Dr. Raymond C. Rask

Recently, a local group floated the idea of building a Hilton Garden Inn and Convention Center in Butte. Part of their vision to finance the facility was the idea of asking Butte-Silver Bow County to grant the group a 10-year tax abatement. The tax abatement would amount to around $463,000. over the 10-year period, and assuming the facility was built as envisioned, the County would receive about $1,000,000. in tax revenues over the same ten years. Generally, I believe most County residents including myself support the project; we all know Butte has fallen well behind the rest of the State in terms of quality hotel and convention facilities. While I think the timing of the project is difficult and frankly question whether it is large enough to be competitive with other facilities, those are issues the developers will have to face and decide on in conjunction with their funding sources. The project’s viability is not the point of this writing, nor is it up for debate here.

What is up for debate is really the overall issue of tax abatements, if they should be granted to anyone, and if they are going to be used by the County as an economic development tool, then how should they be used, who should be eligible to receive them, and what conditions should apply to those who receive them. 

What is very clear is most local business owners and many residents lack confidence in whatever the current process might be, as it is unclear, appears to be unfair to existing business owners, seems to be an ad hoc process, and quite frankly is very suspect.  For the most part, the current tax abatement debate has little to do with the projects that have received tax abatements in recent years or even the currently proposed project, but have everything to do with “the process.”

Lack of Local Business Development Program…  For some years now there has been considerable talk on the street about the lack of support for “existing local” Butte businesses.  I have discussed this problem countless times with County leaders, economic development agencies, including URA officials.  The answer is always pretty much the same, there is no money and/or programs to assist local business owners in their efforts to expand their businesses, or start new businesses.  Unless a business exists in the area covered by the URA or one of the other then active Tax Increment Finance Districts, no significant relevant business assistance program exists, as there are no funds for a program. 

Butte-Silver Bow County has an opportunity to create a significant solution for both the tax abatement issue, as well as developing a significant and equitable program to assist existing Butte business owners.   Here are my initial suggestions for the development of this solution:

1. Place any current requests for tax abatements on hold, including that of the Hilton Garden Inn and Convention Center. 
    
2. County Government leaders develop a board or commission to develop a Business Assistance Tax Abatement Program (BATAP) for submission to County Commissioners for approval.  This board or commission should be made up of 9 to 11 members.  The make up of the board/commission should be very diverse but significantly represented by small business owners, and no owners-operators or agents of same who have received or are asking to receive tax abatements now, or within 24 months of the program being developed.  My recommendation for the make-up of the board/commission would be:  
     -  Chairman of County Commission
     -  One County Commissioner, selected randomly
     -  Member of County Attorney’s Office
     -  7 Small Business Owners (must be Butte owned, with main office in Butte)
     -  One member of a local economic development agency (non-County government)
    
3. The board/commission would develop a program to actively make tax abatements available to existing Butte small and medium sized businesses, through a business retention and development program.  The program development would include setting up program funding rules, including such things as a method by which the program would determine the total annual amount the County could make available for the program; the qualifications required to apply for the tax abatement program; the maximum amount of tax abatements any one applicant/business could receive of the total annual allotment; the “factors of qualification” required to receive a tax abatement, an example would be (but not limited to this example) applicants must utilize Butte contractors for all work; purchase supplies for expansion (where possible) from local area businesses, etc.  The overall program goal would be to develop a process by which both new and existing local business could participate in an equitable tax abatement program, which had equal access for all applicants, with a extra-heavy emphasis on existing local business retention and expansion.  Projects such as the Hilton Garden Inn would be considered new business development and therefore would be able to apply to the program for a certain level of tax abatement, based on the maximums available with in the program for new business development and for the tax abatement period requested. 
    
4. The program board would work with County officials annually to set the level of total tax abatement dollars to be available in the next fiscal year.  The program would publish the number publically and qualifying applicants would apply to the program for their desired abatement request.  Applicant requests would be considered on a first come first served basis.  When the available tax abatement dollars for that fiscal year were allocated, then that would be it until the following year.  If there were two qualified applicants, who also applied on the same day for the same remaining dollars, and both projects met all requirements, then the dollars would be allocated to the applicant that had never received any other County business funding assistance in the past, or was not using any other County funding assistance as part of their current project.  If both applicants met all criteria, then the project with the earliest scheduled end date as listed on their initial application would be approved. 
    
