [13]Public Television Stations Provide a Variety of National
                 and Local Programming
               * [14]Public Television Stations Provide a Variety of
                 Nonbroadcast Services

          * [15]Individuals, Businesses, and the Federal and State
            Governments Provide the Majority of Funds for Public Television

               * [16]Public Television Licensees Receive Funding from Many
                 Sources; However, Small Licensees and Licensees in Small
                 Television Markets Exhibit Greater Dependence on Federal
                 Funds
               * [17]Most Licensees Received Federal Support for the DTV
                 Transition
               * [18]Public Television Licensees Consider Federal Funding to
                 Be Important
               * [19]Federal Funds Also Support PBS Nationwide Programming

          * [20]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

               * [21]Basic Membership Revenue Is Not Expected to Grow
                 Significantly in the Future
               * [22]Major Giving Is Seen as Having Potential for Long- Term
                 Growth
               * [23]Foundations Typically Provide Support for Projects and
                 Capital, but Not Station Operations
               * [24]Underwriting Revenues Are Generally Flat, and Licensees
                 Express Mixed Opinions about Greater Commercialization of
                 Underwriting
               * [25]Ancillary Revenues Are a Minor Source of Funding for
                 Many Licensees

          * [26]Public Television Is Unlikely to Generate Significant
            Additional Back-End Revenues

               * [27]Television Programs Can Generate Back-End Revenues
               * [28]The Commercial Model for Rights to Back-End Revenues
               * [29]Public Television Negotiates for and Receives Rights to
                 Back-End Revenues
               * [30]Public Television Is Unlikely to Realize Significant
                 Back- End Revenues

          * [31]Agency Comments

     * [32]Scope and Methodology
     * [33]CPB Funding Allocation
     * [34]Demographics of Public Television Viewers and Members

          * [35]Data Sources and Methodology
          * [36]Viewers of Public Television's Prime- Time Programming
          * [37]Viewers of Public Television Children's Programming
          * [38]Public Television Members

     * [39]Sesame Workshop

          * [40]Background
          * [41]Product Licensing
          * [42]Relationship with Public Television

     * [43]Comments from the Corporation for Public Broadcasting
     * [44]Comments from the Public Broadcasting Service
     * [45]GAO Contact and Staff Acknowledgments

Report to Congressional Requesters

January 2007

TELECOMMUNICATIONS

Issues Related to the Structure and Funding of Public Television

Contents

Tables

Figures

January 19, 2007
Letter

The Honorable Ginny Brown-Waite
House of Representatives

The Honorable Candice S. Miller
House of Representatives

From its beginnings in the 1950s with a small number of noncommercial
educational stations focused on formal instruction, public television has
evolved to encompass a wide range of cultural, educational, entertainment,
news, and public affairs programming offered by 349 stations nationwide.
Public television stations were built and continue to operate as
nonprofit, community-based organizations, largely funded by nonfederal
sources. Funding for programming and station operations has been a
continuing issue, given that public broadcasting operates outside of the
advertising-based business model that sustains commercial television. A
key point in the evolution of public television came with the Public
Broadcasting Act of 1967, which amended the Communications Act of 1934, as
amended (the Communications Act) to establish the Corporation for Public
Broadcasting (CPB) and authorized federal funding to help support public
television's operations. The Communications Act's current "declaration of
policy" states that it is in the public interest of the federal government
to ensure that all citizens have access to "public telecommunications," of
which public television is a part. The Communications Act also states that
it is in the public interest to encourage the development of programming
that involves creative risks and addresses the needs of unserved and
underserved audiences, particularly children and minorities.

In the decades since the passage of the Public Broadcasting Act, the
position of public television as the primary source of alternative
programming to the commercial broadcasting networks (such as ABC, CBS,
Fox, and NBC) has been challenged by the emergence of cable and satellite
television providers. These companies offer their paying subscribers
dozens of channels--including some devoted to subjects that are mainstays
of public television--such as nature, travel, cooking, and drama. In fact,
most households today receive television service from a cable or satellite
company. However, in an era of media consolidation in commercial
television, public television stations continue to be locally owned and
operated by community-based nonprofit organizations, universities, and
state and local governments. Another important change in the media
environment is the digital television (DTV) transition, a federal mandate
requiring stations to transition from analog to digital transmission of
television signals. Digital transmission not only greatly improves picture
and sound quality, but it also enables stations to use the radiofrequency
spectrum^1 more efficiently, thereby allowing stations to simultaneously
broadcast multiple program channels (known as multicasting) and offer
auxiliary services such as datacasting (the transmission of text,
graphics, software, and Web pages to designated users). Many public
television stations see the DTV transition as an opportunity to increase
their program offerings--such as formal instruction and coverage of local
government--and also enhance the services they can offer to their
communities, such as emergency communications.

Against this backdrop of change, the issue of how to fund public
broadcasting continues to be a concern for policymakers and public
television's stakeholders, as it has been for decades. Without the
financial base of advertising that sustains commercial television, public
television stations acquire their operating revenues from diverse private
and public funding sources, including voluntary membership gifts by
viewers; support from organizations and businesses that underwrite
programming and station operations; funding from private foundations;
funding from universities; and local, state, and federal government
funding. In addition, several signature public television programs have
become cultural icons and have given rise to separate business ventures,
such as sales of books, DVDs, and children's toys, that provide additional
sources of revenue. Given these alternative sources of funding, some
policymakers and public television stakeholders have debated the continued
role of federal funding and whether public television can survive and
prosper with less direct federal support.

In response to your request, this report examines the funding and
operation of public television. Specifically, this report provides
information on (1) the organizational structure of public television, (2)
the programming and other services that public television provides, (3)
the current funding sources for public television, (4) the extent to which
public television stations are increasing their nonfederal funding support
and developing new sources of nonfederal support, and (5) the extent to
which public television benefits financially from business ventures
associated with programming and how this compares with commercial
broadcasters.

To respond to the objectives of this report, we interviewed officials from
CPB, the Federal Communications Commission (FCC), the National
Telecommunications and Information Administration (NTIA) of the Department
of Commerce, and the Public Broadcasting Service (PBS). For the first
objective, we reviewed existing literature on the foundation and current
structure of public broadcasting and reviewed relevant provisions of the
Communications Act and FCC regulations. For the second, third, and fourth
objectives, we interviewed officials from 54 of the 173 public television
licensees; we selected licensees according to their type of license, total
revenues and percentage of total revenues derived from federal funding,
and by the size of the television market where the licensee operates.^2 We
also interviewed officials from the Association of Public Television
Stations, a membership organization representing public television
stations; the Department of Education; the Federal Emergency Management
Agency of the Department of Homeland Security; the Ford Foundation; the
National Science Foundation; the Rural Utilities Service (RUS) of the
Department of Agriculture; and the Urban Institute. Additionally, we
analyzed 177 licensees' revenue sources, membership, and programming using
CPB's Stations Activities Benchmarking Study (SABS). (In 2005, the year
for which we have SABS data, there were 177 public television licensees;
currently, there are 173 licensees.) SABS is a data-gathering mechanism
through which licensees provide information annually on their finances and
operations. To assess the reliability of SABS data, we reviewed relevant
information about the database, including the user manual and a data
dictionary, and we interviewed CPB officials and subcontractors for
information on data quality assurance procedures. We also performed
electronic testing to detect obvious errors in completeness and
reasonableness. We concluded that the SABS data were sufficiently reliable
for the purposes of this report. For the fifth objective, we interviewed
officials from organizations producing programming for public television,
including David Grubin Productions, Ken Burns (Florentine Films), HIT
Entertainment, Insignia Films, Lumiere Productions, Scholastic, Sesame
Workshop, WETA (Arlington, Virginia), WGBH (Boston), and WNET (New York);
the Independent Television Service; commercial broadcast networks and
cable channels, including A&E Television Networks, Fox, National
Geographic Channel, Nickelodeon, and NBC; and several experts. We also
reviewed the relevant media economics literature and materials provided by
CBS. See appendix I for a more detailed discussion of our overall scope
and methodology.

We conducted our review from January through November 2006 in accordance
with generally accepted government auditing standards.

Results in Brief

Public television evolved from a handful of noncommercial educational
television stations in the 1950s to a complex and uniquely organized
broadcasting infrastructure that spans the United States. Public
television stations are independent, locally based entities that serve
their individual communities. The initial basis for this localism was
FCC's decision in 1952 to reserve 242 channel assignments for educational
television stations in various markets across the country. Today, there
are 349 public television stations, owned and operated by 173 licensees,
which reach 98 percent of the households that have televisions.^3 FCC
licenses public television stations to community organizations, local
governments, universities, and state governments. Through the Public
Broadcasting Act, the Congress authorized the establishment of CPB as a
nongovernmental, nonprofit corporation to facilitate the growth and
development of public television and radio. CPB's primary responsibility
is distributing federally appropriated funds to benefit public television
and radio. PBS is a nonprofit membership organization made up of licensees
of public television stations and is funded by fees paid by its member
licensees, underwriting, and grants from CPB and other federal sources.
PBS acquires children's and prime-time programming and operates a
satellite-based interconnection system to distribute this programming to
member licensees. CPB and PBS do not produce programming, but rather they
rely on suppliers internal and external to public television. These
suppliers include larger public television stations, such as WGBH (Boston)
and WNET (New York); external producers, such as Sesame Workshop and Ken
Burns; and other external suppliers, such as American Public Television.

Public television stations broadcast a variety of national and local
programs and also provide nonbroadcast services to their communities. PBS
prime-time and children's programming accounts for a majority of broadcast
hours for most public television stations. However, stations supplement
these programs with both instructional and locally produced programming.
Local programming broadcast by stations includes a variety of topics that
represent the local interests of the community, including history and
public affairs, arts and culture, and community events. In some instances,
stations focus their instructional programming on grades K through 12
educational material, while in other instances, stations focus on
university-level educational material. In addition to programming, public
television stations provide a variety of nonbroadcast services. Stations
provide educational services, including programs to help prepare children
for school, facilitate teacher training, and deliver instructional
materials. Stations also provide civic engagement and health outreach
services. Finally, the Department of Homeland Security has been working
with public television stations to provide a digital emergency alert
system that will improve the ability of emergency managers and public
safety officials to rapidly broadcast emergency information, potentially
enabling near-universal service throughout the United States once the
program is complete.

Public television receives the majority of its revenues from individuals,
businesses, and the federal and state governments. In 2005, public
television licensees reported annual revenues of $1.8 billion, of which 15
percent came from federal sources and the rest from a variety of
nonfederal sources including individuals, businesses, foundations, and
state and local governments. However, the sources of revenue vary
dramatically from licensee to licensee. Licensees with less operating
revenue (small licensees) and licensees that provide service in small
television markets receive a larger percentage of revenue from federal
sources than do licensees with more operating revenue (large licensees)
and licensees that provide service in large television markets. To help
public television licensees complete the DTV transition, the Congress has
appropriated nearly $400 million for CPB, NTIA, and RUS since 1999. Many
licensees have received some form of support from the federal government
for the DTV transition. Federal funds also help licensees leverage funds
from nonfederal sources. Thirty of 54 licensees with whom we spoke said
that a reduction or elimination of federal funding could lead to a
reduction in staff, local programming, or services; 11 others, primarily
small licensees, said that a reduction or elimination of federal funding
might force the station to shut down. Similar to licensees, PBS receives
funding from a variety of sources, including underwriting, fees from
member stations, and CPB and federal sources, and a reduction or
elimination of federal funding could negatively impact PBS programming.

