A Refresher On Calculating Political Advertising Costs
By Gregg Skall
Law 360 (July 16, 2024)
With the 2024 general election less than four months away, Americans are being inundated with television and radio candidate advertising. What many Americans do not know is that legally qualified candidates are entitled, by law and regulation, to pay only the lowest price charged to any commercial advertiser by the radio or television station with which they seek to place their advertising.
This concept, called the “lowest unit charge,” is enshrined in Section 315 of the Communications Act and Section 73.1942 of the Federal Communications Commission rules and regulations, which require that “legally qualified candidate[s]” be afforded “equal opportunities” for advertising and be offered the lowest unit amount that their best commercial customer has paid for ads that are of the same class, length and time of day.
This means that, if a commercial advertiser agrees to buy an extended flight of ads for an entire year, and the station gives that advertiser a greatly discounted price to get that large bundle of advertising, a candidate is entitled to the unit price of that special deal for even the purchase of only one ad.
Congress believed that voters should be well-informed of the issues and views of the candidates they will be voting for, and that radio and television were the most important means for candidates to get their messages to the people. Given that broadcasters’ use of the airwaves are a public trust, they should treat candidates the same and no worse than their best and most favored commercial advertiser. With election season well underway, this article looks at the legislative history of Section 315, what the FCC factors into lowest unit calculations, and how the commission has defined “commercial advertisers” for such calculations, as a guide for broadcasters, political candidates, time buyers and others concerned with how the cost of broadcast political advertising is determined.
Statutory and Regulatory Framework
In order to promote equal opportunity between candidates running for public office,[1] Title 47 of the U.S. Code, Section 315(b)(1)(A), as currently enacted, provides:
The charges made for the use of any broadcasting station by any person who is a legally qualified candidate for any public office in connection with his campaign for nomination for election, or election, to such office shall not exceed… during the forty-five days preceding the date of a primary or primary runoff election and during the sixty days preceding the date of a general or special election in which such person is a candidate, the lowest unit charge of the station for the same class and amount of time for the same period.[2]
To implement Section 315(b), the FCC promulgated Title 47 of the Code of Federal Regulations, Section 73.1942, which elaborates on Section 315(b)’s lowest unit charge provision, stating that “[a] candidate shall be charged no more per unit than the station charges its most favored commercial advertisers for the same classes and amounts of time for the same periods.”[3]
Package Pricing
Note that the FCC does not consider package plans or bonus spots to be separate classifications of time.
All the rates and bonuses offered to commercial advertisers in packages must be included in lowest unit charge calculations. This includes all such packages and bonus spots, whether individually negotiated or available to every advertiser. Basically, a package is considered simply to be a volume discount within a single class, even when composed of multiple types of spots and the unit rate for each spot within the package is the package price divided by the number of spots.
However, when a package contains spots in more than one class or time period, a licensee may make a contemporaneous record allocating the package price among the spots in each class or time period and the FCC staff has stated it will recognize that allocation provided it is made at the time of sale and maintained by the license.
Defining “Commercial” Advertisers
Note also that the lowest unit charge is based on the price charged to commercial advertisers. One question becomes “how does the commission define a ‘commercial’ advertiser”?
In particular, do lottery and other state government messages, that tend to go out over radio and television at low rates, qualify as commercial? A review of the statutory history of Section 315 and related FCC rulings leads to the conclusion that nonprofit or government entities are not commercial advertisers and their charges need not be included in lowest unit charge calculations.
Legislative History
So, what was meant by a commercial advertiser? When a statute’s meaning is ambiguous, the paramount rule of statutory construction gives the statute that meaning which fulfills the purpose and intent of the legislature.[4] Therefore we must examine the purpose and intent of Congress when it adopted Section 315(b)(1) in 1972.
The legislative history regarding Section 315(b)’s lowest unit charge provision is sparse. Congressional debate and testimony largely focused on the overall merits of the lowest unit charge requirement, without in-depth explanations. The tasks of implementation and interpretation were delegated to the FCC and the types of advertisers to be included in lowest unit charge calculations is not specified.
There is, however, one comment by one member during a floor debate regarding the merits of the lowest unit charge provision that is on-point. While defending the provision, Rep. Al Green, D-Texas stated, “The lowest unit cost means that we politicians or public servants get the same rates broadcasters provide their best-paying commercial customers.”[5]
The FCC has relied on this comment in their subsequent interpretations of the lowest unit charge requirement.[6] The Senate report explained that the provision would “place the candidate on par with a broadcast station’s most favored commercial advertiser” during the preelection period.[7]
Subsequent FCC Interpretation
The FCC has spoken on this issue in multiple proceedings. Their statements and holdings show that nonprofit and government entities are excluded from the term “commercial advertisers” such that their purchase of advertisement space need not be included in lowest unit charge calculations.
