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How do you determine who is control of a noncommercial broadcaster governed by a self-perpetuating Board of Directors?  That question was addressed in a recent FCC decision, dismissing an application for a new noncommercial FM station that had not properly disclosed its owners on its FCC Form 340 application. In that case, the applicant had reported to the FCC that it was controlled by one individual, the head of a Monastery.  No other officers or directors or members of the applicant nonprofit corporation were listed in the application.  A competing applicant searched state records, and determined that its articles of incorporation reflected that the applicant was to be governed by a Board of Directors, and required at least three directors.  Moreover, the state filings had listed 6 directors - including two individuals who were not US citizens.  When challenged, the applicant admitted that the applicant corporation was set up in the manner set out in the state filings, but contended that the directors were all members of the same religious order, and could not challenge the decisions of their superior - arguing that this gave the superior effective control over the entity.  The FCC rejected the argument - relying on state laws that said that a company is governed by its Board of Directors - and concluding that the individuals on that board therefore had control of the applicant.  Any attempt to now list the 5 other members on the FCC application would be a major change in the control of the board (and would raise alien ownership issues because of the two directors who were not US citizens), so the application was dismissed.

This case illustrates the Commission's general rule that, when evaluating control of nonprofit entities that don't have shareholders or other owners, as do commercial enterprises, the FCC looks to the governing body of the entity that holds the FCC license to define where control lies.  But the rules for noncommercial entities have never been completely clear - as the FCC has for over 20 years had a rulemaking to establish rules governing changes in control of noncommercial entities.  While this proceeding has been pending, the FCC looks at these issues through an interim policy based on the rules proposed in that proceeding.  Under that policy, the FCC assumes that nonprofit boards will have periodic changes in composition.  It requires that, when a majority of the governing board changes due to these normal, gradual changes, a noncommercial broadcaster file a Form 316 short-form transfer of control - an application routinely processed by the FCC in a matter of days.  But, if there is a sudden change in control of the Board where a controlling interest changes all at once (e.g. if members of a nonprofit entity vote out a majority of the Board, or if there is some sort of mass resignation), then the company should obtain FCC approval on an FCC Form 315 "long form" application, that is subject to petitions to deny.  In the context of any application for a new station, a long-form transfer will result in a dismissal of an application for which the filing window has closed, while short-form changes will be permitted. 

We wrote about these issues when the FCC commenced its still-pending proceeding to require noncommercial broadcasters to file their ownership reports on the same biennial schedule as commercial entities. With license renewal approaching, noncommercial licensees should review their ownership, and make sure that its ownership information is correct, and that any transfers that have occurred based on these policies have been properly reported and approved. 

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What should SoundExchange do with money that it collects for the performance of sound recordings, when it does not know what sound recordings were played by a particular service?  As we've written many times on this blog, SoundExchange collects royalties from digital music services , including satellite radio, cable radio and webcasters, for the performance of sound recordings (i.e. a recording of a song by a particular artist).  It is charged with the obligation to distribute these royalties one-half to those who hold of the copyright to the sound recording and one-half to the artists who perform on those recordings.  However, SoundExchange, according to a filing recently made with the Copyright Royalty Board, does not always know which songs were played by a particular music service.  Thus, it has had difficulty distributing all of the money it collects - currently holding $28 Million in royalties from the period 2004 to 2009 that have not been distributed.  Why?  According to SoundExchange much of the problem is that not all services report what they played and how often, and other information that is submitted is sometimes inaccurate or otherwise does not adequately identify the music that was played.  To deal with this problem, SoundExchange has asked that the Copyright Royalty Board authorize it to use proxy information to distribute these funds from 2004-2009.  The CRB has asked for comments on that proposal.  Comments are due on May 19.

What is proxy information?  Basically, SoundExchange plans to infer from the information that it does have what music was played by the services for which it has no information.  According to the SoundExchange filing, they would make these assumptions based on the type of service.  Thus, information from webcasters would be used to estimate what other webcasters were playing.  Information from background music services who did report would be used to determine what other background music services played, and so on.  The CRB, in its request for comments, asks if the proxy should be further broken down so that, for instance, noncommercial webcasters would serve as a proxy for other noncommercial webcasters, and commercial webcasters would serve as a proxy for other commercial webcasters.  The Copyright Royalty Judges are also seeking to assess whether SoundExchange has done all that it can do to get the required information, and if the proxy system is a fair way of determining distributions for the money that has not yet been awarded to rightsholders and artists. 

