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If you are a broadcaster, you know that it's not going to be a good day when you walk into a hearing on the possible extension of the performance royalty in sound recordings to over-the-air broadcasters and see buttons saying "I Support a Performance Right NOW" on the lapels of every other witness on the panel - including the Register of Copyrights, Marybeth Peters.  But that was the scene in Washington, as the House Judiciary Committee's subcommittee on Courts, the Internet and Intellectual Property held a hearing as to whether the right to collect a royalty for the public performance of a sound recording (the actual song as sung by a particular artist, as opposed to the underlying musical composition) should be paid by broadcasters.  Broadcasters in the United States have paid only a royalty on the public performance of the composition (to ASCAP, BMI and SESAC), and have never paid a royalty for the public performance of the sound recording.  The lack of a sound recording royalty has always been justified in the past on the theory that the artists and copyright holders in the sound recording benefit more than composers through the airplay of the sound recording, as they receive the bulk of the proceeds from CD sales, and the performers benefit from the promotion of live performances.  As they benefit from the promotion provided by the airplay of the song, there is no need for any sort of performance royalty.  As the music and radio businesses have both thrived in the United States - more so than anywhere else in the world - it seemed that this arrangement was mutually beneficial.

But, in recent years, the consensus over this mutually beneficial arrangement seems to have broken down.  Starting in 1995, a performance right in sound recordings has been imposed on digital services, including the royalty on Internet radio which has recently been so controversial (and about which we have written so much, here).  And, with the recent downturn in the record companies' business, additional sources of revenue are being sought - thus the RIAA and SoundExchange, the collective that receives sound recording performance royalties, have started a Congressional push to require the collection of royalties from over-the-air radio.  And that push was reflected in the hearing held on Tuesday before a House Committee that seemed clearly to favor the imposition of this royalty on broadcasters.

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In response to a letter from Congressmen Markey and Dingell from the House Commerce Committee (which we reported on earlier), the FCC on Monday issued a Notice of Proposed Rulemaking (NPRM) seeking public comment on a number of steps that the FCC could take to publicize the February 2009 deadline for the transition from analog to digital television.  In recent weeks, concern has been expressed by Congress and others about the possibility that a "trainwreck" could occur if the DTV transition passes and millions of consumers suddenly find themselves without TV reception on February 18, 2009 - and blame Congress for the fact that their TVs no longer work.  Thus, to try to assure Congress that this will not occur, the FCC has proposed a number of ideas and asked whether mandatory publicity efforts should be adopted.  A copy of the full NPRM is available here. 

The specific proposals outlined in the FCC's NPRM include the following:

• Mandatory public service announcements on television stations, and mandatory crawls on the bottom of television screens announcing the transition
• Requirements that cable and satellite systems include statements in their billing material
• Requirements that broadcasters file reports with the FCC every 90 days concerning their public education efforts
• Notices to be included by electronics manufacturers in the packaging of televisions and related products about the impending change
• Education programs conducted by the FCC and the NTIA for electronics retailers to educate them about the transition process and the government's coupon program (see our explanation of that program here)
• Other efforts that may publicize the transition dates

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We've recently written much about Internet radio, digital radio, digital television and all sorts of new technologies to electronically deliver media content.  But the grandfather of all electronic media - AM radio - still provides significant service.  A recent Petition for Rulemaking suggests certain technical changes to increase the service provided by these stations. In particular, the proposed changes would allow longer, higher powered operations by stations that are forced to reduce power or cease operating at local sunset.  A summary of the petition prepared by the engineer who drafted it can be found here.  It proposes that AM stations who are forced to reduce power at sunset be allowed to operate with higher Post-Sunset Authority.  It also suggests that the power allotted AM stations for Post Sunset and Pre-Sunrise Authority  be computed based on the location and time of sunset and sunrise at the location of the stations which the local station could interfere with, rather than requiring reduced power when during the hours of darkness at the location of the station that has to reduce power.  These changes are particularly important in the shorter daylight hours in the upcoming winter months.  The FCC recently gave public notice of the filing of this petition, and comments can be filed at the FCC until August 20, 2007.  The Commission will evaluate these comments and determine if a formal Notice of Proposed Rulemaking is warranted, at which time further public comment would be taken.

