The Expensive Expansion of KEXP

It's globally popular and flush with donations, but Seattle's seminal eclectic-music radio station is under financial strain that is affecting morale.

Last April, Tom Mara, executive director of the wildly successful public radio station KEXP-FM (90.3), received a letter from four department directors who constituted most of his senior staff. The directors—Kevin Cole, Gary Rubin, Courtney Miller, and Monica Ramsey—had just learned that Mara had accepted a $20,000 pay raise, retroactive to the preceding year. "It is hard to put into words the anger, hurt, betrayal, and outrage that we felt upon hearing that you awarded yourself a significant raise at a time when KEXP is facing it's [sic] greatest financial crisis to date," they wrote in the letter dated April 26.

A financial crisis at KEXP? How can that be? The University of Washington–owned music station seems to be soaring. Only a handful of years ago, the station then called KCMU-FM was a tiny operation run on a shoestring budget out of the basement of Kane Hall on campus. In 2001, billionaire Microsoft co-founder Paul Allen adopted the station as a pet project and, through his Experience Music Project, infused it with money and resources. The renamed station has grown exponentially into a $3 million enterprise that attracts fervent listeners all over the world and serves as a tastemaker for an eclectic mix of new, alternative, and international music. The total weekly audience has almost doubled since 2000, to roughly 100,000 listeners. Each of the past few years, the station has raised vastly more money than the previous, surpassing ambitious goals. Revenue from membership has more than doubled in two years, to $1.5 million. KEXP's star drive-time DJ, John Richards, better known as John in the Morning, made $120,000 last year.

Beneath the surface, though, KEXP has been under financial strain, according to a series of documents obtained by Seattle Weekly and to sources close to and inside the station. The reason is an ill-fated venture to expand into the Tacoma-Olympia area. In the spring of 2004, the station entered into an agreement that allowed it to operate KXOT-FM (91.7) in Tacoma, formerly owned by Bates Technical College. Costly payments ate into the station's resources to such an extent that by last summer, it was looking at a potential $200,000 cash shortfall in September and October and the possibility that it would not be able to make payroll, according to an internal report written by Mara.

UW loaned KEXP $250,000—technically loaning money to itself, since the station is owned by the university—which seems to have stabilized things. Allen apparently wasn't an option. According to a schedule aimed at making KEXP self-sufficient, the billionaire's financial contributions have decreased over the past three years and are supposed to end this year. Allen's EMP gave $175,000 to the station this year, down from $917,000 in 2003.

Last month, KEXP announced it would cease operating the Tacoma station as of Dec. 31. The decision seems to have put an end to the financial crisis. "KEXP is not imploding financially," Mara writes in an e-mail. Listeners continue to pour in money. Last month, the station held a "hit and quit" fund-raiser with a goal of $375,000. It raised the money in only four days and four hours.

Still, KEXP projects a shortfall of $72,000 for 2005, according to figures supplied by Mara, and has cut the budget in ways that have been painful for staff. Most notably, as it planned to pull the plug on KXOT, it laid off two of five department directors: Finance Director Darel Grothaus and Director of Business Sales Gary Rubin. Among a full-time staff of only 20 people, the layoffs deepened an already significant morale problem.

As the April letter to Mara indicates, emotions at the station have been running strong. The KXOT affair has put the staff in turmoil, not just because of the disappointment that it didn't work out, but because a significant number of employees felt that it never should have happened in the first place. "We couldn't afford it, period," says one inside source, who, like several interviewed for this article, spoke on condition of anonymity. The April letter and other documents reveal that all of the department directors advised Mara against going ahead with the KXOT arrangement. The fact that Mara did so anyway, under the oversight of the station's governing board, struck concerned staffers as an ethical issue: This was money down the drain that listeners, many of them young and without many resources themselves, had donated to the station because of their love for it.

At issue is the passion and values people bring to working at a public radio station. For some, the station isn't living up to their ideals, both in terms of financial stewardship and of the transparency they expect from a public station. At the same time, they feel an ardor for the station rarely seen in the workplace, which makes their disillusionment more deeply felt. "When people give their money to you, there's a certain amount of trust," says a staffer. "And the people at the top don't seem to get it."

