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While recent press reports talk about the growth of Internet Radio and the increasing presence of terrestrial radio companies on the net, the amount of the music royalties that will have to be paid by Internet radio companies for the 2006-2010 period remains unresolved.  The trial phase of the proceeding to set the rates, held before the Copyright Royalty Board, is now completed, and the upcoming decision of the Board may have a profound impact on the economics of the Internet radio industry.  Final briefs in the case were filed with the Board in December, and an oral argument was held on Thursday, December 21.  With the completion of the argument, the decision is now in the Board's hands, and the amount of the royalties for the use of the sound recordings will be decided by the Board on or before March 4. 

In the on-line world, and in most digital communications channels other than over-the-air digital broadcasts, a royalty for the use of the "sound recording" (the actual recording made by a particular artist) must be paid in addition to the royalty for the use of the composition (i.e. the underlying words and music) that is paid to ASCAP, BMI and SESAC.  Our summary of the royalty rates that Internet radio stations should currently be paying can be found on our firm's website, here.  As we make clear in that memo, the rates that are currently being paid expired at the end of 2005, so the rates that are adopted in the current proceeding will be retroactive to January 1, 2006.

The proceeding to determine the new rates has been underway for more than a year.  Written cases were filed by the parties in October 2005.  Discovery, including depositions and document discovery, took place in the early part of 2006.  A trial began in May and lasted through the first week in August, with a rebuttal phase that ended the week after Thanksgiving.

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In addition to approving a small telecomm merger, today the FCC also posted a number of Media Bureau staff reports and studies on media ownership and related issues. These various studies and reports appear to be a variety of drafts and final versions of items relating to media ownership, minority ownership, localism, and related issues, and range in age from as recent as October 2006, to as old as 1982. 

The documents are available for review here, and will undoubtedly be of interest to those parties interested in filing comments in the ongoing quest for broadcast multiple ownership rules.  Comments in that proceeding are due January 16, 2007.   For more details regarding the multiple ownership rule making proceeding, see our earlier posts under "Multiple Ownership Rules."

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By January 10, 2007, all radio and television broadcast stations, both commercial and noncommercial, must prepare and place in their public inspection files a list of important issues facing their communities, and the programs aired in the months of October, November, and December dealing with those issues. These Quarterly Issues Programs lists are the only legally required documents that demonstrate how a station has met its public service obligation to its community of license and service area. The failure to have a complete set of Quarterly Issues Programs lists that were prepared and placed in the station's public file at the proper time can lead to significant fines at license renewal time. Moreover, the failure to produce and document programs responsive to community needs could cause even greater problems for a broadcast licensee. See our bulletin on quarterly issues programs lists for more information. 

Also by January 10, 2007, television stations (including Class A television stations) must place in their public inspection files and file with the FCC an FCC Form 398 Children's Television Programming quarterly report detailing the core children's programming aired in the fourth quarter of 2006 serving the educational and informational needs of children.  By this date, stations must also prepare and place in their public inspection files documentation sufficient to demonstrate their compliance with the limitations on the amount of commercial matter during children’s programming. 

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Just a reminder that comments on the Commisison's proposed DTV Table of Allotments are due by January 11, 2007.  The Commission's Seventh Further Notice of Proposed Rule Making (“NPRM”) requests comment on the proposed new DTV Table of Allotments, which has been assembled as a result of the DTV channel election process.  This proposed Table assigns a channel for each TV station and will ultimately replace the existing Table at the end of the DTV transition as the definitive Table of Allotments. 

Interested parties, including stations seeking to change their alloted DTV channel or reporting inaccuracies in the proposed Table, must submit comments by January 11, 2007.  Reply Comments are due by February 12, 2007.  See our October 24th blog entry under Digital Television for more information about the NPRM.

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As 2006 hurtles to a close and 2007 looms on the horizon, two quick reminders about a couple of upcoming effective dates.

