Adventures in Public Television

Albert Chavez

I still remember the excitement of my first day at the GSB. We were in the auditorium and the staff were introducing themselves to us. Ayse Kenmore told us about the Placement Center and made a remark that stuck with me, “Never underestimate the power of serendipity in your career.” I had left a stable position at Deloitte, working with people that I liked. But I was bored with auditing other companies’ financial statements, and I am not good at handling boredom. I get grumpy and restless. “Bring on some of that serendipity!”, I thought to myself. “This is what I came here for.”

Since then I have been fortunate in finding interesting things to do. Some were planned but mostly they were unexpected. I wanted to share my most recent experience turning around KCET-TV in Los Angeles and hope you enjoy the story.

It was 2011, 26 years after our GSB graduation. At that point I had about twelve years of CFO experience running the finances of media companies. I co-founded and boot-strapped a venture-backed radio broadcaster and acquisition company in the 1990s, launched a digital television network in the 2000s with one of the same investors and started up a Los Angeles radio station for a publicly-traded but mostly family-owned Mexican broadcaster in 2008. These were all interesting and fun operations with good stories to each of them.

But here is some background about KCET-TV. It was established in 1962 as a public educational television station, a non-profit, before the Public Broadcasting Service (PBS) was established. Seven years later, PBS was founded, and KCET became a charter member. So, it was a shock to everyone who cared about either KCET or PBS when in January of 2011, KCET and PBS announced the end of their 48-year affiliation. And to fund its new start, the station had sold its historic studios on a 4.5-acre lot on Sunset Boulevard.

There were several problems that triggered KCET’s divorce from PBS. Like most of broadcast television, PBS’s ratings had been weak for a while and this impacted KCET’s corporate sponsorship business, as the clients’ announcements were seen by fewer viewers and hence, worth less to the people writing us the checks. Second, KCET felt that as the primary producer of PBS content in Southern California, a hub for national television production, it did not have enough say about what was appearing on PBS’s air. Those decisions were mostly made, KCET felt, by the three affiliates in New York, Boston, and Washington, DC.

Third, PBS dues, a substantial station expense, were calculated as a percentage of revenue, and kept on increasing while the ratings were in decline. The immediate cause of the break-up, in addition to these three, was the announcement of a large three-year production grant that was payable over three years. But under non-profit accounting, KCET had to recognize the revenue in year one and hence pay dues up front on cash that would trickle in over three years. After protracted and tense negotiations, they announced KCET’s departure from PBS.

This was the situation when I joined KCET late in 2011 as their CFO. It looked like it could become a slow-motion train wreck, but I had a sentimental attachment to KCET as the first PBS station I had ever seen. I was motivated to try to save this cultural institution as I felt it was still important, especially to Los Angeles, the city where I was born. It was more about mission than business.

After my first day on the job I summarized the situation thusly: the good news was that KCET now had control over the content it aired and had sold its studios for a tidy sum of cash to pay off maturing debt and leave some for the transition. The bad news was that it had to produce or acquire all content for a 24/7 operation and that most of the money from the sale of the studios was either going to pay off debts or be spent on the new state of the art production and broadcast facility they had committed to build in a new high rise in Burbank.

Furthermore, we were concerned and unclear about the revenue hit we were about to take. Foundations might take a “wait and see” approach to funding production grants for KCET if they were uncertain of the station’s direction. We understood that we were also likely to lose many of our viewer/donors when they found they could no longer find their favorite PBS shows on our air. We did not know how deep those losses might be.

What sustained us was an optimistic belief that with an excellent production space and the well-regarded KCET brand, we would soon have producers coming to us with proposals that would help create a vibrant public television community with a more local flair. And we felt the Southern California market was sufficiently large to support this.

As we were to find out, there were issues that made this plan problematic. The drop in revenue was more severe and longer-lived than anticipated. Both donor and foundation support dropped in reaction to our departure from PBS. And the interesting new production ideas usually had either little or no funding attached to them. All told, the station was about to lose 60% of its revenue.