KEXP Executive Director Tom Mara and board members emphasize that they put a lot of thought into the decision to lease and possibly acquire KXOT-FM in Tacoma. "We're talking about lots and lots of research and analysis," Mara says. But the deal had damaging consequences.

(William Anthony)

KEXP is nationally known as one of a handful of public radio stations, if there even are that many, that reach the young audience that jazz, classical, and news-and-information stations fail to attract. To the people that love KEXP, there is something transcendent about the station "where the music matters," as the slogan says. Even as KCMU, the station had a devoted fan base. It was still called KCMU when Courtney Miller, the station's marketing director, arrived at the Kane Hall studio in 2000. She had worked previously at the now defunct Rocket music magazine and Seattle Weekly and was accustomed to the attendant gripes of newspaper staffers. "It just blew me away, the loyalty, the passion, and the love listeners have."

The following year, Allen waded in with unprecedented resources and momentum. Under the terms of a $1-a-year lease, he gave the station a new, 6,000-square-foot home on Dexter Avenue North, a few blocks from EMP and Seattle Center, with a well-equipped production studio for broadcasts of live performances. In the old days, Mara recalls, the studio was so small that if a band had more than two musicians, the others had to stand in the hallway.

With Allen's involvement came a new governing board, comprised of two members from EMP, two members from UW, and a public seat that has never been filled. A new advisory council also sprung up, populated by some high- powered fans of the station, among them Peter Nordstrom, a top executive at the Seattle-based retail chain, music author Charles R. Cross, and Cranium trivia game co-creator Richard Tait.

"It was a little like being in a startup," says Vickie Nauman, who worked as the director of technology during the transition and for several years after. She remembers the excitement and the sense of mission. "Everyone really believed in the music." They still do. "I love this radio station with everything I have," says Monica Ramsey, the development director. "We play music the world needs to hear on all levels, not only emerging artists, but world music, Americana, country twang, rockabilly. . . . " The common denominator, Ramsey believes, is attention to "quality instead of looking at 'is it marketable?'" In an age when the range of music heard on commercial radio has become stiflingly narrow, KEXP's DJs marvel at the freedom they're given to play whatever they want. "I love a radio station where I can play the Melvins and the Flaming Lips back to back," DJ Lisa Wood enthused on the air recently. She had just followed a pounding Melvins number with the Flaming Lips' sweetly lyrical "Yoshimi Battles the Pink Robots."

With Allen's funding and technological help from UW, the station created a Web presence that could reach listeners beyond Seattle, enabling them to hear programs via streaming audio any time of day. E-mails from all over the world let the station know the strategy was working. Nauman remembers that an international e-mail would come in and staff members would say something like, "How would someone in Halifax have heard about us?"

Still, a lot of people like to listen to radio the old-fashioned way. You don't have access to the Internet in your car. KEXP cannot grow the "terrestrial" footprint of coverage by traditional over-the-air broadcast, because of a weak signal. The Federal Communications Commission determines how powerful signals can be, according to a complicated regulatory scheme designed to prevent stations from interfering with one another. Broadcasting at 3,300 watts of power, KEXP can't reach much beyond Seattle. The university's monolithic NPR station, KUOW-FM (94.9), in contrast, pumps out the maximum 100,000 watts, covering the metropolitan area and then some. So when the opportunity arose to "simulcast" over another station and reach a broad swath of southern territory, KEXP was tantalized.

From left, KEXP DJs Cheryl Waters, John Richards, and Kevin Cole.

(Michael Doucett)

The Tacoma station became available because of an entity called Public Radio Capital (PRC), a Colorado nonprofit whose mission is to expand and preserve public radio. PRC buys vulnerable public stations around the country and offers them to other public stations through lease or purchase. In this case, PRC bought KXOT from Bates for $5 million, according to Marc Hand, the organization's managing director. Then it looked for a station to hand if off to.