First and foremost, as of December 31, 2006, the Commission's Emergency Alert System ("EAS") rules will be extended to digital services.  Specifically, as of December 31st, digital television, digital cable, digital radio (including LPFMs), and satellite digital radio, will be required to comply with Part 11 of the Commission's Rules, which require participation in all national EAS activation, and periodic testing of EAS equipment.  More information regarding the EAS rules for digital services can be found in our earlier blog of November 21, below.   

Second, the changes to the FCC's Children's Programming Rules, including the rules governing DTV multi-casting, become effective January 2, 2007.  These new rules are summarized in our earlier entry of October 24, below, and in our recent Bulletin.  Most notably, the rules affirmed the requirement that DTV stations broadcasting multiple streams of programming must increase the amount of kid vid programming in proportion to the amount of additional free video provided.  Accordingly, DTV stations that are multi-casting programming on multiple streams should ensure that they have enough children's programming lined up by January 2nd to meet the new requirements.

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The FCC Order announcing a simplification of the procedures for changing cities of licenses of radio stations, and the modification of procedures for amending the FM Table of Allotments, was published in the Federal Register today.  Thus, the new rules will become effective in 30 days, on January 19.  The freeze on FM allotment changes that has been in place for the last year and a half will be lifted on that date.

Substantial questions remain about how these new rules will be implemented in practice.  Informal conversations with FCC staffers have indicated that further explanations of the procedures may be forthcoming.  Issues in the new rules include the fact that only 4 stations may be changed in any single, interrelated filing, which may hamper some of the larger, more complicated facilities changes that have become common over the last few years - and which allow many stations to improve their facilities through interrelated changes. 

There are also issues with city of license changes for noncommercial FM stations, as the new rules as written limit city of license changes to situations where the 1 mv/m contour of the station when moved would overlap with some part of the 1 mv/m service area of the station as currently licensed.  In other services, the limits are that the move must be mutually exclusive with the present facilities (e.g. the interfering and protected contours of the stations would overlap). 

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In an Order released today, the FCC extended the time for filing reply comments in its multiple ownership proceeding to January 16.  Those comments were initially due later this week.

The extension came in response to a seemingly reasonable request filed by Media General, asking that the comment deadline be extended until after the FCC issues the results of the studies that it is conducting on various issues associated with the proceeding, assessing the impact of media consolidation on the public interest.  Seemingly, that would make sense - to give the parties the opportunity to comment on the findings of these studies and what impact these findings would have on the issues at stake in this proceeding.  But the Commission denied that request, but nevertheless extended the filing period until January 16.

No doubt, even though the comment date was not extended, comments will still be filed on the studies - though they may have to be submitted as "ex parte" filings - informal comments that can be submitted throughout the course of the proceeding, even after the formal comment deadlines have passed.

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The FCC released its Public Notice setting out the agenda for its next meeting to be held on December 20.  Included on the agenda is a Report and Order and Further Notice of Proposed Rulemaking on video franchising reform.  According to press reports, the FCC's consideration may include timelines requiring local franchise authorities to act quickly on requests for new franchises, limits on franchise fees and build-out requirements, and perhaps some requirements that cable programming be made available to new franchisees.  If adopted, these rules may hasten the introduction of cable television-like services by the telephone companies. 

TV broadcasters are very anxiously watching this proceeding, as well as similar reform measures proceeding in many states and on Capitol Hill, as many believe that the existence of competing multichannel video providers give broadcasters more leverage in retransmission consent agreement negotiations.  Already, where broadcasters have tried to hold out for some consideration in retransmission negotiations, the existence of DirecTV and the Dish Network have often become crucial places to direct viewers for their network TV service if that service is taken off a cable system when retransmission consent negotiations break down.  Having more multi-channel video competitors as outlets for its programming may make a television station more bold in holding out in cable retransmission consent negotiations.  More competitors may also make cable systems more reluctant to take the chance of losing a network affiliate because the system refuses to pay consideration in return for retransmission consent.  Thus, the FCC's actions this coming week, while having nothing to do directly with television stations, may nevertheless be very important to their future. 