This proposal is but one of a host of current proposals pending for the AM service.  A few months ago, we wrote about a proposal for easing proofs of performance for AM stations, and before that, we wrote several posts, here and here, about the long-pending proposal filed by the NAB seeking to allow AM stations to use FM translators.  While initial comments have been filed on the Petitions for Rulemaking in these matters, neither of these proposals has yet reached a formal Notice of Proposed Rulemaking.  Much further advanced is the FCC's Order allowing AM stations to operate digitally at all hours - which, as we wrote in May, was released two months ago after being originally adopted at the FCC's March meeting.  However, the digital order does not become effective until 30 days after publication in the Federal Register which, for some unexplained reason, has not yet occurred.  And many AM stations are waiting for this publication so that they can begin full-time digital operations, and others wait for these other actions to help this oldest of electronic media outlets. 

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Last month, we wrote about the US Court of Appeals throwing out the FCC’s decision to issue fines to broadcasters for the use of an occasional “fleeting expletive,” i.e. one of those impolite words that once in a while will slip onto a broadcast station’s airwaves, most usually in a live and unscripted program. The Court looked at the FCC’s decisions in this area and determined that they were inconsistent and did not provide the guidance that a broadcaster needs to determine what is and what is not permitted on the airwaves. Thus, the fines were thrown out as the Court found the FCC's decisions to be arbitrary and capricious.  In an attempt to reinstate the FCC’s authority to regulate in this area, Senator Sam Brownback of Kansas, the author of the legislation which raised potential broadcast fines to $325,000 per violation of the indecency policy, last month suggested that he would introduce legislation that would overturn the Court action.  That proposal was preempted by Senate Commerce Committee, which earlier this month approved a bill introduced by Senator Rockefeller which would, very simply, state that the FCC had the jurisdiction to fine stations for a single word or phrase that they broadcast.  While the bill was approved by the Committee, the full Senate and the House of Representatives would need to approve the legislation before it could become law.

The proposal to give the authority back to the FCC to fine a station for an isolated utterance  is possible in theory, as the Court decision was based on the lack of consistency, clarity and guidance that the FCC provided to broadcasters about its standards, and not based on constitutional grounds.  However, reading the Court decision, one can see that the Court went out of its way to question the constitutional basis of the FCC regulation in this area. See our summary of the decision, here and here. A piece of Congressional legislation can reverse a Court ruling which was based on statutory interpretation, but it cannot reverse a decision that is based on a finding that a government action is unconstitutional. A constitutional amendment - which is obviously very rare -  is necessary for that.

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The FCC released an order today, fining a broadcaster $20,000 for misrepresentations made in its license renewal application about the completeness of its public inspection file.  The fine issued in this case was not a fine for the fact that the file was incomplete (two stations in the cluster had each already been fined $4000 for the actual public file violations), but instead the fine was issued because the licensee had certified in its renewal application that the public file had been complete and accurate at all points during the course of the license term.  This case highlights both the need to keep an accurate public inspection file, and the need to carefully consider all certifications made in FCC applications.  Incorrect certifications can lead to fines and potentially even more severe sanctions if the FCC finds an intentional misrepresentation or lack of candor - the potential loss of a license.  Admitting a minor paperwork transgression like an incomplete public file will result in a fine - an inaccurate certification which appears to try to hide a problem can lead to far more severe consequences. 

In this case, the FCC found that the licensee had not maintained Quarterly Issues Programs lists.  The licensee claimed that its obligations had been met through a listing of public service announcements that the stations had put in their files.  The FCC rejected that argument, citing the requirement in its rules requiring that Quarterly Issues Programs lists contain "a narrative description of what issues were given substantial treatment" by the licensee as well as the programs that treated each issue.  In addition, the time and date of broadcast of each program, as well as its title and duration, is to be provided.  A simple list of PSAs does not meet these requirements - as it does not list the issues addressed, much less provide the detailed program information required by the rule.  For a summary of the Quarterly Issues Programs list obligations, and a model form to be used to meet the obligations, see our most recent memo on the subject, here.   Remember, the Quarterly Issues Programs Lists are a broadcast station's only official record of how they have served the public interest needs of its community, so be sure that adequate attention is paid to the completion of these forms.

