Synopsis

As part of its mandate to identify and eliminate market entry barriers for small businesses under Section

257 of the Telecommunications Act of 1996, the Federal Communications Commission chartered this

study to investigate practices in the advertising industry that pose potential barriers to competition in the

broadcast marketplace. The study focuses on practices called "no Urban/Spanish dictates" (i.e. the

practice of not advertising on stations that target programming to ethnic/racial minorities) and "minority

discounts" (i.e. the practice of paying minority-formatted radio stations less than what is paid to general

market stations with comparable audience size). The study consists of a qualitative and a quantitative

analysis of these practices.

Based upon comparisons of nationwide data, the study indicates that stations that target programming to

minority listeners are unable to earn as much revenue per listener as stations that air general market

programming. The quantitative analysis also suggests that minority-owned radio stations earn less

revenues per listener than majority broadcasters that own a comparable number of stations nationwide.

These disparities in advertising performance may be attributed to a variety of factors including economic

A Report Prepared by the Civil Rights Forum on Communications Policy

When

Being No. 1

Is Not Enough:

The Impact of Advertising Practices On MinorityOwned & Minority-Formatted Broadcast Stations

Kofi Asiedu Ofori

Principal Investigator

submitted to the

Office of Communications Business Opportunities

Federal Communications Commission

Washington, D.C.

All Rights Reserved

to the Civil Rights Forum on Communications Policy

a project of the Tides Center

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efficiencies derived from common ownership, assessments of listener income and spending patterns, or

ethnic/racial stereotypes that influence the media buying process. As a preliminary investigation, it was

beyond the scope of this study to determine in quantitative terms the degree to which each of these

factors may explain these disparities. Further statistical research should be undertaken to find the answer

to this question. Anecdotal data collected by the study suggest that in certain instances, the media

buying process is guided by ethnic/racial stereotyping, underestimations of disposable income, the

desire to control product image, unfounded fears of pilferage, etc. Factors such as these form part of the

basis for "no Urban/Spanish dictates"and "minority discounts" as practiced by advertisers and/or ad

agencies.

As preliminary findings, the anecdotal and quantitative evidence suggests that certain practices in the

advertising industry undermine marketplace competition and First Amendment principles favoring

diversity of viewpoint. The study recommends further research that is sufficiently funded to fully

examine these preliminary findings. The study also recommends that the federal government, based

upon subsequent research and public comment, develop a policy statement on advertising practices and

issue an executive order prohibiting federal agencies from contracting with ad agencies that engage in

unfair or discriminatory advertising practices. With regard to the private sector, broadcasters,

advertisers, and ad agencies should adopt a voluntary code of conduct that prohibits "no Urban/Spanish

dictates"and "minority discounts" and that promotes a broad and diverse range of programming for all

Americans.

Key words: advertising and discrimination; advertising and minorities; advertising and minority radio

programming; small business competition and radio advertising.

Study Highlights

Findings:

A. An analysis based upon 1996 data for 3,745 radio stations indicated that:

 Stations that target programming to minority listeners earn less revenue per listener than stations

that air general market programming.

 Minority-owned radio stations earn less revenue per listener than majority broadcasters that own a

comparable number of stations nationwide.

B. Minority radio broadcasters responding to the study survey provided the following estimates of

the magnitude and impact of "no Urban/Spanish dictates" and "minority discounts:"

 Ninety-one percent indicated that they had encountered "dictates" not to buy advertisements on

their radio stations.

 Efforts to overcome "dictates" with market research that justifies ads on minority-formatted

stations were most commonly met with no response or no recission of the dictate by advertisers or

ad agencies.

 Survey respondents estimated that sixty-one percent of the advertisements purchased on their

stations were discounted. The average amount of the discount was estimated to be 59 percent.

 Survey respondents estimated that "no Urban/Spanish dictates" and "minority discounts" reduce

their revenues by an average of 63%.

 Forty-four percent estimated that "no Urban/Spanish dictates" and "minority discounts" interfere

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with their ability to raise capital and to acquire minority-formatted stations.

 Forty-four percent estimated that "no Urban/Spanish dictates" and "minority discounts," detract

from the value of minority-formatted stations when they are being sold.

Conclusions:

 "No Urban/Spanish dictates" and "minority discounts" constitute barriers to competition because

they detract from the amount of revenue earned per listener, and thus hinder a broadcaster's ability

to attract investment capital, and to produce high quality news, information and entertainment

programming in response to the needs of listeners.

 Most radio stations that air minority-formatted programming are adversely affected by advertising

practices directed against minority listeners. Minority-owned stations, however, are

disproportionately affected because 75% of them air programming targeted to minority listeners,

compared to 8% for majority broadcasters.

 To the extent that minority formatted stations are unable to obtain advertising, their ability to

serve the needs of listeners is impeded. The interest of all Americans, particularly minorities, in a

broad and diverse range of informational and entertainment programming is undermined by

advertising practices directed against minority consumers. Hence, "no Urban/Spanish dictates"

and "minority discounts," undermine competition and detract from the First Amendment goal of

diversity of viewpoint.

Recommendations:

 Subsequent research should endeavor to quantify the causal relationship between advertising

practices and disparities in the advertising performance of minority-formatted and general market

stations, and minority and majority-owned stations controlling for various factors such as

ownership size, audience income, and market location.

 The Federal Communications Commission and the Federal Trade Commission should assemble a

joint task force for the purpose of adopting a policy statement on acceptable advertising practices.

 Based upon the findings of subsequent research, the federal government should decide whether to

issue an executive order that prohibits federal agencies from contracting with advertising agencies

that practice "no Urban/Spanish dictates" and "minority discounts," or that otherwise fail to

comply with the policy statement of the joint task force.

 The advertising and broadcast industries should adopt a code of conduct that requires buying

decisions to be based upon market research and not flawed stereotypical assumptions. "No

Urban/Spanish dictates" and "minority discounts" should be prohibited. Broadcasters should be

required to prominently disclose whether the market research they use in conjunction with sales

promotion has been prepared by a service that has been accredited by the Media Ratings Council.

In instances where a non-accredited market research service is used, broadcasters should be

required by the FCC to show cause why they do not use a service that is currently accredited by

the Media Ratings Council.

Comparison of Minority and Major Broadcasters by Format

(All figures are averages. Currrency in thousands)

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Source: "When Being No. 1 Is Not Enough: The Impact of Advertising

Practices On Minority-Owned & Minority-Formatted Broadcast Stations." (page 79)

Civil Rights Forum on Communications Policy.

(Number of Stations) '96 Nat

Rev

# Nat.

Stat.

'96 Stat.

Rev.

Power

Ratio

General Formats $129,059 42.5 $2,202 1.16

Majority Owned - All

(3293) $130,497 43 $2,214 1.16

Majority Owned - Small

(2,288) $13,040 7.4 $1,410 1.16

Minority Owned - All

(39) $7,630 7.4 $1,237 0.85

Minority Targeted

Formats $86,125 26.3 $1,958 0.91

Majority Owned - All

(297) $116,574 34.8 $2,052 0.95

Majority Owned - Small

(193) $7,387 4.9 $1,038 0.99

Minority Owned - All

(116) $8,164 4.4 $1,717 0.82

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