This is the accessible text file for GAO report number GAO-07-150 
entitled 'Telecommunications: Issues Related to the Structure and 
Funding of Public Television' which was released on February 20, 2007. 

This text file was formatted by the U.S. Government Accountability 
Office (GAO) to be accessible to users with visual impairments, as part 
of a longer term project to improve GAO products' accessibility. Every 
attempt has been made to maintain the structural and data integrity of 
the original printed product. Accessibility features, such as text 
descriptions of tables, consecutively numbered footnotes placed at the 
end of the file, and the text of agency comment letters, are provided 
but may not exactly duplicate the presentation or format of the printed 
version. The portable document format (PDF) file is an exact electronic 
replica of the printed version. We welcome your feedback. Please E-mail 
your comments regarding the contents or accessibility features of this 
document to Webmaster@gao.gov. 

This is a work of the U.S. government and is not subject to copyright 
protection in the United States. It may be reproduced and distributed 
in its entirety without further permission from GAO. Because this work 
may contain copyrighted images or other material, permission from the 
copyright holder may be necessary if you wish to reproduce this 
material separately. 

Report to Congressional Requesters: 

January 2007: 

Telecommunications: 

Issues Related to the Structure and Funding of Public Television: 

GAO-07-150: 

GAO Highlights: 

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

Why GAO Did This Study: 

How to fund public television has been a concern since the first 
noncommercial educational station went on the air in 1953. The use of 
federal funds to help support public television has been a particular 
point of discussion and debate. This report reviews (1) the 
organizational structure of public television, (2) the programming and 
other services that public television provides, (3) the current funding 
sources for public television, (4) the extent to which public 
television stations are increasing their nonfederal funding sources and 
developing new sources of nonfederal support, and (5) the extent to 
which public television benefits financially from business ventures 
associated with programming and how this compares with commercial 
broadcasters. 

GAO reviewed revenue, membership, and programming data for all public 
television licensees. GAO also interviewed officials from 54 of public 
television’s 173 licensees, the Corporation for Public Broadcasting, 
the Public Broadcasting Service, federal agencies, and producers of 
commercial and public television programming. 

What GAO Found: 

Public television is a largely decentralized enterprise of 349 local 
stations, owned and operated by 173 independent licensees. The 
stations’ operations are funded in part by the Corporation for Public 
Broadcasting (CPB), a nongovernmental entity that receives federal 
appropriations. The Public Broadcasting Service (PBS), a nonprofit 
organization funded by fees paid by member licensees and CPB grants, 
operates a satellite-based interconnection system to distribute 
programs to local stations. These programs are created by producers 
inside public television and by outside production entities. 

Public television stations broadcast national and local programs and 
provide a variety of nonbroadcast services to their communities. PBS 
prime-time and children’s programs account for the majority of 
broadcast hours, to which stations add instructional and local programs 
tailored to meet the needs and interests of their communities. 
Nonbroadcast services include educational, civic engagement, health, 
and emergency-alert services. 

In 2005, public television licensees reported annual revenues of $1.8 
billion, of which 15 percent came from federal sources and the rest 
from a variety of nonfederal sources including individuals, businesses, 
and state and local governments. Federal funds help licensees leverage 
funds from nonfederal sources. Thirty of 54 licensees GAO interviewed 
said that cuts in federal funding could lead to a reduction in staff, 
local programming, or services. In general, smaller licensees receive a 
higher percent of revenue from federal sources and 11 said that cuts in 
federal support might force the station to shut down. 

Substantial growth of nonfederal funding appears unlikely. The one area 
with growth potential is major gifts, which many licensees are pursuing 
with help from CPB. Program underwriting by businesses and foundations 
has traditionally been an important source of revenues. A few licensees 
believe that these revenues could be increased if restrictions on the 
content of on-air underwriting acknowledgments were relaxed. Many 
licensees, however, believe that this would go against the 
noncommercial character of public television and could cause a loss of 
funding support from other sources. 

Public television sometimes benefits from business ventures associated 
with its programs, but these opportunities are infrequent and do not 
generate significant revenue. Public television does not have the 
financial resources to invest heavily in the cost of program production 
to secure a larger share of any resulting back-end revenues. Moreover, 
the sale of merchandise associated with a program generally returns 
only a small percentage of the retail price to the program’s producer 
and investors, as is also true for commercial television programs. 

GAO provided CPB and PBS with a draft of the report for their review 
and comment. CPB and PBS agreed with the report. 

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-150]. 

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Mark L. Goldstein at 
(202) 512-2834 or goldsteinm@gao.gov. 

[End of section] 

Contents: 

Letter: 

Results in Brief: 

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

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

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

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

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

Agency Comments: 

Appendixes: 

Appendix I: Scope and Methodology: 

Appendix II: CPB Funding Allocation: 

Appendix III: Demographics of Public Television Viewers and Members: 

Data Sources and Methodology: 

Viewers of Public Television's Prime-Time Programming: 

Viewers of Public Television Children's Programming: 

Public Television Members: 

Appendix IV: Sesame Workshop: 

Background: 

Product Licensing: 

Relationship with Public Television: 

Appendix V: Comments from the Corporation for Public Broadcasting: 

Appendix VI: Comments from the Public Broadcasting Service: 

Appendix VII: GAO Contact and Staff Acknowledgments: 

Tables Tables: 

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

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

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

Table 4: Public Television Licensees Interviewed: 

Table 5: Components of CPB's Community Service Grants: 

Figures Figures: 

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

Figure 2: Number of Public Television Licensees, 2005: 

Figure 3: WNET (New York) Master Control Facility: 

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

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

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

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

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

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

Abbreviations: 

APT: American Public Television: 

CCC: City Colleges of Chicago: 

CPB: Corporation for Public Broadcasting: 

DEAS: Digital Emergency Alert System: 

DTV: digital television: 

FCC: Federal Communications Commission: 

HDTV: high-definition television: 

ITVS: Independent Television Service: 

KET: Kentucky Authority for Educational Television: 

NETA: National Educational Telecommunications Association: 

NPR: National Public Radio: 

NTIA: National Telecommunications and Information Administration: 

SABS: Stations Activities Benchmarking Study: 

SIP: Station Independence Program: 

PBS: Public Broadcasting Service: 

RUS: Rural Utilities Service: 

January 19, 2007: 

The Honorable Ginny Brown-Waite: 
House of Representatives: 

The Honorable Candice S. Miller: 
House of Representatives: 

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

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

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

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

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

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

Results in Brief: 

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

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

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

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

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

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

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

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

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

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

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

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

[See PDF for image] - graphic text: 

Source: GAO analysis of PBS data. 

[End of figure] - graphic text: 

Most public television stations broadcast under the terms of 
noncommercial educational television licenses granted to them by FCC. 
Under FCC rules, licensees of public television stations must be one of 
the following (see fig. 2): 

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

* A governmental entity other than a school, such as a state agency. 
For example, Mississippi Public Broadcasting (Jackson, Mississippi) is 
a state licensee and WNYE (New York) is a local licensee. 

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

Figure 2: Number of Public Television Licensees, 2005: 

[See PDF for image] - graphic text: 

Source: GAO analysis of SABS data. 

[End of figure] - graphic text: 

Public television stations' most visible activity is broadcasting 
programs to serve the educational and cultural needs of their 
communities. Each station's management decides what programs to air to 
meet the particular needs and tastes of their communities. In addition, 
stations are typically involved in a variety of nonbroadcast activities 
that extend their educational and cultural mission and support their 
local communities. As noncommercial educational licensees, the stations 
must support themselves financially without reliance on the airing of 
commercial advertising.[Footnote 6] Both the stations' activities and 
the various funding streams that support them are discussed in more 
detail in later sections of this report. 

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

* construction and maintenance of broadcast towers and transmission 
equipment; 

* utilities associated with signal transmission; 

* office and studio facilities; 

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

* production equipment, such as television cameras; 

* program production and acquisition fees; 

* nonbroadcast community outreach activities; and: 

* salaries for station personnel. 

Figure 3: WNET (New York) Master Control Facility: 

[See PDF for image] 

Source: GAO. 

[End of figure] 

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

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

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

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

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

The principal mechanism by which CPB distributes federal funding to 
public television licensees is the Community Service Grant 
program.[Footnote 14] CPB currently administers the program by 
providing each licensee that operates an on-air public television 
station with a "basic" grant of $10,000. In addition to the basic 
grant, eligible licensees receive two component grants in their 
Community Service Grant--a "base" grant and an "incentive" grant. Base 
grants are determined by the statutory allocations noted above, CPB's 
annual appropriation, the number of licensees eligible for grants, and 
a fixed grant funding level set by CPB's board of directors. Incentive 
grants are designed to encourage stations to maintain and stimulate new 
sources of nonfederal funding support. Accordingly, the size of an 
incentive grant depends on the amount of revenues that an individual 
licensee raises from nonfederal sources.[Footnote 15] (See app. II for 
detailed information on the components of Community Service Grants.) 

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

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

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

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

* providing educational services, such as its Web-based TeacherSource; 
and: 

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

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

A Variety of Entities Produce and Provide Public Television Programs: 

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

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

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

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

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

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

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

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

Public Television Stations Provide a Variety of National and Local 
Programming: 

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

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

[See PDF for image] - graphic text: 

Source; GAO analysis of SABS data. 