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There are no items on the agenda for next week's FCC meeting from the Media Bureau, so one might think that the "broadcast" community could ignore this meeting.  However, there is one matter that will be considered that may well have an effect on the media landscape for the foreseeable future.  That is the adoption of service rules for the 700 MHz spectrum - the remaining portion of the spectrum to be reclaimed from television broadcasters after the digital transition.  Part of that spectrum has already been reclaimed and is beginning to be used by companies such as Qualcomm offering digital multimedia services such as the MediaFLO system, about which we have written before.  The remaining portion of the spectrum that will be auctioned by the Commission by January 2008 and has the potential to provide significant high-speed digital wireless services to the public.   However, anyone reading the communications press would realize that there is a major controversy over how that service will be provided.

The argument is over whether service will be provided on the new spectrum in an open manner - in essence a wireless high speed connection to the Internet where any service can get direct access to the consumer - or whether it will function more like the current systems run by the existing wireless carriers, where the carriers will be able to control the content that will be delivered to the consumer.  This is, by no means an easy decision, and it is currently being debated in Congress and at the FCC.

 

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In the broadcast world, if you stick around long enough, what was once big and then faded away will no doubt come around once again.  Whether its the resurrection of prime time games shows that faded in the 50s to become big again today, or the regulatory landscape - it all comes around again.  In comments made to an oversight hearing of the US House of Representatives yesterday, Chairman Martin stated that there is an item circulating through the FCC proposing to require that broadcasters file in their license renewal applications more detailed information about the types of public interest programming they provide.   Until the mid-1980s, broadcasters had to specify the percentage of their programming that was comprised of news, public affairs and "other" public interest programming, as well as the number of public service announcements that the station broadcast.  These specific requirements disappeared in the "deregulation" of the 1980s, but from the statements made yesterday, they may now be making a return if Chairman Martin and the Democratic Commissioners can agree on a set of rules to be imposed on broadcasters.

We've written about various proposals to require specific, quantifiable public interest obligations of broadcasters in the context of the recent digital radio order.  We also wrote about the long-outstanding proceeding to quantify public interest obligations of television broadcasters that was mentioned in a recent decision denying a license renewal challenge (and implying that a decision was coming soon).  Whether the Chairman's mention at yesterday's hearing of the upcoming "item" was a reference to these two proceedings, or to some entirely new effort to re-regulate broadcasters, remains to be seen.  But the "post-card" renewal that was adopted in the 1980s, which has continued to grow in size and complexity over the intervening years, may well grow significantly in the near future.

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The FCC on Friday announced the time and location for the fifth of its planned six multiple ownership hearings.  The hearing will be held in Chicago on Thursday, September 20.  Exact times, location and topics will be announced later.  The public notice does indicate that the meeting will begin in the afternoon and continue through the evening - so the Commissioners look like they are expecting a full day.  As we have written before, this would seem to mean that the last hearing will not be held until late in the year (and a final localism hearing is also expected as well), so any decision in multiple ownership proceeding could not take place until the information from the hearings is reviewed and digested - so that puts a decision into 2008, at the earliest.  With that being an election year, does anyone really expect a potentially controversial decision to come out in the midst of a likely contentious political season?

In 2000, after the last transfer of the Presidency from one political party to another, a multiple ownership ruling was released by the lame duck Democratically-controlled FCC in January, just before the new administration was inaugurated.  Could we be looking at a rerun in late 2008 or early 2009?

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As reported in Digital Music News and other publications on Friday, Clear Channel Communications dropped its waiver of music royalties from its on-line agreement signed by musicians submitting songs to the Company in hopes that their music would be played on the Company's radio stations.  In writing about this decision, most publications attribute the decision to the petition filed with the FCC by the Future of Music Coalition and other public interest groups arguing that the waiver requests constituted a form of payola - the giving of something of value (the waiver of the right to receive a royalty) in exchange for the playing of music.  However, on close inspection, that would appear to be a misunderstanding of the royalty, as there would seem to be no royalty that would be affected by the waiver in connection with the playing of this music by radio stations, and therefore there would be no payola over which the FCC has any jurisdiction.

