Multiplatform Bonus Spots In The Political Window
June 28, 2016
As we roll into the 2016 political season, another issue frequently faced by broadcasters selling political time is what to do about bonuses. Broadcasters often offer incentives to commercial advertisers that include bonus spots or other material benefits such as gifts, incentive travel and other goods. This election round, it may present an even trickier issue as broadcasters deploy digital sales teams and introduced mixed packages of digital/broadcast spots, or even, as I hear from some broadcasters, sell digital with "bonus" broadcast over-the-air spots to add incentive to the digital product.
Commission rules limit charges during certain pre-election and pre-primary periods to a legally qualified candidate for elective office to no more than the "lowest unit" charge, or the per unit charge made to its most favored commercial advertiser for the same class and amount of time for the same time periods. With some limited exceptions, a benefit offered to a commercial advertiser that enhances value must be disclosed and made available to candidates on equal terms. Such practices include discount privileges that affect or enhance the value of the advertising, including bonus spots.
While this principle is well-known to experienced broadcasters, a new wrinkle is presented with the advent of broadcasters coming into the 21st century age of multi-platform delivery. Today, broadcasters know that technology has affected listening and viewing habits to where their programming, and advertising, must be delivered not only over-the-air, but also through their Internet resources. Enterprising broadcasters have developed digital sales teams and are selling air time in packages that include a station's Internet pages or program streams. Sometimes those benefits are offered as a bonus with a package of standard broadcast advertising.
When a web page banner or streamed advertising is offered as a bonus to a commercial advertiser, it's reasonable to assume that Commission rules would require that the same "bonus" be given to political advertisers whose purchase of time would otherwise qualify them for the bonus as a regular commercial advertiser. The value of the Internet spots would not have to be averaged into the over-the-air spots, but would have to be offered as a bonus to qualifying political advertisers.
However, with the popularity of digital in some demographics and implementation of digital sales efforts and teams, it is possible that the digital sale may occur first. In this case, a potentially more problematic issue might be presented. If advertising is sold by the broadcaster and purchased by the political candidate for direct streaming and website purposes, over-the-air spots may wind up being the "bonus" benefit. The Commission has many times disavowed regulating the Internet and, specifically, has taken the position that lowest unit charge and other political advertising requirements of Section 315 of the Communications Act do not apply to Internet political advertising. Although, in the context of children's television programming, it has said that the advertising of commercial websites in broadcast programming is within the scope of the Commission's jurisdiction.
In this modern age of digital streaming, digital sales are becoming as important a source of revenue as over-the-air advertising and it can be anticipated that broadcasters will be making digital sales to political advertisers. The interesting question then becomes: Where digital advertising is deemed so important that it becomes the prime sale, with over-the-air advertising "bonused" as an incentive for the digital buy, how is the broadcast ad valued and how does it affect LUC?
Digital would not create a lowest unit charge or even a reasonable access requirement, since the FCC does not regulate the Internet, but the spot might be considered a no-charge free spot and affect the LUC in the time period or class of time it runs on the broadcast station. In that case, it might set the LUC to zero for the time and class in which it runs.
It might be argued that, without an underlying broadcast sale, the "bonus" spot should be held as a separate "bonus class," offered as an incentive for digital, and therefore unavailable except as a bonus with no effect on lowest unit charge. Could then a political candidate buying digital from a broadcaster demand the broadcast spot as a bonus for making an equal purchase of digital advertising, even though the FCC does not regulate digital?
Commission Rules require that unit rates charged as a part of any package, whether individually negotiated or generally available to all advertisers, must be included in the lowest unit charge calculation for the same class and length of time in the same time period. Can we safely assume that any bonus broadcast spot sold with the digital package has no value, but is otherwise unavailable unless acquired as a part of a bonus package for digital advertising? The answer is, quite possibly yes, if we can conclude that it is unavailable under any other circumstances.
Stations are not required to include non-cash promotional incentives in the lowest unit charge calculation, but that they must be offered to candidates as a part of any purchases permitted by the licensee. So even though the rules provide that bonus spots must be included in the calculation of the lowest unit charge, since they are not attached to a purchase that requires lowest unit charge, they could be considered only a bonus attached to the non-broadcast, digital sale.
When the bonus spot amounts to a volume discount within a single class of broadcast advertising, the unit rate for each broadcast spot within the package is the package price divided by the number of spots. It is possible, therefore, that the Commission could conclude that the digital sale with a broadcast bonus is simply a package of more than one class of time and not a bonus situation at all. In that case, some of the cost would be attributed to the digital and some to the broadcast advertising. The broadcast advertising would be subject to lowest unit rate and the digital component would not.
If that were the result, it is important to recall that where a package contains spots in more than one class of time, broadcasters are permitted to allocate a portion of the purchase price to each type or class of time. Should the Commission take this approach, it behooves the broadcaster, at the time of sale, to allocate a portion of the purchase price to the bonus over-the-air spots. If the allocation is equal to the normal cost of time in the class and time it runs, it should not affect LUC. If the station does not allocate at the time of sale, it is possible to wind up with a zero cost LUC. To avoid this result, the Commission said that, it would respect an allocation broadcasters make and document at the time of sale, even though not in the contract itself, to avoid a zero rate or lower than intended value.
Note: These examples are all hypotheticals which have not yet been reviewed by the FCC in any particular case. The Internet age has brought many new challenges to broadcasters and political rates may actually become one of them.
This column is provided for general information purposes only and should not be relied upon as legal advice pertaining to any specific factual situation. Legal decisions should be made only after proper consultation with a legal professional of your choosing.