5. The program would then be administered by a County board, which would recommend applicants for approval to the Council of Commissioners. 

A program of this nature would assure relatively equitable access to tax abatements by all qualified comers and through active promotion of the program would bring a much needed local business retention and expansion program to Butte.  Obviously, it would be wonderful if such a program also had some “cash” to offer, but short of that ability, the tax abatement program would be a great start, and something the County government could be very proud of….  And, would put to rest much of the contention and upset in the community over current tax abatement process and allocations.

The Montana Standard – Headed to the Final Press Run – The Beginning of the End

On June 6th, 2009, The Montana Standard, the Butte daily newspaper published by Lee Enterprises, both of which have long been in decline, finally made arguably the worst decision it’s long history, the decision to shut down the paper’s press operations in Butte, and print what is left of the paper in Helena.

In a statement published in The Montana Standard, it’s management group attempted to print a smiling face on the news of the move, but fell well short of the mark. In fact, the statement was such a piece of work that it is deservering of top billing on this site as the lead post in Another Fine Mess category. I present the main portion of The Montana Standard’s statement as evidence. Click here to read the entire story.

“…The Montana Standard’s press operations will be moved to a regional facility in Helena that also prints the Independent Record, the publisher of both newspapers said. Randy Rickman said the Helena facility will provide a faster and more efficient method of printing the paper and will allow more options for color advertising. The Standard will be printed in Helena, but newspaper advertising inserts and the paper’s distribution center will remain in Butte, where the papers will be processed before being shipped to readers. The change, which takes effect on July 13, means the Standard’s newsroom deadline will move up to 11 p.m. and subscribers in areas outlying Butte may see their paper an hour later. Copy will be sent to the printing facility electronically. Rickman said the move is a more measured response to the downturn in the newspaper business….”

Some months ago, Lee Enterprises publisher of the Standard narrowly averted a financial melt down, as it urgently worked to restructure its finances. During that same time, the local Publisher of the Standard abruptly resigned her position. Local speculation was she saw the handwriting on the wall and abandoned ship. Now, one wonders which ship she was concerned about, the Standard or corporate parent Lee Enterprises.

While it is widely known, the newspaper industry in is serious trouble nationally, that does not mean that is the case with the Standard, and to date Butte has not felt the extreme depressive pressures of the national and world economies. So it would appear the Standard’s fortunes and its recent steady decline are a direct result of the lack of sound management at Lee Enterprises.

So once again Butte draws the short straw, because another large corporation looses its direction and the management team with no real practical operations experience runs the company from the numbers on a spread sheet, instead of from strong local operating experience.

You might say, how do I know what Lee Enterprises management knows and does not know…I don’t know. But I do know the newspaper business, as with the television and radio station is a local business, regardless of how large the local market might be. If nothing else, one would think Lee Enterprises management would do everything in their power to protect the advertising revenue stream at each and every paper, come hell or high water. And since The Montana Standard is in a market (Butte) that takes the concept of local to a new level, the last thing they would do…is do the worst thing they could do, and that is move jobs and printing operations to Helena.

Had Lee Enterprises management had a real understanding of the local newspaper business they would have completely reorganized each local paper, either using their strongest local manager to function as publisher, or hire a local business person to perform the Publisher function. In the case of the Standard, there is no reason Jerry O’Brien, Standard editor could not be elevated to the position of Publisher-Editor and have him use his local connections and influence to improve the strength and position of the Standard in the community, which in the near term would improve goodwill and revenues. I know Jerry’s background is not that of a advertising manager, but Jerry’s time in the business, his position in the community, and his on-the-ground operating experience would help make up for some of his lack of sales experience. In the end, Lee Enterprises corporate provides the business operating structure, therefore there is no need for an highly experienced newspaper busienss manager at the Standard. What is needed is a local Publisher/manager to build the business, build the local revenues, provide better service to the advertisers and readers, increase the size of the business and ultimately create an improved and expanding business, not watch over a declining, shrinking business.