Public television licensees receive nonfederal support from a variety of
sources, but substantial growth of nonfederal support to offset a
reduction or elimination of federal support appears unlikely. Between 1999
and 2005, revenues from individual member gifts of less than $1,000--or
basic membership revenue--decreased by 6 percent. According to CPB
officials, public television lags behind other nonprofit organizations in
attracting major gifts. For example, in 2005, 13 percent of revenues from
members came from gifts of $1,000 or more. In response to this situation,
CPB launched a major giving initiative to help licensees capture major
gifts. Many licensees report initial success with major giving, but see
the initiative as a long-term effort. Foundations represent another
nonfederal funding source; but foundations typically only fund capital
expenditures or special projects, and foundation support is unlikely to
expand to include general station operations. The trend in underwriting
support--or revenues derived from on-air acknowledgements of businesses
providing financial support--has been mixed, with some licensees
experiencing increases and others decreases. According to many licensees,
corporate consolidation and an increased focus on advertising among
businesses have made garnering underwriting support increasingly
difficult. Eleven of the 54 licensees with whom we spoke favor an easing
of the statutory and regulatory restrictions on on-air underwriting
acknowledgments as a means to secure more underwriting revenues. However,
19 licensees with whom we spoke oppose greater commercialization of
underwriting, believing that it could threaten other sources of support
and the mission of public television. Finally, licensees generally receive
minimal revenues from ancillary and miscellaneous activities, such as
leasing space on television towers.

Although public television receives $7 million to $10 million in annual
revenue from business ventures associated with its programming, these
business ventures are unlikely to generate significant additional revenue.
Some television programs generate back-end revenues from separate business
ventures, such as syndication, book and video sales, and clothing and toy
sales. In commercial television, broadcast networks and cable channels
receive rights to back-end revenues associated with these business
ventures. However, the extent of the up-front investment in the
development and production of programming greatly influences the rights to
back-end revenues. Similar to their counterparts in commercial television,
CPB and PBS negotiate financing and rights to back-end revenues with
producers of programming. The extent to which CPB and PBS receive rights
to back-end revenues depends on their up-front investment in program
development and production--just as it does in the commercial television
environment--and the importance of PBS as a distribution outlet for
producers of programming. Given its statutorily defined mission and
limited financial resources, public television is unlikely to greatly
increase back-end revenues. In particular, relatively few programs
generate significant back-end revenues. When a program is successful, the
royalties to program producers typically yield 2.5 percent to 7.5 percent
of the gross retail price of the merchandise sold, and the producers share
these royalties with program investors and others. Because of funding
limitations, CPB and PBS do not make major investments in individual
programs and therefore receive a modest share of the resulting back-end
revenues.

We provided a draft of this report to CPB; the departments of Agriculture,
Commerce, Education, and Homeland Security; FCC; and PBS. CPB and PBS
agreed with the report and their written comments appear in appendixes V
and VI, respectively. The Department of Agriculture neither agreed nor
disagreed with the report, but it emphasized the extensive burden that the
DTV transition imposes on small and rural television stations. The
Department of Education, the Department of Homeland Security, and FCC
provided technical comments that we have incorporated in this report as
appropriate. The Department of Commerce had no comments on the report.

Public Television Is Structured around Local Ownership and Control of
Stations, with Assistance from National-Level Organizations

Many programs shown on public television stations carry the logo of PBS,
which can create the misperception that public television is a single,
national-level enterprise. However, public television is not a single,
national entity, nor is it identical with PBS. Public television evolved
from a handful of noncommercial educational television stations in the
early 1950s to 349 stations today that reach virtually every household in
the United States. The stations were built and continue to operate as
independent, nonprofit, community-based entities offering a mix of
broadcast programming and outreach activities to their local communities.
The late 1960s saw the creation of national-level organizations to support
and interconnect the stations: CPB and PBS. With producers and
distributors supplying a wide variety of educational, cultural,
entertainment, and public affairs programs, public television today
remains a locally based enterprise with a national reach that serves the
particular needs and interests of the communities within the range of each
station.

Public Television Stations Are Independent, Locally Based Entities That
Serve Their Communities

Public television began as, and continues to be, a largely decentralized
enterprise, with ownership and control of the stations maintained at the
state or local level. The basis for this localism was established by FCC's
initial decision in 1952 to reserve 242 channels assignments for
educational television stations in various markets across the country.^4
These reserved channels were to serve "the educational and cultural
broadcast needs of the entire community to which they are assigned." It
was left to the local communities to construct and operate television
stations to use these reserved channels, since neither FCC nor the
Congress provided funds for this purpose.

The growth of public television's station infrastructure has been the work
of decades, as civic leaders, universities, and state and local
governments have marshaled funding and operational support from public and
private sources to establish and operate noncommercial educational
television stations to serve their communities. Today, there are 349 such
stations, owned and operated by 173 licensees, which reach at least 98
percent of households that have a television.^5 Figure 1 illustrates the
pace of station growth since 1953, when KUHT (Houston, Texas) became the
first noncommercial educational television licensee.

Figure 1: Number of Noncommercial Educational Television Stations,
1953-2002

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):

oA nonprofit educational organization, such as a university or local
school board. For example, WKYU (Bowling Green, Kentucky) is a university
licensee.

oA 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.

oAnother type of nonprofit educational entity, such as a "community
organization." For example, North Texas Public Broadcasting, Inc.,
operates KERA (Dallas, Texas).

Figure 2: Number of Public Television Licensees, 2005

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.^6
Both the stations' activities and the various funding streams that support
them are discussed in more detail in later sections of this report.

The stations' overall operational expenses vary greatly depending on a
station's size and specific activities. In fiscal year 2005, these
expenses ranged from $881,106 for WVUT (Vincennes, Indiana) to
$174,474,123 for WGBH (Boston). Stations incur expenses associated with

oconstruction and maintenance of broadcast towers and transmission
equipment;

outilities associated with signal transmission;

ooffice and studio facilities;

omaster control equipment to manage the station's broadcast traffic (see
fig. 3);

oproduction equipment, such as television cameras;

oprogram production and acquisition fees;

ononbroadcast community outreach activities; and

osalaries for station personnel.

Figure 3: WNET (New York) Master Control Facility

Many stations have formed affinity groups, such as the Organization of
State Broadcasting Executives, the Small Station Association, and the
University Licensee Association, to deal with common concerns. Stations
may also be members of the Association of Public Television Stations, a
nonprofit organization established in 1980 to advocate for public
television interests at the national level.

The Corporation for Public Broadcasting Provides Federal Support to
Stations and Other Public Television Entities

Funding has been a continual concern for public television. As noted
earlier, the channels reserved for noncommercial educational television in
1952 did not come with any federal funding to get the stations up and
running. The first decade of public television saw slow growth in the
number of stations. By 1960, 49 stations were broadcasting. To spur the
construction of stations, the Educational Television Facilities Act of
1962 was enacted to provide the first direct federal funding for station
infrastructure.^7 The Educational Television Facilities Act authorized a
$32 million, 5-year program of federal matching grants to licensees for
facilities.^8 The program, however, did not cover stations' operational
expenses. In 1965, the Carnegie Corporation sponsored a commission to
study educational television's financial needs. As recommended in the
Carnegie Commission's 1967 report, President Lyndon Johnson proposed, and
the Congress enacted, the Public Broadcasting Act, which amended the
Communications Act to reauthorize funding for facilities and equipment
grants under the Educational Television Facilities Act and to authorize
additional federal funding for public television through a new
entity--CPB.^9

CPB was authorized under the Public Broadcasting Act to be established as
a nonprofit corporation to facilitate the growth and development of both
public television and public radio, along with the use of these media for
instructional, educational, and cultural programming. This private
corporation structure was to afford "maximum protection from extraneous
interference and control."^10 CPB operates under the provisions of the
Communications Act, and is governed by a board of directors consisting of
nine members appointed by the President and confirmed by the Senate. The
Communications Act includes a congressional "Declaration of Policy"
stating, among other things, that it is in the public interest to
encourage the growth of public radio and television, as well as the
development of programming that involves creative risks and serves the
needs of unserved and underserved audiences, particularly children and
minorities. The declaration also states that public telecommunications
services (including public television and radio) constitute a valuable
local community resource for addressing national concerns and local
problems, and that it is in the interest of the federal government to
ensure that all citizens have access to these services.^11

CPB's main responsibility is distributing congressionally appropriated
funds to benefit public broadcasting (both public television and public
radio).^12 CPB allocates its appropriated funds (which constitute
virtually its entire budget) in accordance with the provisions of the
statute.^13 The statute directs CPB to allocate yearly 6 percent of its
appropriated funds for "system support" (largely royalty fees, station
interconnection costs, and projects and activities to enhance public
broadcasting) and not more than 5 percent for CPB's administrative
expenses. Of the remaining funds (about 89 percent), 25 percent is to be
allocated for public radio and 75 percent for public television. There is
a further division of the funds for public television: 75 percent is to be
made available for distribution to station licensees and 25 percent for
national programming. Because the distribution formula is defined by
statute, changes in CPB's yearly appropriation affect both public
television and public radio licensees.

The principal mechanism by which CPB distributes federal funding to public
television licensees is the Community Service Grant program.^14 CPB
currently administers the program by providing each licensee that operates
an on-air public television station with a "basic" grant of $10,000. In
addition to the basic grant, eligible licensees receive two component
grants in their Community Service Grant--a "base" grant and an "incentive"
grant. Base grants are determined by the statutory allocations noted
above, CPB's annual appropriation, the number of licensees eligible for
grants, and a fixed grant funding level set by CPB's board of directors.
Incentive grants are designed to encourage stations to maintain and
stimulate new sources of nonfederal funding support. Accordingly, the size
of an incentive grant depends on the amount of revenues that an individual
licensee raises from

nonfederal sources.^15 (See app. II for detailed information on the
components of Community Service Grants.)

The Public Broadcasting Service Is a Nonprofit Organization That Provides
Technical and Programming Support to Stations

One of the goals of the Public Broadcasting Act was to establish a system
to interconnect the individual public television stations for the
distribution of programming. The Communications Act, as amended by the
Public Broadcasting Act, authorizes CPB to assist in the establishment and
development of one or more interconnection systems, but in keeping with
the concept of local control, CPB is expressly prohibited from owning the
interconnection systems or from producing, scheduling, or disseminating
programs.^16 To fill these needs, CPB worked with the stations and other
stakeholders to create PBS in 1969 as an entity for managing an
interconnection system and acquiring and distributing programs. PBS was
established as a private, nonprofit organization made up of licensees of
noncommercial television stations. Today, nearly all public television
licensees have chosen to be members paying assessments for access to PBS
national programming. PBS is governed by a board with a majority of
members representing stations. PBS's activities and services include the
following:

oacquiring and promoting the programs for children's and prime-time
broadcast that make up PBS's "National Programming Service;"

ooperating a satellite-based interconnection system for distributing
programming to member stations for broadcast to their local communities;

oproviding educational services, such as its Web-based TeacherSource; and

oassisting member stations with fund-raising and development support, as
well as a variety of engineering and technology development issues, such
as the digital transition.