As early as 1972, the FCC considered a broadcaster’s policy of providing complimentary ad- time in packages purchased by nonprofit organizations. In response to a request from a group of state broadcaster associations, the FCC stated that the free ad time could be excluded from lowest unit charge calculations.[8]
Addressing free spots when a nonprofit organization also buys spots, the FCC’s 1984 Primer states that “free spots need not be averaged with the paid spots in arriving at the lowest unit rate,” relying on previous cases[9].
And, in the earlier 1978 Primer, in describing rates to be charged to candidates, the FCC consistently defined lowest unit charge in terms of the rates charged to commercial advertisers, to mean that candidates must be given all discounts, based on volume, frequency or any other factor, that are offered to the station’s most favored commercial advertiser.[10]
In its 1988 Primer for broadcasters, the FCC stated that advertisements oriented toward public service should not be included in lowest unit charge calculations for the FCC’s 1984 Primer, and further, that nonprofit advertising was “outside the scope” of what Congress was looking to regulate with the lowest unit charge provision.[11]
Four years later, in a 1994 letter ruling, the FCC again upheld the distinction between nonprofit or government advertisements and commercial ones, holding that freely given advertisement time for the government need not be included in lowest unit charge calculations.[12]
Defining Nonprofit and Government Advertising
The aforementioned cases establish that nonprofit and government advertisements meet the test for exclusion from a station’s lowest unit charge calculation. The task then is to define what types of advertisers are nonprofit or government. The agency charged with the authority to define nonprofit status is the IRS.
Section 501 of the Internal Revenue Code lists the types of entities that are exempt from taxation on the basis, essentially, that they do not distribute profits and net earnings to or for the benefit of any individual and are devoted exclusively to the listed charitable, educational, governmental or recreational purpose.[13] These tax-exempt, nonprofit entities include: charitable organizations, churches and religious organizations, private foundations, political organizations, social welfare organizations, civic leagues, social clubs, labor organizations, and business leagues.
Accordingly, any organization that would qualify as nontaxable, nonprofit under Section 501 would be designated as noncommercial for purposes of calculating lowest unit charge under Section 315(b) of the Communications Act and Section 1942 of the FCC rules.[14]
Furthermore, FCC staff previously has advised that government agencies — federal, state and local — are treated as noncommercial entities for this purpose. This includes even the profit-making activities of governmental units. So, for example, the rates paid by the state for spots purchased to advertise its lottery would also be excluded from the station’s lowest unit charge calculation.
Conclusion
The FCC does not require broadcasters to include nonprofit advertisements or government advertisements in lowest unit charge calculations. To do so would be outside the scope of congressional intent when the lowest unit charge provision was passed and serve only to raise advertisement prices for nonprofit organizations and government entities.
The types of organizations that qualify as nonprofit, and therefore noncommercial, are found at Sections 501 and 401(a) of the Internal Revenue Code. Most importantly, and possibly the biggest takeaway here, is that paid advertisements by government agencies and even their profit-generating activities like state lotteries are not required to be factored into lowest unit charge.
Gregg P. Skall is a member at Telecommunications Law Professionals PLLC.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of their employer, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
[1] 47 U.S.C. § 315(a) (2002).
[2] 47 U.S.C. § 315(b)(1)(A) (2002).
[3] 47 C.F.R. § 73.1942(a)(1)(i).
[4] Hernstadt v. FCC, 677 F.2d 893 (D.C. Cir. 1981).
[5] 148 Cong. Rec. H369-01.
[6] In re Request of Richard R. Zaragoza, Declaratory Ruling, 4 FCC Rcd. 518, para. 6 (Pol. Programming Branch Dec. 27, 1988) (“In the past, the Commission has indicated that discount rates or bonus spots provided for non-profit advertising are outside the scope of Congress’ desire to place candidates on a par with a station’s ‘most favored commercial advertiser.’”).
[7] Hernstadt, 677 F.2d at 898, (citing S. Rep. No. 96, 92d Cong., 1st Sess. 2 (1971) at 27).
[8] In re Request by KGWA Public Broadcasting Service, Inc. 34 FCC 2d 1103 (May 15, 1972).
[9] Allan R. Page (KGWA), 34 FCC 2d 1103 (1972) and Robert W. Sterling, 48 FCC 2d 531 (1974).
[10] Primer on Political Broadcasting and Cablecasting, 69 FCC 2d 2209, 2220 (1978).
[11] Zaragoza, 4 FCC Rcd. 518 at para
[12] Letter: Mr. Fred Fickenwirth, 7 FCC Rcd. 4311 (Jun. 25, 1992); See also In the Matter of Codification of the Comission’s Political Programming Policies, 9 FCC Rcd. 7919 (Dec. 13, 1994) (“[N]othing in our rules requires a broadcaster to include in its calculation of lowest unit charge PSA’s that are not connected to a commercial transaction”).
[13] 26 U.S.C. §501
[14] Section 401(a) of the Internal Revenue Code also excludes from taxation, and therefore classifies as non-profit, qualified pension, profit-sharing and stock bonus plans.
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