Though initially, we did not understand how deep the revenue decline would go, we knew we were going to have to cut costs and balance these cuts against the objective of maintaining a vital product for our community, the latter being a condition of our FCC license. And though it seemed that we were cutting production expenses with a machete, we were surgical in our approach, favoring shows that were important to our audience and represented KCET to the community, while saving on production expenses where we could. After a few years of not seeing revenue recover we took the additional steps of selling some of our assets, outsourced some of our technical functions, and sublet two-thirds of our leased space. By 2015, we had cut just about everything that we could, but we were still broadcasting, the on-air product looked good, and we continued to win critical acclaim.

During its history with PBS, the station had never had to face the threat of closing its doors forever. While production budgets ebbed and flowed, the various operating departments generally had stable budgets and few calls for this level of sacrifice. But by 2015 it seemed that KCET was close to collapsing, despite cutting expenses, slowing production activities, and going through some painful layoffs.

But in November 2015, a ray of hope appeared. The Federal Communications Commission (FCC) announced an auction of television spectrum. The concept was that the highest and best use of the portion of the broadcast spectrum occupied by television was for consumer broadband services by such companies as AT&T and Verizon. The increasing digitization of communications and media drove this.

The FCC planned to purchase the spectrum from television stations who wanted to sell, repackage it, and resell it in bigger chunks to the broadband service providers. And if you were fortunate enough to have a license to broadcast in one of the top ten markets in the country, you stood to receive a windfall if you decided to participate. Further the evolution of radio wave compression now allowed for KCET to provide all its services on 50% of the original bandwidth the FCC granted in 1962. We partnered with another Southern California PBS affiliate and went to market with the other 50% of our bandwidth.

This was not the end of the story though. The FCC’s auction process was complex, opaque, and the instructions seemed to change by the month. It was going to take a great deal of time, and since we were about out of cash, this was time that KCET did not have. We knew that we needed some sort of bridge financing but were not sure what might be available to us. After all, we had a history of operating losses and most of our physical assets were pledged as collateral for our building lease and the elaborate tenant improvements our landlord had made. There was next to nothing to secure the loan other than my explanation of a complex FCC auction with an uncertain outcome, some old station vehicles, and a broadcast tower.

Enticed by the prospects of television stations in some of the larger markets earning nine figure paydays from the auction, a number of investors set up shop as “spectrum speculators” and were offering bridge loans for interest rates that were multiples of the prime rate plus a sizeable share of the back end. While KCET was certainly in need of an injection of funds, I did not want to give up any more of the FCC’s payday than I had to. My board did not want me to spend the time chasing conventional loans, but I freelanced and found an out of state mid-sized commercial bank that wanted to start building a loan portfolio in Southern California and thought the KCET brand would help. Despite this, the loan fell apart three times and in three different ways before we finally closed on a loan at prime that would get us through to the auction.

The auction still took much longer than promised, and the auction proceeds were less than the FCC initially teased broadcasters with – they were selling us on jumping into it, after all. Twenty months after announcing the auction, we crossed the finish line in 2017, running on fumes, and received the needed windfall, which we reserved as an endowment for the long term.

While the auction was proceeding, an opportunity to merge with the other PBS station in Southern California, KOCE in Orange County, came up. And since we were both participants in the auction, it seemed safe to assume that the combination of the two stations would be a strong entity. KOCE had become the primary distributor of PBS content in Southern California when KCET left in 2011. Our departure from PBS had strengthened KOCE by eliminating a competitor, as we were no longer carrying PBS programming, in addition to making them the primary distributor. They also benefited by the enormous popularity of Downton Abbey, which debuted at about the time we announced our departure from the system.

Nevertheless, six years after KCET and PBS parted ways, PBS missed us, recognized the value of having a production hub like KCET, and wanted us back. So, they were supportive of the merger. We would gain access to some PBS national programming to improve our schedule, like national news, while still maintaining our overall local focus. And we also could save some money by combining administrative functions and physical locations. We announced the merger in April 2018. KOCE would continue as the primary distributor of PBS programming and KCET would continue as a public television station with a primary focus on Southern California arts and culture.

I left in April 2019 after helping with the transition. KCET’s CEO had left in February 2018, before the merger, so there was plenty to do in preparation.

So now I find myself sheltering in place with my wife Irma and our two teenagers, Jacob and Quinn. I am trying to be helpful with my kids’ own entrepreneurial efforts and enjoying the opportunity to get more quality time with my family.

That said, I am remembering Ayse Kenmore’s words and thinking of my next steps. Bring on some of that serendipity!