As a result of agreements with the stations at the time of its creation,
PBS was authorized to coordinate the development of a national program
schedule, but not to produce broadcast programming of its own. Programming
comes from individual public television stations, outside production
companies, and independent producers. PBS selects programs to be included
in its National Programming Service and distributes them to stations via
the interconnection system. Stations exercise substantial discretion over
programming decisions and are free to choose which of these programs to
broadcast.

A Variety of Entities Produce and Provide Public Television Programs

Television production involves developing and funding an individual
program or series from an initial concept to a finished product. Producers
of programming for public television are both internal to public
television, such as producing stations, and external to public television,
such as outside producers.

Producing Stations. A small number of the larger public television
stations regularly produce and coproduce programs and series designed for
national audiences that are included in PBS's National Programming
Service. Examples include WGBH (Boston): NOVA, Mystery!, Frontline, and
Masterpiece Theatre; WNET (New York): American Masters, Great
Performances, and Nature; WETA (Arlington, Virginia): The NewsHour with
Jim Lehrer and Washington Week; and OPB (Portland, Oregon): History
Detectives and The New Heroes. Other public television stations may, from
time to time, produce a show that is chosen by PBS for national broadcast
or by individual stations for local broadcast.

Local Production. Aside from broadcasting programs developed for a
national audience, stations produce and broadcast their own local programs
that are designed to meet the special needs and interests of their
individual communities. Because program production can be expensive, the
amount of a station's local production is closely tied to its budgetary
resources and underwriting support from the business community. Examples
of such locally produced programs include WVPT's (Harrisonburg, Virginia)
farm report, Rural Virginia, and WTTW's (Chicago) showcase of local events
and people, Chicago Tonight.

Outside Producers. These producers are not public television entities but
are independent production companies and individual producers who create
programming that is acquired by PBS or individual stations for their
broadcast schedules. One such production company is Sesame Workshop, the
producer of Sesame Street. Although this long-running program has become
strongly identified with public television and PBS, Sesame Workshop is a
nonprofit educational organization. (See app. IV for a description of
Sesame Workshop.) An example of a for-profit production company is HIT
Entertainment, the producer of shows such as Barney & Friends and Bob the
Builder. There are also independent producers of public television
programming, who are generally not affiliated with a studio, a television
station, or a major production company. Ken Burns, for example, has
produced some of public television's best-known series, such as The Civil
War, Baseball, and Jazz, as well as profiles of notable Americans, such as
Mark Twain and Frank Lloyd Wright. International producers are another
source of programming. British productions, in particular, have been a
regular feature of public television for decades.

The Independent Television Service (ITVS). In 1988, the Congress directed
CPB to provide adequate funds to an independent television production
service.^17 Pursuant to this mandate, CPB provides annual funding to ITVS.
ITVS funds, distributes, and promotes new programs developed by
independent producers primarily for public television. ITVS looks for
proposals that increase diversity on public television and present a range
of subjects and viewpoints that complement and provide alternatives to
existing public television offerings. An example of ITVS's programs
include And Thou Shalt Honor. . ., which explores the increasing role of
caregiving for elderly Americans.

Non-PBS Distributors of Programming. Although PBS is the principal
distributor of children's and prime-time shows for its member stations,
other distributors also provide stations with programs. One is American
Public Television (APT), which distributes shows such as Lidia's
Italian-American Kitchen and Rick Steves' Europe. Another is the National
Educational Telecommunications Association (NETA), which distributes shows
such as This is America with Dennis Wholey. Stations can also acquire
broadcast rights from international distributors.

Public Television Stations Provide a Variety of National and Local
Programs and Services

Public television stations broadcast a mix of national and local programs.
PBS prime-time and children's programming constitute a majority of
broadcast hours for most public television stations. However, stations
supplement these programs with both locally produced and instructional
programming to meet the needs of their communities. In addition to
programming, public television stations provide a variety of nonbroadcast
services. Stations provide educational services, including programs to
help promote literacy and facilitate teacher training. Some stations also
provide civic engagement and health outreach services. Finally, many
stations provide emergency-alert services to facilitate communication
among public safety officials and between public safety officials and the
public.

Public Television Stations Provide a Variety of National and Local
Programming

Public television stations produce, acquire, and broadcast programs from a
variety of sources. According to the Communications Act, public television
programming should, among other things, (1) serve educational, cultural,
and instructional purposes; (2) address the needs of unserved and
underserved audiences, particularly children and minorities; and (3) serve
local and national interests.^18 (See app. III for the demographic
characteristics of public television viewers.) As we mentioned earlier,
each station decides what programs to broadcast to meet the needs and
tastes of its communities. Figure 4 illustrates the percentage of
broadcast time filled from various program sources. On average, public
television stations use PBS programs for 67 percent of all broadcast
hours. To a far lesser extent, stations rely on APT and NETA for
nationally distributed programming. Finally, stations dedicate about 4
percent of broadcast hours to local programs.^19

Figure 4: Percentage of Total Broadcast Hours Filled from Various Sources,
2005

^a"PBS Non-Children's" includes programming from the National Programming
Service (excluding children's programming), the Station Independence
Program, PBS Plus, and other types of PBS program acquisitions.

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.^20 Most PBS programming is provided via
PBS's National Programming Service, which features a variety of
educational and cultural topics. PBS takes a multimedia approach to expand
the reach of its programming, including Web sites, teachers' guides, and
lesson plans for many programs. Figure 5 illustrates the major program
themes included in PBS's National Programming Service, excluding
children's programming, which is addressed in the next section. These
themes include the following:

oPublic 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.

oScience and nature programming, such as Nova; Nature; and Scientific
American Frontiers, covering new technologies and discoveries in science
and medicine.

oArts 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.

oHistory programming, such as American Experience, Ken Burns' American
Stories, and History Detectives.

oLife, cultural, and other programming, such as Religion & Ethics
Newsweekly, news on and analysis of religion and ethics; Independent Lens,
documentaries and dramas featuring diverse stories; and Wide Angle,
international current affairs documentaries.

Figure 5: Types of Programming in PBS's National Programming Service
(Excluding Children's Programming), 2005

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.^21 We found that children's
programming accounts for 16 percent of all program hours broadcast by
public television stations. Children's programming represents over 40
percent of the weekday programming schedule for many stations. Many
stations broadcast about 8 to 10 hours of children's programming per
weekday, often beginning before 8:00 a.m. and ending between 5:00 p.m. and
6:00 p.m. Stations often design their weekday schedule to include
programming oriented toward the prekindergarten age group during the
school day and toward school-age children, after school.

PBS Kids features nonviolent, curriculum-based content that promotes
skills such as literacy, math, problem solving, and social skills. Several
prominent examples of children's programming include Sesame Street, which
encourages the development of preschool level skills, such as those needed
for reading, writing, math, and science; Between the Lions, which fosters
literacy skills among 4 to 7 year olds; Maya & Miguel, which encourages
children to appreciate other cultures and builds understanding of English
among 6 to 11 year olds; and Cyberchase, which promotes math
problem-solving skills among 8 to12 year olds. PBS and member stations
leverage the concepts taught in these and other children's programs via
Web resources, including lesson plans, activities, parent guides, book
suggestions, and links to other resources related to the skills promoted
in specific programs.

Local Programming. Most public television stations produce and broadcast
some local programming in order to meet specific needs of their audiences.
On average, local programming represents about 4 percent of total
broadcast hours for public television stations. Some stations we contacted
indicated that they would like to provide more local programming, but that
local production is expensive. Although local programming does not
constitute a large percentage of the programming provided by public
television, some stations we contacted emphasized the unique nature of
public television's local programming or the importance of local
programming to their communities. Some stations mentioned that they are
the only source in their community of local programming unrelated to news
or sports. Stations we contacted cited many examples of local programming,
such as the following:

oMany 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.

oSome 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.

oSome 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.

oSome 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.

oKET (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.^22

oWETP (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.

oWYCC (Chicago), licensed to the City Colleges of Chicago (CCC), offers 5 
1/2 hours of instructional programming each weekday. In 2  1/2 years,
students can fulfill virtually all requirements for an associate's degree
from CCC by participating in WYCC's telecourses.

Public Television Stations Provide a Variety of Nonbroadcast Services

Public television stations provide a variety of nonbroadcast services to
meet local and national needs. As set forth in the Communications Act,
public television stations constitute local community resources for using
electronic media to address national concerns and solve local problems
through outreach and other community programs.^23 Some public television
services are federally funded and centrally facilitated, but involve some
local implementation. These services include Ready To Learn, TeacherLine,
and the Digital Emergency Alert System, which address both national and
local needs, such as literacy, teacher training, and emergency response.
Other services are developed and administered at the local level to meet
needs of the station's communities. We identified four primary types of
nonbroadcast services: educational, civic engagement, health, and
emergency services.

Educational Services.  Educational services extend the value of public
television's electronic resources, especially broadcast programming and
Web resources, to help fulfill a variety of local and national educational
needs. These services are rooted in the historical education mission of
public television and are the most common type of services provided by the
stations we interviewed. For the most part, public television's
educational services are designed to align with local and national
standards.

Public television's centrally facilitated educational services help
prepare children for school, train teachers, and provide teaching
resources; these services often rely on federal funding and involve some
local implementation. The Department of Education's Ready To Learn
initiative was a joint initiative of PBS and 149 public television
licensees and included educational programming, workshops, books and
magazines, Web sites, and classroom resources. Until recently, almost all
public television licensees provided local outreach in association with
Ready To Learn, including workshops for over 140,000 caregivers and
teachers annually, focusing on linking concepts presented in programs to
skill-building activities. Many aspects of the program are being continued
or modified under the new Ready To Learn and Ready to Lead in Literacy
initiatives, with less emphasis on local-level workshops and greater
emphasis on educational programming and more geographically limited,
need-targeted outreach. Another initiative featuring PBS and station
involvement is TeacherLine, which is funded through the Department of
Education's Ready to Teach program. TeacherLine provides pedagogical and
content training for teachers, consistent with national and state
standards. Over 22,000 teachers in all 50 states and the District of
Columbia enrolled in TeacherLine courses from 2000 through 2005. While PBS
provides access to the online courses, several stations customize or
supplement course modules for teachers in their region, and many higher
education institutions provide graduate credit for TeacherLine courses. In
addition to these initiatives, PBS offers TeacherSource, a Web site that
provides at least 3,000 free lesson plans, designed to be consistent with
individual state education standards, for teachers of grades pre-K through
12.

At the local level, stations initiate a variety of other educational
services. Station officials whom we spoke with cited many examples of
educational services, including the following:

oStations 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.

oMany 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.

oMany 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:

oSDPB (Vermillion, South Dakota) provides video streams of all state
legislature committee meetings and audio streams of Public Utilities
Commission meetings on its Web site.

oKYUK (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.

oWKYU (Bowling Green, Kentucky) organized a "Living Will" symposium that
attracted 500 people who created living wills with the assistance of an
attorney at no charge.

Health Outreach. Many stations provide educational programming on health
issues combined with outreach programs to expand the reach of the
messages. Two examples follow:

oWTTW (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.

oNumerous 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.^24 The next phase of the DEAS program includes the extension
of the system so that all public television stations can transmit
information to local first responders and the public, potentially enabling
near universal service throughout the United States once the program is
complete.

