The Real Economics of Big Bird

Mitt Romney’s decision to use Sesame Street’s Big Bird character as a synecdoche for cutting funding for the Corporation for Public Broadcasting which, in turn, served as the only example of a program whose spending he’d cut to balance the budget has prompted a lot of discussion but little really serious analysis of the situation. For starters, cutting federal CPB subsidies actually isn’t the main policy threat to PBS—it’s base broadening tax reform.

To see why, we need to step back and see how the federal government subsidizes PBS. There are three distinct channels here. The first and in many ways least important is that a few hundred million dollars a year go to the CPB which gives money to public television and radio stations. Those TV stations, in turn, spend some of their money on PBS programming. A much more significant form of subsidy is the broadcast licenses themselves and related regulations. Cable network operators are generally required to include all local broadcast stations—with “local” often defined quite generously—in the basic package that they provide to cable TV viewers. This makes any kind of broadcast license, including on UHF channels that are relatively undesirable qua broadcast frequencies, a pretty valuable commodity. Public TV stations, much like their commercial competitors, don’t have to bid at auction for access to the broadcast spectrum they use. It’s just been given away for free. The decision to allocate some of that spectrum to public TV stations is, at a fundamental level, why they exist.

Last but by no means least, I encourage everyone to read Tyler Cowen’s 2006 book on U.S. arts policy, Good and Plenty, which makes the point that in many ways the income tax deduction for charitable contributions is the most important piece of federal culture policy.

CPB money is a nontrivial part of public broadcasting’s financial base, but at the end of the day money from donations (“viewers like you” as they say) to stations and foundation grants to subsidize the creation of programming are more important. And both the donations to the stations and the donations to the foundations are driven in part by tax considerations. Both Romney and Obama have at different times proposed measures that would reduce charitable contributions and thus PBS funding.

Now when it comes specifically to Big Bird and Sesame Street it looks like they’re not particularly dependent on either of these funding streams. As huge multinational icons, the Sesame Street characters generate tons of licensing fees for Sesame Street Workshop. The big deal, for Big Bird, is the broadcast licenses that create the distribution channel for the core content that keeps the whole engine chugging along. Whatever it is that would end up cut out if PBS revenue declined—either thanks to reduced charitable giving or reduced CPB funding—it probably wouldn’t be Sesame Street.

Last but by no means least, as my friend Daniel Schlozman tweeted earlier tonight arguably the specific Sesame Street function should be funded in a totally different way. It might make sense to create a grant program inside the federal Department of Education with the specific purpose of creating educational content suitable for an early childhood audience. This is, as he points out, a conceptually distinct mission from the PBS high culture function aimed at adults and should perhaps be housed with the rest of the federal government’s expertise on educating young kids.