Bloomberg News

TV Stations Charge ’Super-Gouge’ Ad Rates for Super-PACS

July 25, 2012

Tv Ads

This video frame grab provided by the Mitt Romney presidential campaign shows a scene from an ad entitled: "Believe in America" that is running in New Hampshire. Photograph: Romney Presidential Campaign via AP Images

To make his closing argument to Iowa voters on the day of the Jan. 3 caucuses, Republican presidential candidate Mitt Romney spent $1,000 to air a minute- long television ad during one of the Des Moines market’s top- rated morning news programs.

That same airtime on CBS affiliate KCCI-TV was in demand by a super-political action committee helping Romney, and Restore Our Future paid a 50 percent premium to place its commercial.

Come September and October, when Romney and President Barack Obama, House and Senate candidates and dozens of outside political groups will be demanding ad space, super-PACs can expect stations to begin charging what Democratic media consultant Peter Fenn calls “super-gouge rates” of as much as four times what candidates pay.

“Stations are rabid for this money,” said Kip Cassino, research director of Borrell Associates, which tracks the television industry and is based in Williamsburg, Virginia. “The super-PACs are like a kid with money burning a hole in their pocket.”

Every four years, television stations in presidential campaign hot spots have enjoyed an influx of cash as candidates and political parties flood the airwaves with ads. The entry this year of the super-PACs and non-profit issue advocacy groups, which can collect and spend unlimited sums of cash, means stations could see a record $3 billion in campaign ads, said Ken Goldstein, president of New York-based Kantar Media’s CMAG, a company that tracks advertising.

Primary ’Temple’

New Hampshire’s long-held status as host of the nation’s first primary, coupled with its emergence in 1992 as a swing state in the general election between President George H.W. Bush and Bill Clinton, unleashed a torrent of political cash. Four years later, WMUR-TV, an ABC affiliate that reaches nearly ever viewer in the state, moved into a 40,000-square-foot building with a two-story lobby accented with green marble and a spiral staircase.

“We like to call it the temple the primary built,” said Linda Fowler, a political science professor at Dartmouth College in Hanover, New Hampshire. “It’s a very elaborate building for a small place like Manchester.”

Financial Bandage

Sometimes political ad money can work as a financial bandage. WCMH-TV, a Media General-owned NBC affiliate in Columbus, Ohio, forced employees to take unpaid time off in 2009 and 2011 -- non-election years. The cutbacks affected all of the company’s 18 stations, spokesman Ray Kozakewicz said.

Employees weren’t asked to make those sacrifices in 2010, when the parties were vying over House seats and a Senate race in Ohio, and they haven’t been this year, when Media General (MEG:US) is anticipating $50 million from campaign ads.

A Bloomberg review of the Republican primary season ad buys for television stations in Des Moines, Iowa, and Cleveland and Columbus, Ohio, showed a pattern of higher charges -- sometimes double -- when a super-PAC rather than a candidate purchased commercials.

“Rate is not an issue for the super-PACs,” said Chuck DeVendra, director of sales at WBNS-TV, a CBS affiliate in Columbus. “There’s so much demand that we’ve had to walk away from some of their money.”

NCAA Ads

Restore Our Future paid $3,600 to air three 30-second ads during broadcasts of National Collegiate Athletic Association basketball games on WBNS the Saturday before Ohio’s March 6 primary. The Romney campaign paid half that to air ads of the same length during the same games, the station’s records show.

Super-PACs and nonprofit groups have shown they’re able to raise and spend large sums. Restore Our Future collected $80 million through the end of June. American Crossroads and Crossroads Grassroots Policy Strategies, which were founded with the help of Karl Rove, former political director to President George W. Bush, have set a fundraising target of $250 million. Priorities USA Action, which supports Obama, intends to raise $100 million.

While that provides them with the cash to cover higher commercial costs, it doesn’t necessarily boost their impact. “The more you pay doesn’t necessarily mean you’re putting more lead on the target,” Goldstein said.

Company Gains

Already, publicly traded parent companies of TV stations are reporting gains and looking forward to more growth, thanks in part to super-PACs.

