Dossier D.C.: Buyer Beware

Racist. It’s a dirty, volatile word, yet a recent FCC report accuses advertisers of such media buying practices. Dollars aren’t flowing to minority-owned radio stations, it claims, because advertisers are racist.
Federal Communications Commission Chairman William Kennard calls it a “tale of two systems” in which advertisers and their agencies base media buying decisions, in part, on ethnic and racial stereotyping and underestimations of income.
The FCC’s smoking gun? Advertisers pay less for airtime on stations with African American or Hispanic listeners, called “discounting,” and they issue “dictates” to avoid these stations.
But John T. Lazarus, senior vice president of national broadcast operations for TN Media, the media buying arm of True North Communications, Chicago, challenges many of the FCC’s assumptions.
“Some products index higher against minorities and some index lower,” Lazarus explains. “We pay for reaching people. The more you reach, the more expensive it is. If a radio station is reaching 12 percent of the population, they aren’t reaching as many people, and I shouldn’t pay them as much money. I don’t care if he is a black, white or green radio guy. I’m going to drive that price down because that’s what I’m paid to do.”
Adds Karen Ellis, senior vice president of media planning for The Martin Agency in Richmond, Va.: “Dictates were a common industry practice five years ago, but times have changed. Urban formats have become more popular, and Hispanic and urban stations are getting out there and selling. Some buyers don’t think of segmenting the market. We are looking for the most efficient buy.”
The Civil Rights Forum, which wrote the FCC report, “When Being No. 1 Is Not Enough,” disagrees. Authored by Kofi Asiedu Ofori, the forum’s director of research, the report surveyed 3,745 radio stations: 155 are minority-owned, 413 have ethnic audiences. It found dictates and discounts reduce revenue by an average of 63 percent and that minority-owned
stations earn 29 percent less revenue per listener than nonminority-owned stations-even when they have higher ratings.
“African American advertising agencies and media outlets struggle to stay alive or are growing at a snail’s pace,” says Rep. Carolyn Cheeks Kilpatrick (D-Mich.). “Despite the robust economy, most major advertisers have ignored the buying power of minority consumers.”
Rep. Robert Menendez (D-N.J.) claims, “These practices undermine the American promise of equal treatment and opportunity. Businesses that ignore minority markets today may not be thriving in a generation or two.”
Yet to some advertising insiders, the FCC report is not only inflammatory, it doesn’t make fiscal sense. Why would advertisers ignore the sheer volume of minority purchasing power, which the Selig Center for Economic Growth, part of the University of Georgia, estimates at $533 billion for African Americans, $383 billion for Hispanics and $229 billion for Asian Americans?
Indeed, advertisers angrily counter that they are not racist, just practical. If clients have limited marketing dollars, they want the biggest bang for their buck. Advertising with general market media reaches a far greater audience, including minority listeners.
There is nothing racist, advertisers insist, in avoiding radio stations where listeners lack the necessary income or don’t have a track record of buying their products.
“An agency’s job is to get the best deal they can,” says O. Burtch Drake, president of the American Association of Advertising Agencies.
Buyer beware: One legal scholar claims that even if the intent is not racist, the impact of such decisions may be.
“If you are directing your advertising at the community as a whole and you deliberately leave out minority areas, then you’re on dangerous terrain,” says Floyd Abrams, a New York attorney who specializes in First Amendment issues and believes such practices could violate existing federal civil rights statues.
Abrams cites the Fair Housing Act, which prevents real estate agents from refusing to sell or advertise based on race. He thinks the FCC could make a similar case against advertisers that ignore minority-targeted stations.
For instance, the FCC report takes aim at Volvo and BMW for not advertising on urban radio stations in New York despite independent research showing that people with lower household incomes buy these cars. Volvo targets households with incomes of $75,000 or more because its own data conclude that such families are more likely to buy its product.
“On urban radio stations, the composition of people with household incomes of $50,000 is much stronger than it is with $75,000-that’s just a fact of life,” says Bob Austin, Volvo’s director of marketing communications. “Is Volvo widely found on urban radio stations? The answer is no, but it has nothing to do with discrimination.”
Judith Ellis, senior vice president of Emmis Radio, begs to differ. She manages several urban-formatted radio stations in New York, including powerhouse WRKS-FM. In 1997 she approached Messner Vetere Berger McNamee Schmetterer/Euro RSCG in New York, which handles Volvo. Ellis says that despite data showing 12.5 percent of urban and general market listeners pay $20,000 to $30,00 for new cars, her ad request was denied.
Byron Lewis, chairman of Uniworld Group, a minority-owned ad agency in New York, adds, “It is a documented fact that despite income, upwardly mobile ethnic consumers show a tendency to purchase more expensive, status-associated brands like Mercedes-Benz and BMW, and they do this in many product categories. These audiences should receive equal treatment when it comes to advertising and marketing.”
But does a failure to advertise constitute racism?
“The world is changing, but not all clients feel Hispanics or blacks or Asians should be singled out with ad budgets,” explains Lazarus.
Moreover, if minority stations are unhappy with this reality, why do they accept it? Ethnic stations agree to take whatever advertising they can get, Lewis concludes, because it’s a matter of survival. “The station manager is faced with the prospect of holding out for more equitable rates and getting no revenue or having revenue they refused given to their competitors,” he says.
Kennard thinks he has a solution to the debate. The FCC head believes an ad industry code of conduct, supported by Vice President Al Gore, would create a level playing field for all broadcasters. Kennard says the code should include fair access to information, fair competition and expanding opportunities for all Americans. “Excluding media outlets from the opportunity to compete or valuing them differently based on the race, ethnicity or gender of the audience limits business access to markets and consumer access to information,” he says.
A code of conduct, however, irks Drake. “I don’t think you can dictate to advertisers how they should spend their marketing dollars,” he says. He believes increasing ethnic diversity within ad agencies is a more realistic solution to the problem. “In my experience, codes don’t work because they are impossible to enforce. There are too many Tom, Dick and Harry organizations that would not abide by it.” The 4A’s even thinks an industrywide code of conduct could violate federal antitrust laws, although Kennard says a code would expand competition, not limit it.
Wally Snyder, president of the American Advertising Federation, supports Kennard’s general principles and has organized a task force to study the issue. “We are willing to look at a code,” he says.
Of course, advertisers aren’t the only ones under fire. Ofori’s report, which cost the FCC $20,000, has been slammed for bias and shoddy research. Rep. Michael G. Oxley (R-Ohio), vice chairman of the House Subcommittee on Telecommunications, Trade and Consumer Protection, recently sent a sharply worded letter to Kennard:
“If the Commission chooses to hire contractors to perform empirical studies, those studies should be undertaken by individuals who can provide objective analysis of the relevant subject matter, not activist groups organized for the purpose of advancing particular policy causes.”
Lazarus even charges that $20,000 is “a warm-up for primary research. We spend more than that on almost every project. True North has an African American marketing company [Stedman Graham & Associates] whose job is to show clients the value of ethnic audiences.”
Ofori claims his report was meant to be a preliminary data comparison rather than a statistical analysis. “We let the data speak for itself, and we avoided inserting our point of view,” he says, “except when it came to the conclusions and recommendations.” While Ofori included anecdotal evidence of discrimination, he did fail to solicit advertisers’ views, claiming “funding limitations.”
To date, no formal rulings have been issued, and FCC officials say they plan further study. Advertisers favor inclusivity the next time the Commission launches an investigation.
“The problem is that this is business,” says Lazarus. “It might not be politically correct.”