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

[End of figure] - graphic text: 

The DTV transition expands the programming opportunities for public 
television stations through multicasting. For example, in the 
Washington, D.C., television market, WETA (channel 26) broadcasts 26.1, 
26.2, 26.3, and 26.4, or four separate digital video signals in 
addition to its analog signal, expanding the amount of programming that 
WETA can broadcast. Among the stations we contacted that are 
broadcasting a digital signal, most are simulcasting (or repeating) 
their analog signal on one of these digital signals. Most stations we 
contacted that broadcast in digital also provide additional programming 
streams such as "PBS HD," PBS's high-definition programming service; 
"World," an aggregation of PBS and other nonfiction programs; and 
"Create," lifestyle and how-to programs. In addition, some stations 
offer instructional or regional programming. For example, KET 
(Lexington, Kentucky) offers two instructional channels for Kentucky 
schools and KAMU (College Station, Texas) offers "The Research 
Channel." KTCA (St. Paul, Minnesota) offers "Minnesota Channel," which 
features a variety of programming that is from or about Minnesota and 
its close neighbors, and WFSU (Tallahassee, Florida) provides "The 
Florida Channel," a C-SPAN-type channel focusing on Florida. Some 
station officials with whom we spoke indicated that their future 
multicasting plans include providing a broader range of programming 
that is more tailored to the needs of their communities. For example, 
some stations indicated that they plan to offer additional programming 
from packaged programming streams, such as "V-me," a channel planned 
for launch in early 2007 that will feature Spanish language programs on 
a variety of topics, or "MHz WORLDVIEW," which offers international 
programming. In addition, some stations plan to create their own 
programming streams tailored to local audiences. For example, WYES in 
New Orleans, Louisiana, is collaborating with local organizations to 
develop a tourist-oriented channel, and South Dakota Public 
Broadcasting (Vermillion, South Dakota) is working with local and state 
organizations to create a channel that would focus on instructional 
programming for classroom use during the day and children's programs in 
the evening. 

We identified several types, or streams, of programming broadcast by 
public television stations. These streams of programs include PBS non- 
children's, children's, local, and instructional programming. While 
most public television stations share some common programming, such as 
PBS Primetime and PBS Kids, additional programming choices, such as 
local and instructional programming, vary from station to station. 

PBS Programming. Almost all public television stations carry PBS 
programming. PBS programming represents about half of the broadcast 
hours provided by public television stations and is a cost-effective 
approach to acquire and broadcast programming.[Footnote 20] Most PBS 
programming is provided via PBS's National Programming Service, which 
features a variety of educational and cultural topics. PBS takes a 
multimedia approach to expand the reach of its programming, including 
Web sites, teachers' guides, and lesson plans for many programs. Figure 
5 illustrates the major program themes included in PBS's National 
Programming Service, excluding children's programming, which is 
addressed in the next section. These themes include the following: 

* Public affairs and news programs, such as The NewsHour with Jim 
Lehrer, long-form coverage and analysis of national news; Nightly 
Business Report, business and economic news; and Frontline, long-form 
public-affairs documentaries. 

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

* Arts and drama programming, such as American Masters, specials on 
American cultural artists; Masterpiece Theatre, a drama series 
featuring works by classic and contemporary writers; and Great 
Performances, broadcasts of music, theater, and dance performances. 

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

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

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

[See PDF for image] - graphic text: 

Source: GAO analysis of PBS data. 

[End of figure] - graphic text: 

Children's Programming. Children's programming constitutes an important 
portion of broadcast time, and many station officials told us that it 
is one of the strengths of public television.[Footnote 21] We found 
that children's programming accounts for 16 percent of all program 
hours broadcast by public television stations. Children's programming 
represents over 40 percent of the weekday programming schedule for many 
stations. Many stations broadcast about 8 to 10 hours of children's 
programming per weekday, often beginning before 8:00 a.m. and ending 
between 5:00 p.m. and 6:00 p.m. Stations often design their weekday 
schedule to include programming oriented toward the prekindergarten age 
group during the school day and toward school-age children, after 
school. 

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

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

* Many stations provide programming on local and state history and 
public affairs. For example, KET (Lexington, Kentucky) covers the 
Kentucky state legislature live; many stations provide state election 
coverage; and, of the stations we contacted, the majority provide at 
least one public affairs program, such as KAID's (Boise, Idaho) 
Dialogue. 

* Some stations produce local programming to enhance access to arts and 
cultural amenities. WBRA (Roanoke, Virginia) produces a virtual 
excursion show introducing viewers to local sites, a weekly open 
microphone show featuring soloists and small groups, and a weekly 
concert series showcasing old-time and bluegrass music from the region. 

* Some stations broadcast local events and residents that are not 
covered by national networks. For example, KNCT (Killeen, Texas) 
broadcast the arrivals of and ceremonies for the 1st Cavalry Division 
and the 4th Infantry Division after their return from Iraq; KOOD 
(Bunker Hill, Kansas) broadcasts some local high school sporting 
events; and KNME (Albuquerque, New Mexico) produces documentaries on 
the art, culture, history, and cultural diversity of New Mexico. 

* Some stations also provide programming that gives underserved viewers 
access to services and information they might otherwise have difficulty 
obtaining. For example, several stations broadcast call-in shows, such 
as Doctors on Call, Lawyers on the Line, and Homework Hotline, during 
which viewers can ask questions of health-care professionals, lawyers, 
and teachers, respectively. Other similar programs include Healthy 
Minds, a WLIW (Plainview, New York) program about mental illness; 
specials on methamphetamine, such as Meth in Wisconsin from WPTV 
(Madison, Wisconsin); and topics such as affordable housing on KCWC's 
(Riverton, Wyoming) Wyoming Perspectives. 

Instructional Programming. Many public television stations provide 
formal instructional programming to meet local educational needs. 
Instructional programming constitutes about 4 percent of total 
broadcast hours. The amount and type of instructional programming 
offered varies from station to station. 

* KET (Lexington, Kentucky) provides instructional programming for 
students in grades K through 12 and adults. For grades K through 12, 
KET produces AP courses, virtual field trips, and a news program; for 
adults, KET provides programming for adult basic education, GED 
preparation, workplace essential skills, and childcare certification 
training.[Footnote 22] 

* WETP (Knoxville, Tennessee) offers 6 hours of instructional 
programming per day, 175 days per year, for grades K through 12 and 
teachers. In addition, WETP provides "in-service" professional growth 
programming for teachers and administrators, including programs such as 
Reading Rockets: Launching Young Readers; Managing Your Classroom: 
Supporting Students at Risk; and Principals & Leaders: Set High 
Expectations & Standards. 

* WYCC (Chicago), licensed to the City Colleges of Chicago (CCC), 
offers 5 ˝ hours of instructional programming each weekday. In 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.[Footnote 23] 
Some public television services are federally funded and centrally 
facilitated, but involve some local implementation. These services 
include Ready To Learn, TeacherLine, and the Digital Emergency Alert 
System, which address both national and local needs, such as literacy, 
teacher training, and emergency response. Other services are developed 
and administered at the local level to meet needs of the station's 
communities. We identified four primary types of nonbroadcast services: 
educational, civic engagement, health, and emergency services. 

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

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

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

* Stations increasingly offer instructional programming and other 
instructional resources via multiple platforms, especially the 
Internet. Some station officials said that they offer instructional 
resources, such as advanced placement courses, in order to provide 
underserved regions with more equitable access to instructional 
resources. 

* Many stations conduct the "Reading Rainbow Writers and Illustrators 
Contest" in their viewing areas. In addition, some stations organize 
and broadcast regional high school knowledge bowls. KLCS (Los Angeles) 
organizes an awards program that honors teachers and students who 
create videos that advance the California State Content Standards. 

* Many stations, especially university licensees, provide internship 
and employment opportunities for students. 

Civic Engagement and Community Building. Many of public television's 
nonbroadcast services foster civic engagement and community building. 
For example, stations we contacted mentioned the following services: 

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

* KYUK (Bethel, Alaska) documents the history, culture, and lifestyle 
of the Yup'ik people of Western Alaska. The station is transferring its 
large archive of documentaries and raw footage--including oral 
histories, traditional dances and ceremonies, meetings, and other 
materials--to digital media in order to preserve these resources and 
make them available. 

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

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

* WTTW (Chicago) is one of many public television stations that offered 
outreach in association with the broadcast of A Lion in the House, a 
documentary addressing childhood cancer. WTTW partnered with the 
Chicago Pediatric Cancer Care Coalition to offer referral support and 
answer inquiries about childhood cancer services. 

* Numerous public television stations provided outreach in association 
with the program The Forgetting, a documentary about Alzheimer's 
disease. WNET (New York) provided a range of services, including 
screenings and panel discussions for the general public and for 
community service and health-care professionals, Web materials, and 
print materials for outreach events and partner organizations. 

