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Press Release

    Corporation for Public Broadcasting: Prepared Statement of Kent Lassman before the Subcommittee on Telecommunications, Trade, an

    07/20/1999

    In 1899, Lee de Forest completed doctoral work at Yale studying the length and velocity of electromagnetic waves. In the introduction to his autobiography, Father of Radio, de Forest wrote, "I discovered an Invisible Empire of the Air, intangible, yet solid as granite."1 A century after de Forest’s experiments, the Corporation for Public Broadcasting (CPB) is an empire of the airwaves; its form is difficult to grasp and it is solidly entrenched in the federal budget. Like de Forest, I believe in progress and progress requires alternatives to increased federal funding for the CPB.

    The CPB is a dinosaur. If the CPB survives, it will be because of change from within, because the forces of technology have transformed the communications environment in which it operates.

    Mr. Chairman and members of the committee, thank you for the opportunity to share my views on the Corporation for Public Broadcasting and its budgetary authorization. As you may know, I am the deputy director for technology and communications policy at Citizens for a Sound Economy Foundation (CSE Foundation), and I present these views on behalf of CSE Foundation’s members.2

    More than a quarter of a million strong, CSE Foundation’s members are found in every corner of America. Our members distinguish themselves as political activists. They constantly remind us that decisions made in Washington, D.C. are felt in places far away from here. And that is where CSE Foundation can be found. We fight at the grassroots level for lower taxes and less regulation of the economy. And let it not be forgotten that political activists are also consumers, consumers of the myriad high-quality goods and services available in America, including public broadcasting.

    Introduction

    This hearing immediately brings to mind a few ideas. Some folks like it. Some folks treasure it. Some folks even consider it an American institution. I for one think that folks should get to keep it.

    You might think that I am talking about the CPB. I am. And of course, I am talking about taxpayer dollars as well. The purpose of this hearing is to consider an authorization for the CPB. The role of authorization within the budget process is to review the original mission of every federal agency. Given the dramatic changes to the communications marketplace in the last 30 years, continued federal subsidies for the CPB are unnecessary. The question to answer is how soon can the CBP break free of federal subsidies.

    Today, consumers have untold number of choices today that did not exist when the CPB was created. To continue subsidies for the CPB is like subsidizing the Pony Express in an era of railroads, the telegraph, facsimile machines, the telephone and email.

    Federal subsidies should end as soon as possible. If the CPB has a place in a marketplace filled with satellite, Internet, and cable communications, it could become something of a "United Way" for the airwaves. The next generation of the CPB could raise private dollars to help local broadcasters.

    This statement has two basic points.

    Contrary to what you may hear today, the health of public broadcasting does not depend upon federal funding. Last year, approximately 17.5 percent of PBS’ funding came from the federal government. All told, only 7 percent is from the CPB. In fact, evidence suggests that as federal funding decreases public broadcasting becomes stronger.

    The marketplace today is dramatically different than it was 30 years ago. Direct satellite broadcast, new over-the-air broadcast, video rental, cable and the Internet are competitive sources of education and entertainment. Independent, community-based, and educational programming is available across America.

    Funding

    Over the last several years, public broadcasting raised more money and operated larger budgets when federal funding decreased, or at best, remained stable. It should come as no surprise that federal funding is like a poison pill. Economic resources in the private sector are often more efficient, produce higher quality goods, and are more innovative than the resources in the public sector.

    Federal Authorization and Appropriation. The traditional story told about the funding of the CPB is well known by many members of this committee. At the time that the CPB was created, three networks dominated the television broadcast marketplace. In FY 1969, the administration requested $9 million and Congress appropriated $5 million to the CPB. Over the last 30 years, more than $5.2 billion has been taken from taxpayers and used to subsidize the CPB.3

    The most recent authorization for the CPB expired at the end of FY 1996. This fact alone is cause for pause. H.R. 2384 would authorize the CPB for five years. Before consideration is made as to at what level the CPB should be funded, an initial and more important question must be answered. Should the CPB be dependent upon federal money? If not, is a five-year authorization necessary?