Does this proposal have any impact on the services themselves?  Apparently not, as SoundExchange is at this point only looking for this authority in order to distribute money collected for royalties that came in from 2004 to 2009.  It does not appear to be looking at imposing any new restrictions on webcasters or other digital music services.  Instead, it is only looking for the authority to distribute the money that it has already collected based on the information that it has available.  What should music services take away from this request?

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The FCC is taking a close look at the video programming marketplace and gathering data that will undoubtedly shape its rules and policies in the coming years.  Its review comes in the form of a periodic assessment of the multichannel video programming industry required by the Communications Act.  By its Further Notice of Inquiry issued Thursday, the FCC expanded the scope of its periodic review of the market for the delivery of video programming and renewed its previous call for data.  Although the proceeding is technically an annual occurrence (and indeed is entitled the "Annual Assessment of the Status of Competition in the Market for the Deliver of Video Programming"), it has been over two years since the FCC last released a report on the video programming marketplace.  Moreover, that report, issued in January 2009 under then-Chairman Martin, actually reported on the state of the marketplace circa 2006 as the data was a few years old by the time the report was issued. 

So the FCC's current proceeding actually seeks data for the years 2007 through 2010.  More importantly, the Notice of Inquiry marks a significant departure from previous reviews both in terms of the proposed structure of Commission's analysis and the scope of the review, as this proceeding will, for the first time, include information about the online distribution of video programming to consumers.  The Commission seeks to analyze three categories of entities that deliver video programming:  1.) multichannel video programming distributors ("MVPDs", i.e. cable systems, satellite providers, and teleco providers), 2.) broadcast television stations, and 3.) online video distributors.  For each of these types of providers, the Commission proposes to examine industry structure (number and size of providers; horizontal and vertical integration; conditions affecting competition), conduct (business models; advertising and marketing), and performance (quantity and quality of program offerings; price of service; investment and innovation).

The Commission's NOI invites comments from all interested parties, and requests data, information, and comment from entities that provide delivered video programming directly to consumers, as well as consumers and consumer groups, content creators, content aggregators, and manufacturers of consumer premises equipment.  Clearly, the Commission is casting its net widely in hopes of a thorough record for its report. Given the increasingly contentious debate over the reclamation of TV spectrum, ongoing issues regarding retransmission consent agreements, and the rise of online video programming providers, the Commission's proceeding takes on great importance, as the ultimate findings and conclusions drawn by this report will likely be used as the basis for future actions affecting video programming providers and consumers.  Comments in the proceeding are due by June 8th, with Reply Comments due by July 8th.  Interested parties may file comments and data with the Commission either in paper or via the Commission's Electronic Comment Filing System. 

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The FCC's indecency rules have, in recent months, twice been declared unconstitutional by the US Court of Appeals for the Second Circuit - essentially finding that the FCC's policies imposed unconstitutional restrictions on speech as they did not give broadcasters any way of determining what was permitted and what was prohibited.  After seeking several extensions of time to determine whether to seek Supreme Court review of the Court of Appeals decisions, the FCC today released its Petition for Certiorari to the high court.  The Supreme Court need not hear this request for review though, given its previous decision on these rules (which we wrote about here), and the high publicity and public interest in this subject, the case could quite well end up on the schedule.

This appeal deals with two cases.  First, it seeks review of the decision of the Court of Appeals throwing out the fleeting expletive admonitions given to Fox network stations for the broadcast of two Billboard Music Award shows that contained expletives, one by Cher and one by Nicole Richie.  Following the precedent set by the Golden Globes case (where Bono used the "F word"), the Commission held that the use of one of these single words, even if not used in a sexual context, were inherently indecent.  The second case covered by the Supreme Court petition was for the depiction of bare female buttocks in the program NYPD Blue - resulting in $27,500 fines on a number of ABC stations.  This decision was also overturned by the Court of Appeals.

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The sale of a noncommercial radio station is often controversial, especially when it's clear that the format of the station will change after the transfer.  In a decision released last week denying a Petition to Deny challenging the application for the sale of KTRU, the noncommercial radio station owned by Rice University, the FCC again made clear that they are not in the business of regulating the formats of broadcast stations.  For 30 years, the FCC has held firm to its position that the marketplace is best for deciding on what format a station should broadcast.  Thus, when Rice University students argued that the sale of their station and the loss of the diverse format that the station had programmed would harm localism and diversity, the FCC rejected the argument.  Seemingly, that decision makes sense, as we don't want a government agency becoming a czar of the programming offered by broadcast stations.  When we see decisions from the regulatory bodies in the United Kingdom or Canada sanctioning stations that don't stick to their legally proscribed formats, we wonder how such a system could possibly function in the US.  Can you imagine the FCC fining a station because it played too many hits on an alternative station?  Of too much rock on an Adult Contemporary station?  Once the FCC or any government agency gets into regulating formats, these sorts of decisions will follow.  Luckily, based on this decision and the prior 30 years of precedent, we won't have to worry about such an eventuality.

