Soft Money Means Big Bucks

Linda Hardesty

Sen. John McCain thinks soft money political contributions have corrupted the election process. Vice President Al Gore says soft money should be banned, altogether.

Whether soft money is a good or bad thing for democracy is up for debate. But one thing is for sure. Soft money can mean big bucks for cable ad sales operations.

While contributions to candidates are restricted by a myriad of rules and regulations, soft money contributions to non-profits that promote issues have very few restrictions. Non-profit organizations can avoid the spending and reporting rules of candidates, parties and PACS. Political non-profits can spend unlimited amounts of money on issue advocacy. They can accept money from anyone in any amount.

Similarly, television ads promoting spe-cific candidates are regulated by complicated FCC rules. But issue ads aren't. The main restriction on issue ads is they cannot ask viewers to vote for or against a particular candidate.

Hank Oster, SVP-sales and marketing for Adlink, the Southern California interconnect, said, "Propositions and ballot issues are not subject to any rate. It's whatever the market will bear. And that is a very good business. They usually pay top dollar to get on the air. It's a windfall category."

Oster said one of the most contentious ballot issues in California this election is an Indian gambling initiative. On the one side, Indians are spending money to promote their right to operate casinos. On the other side, a Las Vegas contingent is opposing the initiative. The winner: Adlink.

Oster said Adlink subscribes to a weekly newsletter, CalPeak, which covers all the California initiatives and gives vital information about who's filed the initiatives, who's supporting them and what kind of financing they have.

"It's a great resource. We aggressively pursue it," he said.

Super Tuesday While issue advertising is the good news for cable ad sales, Super Tuesday was the bad news.

Larry Fischer, president Time Warner City Cable, the ad sales operation of Time Warner Cable in New York, said the presidential primary in New York was "very disappointing."

Although TW City Cable got some money from Gore and Bush, it received nothing from McCain or Bradley.

Fischer expressed bafflement over Bradley's media strategy. While the primaries were held in New York and Connecticut, "Bill Bradley goes into Super Tuesday and proceeds to buy only broadcast television in a market that gives him New York, Connecticut and New Jersey," said Fischer. "That doesn't make any sense. He didn't need New Jersey but he bought it anyway."

Adlink's Oster was equally frustrated with the presidential primary.

"So far it's been extremely disappointing on the federal candidate side," he said.

Adlink started targeting the big Washington, D.C., political ad agencies a year ago. Although the interconnect thought it had convinced these agencies to give cable a try, Oster said they came to Los Angeles with probably $12 million, and "We didn't get any of that money."

"They fell right back into their traditional old ways of evaluating media," said Oster. "Even with all the head nods and 'we understand; we know that cable homes have the higher degree of registered voters; we know that cable homes are more affluent.' Yet they go right back to their traditional medium."

"In my opinion," continued Oster, "those political houses in Washington are really pretty much dinosaurs. If they are not going to step in, then we need to support the up-and-coming houses. I think there are some very aggressive, new, politically savvy shops that are looking to take that business. It won't happen this round, but I think it will happen."

Although the presidential race continues to be a disappointment, Oster said regional and local candidate advertising is picking up steam. "Our efforts have really paid off on the local and state side of this business. We've done very well against the local campaigns here for the senate race and congress."

Gubernatorial races also can be lucrative for cable, with its regional targeting advantage. There are 11 governors' races this year: Delaware, Indiana, Missouri, Montana, New Hampshire, North Carolina, North Dakota, Utah, Vermont, Washington and West Virginia.

Judi Heady, SVP AT&T Media Services, said, "Obviously, the more local the better for us, because we're able to cover a smaller geographic area and really target. So local elections are normally very important to us. When you get to the presidential level, there doesn't seem to be quite as much interest in local or spot cable because of the need for mass reach."

Rules of the Game If a cable ad sales operation decides to go after candidate advertising, it needs to know the rules of the game. That means understanding lowest unit charge.

According to Barry Umansky, a Washington, D.C., lawyer specializing in FCC rules, legally qualified candidates are entitled to the lowest unit charge (LUC) for the same type and class of advertising. The rule is to ensure that media outlets don't take advantage of candidates who have narrow advertising time frames and high demand for avails during that time.