Many stations have developed other emergency services, often in
partnership with local organizations, such as the following:

oTo 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.

oSome stations, such as MAINE (Lewiston, Maine), provide AMBER Alerts,
emergency messages broadcast when a law enforcement agency determines that
a child has been abducted and is in imminent danger.

Individuals, Businesses, and the Federal and State Governments Provide the
Majority of Funds for Public Television

Public television receives funding from many sources, the most important
of which are individuals, businesses, and the federal and state
governments. In 2005, public television licensees reported annual revenues
of $1.8 billion, of which 15 percent came from federal sources. However,
the relative sources of funds differ significantly from licensee to
licensee; licensees with less operating revenue (small licensees) and
licensees that provide service in small television markets receive a
larger percentage of revenues from federal sources than do licensees with
more operating revenue (large licensees) and licensees that provide
service in large television markets. In addition to basic support provided
through CPB, the Congress provides funds for public television to help
licensees complete the DTV transition. Licensees consider federal funding
important for their operations, and many suggested that its elimination
would lead to staff reductions and less local programming and services.
Finally, federal funds help support PBS and the production of national
programming.

Public Television Licensees Receive Funding from Many Sources; However,
Small Licensees and Licensees in Small Television Markets Exhibit Greater
Dependence on Federal Funds

Public television licensees receive the majority of their revenues from
four sources: individuals, businesses, and the federal and state
governments. In 2005, the 177 public television licensees reported
revenues of $1.8 billion. Of the $1.8 billion, contributions from
individuals account for 25 percent, and business support, state support,
and federal support each account for 15 percent. The remaining sources
make up about 30 percent of licensees' total revenues. Figure 6
illustrates the sources of revenues for public television licensees in
2005.

Figure 6: Percentage of Revenue from Various Sources for Public Television
Licensees, 2005

The sources of revenues vary according to the type of licensee--community,
local, state, or university. Table 1 lists the sources of revenues for
different types of licensees in 2005. Community licensees received a
significant percentage of revenues from individuals, businesses, and the
federal government through CPB. Local licensees received a large
percentage of revenues from local governments, state licensees received a
large percentage of revenues from state governments, and university
licensees received a large percentage of revenues from universities. The
percentage of revenues from the federal government varied modestly across
the types of licensees, with the state licensees receiving the lowest
percentage.

Table 1: Percentage of Revenue from Various Sources and Type of Public
Television Licensee, 2005

                                        

                               Type of licensee  
             Source                    Community   Local   State   University 
Individuals                              30.7    14.9    14.1         15.8 
Business                                 17.0    12.5     5.9          6.0 
State government                         11.5     8.6    43.9         11.8 
Federal government--CPB                  19.3    19.2    15.4         19.8 
Foundation                                5.5     1.8     2.6          2.8 
University                                2.5     0.6     1.8         34.8 
Local government                          2.4    36.4     7.5          3.7 
Other                                    11.1     6.0     8.8          5.3 
Total                                   100.0   100.0   100.0        100.0 

Source: GAO analysis of SABS data.

Note: The percentages refer to the mean percent per licensee to account
for differences in the size of licensees.

The percentage of revenue received from the federal government through CPB
decreases significantly as the size of the licensee increases;^25 in
particular, CPB distributes funds through a statutory formula designed to
consider the financial needs and requirements of stations and to maintain
and stimulate new sources of nonfederal support.^26 Table 2 provides data
for 2005 on the sources of revenues for licensees of different sizes. For
the smallest licensees, those with revenues of less than $3.0 million,
federal support through CPB represented 33 percent of the average
licensee's revenues. In fact, federal support provides over 40 percent of
the revenuesfor 9 licensees.^27 Alternatively, among the largest
licensees, those with revenues exceeding $10.7 million, federal support
made up about

10 percent of total revenues for the average licensee.^28 Large licensees
received a greater percentage of revenues from individuals, businesses,
state governments, and foundations than did small licensees.

Table 2: Percentage of Revenue from Various Sources and Size of Public
Television Licensee, 2005

                                        

                    Licensee operating revenues (in 
                               millions)            
        Source                       Less than $3.0 $3.0 to $5.5 to More than 
                                                       $5.5   $10.7     $10.7 
Individuals                                 15.9    23.7    26.5      26.0 
Business                                     9.5    12.4    12.6      13.1 
State government                            11.2    12.9    16.6      19.5 
Federal                                     32.9    18.7    14.3      10.3 
government--CPB                                                            
Foundation                                   4.3     2.3     3.5       6.0 
University                                  13.9    19.4    10.0       8.3 
Local government                             3.0     2.3    10.1       6.0 
Other                                        9.3     8.3     6.4      10.8 
Total                                      100.0   100.0   100.0     100.0 

Source: GAO analysis of SABS data.

Notes: The number of licensees in each category is 44 for "Less than
$3.0," 44 for "$3.0 to $5.5," 44 for "$5.5 to $10.7," and 45 for "More
than $10.7." The percentages refer to the mean percent per licensee to
account for differences in the size of licensees.

A similar trend appears when we consider the size of the television market
where the licensee operates. In larger television markets, licensees have
access to larger numbers of individual donors, businesses, and foundations
and thus would generally be less reliant on federal support. Table 3
provides data for 2005 on the sources of revenues for licensees in
television markets of different sizes. On average, among licensees in the
smallest television markets, those with revenues of less than $46.2
million, federal support through CPB represented about 27 percent of
revenues. Conversely, for licensees in the largest television markets,
those with revenues exceeding $313.0 million, federal support made up an
average of 12 percent of revenues. As anticipated, licensees in large
television markets received a larger proportion of revenues from
individuals, businesses, and foundations than did licensees in the
smallest television markets.

Table 3: Percentage of Revenues from Various Sources and Size of
Television Market, 2005

                                        

                     Size of television market   
                           (in millions)         
        Source                   Less than $46.2 $46.2 to $107.6 to More than 
                                                   $107.6    $313.0    $313.0 
Individuals                              19.5     23.9      22.5      27.8 
Business                                  8.3      9.7      14.1      14.7 
State government                         10.6     15.3      19.6      14.2 
Federal                                  27.2     21.6      14.7      12.3 
government--CPB                                                            
Foundation                                2.8      4.0       4.3       5.4 
University                               18.5     15.0       9.6       9.9 
Local government                          2.8      3.7       7.3       6.8 
Other                                    10.3      6.8       7.9       8.9 
Total                                   100.0    100.0     100.0     100.0 

Source: GAO analysis of SABS data.

Notes: We used total commercial television advertising revenue to measure
the size of a television market. The number of licensees in each category
is 42 for "Less than $46.2," 43 for "$46.2 to $107.6," 43 for "$107.6 to
$313.0," and 45 for "More than $313.0." We did not receive information on
television market advertising revenue for four licensees. The percentages
refer to the mean percent per licensee to account for differences in the
size of licensees.

Most Licensees Received Federal Support for the DTV Transition

For commercial and noncommercial television stations, the DTV transition
requires a substantial capital investment. In 2002, we reported that
stations would incur capital costs of approximately $3.0 million each for
the DTV transition.^29 Stations must overhaul and replace the transmitting
equipment, including perhaps replacing the antenna, and studio equipment.

In addition, during the DTV transition, stations must operate both an
analog and digital transmitter, which increases the stations' operating
expenses.^30

To help public television licensees complete the DTV transition, since
1999, the Congress has appropriated nearly $400 million for CPB, NTIA, and
the Rural Utilities Service (RUS) of the Department of Agriculture. CPB
operates the Digital Distribution Fund, which provides grants for digital
transmission equipment necessary to comply with FCC's regulations. In
2006, CPB offered grants of $500,000 for each transmitter, and stations
were required to match 25 percent of the cost of the project.^31 NTIA,
through its Public Telecommunications Facilities Program, also provides
grants to licensees. In 2006, NTIA required stations to match 25 percent
to 50 percent of the cost of the funded project. Finally, RUS operates the
Public Television Station Digital Transition Grant Program. This program
provides support for rural licensees and does not require matching funds
because of the financial burden of the DTV transition for rural
licensees.^32 NTIA officials said that the agency coordinates with
officials at CPB and RUS to prevent duplication; however, RUS officials
noted that a licensee could receive support from more than one agency, as
long as the support funded different equipment.

Licensees with whom we spoke reported receiving support for the DTV
transition from a variety of sources. Forty-two of 54 licensees reported
receiving some form of support from the federal government. Among the
three grant programs, licensees most frequently cited CPB's Digital
Distribution Fund and NTIA's Public Telecommunications Facilities Program.
In addition to federal support, many licensees reported receiving support
from a state government. Licensees also reported receiving funding from
universities, licensee capital campaigns, licensee operating funds, and
gifts.

Public Television Licensees Consider Federal Funding to Be Important

Twenty-three of the 54 licensees with whom we spoke said that federal
funding was important for their operations. In particular, federal funding
has several positive attributes for licensees. First, licensees have
generally broad discretion with federal funds and therefore can use these
funds for general station operations.^33 Funding from other sources,
especially foundations, is generally restricted to specific projects or
programs, potentially limiting the licensee's ability to respond to
changing needs. Second, licensees incur relatively minimal costs to secure
federal funding, compared with funding from other sources. Finally, some
licensees noted, federal funds are a vehicle to attract other funds. For
example, WVPB (Charleston, West Virginia) said that the state government
considers federal funding a source of matching support, and the state
government is willing to appropriate state funds because the licensee will
also receive federal funding.

If federal funding were reduced or eliminated, some licensees would need
to reduce their level of service. In a report prepared for CPB, McKinsey
and Company projected that in response to a 15-percent reduction in total
revenues, licensees would need to reduce staff by 26 percent and reduce
local programming by 40 percent.^34 Twelve licensees with whom we spoke
noted that another source of funds does not exist that could fill the void
that would be left if federal funding were reduced or eliminated. Eleven
licensees said that the station would discontinue operations if federal
funding were eliminated; these were generally smaller licensees in smaller
television markets. However, a larger number (30) said that they would
need to reduce staff, local programming, or services. Some licensees noted
that they must continue to purchase PBS programming, because this
programming attracts viewers and therefore membership and underwriting
support. Thus, some licensees would likely reduce local programming, which
is more costly to produce. Furthermore, three licensees said that they
would need to reduce or eliminate television service to more rural areas
of their service territory.

Several licensees with whom we spoke had incurred funding reductions in
the past and responded with reductions in staff, local programming, and
services. For example, according to three licensees, the state of
Tennessee reduced state funding for public television licensees by 9
percent. In response, these licensees undertook the following actions:

oWETP (Knoxville, Tennessee) eliminated instructional programming, delayed
sign-on until 3:00 pm, and reduced staff benefits.

oWCTE (Cookeville, Tennessee) reduced staff, staff benefits, and local
programming.

oWNPT (Nashville, Tennessee) reduced staff and local programming.^35

In addition, WNMU (Marquette, Michigan) lost 40 percent of its state
support and eliminated 12 staff positions from a total of 36. KLCS (Los
Angeles) lost $1.3 million in support from the Los Angeles Unified School
District and eliminated 33 staff positions from a total of 76.