    Once the primary question is addressed, it is possible to debate the proper level of funding. The proposed legislation not only appears to put the cart before the horse with a five-year authorization, but it also loads the cart down with excessive baggage.

    The baggage is of course a tremendous amount of money. H.R. 2384 would increase federal spending on the CPB by more than 60 percent next year.4 The legislation would increase funding by an additional $40 million in FY 2001 – an increase of more than 13 percent. A one-year hike of 40 percent, or even 13 percent, is impossible to justify especially given that last week the Labor Department released data to show that there was no inflation for the second consecutive month.

    In addition, H.R. 2384 creates a formula that ensures that federal funding does not diminish even as alternative sources of funding for public broadcasting are realized. This is a poor approach. Not only does this guarantee that more taxpayer dollars are spent on public broadcasting, but it makes it impossible for public broadcasting to outgrow its history of dependency on federal support.

    Digital Technology Conversion. A transition to digital broadcast is cumbersome and expensive. The fact that it may be difficult for public broadcasters to invest in new equipment, systems, and training should highlight a larger problem. It is a problem faced by all broadcasters as the result of statutory deadlines. Authorizing and ultimately appropriating federal subsidies to any single class of broadcasters to aid in this transition is nothing more than a high-tech handout. Taxpayer dollars should not fund improvements to the physical plant of broadcasters.

    As recent as the President’s FY 1999 Budget, $375 million was requested to subsidize this transition. The legislation before you today increases this give-away by $40 million.

    Obviously, supporters of H.R. 2384 view a transition to digital broadcasting as a problem to be solved with taxpayers’ money. The contrary might be a healthier and more productive perspective. A transition to digital does not have to be a simple substitution for traditional analog broadcasting. In fact, the marketplace may support analog broadcasting for many years to come. Due to overhead, we might expect that every one of the $415 million authorized to the transition would not be invested in new equipment and systems. Yet, for a downstream share of revenues, it is entirely plausible that hundreds of millions of dollars of investment could be financed through private markets. It is not prudent to pour federal dollars into the conversion of public broadcasting to digital when alternatives have not even been entertained.

    If public broadcasters raised funds for their digital conversion through private markets, there would be at least three broad positive effects: First, taxpayers and the Congress could have a rough proxy of how consumers value the CPB and its affiliates.

    In 1995, Representative Jack Fields entertained private sector bids for portions of public broadcasting. The fact that at least three firms would have bid for all or part of PBS hints at the value of public broadcasting properties. Why should federal support continue if there are private firms and individual investors willing to pay a market value for public broadcasting?

    Second, a hybrid format – digital and analog programming – would create value in the economy rather than simply replace one set of programming with another. Make no mistake; the effect of this proposal would be to grow public broadcasting in America. It would however grow as a result of private and not public funds. While this is not the time for a lengthy discussion on spectrum management, it is imperative to point out that the highest degrees of spectrum flexibility must be available in the marketplace to encourage private investment.

    A third positive effect would be to allow public broadcasters to continue to reach the poorest Americans who would be the last to purchase new television and radio equipment. Digital conversion could be an opportunity to set the CPB free of federal subsidies instead of an obligation to spend more money.

    Financial Health. The CPB is doing quite well. At the end of last year, the CPB had $137,844,824 on hand.5 At the very least, past appropriations and other revenue streams should be considered as decisions are made about federal funding.

    It is a mistake to confuse the CPB with all of public broadcasting. The CPB operates as a funding conduit for PBS, National Public Radio (NPR), and their affiliates. The CPB is only one source of support for public broadcasting. When the rhetoric heats up, Big Bird, Barney and Masterpiece Theater make the headlines. However, it is also a mistake to think that the decisions made in this room will decide the future of a popular or high-quality program. Popular programs succeed in the marketplace.