Lee Enterprises should do us all a favor and sell The Montana Standard now before they completely destroy the Standard and have nothing to sell and our community is without a local daily newspaper. The Standard is not going to be able to be morfed into an on-line service by the Lee Enterprises management team, as their web strategy is substantially flawed and they are consistantly leaving advertising dollars on the table in Butte. A print based Publisher is going to have a difficult time trying to transition a legacy newspaper to an on-line service. A successful on-line strategy typically requires a different management style, team and staff.

Unfortunately for Butte and all of us who call this community our home, this situation with the Standard is very problematic for our future, and it is unfortunate, but the reality is the Standard appears to have fallen on it’s own sword….

If you have an opinion, please comment on this posting and subject.

Steve Guttenberg writing for cnet.com recently wrote an article titled, “Sirius XM Sticks it to Subscribers” and in summary said:

How’s the Sirius XM satellite radio monopoly working out for subscribers? Not so well. Now that Sirius XM is the only game in town, it’s nudging up fees for subscribers. Nice!

The one and only satellite radio company’s boasts of its ever-increasing subscriber base are gone now, and the decline is significant. The number floating around the Internet is a loss of 400,000 subscribers. That still leaves 18.6 million, but there’s no way of knowing how many of that number are full-price-paying subscribers.

Could the subscriber losses be attributed to recent price hikes? The family plan package went from $6.99 to $8.99 a month and there’s a monthly $2.99 fee to receive Sirius XM stations over the Internet. That service was previously free. Back in March of last year I asked who was going to pay for the merger, and now we know. We’ve lost favorite channels and pay more for the service. So please explain why the merger was such a swell idea?

While I would agree with Steve Guttenberg accessment of the merger and its effects on subscrbers, the real problem for subscribers comes down to the ability of the merged entity to survive at all. Clearly, the days of both XM and Sirius spending money like there is no end are over. The days of entering into talent contracts that even would make television network executives think long and hard are over. The days of telling investors that satellite radio will put terrestrial radio out of business and the vast terrestrial radio audience is satellite radio’s to have are not only over, but were completely bogus from the beginning.

Satellite Radio may in fact be a flawed concept, at least as it is now operating in the United States. But that does not mean terrestrial has won the day, because frankly, terrestrial radio is in a steep decline of its own, mostly of its own making. Both satellite radio and terrestrial radio have a place in the market, but they are not the same beast. And, if the management team at XM Sirius Radio continues to operate the service, as if it is a multichannel terrestrial radio station, the service will end up being a very costly and failed experiement.

As a former terrestrial radio network engineering executive, a career satellite communications engineer and a former owner of multiple terrestrial radio stations, I have a number of practical comments about this subject, in addition to those provided above. For those interested, please read on….

1. Those in my household have subscriptions to both XM and Sirius Radio. I don’t know that I had a personal preference over the years, I enjoyed programming on both. But as an engineer, with an extensive background in audio and microwave engineering, I will say I preferred the audio and satellite signal performance of XM; I was really never very happy with the digital compression used by Sirius and the resulting lackluster audio quality.

2. As a terrestrial radio station owner, I did not feel I was competing with satellite radio. My stations’ programming were all about “local” and a good deal of time and money was invested in covering local/regional news and providing consistant quality programming. As a local broadcaster, my real competition was the local daily newspaper, its newsroom and advertising group.

3. But the above being said, I also knew very well that as far as music programming was concerned, my competition was the personal music player devices, and I would include satellite radio in that group. So, rather than spending time bashing satellite radio programming (as the NAB has done for years), much of which was nothing more than an automated MP3 player, I made sure my nitche (local programming) was the very best it could be.

