Broadcast Law Blog

Last week, the FCC commenced its long anticipated proceeding to reexamine its sponsorship identification rules. This proceeding has been rumored for over six months, having appeared on an agenda for a Commission open meeting in December, only to be pulled from the agenda days before it was to have been voted on. The Commission has initiated this proceeding, to a great degree, at the urging of Commissioner Adelstein who has been vocal in his concerns that the broadcast and advertising industries, in adopting advertising techniques to respond to technological and marketplace changes, has been exposing the public to commercial messages without their knowledge.  One of the principal practices of concern to the Commission, though not the only one, is embedded advertising (as the Commission refers to product placement and product integration into the dialog and/or plot of a program). While many of the trade press reports have focused on embedded advertising, this proceeding is wide-ranging and important to the broadcast, cable and advertising industries. Comments on the proceeding will be due 60 days after its publication in the Federal Register, with replies 30 days later.   We have prepared an Advisory, summarizing the issues raised by the Commission in this proceeding, which can be found here.

According to trade press reports, this proceeding was initially planned as a Notice of Proposed Rulemaking (NPRM), which would have proposed rules which, after public comment, could have been immediately adopted. After significant lobbying from the advertising community, the Notice was released in two parts. First, there is a Notice of Inquiry (NOI), asking a series of questions about the current state of advertising on broadcast and cable outlets, and asking how the Commission should amend its rules to deal with new advertising techniques. Second, the Commission’s announcement contains an NPRM with respect to certain specific items, including proposing to clarify the type of sponsorship identification necessary in television advertising, the extension of the sponsorship identification rules beyond local origination cablecasting to cable network programming, and clarification of the rules with respect to live-read radio commercials. The specifics of the NOI and the NPRM are set forth in our Advisory. 

Posted By David Oxenford In Advertising Issues , Payola and Sponsorship Identification | Permalink | 0 Comments | Email entry

The FCC today adopted a Report on its Localism proceeding, accessing the evidence that it gathered in its three year long investigation of whether broadcasters were adequately serving the interests of their local communities.  We wrote long ago about some of the specific issues that the FCC was reviewing in this proceeding - everything from the public interest programming of broadcasters to their music selection process to their response to local emergencies.  Among the report's conclusions were findings that not all broadcasters were adequately assessing the needs of their communities or serving the public interest through coverage of local news and other local events.  Because of these perceived weaknesses in broadcaster performance, the FCC adopted a Notice of Proposed Rulemaking, much as we expected in our post here, tentatively concluding that re-regulation of the broadcast industry was necessary, bringing back some form of ascertainment and some specific quantifiable requirements for public interest programming. 

As in the case of the Multiple Ownership order adopted today (summarized here), the full text of the FCC Report and the Notice of Proposed Rulemaking has not been released.  Instead, only a short Public Notice, and the statements of the Commissioners at the meeting, are available to determine what was done.  From these notices, it appears that three tentative conclusions were reached.  They are, as follows:

• More Low Power TV stations should be able to get Class A status, meaning that they are no longer a secondary service that can be "bumped" by a new full power television station or by changes to the facilities of a full-power station
• Each licensee should be required to establish a community advisory board made up of specific groups of community leaders, with whom the station would meet on a regular basis to assess the needs of the community
• The FCC's license renewal standards should contain specific quantitative requirements for public service programming

While these may sound like noble decisions, there are many details and much history that the Commission needs to address before these proposals become final FCC rules.

Posted By David Oxenford In Payola and Sponsorship Identification , Programming Regulations , Public Interest Obligations/Localism | Permalink | 0 Comments | Email entry

The FCC has released its agenda for its December 18 meeting - and it promises to be one of the most important,and potentially most contentious, in recent memory.  On the agenda is the Commission's long awaited decision on the Chairman's broadcast multiple ownership plan relaxing broadcast-newspaper cross-ownership rules (see our summary here).  Also, the FCC will consider a Further Notice of Proposed Rulemaking on Localism issues (pending issues summarized here) following the conclusion of its nationwide hearings on the topic, as well as an Order and Further Notice of Proposed Rulemaking on initiatives to encourage broadcast ownership by minorities and other new entrants (summary here).  For cable companies, the Commission has scheduled a proposed order on national ownership limits.  And, in addition to all these issues on ownership matters, the FCC will also consider revising its sponsorship identification rules to determine if new rules need to be adopted to cover "embedded advertising", i.e. product placement in broadcast programs.  All told, these rules could result in fundamental changes in the media landscape.