"We looked at it very hard," says KUOW General Manager Wayne Roth. The costs of the deal, he says, "were fairly steep," running into the hundreds of thousands of dollars per year. KUOW passed.

KEXP's department directors urged Mara to pass on the deal, too, and they had a sense of unease that their assessment wasn't communicated to the governing board or the advisory council. "Does the board know that the directors have consistently recommended against this acquisition?" then–Finance Director Grothaus wrote in an e-mail to Mara last summer.

Three governing board members, including Chair Ron Johnson, and Nordstrom, the advisory council's president, say they did not know that all the directors were against taking over KXOT. But Johnson, UW vice president for computing and communications, says Mara had indicated that the deal "was not necessarily a popular thing, and that we had to decide whether the risk was worth it."

The board, along with Mara, decided it was. "These frequencies are almost never available," Johnson explains. Since deregulation in the 1990s, available radio frequencies have been snapped up. Says Johnson: "We had with KXOT a once-in-a-lifetime opportunity."

The financing that would make the deal possible, however, was not a sure thing when KEXP entered into a five-year lease agreement with an option to buy. According to Johnson, there was a short-term financial arrangement with PRC, but the station needed to find long-term, affordable financing. "All of a sudden, the market went bad and [lending] rates went up," Johnson says. "The marketplace for public radio, in particular, moved out of our price range." While KEXP had recently achieved the "great triumph" of going from a station that was losing money to one that was breaking even, Johnson says, "bankers weren't so impressed."

It is a matter of debate whether the station acted responsibly with listener money by entering into an agreement that was dependent on financing that might not materialize. Mara and board members emphasize that they put a lot of thought into the decision. "We're talking about lots and lots of research and analysis," Mara says. But there is no question that the deal had damaging consequences. The financial toll was evident by last April, when the directors wrote their letter to Mara. The letter made note of recent "emergency budget-cut meetings with the station's directors where the subject of layoffs and director salary cuts was asked to be considered."

"As you well know," the two-page letter continued, "KEXP is in a struggle for self-reliance, and as we find ourselves with the new burden of securing additional resources to service the KXOT bridge financing debt (a decision made without the support of the directors' team) and now with the knowledge of your additional pay, we find ourselves losing confidence in your leadership and decision making abilities.

"Consequently, we explored options on how to move forward, ranging from asking for your resignation to going directly to the Governing Board with our concerns." Instead, the directors said, they had decided to ask for "significant changes," including "100% accountability for the position of Executive Director" and "complete transparency with board interactions."

As a partial response, Mara deferred a portion of his raise. In a group e-mail in June, the directors wrote: "It is important that you know that the deferment doesn't resolve any of the many issues that have arisen as a direct result of your acceptance of the pay increase, and is not acceptable to us."

Asked about those issues now, Mara says that his raise, to a salary of $109,000, was "initiated by the board. I didn't ask for it." In the spring, he acknowledges, "I saw that my managers were pissed off at me and they had concerns. What they did was actually something quite thoughtful. They put down on paper what their concerns were. The effect was positive." He says he and his directors have had open discussions. "Things have really improved."

Says Marketing Director Miller: "We went though a process with this," and Mara "came back and responded."

The money of billionaire Paul Allen, through Experience Music Project, came with fancy digs.

(Ron Wurzer)

These issues, though, circulated among staff for much of the year. In the internal report written by Mara dated June 29, he recognized the morale problem he was facing: "The combination of the current sprint towards the much higher goals; the cutting of some important expenses; the emerging cash flow issues; and, lastly, the uncertainty associated with KXOT is overwhelming some staff to the point of keen frustration."

Some staffers were also frustrated that Mara had not made progress on a personal goal of raising $125,000 for the station. He says he hopes to bring in more than that by the end of the year.

As the financial strain worsened, some wondered why the station hadn't yet backed out of the KXOT deal. On June 13, advisory President Nordstrom wrote an e-mail to governing board members, asking to be invited to their next meeting to "synchronize" views on the matter. Nordstrom wrote that the advisory council had deferred to the governing board. "As the June 15th PRC payment looms, however, we are unable to provide station management with good reason for making the payment on the due date. We freely acknowledge that we do not have all the facts, but based on the facts we have, we fear that the $110,000 payment will simply constitute 'throwing good money after bad.'"