Gannett Co., Inc. (GCI:US) said in a July 16 earnings report that its broadcast component was “delivering strong revenue growth” in part because of demand for political ad space. The company, which owns newspapers and TV stations and is based in McLean, Virginia, saw a $9 million increase in political ad revenue in the second quarter of this year compared to the same 2011 quarter.

Gray Television (A:US), which operates 36 TV stations in 30 markets including in swing states, reported $18 million in political ad revenue in the first six months of this year, a 390 percent increase over with the same period last year.

The Atlanta-based company said in its latest earnings report that the increase can be attributed primarily to the unsuccessful bid to recall Governor Scott Walker in Wisconsin, where it has three stations. Super-PACs and other groups spent an estimated $36.6 million in that race, the majority of it on TV, according to Wisconsin Democracy Campaign, a nonpartisan watchdog group.

Most Outlets

Sinclair Broadcast Group has the most outlets -- 18 -- in battleground states, according to Bloomberg Industries research. Ion Media is second with 15 swing-state stations, and Lin TV Corp. (TVL:US) is third with 13.

Carl Salas, a Moody’s Investors Service analyst, said the super-PAC influence at television stations in swing states “is already clear.”

Political ad revenues are accelerating by 10 percent this year over 2010, compared with total annual ad revenue growth that’s in the single digits, Salas said.

“By definition, the more exposure you have to political ad dollars, the better your revenue will be,” he said, pointing to Gray as an example of how a company benefits from swing-state stations.

Rising Percentage

Political ads have traditionally accounted for less than 7 percent of all broadcast ads over a two-year period. This cycle, the percentage could rise to 9 percent, Salas said.

Restore Our Future has spent an estimated $9 million to air 14,972 commercials on local broadcast and national cable television, according to CMAG. The Romney campaign has aired 59,139 spots -- about four times as many as Restore -- for just over double the money.

To estimate what super-PACs pay, Goldstein said, CMAG multiplies the rate a candidate would be charged by 1.5 to 2 times. “There’s some evidence the rates might be even higher,” he said.

The varying rates are not improper. The ad-rate advantage for candidates compared to outside groups -- or any other kind of advertiser -- is part of federal law. Within 45 days of a primary and 60 days of a general election, stations must charge candidates “the lowest unit rate,” which is calculated as the average of what all advertising during a particular show costs. Candidates usually pay more to ensure their commercials aren’t bumped to less desirable time slots.

In exchange, stations can’t be sued for libel or defamation over candidate ads -- protection that doesn’t cover super-PAC ads.

Pushing Accuracy

“We think since they’re making this extra money they can afford to spend some time insisting on accuracy,” said Kathleen Hall Jamieson, director of the Annenberg Public Policy Center at the University of Pennsylvania. The center’s project, flackcheck.org, aims to identify deceptive ads and the stations airing them.

Republican candidates and super-PACs experienced the television arms race firsthand during the party’s nomination race in this year’s first four months.

In the days leading to the Iowa caucuses, former House Speaker Newt Gingrich and Winning Our Future, a super-PAC backing him, both were seeking prime TV real estate.

To place an ad during the 5 a.m. news on WHO-TV, the NBC affiliate in Des Moines, Gingrich paid $180 while super-PAC Winning Our Future paid $200, an 11 percent surcharge. An ad during the “Today Show” cost Winning Our Future $600 while Gingrich paid $410, a difference 46 percent.

Ads during “Jeopardy!” cost Gingrich $130 while Winning Our Future paid $250, a 92 percent premium. And those that ran during “Who Wants to be a Millionaire?” cost Winning Our Future twice as much as Gingrich.

A prized spot during WHO’s 6 p.m. news program the day before the caucus cost Gingrich $850 and Winning Our Future 35 percent more -- $1,150.

“It was expensive, but at the same time, we were able to afford it,” said Rick Tyler, who ran Winning Our Future. Las Vegas Casino billionaire Sheldon Adelson and his family gave $21.5 million to that super-PAC.

To contact the reporter on this story: Julie Bykowicz in Washington at jbykowicz@bloomberg.net

To contact the editor responsible for this story: Jeanne Cummings at jcummings21@bloomberg.net


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