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While you may not be able to say the "F-word" on broadcast TV, you can on cable TV.  And apparently they will - as the Court of Appeals has agreed to televise the oral arguments on the appeals of the FCC fines levied against Fox for broadcast of the Billboard Music Awards and NBC for its airing of the Golden Globes.  Both of these fines arose because the broadcasts featured one of those words that you're not supposed to say on TV.  The Court granted permission for C-Span to broadcast next week's oral arguments in these cases.

However, broadcast TV seems, so far, unwilling to take the risk.  According to a Broadcasting and Cable report, no broadcast network has asked C-Span for the rights to rebroadcast their coverage.  Perhaps, until these decisions are released, the broadcasters fear that a Court of Appeals oral argument will somehow be mistaken by the FCC for something that "describes or depicts sexual or excretory functions."  As one who has participated in Court of Appeals arguments, that mistake would seem highly unlikely, but the FCC's policy seems to fine first and ask questions later.  So, with the concern of FCC action restraining the broadcast networks, the 15% of the country without access to cable or satellite television in their homes will be safe from exposure to this potentially profane court argument. 

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Today's news in the broadcast business seems to be that Google, which has been announcing for months that it was going to start selling broadcast advertising time - may actually now be selling that advertising.  Stories this week, like those in CNet or in the Washington Post, focused on the test marketing of radio ads by Google in a few radio markets.  While many in radio debate the business wisdom of an on-line auction of broadcast advertising time, the arrival of the electronic marketplace seems to arrived.  But is the FCC ready for this development?

We've written before about the impact of on-line sales on political broadcasting rules, and our take on how these ads should be treated, but the FCC has not yet given any definitive guidance on their treatment for lowest unit rate purposes.  Does the fact that an on-line advertiser does not know the identity of the specific station on which he is buying advertising mean that the ad should not be counted when the station tries to figure its lowest unit rate?  Or does the ad need to be packaged with ads on other stations to qualify  as a "network spot" exempt from lowest unit rate considerations on individual stations?  Or will the FCC give all on-line ad purchases a pass from such consideration?  Perhaps by the time that political spots for the 2008 election start running (probably in less than a year for some Presidential candidates), these issues will be resolved.

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In a press release issued last week, Cambridge Consultants announced that it would be introducing at the Consumer Electronics Show a wireless Internet radio device that would cost less than $15 to manufacture, and would likely retail for around $50.  While several articles have hailed this device as signaling the demise of both satellite and over-the-air radio as consumers get inexpensive access to hundreds or thousands of Internet Radio stations, not one article that I've seen addresses the issue of whether these stations will be around to listen to, after the new royalties are announced for the use of sound recordings on the Internet.  Briefs are due to be filed with the Copyright Royalty Board this week, summarizing the evidence that has been received over the past year in the proceeding that has been ongoing to determine these rates.  By March 1, the Board should announce a decision.

We have summarized the rates on which Internet Radio companies should be paying royalties in our memo, here, but noted that these royalties actually expired as of the end of 2005.  Royalties for this year, and the upcoming years through 2010, will be decided by the Board in the current proceeding.  This proceeding, which could well determine the fate of many Internet Radio stations - and perhaps of the devices designed to listen to them - bears careful monitoring.

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On Monday night's episode of NBC's Studio 60 on the Sunset Strip, that program's viewers were treated to a subplot about an FCC investigation into indecency on the fictional television network featured in the program. And these viewers were treated to a portrayal of the FCC as an all powerful agency, able to not only issue fines, but also pull "transponder licenses" and stop Asian casino acquisitions by the network's parent company simply because of the inadvertent use of the "F word" in a live newscast.  Chairman Martin probably wishes that he has as much power as the fictional FCC had on the program.

Perhaps a communications lawyer shouldn't get concerned about the dramatic license taken by a TV show.  But the program provided such a distorted view of the FCC process that it could even encourage those interested in making trouble for broadcast licensees to file more complaints with the FCC, thinking that the FCC is so powerful.  In fact, the FCC's power, and its precedent, are nothing like those portrayed on the show. 

