University of Pennsylvania Law Review FOUNDED 1852 Formerly American Law Register VOL. 140 JUNE 1992 No. 6 ARTICLES ADVERTISING AND A DEMOCRATIC PRESS C. EDWIN BAKERt TABLE OF CONTENTS I. ADVERTISING'S FINANCIAL SUPPORT FOR A DEMOCRATIC PRESS........................................ 2103 A. Advertising as a Subsidy ....................... 2103 B. Hypothetical: Advertising as a Destructive Force ..... 2107 C. Historical Change and Related Observations ........ 2112 D. Is Advertising "A" Cause of the Decline in Competition?. 2119 E. The Significance of Newspaper Competition ......... 2132 1. Does Competition Matter? ................ 2132 2. Consequences for Politicians ............... 2135 t Nicholas Gallichio Professor of Law, University of Pennsylvania. Many people have helped me with this paper. I particularly benefitted from the opportunity to present early drafts to faculty seminars at University of Texas Law School and University of Pennsylvania Law School and to my media policy seminar. In addition, I received helpful comments from Mike Fitts, Oscar GandyJr., Douglas Halijan,Jason Isralowitz, Seth Kreimer, Erin Lynch, Michael Madow, Guillermo Margadant, Gerry Neuman, Ed Rock, and Carol Sanger. (2097) 2098 UNIVERSITY OFPENNSYLVANIA LAW REVIEW [Vol. 140:2097 II. ADVERTISING AND THE CONTENT OF A DEMOCRATIC PRESS 2139 A. Avoiding Offense to Advertisers: A Kept-Press ....... 2144 B. A Buying Mood: The ProperSurroundings for Ads .... 2153 C. The Need to Avoid Offending Anyone ............. 2156 D. Content Tailoredfor the "Right"Audience .......... 2164 III. ECONoMIc ANALYSIS OF ADVERTISING'S EFFECT ON THE MEDIA ..................................... 2168 A. Market Failures............................. 2169 1. The Decline of Competition ........... 2169 2. Advertisers' Distortion of Content ....... 2172 B. Inappropriatenessof the Efficiency Standard ........ 2175 IV. POLICY PROPOSALS ............................ 2178 A. Tax-Advertising/Subsidize-Readers(TA-SR) Proposal .. 2180 B. Alternative Tax and Subsidy Proposals ............ 2188 1. The Kaldor Proposal ..................... 2188 2. Progressive Tax on Advertising ............. 2190 3. The Swedish Plan ........................ 2193 4. Proposed Revenue-Oriented Media Taxes ..... 2197 C. Combating Advertisers' Censorship ................ 2200 D. Tax on Advertising in Commercial Video and Broadcasting to Fund Noncommercial TV and Radio ............ 2213 E. A New State Communications Environment ......... 2218 V. THE CONSTITUTIONALITY OF TAXATION OR REGULATION OF ADVERTISING ............................. 2220 A. A Broad or Narrow Reading of the Press Clause ...... 2221 B. Protected Commercial Speech? . 2232 C. Application of ConstitutionalPrinciples ........... 2233 CONCLUSION ................................... 2240 19921 ADVERTISING AND A DEMOCRATIC PRESS 2099 ADVERTISING AND A DEMOCRATIC PRESS The First Amendment, adopted in the wake of the colonists' resistance to the British Stamp Act,1 protects the press from "abridgement" of its freedom by government. The thesis of this Article, however, is that despite the potential danger and occasional 2 occurrence of governmental censorship, private entities in general and advertisers in particular constitute the most consistent and the most pernicious "censors" of media content. Organized private power is today the most serious threat to a free and democratic press. Consequently, existing structures and behavior of private power centers prevent the media from adequately serving the needs of a democratic society. Thus, although advertising can be viewed as the life blood of free media, paying most of the costs and thus making the media widely available, this Article examines advertising as a threat to a free and democratic press. Once advertising is seen as a powerful censor and task master that systematically undermines a free and democratic press, a host of questions arise. Which of advertisers' relations with the media are objectionable? Do they violate existing laws? Are new regula- tions desirable? Constitutional? Would a tax on advertising in the mass media be desirable, for example, as a means to reduce the influence of advertisers over media content? Constitutional? Might answers depend on how broadly the tax is applied? Or on the use of the resulting tax revenue? The Stamp Act was not the last tax on newspaper advertising. For good or bad reasons, advertising taxes are often proposed. During the Civil War, Congress raised revenue by taxing newspaper advertising.,3 Florida recently adopted a tax on various services including advertising, but underestimated the power of the advertising lobby, which quickly forced repeal.4 The Bush adminis- 1 Despite the historical importance attributed to the Stamp Act, which heavily taxed newspaper advertisements as well as newspapers, by the Supreme Court in Grosjean v. American Press Co., 297 U.S. 233, 245-49 (1936), the British and Massachusetts' stamp acts' relevance to the First Amendment maybe somewhat more complex. See infra note 452. 