    The end of funding for the CPB is not the end of public broadcasting. Consider that in 1997, only 7 percent of funding for the Public Broadcasting Service (PBS) came from the CPB.6 Yet, the FY 1997 operating revenues were up a total of $47 million over FY 1996, an increase of 23 percent.7

    To put this growth in perspective, if I grew 23 percent in the next year, I would be 7 feet, 7 inches tall. If the membership of the House grew at the same rate, there would be 100 additional members next year and this subcommittee would have 33 members.

    The total revenues for PBS in FY 1997 were in excess of $369 million. The outright elimination of the PBS revenues from the CPB, nearly $25,900,000, is more than $11 million less than PBS’ new operating revenues. There are more new revenues for PBS than the total amount of money from the CPB. This is "due largely to growth in PBS’s Learning Ventures activities, such as PBS The Business Channel, PBS Home Video and the PBS Adult Learning Service."8

    PBS is growing. "Total operating revenues, including program underwriting, reached $448 million in fiscal 1998, 30 percent above fiscal 1995’s $344 million."9 Its operating revenue "grew $37 million in fiscal 1998 and $30 million in fiscal 1997, primarily through such non-station sources as video sales, fees for educational services, licensing arrangements and cable royalties."10 The combined $67 million growth in 1997 and 1998 and the 30 percent increase in operating revenues occurred while funding for the CPB went from $312 million in FY 1996 to $250 million in FY 1999.11 Federal funding went down and operating revenues went up.

    Alternatives and the Marketplace

    There are alternatives to federal support for public broadcasting. The realization of these alternatives may require that federal support be withdrawn. Why would a potential financial supporter of public broadcasting become an actual donor if there were an assurance of government aid? A rational person would likely withhold their donation and give it to another organization. It is plausible that federal support is not so much a crutch toward a healthy public broadcasting effort, but it is a handicap.

    This would explain how public broadcasting grows when subsidies are reduced. Alternative programming and content is also available. In the last decade alone, members of this committee have sponsored legislation to address cable television, direct satellite television, the Internet and its content, as well as radio licensing and spectrum management.

    Alternative Funding. There are alternatives to federal financing. Recent research by George Pieler outlines the far-reaching support that public broadcasting has within the giving-foundation community. Pieler writes, "of grants to PBS, CPB and NPR reported by the Foundation Center, total 1996 grants ($18.1 million) were almost as large as combined grants for 1994 and 1995 ($20.1 million)."12

    The CPB is preparing for a time when federal subsidies are reduced, if not eliminated. The CPB has dedicated funds to "assist stations’ efforts to develop greater economic self-sufficiency in response to slowing industry revenues and potential reductions in federal and other sources of financial support."13 These television and radio "future funds" totaled $10,728,408 in 1998.14 Only two years before, the total amount spent on future funds, including system support, was just over a half a million dollars.15

    The future funds raise several questions. First and foremost, why are federal funds at the CPB being used to plan for the future of local stations? If the goal of this planning is to develop greater economic self-sufficiency, what measures are being used? Is the program meeting these measures? And if the program is successful with a particular station, then the funding that the CPB had previously dedicated to that station is no longer necessary. Therefore, the amount of taxpayer subsidies to the CPB should be decreased.

    If, on the other hand, there are no measures for success or if measures exist and the "future funds" program is a failure, federal funding should be decreased by at least as much as is being spent on the program. By itself, this one commonsense change would have saved taxpayers nearly $11 million last year.

    A final note about alternative means of support for public broadcasting: As I said before, there is some high-quality programming available as a result of public broadcasting and it is evident that the market would support this programming. It is ironic and a bit sad that the greatest defenders of the value created by public broadcasting are not found in the public broadcasting community. With every request for federal subsidies, a quiet assertion is made: Public broadcasting is not good enough to succeed without a handout. Public broadcasting is better than that. Quality programming succeeds every day without federal subsidies.