The Commission also rejected other objections to the sale of KTRU. The Petitioners had challenged the noncommercial purpose and educational plan of the buyer - an argument summarily rejected as the buyer was already the licensee of another noncommercial station in the market.  The ownership of that station led to another argument - that the sale would violate ownership limits by concentrating too many noncommercial stations in the hands of one operator.  But the FCC made clear that there are no ownership limitations on how many noncommercial stations one company can own. 

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SoundExchange claims on its website that webcaster SWCast.net was shut down when SoundExchange complained to its ISP that the service was not paying royalties for the use of the music played by the site.  SWCast was an aggregator of webcast channels created by other individuals, who paid the company - allegedly for the streaming and for the royalties that were due for that streaming.  According to the SoundExchange press release, the webcaster was shut down when SoundExchange "sent a letter requesting that the hosting ISP disable access to the SWCast site."  SoundExchange's statement says that, despite repeated attempts to engage the webcaster, SWCast neither paid royalties nor filed reports of use for the songs streamed by the service, leading to SoundExchange's action.  As far as we know, this is the first time that SoundExchange has taken such an action. 

How did this work?  While we have not seen the letter that SoundExchange sent to the ISP, we can assume that it alleged that SWCast was infringing on copyrighted materials by not paying the required royalties.  ISPs have a safe harbor under the Digital Millennium Copyright Act, protecting them from liability for the infringement of users of their services, if the ISP does not encourage the infringement, registers an agent with the Copyright Office, and agrees to take down infringing content when properly notified by a copyright holder (see our post here).  We can only assume that SoundExchange or the copyright holders themselves notified the ISP that the material streamed by this webcaster was infringing as no royalties were being paid and, to protect itself, the ISP blocked access to the site.

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Last week, in a frenzy of cleaning up issues left from old license renewal applications, the FCC upheld several $9000 fines for public file violations - most in connection with the failure of licensees to have a complete set of Quarterly Programs Issues lists ("QPIs") in those files.  The broadcasters who were fined came up with a variety of arguments as to why those fines should be reduced or eliminated - which were uniformly rejected by the Commission.  What we find interesting is that, while these large fines were levied against a number of broadcasters, the FCC is at the same time asking whether retention of the public file can be justified under the provisions of the Paperwork Reduction Act.  So which is it - an important tool to keep the public informed about the ways that stations serve their public, or an unreasonable burden on those who are regulated by the FCC?

While this request for comments on the paperwork burden imposed by the public file may be nothing more than a routine review of Commission rules to justify their continuing existence under the provisions of the Paperwork Reduction Act, it is interesting that this rule - long the source of wrath from broadcasters who complain that the file is never visited except by the occasional college broadcasting student who has to do so as a class project, or by the competitor in the market looking for something to complain about (and even those visits are extremely rare for most stations) - is now up for review and comment.  Why was this rule selected for review?  Will there be other rules about which the FCC asks for comment?  Is there any justification for the burden imposed on broadcasters (which the FCC estimates at a cumulative 1,831,706 hours of work annually, but to which it curiously assigns no associated cost burden with the required tasks) when it is routine for the file to be never visited?  You have your chance to voice your comments - with the filing deadline for such comments being June 17, 2011.

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This past week's political news seemed to be all about Donald Trump and his possible run for the Presidency - and his plans to announce his intent to run on the season finale of The Apprentice.  When, a week ago, we wrote about the President declaring his candidacy, there was little interest in our post, and there seemed to be little news attention in general to that announcement.  But when Donald Trump started making noise about his possible Presidential run, and his plans to announce his intent on the season finale of The Apprentice in May, our phones started ringing, asking how can he do that?  My partner David Silverman was quoted in a Huffington Post article, while my analysis was misunderstood in a Hollywood Reporter legal blog (see why I was misunderstood below).  But the question remains - can Trump continue on The Apprentice while signaling his interest in running for President?

In fact, there is no FCC rule that prohibits a broadcaster from giving airtime to a political candidate on any kind of program, as long as they are willing to provide equal time to opposing candidates.  There may be other legal issues involved in giving time to a candidate as it may in effect be a deemed a campaign contribution to the candidate (an issue apparently for PACs as well, as explained by that legal scholar Steven Colbert, here), but the FCC's equal time rules don't prohibit the appearance of a candidate on an entertainment program, they only demand that the stations that broadcast the program give equal amounts of time to opposing candidates who ask for it - if the opponents ask for it within 7 days of the candidate's appearance.  And that is often the first issue - will the opposing candidate ask for it?  None of the Republicans asked when cable networks continued to run episodes of Law and Order featuring Fred Thompson, even after Thompson declared his candidacy for the Republican nomination.  Nor did other candidates request time after there was a parade of candidate appearances on Saturday Night Live during the last election (see our post on this pattern of candidates passing on their equal time rights).  But would a Trump declaration of a candidacy on The Apprentice even face that minimal risk?  Probably not.

