Broadcast Law Blog : Broadcast Lawyer & Attorney : Davis Wright Tremaine Law Firm : Broadcast Law Blog : Seattle, Los Angeles, Washington D.C., New York, San Francisco, Shanghai

We recently wrote about the Federal Communications Commission’s actions in their Diversity docket, designed to promote new entrants into the ranks of broadcast station owners. In addition to the rules adopted in the proceeding, the FCC is seeking comment on a number of other ideas – some to restrict the definition of the Designated Entities that are eligible to take advantage of these rules, others to expand the universe of media outlets available to potential broadcast owners – including proposals to expand the FM band onto TV channels 5 and 6, and proposals to allow certain AM stations, which were to be returned to the FCC after their owners received construction permits for expanded band stations, to retain those stations or transfer them to Designated Entities. The proposals, on which public comment is being sought, are summarized below.

Definition of Designated Entity. The first issue raised by the Commission deals with whether the class of applicants entitled to Designated Entity status and entitled to take advantage of the Commission’s diversity initiatives should be restricted. One proposal is to restrict the Designated Entity status to companies controlled by racial minorities. The Commission expressed skepticism about that proposal, noting that the courts had throw out several versions of the FCC’s EEO rules, finding that there was insufficient justification offered by the FCC to constitutionally justify raced-based preferences. The Commission asked that proponents of such preferences provide a “compelling” showing of needed, as necessary for a constitutional justification for governmental race-based discrimination.

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The FCC today released a Public Notice stating that their DTV Consumer Education rules will go into effect on Monday, March 31, when they are published in the Federal Register. Thus, broadcast television stations need to immediately be prepared to start complying with these rules.  These rules require that broadasters pick from a set of three plans setting out very specific consumer education activities.  Under Option 1, the option which originated from the FCC, PSAs about the transition would need to start running immediately - 4 spots a day on Monday, and 8 a day on Tuesday, April 1.  We expect that most stations will follow Option 2 - the NAB plan - as it provides more flexibility. But even under the NAB plan, you will need to be running at least 16 30-second PSAs and 16 crawls, all providing information about the transition, during the coming week.  Noncommercial stations also have a third option.  For specific information on the requirements, see our memo on the requirements of the new rules, or review the full Commission order, here.

On April 10, stations will also need to file the new Form 388 for the first time.  On this form, stations will need to specify which of the Options they are selecting (an irrevocable option).  Stations will also need to detail the consumer education education efforts that they have engaged in over the previous quarter - which obviously would have been voluntary efforts prior to the effective date of the new rules on Monday.
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Under the compulsory license for the use of sound recordings - the license which allows Internet radio services to use all legally recorded sound recordings by paying a royalty set by the Copyright Royalty Board - the designated collection agency can, once each year, audit a licensee to assess its compliance with the royalty requirements.  Under the law, when the collective decides to audit a company, it must notify the Copyright Royalty Board, who then gives public notice of the fact that an audit is to take place.  The Copyright Royalty Board has just announced that SoundExchange has decided to audit Last.FM.  Based on a number of public statements, SoundExchange has been citing Last.FM as an example of problems with royalties - contending that Last.FM had paid royalties of only a couple of thousand dollars a year, under the Small Webcasters Settlement Act, just before selling out to CBS for over $200 million.  Given SoundExchange's tough talk about Last.FM, this notice of an audit is not surprising.  SoundExchange's focus on this company illustrates the difficulty of valuing music use, and the different perceptions of music users and copyright holders as to what that value should be.

 In past years, SoundExchange has audited a number of webcasters - usually large webcasters.  As SoundExchange must bear the cost of the audit unless a significant underpayment is discovered, it is unlikely that more than a few companies will be audited each year.  However, as SoundExchange has made such a big deal of Last.FM, with witnesses on performance royalty issues mentioning it at Congressional hearings, and representatives mentioning it on various industry conferences (including SoundExchange President John Simson's reference to the company on a panel on which we jointly appeared at Canadian Music Week earlier this month), many expected that an audit would be forthcoming.