Emergency Services. Many public television stations have integrated or 
will soon integrate emergency services into the public services they 
provide. At least 26 public television stations in 17 states recently 
participated in the pilot of a Digital Emergency Alert System (DEAS) 
that is being created by the Department of Homeland Security in 
coordination with other federal departments and agencies via a 
cooperative agreement with the Association of Public Television 
Stations. The new system will improve the ability of emergency managers 
and public safety officials to rapidly broadcast emergency information 
to first responders and the general public. The technology will enable 
officials to pinpoint to whom the information is sent and can be 
relayed over a variety of media, such as television, radio, cellular 
telephones, computers, and personal data accessories.[Footnote 24] The 
next phase of the DEAS program includes the extension of the system so 
that all public television stations can transmit information to local 
first responders and the public, potentially enabling near universal 
service throughout the United States once the program is complete. 

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

* To improve community preparedness in the case of flooding of the Red 
River, Prairie Public Television (Fargo, North Dakota) hosts a 
"Riverwatch" Web site featuring information provided by government 
agencies and commercial entities. 

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

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

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

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

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

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

[See PDF for image] - graphic text: 

Source: GAO analysis of SABS data. 

[End of figure] - graphic text: 

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

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

Source: Individuals; 
Type of licensee: Community: 30.7; 
Type of licensee: Local: 14.9; 
Type of licensee: State: 14.1; 
Type of licensee: University: 15.8. 

Source: Business; 
Type of licensee: Community: 17.0; 
Type of licensee: Local: 12.5; 
Type of licensee: State: 5.9; 
Type of licensee: University: 6.0. 

Source: State government; 
Type of licensee: Community: 11.5; 
Type of licensee: Local: 8.6; 
Type of licensee: State: 43.9; 
Type of licensee: University: 11.8. 

Source: Federal government--CPB; 
Type of licensee: Community: 19.3; 
Type of licensee: Local: 19.2; 
Type of licensee: State: 15.4; 
Type of licensee: University: 19.8. 

Source: Foundation; 
Type of licensee: Community: 5.5; 
Type of licensee: Local: 1.8; 
Type of licensee: State: 2.6; 
Type of licensee: University: 2.8. 

Source: University; 
Type of licensee: Community: 2.5; 
Type of licensee: Local: 0.6; 
Type of licensee: State: 1.8; 
Type of licensee: University: 34.8. 

Source: Local government; 
Type of licensee: Community: 2.4; 
Type of licensee: Local: 36.4; 
Type of licensee: State: 7.5; 
Type of licensee: University: 3.7. 

Source: Other; 
Type of licensee: Community: 11.1; 
Type of licensee: Local: 6.0; 
Type of licensee: State: 8.8; 
Type of licensee: University: 5.3. 

Source: Total; 
Type of licensee: Community: 100.0; 
Type of licensee: Local: 100.0; 
Type of licensee: State: 100.0; 
Type of licensee: University: 100.0. 

Source: GAO analysis of SABS data. 

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

[End of table] 

The percentage of revenue received from the federal government through 
CPB decreases significantly as the size of the licensee 
increases;[Footnote 25] in particular, CPB distributes funds through a 
statutory formula designed to consider the financial needs and 
requirements of stations and to maintain and stimulate new sources of 
nonfederal support.[Footnote 26] Table 2 provides data for 2005 on the 
sources of revenues for licensees of different sizes. For the smallest 
licensees, those with revenues of less than $3.0 million, federal 
support through CPB represented 33 percent of the average licensee's 
revenues. In fact, federal support provides over 40 percent of the 
revenues for 9 licensees.[Footnote 27] Alternatively, among the largest 
licensees, those with revenues exceeding $10.7 million, federal support 
made up about 10 percent of total revenues for the average 
licensee.[Footnote 28] Large licensees received a greater percentage of 
revenues from individuals, businesses, state governments, and 
foundations than did small licensees. 

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

Source: Individuals; 
Licensee operating revenues (in millions): Less than $3.0: 15.9; 
Licensee operating revenues (in millions): $3.0 to $5.5: 23.7; 
Licensee operating revenues (in millions): $5.5 to $10.7: 26.5; 
Licensee operating revenues (in millions): More than $10.7: 26.0. 

Source: Business; 
Licensee operating revenues (in millions): Less than $3.0: 9.5; 
Licensee operating revenues (in millions): $3.0 to $5.5: 12.4; 
Licensee operating revenues (in millions): $5.5 to $10.7: 12.6; 
Licensee operating revenues (in millions): More than $10.7: 13.1. 

Source: State government; 
Licensee operating revenues (in millions): Less than $3.0: 11.2; 
Licensee operating revenues (in millions): $3.0 to $5.5: 12.9; 
Licensee operating revenues (in millions): $5.5 to $10.7: 16.6; 
Licensee operating revenues (in millions): More than $10.7: 19.5. 

Source: Federal government--CPB; 
Licensee operating revenues (in millions): Less than $3.0: 32.9; 
Licensee operating revenues (in millions): $3.0 to $5.5: 18.7; 
Licensee operating revenues (in millions): $5.5 to $10.7: 14.3; 
Licensee operating revenues (in millions): More than $10.7: 10.3. 

Source: Foundation; 
Licensee operating revenues (in millions): Less than $3.0: 4.3; 
Licensee operating revenues (in millions): $3.0 to $5.5: 2.3; 
Licensee operating revenues (in millions): $5.5 to $10.7: 3.5; 
Licensee operating revenues (in millions): More than $10.7: 6.0. 

Source: University; 
Licensee operating revenues (in millions): Less than $3.0: 13.9; 
Licensee operating revenues (in millions): $3.0 to $5.5: 19.4; 
Licensee operating revenues (in millions): $5.5 to $10.7: 10.0; 
Licensee operating revenues (in millions): More than $10.7: 8.3. 

Source: Local government; 
Licensee operating revenues (in millions): Less than $3.0: 3.0; 
Licensee operating revenues (in millions): $3.0 to $5.5: 2.3; 
Licensee operating revenues (in millions): $5.5 to $10.7: 10.1; 
Licensee operating revenues (in millions): More than $10.7: 6.0. 

Source: Other; 
Licensee operating revenues (in millions): Less than $3.0: 9.3; 
Licensee operating revenues (in millions): $3.0 to $5.5: 8.3; 
Licensee operating revenues (in millions): $5.5 to $10.7: 6.4; 
Licensee operating revenues (in millions): More than $10.7: 10.8. 

Source: Total; 
Licensee operating revenues (in millions): Less than $3.0: 100.0; 
Licensee operating revenues (in millions): $3.0 to $5.5: 100.0; 
Licensee operating revenues (in millions): $5.5 to $10.7: 100.0; 
Licensee operating revenues (in millions): More than $10.7: 100.0. 

Source: GAO analysis of SABS data. 

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

[End of table] 

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

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

Source: Individuals; 
Size of television market (in millions): Less than $46.2: 19.5; 
Size of television market (in millions): $46.2 to $107.6: 23.9; 
Size of television market (in millions): $107.6 to $313.0: 22.5; 
Size of television market (in millions): More than $313.0: 27.8. 

Source: Business; 
Size of television market (in millions): Less than $46.2: 8.3; 
Size of television market (in millions): $46.2 to $107.6: 9.7; 
Size of television market (in millions): $107.6 to $313.0: 14.1; 
Size of television market (in millions): More than $313.0: 14.7. 

Source: State government; 
Size of television market (in millions): Less than $46.2: 10.6; 
Size of television market (in millions): $46.2 to $107.6: 15.3; 
Size of television market (in millions): $107.6 to $313.0: 19.6; 
Size of television market (in millions): More than $313.0: 14.2. 

Source: Federal government--CPB; 
Size of television market (in millions): Less than $46.2: 27.2; 
Size of television market (in millions): $46.2 to $107.6: 21.6; 
Size of television market (in millions): $107.6 to $313.0: 14.7; 
Size of television market (in millions): More than $313.0: 12.3. 

Source: Foundation; 
Size of television market (in millions): Less than $46.2: 2.8; 
Size of television market (in millions): $46.2 to $107.6: 4.0; 
Size of television market (in millions): $107.6 to $313.0: 4.3; 
Size of television market (in millions): More than $313.0: 5.4. 

Source: University; 
Size of television market (in millions): Less than $46.2: 18.5; 
Size of television market (in millions): $46.2 to $107.6: 15.0; 
Size of television market (in millions): $107.6 to $313.0: 9.6; 
Size of television market (in millions): More than $313.0: 9.9. 

Source: Local government; 
Size of television market (in millions): Less than $46.2: 2.8; 
Size of television market (in millions): $46.2 to $107.6: 3.7; 
Size of television market (in millions): $107.6 to $313.0: 7.3; 
Size of television market (in millions): More than $313.0: 6.8. 

Source: Other; 
Size of television market (in millions): Less than $46.2: 10.3; 
Size of television market (in millions): $46.2 to $107.6: 6.8; 
Size of television market (in millions): $107.6 to $313.0: 7.9; 
Size of television market (in millions): More than $313.0: 8.9. 

Source: Total; 
Size of television market (in millions): Less than $46.2: 100.0; 
Size of television market (in millions): $46.2 to $107.6: 100.0; 
Size of television market (in millions): $107.6 to $313.0: 100.0; 
Size of television market (in millions): More than $313.0: 100.0. 

Source: GAO analysis of SABS data. 

