Campaign finance reform legislation approved by the Senate last week could suck hundreds of millions of dollars out of the television business by banning the kind of funding used to bankroll much political advertising and forcing the industry to give politicians bargain-basement ad rates.
At least that was the assessment of broadcast and cable TV industry representatives, who are expected to sue if the controversial measure becomes law.
“I don’t think they’ve thought this through as to what a mess it’s going to be,” said Greg Schmidt, LIN Television general counsel and vice president for new development.
“Given all the political coverage that cable provides through its numerous news channels and resources such as C-SPAN, we’re not sure why cable was included,” added Marc Smith, a spokesperson for the National Cable Television Association.
The target of industry consternation is the McCain-Feingold campaign finance reform package.
That measure, named for its primary sponsors, Sen. John McCain, R-Ariz., and Sen. Russell Feingold, D-Wis., was approved by the Senate 59-41 in the name of cleaning up the nation’s political process.
But at least according to industry analysis, the bill proposes to achieve its goal by cleaning out the industry’s advertising till.
“The intent of the bill is clearly to reduce the amount of political dollars,” said Victor Miller, broadcast analyst for Bear Stearns, noting that anywhere from 5 percent to 7 percent of the local TV industry’s total advertising business was political last year.
One of the chief provisions of the bill, for instance, would prevent huge “soft money” contributions from being used to bankroll advertising for federal candidates.
Another related provision would severely constrain the ability of corporations and nonprofit organizations to bankroll political ads during campaigns.
Industry analysts said that sort of advertising accounted for at least $300 million of the anywhere from $771 million to $1 billion of estimated political TV advertising revenues during the 2000 campaigns.
The bill also includes a provision that would force broadcasters, cable operators and satellite TV systems to give federal political candidates non-pre-emptible ad time (time that can’t be bumped) at the cheapest rate they charge for pre-emptible time (which can be bumped) during the preceding year.
Requiring stations to provide non-pre-emptible time at pre-emptible rates will give politicians a huge discount, say TV station representatives.
“It would certainly be a tremendous hit on the bottom line of broadcasters,” said Dennis Wharton, a spokesman for the National Association of Broadcasters.
According to one industry source, the cheaper rates for political TV time will increase the demand for such ads. But this source said the overall losses are likely to be limited to less than 10 percent, because increased demand is expected to result in higher prices for the limited commercial inventory remaining.
“That’s a very expensive way to boost your revenue,” a broadcast industry source warned. “This artificial scarcity drives people to cable.”
A cable TV industry source said an initial analysis suggested the legislation would have little impact on its $13.8 billion in annual ad revenues because few of the cable industry’s networks are used by political candidates.
However, one industry source said the reform measure was likely to result in a huge increase in demand for cable TV time because it will have to be made available so cheaply.
Leland Westerfield, an analyst for UBS Warburg, said the silver lining for broadcasters is that a reduction in interest-group advertising would free up time for commercial advertisers.
“If that [interest group advertising] goes away, TV stations may have smoother year-after-year growth rates and be less susceptible to biannual pendulum growth,” Mr. Westerfield said.