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In two decisions released this week by the FCC, here and here, two large broadcast group owners were admonished for failures to comply with the FCC’s EEO rules. In both cases, failures to widely disseminate information about job openings in one market were discovered by the FCC in the course of random EEO audits that selected these stations for review. In both cases, the Commission determined that the violations were serious, and imposed reporting conditions (essentially subjecting the stations to an FCC audit of their EEO annual public file reports every year for the next 3 years). And in each case, the FCC would have fined the stations for their violations, but the Commission moved too slow, as in both cases, license renewals were granted between the time of the violations and the EEO audit.  Under provisions of the Communications Act, the Commission cannot fine a station for action that occurred during a prior renewal term - so the grant of the renewals cut off the possibility of a fine in these cases.

These actions highlight the importance of complying with the Commission’s EEO rules, which we have summarized in our EEO Guide, here. In particular, in both cases, the station groups had not widely disseminated information about job openings, as required by the rules. Wide dissemination requires the use of recruitment sources designed to reach all groups within a community to allow their members to learn about the job openings at the station. The Commission's aim is to bring into the broadcast workforce employees representing diverse groups within a community rather than hiring all their employees from traditional broadcast sources.  In these cases, the stations had used only corporate websites, on-air announcements, and word of mouth recruiting. No outside sources, or sources reasonably likely to reach the entire community, were used by the broadcasters, hence the admonition and the reporting conditions. 

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Annual EEO Public File Report Deadline - April 1

Affected States:  Delaware, Indiana, Kentucky, Pennsylvania, Tennessee, and Texas

By April 1, 2008, radio and television Station Employment Units (SEU) in the states listed above must: (1) prepare their Annual EEO Public File Report; (2) place it in the public inspection file of each station comprising the SEU; and (3) post the Report on the websites, if any station in the SEU has a website. The Annual EEO Public File Report summarizes the station's or the SEU's EEO activities during the previous 12 months, and provides information about the recruitment and outreach that the station conducted in the past year.  The states with the April 1 filing deadline are: Delaware, Indiana, Kentucky, Pennsylvania, Tennessee, and Texas.

In addition to preparing the Annual EEO Public File Report by April 1, larger radio stations in Indiana, Kentucky, and Tennessee must also prepare and file with the Commission an FCC Form 397 Mid-Term EEO Report. Please note, only radio station SEUs located in these three jurisdictions that have 11 or more full-time employees are required to file an FCC Form 397 by April 1, 2008.

Biennial Ownership Report Deadline - April 1

Affected States:   Radio: Delaware, Indiana, Kentucky, Pennsylvania, and Tennessee; Television:  Texas 

By April 1, 2008, radio stations in Delaware, Indiana, Kentucky, Pennsylvania and Tennessee, and television stations in Texas 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. Ownership Reports are filed every other year, reporting on changes in the licensee’s ownership and updating the information requested by the form.

The timing for the filing of the Biennial Ownership Report and the preparation of the Annual EEO Public File Report is based on the anniversary of the filing of the station's license renewal. In turn, the renewal cycles are organized by state and type of service, and are staggered based on the FCC's prearranged schedule. Periodically, we will remind groups of stations as to their upcoming deadlines, and stations should be vigilant to make these required filings. 

Copies of our complete reminder memos containing additional information on each of these filing requirements can be found here (Ownership) and here (EEO).

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Channel 6 of the television band is immediately adjacent to the lower end of the FM band.  Noncommercial FM radio stations, located at the lower end of the FM band (88.1 FM to 91.9), have the potential to interfere with television stations on that channel.  Thus, FCC rules require that noncommercial FM stations protect Channel 6 stations that are in their area, often limiting their power unless they can work out interference agreements with the local TV station.  As the FCC has tried to vacate Channel 6 as part of the digital transition, some noncommercial FM applicants, including some who filed during the recent filing window for new Noncommercial FM stations, have filed applications seeking construction permits at power levels that ignore the Channel 6 station, on the theory that, by the time the noncommercial station is on the air, the TV station will have vacated Channel 6.  In a decision issued on Friday, the Commission rejected one such application, finding that the acceptance of the application premised on an event that has not yet occurred would be unfair to potential applicants who were waiting to file applications until the television stations actually changed channels.