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

[End of table] 

Most Licensees Received Federal Support for the DTV Transition: 

For commercial and noncommercial television stations, the DTV 
transition requires a substantial capital investment. In 2002, we 
reported that stations would incur capital costs of approximately $3.0 
million each for the DTV transition.[Footnote 29] Stations must 
overhaul and replace the transmitting equipment, including perhaps 
replacing the antenna, and studio equipment. In addition, during the 
DTV transition, stations must operate both an analog and digital 
transmitter, which increases the stations' operating expenses.[Footnote 
30] 

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

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

Public Television Licensees Consider Federal Funding to Be Important: 

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

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

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

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

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

* WNPT (Nashville, Tennessee) reduced staff and local 
programming.[Footnote 35] 

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

Federal Funds Also Support PBS Nationwide Programming: 

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

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

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

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

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

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

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

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

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

* Viewers have many more choices since the advent of cable and 
satellite television and as a result are less familiar with public 
television than in the past. 

* In some areas, a poor local economy limits the number of viewers that 
are able to make charitable gifts. (See app. III for the demographic 
characteristics of public television members.) 

Several licensees are adopting alternative approaches to increase the 
number of members and basic membership revenues. Traditionally, 
licensees purchase a package of programs from PBS--known as the Station 
Independence Program (SIP)[Footnote 40]--that the stations broadcast 
during their on-air membership campaigns. However, several licensees 
said they do not use the traditional SIP programming. Rather, these 
officials stated that airing programming that viewers most enjoy or 
local programming, rather than the SIP programming package, could 
attract more viewers during on-air membership campaigns and thereby 
increase the number of members and basic membership revenues.[Footnote 
41] Some station officials added that discovering what programming 
viewers most enjoy and airing that programming could be important to 
increasing the number of members and basic membership revenues. In 
addition, some officials told us that involvement in community 
activities is more important to attracting members and gifts than are 
on-air membership campaigns. 

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

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

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

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

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

* on-site consulting to help the stations implement their specific 
plans; and: 

* a set of Web-based tools, including (1) information about best 
practices and budgeting, (2) on-air spots for station use, and (3) 
videos to show at donor gatherings. 

According to CPB, 110 of 177 licensees are participating in the major 
giving initiative. Among the 54 licensees with whom we spoke, most are 
participating, or plan to participate, in the initiative. Several 
licensees had efforts under way to attract major gifts prior to CPB's 
initiative; some of these licensees have joined CPB's initiative while 
others have chosen to continue with their own efforts. Licensees with 
whom we spoke that have chosen not to participate in the initiative 
cited several reasons for their decision, including a small number of 
individuals in their area that have the financial resources to make a 
major gift and a lack of staff and budgetary resources to undertake the 
initiative.[Footnote 43] 

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

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

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

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

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

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

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

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

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

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

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

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

* would enable the licensee to increase underwriting revenues;[Footnote 
48] 

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

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

* would not threaten the licensee's mission, because licensees operate 
as nonprofit entities and therefore would not focus on low-quality, 
high-ratings programming. 

In the early 1980s, public television conducted a limited experiment 
with greater underwriting flexibility. In 1981, the Congress amended 
the Communications Act and established the Temporary Commission on 
Alternative Financing for Public Telecommunications to conduct 
demonstrations of limited advertising.[Footnote 49] The amendments 
authorized 10 public television stations to experiment with paid 
commercials for 18 months.[Footnote 50] Following the experiment, the 
commission concluded that potential revenues from advertising were 
limited in scope and that the avoidance of significant risks to public 
broadcasting could not be ensured. However, one licensee with whom we 
spoke that participated in the experiment said that all sources of its 
revenues increased, including both membership and underwriting 
revenues.[Footnote 51] 

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

* would not generate increased underwriting revenues, since 
corporations and advertisers desire programming with high ratings and a 
targeted demographic, which some licensees said public television 
cannot deliver; 

* would upset viewers and contribute to a decline in membership 
support; 

* could threaten a licensee's ability to receive financial support from 
a state government; and: 

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

Ancillary Revenues Are a Minor Source of Funding for Many Licensees: 

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

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

* Tower leasing was the most frequently mentioned source of ancillary 
revenue. A television station installs its antenna on a tower to 
facilitate the distribution of the station's video signal. If the 
station owns the tower, the station can lease space to other companies, 
such as other television stations, cellular telephone companies, and 
other organizations that use wireless technologies.[Footnote 55] These 
leases represent a source of ancillary revenue; however, in one 
instance, the licensee leases tower space to state government agencies 
at below-market rates, thereby lowering the possible tower leasing 
revenue. 

* Licensees sell videos of various programs and events. For example, 
KLVX in Las Vegas sells Spanish language and parenting skills videos. 
WKYU (Bowling Green, Kentucky), licensed to Western Kentucky 
University, sells videos of the university's commencement. 

* Several licensees also reported receiving revenues from leasing 
excess office space and providing access to the station's production 
facility; for example, a company might pay a licensee to produce a 
training video at the station's production facility. 

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

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

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

Television Programs Can Generate Back-End Revenues: 

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

The Commercial Model for Rights to Back-End Revenues: 

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

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

* For internally produced programming, the broadcast network or cable 
channel funds the development and production of the program. The 
network or cable channel assumes the financial risk associated with the 
program and retains the back-end rights and associated 
revenues.[Footnote 59] 

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

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

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

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

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

* Children's Programming. For 15 years, CPB receives a 50/50 share of 
the net proceeds from the program, after the producer recoups any 
production deficit. For example, the 50/50 share implies that if CPB 
provides 25 percent of the project's cost, CPB receives 12.5 percent of 
the net proceeds. The net proceeds represents the revenues less the 
expenses associated with producing, marketing, and distributing the 
ancillary products and uses. Between years 15 and 20, the producer may 
retain CPB's share of the net proceeds as long as the producer applies 
those proceeds to future children's programs. Otherwise, CPB receives 
its share of the net proceeds. 

* Major Events. This category includes programs with a production 
budget exceeding $500,000 per hour or music, theater, and similar genre 
programming. CPB receives a 50/50 share of the net proceeds from the 
program for 20 years; the producer may be allowed to recoup the 
production deficit before sharing the net proceeds with CPB. 

* Other Programs and Series. This category includes all other 
programming, which CPB reports would include the majority of its 
programming. For 15 years, CPB receives a 50/50 share of the net 
proceeds from the program, after a $250,000 threshold. The producer can 
retain the $250,000 threshold amount as long as the producer uses the 
proceeds for any public television purpose. 

Like CPB, PBS negotiates for back-end rights with producing stations 
and independent producers. PBS staff said that the organization does 
not take a formulaic approach to rights management. Rather, the rights 
structure varies from program to program.[Footnote 62] In general, PBS 
holds rights to back-end revenues in perpetuity. However, several 
factors influence the percentage of back-end revenues that PBS 
receives. According to PBS staff, these factors include the extent of 
PBS's investment in the production, the program genre and existence of 
a production deficit, and obligations to third parties. The program 
genre is a factor because PBS typically receives a larger percentage of 
back-end revenues from children's programming than it does from prime- 
time programming. PBS believes that its distribution adds considerable 
value to children's programming; and therefore, it possesses greater 
leverage with producers of such programming. This allows PBS to 
negotiate a more favorable rights structure for children's programming, 
compared with prime-time programming. With prime-time programming, PBS 
frequently allows producers to recoup much of the production deficit 
before PBS begins sharing the back-end revenues. With children's 
programming, PBS frequently receives a share of back-end revenues 
proportional to its up-front investment and typically receives these 
revenues sooner than it would with prime-time programming. 

Public Television Is Unlikely to Realize Significant Back-End Revenues: 

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

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

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

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

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

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

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

[See PDF for image] - graphic text: 

Source: GAO. 

[End of figure] - graphic text: 

Similar discounts apply to other business ventures associated with 
television programs. According to CPB staff, a video distributor 
generally pays the producer 15 percent of the wholesale price for video 
products associated with a television program. For books, the producer 
typically receives between 5 and 10 percent of the retail price. 
Finally, when a producer syndicates a television program, the producer 
usually receives 50 to 65 percent of the sales price, and the 
syndication agent retains the remainder. 

In some instances, the producer does not own the underlying 
intellectual property associated with the program. For example, Norman 
Bridwell created Clifford the Big Red Dog and Marc Brown created 
Arthur. In these instances, the authors and owners of the intellectual 
property must be paid from the royalty proceeds. 

Public Television Does Not Generally Make Significant Up-front 
Investments. In general, CPB and PBS contribute less than 50 percent of 
the production budget associated with programming. PBS staff said that 
the organization generally provides seed money to producers, who must 
leverage these funds with funds from other organizations. From 2000 
through 2005, PBS contributed between 22 and 27 percent of the total 
production budgets for nationally distributed programs. Producing 
stations and independent producers confirmed that CPB and PBS 
contribute relatively modest amounts to programming. PBS provided about 
25 percent of WNET's total production budget over a 3-year period, and 
PBS's net contribution to Sesame Workshop is less than 10 percent of 
the total production costs for Sesame Street.[Footnote 65] Thus, CPB 
and PBS appear to contribute less to the total production budget for 
programming than is typical in commercial television, where the license 
fee may cover one-half to two-thirds of the production costs. 

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

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

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

Agency Comments: 

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

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

If you have any questions about this report, please contact me at (202) 
512-2834 or goldsteinm@gao.gov. Contact points for our Offices of 
Congressional Relations and Public Affairs may be found on the last 
page of this report. Contact information and major contributors to this 
report are listed in appendix VII. 

