All Unquiet on the Western Front

Minnesota Public Radio's empire- building purchase of Marketplace Productions hits a snag

On Friday, April 14, the Dow Jones Industrial Average dropped more than 600 points and the Nasdaq index fell by nearly ten percent as investors fretted about the onset of a bear market. But in St. Paul, Minnesota Public Radio was in a bullish mood. That day officials at the public-radio behemoth, whose 30-station network includes KSJN-FM and KNOW-FM in the Twin Cities, announced that they were buying Los Angeles-based Marketplace Productions, producer of the popular business program Marketplace, from the University of Southern California. Terms were not disclosed.

The acquisition of Marketplace, carried on 296 public-radio stations nationwide, represents yet another sign that Minnesota Public Radio (MPR) is serious about becoming a national player in the industry. (Along with Marketplace, the deal also includes Marketplace Morning Report and the travel program The Savvy Traveler.) "MPR's strategic relationship with Marketplace Productions is an example of public radio's role in the national trend of merging media forces," read a press release heralding the purchase. "The new affiliation of Marketplace Productions is part of MPR's long-term strategy to develop more national programming, especially in the talent-rich Los Angeles market."

The businesslike tone of the announcement underscores the extent to which public radio, and MPR in particular, has become a big business. And as in the for-profit world, when enough money is at stake, skirmishes are bound to break out. The day before the public announcement of the sale, Minneapolis-based Public Radio International (PRI), which distributes Marketplace and The Savvy Traveler and has a significant financial stake in both, sued the University of Southern California (USC) in federal court in Minneapolis, alleging breach of contract and an attempt to "flagrantly violate" a contractual agreement.

According to court documents filed in the case, PRI's contract with USC stipulates that neither party could sell its interest in Marketplace Productions programs without the written consent of the other. PRI charges that it never gave any such approval to the deal with MPR.

The court documents indicate that officials from the university informed PRI last September that negotiations with MPR were under way, and that on February 28 the school asked for PRI's consent to the sale. But letters from Lee Sheehy, PRI's senior vice president of business and legal affairs, to USC's general counsel indicate that PRI continually sought information about the proposed deal, only to be steadily stonewalled by USC, save for a heavily redacted version of the purchase agreement.

A March 10 letter from Sheehy to USC sought a host of paperwork related to the proposed sale, including "all unredacted transaction-related documents," the initial proposal from MPR, and information about proposed investments in the program. "Frankly, this process has become circular with USC referring us to MPR and MPR indicating it cannot act because of concerns raised by USC," Sheehy complained in a March 31 missive. And on April 7, in a letter requesting a meeting with USC officials in Minnesota to sort things out, he wrote, "USC has asked us to consent to a transaction but refused to disclose the material terms."

On April 13 USC Radio president Martha Harris wrote to PRI president and CEO Stephen Salyer, stating that the sale had closed two days earlier, and that the school had "failed to receive your consent after a period that we believed to be reasonable." She hoped the three parties could "amicably resolve any issues as to payables and receivables," she added. PRI filed suit that day.

Citing the lawsuit, MPR spokesman Tony Bol declined to comment for this story; he also refused to supply general information about MPR and its business strategy. PRI spokesman Dan Jensen won't discuss the lawsuit either; nor would he comment on whether PRI had been interested in purchasing Marketplace Productions. USC's Harris points out that the school is seeking to have the matter mediated outside of court but won't comment beyond that.

The suit highlights the interlocking relationships in the world of public radio. Originally known as American Public Radio, PRI was founded in 1983 by five public stations, including Minnesota Public Radio. The idea was to create an alternative to National Public Radio (NPR) for the distribution of programs like A Prairie Home Companion, which NPR had passed on. According to spokesman Dan Jensen, PRI's revenues in fiscal year 1999 were $19.7 million.

MPR president and CEO William Kling was a founding board member of what is now PRI, and the two organizations still do a fair amount of business with one another. Among the approximately 70 programs and specials PRI distributes, many are produced by MPR, including Minnesota Orchestra, Pipedreams, The St. Paul Chamber Orchestra, Saint Paul Sunday, The Splendid Table, The Writer's Almanac, and Sound Money. PRI's most popular show is MPR's A Prairie Home Companion, carried on 488 stations.

 

Minnesota Public Radio, meanwhile, is far and away the most successful regional public radio network in the country. And the company has the money to keep growing. For the fiscal year ending June 30, 1999, MPR reported revenue of more than $31 million--nearly $4.8 million more than its expenses during the same period. In 1998 MPR's parent organization, the Minnesota Communications Group, sold a for-profit subsidiary, the Rivertown Trading Company catalog business, to the Dayton Hudson Corporation (now known as Target Corp.). According to documents on file with the Minnesota Attorney General's Office, the Minnesota Communications Group recorded a gain on the sale of approximately $94 million. (Most of that, $85.6 million, was set aside for a permanent endowment for MPR that will provide steady future dividends; the balance was made available "for future investments...for the long-term benefit of MPR.")

A tidy bankroll, in other words. MPR first floated the idea of expanding to California in 1998. This past December the board of Pasadena City College voted to turn over the operation of its radio station, KPCC, to MPR on January 1. At the time of the vote, the Los Angeles Times reported that MPR would invest some $15.7 million over five years and add 25 staffers, with an emphasis on reporters; Bill Buzenberg, MPR's vice president for news, would do the hiring. "Rarely have we seen an opportunity with the potential of this one," MPR chief Kling told the Times. Last month KPCC's eclectic musical mix was abruptly replaced by a news/talk format. (For more about the repercussions on the L.A. radio scene, see this week's installment of Sound Check).

