How Broadcasters Buy Politicians
By all appearances, the $1,000-a-head fundraiser for Rep. Rick Lazio (R-NY) at Manhattan's swank Le Cirque 2000 restaurant this summer was the sort of straight-up, money-for-influence transaction that has become the signature campaign event of our times.
But this one had a twist. The 125 donors were all from the broadcast industry, a special-interest group that finds itself in the rare and enviable position of not having to wait until after the election to draw a return on its political capital. In fact, the checks they cast upon Lazio that night have already returned manyfold, as the candidate spends millions and millions of dollars to buy television ads in his quest to become the next senator from New York.
The swift round-trip journey of those campaign contributions is a tidy metaphor for the most profitable, exclusive, and mutually beneficial relationship in the new Gilded Age of politics -- the one between incumbent broadcasters and incumbent politicians. The outlines of this relationship are familiar to all who follow politics and public policy. Politicians give commercial broadcasters the public airwaves for free. During the campaign season, broadcasters turn around and sell air-time back to the politicians, while imposing a virtual news blackout on candidate discussion of issues. This arrangement appears lopsided, but only on first glance. By creating a pay-to-play model for political speech on the nation's premier medium for political communication, the television industry protects incumbents, starves challengers, and enriches itself.
What's less well-known -- because the phenomenon is new -- is just how much broadcasters have come to profit from democracy. In election years, political campaigns are now the third-best advertising client for the typical network-affiliated local television stations, trailing only automobiles and retail stores. As recently as 1992, political ads accounted for just 3.8 percent of the annual ad revenue of the typical local station, according to an analysis of the industry by Bear, Stearns and Co. This year, that figure is projected to rise to 9.2 percent. There will be more political ads on television this year than ads for fast food or movies.
"We're salivating," Patrick Paolini, general sales manager of WIVB-TV, the CBS affiliate in Buffalo, told the trade publication Electronic Media last year when he was asked about the prospect of a Senate race involving First Lady Hillary Clinton. "No question it will be huge as far as ad revenue." His counterpart, Dan O'Connor of WSYT-TV, a Fox affiliate in Syracuse, recalled that in 1998, when Gov. George Pataki and then Sen. Al D'Amato both ran for re-election, political ads accounted for 20 percent of his station's fourth-quarter revenues. "People [ad-buyers for the candidates] call you up and say, 'Can you clear $40,000 next week?' It's like, 'What? Am I dreaming? Of course, I can clear that!' And they send you a check in the overnight mail. It's like Santa Claus came. It's a beautiful thing."
Business is Booming
Owning one of this country's 1,300 commercial broadcast television stations has always been a bit like owning a money machine. Annual pre-tax profit margins at well-run stations reach 30, 40, even 50 percent. Bottom lines have stayed parked at these stratospheric levels despite a steady loss of viewers, first to cable and more recently to the Internet.
The record seems to defy economic gravity, but it conforms to the winner-takes-more logic of modern markets. In a world where audiences keep getting sliced thinner, the medium that attracts the most viewers keeps getting more valuable, even as it loses eyeballs. Certain kinds of advertisers -- candidates among them -- simply have no choice but to reach for the biggest megaphone in town. That's still broadcast television. And the broadcasters know it: television ad rates have risen at roughly twice the rate of inflation over the past two decades, even as audience shares have dwindled.
The Television Bureau of Advertising estimates that nation-wide, political ads will bring in at least $600 million to local stations this year, a six-fold increase (in real, inflation-adjusted dollars) over what stations received from political campaigns in 1972. Eye-popping as this growth has been, it still doesn't measure the full economic impact of political ads. It misses the price-gouging which some broadcasters inflict on political and non-political advertisers alike during the heavy campaign season.
This summer, Jonathan Lichter, an executive with the Chicago-based ad buying firm of Kelly, Scott & Madison Inc., sent a white paper to his non-political clients to warn them that, with Illinois expected to be a swing state in the presidential campaign, the torrent of political ads could lead to spot-ad price hikes of up to 50 percent in September and October. In theory, political candidates are protected against these spikes by a three-decade-old Federal Communications Commission regulation known as "lowest-unit rate." It requires stations to sell ad time to candidates at the same rate they sell it to their high-volume, year-round commercial advertisers. But the rule works better in theory than in practice. Candidates are an unusual breed of advertiser. In order to ensure that their ads reach the right audience at the right time, they need to buy what's known as non-preemptable time. It's the most expensive time on every station's rate card. These purchases don't take advantage of the lowest-unit-rate rule; they're in a different category from the up-front, high-volume purchases of preemptable time that most product advertisers make. When the campaign season rolls around, the up-front time buyers are protected, but anyone stuck needing to buy on-the-spot market time can get hammered. Louis Schultz, chief executive officer of the Los Angeles based Initiative Media, said that in the week before the March 7 California primary, he had to spend $25,000 to get a non-political client a 30-second spot on the late local news. Two months earlier, he'd purchased the same spot at the same time on the same station for only $5,000.