Signed by: 

Mark L. Goldstein: 
Director, Physical Infrastructure Issues: 

[End of section] 

Appendix I: Scope and Methodology: 

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

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

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

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

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

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

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

Table 4: Public Television Licensees Interviewed: 

Licensee or station: KYUK; 
Location: Bethel, AK; 
Type: Community; 
Total revenues (thousands): $1,116; 
CPB funds as a percentage of total revenue: 58. 

Licensee or station: WCTE; 
Location: Cookeville, TN; 
Type: Community; 
Total revenues (thousands): 1,554; 
CPB funds as a percentage of total revenue: 41. 

Licensee or station: KNCT; 
Location: Killeen, TX; 
Type: University; 
Total revenues (thousands): 1,859; 
CPB funds as a percentage of total revenue: 50. 

Licensee or station: KOOD; 
Location: Bunker Hill, KS; 
Type: Community; 
Total revenues (thousands): 1,944; 
CPB funds as a percentage of total revenue: 35. 

Licensee or station: WNMU; 
Location: Marquette, MI; 
Type: University; 
Total revenues (thousands): 2,047; 
CPB funds as a percentage of total revenue: 34. 

Licensee or station: KWBU; 
Location: Waco, TX; 
Type: Community; 
Total revenues (thousands): 2,490; 
CPB funds as a percentage of total revenue: 28. 

Licensee or station: WKYU; 
Location: Bowling Green, KY; 
Type: University; 
Total revenues (thousands): 3,096; 
CPB funds as a percentage of total revenue: 33. 

Licensee or station: WDSE; 
Location: Duluth, MN; 
Type: Community; 
Total revenues (thousands): 3,189; 
CPB funds as a percentage of total revenue: 22. 

Licensee or station: KUSM; 
Location: Bozeman, MT; 
Type: University; 
Total revenues (thousands): 3,228; 
CPB funds as a percentage of total revenue: 22. 

Licensee or station: WVPT; 
Location: Harrisonburg, VA; 
Type: Community; 
Total revenues (thousands): 3,490; 
CPB funds as a percentage of total revenue: 19. 

Licensee or station: WPBA; 
Location: Atlanta, GA; 
Type: Local; 
Total revenues (thousands): 3,632; 
CPB funds as a percentage of total revenue: 20. 

Licensee or station: WYCC; 
Location: Chicago, IL; 
Type: University; 
Total revenues (thousands): 3,681; 
CPB funds as a percentage of total revenue: 19. 

Licensee or station: KCWC; 
Location: Riverton, WY; 
Type: University; 
Total revenues (thousands): 3,695; 
CPB funds as a percentage of total revenue: 15. 

Licensee or station: WETP; 
Location: Knoxville, TN; 
Type: Community; 
Total revenues (thousands): 3,835; 
CPB funds as a percentage of total revenue: 18. 

Licensee or station: WBRA; 
Location: Roanoke, VA; 
Type: Community; 
Total revenues (thousands): 4,149; 
CPB funds as a percentage of total revenue: 18. 

Licensee or station: NOVA; 
Location: Falls Church, VA; 
Type: Community; 
Total revenues (thousands): 4,200; 
CPB funds as a percentage of total revenue: 6. 

Licensee or station: WUFT; 
Location: Gainesville, FL; 
Type: University; 
Total revenues (thousands): 4,555; 
CPB funds as a percentage of total revenue: 17. 

Licensee or station: WYES; 
Location: Metairie, LA; 
Type: Community; 
Total revenues (thousands): 4,869; 
CPB funds as a percentage of total revenue: 10. 

Licensee or station: WNPT; 
Location: Nashville, TN; 
Type: Community; 
Total revenues (thousands): 5,174; 
CPB funds as a percentage of total revenue: 18. 

Licensee or station: WHUT; 
Location: Washington, D.C; 
Type: University; 
Total revenues (thousands): 5,698; 
CPB funds as a percentage of total revenue: 17. 

Licensee or station: KAMU; 
Location: College Station, TX; 
Type: University; 
Total revenues (thousands): 6,065; 
CPB funds as a percentage of total revenue: 18. 

Licensee or station: KLCS; 
Location: Los Angeles, CA; 
Type: Local; 
Total revenues (thousands): 6,189; 
CPB funds as a percentage of total revenue: 11. 

Licensee or station: KAID; 
Location: Boise, ID; 
Type: State; 
Total revenues (thousands): 6,390; 
CPB funds as a percentage of total revenue: 18. 

Licensee or station: SDPB; 
Location: Vermillion, SD; 
Type: State; 
Total revenues (thousands): 6,421; 
CPB funds as a percentage of total revenue: 18. 

Licensee or station: WVPB; 
Location: Charleston, WV; 
Type: State; 
Total revenues (thousands): 6,615; 
CPB funds as a percentage of total revenue: 15. 

Licensee or station: HPTV; 
Location: Honolulu, HI; 
Type: Community; 
Total revenues (thousands): 6,679; 
CPB funds as a percentage of total revenue: 14. 

Licensee or station: WKAR; 
Location: East Lansing, MI; 
Type: University; 
Total revenues (thousands): 6,700; 
CPB funds as a percentage of total revenue: 21. 

Licensee or station: PPB; 
Location: Fargo, ND; 
Type: Community; 
Total revenues (thousands): 7,344; 
CPB funds as a percentage of total revenue: 12. 

Licensee or station: MAINE; 
Location: Lewiston, ME; 
Type: Community; 
Total revenues (thousands): 7,417; 
CPB funds as a percentage of total revenue: 14. 

Licensee or station: KNME; 
Location: Albuquerque, NM; 
Type: University; 
Total revenues (thousands): 7,633; 
CPB funds as a percentage of total revenue: 10. 

Licensee or station: KLVX; 
Location: Las Vegas, NV; 
Type: Local; 
Total revenues (thousands): 8,699; 
CPB funds as a percentage of total revenue: 13. 

Licensee or station: WFSU; 
Location: Tallahassee, FL; 
Type: University; 
Total revenues (thousands): 9,009; 
CPB funds as a percentage of total revenue: 12. 

Licensee or station: WPTV; 
Location: Madison, WI; 
Type: State; 
Total revenues (thousands): 9,818; 
CPB funds as a percentage of total revenue: 12. 

Licensee or station: KOCE; 
Location: Huntington Beach, CA; 
Type: Community; 
Total revenues (thousands): 10,285; 
CPB funds as a percentage of total revenue: 15. 

Licensee or station: NETV; 
Location: Lincoln, NE; 
Type: State; 
Total revenues (thousands): 10,912; 
CPB funds as a percentage of total revenue: 15. 

Licensee or station: WNYE; 
Location: New York, NY; 
Type: Local; 
Total revenues (thousands): 11,355; 
CPB funds as a percentage of total revenue: 0. 

Licensee or station: KUED; 
Location: Salt Lake City, UT; 
Type: University; 
Total revenues (thousands): 11,364; 
CPB funds as a percentage of total revenue: 13. 

Licensee or station: METV; 
Location: Jackson, MS; 
Type: State; 
Total revenues (thousands): 11,642; 
CPB funds as a percentage of total revenue: 12. 

Licensee or station: WLIW; 
Location: Plainview, NY; 
Type: Community; 
Total revenues (thousands): 12,338; 
CPB funds as a percentage of total revenue: 7. 

Licensee or station: KERA; 
Location: Dallas, TX; 
Type: Community; 
Total revenues (thousands): 13,443; 
CPB funds as a percentage of total revenue: 10. 

Licensee or station: WHYY; 
Location: Philadelphia, PA; 
Type: Community; 
Total revenues (thousands): 18,308; 
CPB funds as a percentage of total revenue: 10. 

Licensee or station: KPBS; 
Location: San Diego, CA; 
Type: University; 
Total revenues (thousands): 20,481; 
CPB funds as a percentage of total revenue: 10. 

Licensee or station: IAPT; 
Location: Johnston, IA; 
Type: State; 
Total revenues (thousands): 21,603; 
CPB funds as a percentage of total revenue: 13. 

Licensee or station: CPTV; 
Location: Hartford, CT; 
Type: Community; 
Total revenues (thousands): 22,589; 
CPB funds as a percentage of total revenue: 8. 

Licensee or station: KTCA; 
Location: St. Paul, MN; 
Type: Community; 
Total revenues (thousands): 26,554; 
CPB funds as a percentage of total revenue: 8. 

Licensee or station: KET; 
Location: Lexington, KY; 
Type: State; 
Total revenues (thousands): 26,881; 
CPB funds as a percentage of total revenue: 11. 

Licensee or station: MPT; 
Location: Owings Mills, MD; 
Type: State; 
Total revenues (thousands): 28,746; 
CPB funds as a percentage of total revenue: 9. 

Licensee or station: KQED; 
Location: San Francisco, CA; 
Type: Community; 
Total revenues (thousands): 30,420; 
CPB funds as a percentage of total revenue: 9. 

Licensee or station: NJN; 
Location: Trenton, NJ; 
Type: State; 
Total revenues (thousands): 32,751; 
CPB funds as a percentage of total revenue: 8. 

