The Network Exception and Political Rates

We're into the home stretch of the 2008 political season and the presidential election is upon us. Congress is about to recess to campaign full-time and broadcasters are enjoying one of the most heavily advertised campaign seasons in recent history. Radio is receiving more attention than ever before.

Many campaigns are now looking to network buys for broad coverage. Campaigns are looking not only at the national networks, but also to "wired networks," advertising networks and demographically-targeted networks. When this happens, the question always arises: What effect does a network buy have on the calculation of my lowest unit rate?

That query also leads to further questions: What is a network? Does a state unwired network qualify? Does a specialized news service qualify? Does it matter if I carry multiple networks all on one station?

While the answers are still somewhat unsettled, since most rulings are old and have come from staff rather than the Commission itself, so far the answer seems to be that all of these entities qualify as networks and that the rates paid for them are not included in a station's own local lowest unit charge ("LUC"). They rely on what has been termed the "Network Exception" to the LUC principle of Section 315 of the Communications Act.

Here's an example: On behalf of one of the Internet-based remnant time sales organizations, we requested guidance regarding the impact of participation by local broadcasting stations and the effect of that participation on their own LUC for purposes of Section 315. Later, the National Association of State Broadcasting Associations (NASBA) requested a declaratory ruling. The Commission has not acted on either request; this close to November, it's unlikely that it will. Thus, we need to look to the cases already decided. Under those cases, we can conclude such operations are indeed networks for purposes of the Communications Act.

For quite some time, "unwired networks" have existed in radio and television broadcasting. An unwired network can be described as a package of stations that have nothing in common but carrying spots for an advertiser. The advertiser selects the markets and the stations desired. The rep firm manages the unwired network to ensure that the schedules air as ordered.

These networks are a well-known and much-utilized feature of network broadcasting. Even traditional programming networks have utilized them as an auxiliary sales tool. For example, in announcing its intent to create a national classical radio network, The New York Times, the licensee of WQXR/ New York City, announced it was exploring an unwired network for commercial Classical stations.

Even large "wired networks" of the type traditionally associated with the term "network" -- such as ABC and Premiere, which feed hundreds of stations the same programming with built-in spots at a higher per-spot cost (but at much reduced cost-per-thousand rates compared to local spots) --regularly serve up separate unwired networks composed of their affiliates. For example, a 30 or 60-second advertising spot could be purchased in designated dayparts that will run in a pre-selected group of their affiliated stations, even where the stations run them as they see fit and not at precise, predetermined simultaneous times.

The Network Exception was first defined in 1976, in a case called Robert L. Olender where the Commission held that advertising run by stations as members of an unwired network was not to be calculated in determining the station's own local LUC. Here is how the Commission defined it:

"[A] . . . network does not purchase time on a station in order to promote its own product or the product of "clients." Rather, it enters into mutually beneficial, long-term contracts whereby it receives time for specific low rates, or perhaps for no fee at all. In turn it sells time on groups of stations at a "package price" to national advertisers which the individual stations might not otherwise be able to attract.

"The FCC recognized unwired networks and that their rates do not affect the station's own lowest unit charge again in 1984 when it issued its Political Primer.

"The rate restrictions apply to networks as well as to individual stations, since networks are, in effect, selling time on behalf of their affiliated stations. This also means that the compensation an affiliate receives from a network for carrying a sponsored network program will not be considered in computing the affiliate's "lowest unit charge" for direct sales to candidates. This principle applies to "non-wired networks" . . . as well as to interconnected networks like ABC, CBS, NBC, and MBS. [Emphasis Added]"

The most recent and thorough discussion of this issue arose in 1990, when the FCC confirmed that compensation received by individual affiliates of a network created for the sole purpose of advertising sales generated by the network need not be included in the affiliate's LUC calculations. In Letter to Charles M. Firestone (known as the Adlink case, after the company on whose behalf the request was made), the FCC wrote that LUC will not apply to network sales when:

* No commercial advertiser, even the "most favored," could go directly to the station and receive a rate comparable to that which is offered to the network.

* Each station charges the network a rate which would not be available to that station's most-favored commercial advertiser for time sold on that station alone.

* Any candidate who chooses to buy time from the network must be given the network's LUC for the various kinds of time the network sells to commercial advertisers.

The ruling says, in effect, that network advertising rates are a special "package rate" unavailable to even the most favored commercial advertiser who chooses to buy time directly from an individual network affiliate. However, it is essential to note that this exemption imposes obligations on both the network and all stations that accept the network's political ads.

With respect to the networks themselves, the Adlink decision stated:

"... The LUC provision is not thwarted because any candidate who chooses to buy time from Adlink must be given the network's LUC for the various kinds of time it sells commercial advertisers. Correspondingly, a candidate who buys time directly from an Adlink affiliate must be provided that individual cable system's LUC for the various classes of time it offers commercial advertisers.

"Thus, any legally qualified candidate who chooses to buy time through the network must be given the network's LUC for the various kinds of time it sells to commercial advertisers.

"Of equal importance, any station accepting a network's political advertising must obligate itself to keep sufficient inventory available for the network to sell to legally qualified opponents in compliance with its equal opportunities requirements. The traditional networks accommodate this need within the programs that they feed to affiliates.

"In the 'unwired network' context, it remains true that every legally qualified opposing candidate for the same political office who makes a timely claim for equal opportunities must be provided with the same network of stations and classes of time at the same charge as his or her opponent. In this regard, the network is acting as the affiliate's surrogate, so while the network may arrange for this, and its time is sold at the 'network rate,' it remains the obligation of each individual station to accommodate the network's need for time to assure that a proper request for equal opportunities can be honored.

"However, some details of this arrangement are untested and the applicable law is uncertain. For example, if a network declines to make equal opportunities available, the affiliate stations may be required to do so themselves, but it is far from clear how they are to calculate their pertinent LUC."

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.