    All too often we fall into a trap and act as if the policymaking community knows better than the market how to value a product or service. The only way to determine an economic value is to allow consumers to choose freely in the marketplace. Consumers vote with their dollars and through the market process. The argument that the programming available on public broadcasting cannot be supported by private investment reveals the thinking of its advocates.

    In essence, this argument requires one of two assumptions. When you hear this argument, take note. Its advocates believe that either the programming is not good enough or that consumers do not know enough for themselves about what they need and that a benevolent, federally-funded public broadcaster can bring culture and education to them.

    If the former is the case, it is a sad statement on the programming that taxpayers have subsidized for the past 30 years. And if the latter is the case, it is a reprehensible, do-gooder, and elitist attitude that does not warrant the financial support of a self-respecting American government.

    Alternatives in the Marketplace. Nobel Prize winner George J. Stigler wrote, "a monopoly is an enterprise that is the only seller of a good or service."16 Whether public broadcasting enjoyed a monopoly on programs devoted to education, arts, nature and culture 30 years ago is an interesting hypothetical question. Today, however, the market for programs devoted to education, arts, nature and culture is, to say the least, highly competitive. A full complement of technologies, programs and alternatives are available. With the exception of public broadcasting, most receive no direct subsidies from the federal government.

    Consider the following chart.17 An analysis by Bryan Riley at CSE Foundation found that cable television provides a competitive alternative to the programming of public broadcasting. Riley’s analysis did not account for the hundreds of programs available through satellite television and could not have accounted for the Internet.

    Washington, D.C., Viewing Choices:
    March 5 - 11

    Broadcast Time PBS Programming Cable Alternative
    2 PM Sunday "The Lawrence Welk Show: Then and Now" (WMPT) "Brideshead Revisited" (Bravo)
    10 PM Monday "A Hard Day's Night" (WETA) "Great Battles of the Civil War" (TLC)
    10 PM Tuesday "Nightly Business Report" (WETA) "Business Tonight" (CNBC)
    10 PM Wednesday "John Tesh Live at Red Rocks" (WMPT) The U.S. Navy's First Jet Fighter (Discovery)
    2:30 PM Thursday "Look & Cook" (WMPT) "Yan Can Cook" (TLC)
    10 AM Friday "Homestretch " (WHMM) "Fitness Pros" (ESPN)
    6:30 PM Saturday "This is Garth Brooks" followed by the Eagles in concert (WMPT) The Metropolitan Opera Performs "Tosca" (Bravo)

    Consumers have a wide range of choices for educational material. Consider just a few numbers.

    Television. By 1997, televisions were in 98 percent of American households. Thirty years ago there were three networks but the addition of Fox and part-time networks like UPN and the WB to the over-the-air market provide more choices and new programming.18

    Cable. In 1975, there were 3,506 cable systems in America. Ten years later, there were nearly twice as many (6,600) and today there are more than 10,000 cable systems that deliver cable television to more than 67 percent of households.19

    Cable. Two-thirds of households with income between $30,000 and $35,000 and three-fifths of households with income between $20,000 and $30,000 have cable television in America.20

    Video. In 1998, nearly 50 million videocassettes were rented, up from 32.3 million in 1990.21

    Internet. The Department of Commerce reports that traffic on the Internet doubles every 100 days and that the World Wide Web is growing at twice the rate of the U.S. economy.

    The wide availability of independent, unique, and community based content may be unmatched by the Internet. In just one small sub-set of programming – children’s educational material – a quick search uncovered web sites such as:

    Pitara.com, a site for kids with an Indian perspective that includes poetry, stories and special features on history and culture;

    Exploratorium.edu, a self-identified museum of science, art and human perception; and,

    Funbrain.com, where more than 30 educational games in eight categories are free for kids in four different age groups.

    The Internet is not a substitute for Sesame Street. It is, however, a viable alternative that has done as much as any medium to change the marketplace for the programming that public broadcasting was created to provide.