Federal Funds Also Support PBS Nationwide Programming

The three largest revenue sources for PBS are underwriting, member station
assessments, and CPB and other federal sources. In 2005, PBS's revenues
were $532 million. Of this total, $192 million, or 36 percent, came from
underwriting.^36 PBS also received $163 million from member station
assessments and $70 million from federal sources, such as funds from
CPB.^37 In fiscal years 2000 though 2005, PBS's annual revenues ranged
between $489 million and $542 million. During this period, member station
assessments typically increased on a yearly basis, while funding from the
remaining sources varied from year to year. Among licensees with whom we
spoke, eight indicated that a reduction or elimination of federal funding
could negatively affect PBS programming.

In 2004, PBS formed the PBS Foundation to increase the long-term stability
of the organization. According to PBS staff, the foundation is a 509(a)(3)
supporting organization and operates exclusively for the benefit of PBS.
The foundation conducts fund-raising activities to support PBS's needs and
PBS controls the foundation through various bylaw requirements. According
to PBS staff, the foundation has raised over $17 million, including $2.4
million from the Ford Foundation for the foundation's operating
expenses.^38

Public Television Stations Are Pursuing a Variety of Nonfederal Funding
Sources, but Substantial Growth to Offset a Reduction or Elimination of
Federal Support Appears Unlikely

While contributions from individual members represent a significant source
of revenue, this source is not expected to grow significantly in the
future. Alternatively, public television officials consider major giving a
source of long-term revenue growth, and CPB has initiated a major giving
initiative to cultivate major donations. Foundations provide funding to
public television, but generally only support capital and other projects,
and not station operations. The trend in underwriting support has been
mixed, with some licensees experiencing increases and others decreases.
While some licensees favor an easing of the statutory and regulatory
restrictions on underwriting activities, many licensees do not share this
sentiment. Finally, licensees generally receive minimal revenues from
ancillary and miscellaneous activities.

Basic Membership Revenue Is Not Expected to Grow Significantly in the
Future

Basic membership, or gifts from individuals of less than $1,000, has been
a mainstay of public television for many years. Among the 54 licensees
with whom we spoke, several mentioned that their stations began on-air
membership campaigns during the late 1960s and early 1970s to increase
revenue. Almost all licensees receive contributions from individuals, and
with the exception of several local licensees,^39 the licensees with whom
we spoke conduct membership campaigns.

While basic membership serves as an important source of revenue for
licensees, recent trends indicate that this source of revenue is
decreasing. Both the number of members and the average gift size determine
the amount of basic membership revenue that a station receives. According
to CPB, the number of public television members has decreased from 4.7
million in 1999 to 3.6 million in 2005. At the same time, the average
annual gift has increased from $79 to $97. As a result, annual basic
membership revenue has decreased about $24 million, or 6 percent, from
$373 million in 1999 to $349 million.

Several factors appear to be contributing to the decrease in the number of
members and basic membership revenue. According to a study prepared by
McKinsey and Company for CPB, increased competition for gifts from a
growing number of nonprofit entities, more viewer choices, and less
familiarity with public television are expected to contribute to declines
in the number of members and basic membership revenue. Additionally, the
free-rider problem hinders the ability of licensees to acquire members.
The free-rider problem refers to the tendency of individuals not to
contribute to a service that they can receive free of charge; in the case
of broadcast television, individuals can view the station's signal without
contributing. Furthermore, officials at licensees with whom we spoke said
that increasing the number of members and basic membership revenue is
difficult for the following reasons:

oCompetition for charitable gifts has increased because more nonprofit
entities are seeking gifts.

oViewers 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.

oIn 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)^40--that the stations broadcast during
their on-air membership campaigns. However, several licensees said they do
not use the traditional SIP programming. Rather, these officials stated
that airing programming that viewers most enjoy or local programming,
rather than the SIP programming package, could attract more viewers during
on-air membership campaigns and thereby increase the number of members and
basic membership revenues.^41 Some station officials added that
discovering what programming viewers most enjoy and airing that
programming could be important to increasing the number of members and
basic membership revenues. In addition, some officials told us that
involvement in community activities is more important to attracting
members and gifts than are on-air membership campaigns.

Major Giving Is Seen as Having Potential for Long-Term Growth

To improve the financial sustainability of public television, in 2003, CPB
launched a major giving initiative to help stations increase gifts of
$1,000 or more. According to CPB officials, public television lags behind
most other nonprofit organizations in designing and implementing campaigns
to garner major gifts.^42 For example, in 2005, 13 percent of revenues
from members came from gifts of $1,000 or more. In contrast, CPB noted
that other nonprofit organizations receive a much larger share of revenue
from major gifts.

Since acquiring major gifts requires an approach much different from
traditional membership campaigns, CPB implemented a capacity building
program for station staff. Acquiring major gifts requires one-on-one
contact with current and potential donors, instead of the retail-oriented
effort associated with on-air membership campaigns. The major giving
initiative also requires station management and staff alter their
traditional roles. For example, the station manager must focus not just
internally on station operations, but also externally on fund-raising. The
capacity building program consists of four elements:

oteam leadership meetings attended by the station's chief executive
officer, board members, and chief development officer to involve top
station management;

ocurricula delivered via Web lectures once a month for 6 months, with
follow-up teleconferences among various station groups to share
experiences;

oon-site consulting to help the stations implement their specific plans;
and

oa 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.^43

According to CPB, early results from the major giving initiative appear
encouraging. In 2004, licensees received $49.3 million in major giving
revenue. However, in 2005, the first full year of the major giving
initiative, revenue from this source increased by about 3 percent to $50.8
million. Furthermore, among the first group of licensees participating in
the major giving initiative,^44 major giving revenues increased from $16.2
million in 2004 to $19.2 million in 2005, or 18 percent in 1 year. CPB
also cited several examples of major gifts: KCET (Los Angeles) and WNPT
(Nashville, Tennessee) both received $1,000,000 gifts while KWCM
(Appleton, Minnesota) received a $100,000 estate-related gift. Among the
54 licensees with whom we spoke, several also mentioned early successes.
For example, an official at KNME (Albuquerque, New Mexico) told us that
the station increased major giving revenue from $35,000 in 2004 to $1.1
million in 2005.

While the major giving initiative has generated some early successes, CPB
and licensees noted that realizing the benefits of the initiative requires
a long-term effort. Of the 54 licensees we spoke with, 16 said that major
giving is a long-term effort. CPB noted that acquiring major gifts
requires a lengthy period of courtship and confidence building. As a
result, CPB said, it will take several years for the major giving
initiative to mature and CPB will not have definitive quantitative
measures until 2009. Furthermore, CPB does not anticipate that increases
in major giving revenues will offset decreases in basic membership
revenues for several years. Thus, major giving appears to hold promise,
but at this early stage, it is difficult to project how much funding the
initiative will generate and whether it will benefit all stations,
especially those in rural and low-income areas.

Foundations Typically Provide Support for Projects and Capital, but Not
Station Operations

Most licensees receive support from foundations; but, the amount varies
significantly between licensees. According to our analysis of SABS data,
158 of 177 licensees received foundation revenue in 2005. However, the
largest 25 percent of licensees received an average of $2.1 million from
foundations while the remaining 75 percent of licensees received an
average of $153,520. Officials from the Ford Foundation noted that
stations in large cities can more easily attract foundation support than
stations in smaller cities and rural areas.

In general, foundations provide support for specific projects, such as
capital expenditures and programming, and not for general station
operations. Among licensees with whom we spoke, many said that foundations
provide support for specific projects. For example, officials at Prairie
Public Broadcasting (Fargo, North Dakota) noted that the station received
foundation support to implement the major giving initiative and the DTV
transition. Again, officials from the Ford Foundation said that few
foundations provide general support for public television, but that some
foundations support particular programs or projects.

From 1999 through 2004, CPB data show that foundation revenues increased
19 percent, from $97 million to $115 million; however, in 2005, foundation
revenues remained at $115 million. Among the licensees we contacted, many
said that they do not expect a significant increase in support from
foundations. Some licensees do not receive or seek foundation support
because there are no, or a very limited number of, foundations in their
local area. Other licensees said that foundation support is increasingly
difficult to obtain because of greater competition from other nonprofit
organizations for foundation support. These officials added that many
foundations seek out projects that have a direct and measurable impact on
a population and that it is difficult to measure the impact of public
television programming.

Underwriting Revenues Are Generally Flat, and Licensees Express Mixed
Opinions about Greater Commercialization of Underwriting

The Communications Act and FCC regulations establish parameters for
underwriting acknowledgments. Unlike commercial television stations,
public television stations are prohibited from airing advertisements.
However, public television stations are permitted to acknowledge station
support and, without interrupting regular programming, may acknowledge
underwriters on air. Such acknowledgments may not promote the
underwriters' products, services, or businesses, and may not contain
comparative or qualitative descriptions, price information, calls to
action, or inducements. Within these statutory and regulatory parameters,
individual licensees develop and implement underwriting policies for their
stations. For example, in 2004, we reported that an equal number of
licensees aired and did not air or plan to air, 30-second underwriting
acknowledgments.^45 In addition, PBS established guidelines that govern
how underwriters of PBS-distributed programs may be identified on air. PBS
guidelines specify that the maximum duration for all underwriter
acknowledgments for PBS-distributed programs may not exceed 60 seconds,
and generally the maximum duration for a single underwriter may not exceed
15 seconds.^46

Virtually all public television licensees receive underwriting support,
although the amount varies greatly among licensees. According to our
analysis of SABS data, 173 of 177 licensees received underwriting support
in 2005. Among licensees with whom we spoke, 11 said that local
businesses, such as banks, legal offices, medical facilities, and retail
businesses, provided most of their underwriting support. For licensees
receiving underwriting support, the average amount of underwriting revenue
was $1.6 million in 2005. However, licensees' experiences differ
dramatically. The largest 25 percent of licensees, in terms of total
revenues, received on average $4.6 million of underwriting support.
Conversely, the remaining 75 percent of licensees received just $544,245
on average.

Licensees with whom we spoke experienced mixed results with underwriting.
In a 2003 report for CPB, McKinsey and Company suggested that underwriting
represented a potential source of revenue growth. Consistent with this
assessment, 11 licensees said that underwriting revenues have increased.
Among factors contributing to the increases in underwriting revenues,
licensees cited hiring new staff, implementing a packaged strategy through
which companies sponsor a single program over an extended period of time,
and adding local sports to the programming schedule. However, eight
licensees said that underwriting revenues have decreased. These licensees
cited increased competition for corporate dollars, a lack of staff or
turnover among underwriting staff, and poor economic conditions in the
local area as contributing to the decrease in their underwriting revenues.

Among the 54 licensees with whom we spoke, some noted that corporate
consolidation and an increased advertising focus among corporations have
negatively affected underwriting. Twelve licensees said that corporate
consolidation hinders underwriting activities. For example, some licensees
mentioned that corporate offices and facilities have moved from their
service area, thereby eliminating a source of underwriting support.
Similarly, some licensees said that distant corporate headquarters limit
the discretion of local branch operations in terms of underwriting and
other charitable contributions. Twenty-two licensees said that
corporations increasingly adopt an advertising approach to underwriting.
Some licensees note that corporate marketing departments and national
advertising agencies increasingly handle underwriting activities, rather
than corporate philanthropy departments.^47 With the greater emphasis on
advertising, corporations and advertising agencies seek out programming
with high ratings and targeted demographics.

