Bonus Spots, No Charge Spots, and the Lowest Unit Charge

We are frequently asked by broadcasters during the political season whether they are required to provide political candidates with free spot availabilities because they are running “free” or “no charge” spots for commercial advertisers. These spots, of course, are really not free at all. They have a cost, but it is hidden in the cost of the other spots in the package.
The FCC has said that bonus spots to churches, charities, non-profit organizations and governmental entities do not need to be considered for purposes of computing a station’s lowest unit charge (LUC). Thus, the bonus spots (or PSAs) given an organization such as the Office of National Drug Control Policy — which required one free spot for every paid spot — do not affect stations’ LUC.
Much more common are the bonus spots that are given to a for-profit commercial advertiser as an inducement to enter into a package deal. For example, a radio station may offer an additional 20 Run-of-Schedule (ROS) spots for no additional charge to commercial advertisers who enter into a package deal to buy 20 drive time spots at full rate card price.
Sometimes these are listed simply as “bonus spots,” and no price is allocated to the spot at all. In such cases, the station is required to divide the total number of spots of all types in the package into the total consideration paid to compute the price for each spot in the package, including the “no charge” spots. So, if a radio station charges $1,000 for a package consisting of 20 drive time spots (shown on the invoice as $50 each) and 20 ROS spots (shown on the invoice as “bonus”), the FCC would divide the total number of spots (20+20=40) into the total package price ($1000) and say that the rate for LUC purposes of both the drive time and ROS spots is $25 each. This may well be lower than any drive time spot running on the station, and higher than any ROS spot. Because candidates may “cherry pick” spots in a package, and buy only one at the package rate, this leads to a very harsh result, because a candidate would be able to buy one or many drive time spots at the low $25 rate without having to buy any ROS spots.
In other cases, the advertising contracts for such package deals list price for the bonus spots as “no charge,” “free” or “$0.00.” While the FCC has said that it would not rule out the possibility that a station could assign a value of “zero” to a bonus spot, it said that such assignment would have to be based on the station’s normal commercial sales practices. Moreover, listing a bonus spot as free would trigger a requirement that the station make the spots available to candidates at no cost. In our experience, few, if any stations are in the business of giving away free advertising — at least unless tied to the purchase of full priced spots.
To avoid these traps, the station should put a price on each spot in the package, without changing the total package price. For example, if the station were to assign a price of $48 to each drive time spot, and $2 to each ROS spot, the charge to the customer stays the same, and the station has preserved the rates of its most valuable time. And, because most candidates want their ads to appear in better time periods, we believe it is unlikely that candidates would purchase ROS even at these low rates.
It is best that these rates be shown on the station’s contracts and invoices. However, the FCC recognizes that advertisers and agencies want to believe they are receiving “something for nothing” even though we all know there is no such thing as a free lunch. Therefore, stations are permitted to create a contract and invoice showing the “no charge” rate in a package, so long as there is a contemporaneous memo attached to the contract in the station’s records (but not sent to the advertiser or agency) that allocates the rates properly (in this case, $48 and $2), is signed and dated and can be produced upon request by the FCC. By doing so the station can send a contract and subsequent invoice to a commercial advertiser showing a “no charge” rate, while preserving the maximum value for the station’s best spots. These memos should be created, signed and dated at the time the contract is executed.
Stations should consult counsel as to how to deal with outstanding advertising packages that list spots as “free” or “no charge.”