Licensee or station: WTTW; 
Location: Chicago, IL; 
Type: Community; 
Total revenues (thousands): 33,137; 
CPB funds as a percentage of total revenue: 8. 

Licensee or station: WETA; 
Location: Arlington, VA; 
Type: Community; 
Total revenues (thousands): 59,012; 
CPB funds as a percentage of total revenue: 6. 

Licensee or station: KCET; 
Location: Los Angles, CA; 
Type: Community; 
Total revenues (thousands): 64,487; 
CPB funds as a percentage of total revenue: 7. 

Licensee or station: WGBH; 
Location: Boston, MA; 
Type: Community; 
Total revenues (thousands): 161,750; 
CPB funds as a percentage of total revenue: 5. 

Licensee or station: WNET; 
Location: New York, NY; 
Type: Community; 
Total revenues (thousands): $173,728; 
CPB funds as a percentage of total revenue: 8. 

Source: GAO analysis of SABS data. 

[End of table] 

[End of section] 

Appendix II: CPB Funding Allocation: 

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

Table 5: Components of CPB's Community Service Grants: 

Basic grant; 
Eligibility criteria: 
* The entity must operate a full- power noncommercial educational 
television station licensed by FCC; 
* The public television station must be "on the air."; 
Grant amount determination: 
* $10,000 is awarded to each licensee; 
Exceptions: Not applicable. 

Base grant; 
Eligibility criteria: Same criteria as for the basic grant plus:[A]; 
* The licensee must receive a minimum level of nonfederal financial 
support during a designated previous fiscal year; 
* The licensee must maintain transmission and production capabilities 
that meet FCC requirements for a noncommercial educational television 
station; 
* The licensed station must have broadcast 365 days during a designated 
previous fiscal year and for a specified minimum number of programming 
hours; 
* The station's daily broadcast schedule must be devoted to programming 
that is responsive to the "demonstrated needs of the community" and is 
noncommercial and educational, informative, or cultural in nature; 
Grant amount determination: 
* Based on the amount of the total appropriation received by CPB from 
the Congress; 
* Based on the act's allocation of 75 percent of public television 
funds intended for distribution among licensees of stations; 
* Based on a predetermined amount for each grant set through CPB's 
periodic review of the Community Service Grant program; 
Exceptions: The Base Grant will be modified if: 
* More than one licensee has a station operating in the same market 
(known as an "overlap" market); 
* A licensee raised nonfederal financial support in excess of a maximum-
specified level. 

Incentive grant; 
Eligibility criteria: Same criteria as for the base grant; 
Grant amount determination: 
* The total of all nonfederal financial support raised by public 
television station licensees is determined; 
* The percentage share of total nonfederal financial support is 
determined for each licensee; 
* Of the funds not already distributed through the basic and base 
grants, each licensee receives a percentage of remaining funds that 
match the licensee's share of total nonfederal financial support 
raised; 
Exceptions: The Incentive Grant will be increased if a licensee that 
operates a station in an overlap market differentiates its programming. 

Source: CPB. 

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

[End of table] 

[End of section] 

Appendix III: Demographics of Public Television Viewers and Members: 

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

Data Sources and Methodology: 

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

* We obtained data on a sample of households in the United States from 
Knowledge Networks/SRI, using Knowledge Networks/SRI's product The Home 
Technology MonitorTM: Spring 2005 Ownership and Trend Report. From 
February through April 2005, Knowledge Networks/SRI interviewed a 
random sample of 1,501 households in the United States. Knowledge 
Networks/SRI asked participating households a variety of questions 
about their television viewing, including how many nights per week that 
the household watched various television networks (such as ABC, CBS) 
and public television. The questions also addressed the household's 
demographic characteristics. 

* We used information from the U.S. Census Bureau to obtain demographic 
information for the U.S. population. 

The Knowledge Networks/SRI's product The Home Technology MonitorTM is a 
survey of a probability sample of telephone-owning households in the 
continental United States. To assess the reliability of Knowledge 
Networks/SRI's data, we reviewed data documentation on survey 
methodology and sampling, e-mails with company officials regarding data 
procedures and weighting, and additional information from a previous 
reliability assessment. We also performed basic electronic testing to 
detect obvious errors in completeness and reasonableness. We concluded 
that these data were sufficiently reliable for the purposes of this 
report. 

To assess the demographic characteristics of public television viewers 
and members, we conducted t-tests with a Bonferroni adjustment. These 
tests allowed us, for households responding to Knowledge Networks/SRI's 
survey, to compare the demographic characteristics of households that 
viewed certain public television programming with households that did 
not view the corresponding programming, and to compare the demographic 
characteristics of households that are members and former members of 
public television with households that have never been members of 
public television.[Footnote 67] 

Viewers of Public Television's Prime-Time Programming: 

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

Viewers of Public Television Children's Programming: 

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

Public Television Members: 

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

[End of section] 

Appendix IV: Sesame Workshop: 

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

Background: 

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

Product Licensing: 

The Workshop has pursued a course for financial self-sufficiency to 
fulfill its mission. To this end, the Workshop has partnered with 
companies, such as Fisher-Price and Random House, for the distribution 
of products associated with the Workshop's television programs. These 
products include books and magazines, clothing, toys, and videos. For 
the year ending June 30, 2005, the Workshop received approximately $54 
million from its product licensing activities.[Footnote 68] In 
addition, the Workshop received approximately $21.2 million in direct 
public support, $11.0 million from government grants,[Footnote 69] and 
$20.3 million from program services including government fees and 
contracts. In total, the Workshop reported revenues of $107.0 million. 
Figure 8 illustrates the percentage of revenues derived from the 
various sources for the Workshop. 

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

[See PDF for image] - graphic text: 

Source: GAO analysis of Sesame Workshop's Return of Organization Exempt 
From Tax Income Tax (I.R.S Form 990). 

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

[End of figure] - graphic text: 

As a nonprofit organization, the Workshop uses its revenues to fund 
educational research and development of programs and content consistent 
with its mission.[Footnote 70] For the year ending June 30, 2005, the 
Workshop reported expenses of $107.4 million. Nearly three-quarters of 
the Workshop's expenses consisted of program production, product 
licensing, and educational research and marketing. Program production 
expenses were approximately $47 million, educational research expenses 
approximately $6 million,[Footnote 71] and product licensing 
approximately $15 million. The product licensing expenses include 
licensing; quality control of general merchandise; and administration, 
development, and distribution of programs for international television. 
Figure 9 breaks down the Workshop's expenses. 

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

[See PDF for image] - graphic text: 

Source: GAO analysis of Sesame Workshop's Return of Organization Exempt 
From Tax Income Tax (I.R.S Form 990). 

[End of figure] - graphic text: 

Relationship with Public Television: 

Since the Workshop and the Public Broadcasting Service (PBS) are 
separate organizations, PBS negotiates with the Workshop for the 
broadcast rights to Sesame Street and other Workshop programs. 
According to the Workshop's Return of Organization Exempt From Income 
Tax (I.R.S. Form 990), the Workshop incurred direct production expenses 
of about $13.3 million for Sesame Street. Additionally, the Workshop 
incurs expenses associated with educational research for the 
development of program content and with its acquisition of the Sesame 
Street Muppets characters.[Footnote 72] According to Workshop 
officials, PBS pays the Workshop a license fee for Workshop 
programming. In return, PBS receives (1) exclusive rights to the 
distribution of the programming for 2 years and (2) a back-end 
participation in revenues arising from the sale of general merchandise 
and underwriting. Considering both the license fee and offsetting back-
end revenues, Workshop officials noted that PBS's net contribution to 
the production of Sesame Street for public television is less than 10 
percent of the project's expenses. Officials from CPB also mentioned 
that the Workshop bears all the financial risk associated with its 
production. Thus, the ability of the Workshop to generate revenues from 
product licensing helps offset the project expenses associated the 
programming and outreach provided by the Workshop for public 
television. 

[End of section] 

Appendix V: Comments from the Corporation for Public Broadcasting: 

Corporation for Public Broadcasting: 

Patricia de Stacy Harrison: 
President and Chief Executive Officer: 

December 18, 2006: 

Mr. Mark L. Goldstein: 
Director, Physical Infrastructure Issues: 
United States Government Accountability Office: 
441 G Street, NW: 
Washington, DC 20548: 

Dear Mr. Goldstein: 

The Corporation for Public Broadcasting appreciates the thoughtful 
analysis by the Government Accountability Office in its draft report, 
"Issues Related to the Structure and Funding of Public Television." We 
would like to take this opportunity to underscore several of the key 
points you have made. 

As you note, public television stations are the last locally owned and 
locally operated media outlets in many communities. Their local 
programming reflects local interests and needs, such as health 
information, coverage of local news events, and arts and cultural 
programming. Public television services go beyond broadcast, and 
include educational services at all levels, civic engagement and 
community building, and emergency services. 

CPB distributes its funds to public broadcasting stations under a 
statutorily mandated formula. As prescribed in CPB's authorizing 
legislation, the formula includes criteria that are established in 
consultation with the public broadcasting community and designed to 
maintain and stimulate non-federal support for the stations. Although 
federal funding accounts for only about 15 percent of public television 
revenues, it is critical to the financial health of most stations, 
particularly small and rural stations where it represents a greater 
proportion of revenues. Stations have broad discretion over the use of 
federal funds and incur minimal costs to secure them. Beyond that, the 
fact that funds are approved two years in advance allows stations to 
leverage additional state, foundation, and other funding. This advance 
appropriation is especially important to producing stations, as the 
process of raising funding for productions can be a long one. 