In response to the changing environment, some licensees favor less
restrictive underwriting regulations and policies. In particular, 11
licensees favor greater flexibility for on-air underwriting
acknowledgments, including perhaps permitting calls to action and price
quotes. The licensees favoring greater underwriting flexibility serve
large television markets or an entire state. These licensees said that
greater underwriting flexibility

owould enable the licensee to increase underwriting revenues;^48

owould allow corporations to use the same advertisement on commercial and
public television, thereby enabling them to avoid the cost of developing
multiple advertisements;

owould not represent a significant change, since underwriting
acknowledgments and pledge drives have already become commercialized; and

owould 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.^49 The amendments authorized 10 public television
stations to experiment with paid commercials for 18 months.^50 Following
the experiment, the commission concluded that potential revenues from
advertising were limited in scope and that the avoidance of significant
risks to public broadcasting could not be ensured. However, one licensee
with whom we spoke that participated in the
experiment said that all sources of its revenues increased, including both
membership and underwriting revenues.^51

Among licensees with whom we spoke, 19 oppose greater flexibility. These
licensees said that greater underwriting flexibility

owould 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;

owould upset viewers and contribute to a decline in membership support;

ocould threaten a licensee's ability to receive financial support from a
state government; and

owould be inconsistent with the mission of public television and could
alter programming decisions.

Ancillary Revenues Are a Minor Source of Funding for Many Licensees

Ancillary and miscellaneous revenues represent another nonfederal funding
source. According to our analysis of SABS data, 151 of 177 licensees
received ancillary and other miscellaneous revenue in 2005. Although many
licensees receive ancillary and miscellaneous revenues, these are
generally not significant sources of funding. On average, these sources
contributed $691,648 per licensee in 2005.^52 However, just as it does
from underwriting, the amount of funding from these sources varies
significantly across licensees. Whereas the largest 25 percent of
licensees receive approximately $2.3 million on average in annual
ancillary and miscellaneous revenue, the remaining 75 percent of licensees
receive $141,936 on average.

Among the 54 licensees with whom we spoke, 30 mentioned receiving
ancillary and other miscellaneous revenues. Sixteen of these licensees
said ancillary and miscellaneous revenues constituted a relatively minor
source of revenue.^53 Licensees cited many examples of ancillary and
miscellaneous activities, including the following.^54

oTower 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.^55 These leases represent a
source of ancillary revenue; however, in one instance, the licensee leases
tower space to state government agencies at below-market rates, thereby
lowering the possible tower leasing revenue.

oLicensees 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.

oSeveral 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.

oWYES in New Orleans operates YES Productions, a for-profit subsidiary.
This subsidiary produces most of the sports-oriented programming in the
New Orleans metropolitan area, including the National Basketball
Association Hornets games, as well as concerts and other entertainment
events. According to WYES staff, YES Productions is the largest source of
revenues for the licensee.

Public Television Is Unlikely to Generate Significant Additional Back-End
Revenues

Some television programs generate back-end revenues from separate business
ventures, such as syndication, the sale of books and videos, and the sale
of clothing and toys. In commercial television, broadcast networks and
cable channels receive rights to these back-end revenues, and the
distribution of these rights depends on the relative amount of up-front
investment in the development and production of programming that each
participant contributes. In public television, CPB and PBS also negotiate
for and receive rights to back-end revenues. The extent to which CPB and
PBS share in the back-end revenues depends on the relative amount of
up-front investment and the importance of PBS as a distribution outlet for
producers of programming. While CPB and PBS receive between $7 million and
$10 million annually in back-end revenues, a significant increase in this
source of revenues appears unlikely.

Television Programs Can Generate Back-End Revenues

Some television programs generate back-end revenues, which arise from
separate business ventures associated with the program. Such business
ventures include syndication, sales of books and videos, and sales of
clothing and toys.^56 For example, Sesame Street generates back-end
revenues from the sale of books, clothing, DVDs, and toys; and Seinfeld, a
situation comedy broadcast on NBC from 1990 to 1998, generates back-end
revenues from syndication and the sale of DVDs.

The Commercial Model for Rights to Back-End Revenues

Broadcast networks and cable channels produce some, but not all, of the
programming they distribute. Traditionally, studios, such as television
divisions of movie studios, produced the vast majority of programming for
broadcast networks.^57 Today, broadcast networks and cable channels have
several ways to procure programming, including purchasing the programming
from an external supplier, such as a studio; entering a joint venture with
an external supplier; or producing the programming internally. Broadcast
networks typically produce programming for certain parts of the day
internally, including morning shows, news and new magazines, and sports;
daytime, prime-time, and children's programming are more likely to be
externally produced. Among the three cable channels we contacted, one
relies primarily on internal production while the other two primarily
purchase programming from external suppliers.

In commercial television, investment in the up-front development and
production of a program influences the relative distribution of back-end
revenues. We were told that the financing and rights associated with a
program are as unique as the program itself, and therefore each financing
and rights structure arrangement is unique. However, the extent of
up-front investment in the development and production of programming
greatly influences the financing and rights structure. Because of the
large costs and risks associated with developing and producing television
programming,^58 entities providing a significant share of the funding and
assuming the financial risk seek and generally receive a greater portion
of the rights to back-end revenues. Thus, we were told that the more
funding an entity provides, the greater will be its share of back-end
revenues. Descriptions follow of the primary approaches to funding
commercial television programs and the associated back-end rights.

oFor 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.^59

oFor externally produced programming and coproductions, the broadcast
network or cable channel funds a lesser portion of the program development
and production. For externally produced programming, the network or cable
channel pays a license fee for the program, which may cover one-half to
two-thirds of the production costs; for coproductions, the network or
cable channel provides funding in excess of the typical license fee.
However, in either instance, the external supplier must arrange financing
to cover the remainder of the development and production costs, referred
to as the production deficit. If the network or cable channel pays only
the license fee, it may not receive rights to back-end revenues, although
it may share in back-end revenues with coproductions.

Public Television Negotiates for and Receives Rights to Back-End Revenues

As we mentioned earlier, public television acquires programming from a
variety of sources. PBS does not produce programming but rather acquires
programming from two primary sources: producing public television stations
and independent producers. WETA, WGBH, and WNET are the major producing
stations. The producing stations operate as a production company,
producing programming internally and also coproducing programming with
outside suppliers. Independent producers deliver programming directly to
PBS or producing stations. For example, Ken Burns, Scholastic, and Sesame
Workshop produce programming for public television.

Much like their counterparts in commercial television, CPB and PBS
negotiate financing and rights arrangements with producing stations and
independent producers. One academic expert with whom we spoke said that
two factors influence the rights structure: the size of the up-front
investment and the importance of PBS as a distribution outlet for an
outside supplier. For public television as for commercial television, a
larger up-front investment generally leads to a greater portion of the
back-end rights and associated revenues. The importance of PBS as a
distribution outlet is such that, several producers said that they prefer
to distribute their programming through public television. For example,
two producers of children's programming said they prefer to distribute
their programs through public television because of the high-quality,
education-based programming distributed by PBS and public television. In
these instances, CPB and PBS might receive a more favorable back-end
rights arrangement than the extent of their up-front investment would
ordinarily warrant because these producers desire PBS distribution for
their programs.

In response to criticism about its arrangement with the producer of Barney
& Friends,^60 CPB revised its revenue-sharing policy in 1997.^61 The
stated objectives of the revised policy include ensuring the availability
of quality programming, reflecting consideration of producers' objectives,
and capturing windfall revenues. To fulfill these objectives, CPB created
three categories of programming, each with a somewhat different rights
structure.

oChildren'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.

oMajor 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.

oOther 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.^62 In general, PBS holds rights to
back-end revenues in perpetuity. However, several factors influence the
percentage of back-end revenues that PBS receives. According to PBS staff,
these factors include the extent of PBS's investment in the production,
the program genre and existence of a production deficit, and obligations
to third parties. The program genre is a factor because PBS typically
receives a larger percentage of back-end revenues from children's
programming than it does from prime-time programming. PBS believes that
its distribution adds considerable value to children's programming; and
therefore, it possesses greater leverage with producers of such
programming. This allows PBS to negotiate a more favorable rights
structure for children's programming, compared with prime-time
programming. With prime-time programming, PBS frequently allows producers
to recoup much of the production deficit before PBS begins sharing the
back-end revenues. With children's programming, PBS frequently receives a
share of back-end revenues proportional to its up-front investment and
typically receives these revenues sooner than it would with prime-time
programming.

Public Television Is Unlikely to Realize Significant Back-End Revenues

CPB and PBS both receive back-end revenues. CPB reports receiving between
$100,000 and $300,000 annually from back-end sources since 2003. According
to PBS staff, since 2000, PBS has received between $7 million and $10
million annually from back-end sources.^63 PBS's back-end revenues exceed
CPB's because (1) PBS funds a greater percentage of children's
programming, which more frequently generates back-end revenues; and (2)
CPB allows PBS to retain and reinvest CPB's share of back-end revenues
earned on many programs that CPB funds through PBS. Thus, in aggregate,
CPB and PBS receive about $7 million to $10 million annually from back-end
sources.^64

Commercial broadcast networks and cable channels also receive back-end
revenues. According to some networks and cable channels, ancillary
revenues from product sales are not a major source of revenue. Cable
channels rely on advertising and subscriber fees for revenue and do not
depend on ancillary sales for financial sustainability. For example, one
cable channel told us that ancillary product sales represent about 1
percent of the channel's total revenues. However, syndication can
represent another source of revenue for broadcast networks.

Given its statutorily defined mission and limited financial resources, it
would likely be difficult for public television to substantially increase
back-end revenues. We identified four constraints to public television's
realizing significant back-end revenues: (1) relatively few programs are
successful, (2) net proceeds are a small percentage of gross retail sales,
(3) public television does not generally make significant up-front
investments in program development and production, and (4) public
television faces competition in the distribution of programming.

Few Programs Are Successful. In commercial television, relatively few
programs achieve long-term success. A broadcast network might receive 500
to 800 proposals yearly for new programs, and of these, the network might
place orders for 12 to 14. Furthermore, only about one-third of new
programs return the following year. Thus, we were told that picking a hit
is risky. To earn syndication revenue, a program generally must air for 4
years. Regarding ancillary product sales, we were told that a couple of
programs might yield most of a cable channel's revenues. Because success
is infrequent and uncertain, commercial television production is a
portfolio business, and a company must have many programs in the pipeline
at any given time to ensure that some are successful.

Officials from CPB and PBS, as well as major producing stations WGBH and
WNET, said that their organizations do not base funding or programming
decisions on the potential to generate back-end revenues. Rather, these
organizations make funding and programming decisions that further the
mission of public television. As a result, most public television programs
do not generate significant back-end revenues. We were told that
children's programming and Ken Burns' productions have the greatest
likelihood of commercial success. However, these programs are anomalies
and are not guaranteed to generate back-end revenues. For example, WGBH
staff mentioned that Between the Lions generates little back-end revenue,
even though it has been successful in attracting viewers. Similar to the
experience of commercial networks and cable channels, PBS staff said that
in 2005, 90 percent of their organization's back-end revenues came from
just 23 series.

Net Proceeds Are a Small Percentage of Gross Retail Sales. For both
commercial and public television, we found that the net proceeds to
producers and investors in program-related business ventures are a small
fraction of the retail sales prices. For general merchandise associated
with a television program, such as toys, the producer enters into an
arrangement with one or more manufacturers. The manufacturer produces and
distributes the merchandise and pays the program producer a royalty for
the sale of merchandise associated with the television program. These
royalties are typically 5 to 15 percent of the wholesale price, which is
typically 50 percent of the retail price. Thus, for example, on a $20
sale, the royalty will typically be $0.50 to $1.50. The difference
represents reductions for manufacturing, distribution, and retail. Figure
7 depicts this relationship.