According to the Future of Music petition, Clear Channel's promise to play new music was made in connection with the payola settlement that it and other companies entered into with the FCC, and was apparently contained in a side letter filed with the FCC, as it was not spelled out in the settlement agreements themselves. See our analysis of the settlement agreements, here.  The side letter promised that the Company would dedicate a certain amount of radio airplay on the Company's radio stations to new local music.  However, such play would not implicate any music royalties - so a waiver of royalties would not confer any benefit on the Company.  Broadcast stations pay no royalty for the use of a sound recording - thus the waiver that Clear Channel requested was without any value as there was no royalty to waive.  While broadcast stations do pay a royalty for the composition (the underlying words and music of a song), stations play flat fees to ASCAP and BMI that are a function of the station's market size and power - not a function of how many songs are played.  Thus, as there is no sound recording royalty and a flat fee for the composition royalty unaffected by any waivers, the waiver did not confer any benefit to the Company in connection with its broadcast operations.  Thus, there where would appear to be no payola issue over which the FCC would have any jurisdiction.

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In March, we wrote about the concurring opinion of Commissioner Copps in connection with the sale of Univision Communications, where the Commissioner asked whether it was in the public interest to allow the sale of broadcast companies to private equity firms.  That theme has now been picked up by Congress, as Congressman John Dingell, Chairman of the House Energy and Commerce Committee, and Ed Markey, Chairman of the Telecommunications Subcommittee, jointly sent a letter to the FCC asking for answers to a series of questions about the impact of private equity ownership of media and telecommunications facilities.  The letter, here, cites the Univision case, the acquisition of Clear Channel and the sale of a number of Radio One radio stations to private equity firms, and suggests that these firms may be more interested in cutting expenses and maximizing profits to the detriment of the public interest.  The letter asks a number of questions about whether the FCC has adequate information about such ownership to assess its impact on the public interest.

The questions posed by the letter include the following:

• Whether the FCC currently tracks ownership of media properties by private equity companies.
• Whether the FCC has assessed the impact of private equity ownership on localism and, if it has not, should it
• Whether the FCC has adequate information to assess the impact of media ownership by these companies on multiple ownership considerations
• Whether the Commission's Equity-Debt Plus rules need to be revised to take account of private equity ownership
• If the ownership of these entities is sufficiently public and transparent for the Commission to review that ownership.

The letter was addressed to Chairman Martin, and he was given until July 20 in which to respond.

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Monday, July 16th is the first business day after the effective date of the new Internet Radio royalties set by the Copyright Royalty Board.  As we wrote earlier this week, the Court of Appeals has denied the requested stay of the effective date.  And, while a bill was introduced in Congress this week to provide for a legislative stay, that will not be acted on by Monday, nor will action occur on the broader Internet Radio Equality Act.  Thus, many webcasters are asking what they should do on July 16.  Some have suggested that they should stop streaming, while others have wondered what will happen if they don't pay the higher royalties.  This decision is one that each webcaster should make carefully, in consultation with their counsel and business advisers.  But there are some practical considerations that should be taken into account when making the decision as to what should be done on Monday.

First, it should be noted that not all webcasters are equally affected by the royalty rate increase.  Larger commercial webcasters, including most broadcasters who are streaming their signals on the Internet, should have been paying royalties up to now that, while lower than those adopted by the CRB, have increased by "only" about 40%  - from $.00076 per performance (per song per listener) to $.0011 per performance.  These rates will continue to increase between now and 2010 so that they eventually will reach $.0019 per song per listener.  But for now, the increase is relatively modest (as compared with some of the other increases discussed below).  While there are reportedly at least some conversations going on between SoundExchange and groups representing broadcasters and large webcasters about reaching some sort of accommodation on royalties, there is no certainty that any deal will be reached, so these webcasters probably should be paying the higher royalties (and hoping for a credit against future royalties should there be an agreement reached in the future to reduce these royalties, a successful appeal, or future legislative action reducing the royalties).