Nordstrom continued: "Our impression is that there is a cloud over the entire organization as a result of these pending payments. It is affecting all decisions and management at the station beyond just finance."

Asked about the e-mail, Nordstrom says it is "pretty self-explanatory" but then adds that it reflects a snapshot of "a particular moment where there was some information we didn't have." He says the advisory council, receiving full cooperation from the governing board, later learned information that put the matter in a different light, but he can't disclose what that information was.

KEXP plays emerging rock artists but also "world music, Americana, country twang, rockabilly. . . . "

(Ron Wurzer)

A private, nonprofit organization manages KEXP, but it is licensed as a public station and is owned by a public institution, which has budgetary authority. Is the University of Washington fulfilling its obligation for transparency? The station will not release precise financial details of the KXOT deal, citing a confidentiality agreement with PRC. Station insiders have felt that even they can't get adequate information. After he was laid off, former Finance Director Grothaus said in an e-mail to Mara, "You and the board have operated largely in secrecy, leaving me with little guidance on how to manage the station's financial crisis." Some at the station wondered if Grothaus and Rubin, both key and well-respected managers on the financial side, were laid off because they had been vocal about the need for transparency. Mara and board Chair Johnson say that is not true but add that they cannot discuss personnel issues.

"We're trying to get more and more communication," says governing board member Kristi Dooley, CEO of the Experience Music Project. She says she has sat in on staff meetings to take questions and provide information. "To say that we do not have transparency is completely inaccurate," Dooley says.

Many governing board meetings, however, have been closed to the public. Johnson, the chair, says that's because they have concerned personnel and other confidential matters; other meetings on nonconfidential matters would be open. Mara says simply, "We're a private nonprofit. We're not required to have public meetings."

KUOW's station manager, Wayne Roth, who once had oversight over KCMU and reluctantly let it go, has another point of view. He thinks public stations should have "open records and open meetings." He reflects on public radio and TV stations that ran into trouble under insular leadership, including KCTS-TV in Seattle, whose finances recently imploded. "It used to drive me crazy that you never knew when Channel 9 was holding its board meetings," Roth says. "When one accepts individual donations, there's a transparency that's just owed. I don't think it's optional."

There is a built-in way of opening up KEXP's governing board beyond UW and EMP: the board's fifth seat, which has never been filled and is designated as a "public seat." Board members say they have tried to fill it but have been unable to get the kind of person they want—someone of a national caliber who has experience in the music business.

"Where the music matters": KEXP's slogan.

(Ron Wurzer)

In the meantime, they have put off at least one person who has actively sought it. John Goodfellow, a real-estate developer who is a partner in the Russian-style spa Banya 5 and an avid listener of the station since the 1980s, stumbled across mention of the open public seat on KEXP's Web site. "That kind of indicated they are looking for someone to fill it." In the early summer, he went to lunch with governing board member Bob Santelli, program director at EMP, then met with Mara and submitted a formal letter expressing his interest in the seat. "They never really responded to me in any way that felt good," Goodfellow says. He followed up by phone and e-mail but has yet to receive an answer.

"What does being a member mean?" Goodfellow asks, referring to the term for people who donate money to the station. "It kind of implies we're included in the process." But he doesn't believe that's the case. He's also confused by the structure of the station. What belongs to EMP, what belongs to the university, what belongs to the public?

In fact, EMP does not own the station in any way, although executives of Paul Allen's project will continue to sit on the board after his financial contribution has ended. KEXP belongs unequivocally to the university.

In considering recent events, board member Dooley stresses that the station is a "young organization transitioning into a more mature organization." In other words, it's going through growing pains. Now that the weight of KXOT has been lifted, KEXP is likely to continue growing. As it does, it will have to answer not only the concerns of staffers but those of members like Goodfellow, people who want the management of the station to be as good as the music.

nshapiro@seattleweekly.com

 
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