Figure 7: Retail Price, Wholesale Price, and Royalty Payments for General
Merchandise

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.^65 Thus, CPB and PBS appear to contribute less to the total
production budget for programming than is typical in commercial
television, where the license fee may cover one-half to two-thirds of the
production costs.

Since CPB and PBS contribute modestly to up-front program development and
production, the organizations must share the resulting back-end revenues
with other participants. As discussed above, rights to back-end revenues
are positively correlated with the share of up-front investment. Given
their relative contributions to program development and production, it is
not surprising that CPB and PBS share in the rights to back-end revenues.
Because CPB and PBS provide a modest portion of the up-front program
development and production budget, producers must secure the remaining
funds from other sources, perhaps requiring the producers to establish
relationships with many organizations. For example, WNET said that it
cannot fund its productions with just one or two major participants.^66
Producers may also sell some of the rights to back-end revenues in return
for up-front funding or in-kind support. Finally, some producers are
unable to obtain external funding for an entire program and thus incur
production deficits. In these instances, the back-end revenues allow the
producer to recoup the production deficit. According to PBS and one
producer, most programs are deficit financed.

Increasing the proportion of up-front investment in programming appears to
be beyond the financial capacity of CPB and PBS and could expose the
organizations to significant risks. First, PBS supplies programming for
over 170 public television licensees. To accomplish this, CPB and PBS
provide some funding to producing stations and independent producers, and
rely on these organizations to secure the remainder of the necessary
funding. We were told that CPB and PBS do not have sufficient resources to
both contribute significant amounts to individual programs and ensure
adequate programming for the remainder of the broadcast year. Second,
investing in program development and production involves risks. As noted
above, relatively few programs are successful, and it is difficult to
predict which programs will be successful. Thus, as one broadcast network
told us, television production is a portfolio business in which a few
winners offset losers. Without a significant pool of resources to develop
a portfolio of programming, CPB and PBS could be exposed to significant
financial risk if the organizations made relatively large investments in a
small number of programs. In particular, if the organizations made
relatively large investments in programs and those programs did not
generate sufficient back-end revenues, the organizations might be unable
to adequately supply programming for the remainder of the broadcast year.

Public Television Faces Competition in the Distribution of Programming.
Even with their modest up-front investments, CPB and PBS could seek
greater rights to back-end revenues; however, it is unclear whether the
organizations could receive greater rights because of the presence of
other distribution outlets. We were told that if CPB and PBS became too
aggressive in seeking rights to back-end revenues, producers could
distribute their programming through alternative outlets, such as cable
channels. For example, Nickelodeon represents an alternative distribution
outlet for children's programming. In fact, Sesame Workshop already
distributes two programs--the Upside Down Show and Pinky Dinky
Doo--through cable channels. Other producers confirmed that they
distribute programming through other outlets besides PBS as well.

Agency Comments

We provided a draft of this report to CPB; the departments of Agriculture,
Commerce, Education, and Homeland Security; FCC; and PBS. CPB and PBS
agreed with the report, and their written comments appear in appendixes V
and VI, respectively. The Department of Agriculture neither agreed nor
disagreed with the report, but it emphasized the extensive burden that the
DTV transition imposes on small and rural television stations. The
Department of Education, the Department of Homeland Security, and FCC
provided technical comments that we incorporated as appropriate. The
Department of Commerce had no comments on the report.

As we agreed with your office, unless you publicly announce the contents
of this report earlier, we plan no further distribution until 30 days from
the date of this letter. At that time, we will send copies of this report
to the appropriate congressional committees and to the Secretary of
Agriculture, the Secretary of Commerce, the President and Chief Executive
Officer of the Corporation for Public Broadcasting, the Secretary of
Education, the Chairman of the Federal Communications Commission, and the
President and Chief Executive Officer of the Public Broadcasting Service.
We will also make copies available to others upon request. In addition,
the report will be available at no charge on the GAO Web site at
[46]http://www.gao.gov.

If you have any questions about this report, please contact me at (202)
512-2834 or [47][email protected] . 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.

Mark L. Goldstein
Director, Physical Infrastructure Issues

Appendix I
Scope and Methodology

This report examines the funding and operation of public television
throughout the United States. In particular, the report provides
information on (1) the organizational structure of public television, (2)
the programming and other services that public television provides, (3)
the current funding sources for public television, (4) the extent to which
public television stations are increasing their nonfederal funding support
and developing new sources of nonfederal support, and (5) the extent to
which public television benefits financially from business ventures
associated with programming and how this compares with commercial
broadcasters.

To respond to the overall objectives of this report, we interviewed
officials from the Corporation for Public Broadcasting (CPB), the Federal
Communications Commission (FCC), the National Telecommunications and
Information Administration of the Department of Commerce, and the Public
Broadcasting Service.

For the first objective, we reviewed existing literature on the foundation
and current structure of public broadcasting and reviewed relevant
provisions of the Communications Act of 1934, as amended, and FCC
regulations.

For the second, third, and fourth objectives, we interviewed officials
from 54 of the 173 public television licensees (see table 4). To ensure a
diversity of views, we selected licensees according to their type of
license, total revenues and percentage of total revenues derived from
federal funding, and by the size of the television market where the
licensee operates. We also interviewed officials from the Association of
Public Television Stations, a membership organization representing public
television stations; the Department of Education; the Federal Emergency
Management Agency of the Department of Homeland Security; the Ford
Foundation; the National Science Foundation; the Rural Utilities Service
(RUS) of the Department of Agriculture; and the Urban Institute.

Using data from CPB's Stations Activities Benchmarking Study (SABS), we
analyzed 177 licensees' revenue sources, membership, and programming. (In
2005, the year for which we have SABS data, there were 177 public
television licensees; currently, there are 173 licensees.) SABS is a
data-gathering mechanism through which licensees provide information
annually on their finances and operations; licensees must complete the
study to receive their yearly Community Service Grant, which is the
mechanism through which CPB distributes federal funding to licensees. To
assess the reliability of SABS data, we reviewed relevant information
about the database, including the user manual and a data dictionary, and
we interviewed CPB officials and subcontractors for information on data
quality assurance procedures. We also performed electronic testing to
detect obvious errors in completeness and reasonableness. We concluded
that the SABS data were sufficiently reliable for the purposes of this
report.

For the fifth objective, we interviewed officials from organizations
producing programming for public television, including David Grubin
Productions, Ken Burns (Florentine Firms), HIT Entertainment, Insignia
Films, Lumiere Productions, Scholastic, Sesame Workshop, WETA, WGBH, and
WNET; the Independent Television Service; commercial broadcast networks
and cable channels, including A&E Television Networks, Fox, National
Geographic Channel, Nickelodeon, and NBC; and several experts. We also
reviewed the relevant media economics literature and materials provided by
CBS.

We conducted our review from January through November 2006 in accordance
with generally accepted government auditing standards.

Table 4: Public Television Licensees Interviewed

                                        

Licensee or     Location         Type    Total revenues     CPB funds as a 
     station                                   (thousands)      percentage of 
                                                                total revenue 
KYUK        Bethel, AK        Community          $1,116                 58 
WCTE        Cookeville, TN    Community           1,554                 41 
KNCT        Killeen, TX       University          1,859                 50 
KOOD        Bunker Hill, KS   Community           1,944                 35 
WNMU        Marquette, MI     University          2,047                 34 
KWBU        Waco, TX          Community           2,490                 28 
WKYU        Bowling Green, KY University          3,096                 33 
WDSE        Duluth, MN        Community           3,189                 22 
KUSM        Bozeman, MT       University          3,228                 22 
WVPT        Harrisonburg, VA  Community           3,490                 19 
WPBA        Atlanta, GA       Local               3,632                 20 
WYCC        Chicago, IL       University          3,681                 19 
KCWC        Riverton, WY      University          3,695                 15 
WETP        Knoxville, TN     Community           3,835                 18 
WBRA        Roanoke, VA       Community           4,149                 18 
NOVA        Falls Church, VA  Community           4,200                  6 
WUFT        Gainesville, FL   University          4,555                 17 
WYES        Metairie, LA      Community           4,869                 10 
WNPT        Nashville, TN     Community           5,174                 18 
WHUT        Washington, D.C.  University          5,698                 17 
KAMU        College Station,  University          6,065                 18 
               TX                                                             
KLCS        Los Angeles, CA   Local               6,189                 11 
KAID        Boise, ID         State               6,390                 18 
SDPB        Vermillion, SD    State               6,421                 18 
WVPB        Charleston, WV    State               6,615                 15 
HPTV        Honolulu, HI      Community           6,679                 14 
WKAR        East Lansing, MI  University          6,700                 21 
PPB         Fargo, ND         Community           7,344                 12 
MAINE       Lewiston, ME      Community           7,417                 14 
KNME        Albuquerque, NM   University          7,633                 10 
KLVX        Las Vegas, NV     Local               8,699                 13 
WFSU        Tallahassee, FL   University          9,009                 12 
WPTV        Madison, WI       State               9,818                 12 
KOCE        Huntington Beach, Community          10,285                 15 
               CA                                                             
NETV        Lincoln, NE       State              10,912                 15 
WNYE        New York, NY      Local              11,355                  0 
KUED        Salt Lake City,   University         11,364                 13 
               UT                                                             
METV        Jackson, MS       State              11,642                 12 
WLIW        Plainview, NY     Community          12,338                  7 
KERA        Dallas, TX        Community          13,443                 10 
WHYY        Philadelphia, PA  Community          18,308                 10 
KPBS        San Diego, CA     University         20,481                 10 
IAPT        Johnston, IA      State              21,603                 13 
CPTV        Hartford, CT      Community          22,589                  8 
KTCA        St. Paul, MN      Community          26,554                  8 
KET         Lexington, KY     State              26,881                 11 
MPT         Owings Mills, MD  State              28,746                  9 
KQED        San Francisco, CA Community          30,420                  9 
NJN         Trenton, NJ       State              32,751                  8 
WTTW        Chicago, IL       Community          33,137                  8 
WETA        Arlington, VA     Community          59,012                  6 
KCET        Los Angles, CA    Community          64,487                  7 
WGBH        Boston, MA        Community         161,750                  5 
WNET        New York, NY      Community        $173,728                  8 

Source: GAO analysis of SABS data.

Appendix II
CPB Funding Allocation

On the basis of statutory provisions and the receipt of an annual federal
appropriation from the Congress, CPB makes an annual Community Service
Grant award to each eligible licensee of one or more noncommercial,
educational public television station(s). Table 5 summarizes the criteria
for awarding funds through each of the three component grants of a
Community Service Grant. In addition to the Community Service Grant, CPB
provides Criteria Based Grants, including the Local Service Grant and the
Distance Service Grant; the latter grant provides additional funds for
licensees operating multiple transmitters, which extend television service
to outlying areas.