Larry Zipin, VP-Time Warner Cable ad sales, said the LUC is often misinterpreted to mean ad sales operations must sell their avails to political candidates at the lowest rates they've ever sold any airtime. Obviously, it doesn't sound too enticing to sell valuable primetime inventory for the lowest unit charge.

Zipin said the key to calculating the LUC is based on "the same type and class of advertising." At Time Warner, Zipin said, ad sales operations set up their political advertising offerings very carefully by categorizing the way they have sold time to commercial advertisers in the past.

"If you have a particular program title that you usually sell as a fixed position buy, you want to make sure that you designate that program on that network as a class. And if you do that, you can charge the same premium fixed position rate for a candidate buying a spot in that program.

"The rule does not mean that you give a piece of primetime program-specific inventory to a political advertiser at the lowest rate you've ever charged for a 12-month run-of-schedule client," continued Zipin. "They're not the same type of client, and they're not buying the same class of ad time."

The political rate card must be set up in advance. According to Umansky, depending whether a race is a primary or general election, there's a 45-60 day window in which the LUC applies.

Another FCC rule pertains to preemptibility.

Oster said there are degrees of preemptibility. For example, the LUC for a spot on CNN may be set at $100 and preemptible. Oster said, "The key for a political advertiser is to run, not to be pre-empted. So they have the right to buy it at $100, but they may want to pay a higher rate to make sure they run."

In addition to getting a firm grasp on lowest unit charge and pre-emptibility, cable ad sales operations who go after candidate money need to keep a public file, containing all the requests for avails and related forms.

While candidate advertising may sound like a real pain, there is incremental money to be made, and cable does have advantages over broadcast.

Zipin said, "Political candidates can use buying individual headends or individual ad-insertion zones from a cable operator with greater precision than buying the DMA signal of a TV or radio station. Once we all realized in the mid-'80s that was the case, I think the cable industry has focused on how to turn political advertising into incremental windfall."

Another benefit of political advertising - whether candidate or issue - is that it tightens up inventory.

"Pressure on inventory is the name of the game," said Oster. "This is a supply and demand business. Political can increase overall share."

Zipin concurred, "This extra pool of advertisers coming after your inventory has a net beneficial effect on your ability to raise prices to your commercial advertisers."

Walking a Delicate Balance Cynthia Heroux's colleagues tease her about the amount of time she spends on clients' schedules, but she justifies it with her low turnover rate.

"With Cynthia, it's all about service," said Mark Gosciminski, local sales manager-Cox Cable Rep, Rhode Island. "When she's putting a schedule together for clients, it's not a whole bunch of ROS (run of schedule) spots. She'll take the time to put all fixed positions in. It takes her a long time, but the clients keep re-signing."

Heroux, 32, said she almost never sells any run of schedules. While the typical contract submitted by an account executive may have 20 lines, Heroux's contracts often have 150 lines.

"They tease me a lot," she said. "But I create what I believe to be the best schedule for the client. And my high renewal rate tells me I'm doing the best job I can for them."

Heroux actually evaluates individual movies and sporting events to determine if they target the appropriate demos. Because some of her clients buy annual contracts, and she doesn't have annual schedules from the networks, she has to evaluate the clients' schedules on a monthly basis and tweak them where necessary.

"It's the little things I do for clients," said Heroux, who's been selling cable for eight years. "I check in with every single client on my list every month."

Although Gosciminski gives her a hard time for her attention to detail, he's not complaining about Heroux's results. In a system with 284,000 subs, Heroux is the top AE, billing more than $1 million a year. She exceeded her 1999 budget by 16%.

As far as walking that fine line between servicing the client and servicing her employer, Heroux said, "That's a delicate balance." Sometimes she has to say "no" to her clients.

She explained that sometimes she offers clients incentives to buy a schedule. But Cable Rep requires the incentives to correlate to the buy on a 10:1 ratio. In other words, if a client wants a $5,000 promotion, they must place a $50,000 order.

"If the client wanted something that was $20,000," said Heroux, "It's not necessaprily the case that we would spend the $20,000 to get the $50,000. There are a few instances where I know they need to hear the word 'no' because what they are asking for is not reasonable. We have to regroup and go back to the drawing board."

Gosciminski has one other bit of praise for Heroux. She has balance in her client mix, he said. "She has all different size accounts - small, medium and large, which is really the way to do it. That way when you have a big client cancel, it doesn't just kill your billings."