"There are only so many spots to sell," said WIVB's Paolini, who has seen similar supply-and-demand dynamics playing out in New York. "With limited inventory and greater demand, other [not political] spots go up in price."
TV Tidal Wave
Actually, there aren't "only so many spots to sell." There are more. During prime time, network-affiliated stations now run an average of nearly 17 minutes of commercials per hour, a 21-percent increase over what they aired in 1991. No, it's not your imagination; there really are more commercials on television.
This growth of clutter, along with the diffusion of the TV audience, the invention of the remote control clicker, and the seen-it-all knowingness of post-modern culture have conspired to make television advertising a far more daunting creative challenge than it used to be. Product advertisers have responded by adopting an edgy tone that tries to engender good feelings about a brand by poking fun at the very act of advertising it. When it works, it's among the best stuff on television. Political consultants haven't and probably shouldn't embrace this self-mocking voice; except in rare cases (Jesse Ventura's, for example) it doesn't suit the product. Instead, they try to overwhelm the problem with volume.
The dirty little secret about political advertising is that the reason there's so much of it is that it keeps getting less effective. A decade ago, consultants told their candidate clients that for a political spot to have an impact, the typical viewer had to see it five times. Now the rule-of-thumb for political ads is a minimum of 10 viewings, or even 15. San Francisco ad man Bob Gardner calls this the "tonnage" approach to advertising. Minnesota ad man Bill Hillsman likens it to "trying to annoy someone into voting for you." Sometimes it works, sometimes it doesn't. But it always drives up the cost of politics. And it always fattens the bottom line of broadcasters. And -- given how sterile, synthetic, deceptive, and grating political ads are -- it always sends viewers streaming toward the exit door from politics.
That migration, in turn, has led broadcasters to the other half of their pay-to-play model for campaign communication: the blackout of substantive news coverage.
Pay Per View
There was a time when the traditional broadcast networks prided themselves on their role as the unofficial host of a presidential campaign. It was a way to earn their journalistic spurs and show their civic bona fides. Now the only thing they're interested in burnishing is the bottom line. CBS News, the organization that once gave viewers Murrow, Severaid, and Cronkite, this summer gave viewers regular election updates from Pulau Tiga, home of the hit CBS reality show, "Survivor."
As for the real, actual presidential election campaign, well, everybody knows it's a ratings loser. Coverage of this year's presidential race on the three nightly network newscasts is down 40 percent from the coverage in 1988, the last open-seat presidential campaign. Coverage of the major-party political conventions was down 75 percent from what it was in 1980. Of the 22 presidential debates held during the primary season this year, just two aired on network television, neither in prime time. "We've simply forfeited the field," lamented veteran ABC newscaster Sam Donaldson earlier this year. The record is even more dismal at local stations. In 1998, the 35 television stations in California's five biggest cities devoted, on average, less than one half of one percent of their news coverage to the state's gubernatorial race during the three months prior to Election Day, despite the fact it was the most important political campaign in the country that year. The candidates had no choice but to pay their way onto the air -- which they did, to the record-breaking tune of $100 million.
In New Jersey this spring, Wall Street mogul Jon Corzine set another spending record by plunking down $34 million of his own fortune to win the Democratic Senate primary. CBS's flagship local station, WCBS-TV in New York City, aired a total of 1,195 candidate ads in that race, pocketing $3,398,230 for its trouble. And what of its candidate coverage? Well, a viewer tuning into all of WCBS-TV's afternoon and late evening newscasts during the two weeks leading up to the primary would have seen eight stories about the campaign, featuring a total of one minute and 20 seconds of candidate sound bites. Meantime, within those same two weeks of newscasts, the viewer would have seen 100 candidate commercials.
The broadcasters' justification for downsizing politics to a dreary spectacle of all-ads-all-the-time comes to this: if you want substance, go find it on cable and the Internet. But do we really want to start charging citizens a monthly fee for a front row seat to democracy?
But Congress, in its wisdom, has always understood that there is something special about free, over-the-air broadcasting. Through the decades, it has granted the broadcast industry billions and billions of dollars worth of public subsidies, in the form of free and exclusive use of frequencies on the nation's airwaves. But those subsidies have always come with an obligation. Since the Communications Act of 1934, broadcast licensees have been obliged to serve the "public interest, convenience, and necessity."