The decision, in a footnote, noted another problematic issue raised by these applications.  As only some applicants filed their applications in the recent NCE window premised on the disappearance of the Channel 6 TV stations, those that had not take that tact would be at a comparative disadvantage in assessing their applications under the NCE selection criteria.  As the comparative position of NCE applicants was supposed to have been frozen at the time the window applications were filed, those relying on a future event would seem to get an unfair advantage.  Thus, it appears that, in time, similar actions will be taken with respect to other similarly situated applicants, clearing up a source of concern or consternation for many who filed during that window.

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In the last few weeks, I've received several calls from broadcasters about on-air employees who have decided to run for local political office, and the equal time obligations that these decisions can create.  Initially, it is important to remember that equal opportunities apply to state and local candidates, as well as Federal candidates.  And the rules apply as soon as the candidate is legally qualified, even if the spot airs outside the "political windows" used for lowest unit rate purposes (45 days before a primary and 60 days before the general election).  For more information about how the rules apply, see our Political Broadcasting Guide.  In one very recent example of the application of these rules, a situation in Columbia, Missouri has been reported in local newspaper stories concerning a radio station morning show host who decided to run for the local elective hospital board.  To avoid having to give equal time to the host's political opponents, the station decided to take the employee off the air.  This was but one option open to the station, as set forth in the article, quoting the head of the Missouri Broadcasters Association, who accurately set out several other choices that the station could have taken. 

These choices for the station faced with an on-air host who runs for office include:

• Obtain waivers from the opponents of the station employee allowing the employee to continue to do his job, perhaps with conditions such as forbidding any discussions of the political race.
• Allow the candidate to continue to broadcast in exchange for a negotiated amount of air time for the opponents
• Provide equal time to the opposing candidates equal to the amount of time that the host's voice was heard on the air (if the opponents request it within 7 days of the host being on the air)
• Take the host off the air during the election

Other situations have also arisen concerning non-employees, running for office, who may work for another local station, for ad agencies, or for advertisers, but whose voice or picture appears on spots that run on a station.

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In the early 1980s, the FCC deregulated many of the very detailed programing rules that governed broadcasters,  based on the theory that the marketplace would assure that broadcasters provided programming of interest to their local community.  The FCC looked at the marketplace, and decided that broadcasters either had to program to the needs of their community, or risk the loss of their audience to competitors.  Now, the FCC is proposing to bring back many of these rules with a vengeance (see our post on the FCC's current efforts) - imposing rules even more detailed than those that were abolished over a quarter century ago.  A look at this week's news raises the question of why now - when there are more media choices than ever (and when, particularly in the radio industry, revenues with which to meet such requirements are shrinking) - the FCC cannot rely on the marketplace to assure service to the public.  When marketplace forces require that broadcasters use their most important asset - their localism - to compete against all the new competition, the FCC is now looking to require that broadcasters meet their public interest obligations in a very specific, cookie cutter, government-mandated fashion.  Some of the announcements made this week highlight the extent of the competition that broadcasters now face.

On the most basic level, there are simply far more stations than there ever were.  According to an FCC Report published in 1980, there were 4559 commercial AM stations, 3155 commercial FM stations, and 1038 noncommercial FM stations.  While the number of AM stations had not increased substantially by the end of 2007 (4776), the number of commercial FM stations has doubled to 6309, and the number of noncommercial FMs has increased even more substantially, to 2892.  TV shows a similar increase in service - from 746 commercial and 267 noncommercial stations in 1980 to 1379 commercial stations and 380 noncommercial stations.  In addition, thousand of LPTV stations have been created, and over 800 LPFM stations - services that didn't even exist in 1980.  Clearly, the over-the-air competition is far greater than when the FCC initiated its deregulation efforts.

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In two decisions (here and here) released last week, the FCC fined broadcasters $3200 and $2400 after inspections of the stations revealed that the licenses for their Studio Transmitter Link ("STL") did not list the proper location for these stations.  In both cases, it appeared that the stations had changed their studio locations, and had not bothered to file an application with the FCC to get authorization to move their auxiliary licenses to the new location.  So, if you are contemplating a change in your studio location and use a Studio Transmitter Link to get your programming from your studio to your transmitter, don't forget to file the appropriate application on FCC Form 601 to update that authorization before the move.