But MPR has been branching out--and attracting attention--for quite some time. In the early Nineties the organization added a second FM frequency to its local stable, drawing criticism for hogging the dial. The move was funded in part by MPR's expanding for-profit arm, Rivertown Trading. As the catalog business continued to grow, critics continued to raise questions about the complex relationships between MPR's nonprofit and for-profit elements. In 1995 state legislators passed a law that required the disclosure of salaries paid by for-profit organizations to executives who also worked for affiliated nonprofits--a law that was largely aimed at Kling and others who worked for both MPR and the Greenspring Company, Rivertown's parent.

In 1995 three dozen MPR employees were laid off owing to rising costs at the for-profit; that same year at Christmastime, a stink ensued when employees of MPR were asked to help fill orders at Rivertown. The latter incident spurred an investigation by the Minnesota Attorney General. The report, issued in January 1998, found no illegalities but urged that more detailed written policies, including conflict-of-interest disclosures, be put in place. When Rivertown was sold, Kling got a $2.6 million windfall through what amounted to a stock-option plan.

These days Greenspring's ventures sport a lower profile, but they're still bringing in money: Projected fiscal 1998 revenue (the most recent figure available on MPR's Web site) for the MNN Radio Networks and Minnesota Monthly Publications was $8.2 million. Last year grain scion Jim Cargill and his wife Susan donated two commercial AM stations, KLBB and KLBP, to MPR; the stations, which broadcast old pop tunes, are under lease to MNN Radio.

Is William Kling now attempting to position MPR to go head to head with National Public Radio? Bill Davis, senior vice president for programming at NPR in Washington, D.C., acknowledges the "potential" for competition. But NPR had no interest in buying Marketplace Productions, he says. "Most of the territory that MPR has staked out is complementary to what NPR is doing currently," he adds. The two organizations are already partners in a couple of ventures, eXploreRadio (an Internet resource for public broadcasters) and American Radio Works (a documentary production unit). "I think there may be opportunities in the very near future for MPR and NPR to work even more closely than we already do," Davis adds cryptically.

NPR Online vice president M.J. Bear says eXploreRadio's services are designed to provide content for public-radio Web sites. At present, she says, they don't charge affiliates any fee for the services. "There are a bunch of different revenue streams down the line," she offers, "but not necessarily from stations paying for things." Bear declines to say what those streams might be.

As to why National Public Radio chose to partner with MPR, Bear says, "There was a lot of synergy. National Public Radio and Minnesota Public Radio wanted to do a lot of the same things on the Internet--they're one of the larger national program producers aside from National Public Radio. When we looked at the programs that both entities created, it was a no-brainer."

While USC's Harris won't talk about the current lawsuit, she does shed some light on why the university sold to MPR. Harris says Marketplace Productions was essentially outgrowing USC. "We really needed to invest heavily in new technology and we needed to put a lot more money into salaries to keep them competitive," says Harris. "The amount of investment needed to keep it viable and healthy was more than the university could put into something not central to its mission." At first, she says, the school was looking for partners. But after talking to four or five different groups (whom she declines to name), the decision was made to sell the whole thing to MPR. "This is what they do. They do national productions, they do it very well," Harris says.

The production company, which employs 35 people, has an annual budget of nearly $6 million. Revenue, according to Harris, is about the same: "It's totally break-even. If they make a huge amount of money from it, that's fine. We want to be sure that they invest in the company and grow it. The thing that USC gets out of this is that we keep our names on the programs. We need the programs to keep being at the high quality that they are for a long, long time."

Harris declines to discuss specifics of the sale, beyond noting that it requires Marketplace Productions to be located within five miles of the USC campus. But one radio observer is willing to venture a guess as to the deal's value. Robert Unmacht, publisher of M Street Journal and M Street Daily, a pair of radio-industry newsletters based in Nashville, says that if Marketplace were a commercial venture, it would be worth one and a half to two times its revenue, or $9 million to $12 million. "I think that's reasonable," he says.

"Oh heavens, no!" Harris responds, dubbing such an estimate "way out of line." Money, she says, was never the issue: "We want to keep our name on this, and that's part of the arrangement."

Unmacht says that while MPR boss Kling has been viewed by some of his competitors as "predatory," he is unquestionably an excellent businessman. "He's figured out how to provide a service to the public and make a lot of money. You can't say he's been a failure at it," asserts Unmacht. "It's not that people aren't getting something back for their money. They do a good job, and I think that they will do a good job for Marketplace. It has a good, marketable name and Minnesota Public Radio knows how to market things. They can really make it a franchise." (Indeed, PRI's catalog boasts to affiliate stations that Marketplace can be lucrative: "The program is a magnet for local underwriting, and with the midprogram break expanded to 60 seconds, the sky's the limit!")

In Los Angeles, Unmacht adds, Kling has found an untapped opportunity. The airwaves boast plenty of public-radio music fodder, both classical and jazz, but not much public-affairs programming--MPR's stock in trade. "Really it's a wide-open hole for news and talk programming," says the industry expert. "That looks to be wide open."

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