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Annual EEO Public File Report Deadline—August 1

Affected States:  California, Illinois, North Carolina, South Carolina, and Wisconsin

By August 1, 2007, radio and television Station Employment Units in the states listed above must place in their Public Inspection File and post on their website, if they have a website, their FCC Annual EEO Public File Report.  A Station Employment Unit (SEU) is a group of stations, under common control, serving a common area, and sharing at least one employee.  If an SEU includes stations in different states with different filing deadlines, the SEU can select which filing deadline it will use.  Once selected, the Annual Report filing deadline should be consistently applied for all future EEO Annual Reports.  The states with the August 1 filing deadline are:  California, Illinois, North Carolina, South Carolina, and Wisconsin.

Biennial Ownership Report Deadline—August 1

Affected States:   Radio TV- Illinois and Wisconsin - California, North Carolina, and South Carolina;

In addition, by August 1, 2007, radio stations in California, North Carolina, and South Carolina, and television stations in Illinois and Wisconsin must prepare and file an FCC Form 323 Biennial Ownership Report with the FCC.  Similarly, noncommercial stations in these states must file a Biennial Ownership Report on FCC Form 323-E. 

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Yesterday, a three judge panel of the US Court of Appeals in Washington, D.C. denied the Emergency Motion for a Stay of the Internet Radio Royalty rates set earlier this year by the Copyright Royalty Board.  Our coverage of the stay motion can be found here and here.  Coverage of the entire royalty issue and the surrounding controversy can be found in various posts on our blog, here.  The denial of the stay means that, absent Congressional action or some voluntary agreement of the parties, the new rates will go into effect with payments for the period since the CRB decision being due on Monday, July 16.

The Court's decision was very brief - in essence three sentences which merely stated that the moving parties had not met the high legal burden necessary for the Court to impose a stay.  A stay is an extraordinary legal action, taken by a Court as part of its equitable powers to insure that justice is carried out.  In order to justify a stay, a party must show the Court that there is a likelihood of success on the merits of the case (in other words, it must prove in a 20 page stay motion the likelihood that it will eventually win its appeal after full briefing and oral argument), plus it must prove that there will be irreparable harm if the stay is not issued (more than simply a loss of money - but harm that cannot be remedied if the appeal is eventually successful).  Weighing those factors, and balancing the competing interests of the parties and the public interest, the Court decides whether or not to issue a Stay.  In this case, as there was no more than the pro forma Order, we do not know what shortcomings the Court perceived in the Motion seeking the Stay, but no reasons are required as the Court can merely decide not to exercise its equitable discretion in a case.

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The Commission's Notice of Proposed Rule Making (NPRM) regarding the next steps in the DTV transition has been published in the Federal Register, and the dates for submitting Comments in the proceedings have been set.  Parties interested in commenting on the Commission's proposed rules must submit Comments by August 8th, and Reply Comments by August 23rd.  A copy of the full NPRM can be found here.  Given that this proceeding will establish the details for the final push to digital broadcasting by February 17, 2009, broadcasters should be sure to review the the NPRM and consider filing comments. 

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The FCC today issued a Public Notice soliciting comments on the impact of Internet ad sales on the lowest unit rate prescribed by the FCC's Political Advertising Rules.  The Commission's inquiry picks up on an issue we raised in a blog entry last year and responds to a recent Request for Declaratory Ruling filed by a group of state broadcasters associations seeking guidance on the effect that ad sales made via the Internet could have on the rates charged to political candidates.  With the advent of Internet sites, such as Google’s dMarc service, that take remnant advertising inventory from broadcasters and market that inventory on-line, it is possible that a station could sell left-over spot time at prices less than a local advertiser would pay for similar time on the same radio station.  The informal guidance given previously by the FCC's staff has been that if a commercial advertiser can buy a particular spot on a particular station using an on-line service, and that spot carries with it the same rights that a spot purchased directly from the station has (e.g. it runs in the same time period, has the same protections against pre-emption, it carries similar make-good rights), then the spot must be considered in the station’s lowest unit rate analysis for spots of the same class.