Table 5: Components of CPB's Community Service Grants

                                        

               Eligibility criteria     Grant amount         Exceptions       
                                       determination                          
Basic grant oThe entity must      o$10,000 is        Not applicable.       
               operate a full-power  awarded to each                          
               noncommercial         licensee.                                
               educational                                                    
               television station                                             
               licensed by FCC.                                               
                                                                              
               oThe public                                                    
               television station                                             
               must be "on the air."                                          
Base grant  Same criteria as for  oBased on the      The Base Grant will   
               the basic grant       amount of the      be modified if:       
               plus:^a               total                                    
                                     appropriation      oMore than one        
               oThe licensee must    received by CPB    licensee has a        
               receive a minimum     from the Congress. station operating in  
               level of nonfederal                      the same market       
               financial support     oBased on the      (known as an          
               during a designated   act's allocation   "overlap" market).    
               previous fiscal year. of 75 percent of                         
                                     public television  oA licensee raised    
               oThe licensee must    funds intended for nonfederal financial  
               maintain transmission distribution among support in excess of  
               and production        licensees of       a maximum-specified   
               capabilities that     stations.          level.                
               meet FCC requirements                                          
               for a noncommercial   oBased on a                              
               educational           predetermined                            
               television station.   amount for each                          
                                     grant set through                        
               oThe licensed station CPB's periodic                           
               must have broadcast   review of the                            
               365 days during a     Community Service                        
               designated previous   Grant program.                           
               fiscal year and for a                                          
               specified minimum                                              
               number of programming                                          
               hours.                                                         
                                                                              
               oThe station's daily                                           
               broadcast schedule                                             
               must be devoted to                                             
               programming that is                                            
               responsive to the                                              
               "demonstrated needs                                            
               of the community" and                                          
               is noncommercial and                                           
               educational,                                                   
               informative, or                                                
               cultural in nature.                                            
Incentive   Same criteria as for  oThe total of all  The Incentive Grant   
grant       the base grant.       nonfederal         will be increased if  
                                     financial support  a licensee that       
                                     raised by public   operates a station in 
                                     television station an overlap market     
                                     licensees is       differentiates its    
                                     determined.        programming.          
                                                                              
                                     oThe percentage                          
                                     share of total                           
                                     nonfederal                               
                                     financial support                        
                                     is determined for                        
                                     each licensee.                           
                                                                              
                                     oOf the funds not                        
                                     already                                  
                                     distributed                              
                                     through the basic                        
                                     and base grants,                         
                                     each licensee                            
                                     receives a                               
                                     percentage of                            
                                     remaining funds                          
                                     that match the                           
                                     licensee's share                         
                                     of total                                 
                                     nonfederal                               
                                     financial support                        
                                     raised.                                  

Source: CPB.

^aNine other eligibility criteria for the base grant are specified by CPB,
including licensees' compliance with regulations on equal opportunity
employment, Internal Revenue Service requirements, provisions of the
Communications Act, and regulations on the use and control of donor names
and lists.

Appendix III
Demographics of Public Television Viewers and Members

This appendix discusses our analysis of the demographic characteristics of
public television viewers and members. Specifically, we discuss (1) our
data sources and methodology, (2) the demographic characteristics of
viewers of public television's prime-time programming, (3) the demographic
characteristics of viewers of public television's children's programming,
and (4) the demographic characteristics of public television members.

Data Sources and Methodology

We required several data elements to assess the demographic
characteristics of public television viewers and members. The following is
a list of our primary data sources.

oWe obtained data on a sample of households in the United States from
Knowledge Networks/SRI, using Knowledge Networks/SRI's product The Home
Technology Monitor^TM: 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.

oWe 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 Monitor^TM 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.^1

Viewers of Public Television's Prime-Time Programming

We found that households viewing public television's prime-time
programming are more likely to be older, to be African American, and to
have children under the age of 18, and are less likely to be Hispanic than
are households not viewing this programming. A greater proportion of
prime-time viewers are age 50 or older, compared with nonviewers in this
age category. However, a greater proportion of prime-time viewers also
report having children under the age of 18; 37.0 percent of viewers report
having children under the age of 18 compared with 33.5 percent for
nonviewers. While 5.3 percent of nonviewers are African American, 9.4
percent of viewers are African American, indicating that African Americans
are more likely to watch prime-time public television programming. By
contrast, Hispanic households make up 8.8 percent of viewers, compared
with 12.3 percent of nonviewers. Prime-time viewers are more likely to
have some college education than nonviewers; 73.6 percent of viewers have
some college education, compared with 68.7 percent of nonviewers. Finally,
we did not find a significant difference in the income level of viewers of
public television's prime-time programming and of nonviewers.

Viewers of Public Television Children's Programming

Households that watch public television's children's programming are more
likely to have low-incomes, to be African American and Hispanic, and to
have children under the age of 18 than households that do not watch this
programming. Of households that watch public television's children's
programming, 9.5 percent report household income of less than $10,000,
compared with 6.1 percent for nonviewers, thereby indicating that the
low-income households are more likely to view public television's
children's programming. Households viewing public television's children's
programming are also more likely than nonviewing households to rely on
over-the-air television, rather than cable or satellite television. Both
African American and Hispanic households are more likely to watch
children's programming; 13.7 percent of households viewing public
television's children's programming are African American, compared with
6.2 percent of nonviewers, and 17.4 percent of viewing households are
Hispanic, compared with 8.2 percent of nonviewers. Finally, and as
expected, households watching public television's children's programming
are more likely to have children under the age of 18, compared with
households not watching this programming.

Public Television Members

Unlike viewers, current and former public television members are more
likely to be older, white, and report higher levels of income. Compared
with households that have never been members of public television, a
larger percentage of current and former member households are age 50 and
older. Furthermore, 80.7 percent of public television members are white,
compared with 74.7 percent of nonmembers, indicating that the white
households are more likely to be current or former members of public
television. Current and former public television members also report
higher income levels than nonmembers; 25.6 percent of current and former
members report household incomes of $100,000 or more, compared with 11.2
percent for nonmembers, and 43.1 percent of current and former members
report household incomes below $50,000, compared with 56.0 percent of
nonmembers. Finally, current and former public television members are more
likely to have college degrees, compared with nonmembers.

Appendix IV
Sesame Workshop

Sesame Workshop (the Workshop), the producer of Sesame Street and several
other children's programs, is an independent 501(c)(3) nonprofit
organization; the Workshop is not affiliated with public television or any
government agency. To help ensure its financial self-sufficiency, the
Workshop licenses the distribution of products, such as books and videos,
associated with its television programs. The revenues derived from these
product licensing activities offset some of the production and educational
research expenditures associated with the Workshop's programs. Today,
public television pays less than 10 percent of the project costs
associated with Sesame Street.

Background

The Workshop was founded in 1968 as the Children's Television Workshop.
The Carnegie Corporation, CPB, and the Ford Foundation provided the
initial start-up funding for the Workshop. At the time, the Workshop was
affiliated with National Educational Television (NET) for organizational
support. Sesame Street premiered on November 10, 1969. Following the first
season, the Workshop severed its ties with NET and organized as a separate
entity. Today, the Workshop is an independent 501(c)(3) nonprofit
organization and is not affiliated with public television or any
government agency. In addition to Sesame Street, the Workshop produces
several programs for distribution though public television and domestic
cable channels, including Dragon Tales, Pinky Dinky Doo, and the Upside
Down Show. The Workshop also produces programs for international
distribution.

Product Licensing

The Workshop has pursued a course for financial self-sufficiency to
fulfill its mission. To this end, the Workshop has partnered with
companies, such as Fisher-Price and Random House, for the distribution of
products associated with the Workshop's television programs. These
products include books and magazines, clothing, toys, and videos. For the
year ending June 30, 2005, the Workshop received approximately $54 million
from its product licensing activities.^1 In addition, the Workshop
received approximately $21.2 million in direct public support, $11.0
million from
government grants,^2 and $20.3 million from program services including
government fees and contracts. In total, the Workshop reported revenues of
$107.0 million. Figure 8 illustrates the percentage of revenues derived
from the various sources for the Workshop.

Figure 8: Sources of Revenue for Sesame Workshop, Year Ending June 30,
2005

Note: "Program services" includes revenue derived from government
contracts and fees.

As a nonprofit organization, the Workshop uses its revenues to fund
educational research and development of programs and content consistent
with its mission.^3 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,^4 and product licensing approximately $15 million. The product
licensing expenses include licensing; quality control of general
merchandise; and administration, development, and distribution of programs
for international television. Figure 9 breaks down the Workshop's
expenses.

Figure 9: Sesame Workshop Expenses, Year Ending June 30, 2005

Relationship with Public Television

Since the Workshop and the Public Broadcasting Service (PBS) are separate
organizations, PBS negotiates with the Workshop for the broadcast rights
to Sesame Street and other Workshop programs. According to the Workshop's
Return of Organization Exempt From Income Tax (I.R.S. Form 990), the
Workshop incurred direct production expenses of about $13.3 million for
Sesame Street. Additionally, the Workshop incurs expenses associated with
educational research for the development of program content and with its
acquisition of the Sesame Street Muppets
characters.^5 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.

Appendix V
Comments from the Corporation for Public Broadcasting

Appendix VI
Comments from the Public Broadcasting Service

Appendix VII
GAO Contact and Staff Acknowledgments

GAO Contact

Mark L. Goldstein, (202) 512-2834 or [48][email protected].

Staff Acknowledgments

Individuals making key contributions to this report include John Finedore,
Assistant Director; Allison Bawden; Michael Clements; H. Brandon Haller;
Laura Holliday; Michael Mgebroff; Lisa Mirel; Anna Maria Ortiz; and Mindi
Weisenbloom.

(543159)

www.gao.gov/cgi-bin/getrpt? [49]GAO-07-150 .

To view the full product, including the scope

and methodology, click on the link above.

For more information, contact Mark L. Goldstein at (202) 512-2834 or
[email protected].

Highlights of [50]GAO-07-150 , a report to congressional requesters

January 2007

TELECOMMUNICATIONS

Issues Related to the Structure and Funding of Public Television

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.

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.

References

Visible links
1. file:///home/webmaster/infomgt/d07150.htm#LinkTarget_1972
2. file:///home/webmaster/infomgt/d07150.htm#LinkTarget_1971
3. file:///home/webmaster/infomgt/d07150.htm#LinkTarget_1968
4. file:///home/webmaster/infomgt/d07150.htm#LinkTarget_1970
5. file:///home/webmaster/infomgt/d07150.htm#LinkTarget_1951
6. file:///home/webmaster/infomgt/d07150.htm#LinkTarget_2529
7. file:///home/webmaster/infomgt/d07150.htm#LinkTarget_2367
8. file:///home/webmaster/infomgt/d07150.htm#LinkTarget_2456
9. file:///home/webmaster/infomgt/d07150.htm#LinkTarget_2408
  10. file:///home/webmaster/infomgt/d07150.htm#LinkTarget_2391
  11. file:///home/webmaster/infomgt/d07150.htm#LinkTarget_2373
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  46. file:///home/webmaster/infomgt/d07150.htm#http://www.gao.gov.
  47. file:///home/webmaster/infomgt/d07150.htm#mailto:[email protected]
  48. file:///home/webmaster/infomgt/d07150.htm#mailto:[email protected].
  49. file:///home/webmaster/infomgt/d07150.htm#http://www.gao.gov/cgi-bin/getrpt?GAO-07-150
  50. file:///home/webmaster/infomgt/d07150.htm#http://www.gao.gov/cgi-bin/getrpt?GAO-07-150
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