Whenever the broadcasters want something more from the government, they wrap themselves in the robes of this public trusteeship. In 1996, broadcasters wanted additional spectrum space to facilitate their transition to digital technology. A few years earlier, the FCC had for the first time begun to auction off chunks of the spectrum to other emerging communication industries; in short order, these auctions brought in more than $20 billion to the public treasury. So when the issue of new spectrum space for digital broadcasting arose, some in Congress argued that it, too, should be sold at auction. Estimates of its value ranged up to $70 billion.
The industry was determined to get the new spectrum for free. It pulled out all the stops, deploying its army of 174 lobbyists (the figure comes from a report from the Center for Public Integrity); cashing in chits accumulated from $9.5 million in campaign contributions over the previous decade; summoning station managers and news directors from around the country to put the arm on their local member of Congress.
They encountered some high-profile opposition. Then Senate Majority Leader Bob Dole called the spectrum giveway "a giant corporate welfare program"; Sen. John McCain called it "unconscionable"; The Wall Street Journal called it "the greatest sin of the 1996 Telecommunications Act"; and New York Times columnist William Safire called it "a rip-off on a scale vaster than dreamed of by yesteryear's robber barons." But in the end, the broadcast lobby easily prevailed. The issue never even came to a recorded vote in the Senate. Over in the House, when Rep. Barney Frank introduced an auction amendment just to put his colleagues on the record, the only suspense was over how badly it would crash. The answer: 408-16.
As usual, the broadcasters' winning argument was that you can't make us pay. We're unique. We're public trustees.
Just what the government has been prepared to impose on the industry to meet this ill-defined public-interest obligation has waxed and waned over the years, depending upon the regulatory enthusiasms (or lack thereof) of the era. There used to be a Fairness Doctrine which required that when broadcasters covered a pressing public issue, they had to air all sides of that issue. Broadcasters successfully fought for its repeal on First Amendment grounds. On the other hand, the FCC recently adopted a regulation requiring that television stations air a minimum of three hours a week of educational children's programming.
In the arena of providing electoral information, Congress has never been willing to impose a rule that can be found in nearly every other democracy in the world -- a requirement that, during the campaign season, broadcasters provide free air time to candidates.
This is a classic incumbent-protection issue. Members of Congress thrive in a political culture in which they out fundraise challengers three, four, five, 10, or 20 to one. A system of free air time would upset that cozy balance. Over the years, reformers have introduced one free air time bill after another -- 163 of them, according to a 1997 tally by the Congressional Research Service. They all get buried. The most recent to go down was the 1997 version of the McCain-Feingold campaign finance bill, which included a provision for free air time until the industry worked with its good friend Senate Majority Leader Trent Lott to muscle it out.
The two elected officials in Washington, D.C. who happen to feel most strongly about the value of free air are named Bill Clinton and Al Gore. In his 1998 State of the Union speech, Clinton called on the FCC to take an end run around Congress and impose a free air time regulation on its own. The next day, the newly installed FCC chairman, William Kennard, called a press conference to announce he was going to do just that. It turned out to be a high-water mark. In the ensuing few months, every time Kennard ventured to Capitol Hill to testify, no matter on what subject, one Congressional bull after another warned him to keep his nose out of their business. Even McCain, who supports free time, opposed its imposition by the FCC. By mid-spring, Kennard was under threat of having Congress cut off funding to his commission. Clinton, deeply immersed in the Year of Monica, did not provide political cover. So Kennard backed off.
The best the White House could salvage from the fiasco was the appointment of a blue-ribbon panel to make recommendations about what new public interest obligations the broadcast industry should take on in return for its grant of the new spectrum space. The panel, which was popularly known as the Gore Commission because it reported to the Vice President, was made up of public interest advocates and broadcast industry executives, and co-chaired by Leslie Moonves, the president of CBS. On the subject of candidate time, it came up with an innovative compromise. Each television station was called on to voluntarily air at least five minutes a night of "candidate-centered discourse" in the month preceding every election.
The compromise was "explicitly crafted to allow for ease of industry buy-in," said co-chairman Norman Ornstein of the American Enterprise Institute. But halfway through 2000, industry buy-in has been just north of nil. So far just two dozen of the nation's 1,300 commercial stations have agreed to try to meet the five-minute standard. None of the networks -- not even Moonves' CBS -- has indicated any willingness to do so. During the month preceding the key Super Tuesday primaries in March, the three traditional broadcast networks provided a nightly average of 36 seconds of candidate-centered discourse. The typical local stations provided 39 seconds.
Meantime, it's been a banner year for fundraising dinners. A banner year for incumbents. A banner year for political ads. And with a good strong election season this fall, there's no reason those profit margins for local broadcasters can't top 50 percent.