As Form 601 requires prior coordination with a local frequency coordinator ( to make sure that the relocation does not create interference issues for other stations) before the Form 601 can be processed.  In one case, it appeared that the process had begun, but was not completed at the time of the inspection, even though the studio had been relocated for several months.  In the other case, the fine was higher as the process to re-license the STL authorization was not begun until after the FCC inspection.  Thus, in connection with any studio move, be sure to begin the process of getting authorization for the move early enough to have it in hand before the move, to avoid potential FCC issues.

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A recent decision of the FCC emphasizes that tower owners must remember to change the tower registration for any communications towers after a change in ownership, or risk a fine.  In the recent decision, the FCC canceled a $3000 fine that was imposed after an FCC inspection when it appeared a change in the ownership had not been reported - but the cancellation was not because the fine was not proper, but because the tower was in fact owned by the party who the FCC records said owned it.  All towers which must be registered with the FCC so that the FCC can notify the appropriate owner of any issues that may arise - and owners are subject to fines if it is discovered that the tower owner is not properly reported in FCC records.  In sales of broadcast stations and other communications licenses, towers are often included assets.  However, when the focus of the transaction is the sale of a radio or TV station, for which prior FCC approval is necessary, the transfer of the tower in the FCC records may well be overlooked.  No prior FCC approval for the sale of the tower is needed, and the tower is not included in the FCC authorizations reported on the applications for the sale of the broadcast licenses.  Thus, the parties must remember that the tower registration must be amended to report the new owner after the closing of the sale of the station.  Don't forget - or a fine may result if the FCC discovers that the ownership change was not reported.

 

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In the hotly contested Democratic Presidential nominating contest, the delegates from Michigan and Florida, which already held Presidential primaries which were labeled as meaningless by the Democratic Party, may become crucial in deciding a winner in the race.  Thus, there have been discussions, particularly in Michigan, of holding another Presidential primary or caucus to award the delegates, probably in early June.  Broadcasters have asked whether they would need to provide lowest unit rates yet again if such a primary is held, given that they have already had one lowest unit rate window for the Presidential primaries already this year.  It seems to me that the answer is yes, a new lowest unit rate window would again open for any rescheduled primary.

While some might contend that a second window for the same election is somehow unfair, it is not at all unprecedented.  In a number of states, such as Louisiana, candidates in some elections must receive a majority of the votes (50% plus one) to be declared the winner.  Thus, in an election, it is not uncommon for there to be no "winner" in the November election, with a run-off having to be held a month or two later.  In those cases, lowest unit rates apply to the run-off, just as they did to the initial election.  Of course, the window is only available to the candidates competing in the election at issue, so if Michigan were to reschedule a primary in June, only the Democratic presidential candidates would be entitled to the rate - while Senator McCain, the presumptive Republican nominee, could be required to pay full rates for any ads that he might choose to run in this same period.  For more information about political broadcasting issues, see our Political Broadcasting Guide, which can be found here.

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The Supreme Court has agreed to hear an appeal by the FCC of the "fleeting expletives" case, where the Second Circuit Court of Appeals threw out the FCC actions fining stations for isolated incidents where a profanity was uttered on the air in a live program.  The cases stem from the Golden Globes and Billboard Music Awards, where over-exuberant winners let slip one of those words that you are not supposed to say on TV.  The Court of Appeals found that the FCC had not justified its departure from prior Commission decisions where such conduct was not sanctioned.  The Court also suggested that the Commission's decisions did not give broadcasters enough guidance as to when the use of such words was permissible, and when it was prohibited.  We have written previously about this case a number of times, including here and here.  Should the Court determine that the FCC was justified in acting as it did, this may leave the FCC open to taking new actions in the indecency area - such as the suggestion that one Commissioner recently made that indecency enforcement in connection with video delivered to mobile phones should be explored.

