#DigitalSkeptic: NPR Opens Pandora's Box on News Strategy

NEW YORK ( TheStreet) -- All things considered, NPR has opened a veritable Pandora's box factory with its new "Pandora of News" strategy.

In case you hadn't been listening, back on July 9, National Public Radio's then CEO, Gary E. Knell, began some serious media outreach. According to interviews at The Wall Street Journal and elsewhere, as part of a $201 million capital rebuilding plan, America's national public broadcaster would embark on a bold new Digital Age initiative.

According to this former head of the Sesame Workshop -- seriously, Knell really did tell Big Bird what to do -- it would no longer be enough for NPR to reach 27 million people a week serving a mix of Car Talk, Fresh Air and other programs via over-the-air radio, Web and mobile simulcasts.

Oh, no. Now it would seek to rip a page from private-sector streaming media services such as Pandora ( P) and Spotify and use the latest in wonder tools to render up news and information feeds unique to each listener.

"What we're trying to work on is a Pandora for news," Knell told Melissa Korn at the Journal, "to allow listeners to customize a playlist, available through the cloud, live."

Considering I've watched many a good man and woman -- not to mention hundreds of billions of dollars -- go south chasing the exact same idea in music, publishing and financial services, I figured I better confirm with NPR what this "Pandora of News" actually is.

And so began a four-month odyssey to get NPR to comment officially on what were -- and how it expected to pay for -- those new Digital Age services. And to be fair, everybody tried. I had dozen conversations and emails with various NPR officials. But, trust me, not one single moment of any of those made enough sense to be quoted here.

And it turned out, in one of the marvels of full disclosure, it didn't matter.

We're talking about public radio here -- its records are, well, public. If investors ever wanted to hear how grim the challenge is of running a streaming media service a la Pandora or Spotify, all they need do is click on into NPR's Consolidated Statement of Activities and Supplementary Information Year Ended 2012, and something called a Form 990 -- which amounts to its tax return.

Wait wait ... don't tell me!
Listening for the grind-to-the-bottom narrative is not hard in NPR's disclosures. In fact, the corporation breaks out its Digital Services revenues clearly, and they dropped from $1.98 million to $1.69 million last year, for about a 15% decline. Of course, being the Web, during the same period, Digital Services expenses jumped from $3.2 million to $5.8 million, for an 81-ish percent increase.

That grosses up to a by-now-standard-for-the-era single-line jump in losses for Digital Services from about $1.3 million in 2011 to roughly $4.3 million last year, or about 230%.

And that's just Digital Services. Digital Media costs -- which is grouped as part of NPR's Program Services expenses -- rose from $17.8 million to $20.2 million during the same 12 months. That 13% increase is a full order of magnitude larger than the growth in Station Programming revenues, which nudged up from $67.7 million to $68.6 million for the year.

NPR makes it very easy to hear where all the money is going.

Attachment 1-2 of its Form 990 starts with a lengthy description of the full suite of costly digital services offered by NPR: content available free on the Web, mobile devices and other emerging digital platforms. There are on-demand downloads, a decade of archival audio, original feature stories, additional information on NPR programs, commentary and other "content exclusive to the Internet." All of which culminates with Attachment 8, where we learn that two of the top five highest-paid independent contractors at NPR are Siteworx, its Reston, Va., Web design firm, and Dallas' Limelight Networks, one of NPR's Web hosting service providers.

Only the producers of Car Talk and Fresh Air got more money out of NPR.

A dark, digital Lake Wobegon
Worse, NPR seems oblivious to the digital bloodletting ahead.

In June, it announced a deal with San Francisco-based Swell, which an NPR representative described to me as a classic Digital Age disruptor. Swell offers customized news content based on an algorithm's guess for free via an app. And -- in my opinion at least -- a familiar blurry digital road to profitability for its content provider vendors.

Making it all worse, as of Aug. 31, Knell -- remember, the guy who dreamed up this Pandora of News thing in the first place -- announced that he will leave NPR to run the National Geographic Society.

"The outgoing executive says he feels he's leaving NPR in better shape than when he arrived," wrote Mark Memmott, at The Two-Way, the NPR news blog, "Knell believes his successor will be able to pick up and continue that 'strategic trajectory.'"

Digital hipsters may call me what they will, but these tired ears have heard enough: Until it dawns on whoever replaces Knell that survival here in the digital slum is about limiting the exposure to the Web, not embracing it, NPR will become a perverse riff on Lake Wobegon: A wisp of a town shivering high up on the digital prairie, where everybody and everything is merely below average.

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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