With a formal request for clarification now before it, the FCC seeks input to assist it in resolving the issue of whether such ad time sold via these Internet sales must be taken into consideration when determining the station's lowest unit rate for purposes of the political advertising rules.  Among other things, the Commission seeks information regarding the design and operation of these Internet ad sales services.  A copy of the Commission's Public Notice can be found here.  The proceeding has been assigned Docket  MB No. 07-137.  Comments are due by August 6, 2007, and Reply Comments are due by August 21, 2007, and can be filed with the Commission either electronically via ECFS, or on paper. 

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Last week brought more action, and not much in the way of  results, as we count down to the July 15 effective date of the new Internet Radio Royalties.  The actions that received the largest amount of press coverage were the hearing before the US House of Representatives Small Business Committee, and the offer by SoundExchange suggesting that the minimum $500 per channel fee be capped at $2500 per service. While both initially seemed to offer the prospect of some resolution of the dispute over the Internet Radio royalties that were adopted by the Copyright Royalty Board, in fact neither ultimately resulted in much.

The Committee hearing featured webcasters and musicians - equally divided between those who believed that the royalties were fairly decided, and those who believed that the rates were too high.  The one thing on which most of the witnesses seemed to agree was that some rate adjustment was warranted for small webcasters, though no one was able to quantify how such a settlement should be reached.  The Congressional representatives, on the other hand, were cautious to act, asking again and again whether the parties were going to be able to settle the case between themselves.  While Congressman Jay Inslee testified in favor of his Internet Radio Equality Act, the members of the committee seemed hesitant to act while there were judicial avenues of relief still pending, and the possibility of settlement.

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In the last week, several new LPFM issues have arisen – one a Congressional push to authorize more of these stations by ignoring third adjacent channel interference to full power stations, and another involving complaints to the FCC about LPFM stations being forced to change channels or cease operation because of interference from changes made by full power stations. The latter issue has apparently arisen in the context of stations taking advantage of the FCC’s rules which made it easier to effectuate changes in the cities of license of FM stations (see our summary of the rule changes here), causing more movement of such stations. Both of these issues could present issues for FM broadcasters. 

The Congressional action was initiated by the introduction of legislation in both the House and the Senate that would eliminate third adjacent channel protections that full power stations have from LPFMs. Those protections have been the subject of controversy since the FCC authorized the LPFM service.  LPFM advocates have contended that the interference protections are unnecessary, as most FM receivers should be able to distinguish between stations on third adjacent channels. The NAB contends that the protections are needed as there are still many radios that would be affected by that interference. Full power stations, except for those authorized at short-spacings prior to 1964, are protected from third adjacent channel interference from each other. Competing engineering studies have been done, the FCC has not acted on this question (and in fact Congress had prohibited such action years ago).  But now, some feel that the time for some liberalization of the rules is in order.

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In May, we advised you that House Committee and Energy Chairman John Dingell was considering a return of the Fairness Doctrine that the FCC had eliminated nearly 20 years ago.  This was the FCC policy that both required broadcasters to cover "controversial issues of public importance" and to present contrasting views on those issues.  When the FCC eliminated this policy, it did so on the basis that it believed the Fairness Doctrine to be an unconstitutional restraint on free speech under the First Amendment.  Although the FCC's action was upheld by the U.S. Court of Appeals here in DC, the court found only that the FCC was within its discretion to abolish the doctrine and did not address the ultimate issue of whether the doctrine was constitutional.  In view of recent discussions about the potential reinstatement of the Fairness Doctrine, Indiana Representative and former talk show host Mike Spence sponsored an amendment to the 2008 fiscal year appropriations legislation(which in part provides for the FCC budget) that would prohibit the FCC from reinstating it.  That amendment was approved by a wide (310-115) margin by the House of Representatives this week.  While this was trumpeted as ensuring that the Fairness Doctrine was dead - at least for this year - those discussions may have been a bit overstated.

First, this bill was passed only in the House of Representatives.  While there has been a companion piece introduced in the Senate in the last few days, there also has been much talk there of bringing back the Doctrine - both by Democrats and even some Republicans.  So the fight there may not be so easy.

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