Media Handouts:

$8 billion a year

excerpted from the book

Take the Rich Off Welfare

by Mark Zepezauer and Arthur Naiman

Odonian Press, 1996

Media Handouts - $8 billion a year

Officially the Communications Act of 1934 declared that "'the airwaves belong to the people." What it actually did was hand out portions of the airwaves free to businesses, which then made as much money off them as they could, without having to pay the government anything for the privilege.

Thanks-at least in part-to this generosity, the combined profits of the four largest television networks were $2 1/2 billion in 1994 (on revenues of almost $15 billion). One of the TV channels the government gave away in New York was recently purchased by Dow Jones and ITT for $207 million.

Broadcasters have been paying less and less lip service to the toothless "public service" requirements of their licenses. That's understandable, since none of them has ever had a serious challenge from the FCC (the Federal Communications Commission}not even General Electric, which owns NBC and has been convicted of many felonies (for details on some of them, see the section on career criminals in the chapter on military waste and fraud).

Give them a finger and they want a hand

The government and the electronics industry want to encourage the development of high-definition television (HDTV). While we're shifting to that new standard, TV stations will need to broadcast two signals-one for the TV sets we all have now, and one for new sets that receive HDTV.

To make that transition as painless as possible, the FCC proposes giving TV broadcasters an extra, free channel for each one they currently control-both for VHF (channels 2 through 13) and UHF (channels 14 through 69). Eventually, the FCC wants to narrow TV's spectrum (portion of the airwaves), so that it only runs from channel 7 to channel 51. Needless to say, the broadcasters applaud the first part of the proposal and oppose the second.

Ironically, new digital technology makes it possible to broadcast up to six channels in the same amount of spectrum currently used for one-which means the broadcasters don't actually need the new, free spectrum in order to transition to HDTV. That hasn't stopped them from running zillions of commercials warning us that free television will disappear if they don't get this handout. (They urge you to write your representatives in Congress. So do we.)

Broadcasters are used to getting spectrum for free, but since 1992, new spectra (that's the plural) have been auctioned off. For example, cellular phone companies paid $10 billion for theirs in 1994, and eighteen mobile phone and pager licenses went for $904 million at a 1996 auction.

The FCC estimates that the TV channels the want to give away would fetch $37 billion if auctioned off. Since there are the same number of these proposed new channels as the ones the broadcasters currently control, we can assume the latter are also worth $37 billion.

So if we forced TV broadcasters to pay for what they've been using for free for more than six decades, we'd have an extra $37 billion in the Treasury. That means the government could issue $37 billion less in Treasury bonds. Assuming they'd pay about 7% on the bonds, having the $37 billion in hand would lower the deficit by $2.6 billion each year (7% of $37 billion).

The radio spectra

AM and FM radio slots were also given to broadcasters free of charge. When they sell them to each other, however, they don't continue that tradition. A radio station in a major market can run as high as $100 million, and you can't really get one in even the smallest town for less than about $500,000. Here are some recent valuations:

According to US News and World Report, the 21 radio stations Disney acquired when it bought ABC were worth $2 billion-more than $95 million each. After Westinghouse bought CBS, the 39 radio stations it controlled were worth $1 billion-almost $26 million each.

Twelve stations in Texas recently sold for $306.5 million (almost $26 million each) and nineteen more there went for $395 million (about $21 million each). Two stations in Norfolk, Virginia cost $8.1 million, and another one there $6.5 million. Five suburban stations-three in Patterson, New York and two in Danbury, Connecticut-brought in $15 million ($3 million each).

In that random sample, the average price is almost $38 million per radio station. (Some of that goes for electronic equipment and the like, but the license-the right to broadcast on a particular band of the radio spectrum- makes up most of the value.)

Let's be ultraconservative and say that the average radio station license is worth a million dollars. There are approximately 14,000 stations in the US. So, if we forced radio broadcasters to pay for what they've been using for free, we'd have at least an extra $14 billion in the Treasury. Not having to issue 7% bonds for that amount would save us $980 million a year. (Since this is such a loose estimate, and almost certainly way too low, let's just call it an even billion.)

Reducing the advertising deduction

The unlimited deductibility of advertising as a business expense is an indirect subsidy to the media (print as well as broadcast). Why, you ask, is that a form of wealthfare? Well, for one thing, it's only available to businesses; ordinary taxpayers can't deduct the cost of running an ad in the paper to sell their car, or to find a baby-sitter for the kids.

Second, like any deduction, it's worth more to corporations and other higher-bracket taxpayers than it is to the average person. Third, it subsidizes ads we also regulate-such as those for liquor or cigarettes, or ones aimed at children-which means we're paying these companies with our right hand to do something we're trying to get them to stop doing with our left hand.

Finally, it allows the broadcast media to sell something-access to the airwaves-that we gave them for free. (Sure, their programming has increased the value of those airwaves, but that can't be the whole story, since-as we've seen-buying a station costs a lot of money, and the programming doesn't come with it.)

In 1994, corporate America spent $150 billion on advertising (in all media). One proposal calls for scaling back the deductibility of advertising from 100% to 80%, as was done with business meals and entertainment in 1986 (they're now down to 50%), and allowing the remaining 20% to be amortized over four years. That modest plan would reduce the federal deficit by about $4.4 billion a year.

To that let's add the $2.6 billion a year it costs us not to auction off the existing TV spectra away, and the $1 billion it costs us for the free radio spectra. This gives us a total for media handouts of $8 billion a year.

Take the Rich Off Welfare