Obviously, the FCC's powers don't extend to casino acquisitions outside the United States (or for that matter in the United States).  Nor will the FCC pull a satellite transponder license for a broadcast indecency matter - the FCC has never pulled any license for indecency violations, and has thus far shown no inclination to do so (and even had the FCC had been so inclined, it would take years of litigation).  Even the proposed fine level - $350,000 for each of the network's affiliates - while recently authorized by Congress, has never been levied by the FCC. 

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Two articles published today talk about on-line media, and the growing importance of local content in advertising and audience growth.  These articles emphasize the long-term importance for broadcasters to capture the local audience that they have controlled over-the-air for so long as that audience makes the transition to the world of Internet media.  This growth of on-line media covering local events and issues, and chasing local advertising dollars, may also figure into the current multiple ownership debate as it tries to assess the dominance of the broadcast media, the new competitive forces, and how much ownership regulation is still necessary.

One article, in today's Washington Post, explores the transition of certain Gannett newspapers to on-line sources of micro-news covering all sorts of community events that the printed paper and the broadcast news programs would usually ignore.  The broad coverage of very local events in the community, together with user-generated content posted to the site, and reader contributions to investigative journalism conducted by the paper, are intended to involve the whole community in the web version of the paper.

The second article, from today's New York Times, talks about how search engine Ask.com is introducing a service called AskCity, using search technology on a local basis to highlight local business and events, and to tap into local advertising dollars.  These two articles highlight how the Internet can and will be a local medium, with which the broadcaster will have to compete to an even greater degree in coming years.

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Until late 2004, Section 312(g) of the Communications Act provided that the license of any station that had been off the air for more than one year would automatically be forfeited.  In December 2004, Congress amended the law, allowing the FCC discretion to reinstate such licenses "to promote equity and fairness."  In a decision issued today, the FCC actually used that discretion and reinstated the license of a station that had been off the air for several years - giving at least some hope to licensees who are forced by circumstances beyond their control to be off the air for more than a year.

The case decided today, while giving hope to licensees, shows that it takes a compelling case for the FCC to exercise its discretion and reinstate an expired license.  The station involved in this decision was located in the Virgin Islands.  Its tower was destroyed by one hurricane and, after the station had been rebuilt, three more hurricanes substantially damaged the station, knocking it off the air.  In addition, the principal shareholder of the company died, and the company had made plans to move to another island.  In these circumstances, the FCC exercised its discretion and reinstated the license.  So, while the discretion will not be exercised freely (in fact, the FCC has turned down other requests since the law was changed), this case shows that stations subject to severe natural calamities have hope of preserving their licenses.

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The FCC on Friday announced the details of the next multiple ownership field hearing to be held in Nashville on December 11.  As in the October hearing in Los Angeles, the hearing focuses both on the specifics of the local market, as well as an industry segment and how consolidation has affected that segment.  In Los Angeles, the hearing focused on television program production companies.  In Nashville, the focus will be on the music industry, and the impact that media consolidation has on that industry.

As many will remember, after the FCC adopted its short-lived relaxation of the ownership rules in 2003, many in the music community argued that media consolidation adversely affected the ability of new artists to get their music played on the radio.  In the localism proceeding which followed the 2003 order, the FCC asked questions about whether local artists were able to get airplay on radio stations, and whether stations should be required to include some amount of local music content on their stations.  These questions are sure to be aired in Nashville at the December 11 hearing.

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On Thursday, the FCC released an order agreeing to allow a company to provide Direct Broadcast Satellite service to the United States using Dutch satellites.  If this company were to actually implement this service, it would compete directly with DIRECTV and Echostar (Dish Network), and compete as well in the larger multichannel video space with numerous other companies including cable television and, in many markets, the telephone companies who are now introducing video services. 

The fact that the FCC has authorized this service does not mean it will be introduced.  Satellite services must also secure approvals from international agencies that coordinate uses between different countries, and they must secure the substantial financing necessary to construct and launch the satellite in face of all the other competition that exists in the market.  It will be a process to watch over the coming years to see if this service ever comes to market.  But FCC approval is the first step toward introducing this competitive service.

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