    Recommendations

    Unlike many policy issues that come before this committee, the future funding of public broadcasting presents an opportunity for a win-win situation. Public broadcasting is stronger without federal subsidies. At a minimum, a decrease would change the focus of public broadcasters toward the needs and desires of their audience and away from the tempestuous swirl of politics. Likewise, taxpayers would win with a reduction in the amount of government spending.

    Above all else, a change in the relationship of the federal government to public broadcasting should take into account the incentives of public broadcasters. Creative and pragmatic ideas to reduce federal subsidies should come from public broadcasters. These ideas should be solicited. Any proposal should have two key characteristics.

    Move control of the CPB and its affiliates away from the government.

    Decrease, to the point of elimination, federal subsidies for public broadcasting.

    All proposals consistent with these simple guidelines should be considered. For example, if the CPB offered a proposal to make itself independent in three years, Congress might waive spectrum fees that result from auxiliary use of the spectrum.

    The Socratic adage that the unexamined life is not worth living might very well be applied to federal spending and the CPB. An authorization made without consideration of CPB’s financial situation and the dramatic changes in the marketplace is an authorization not worth taking.

    Thank you.

    1Lewis, Tom, "Empire of the Air: The Men Who Made Radio," HarperCollins, 1991, New York, page 364.

    2CSE Foundation does not receive any funds from the U.S. Government.

    3For three decades, federal funding of the CPB has grown at staggering rates. After the initial $5 million outlay, the next appropriation was tripled and then the CPB appropriation grew an additional 53 percent in FY 1971. By FY 1979, the CPB was taking home more than $120 million – 24 times more than FY 1969 – from the federal treasury. According to the President’s Budget, (FY 2000, Historical Tables, 12.3) in the proceeding ten years the CPB appropriation went to $228 million, an increase of 90 percent. The most recent decade has seen CPB appropriations balloon to as much as $323 million in a single year. McCalip, Bernevia, "95063: Public Broadcasting: Issues in the 106thCongress," CRS Issue Brief for Congress, page 6.

    4See also, Lilly,Aaron, M. "He’s Almost 31 Years Old: It’s Time for Big Bird to Leave the Nest," TAX Fact #22, Citizens for a Sound Economy, 1999.

    5CPB 1998 Annual Report, http://www.cpb.org/atwork/annualreports/1998/ fin_rep.html.

    6PBS 1997 Annual Report, http://www.pbs.org/insidepbs/annualreport1997/ highlights.html.

    7Ibid.

    8Ibid.

    9PBS 1998 Annual Report, http://www.pbs.org/insidepbs/annualreport/index.html.

    10Ibid.

    11Note that the fiscal year for PBS ends on June 30, while the last day of the federal budget’s fiscal year is September 31.

    12Pieler, George, "Big Bird Meets Cash Cows: Foundations, Corporations Respond to Fear Tactics," Foundation Watch, Volume IV, Number 4, April 1999, Capital Research Center.

    13CPB 1998 Annual Report, http://www.cpb.org/atwork/annualreports/1998/ fin_rep.html.

    14Ibid.

    15The TV future fund was $218,450, the radio future fund was $199,772 and system support for the future funds $99,424. This information can be found in the 1996 CPB Annual Report,http://www.cpb.org/atwork/annualreports/ 1996/statementactivities.html. It is not clear from the data provided what constitutes "system support." However, it appears that approximately one fifth of the expenditures on the future self-sufficiency of CPB affiliates was spent on overhead.

    16Henderson, David, R. ed. "The Fortune Encyclopedia of Economics," Warner Books, New York, 1993, page 399.

    17Riley, Bryan, "Time for Big Bird To Leave the Nest: Privatizing Public Television," Budget Impact Statement No. 14, CSE Foundation, March 6, 1995.

    18World Almanac, p. 188.

    19"The World Almanac and Book of Facts 1998 Statistical Abstract of the United States, Table No. 916.

    20The 1998 Statistical Abstract of the United States, Table No. 916.

    21Found at www.mpaa.org/useconomicreview/1998/sld029.htm.