 A couple of words about some of the commentary written about this case.  First, while many stories have stated that this is the first indecency case to reach the Supreme Court in 30 years since the famous Seven Dirty Words  ( or the Pacifica) case, in fact there have been several other more recent cases that have dealt with the indecency issue - though not in the broadcast context.  Cable and Internet indecency rules have been adopted by the FCC or by Congress, and usually overturned as not constituting the least restrictive manner of preventing children from being exposed to "indecent" speech - speech which is constitutionally protected (as opposed to obscenity which has no protection as it has no socially redeeming significance) - but from which children can be sheltered.  However, in the cable and Internet cases, the regulations have been overturned because there were other less restrictive means of limiting children's access to the content, e.g. through filters or restrictions on access to specific channels or websites.

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At its December meeting, at the same time as it adopted rules relaxing the newspaper-broadcast cross-ownership rules, the FCC adopted new rules to expand diversity in the ownership of broadcast stations, encouraging new entrants into such ownership.  The full text of that decision was just released last week, providing a number of specific rule changes adopted to promote diverse ownership, as well as a number of proposals for changes on which it requests further comment.  Comments on the proposed changes will be due 30 days after this order is published in the Federal Register.  As this proceeding involves extensive changes and proposals, we will cover it in two parts.  This post will focus on the rule changes that have already been made - a subsequent post will cover the proposed changes.  The new rules deal not only with ownership rule modifications, but also with issues of discrimination in the sale of broadcast stations and in the sale of advertising on broadcast stations, new rules that leave some important unanswered questions. 

The rules that the Commission adopted were for the benefit of "designated entities."  Essentially, to avoid constitutional issues of preferences based on race or gender, the definition of a designated entity adopted by the Commission is based on the size of the business, and not the characteristics of the owners.  A small business is one designated as such by the Small Business Administration classification system.  Essentially, a radio business is small if it had less than $6.5 million in revenue in the preceding year.  A television company is small if it had less than $13 million in revenues.  These tests take into account not only the revenue of the particular entity, but also entities that are under common control, and those of parent companies.  For FCC purposes, investment by larger companies in the proposed FCC licensee is permissible as long as the designated entity is in voting control of the proposed FCC licensee and meets one of three tests as to equity ownership: (1) the designated entity holds at least 30% of the equity of the proposed licensee, or (2) it holds at least 15% of the equity and no other person or entity holds more than 25%, or (3) in a public company, regardless of the equity ownership, the designated entity must be in voting control of the company.

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A full year ago, the Copyright Royalty Board released its decision setting royalties for the use of sound recordings by Internet Radio webcasters (see various posts on the subject here).  As an article this week in the Boston Globe sets out, despite much talk of a post-decision settlement to lower the royalties set by the CRB that many Internet Radio operators claim will put their stations out of business, no such settlement has yet been announced.  And, in a week that brought about the transfer of the operations of one of the largest webcaster's operations to a traditional radio company (as CBS took over operations of AOL's Internet Radio service), appeals of the decision were filed with the US Court of Appeals for the District of Columbia.  A busy week, but still no resolution of the Internet radio controversy.

Four separate appeals briefs were submitted to the Court.  One was a combined brief of the large Webcasters (represented by DiMA, the Digital Media Association) and the Small Webcasters(Accuradio, Radioio, Digitally Imported Radio, Radio Paradise), another was submitted by several commercial broadcast groups (Bonneville, the NAB and the National Religious Broadcasters Association) and a third by several noncommercial groups (including college broadcasters, NPR, and noncommercial religious broadcasters).  A final brief was submitted by Royalty Logic, a company that wants to become an alternative to SoundExchange as the collection agent for performers.  These briefs will be answered by the Department of Justice (defending the CRB and its decision before the Court) and SoundExchange.  The briefing process will continue for several months, with an oral argument to follow, quite possibly not until the Fall.  Thus, a decision in the case may well not be reached until 2009. 

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In November, the FCC adopted an Order limiting to 10 the number of FM translators from the 2003 translator filing window that a single applicant could pursue.  This Order was adopted by the Commission at the urging of LPFM advocates who believed that the large number of FM translator applications filed in 2003 foreclosed some opportunities for new low power FM stations (see our description of the Order here).  Last week, the FCC released a Public Notice telling translator applicants to choose which 10 applications that they will continue to prosecute.  Applicants have until April 3 to make that choice and notify the Commission of their choice.  If no choice is made by that date, the FCC will continue to process the first 10 applications that were on file, dismissing any remaining applications by that applicant.