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The FCC has granted a one week extension for reply comments in the proceeding looking to take many of the preliminary steps toward incentive auctions by which the FCC would reclaim parts of television spectrum for use by wireless broadband companies.  Comments are now due on April 25.  We wrote about the many issues in this proceeding, here.  Issues include the sharing of channels by independent television stations, whether stations that share spectrum are entitled to must carry rights under governing law, and how the FCC can change the digital television operational rules to make the use of VHF frequencies, where stations operating on those channels have experienced severe technical issues after the digital transition, more friendly for digital operations if the television spectrum needs to be repacked so that contiguous portions of the UHF band can be auctioned to wireless companies.

The extension was requested by a number of broadcast groups, partially based on the fact that the NAB Convention in Las Vegas has just concluded, and that there was much discussion at the Convention on the topic - including much discussion from FCC officials.  The broadcast community wanted the opportunity to respond to digest and respond to these discussions, thus the need for the brief extension.  This remains a very hot issue, with the FCC officials who attended the NAB Conference clearly pushing the agenda advanced in the Broadband Plan to reclaim some of the television spectrum for wireless uses.  Thus, these replay comments are very important, as they may set the stage for the incentive auctions and possible repacking of the television spectrum that may follow. 

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As broadcasters pursue their digital future, new legal issues arise to greet their entry into the on-line world and to add to the challenges posed by the new media. Over the last few years, we’ve have written extensively about music rights and their impact on webcasters, broadcasters, and other digital media companies. We’ve talked about patent law issues that have faced digital media companies. And we’ve discussed other content issues, like FTC online sponsorship disclosure requirements, that have arisen from time to time. But the one issue that now seems poised to dominate the legal conversation in coming months (or years) is that of privacy. This past week, we saw Pandora announce that it has received a subpoena from a Federal grand jury in connection with an investigation into the use of information collected from various mobile apps, and whether users of these apps were aware of the use of their private information. Other companies apparently received this same request.  This investigation is but the tip of the iceberg on privacy issues facing media companies operating in the digital world - challenges coming from the courts and from legislative and administrative initiatives in Washington.

Everyone knows that one of the great benefits of the Internet and the many services available on-line and through mobile apps, is the ability to personalize so as to provide a unique listening or viewing experience for every user. Instead of being limited to the linear programming that a broadcast service provides to all users at the same time, users can tailor their digital media experience to give them what they want and, as wireless broadband penetration increases through smart phones and other devices, almost whenever they want it. In some cases, the costs of providing an individualized service, because of bandwidth needs, royalties and license fees and for other reasons, the cost per each additional listener is often higher than that incurred by the traditional media. And online users thus far have been unwilling to tolerate the commercial advertising load that a traditional media experience might provide. To meet these higher marginal costs, and the lower spot loads, many digital media companies have looked to personalization of advertising to allow for higher advertising rates on the theory that advertising will be more efficient if you can guarantee that it will be targeted to reach its intended audience – geographical, demographic or based on expressed interests. As digital media companies have sought to refine the targeting available through their advertising, privacy issues have arisen.

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[Update - 4/9/2011.  Based on the announcement late last night, the Federal government will not be closing on Monday.  But the agreement that was reached yesterday still needs to be documented and voted on by the House and Senate.  But, barring an unforeseen breakdown in the deal, these shutdown instructions can be shelved - at least temporarily.  Congress will be voting on an authorization to extend the Federal debt limit in the next month or so, and will have to approve a fiscal year 2012 budget before the end of the current budget year on September 30.  Plenty of possibilities to have to dust off these instructions for use at a later date]

The FCC has just released its plans for an Orderly Shutdown in the event that there is no agreement for funding the government  passed by Congress by midnight tonight.  As set forth in that plan, FCC employees would arrive at work on Monday for purposes of securing their work premises.  Except for a few essential employees, all others would be furloughed, and thus have to turn around and go home.  They would not be able to perform any official functions.  The FCC's plan states that the work that could not be performed includes:

Consumer complaint and inquiry phone lines cannot be answered; consumer protection and local competition enforcement must cease; licensing services, including broadcast, wireless, and wireline, must cease; management of radio spectrum and the creation of new opportunities for competitive technologies and services for the American public must be suspended; and equipment authorizations, including those bringing new electronic devices to American consumers, cannot be provided.