Finally, there are simply no other sources of funding that could 
replace federal support. Thanks to a CPB-funded project, stations are 
already taking steps to reap more support from major gifts, one area 
where public television lags other non-profits. Most other sources of 
income are likely to remain flat. In particular, as you note, back-end 
revenues from syndication or from sales of books, toys, and other 
merchandise, are unlikely to increase; program successes that generate 
large amounts of income are rare; and CPB and PBS cannot make large 
enough investments in individual programs to receive a significant 
share of any revenues. 

Again, we greatly appreciate the time you have taken to understand 
public television's financing and the valuable report you have 
produced. 

Sincerely, 

Signed by:  

Patricia de Stacy Harrison: 
President & Chief Executive Officer: 
Corporation for Public Broadcasting: 

[End of section] 

Appendix VI: Comments from the Public Broadcasting Service: 

December 18, 2006: 

Mr. John Finedore: 
Assistant Director: 
Physical Infrastructure Team: 
U.S. Government Accountability Office: 
441 G Street NW: 
Washington, DC 20548: 

Dear Mr. Finedore: 

Thank you for sharing the draft report entitled, "Issues Related to the 
Structure and Funding of Public Television," prepared by the General 
Accounting Office ("GAO"). We are pleased to provide you with our 
feedback. 

As the GAO's research demonstrates, federal funding is critical to 
public television in the United States. Every year, PBS and its member 
stations take the funding they receive from the government and leverage 
it several times over, allowing us to deliver programming like "Sesame 
Street," "The NewsHour with Jim Lehrer," "Nova" and other television 
programs and services to the public. 

The GAO report effectively clarifies that funding for public television 
in the United States is dependent upon a mix of public and private 
support. From our perspective, the continued viability of our system 
requires maintenance of this delicate balance of public and private 
funds. PBS is able to make programming commitments to producers often 
as a result of having federal funds as seed money. This PBS commitment 
enables station and independent producers to leverage that funding to 
secure revenue from private, non-governmental sources. 

We strive to be good stewards of the federal investment we receive. 
Although we often are a minority funder in the programs we distribute, 
and therefore are often unable to control all ancillary uses of 
programs, we have increased the annual return on investment in 
ancillary exploitation of programming from $339,000 in 1994 to $8.3 
million in 2005. Programming decisions are not made on the basis of 
revenue-generation potential because that would compromise our mission. 
However, we also understand that we have a responsibility to the 
American people to increase our self-sufficiency, whenever possible. 

I commend the GAO for its professionalism and thoroughness in preparing 
this report. PBS deeply appreciates the federal government's financial 
support, and I am confident your final report will reflect this. Until 
then, if I or any member of the PBS team can be of assistance to you, 
please let me know. Thank you. 

Sincerely, 

Signed by: 

Wayne Godwin: 
Chief Operating Officer: 

Enclosure: 

[End of section] 

Appendix VII: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Mark L. Goldstein, (202) 512-2834 or g [Hyperlink, goldsteinm@gao.gov.] 
oldsteinm@gao.gov. 

Staff Acknowledgments: 

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

(543159): 

FOOTNOTES 

[1] The radiofrequency spectrum is a natural resource used to provide 
an array of wireless communications services, such as mobile voice, 
radio and television broadcasting, radar, and satellite-based services. 

[2] We used total commercial television advertising revenues to measure 
the size of a television market. 

[3] Throughout the text, when we refer to a specific licensee or 
station, we use the name or abbreviation of the licensee or the station 
call sign, whichever is most appropriate for the organization. 

[4] In addition to the 242 noncommercial assignments, FCC's order 
allocated 2,053 commercial stations. Since then, the number of reserved 
channels has been increased incrementally. Sixth Report and Order, 41 
FCC 148 (1952). 

[5] Licensees can operate more than one station, such as licensees 
chartered by a state to operate a statewide network. An example of a 
state network is the Kentucky Authority for Educational Television 
(KET), which has 16 stations on the air throughout the state. 

[6] Advertisements are any message or other programming material that 
is broadcast or otherwise transmitted "in exchange for any 
remuneration" and is intended to "promote any service, facility, or 
product" of for-profit entities. 47 U.S.C. §399b(a). See, also 47 
C.F.R. §73.621(e). 

[7] Pub. L. No. 87-447, 76 Stat. 64 (1962). 

[8] This program was originally administered by the Department of 
Health, Education, and Welfare to provide grants. It was later moved to 
NTIA in the Department of Commerce, which administers the program 
today. 

[9] Public Broadcasting Act of 1967, Pub. L. 90-129, 81 Stat. 365 
(1967). 

[10] 47 U.S.C. §396(a)(10). 

[11] 47 U.S.C. §396(a)(1-10). 

[12] In passing the Public Broadcasting Act, the 90th Congress saw 
annual appropriations for CPB as a temporary measure for providing 
funding support for public broadcasting pending the development and 
adoption of a long-term financing plan. Various long-term financing 
proposals have been suggested over the years, without a consensus being 
reached. In the absence of a long-term financing plan, CPB has 
continued to receive nearly all its budget in the form of annual 
federal appropriations. Since 1976, the Congress has provided a 2-year 
advanced appropriation for CPB. 

[13] 47 U.S.C. §396(k). 

[14] Statutory provisions requiring CPB to distribute funds directly to 
licensees were first enacted in 1975. See, Public Broadcasting 
Financing Act of 1975, Pub. L. No. 94-192, 89 Stat. 1099. 47 U.S.C. 
§§396(k)(5), (6) and (7). 

[15] For a more detailed explanation of the allocation and distribution 
process, see GAO, Telecommunications: Issues Related to Federal Funding 
for Public Television by the Corporation for Public Broadcasting, GAO- 
04-284 (Washington, D.C.: Apr. 30, 2004). 

[16] 47 U.S.C. §396(g)(3). 

[17] 47 U.S.C. §396(k)(3)(B)(i). 

[18] 47 U.S.C. §396(a). 

[19] Other sources of programming include Annenberg Media; other public 
television stations; and international sources, such as the BBC. 

[20] In 2005, stations paid approximately $86 per hour for PBS 
programming versus an average of $1,785 per hour for local programming 
that they broadcast. 

[21] "PBS Kids" programs constitute most of the children's programming 
broadcast by public television stations. 

[22] KET developed much of its programming for Kentucky, but other 
public television stations throughout the United States also broadcast 
its programming. 

[23] 47 U.S.C. §396(a)(8). 

[24] Participation of commercial mobile service providers, such as 
cellular telephone companies, is dependent on agreements between those 
companies and FCC and the Department of Homeland Security. 

[25] For purposes of classifying the size of licensees, we consider 
total licensee operating revenues. 

[26] 47 U.S.C. §396(k)(6)(B). 

[27] These licensees were KYUK (Bethel, Alaska), KEET (Eureka, 
California), KSMQ (Austin, Minnesota), KRSC (Claremore, Oklahoma), WCTE 
(Cookeville, Tennessee), KCOS (El Paso, Texas), KMBH (Harlingen, 
Texas), KNCT (Killeen, Texas), and KOCV (Odessa, Texas). 

[28] While federal support accounts for a smaller percentage of total 
revenues for large licensees than for small licensees, large licensees 
nonetheless received more federal support, on average, than small 
licensees. Licensees with total revenues less than $3.0 million 
received $656,573 on average from CPB while licensees with total 
revenues greater than $10.7 million received $2.5 million from CPB. CPB 
staff attributed this outcome to the Incentive Grant component of the 
Community Service Grant, which is designed to encourage licensees to 
acquire nonfederal support. 

[29] See, GAO, Telecommunications: Many Broadcasters Will Not Meet May 
2002 Digital Television Deadline, GAO-02-466 (Washington, D.C.: Apr. 
23, 2002), p. 16. 

[30] In the Digital Television Transition and Public Safety Act of 
2005, Congress set February 17, 2009, as the end date for the DTV 
transition. Following this date, television stations will no longer 
transmit an analog signal. Pub. L. No. 109-171, title III, 120 stat. 4, 
21 (2006). 

[31] CPB can reduce or waive the matching requirement on the basis of 
need. 

[32] In general, the cost of the DTV transition is independent of the 
size of the licensee--measured in total revenues. Thus, the DTV 
transition can prove relatively burdensome for licensees with small 
budgets. 

[33] For example, licensees can use CPB's Community Service Grant funds 
for the following expenditures: programming and production; 
broadcasting, transmission, and distribution; program information and 
promotion; fund-raising and membership development; underwriting and 
grant solicitation; management and general; and purchasing, 
rehabilitation, or improvement of capital assets. 

[34] Developing a Sustainable Economic Model for Public Television, 
March/April 2003. 

[35] In response to the state funding reduction, WNPT increased fund- 
raising, which contributed to a slight increase in membership. 

[36] According to PBS, underwriting includes the imputed value of 
contributions made by corporations, foundations, and others to 
producers. Thus, it represents the difference between the value of PBS 
productions and PBS grants to producers. PBS recognizes the 
underwriting revenue and offsetting expenses when PBS receives the 
initial program. 

