Political-Ad Rate Up in the Air

With the first of the presidential primaries only six months away, broadcasters are urging the FCC to rule quickly on how online auctions of radio and TV ad time might figure into the rate that stations are required to charge political candidates for their campaign spots.

Factoring in the auctions could temper the political-ad–spending windfall that stations are expecting from this election season, estimated at upwards of $3 billion. But broadcasters say a speedy resolution will at least enable them to prevent a logistical nightmare down the road.

“There is need for clarification on this issue as election season approaches,” says Wade Hargrove, a media attorney with Brooks Pierce McLendon. Media lawyers, he adds, have been asking the FCC to weigh in for some time.

Broadcasters are required by law to sell advertising to political candidates at the lowest rate they charge for a category of advertising in the 45 days before a primary and 60 days before an election, when candidates make their final crunch-time ad pushes. Factoring in rates that result from online auctions, broadcasters say, would only compound an already complicated calculation that weighs length of spot, daypart and size of ad buy.

A majority of state broadcaster associations (47 of 50, plus the District of Columbia and Puerto Rico) have asked the FCC for a definitive answer on whether they have to include several online airtime auctions in their calculations. And with Washington, D.C.'s Jan. 8 primary kicking off an unusually front-loaded primary season, broadcasters are anxious to nail it down before December.

The three online sales services that the associations are asking about—SoftWave Media Exchange, Bid4Spots and dMarc Broadcasting—represent a relatively new phenomenon: sites that auction TV and radio ad time, including last-minute unsold inventory that could go for bargain-basement prices.

Such online sales often involve reverse auctions, in which stations vie for an advertiser's spot by offering competitively lower rates. That practice could come back to haunt broadcasters if the FCC decides those low auction rates must be weighed in calculating campaign-ad rates.

The online auction houses have already met with the FCC, according to attorneys for the broadcasters. They argue that their services are exempt from the lowest-unit-rate charge because they are essentially unwired networks.

“This creates an ad hoc network of stations,” says James Bayes, counsel for Bid4Spots, “and such networks have not been deemed to be subject to the lowest unit charge.”

Broadcasters hope that argument wins the day, although they did not come out and say that in their request to the FCC for a declaratory ruling. Richard Zaragosa, of Pillsbury Winthrop Shaw, who represents the state associations, says that the unwired-network argument has merit but broadcasters did not pitch it because “we did not have a sophisticated understanding of how each [online-auction] program works.”

But they do have sufficient understanding to suggest that the process is different from the local ad sales that fall under the lowest-unit-rate requirement. In their filing to the FCC, the associations note that SoftWave “matches advertiser marketing criteria with profiles of affiliated television or radio stations to create an unwired network.”

That means stations that are willing to accept the prices set by advertisers become an ad hoc network for the spots, logging on and downloading the creative.

The commission has asked for input and information about the online-sales programs in question, with comments due Aug. 6 and replies due Aug. 21.

Whatever the decision, broadcasters don't want to be left scrambling to calculate rebates once the campaign gets under way.

Says Zaragosa, “No station wants to be caught unprepared with a candidate complaint during what is expected to be one of the hottest election periods in recent U.S. history.”

E-mail comments to jeggerton@reedbusiness.com.