Thus, it appears that, if the government shuts down, there will be no filings of pleadings or applications permitted.  Travel by government employees would also stop - which may have an impact on events such as next week's NAB Convention where several FCC employees are scheduled to appear.  The plan does make clear that the Chairman is exempt from any furlough, but whether he can travel or speak to the public, or do other nonessential duties, remains to be seen.  We will update this entry as more information becomes available - if indeed the government does shut down at midnight tonight. 

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With the President declaring his candidacy for reelection in 2012, broadcasters thoughts may be turning to that election and the expected flood of money that may come into the political process.  But visions of next year's elections should not be distracting broadcasters from their current political broadcasting obligations.  I've received many calls this year about whether broadcasters need to provide lowest unit rates to candidates in the races that are going on in 2011 - including many municipal elections and some special elections to fill various political posts.  As we have written before, if a station decides to sell time to a political candidate in a local race, that sale must be at the lowest unit charge for the class of time sold during the 45 days before a primary and the 60 days before the general election.  While state and local candidates need not be afforded the "reasonable access" that applies to Federal candidates, that merely means that stations do not need to sell these candidates any advertising time at all, or that stations may limit the purchase by state and local candidates to only the dayparts during which the station has more inventory.  But once the time is sold to one candidate in a race, most other political rules - including lowest unit charges, equal opportunities and the no censorship rule, all apply to the local candidate's spots.

With the President now filing to become a candidate, and many Republican candidates likely to be filing soon, what obligations are imposed on stations?  For the most part, there is no effect on the rates to be charged to candidates or their campaign committees - those rates only become effective 45 days before the primaries - so the lowest unit charges for Presidential campaigns likely will not kick in until very late this year, or early next, for the early Presidential primaries and caucuses in states like Iowa and New Hampshire. But, as candidates become legally qualified, there will be reasonable access and equal opportunities obligations that will arise.  Candidates for President can request reasonable access to all classes and dayparts - even outside the 45 and 60 day windows before a primary and general election, respectively.  In the case of a Presidential campaign, a candidate becomes legally qualified in all states once he has become legally qualified in 10 states. There may be few Democrats who are to likely to challenge the President, so equal opportunities will most likely be a major issue only on the Republican side.  And, as we've written before, the FCC has determined that most interview programs where the content is under station control - even those that have little news value on the normal day - are deemed "news interview programs" exempt from equal time rules.  Thus, equal time is normally only an issue in making sure that all candidates have equal opportunities to buy spot time, and in those rare circumstances where a candidate appears on a purely entertainment program (e.g. as a character on a scripted TV show) or where the candidate is themselves a host of a broadcast program - and usually stations ensure that the candidates are long gone from hosting programs once they formally declare that they are running for a political office

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The FCC has released the comment dates for its draft rules setting out when Environmental Assessments are needed to formally evaluate the environmental impact of the construction and major alteration of communications towers.  We wrote about these draft rules here, and described their history -  growing out of concerns by conservation groups about the effects of communications towers on migratory birds.  Comments on the Commission's Draft rules are due on May 5. 

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The FCC has granted an extension of time to submit comments in its proceeding to re-institute video description rules for television programming.  Comments are now due April 28th, and Reply Comments are due by May 27th.  A copy of the FCC's recent Order extending the deadline is available here.  As we wrote about earlier (here), this rule making proceeding seeks to reinstate the Commission's prior video description rules with certain modifications, as required by the Twenty-First Century Communications and Video Accessibility Act of 2010 (the CVAA). The proposed rules would require large market broadcast affiliates of the top four national networks and most cable operators and DBS providers to provide programming with audio narrated descriptions of a television program’s key visual elements beginning as soon as first quarter 2012.  Davis Wright Tremaine previously summarized the Act in our earlier advisory available here.

In addition, the FCC also just granted an extension of time to file comments in a related proceeding that seeks to implement other aspects of the CVAA.  That proceeding, addressing accessibility of equipment and Advanced Communications Services, was also initiated in early March and shares a similar timetable for promulgating rules as the video description proceeding.  Accordingly, the FCC did not grant the full 30-day extension sought by the parties, but rather has granted a two week extension of time for comments.  Comments are now due on April 25, and replies on May 23 in that proceeding.  Groups including the National Federation for the Blind and the Consumer Electronic Association requested a month-long extension in the comment date but, as Congress has required that these rules go into effect at the beginning of 2012, the Commission felt that it could only justify a two week extension and still be able to meet the statutory deadline.  So have those comments ready by April 25. 

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