2 In a future article I intend to look at threats to press freedom resulting from the form and concentration of ownership. - See Act of July 1, 1862, ch. 119, § 88, 12 Stat. 432, 472-3; FRANK L. MoTT, AMERICANJoURNAISM: A HISToRY, 1690-1960, at 398 (1962). 4 See An Act Relating to Taxation, 1987 Fla. Laws ch. 6 (repealed 1987); Steven 2100 UNIVERSITYOFPENNSYLVANIALAWREVIEW [Vol. 140:2097 tration proposed, but quickly abandoned, a plan to limit the deductibility of advertising expenses. 5 Academics have proposed a progressive tax on newspaper advertising as preferable to the Newspaper Preservation Act's "joint operating agreements" as a means of promoting newspaper competition. 6 Many states are currently considering extending existing taxes to either newspaper sales or newspaper advertising. 7 Likewise, our history provides many examples of regulation of advertising-regulations that were constitutionally unquestionable as long as the commercial speech 8 was not protected by the First Amendment. Powerful policy arguments against such taxes, as well as other government regulations of advertising, emphasize that advertising pays the largest part of the bill for our "free press." 9 By "subsidiz- ing" the press, advertising makes mass media broadly available. This subsidy enables the media to engage in the expensive enterpris- es of gathering, shaping, and distributing news (and entertainment). Advertising is so important to the press that Germany, which views only the print media and not broadcasting as the "real" press, gives M. Cohen, Note, A Tax on Advertising: First Amendment and Commerce Clause Implications, 63 N.Y.U. L. REv. 810, 810 (1988) (discussing the Florida law). ' See Steven W. Colford & Julie Liesse, Marketers Dodge Bush Tax Bullet, ADVERTISING AGE, Oct. 29, 1990, at 1. 6 See Richard J. Barber, Newspaper Monopoly in New Orleans: The Lessons for Antitrust Policy, 24 LA. L. REV. 503, 553 (1964) (examining the impact of antitrust policy on the newspaper industry, and suggesting that in view of its limitations, "progressive tax levies on advertising revenue" would be more effective in reducing reliance on advertising as a source of revenue); Thomas E. Humphrey, Comment, The Newspaper PreservationAct: An Ineffective Step in the Right Direction, 12 B.C. INDUS. & COMM. L. REV. 937, 951-54 (1971) (noting that the Newspaper Preservation Act will slow down, but not stop, the anticompetitive trend, and proposing a progressive tax on newspaper advertising revenue). 7 See infra text accompanying notes 327-43. 8 See Valentine v. Chrestensen, 316 U.S. 52 (1942). Given the Supreme Court's recent commercial speech decisions, particularly Posadas de Puerto Rico Assocs. v. Tourism Co., 478 U.S. 328 (1986), this may again be relatively unproblematic. 9 Advertising provides this country's daily newspapers with 60% to 80% of their revenue, see infra note 18, and broadcasters with virtually all of theirs. The extent to which newspapers depend on advertising revenues varies quite dramatically from country to country. In the mid 1970s, the percentage of newspaper revenues that came from advertising was approximately 83% in Switzerland, 71% in West Germany, 50% in Sweden, 41% in Great Britain, and 33% in France. See ROYAL COMM'N ON THE PRESS, FINAL REPORT APPENDICES app. C at 105-06 (1977) [hereinafter ROYAL COMMISSION] (listing press subsidies in foreign countries). Percentages may give an inadequate feel for the differences. Receiving 83% means that the typical newspaper receives 4.9 times as much revenue from advertisers as from readers, while receiving 33% means that readers provide twice the revenue of advertisers. 1992] ADVERTISING AND A DEMOCRATIC PRESS 2101 constitutional protection to the print media's reliance on advertis- 0 ing.1 Still, could it also be that advertising undermines a free press? Defenders of advertising's present role usually grant that, like most social practices, advertising has negative as well as positive aspects. Advertising itself often provides useful information to consumers and promotes purchasing behavior that may stimulate the economy. It also, however, often distorts facts, promotes contested consumer- ist values and contested visions of social life, of women, of men, and of our needs and their solutions. I I Neither the form nor content of advertising's messages have unambiguously desirable consequenc- es for social life. Nevertheless, in this article I want mostly to put aside issues concerning the good or bad of advertising's