[37] PBS received $107 million in revenue from video, royalties, 
license fees, investment returns, and other sources. In some instances, 
these revenues were largely offset by corresponding expenses. 

[38] PBS staff said that National Public Radio's (NPR) experience with 
its foundation, the NPR Foundation, greatly influenced PBS and the PBS 
Foundation. NPR established its foundation in 1993, and in 2003, it 
received a gift exceeding $200 million from Joan Kroc; today, the $300 
million foundation provides resources for NPR to expand its news 
operations. 

[39] Since these licensees rely on local tax dollars for support, they 
do not ask viewers, and thus taxpayers, to fund the station again 
through donations. 

[40] SIP includes research, programming, and promotional materials for 
stations to use during on-air fund-raising. 

[41] Public radio adopts this approach to on-air membership campaigns. 

[42] Public television considers gifts of $1,000 or more to be a major 
gift. 

[43] CPB imposes no fee on licensees participating in the major giving 
initiative. However, licensees must fund their own personnel and a 
portion of travel-related expenses. 

[44] The first group consisted of 79 licensees. 

[45] GAO-04-284, p. 94. 

[46] An exception to the 15-second limit, and the 60-second total 
limit, applies in the case of corporate underwriters that contribute 
$1.5 million or more per year to a program or program series. A single 
underwriter in this category may be acknowledged by way of a 30-second 
credit. In such a case, PBS's guidelines allow no more than 60 seconds 
total for all corporate acknowledgments, but provide that the total 
credit limit can extend to 90 seconds if necessary to acknowledge 
foundation, government, and other nonprofit funding. This exception 
does not apply to children's programming, where the 15-second limit 
applies. 

[47] For example, one licensee noted that corporations are less 
interested in brand or image advertising and more interested in 
advertising that moves products. 

[48] Officials from three licensees said they would be willing to 
forego part or all of their CPB grant in exchange for greater 
underwriting flexibility. 

[49] The Public Broadcasting Amendments Act of 1981, Pub. L. No. 97-35, 
§1221-34, 95 Stat. 725, 736 (1981). 

[50] The amendments also authorized an advertising experiment involving 
up to 10 public radio stations, but such stations chose not to 
participate. See Temporary Commission on Alternative Financing for 
Public Communications, A Report to Congress of the United States 
(October 1983). 

[51] This licensee also cited its experience with its public radio 
station. The station receives no federal or state government support, 
and is thus commercial, but it operates as a nonprofit station with 
member support. The station also generates underwriting revenues with 
"ads" that include calls to action. The licensee said that the radio 
station is thriving and that a similar model could work for public 
television. 

[52] As we mentioned earlier, the DTV transition provides an 
opportunity for television stations to use a portion of the spectrum to 
provide ancillary services, such as datacasting; stations must annually 
remit a fee of 5 percent of the gross revenues derived from these 
services (47 C.F.R. §73.624(g)). According to FCC, for the 12 months 
ending September 30, 2005, 37 public television stations reported 
providing ancillary services with the digital spectrum and received 
$10,861 for these services. Similarly, 10 commercial television 
stations reported providing these ancillary services and received 
$165,914. Thus, at this point, ancillary services provided through 
digital television spectrum do not appear to represent a significant 
source of revenue for either commercial or public television stations. 

[53] Illustrating the importance of all revenue sources for small 
licensees, KYUK, a licensee in Bethel, Alaska with total revenues of 
$1.1 million, said that the station's Friday night bingo games 
represent an important source of revenues. 

[54] Licensees also mentioned receiving revenues from vehicle donation 
programs, a state lottery contract, online stores, and a cell phone 
recycling program. 

[55] If a station does not own a tower, it must place its antenna on a 
tower owned by another company and, in many instances, pay to lease the 
space on the tower. 

[56] Syndicated programming includes reruns of previously broadcast 
programming and original programming, such as game and talk shows, 
licensed to local television stations and international networks. For 
this discussion of back-end revenues, we consider only the reruns of 
previously broadcast programming. 

[57] Prior to its repeal in 1995, the Financial Interest and 
Syndication Rules (Fin-Syn rules) limited the amount of prime-time 
programming that broadcast networks could produce internally. The Fin- 
Syn rules also prohibited broadcast networks from owning any 
syndication interest in programs they distributed. 

[58] In the early 2000s, broadcast network programming production cost 
approached $2.0 million for an hour-long program and $1.5 million for a 
half-hour situation comedy. For cable channels, production costs can 
vary between $175,000 and $800,000 per hour. 

[59] The broadcast network or cable channel might share a portion of 
the back-end rights and revenues with guild producers, writers, actors, 
and others. 

[60] Some critics maintained that Barney & Friends generated 
substantial back-end revenues and that public television did not 
properly receive a portion of those revenues. See, Congress, House of 
Representatives, Committee on Appropriations, Downsizing Government and 
Setting Priorities of Federal Programs: Hearings before the 
Subcommittees of the Committee on Appropriations, 104th Cong., 1st 
sess., 1995. 

[61] See, CPB Television Revenue-Sharing Policy, adopted January 27, 
1997. 

[62] CPB and one producing station noted that PBS takes a more market- 
oriented approach to rights management. 

[63] Prior to 1999, PBS received less than $2 million annually in back- 
end revenues. 

[64] Major producing stations also receive back-end revenues. For 
example, in 2005, WGBH received $18 million in royalties, video, and 
foreign distribution revenues. However, station expenses offset these 
revenues. 

[65] In some instances, CPB and PBS provide a larger percentage of 
funding. For example, one producer said that CPB funded the entire 
production costs for a film. However, this was a special project, 
funded by a grant awarded through a competitive request-for-proposal 
process. 

[66] WNET reported that it had 23 funders for Great Performances, 17 
funders for American Masters, and 11 funders for Nature. 

[67] Throughout this appendix, the differences we cite are 
statistically significant at the 5 percent level, unless otherwise 
noted. This means that 95 percent of the time we would not expect to 
see such differences if there were no differences in the population. 

[68] In general, program producers, such as the Workshop, receive 
between 5 and 15 percent of the wholesale price as a royalty payment. 
However, the wholesale price is generally 50 percent of the retail 
price. Thus, producers generally receive 2.5 percent to 7.5 percent of 
the retail price. If the Workshop received 5 percent of the retail 
price, the estimated gross retail sales of all Workshop-related 
products would be $1 billion. 

[69] These government grants apply primarily to the Workshop's 
international programming. 

[70] The Workshop also maintains an investment portfolio to help ensure 
the organization's long-term financial viability, provide an operating 
reserve, and finance educational activities; the Workshop reported an 
investment portfolio balance of about $140 million on June 30, 2005. 

[71] The marketing component of educational research and marketing 
expenses was about $8.8 million. 

[72] Program expenses included about $7.1 million in amortization 
associated with the Workshop's acquisition of the Sesame Street Muppets 
characters. Following the death of Jim Henson, the Workshop acquired 
the Muppets characters associated with Sesame Street; The Walt Disney 
Company acquired the Muppets characters created for other programs. 
Thus, the Workshop does not receive revenues associated with the 
activities of certain Muppets characters, such as Kermit or Miss Piggy, 
which the Disney Company owns. 

GAO's Mission: 

The Government Accountability Office, the audit, evaluation and 
investigative arm of Congress, exists to support Congress in meeting 
its constitutional responsibilities and to help improve the performance 
and accountability of the federal government for the American people. 
GAO examines the use of public funds; evaluates federal programs and 
policies; and provides analyses, recommendations, and other assistance 
to help Congress make informed oversight, policy, and funding 
decisions. GAO's commitment to good government is reflected in its core 
values of accountability, integrity, and reliability. 

Obtaining Copies of GAO Reports and Testimony: 

The fastest and easiest way to obtain copies of GAO documents at no 
cost is through GAO's Web site (www.gao.gov). Each weekday, GAO posts 
newly released reports, testimony, and correspondence on its Web site. 
To have GAO e-mail you a list of newly posted products every afternoon, 
go to www.gao.gov and select "Subscribe to Updates." 

Order by Mail or Phone: 

The first copy of each printed report is free. Additional copies are $2 
each. A check or money order should be made out to the Superintendent 
of Documents. GAO also accepts VISA and Mastercard. Orders for 100 or 
more copies mailed to a single address are discounted 25 percent. 
Orders should be sent to: 

U.S. Government Accountability Office 441 G Street NW, Room LM 
Washington, D.C. 20548: 

To order by Phone: Voice: (202) 512-6000 TDD: (202) 512-2537 Fax: (202) 
512-6061: 

To Report Fraud, Waste, and Abuse in Federal Programs: 

Contact: 

Web site: www.gao.gov/fraudnet/fraudnet.htm E-mail: fraudnet@gao.gov 
Automated answering system: (800) 424-5454 or (202) 512-7470: 

Congressional Relations: 

Gloria Jarmon, Managing Director, JarmonG@gao.gov (202) 512-4400 U.S. 
Government Accountability Office, 441 G Street NW, Room 7125 
Washington, D.C. 20548: 

Public Affairs: 

Paul Anderson, Managing Director, AndersonP1@gao.gov (202) 512-4800 
U.S. Government Accountability Office, 441 G Street NW, Room 7149 
Washington, D.C. 20548: