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The Economic Response of Religious Television Stations to Digital Implementation
Dr. Brad Schultz Department of Journalism University of Mississippi 331 Farley Hall University, MS 38677 662-915-7146
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Abstract
A theoretical model of organizational behavior (Oliver, 1991) was applied to
religious television stations in the U.S. to assess their economic responses to the digital
television conversion. Results showed that religious stations are more likely to abandon
or reduce operations, but have strong resistance toward selling and would like to explore
new revenue opportunities. Because of this dilemma, religious broadcasters viewed the
conversion as a burden, not a benefit.
The Economic Response of Religious Television Stations to Digital Implementation
Background The general manager and president of two religious television stations in Florida has a serious problem. While one station is non-commercial and the other is commercial, both must comply with federal mandates to convert to digital broadcasting. The general manager estimated the cost of full-power digital conversion at around six million dollars, a figure he called "horrific." (Note: The names of managers and organizations have been withheld at the request of the research participants. Interviews took place in October 2001 and August 2002). Because of high conversion costs, the stations will not go digital for at least a year. And while the organization could go with low-power digital conversion, it may still have to sell one station to pay for another. "We feel we are being forced to sell a valuable asset to settle for a non-commercial station," said the general manager. He added that his stations need to create new economic models, such as leasing unused spectrum space, but the financial reality of the situation has made that unlikely. "This is a real problem for religious stations." As the manager indicated, religious stations across the U.S. have struggled with the issue of digital conversion. Unlike most media technologies, which develop from market forces and entrepreneurial ambition, digital television in the U.S. has the support of a government mandate. The Federal Communications Commission (FCC) has ordered a general phase-in of digital television, whereby almost all stations in the country must have a digital signal on the air no later than 2003 (Thalheimer, 1998).
The Economic Response If the FCC sticks to its timetable, digital television will enter into a unique period in U.S. history. The American media landscape has changed drastically in the generation leading up to digital technology. Deregulation in the 1980s, which climaxed with the Telecommunications Act of 1996, relaxed rules on media ownership. The result has been a tremendous increase in media mergers and consolidations, as larger companies continue to swallow up smaller ones. At the turn of the new century, the top 15 television operators accounted for 43% of total industry revenue, with that number projected to change to 10 companies controlling more than half of industry revenue within a few years (Mermigas, 1998a). As media companies combine, their audiences have split. An explosion in program offerings and alternative channels has resulted in audience fragmentation and the development of smaller 'niche' audiences. A 1998 survey by Statistical Research Incorporated showed that the percentage of homes with more than 80 channels had doubled in just one year, while the number of homes with Internet access had doubled just since 1996 (Lafayette, 1998). Another issue for industry executives is the tremendous cost of digital implementation. Depending on who crunches the numbers, digital conversion can cost between one and eight million dollars per station. According to a Forrester Research study, 24% of all stations will spend more than $6 million apiece on digital upgrades (Tedesco, 1997). The National Association of Broadcasters (NAB) says that by the end of the digital transition, the industry will have invested approximately $16 billion in equipment, design and manpower (Kapler, 1998). The Economic Response Consolidation, fragmentation and escalating costs have combined to cast a shadow of doubt across the entire system of media economics. Chan-Olmstead wrote, "As the media industry continues to develop with sophisticated technologies … it renders current models of competition in mass media obsolete" (1997, pp. 39-40). A study from PricewatershouseCoopers revealed that digital television will require new business models, new programming models and more efficient systems (Mermigas, 1998b). But exactly what economic models and systems will support the untested technology remains a mystery to most station owners and industry executives. Said former FCC chairman William Kennard, "Nobody—nobody—can predict, with any degree of certainty how it's all going to work out" (West, 1998, p. S7). That certainly could be said of religious broadcasters, who perhaps face even
greater conversion obstacles than their secular counterparts. Certainly, financial
restraints and economic conditions will play a major role.. As Armstrong (1979, p. 138)
noted, "Christian programs and stations operate on budgets that seem impossibly low to
other communication professionals."
Religious broadcasting has developed an economic model based mainly on viewer support, but with advertising growing in significance. Many religious broadcasters say this model will not survive the digital conversion, forcing many stations off the air or into consolidation (Schultz, 2000a). In addition, many religious stations are by definition non-commercial and non-profit. Executives at such stations are also different socially, politically and managerially than their secular counterparts. While economic realities are
The Economic Response important to such broadcasters, evangelical and religious principles often take priority (Schultz, 2000b). This could complicate their responses to digital television.
A few years ago, FCC chairman Michael Powell called digital conversion "a potential train wreck. The government-mandated schedule will force broadcasters to spend billions before they have any inkling of what consumers prefer" (McConnell, 1998, p. 14). This study attempted to address this 'potential train wreck' and what religious broadcasters are doing to avoid a derailment. Specifically, it approached the economic future of U.S. religious television stations with this question: how will such stations react to digital conversion? Theory and Hypotheses The study attempted to answer this question primarily through the application of a theoretical model of organizational response (Oliver, 1991). It would be much simpler to make predictions based strictly on financial resources, but that may not be the most comprehensive method. Oliver argued that, "The likelihood that organizations will conform to institutional pressures is not exclusively dependent on the legitimacy or economic rationality anticipated by conformity (p. 165)." Instead, Oliver described organizational behavior as a strategic response to institutional changes (such as the government-mandated conversion to digital television). In the face of change or institutional pressures, organizations react based on a variety of factors. Oliver developed a model that helped predict how organizations would handle and react to outside pressures. Such outside pressures must be viewed in terms of what is causing the pressure, which constituents are exerting the pressure, the content of the The Economic Response norms to which the organization is being pressured to conform, the means by which the pressure is exerted and the environmental context in which they occur (see Table 1). For example, Oliver defined the cause of institutional pressures as "the rationale, set of expectations, or intended objectives that underlie external pressures for conformity (p. 161)." This cause is generally defined in terms of either legitimacy (social fitness) or efficiency (economic fitness). In terms of the cause, outside pressures can make the organization either more socially fit (such as laws regarding safety conditions) or more economically fit (such as laws that promote business efficiency). In a similar vein, organizations depend on a variety of constituents. In the case of multiplicity, such constituencies are multiple and conflicting. The level of dependence organizations have on such constituencies also varies. For example, public television stations are highly dependent on both the government and private donors for funding. By contrast, commercial stations are more dependent on advertisers and the viewing public. The content of the outside pressure is also important. Sometimes, such content is compatible with the internal goals of the organization. It could be argued that deregulation of ownership limits on television stations is compatible with business goals at those stations. If the organization believes the content is not compatible with internal goals, there is a higher level of constraints and a lower level of consistency. For example, many stations might view the legislative ban on cigarette advertising as a constraint. The institutional factor of control refers to the level of sanction or coercion involved with the outside pressure. The threat of legal coercion or enforcement can be The Economic Response quite high, as in the case of digital television. The FCC has mandated the conversion, and stations that do not comply face the potential loss of their operating licenses. In some cases, control can be voluntary and less severe. This would apply to regulations and operating procedures of stations that belong to the National Religious Broadcasters (NRB). The NRB has rules and regulations for member stations, but compliance is mostly voluntary. Finally, the context of the outside pressure can influence organizational behavior. There can be a high degree of environmental uncertainty in which the pressure takes place. This would refer to a situation in which business conditions cannot be accurately anticipated or predicted. There is often a high degree of environmental uncertainty when new media technologies emerge, such as the chaotic early days of radio and television. Based on these conditions, Oliver theorized that organizations will make specific strategic responses ranging from passivity to increasing active resistance. These responses include acquiescence, compromise, avoidance, defiance and manipulation. How the organization perceives the outside pressure for change will determine how it reacts. For example, if an organization feels like the outside pressure is socially legitimate and economically efficient, it should respond with high acquiescence and avoid strong resistance. However, if an organization has strong, conflicting, multiple constituencies, and the content is viewed as constraining rather than consistent, the reaction is more likely to be open defiance of the outside pressure. This predictive model has direct application to television stations and the digital conversion. According to Oliver, acquiescence is defined as habit, imitation or The Economic Response compliance, which includes "unconscious or blind adherence to preconscious or taken-for-granted rules or values (p. 152)." This would correlate most closely to a station maintaining the economic status quo or improving its existing economic model. But Oliver also noted, "Organizations may consider unqualified conformity unpalatable or unworkable" (p. 153). In these cases, compromise is a logical response. Oliver described compromise as "the thin wedge in organizational resistance to institutional pressures (p. 153)," which could be interpreted as developing new economic models or revenue streams. Avoidance, defined by Oliver as escape or exit from the domain within which the pressure is exerted, correlates most closely to selling the station, consolidation, or getting out of the industry. Defiance and manipulation are not plausible courses of action, given the coercive power of the FCC and the threat of losing a station license for non-compliance. Based on this model, it is possible to assign predictive factors to U.S. religious television stations (see Table 2). It is also possible to hypothesize how religious broadcasters will respond to digital conversion: H1: Religious stations are more likely than other categories of stations to
abandon, or eliminate operations, including no planned changes or
selling the station, as a response to digital conversion.
H2: Religious stations are more likely than other categories of stations
to perceive a lack of benefit in the digital conversion process.
H3: Of those stations that perceive a lack of benefit in the digital conversion process, religious stations are more likely to try and avoid abandonment compared to other categories of stations. The Economic Response There are stations that will undoubtedly view the digital conversion as lacking any benefit, and perhaps even consider it a detriment. This would seem a logical response of religious stations, given their limited resources. Thus, religious stations should be more likely to respond to digital conversion with active resistance. These hypotheses reflected the current problems facing religious broadcasters. It was believed that regulatory and financial burdens have forced many religious broadcasters to considering selling, even though making such a choice was involuntary and would be aggressively resisted. Methodology A questionnaire was developed to test the predictive model and gauge the attitudes and behaviors of decision-making executives in the study. Most names, addresses, stations and station information used in the questionnaire sample were gathered from the 2001 Broadcasting & Cable Yearbook. When necessary information was missing, gaps were filled from TV station application information at the FCC, which keeps more detailed records than the Broadcasting & Cable Yearbook. Using these sources, a stratified sample of broadcasting executives was created. These executives included owners, presidents, managers or anyone else with ultimate decision-making power at the station. An nth-series method was used to build the sample, taking every fifth station from the industry listings. This method led to a total sample size of 330. The hypotheses were tested with a postal questionnaire in the fall of 2001. Originally, the questionnaires were designed as an electronic mail instrument, but a pilot test conducted in the spring of 2001 found low response rate problems with this method. The Economic Response Response was much better for a postal version of the pilot test; therefore, the researcher decided to conduct the survey by U.S. mail. The mailings were conducted in October 2001, and based on Dilliman's (2001) total design method, which emphasizes repeated contacts. Contacts included a pre-notification letter, the questionnaire and cover letter, and finally follow-ups by mail, phone and electronic mail. It was decided to send questionnaires to executives at four major categories of U.S. television stations: religious, low-power, commercial and public. It was believed that this method would allow for a better comparison of religious broadcasters with other station groups. Of the 330 initial contacts made, a total of 11 were refused or returned as undeliverable. This left 319 valid possible respondents, of which 104 actually returned a completed questionnaire, for a response rate of 32.6%. Response for the mailing may have suffered because of some unfortunate circumstances. Shortly after the first questionnaires went out, television newsrooms across the country began receiving the anthrax bacteria in the mail. Three people died, and traces of the bacteria were confirmed in mailings sent to NBC and CBS in New York. At least three television station representatives called the researcher and said questions about safety prompted them to have local law enforcement open the manila envelopes in which the questionnaires were mailed. These developments had obvious implications for response rate and potential non-response error. As a result, the researcher conducted qualitative, in-depth, phone interviews with broadcasters representing all four station groups. These interviews were The Economic Response conducted in October 2001 and April 2002, and the results were used to supplement the quantitative data of the study. Results Data from the study supported previous literature, in that compared to other station groups, religious station respondents reported more obstacles associated with digital conversion. All station groups were asked to assess whether they could sustain revenue after the digital conversion (see Table 3). On a scale from one to seven, with one representing 'definitely will not sustain,' and seven representing 'definitely will sustain,' the mean for the religious group (2.76) was lower than low-power (2.90), public (3.39) and commercial (4.12) respondents. An analysis of variance (F = 2.85, df = 103, p = .04) indicated that this difference was statistically significant at the .05 level. Similarly, when broadcasters were asked to make predictions about future
revenue, religious stations were the most pessimistic (see Table 4). On a scale of one to
seven, with one representing 'will decrease substantially,' and seven representing 'will
increase substantially,' religious (4.29) executives reported lower mean scores than low-
power (4.33), public (4.92) and commercial (5.00) respondents. Although an analysis of
variance did not indicate statistical significance at the .05 level (F = 2.42, df = 103,
p = .07), it still reflected the precarious financial position of many religious broadcasters.
Revenue concerns have caused many religious broadcasters to delay the digital
conversion process (see Table 5). A higher percentage of religious broadcasters (60%)
indicated plans to delay digital implementation longer than one year, compared to low-
power (50%), public (48%) and commercial (21%) stations.
The Economic Response
Thus, support for H1 should not be surprising. Station executives were asked what specific economic changes they planned to make as a result of digital conversion (see Table 6). The proportion of religious stations that indicated plans to sell (9%) was higher than commercial stations (4%), public (0%) and low-power (0%) stations, leading to acceptance of H1. Data also indicated support for H2, in that religious stations perceived a very low benefit to the digital conversion (see Table 7). Based on scaled responses, with one representing 'low benefits,' and seven representing 'high benefits,' religious stations (2.81) had lower mean responses than commercial (3.00), low-power (3.10) and public (5.91) respondents. An analysis of variance suggested this difference was statistically significant at the .05 level (F = 30.24, df = 100, p < .001), especially when comparing religious and public stations. This was further confirmed through qualitative data, such as interviews and responses to open-ended questions on the questionnaire. Some religious station respondents remarked that the conversion only benefited the government. One remarked, "Digital is being done only so the government can make more money." According to the data, religious, low-power and commercial broadcasters see little benefit from the digital television conversion (see Table 7). Of these groups, it was hypothesized that religious broadcasters would be more willing to try and avoid abandonment, or selling the station (H3). Respondents were asked the importance of maintaining control of the station (see Table 8). On a scale with one representing 'no importance of keeping control,' and seven representing 'extremely important to keep The Economic Response control,' religious broadcasters (6.05) expressed the highest desire to maintain control, compared to commercial (5.79), public (5.92) and low-power (4.11) respondents. Although an analysis of variance did not suggest statistical significance at the .05 level (F = 2.53, df = 89, p = .06), religious broadcasters were strongly inclined to maintain station control and avoid selling. The hypothesis was further examined through correlation. Attitudes toward selling the station were correlated with those station groups that perceived low benefits from digital conversion (religious, commercial and low-power; see Table 9). The correlation indicated that religious broadcasters had the lowest desire to sell (r = -.46), when compared with commercial (r = -.19) and low-power (r = -.15) broadcasters, and that this difference was statistically significant at the .05 level (r = -.46, r2 = .21, p = .03). Based on these data, H3 was accepted. Discussion In that the data showed support for all three hypotheses, the Oliver model seems to have appropriate application for religious television stations and the digital conversion. Religious broadcasters were more likely than other respondents to abandon or reduce operations (H1), see no benefit from the digital conversion (H2), and resist sale of the station (H3). However, many of these choices appeared involuntary. In terms of specific economic response to digital conversion, the majority of religious broadcasters (53%) expressed a desire to explore new revenue opportunities (see Table 6). But regulatory and financial constraints have put them in a situation where
The Economic Response they are forced to abandon or reduce operations. This was reflected in several respondent comments. One religious station respondent said, "We are a missionary station. We don't have the resources to go digital." According to another, "We must pay more attention to things proven to work and spend less time on speculation. We are not yet ready to make changes." This also fits Oliver's model in that organizations with low consistency are less likely to acquiesce or compromise. According to Oliver (1991, p. 154), "Defiance and manipulation strategies are predicted to occur most frequently when consistency is low. The organization may unilaterally dismiss or challenge [outside requirements]." Those stations that are not selling or reducing operations, still face major obstacles in meeting conversion deadlines. The majority of religious broadcasters (60%) said it will take a year or longer to convert, which was a highest percentage of all responding groups (see Table 5). This type of delay also fits in with the Oliver model. According to Oliver (1991), "The lower the degree of social legitimacy [or] economic gain perceived to be attainable from conformity, the greater the likelihood of organizational resistance" (pp. 160-161). Even if religious broadcasters had the resources to confront the digital conversion, the issue is further complicated by questions over revenue models. Many religious stations are still tied to the economic model of viewer donations, which may not improve with the advent of digital technology. A clearer picture or more program offerings does not necessarily translate into increased viewer support. As one religious station respondent wrote, "Viewer support and economic changes dictate our revenue stream, The Economic Response [not digital technology]." Another religious station respondent agreed, adding, "Today's younger generation is less likely to donate [than their parents]." All of this fits in with Oliver's model. Regarding inconsistency, she wrote, "Organizations may also lack the capacity to conform when consistency is low. Both the
willingness and ability of organizations to accept and conform to institutional rules or
expectations may be circumscribed by a lack of consistency" (1991, p. 165).
Limitations All of these findings must be considered within the context in which the study took place. Specifically, respondent concerns about environmental uncertainty, audience viewing patterns and worsening economy make their responses extremely volatile. There was an overwhelming feeling of uncertainty among the respondents regarding the digital conversion. Typical of the responses was what one public station executive wrote, "Things are very uncertain. We still lack a successful [business] model." A commercial station responded added, "There is more expense, but we don't see any additional income." It is also important to consider the economic time frame in which the study took place. The national economy showed consistent weakening throughout 2001, and when it showed signs of recovery, the terrorist attacks in September delivered another serious blow. "It will take [our station] many years to recover from September 11," wrote one public station respondent. The weak national economy had a trickle-down effect that hindered growth for many stations on the local level.
The Economic Response Thus, the results of this study could be considered only a "snapshot" of a particular moment within the evolving digital landscape. It is possible that changes in any of these factors could change the attitudes and responses of station executives regarding digital television. Future Research The limitations of the study suggest the need for investigation over a longer period of time. A useful approach might be investigating station response during several distinct time periods. For example, response could be measured before the digital conversion, shortly after the conversion, and then a period of years after the conversion. This would allow the researcher to account for volatility in the environment, such as the economy or government activity. It could also measure how respondents' attitudes and activities regarding digital television have changed over time. This would give the researcher a greater breadth of information regarding the actual impact of the digital conversion. A more detailed study of individual stations groups might also provide more insight as to motivations for economic actions. This particular study focused more on the 'what' of specific economic response. A case study approach would take the investigation to the next logical step: 'why' do groups of stations (or even individual stations) make the economic responses they do? That would certainly provide more depth to the current study.
The Economic Response Conclusions The results of this study paint a pessimistic picture of the future of religious television stations in the U.S. Most religious broadcasters do not want to sell or reduce operations, but have been forced to do so because of factors related to the digital conversion. Those stations that do remain on the air face significant problems in regards to conversion timetables and creating revenue. Complicating these issues is the great uncertainty among broadcasters surrounding digital conversion. Even as the conversion deadline approaches, there is still confusion over programming options, technical standards, consumer acceptance, and most importantly, revenue opportunities. No one has yet advanced a proven model for recouping conversion costs and creating profit in the digital age. This is especially relevant for religious broadcasters, like the general manager of the two stations in Florida. "We are really struggling with this conversion," he said. There is no money to convert and I don't see any for several years. Am I missing something?"
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Table 1: Antecedents of strategic responses ___________________________________________________________ Institutional Factor Predictive Dimensions Cause Legitimacy or social fitness Efficiency or economic fitness Constituents Multiplicity of demands Dependence on constituents Content Consistency with group goals Constraints imposed on group Control Legal coercion or enforcement Voluntary diffusion of norms Context Environmental uncertainty Environmental interconnection ____________________________________________________________ Source: Oliver, Christine. (1991). Strategic responses to institutional process. Academy of Management Review, 16, (1), 160.
Table 2: Strategic response model of U.S. television stations to digital conversion ________________________________________________________________________ Type of station Predictive factors Strategic response Commercial Low legitimacy Developing new Low dependence economic models Low consistency or revenue High uncertainty streams
Public Moderate legitimacy Improving existing Moderate dependence economic models Moderate consistency Moderate uncertainty
Religious Low legitimacy Reducing or Low dependence eliminating High inconsistency operations High uncertainty
LPTV Low legitimacy Reducing or Low dependence eliminating High inconsistency operations High uncertainty ________________________________________________________________________
Table 3: Whether stations can sustain revenue after the digital transfer ___________________________________________________________ Responding group N SD Mean_______ Religious 21 1.76 2.76 LPTV 10 1.66 2.90 Public 49 1.67 3.39 Commercial 24 1.57 4.12
Responding group Compared to Mean difference___ Religious Commercial -1.36 Low-power -0.14 Public -0.63 ____________________________________________________________
Note: Although the ANOVA suggested a statistical difference, a Scheffe test failed to identify statistical differences between the means at the .05 level.
N = 104
F = 2.85, df = 103, p = .04
Table 4: Station prediction of primary revenue source _________________________________________________________ Responding group N SD Mean_____ Religious 21 1.52 4.29 Public 49 0.99 4.33 Commercial 24 0.97 4.92 LPTV 10 1.05 5.00 _________________________________________________________ Note: Responses ranged from 'one' meaning 'will decrease substantially' to 'seven' meaning 'will increase substantially.'
N = 104 F = 2.42, df = 103, p = .07
Table 5: Timetables for stations to convert to digital technology __________________________________________________________ Response Responding group by percentages Commercial Religious LPTV Public Totals
Already digital 4 5 0 18 11 Within next 6 months 25 5 10 18 17 Up to one year 50 30 40 16 29 Longer than one year 21 60 50 48 43 Totals 100 100 100 100 100 __________________________________________________________ Note: Percentages rounded to the nearest whole number. N = 103
Table 6: Planned economic changes as a result of digital conversion _________________________________________________________________ Response Responding group by percentages Commercial Religious LPTV Public Totals
Improve existing model 25 19 10 33 27 New revenue choices 54 53 50 61 58 Sell station 4 9 0 0 3 No changes 13 14 30 2 10 Other 4 5 10 4 5 Totals 100 100 100 100 100 ________________________________________________________________ Note: Percentages rounded to nearest whole number. N = 103
Table 7: Station perception of digital benefit __________________________________________________________
Responding group N SD Mean______ Public 47 1.19 5.91 LPTV 10 2.18 3.10 Commercial 23 1.57 3.00 Religious 21 1.94 2.81
Responding group Compared to Mean difference Religious Public -3.10* LPTV -0.29 Commercial -0.19 _________________________________________________________
Note: * indicates difference is significant at .05 level according to Scheffe test. Responses ranged from 'one' representing low benefit to 'seven' representing high benefit.
N = 101 F = 30.24, df = 100, p < .001
Table 8: Importance of maintaining station control ___________________________________________________________
Responding group N SD Mean______ Religious 20 1.50 6.05 Commercial 23 1.57 5.79 Public 38 2.03 5.92 LPTV 9 2.67 4.11 ___________________________________________________________
Note: Responses ranged from 'one' representing no importance of keeping control to 'seven' representing extremely important to keep control.
N = 90 F = 2.53, df = 89, p = .06
Table 9: Correlation between perception of benefit and attitude toward selling among stations that perceived low benefits _____________________________________________________________________
Responding group N r r2 p__
Religious 21 -.46 .21 .03*
Commercial 23 -.19 .04 .36
Low-power 10 -.15 .02 .69 _____________________________________________________________________
Note: *indicates difference was statistically significant at the .05 level. Public stations were not included because their perception was categorized as 'high benefit' (see Table 7).
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