4. The majority of market share decline of major and medium market terrestrial radio is not the direct result of satellite radio, MP3 players, 200 channels of cable TV or anything else, but instead rests squarely on the shoulders of the mega-corporate station owners, who have cut the local staff and news operations to the point that “local programming” has nothing to offer, and therefore listeners, more ofter than not, turn to their MP3 players and satellite radio in order to have other choices.

5. Satellite Radio: The dueling battles for the launch and survival of satellite radio is what drove both compaines (XM and Sirius) to do what they felt was best to create subscriber growth and ultimately survive. For those of us who have a pretty good understanding of what it costs to design, build, launch and operate a satellite system, including building spares and replacement spacecraft, it was fairly appearant from the beginning that it was unlikely two satellite radio operators could survive long term. And, it was very clear from the beginning that getting people to “pay” for radio was going to be a steep uphill task.

6. Like many other products available to consumers, there is a subjective “price” the market will bear, and XM and Sirius were all ready near that number before the merger. Now as a merged entity, they are not going to be able to cut their losses by raising the price. Raising their price, at least for now is going to drive away those subscribers who were already walking the line of whether the cost was worthwhile and/or will cause people with multiple subscriptions to reduce cost by cutting subscriptions.

7. Customer service at Sirius Radio was already weak, XM appeared better, but frankly neither was very good for an industry who was in a race for survival. One thing is for sure now, this is the wrong time for the management team to further reduce the quality of their customer and technical support teams.

In summary, it is clear the combined Sirius-XM operation needs to move aggressively to consolidate operations, get costs under control, determine what nitche they want to serve, then start investing the money saved in programming content and customer service, in order to turn around the subscriber defections and create long term growth.

My recommendations would be to:

1. Determine what programming is really going to sell itself; then work on developing that line-up.

2. Move to consolidate satellite operations onto one satellite system. For the sake of the long term stability of the company, to reduce technical-operational complexity and cost, and provide the best possible service to the subscribers, the XM satellite system is the best choice.

3. Figure out how to get the Sirius users moved to the XM satellite system with the least possible disruption, and put together some financing to assist users in this transition.

4. Get the new programming line-up on the XM system this fall, including premium content like Howard Stern. While Howard Stern is no fool, I have little doubt he would agree to a new much less expensive deal, as long as he could participate in the longer term upside. Cut all the junk programming and costs surrounding the Howard Stern program. Get Howard to do his show live five hours a day, 5 days a week, and repeat the show on one single channel the rest of the time.

5. Run the same programming on both satellite systems until March 2010 (allows people time to buy new hardware as Christmas gifts and birthdays, etc.). Allow Sirius subscribers to move to XM easily and very quickly. Shutdown the Sirius terrestrial repeaters at the end of 2009 to move people along, and shut down Sirius satellite operations on March 31, 2010. Allow only XM system users to access Internet programming at no cost, again prompting people to move to the XM system. Give people a financial incentive to keep ALL of their subscriptions active through December 31, 2010.

6. Decide whether Sirius-XM is going to operate from New York or Washington, DC, and start the full consolidation asap, and get it done by this fall.

7. Look at other high profit revenue streams that could be combined into the XM digital transmission system.

8. Look to leverage the old Sirius satellite system by either selling it to a data provider, or by creating a partnership with a data-broadcasting partner to use it as a mobile/portable data network. There are a number of potential applications that could generate revenue for this extra system. If, as it turns out, these other applications are not financially productive and/or the Sirius satellite satellite system is in need of near term satellite replacements, then just shut it down and move on.

Finally, Sirius-XM will not survive even in a consolidated mode if there is not an effective, productive and focused operating-management team. The operating-management team needs to grow the business and make “long term” decisions. The public-company team needs to raise capital for the new group and keep their hands off the operation. There is no question Sirius XM is in trouble and may even be on life support at this point, but a dedicated management team with a long term view has a reasonable probability of making Sirius XM a real busienss, as long as there is focus on the operating company, and not creating public company “transactions.” And, even if the management team can stop the defections and create subscriber growth, it is going to be touch and go for some time to come, so survival is really going to depend on good-quick decisions by an effective “small” management team, and focus, focus, focus.