Opposing Unnecessary Marketing and Advertising Restrictions
Advertising revenue is critical to local TV and radio stations that rely on those dollars to serve local communities with vital news and information and high quality entertainment. As Congress considers initiatives that impact advertising, including restrictions on food marketing and a moratorium on television commercials for new medicines, it should avoid legislation that threatens free speech and increases federal agencies' authority to excessively restrict advertising on which local stations rely.
Advertising revenue is critical to local TV and radio stations that rely on those dollars to deliver vital news, emergency information and high-quality entertainment to their communities. As Congress considers initiatives that impact advertising, it should avoid legislation that burdens free speech and unduly restricts advertising on which local stations rely.
The tax treatment of advertising costs is governed by the same principles that are applicable to all other ordinary and necessary business expenses, such as salaries, rent, utilities and office supplies. This means that today, advertising costs are fully deductible in the year they are incurred.
Last fall, Senate Finance Committee Chairman Max Baucus circulated a draft corporate tax reform proposal on "cost recovery." This proposal included a provision that would modify the current tax treatment of advertising so that only 50 percent of the cost is deductible in the year it is incurred, with the remaining 50 percent amortized over the next five years. This proposal has not yet been introduced as a bill, and has reportedly not received input from other senators outside of the chairman. A similar proposal was introduced by House Ways and Means Committee Chairman Dave Camp (MI-04), which would allow companies to deduct 50 percent of their ad costs in the year incurred, with the remaining 50 percent amortized over the following 10 years.
Modifications to the tax treatment of advertising would have a disastrous impact on local television and radio stations.
Despite a lack of evidence, in recent years some have expressed concern about whether food product advertising may contribute to childhood obesity. In 2012, attempts by an Interagency Working Group (IWG) to restrict certain food advertising to youth were unsuccessful. The group comprised of the Food and Drug Administration, U.S. Department of Agriculture, Centers for Disease Control and Prevention and the Federal Trade Commission released a report that would have banned ads for foods such as yogurt, cereals, vegetable soups, most breads, and even peanut butter and jelly. Out of the top 100 foods produced in the U.S., only 10 to 20 would likely have made the cut, and those products would largely be fresh fruits or vegetables. Marketing under these onerous guidelines suggested by the IWG would have included every form of communication; television and radio advertising, mobile devices, video games, movie theater presentations, celebrity or cartoon figures and endorsements.
Broadcasters strongly opposed these restrictions, which would have stripped local stations of a vital revenue source that allows them to better serve their communities.
Congressional action restricted the IWG from moving forward until the group completes a cost-benefit analysis on the impact of its report, "Interagency Working Group on Food Marketed to Children: Preliminary Proposed Nutrition Principles to Guide Industry Self-Regulatory Efforts." However, with an increased public focus on obesity, the IWG will likely continue to explore new ways to restrict food advertising to children.
Prescription Drug Advertising
In 2012, the Food and Drug Administration (FDA) Safety and Innovation Act, S. 3187, was signed into law reauthorizing the Prescription Drug User Fee Act (PDUFA) for another five years. While direct-to-consumer advertising is not addressed in the law, there is a section requiring the FDA to issue guidance within two years on social media marketing of medical products, which includes drugs.
Past PDUFA law included restrictions on consumer advertising of prescription medications. In years past, there have been congressional efforts, led by Rep. Henry Waxman (CA-30), to allow the FDA to ban television commercials for a new medicine for up to three years if officials decided it was necessary to protect the public health. Following objections by some lawmakers that it would infringe the constitutional protections of free speech, these efforts failed. However, Waxman and others have indicated a willingness to move legislation that would impose moratoriums on consumer advertising of new prescription drugs, pre-clearance for all other consumer ads and a requirement that ads contain a symbol indicating that a drug is new to the market.
Approximately 94 percent of broadcast television and 96 percent of broadcast radio revenues are directly attributable to advertising. Without this source of revenue, stations could not deliver vital local news, emergency information and high quality entertainment to their communities free of charge. For many stations, advertising is their only real source of revenue.
Broadcast advertising is also a strong economic stimulant to the U.S. economy. The local commercial broadcast television and radio industry contributes $1.24 trillion of Gross Domestic Product (GDP) and 2.65 million jobs to the American economy annually. Legislation that restricts advertising threatens broadcasters ability to best serve their local communities.
NAB will continue to oppose any proposal that threatens and restricts advertising.
Congress should not enact constitutionally questionable legislation that would restrict advertising and impose cumbersome burdens on advertiser-supported, free, local broadcasting.