The Commission is expecting to then continue to process the remaining applications, opening a settlement window after the dismissal process is complete so that the remaining applicants can sort out possible engineering solutions or other settlements that would resolve conflicts between remaining mutually exclusive applications.  However, there are a number of Petitions for Reconsideration that were filed against the Order establishing the 10 application limit (including one filed by our firm on behalf of a number of clients).  We'll see if the Commission takes any action on the Reconsideration petitions (and an accompanying Petition for Stay of the selection deadline) or if the Commission marches on and continues to process these applications.  For now, applicants should be ready to make their selections on or before April 3.

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On Friday, the FCC released a Public Notice setting out several groups of applications for new noncommercial FM stations which are mutually exclusive with each other.  These applications were filed in the October window for new noncommercial FM stations (information about which can be found here).  According to the Public Notice, the identified groups are those where there are 4 or fewer applications which are mutually exclusive with each other.  The list can be found here.   The Commission is asking that applicants named on this list advise the Commission within 30 days whether the FCC's determination of mutual exclusivity is correct, and also whether the named applicants anticipate reaching a settlement or share time agreement. If nothing is filed within that 30 day period, the Commission's staff will start applying the point system to determine which of these applicants should be preferred and granted.

The Public Notice also makes clear that there are other applications which are part of larger mutually exclusive groups.  These applications will be dealt with at a later date.  The Commission has already processed over 800 other applications which were either granted as "singletons", not mutually-exclusive with other applications, or which were dismissed because the applicant exceeded the 5 station filing cap.  Thus, the FCC is moving quickly to process these applications for new noncommercial stations.  Applicants should carefully review their options in light of this new public notice. 

 

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Although many TV stations are already airing PSAs and other programming designed to educate the public about the upcoming digital television transition, the FCC released an Order containing very specific requirements  for these educational initiatives.  These rules mandate public education efforts about the DTV transition by television broadcasters, multichannel video providers, and electronics manufacturers.  In addition, the new rules require that television stations file a quarterly report on a new form, FCC Form 388, with the FCC (that is also placed in the station’s public file and on its website) certifying compliance with the requirements of the rules and setting out specifics of other consumer educations efforts about the DTV transition that the station has undertaken.The requirements will become effective immediately upon publication in the Federal Register, and continue through March 31, 2009, for all full power stations who complete the transition to their full DTV facilities by February 18, 2009.

The FCC has established three options for meeting the educational initiatives requirement, two of which are available to all TV stations, and one of which is available to noncommercial stations only.  Each has very specific mandates as to how many PSAs about the digital transition are required, and how much additional content (crawls, various over-lays onto programming, long-form programs) are required to meet the obligations.  Thus, broadcasters and others subject to these rules should review the specific requirements carefully.

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Federal Register publication of the Further Notice of Proposed Rulemaking on Low Power FM (LPFM) stations and their relationship to FM translators and upgrades of full-power FM stations occurred today.  This sets the comment dates in that proceeding - with comments due April 7, and replies on April 21.  This proceeding looks at technical issues of whether LPFM stations (which were originally authorized as secondary stations, subject to being knocked off the air if they caused interference to full-power stations (including new stations or increases in the facilities of existing stations), should be protected against interference from such new FM facilities.  Also, the proceeding looks at whether LPFM should get a preference over FM translators, perhaps even being able to bump existing FM translators off the air to make way for new LPFM stations.  We wrote more about this proceeding, here.  FM station and FM translator licensees should be sure to file comments with the FCC on how this proceeding could affect their operations.

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The FCC today released a Public Notice granting the request of several broadcast organizations for an extension of time to respond to the extensive proposals for re-regulating the broadcast industry contained in the FCC's Localism Notice of Proposed Rulemaking.  We wrote about those proposals, here.  Comments, which were to be filed next week, have now been extended, with a new due date of April 28.  Reply comments in the proceeding are now due on June 11.  Broadcasters should seriously consider filing comments in this proceeding (see our post here explaining how to file such comments), which could substantially affect the way that they do business, dramatically increasing the paperwork and regulatory burdens that they face.

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