The broadcast ownership items, dealing with broadcast-newspaper cross-ownership, localism and diversity initiatives, all grow out of the Commission's attempts to change the broadcast ownership rules in 2003.  That attempt was largely rejected by the Third Circuit Court of Appeals, which remanded most of the rules back to the FCC for further consideration, including considerations about their impact on minority ownership.  The localism proceeding was also an outgrowth of that proceeding, started as an attempt by the Commission to deal with consolidation critics who felt that the public had been shut out of the process of determining the rules in 2003, and claiming that big media was neglecting the needs and interests of local audiences.

Posted By David Oxenford In Advertising Issues , Multiple Ownership Rules , Payola and Sponsorship Identification , Public Interest Obligations/Localism | Permalink | 0 Comments | Email entry

The FCC has taken the unusual step of issuing a Notice of Apparent Liability, i.e. an announcement that it has fined a broadcaster, against two TV station owners for failing to provide a sponsorship identification for political material sponsored by another Federal agency--the Department of Education ("DOE").  The proposed fines for these two broadcasters totaled over $70,000.  In connection with the same broadcasts, the Commission also issued a citation against the producer of the programs for failing to include a disclosure of the sponsor of the programs, warning that company that it would be fined if it were to engage in such activity in the future, even though the entity was not an FCC licensee.  These actions demonstrate the concern of the Commission over programs that attempt to influence the public, particularly those dealing with controversial issues of public importance, where those who have paid to do the convincing are not evident to the public.

These cases all stem from programs associated with conservative political commentator Armstrong Williams, who was paid by DOE to promote the controversial No Child Left Behind Act ("NCLBA") supported by the current administration.  He did so on two television programs:  his own show, titled "The Right Side with Armstrong Williams" and on "America's Black Forum," where he appeared as a guest.  These shows were aired by various television stations without any sponsorship identification to indicate that Williams was paid by DOE to promote NCLBA on the air.

In one case, the television broadcaster received $100 per broadcast for airing Right Side, but failed to reveal that it had received any consideration.  The broadcaster claimed that the consideration received was "nominal," which is generally an exception to the sponsorship ID requirement.  However, the FCC noted that the exception for "nominal" consideration applies only to "service or property" and not to "money," holding that receipt of any money, even if only a small sum, triggers the requirement for sponsorship identification.

Posted By David Silverman In Advertising Issues , Payola and Sponsorship Identification , Political Broadcasting | Permalink | 0 Comments | Email entry

On Monday, the FCC issued a $4,000 fine to a cable operator for the use of a so-called Video News Release, or VNR, in a news segment focusing on consumer issues.   The facts in this case are very similar to the facts in dozens of other inquiries involving broadcast television stations that remain pending before the Commission, and this decision could very well signal the beginning of a number of forfeitures aimed at cracking down on the (until recently) common practice of using video material provided for free by third-parties without providing attribution or a sponsorship identification.  The decision was issued by the Enforcement Bureau and not the full Commission, and goes to lengths to explain that the sponsorship rules apply to cablecasting material aired by cable operators, and that the use of even a free video (i.e. with no consideration promised or paid to the cable operator or broadcaster) can require a sponsorship ID, even if no political or controversial issue is involved. 

In this case, a cable network aired potions of video from a VNR produced on behalf of a product called "Nelson's Rescue Sleep."  No consideration was given or promised to the cable operator, but the VNR was provided to the cable operator for free.  The sponsorship ID rules typically come into play when money, services, or other valuable consideration is given in exchange for airing the particular material.  Normally, the phrase "services or other valuable consideration" does not typically include services or property furnished without charge or at a nominal fee, such as the VNR.  In this case, however, the FCC concluded that the video was furnished in consideration for the product being identified to a degree greater than what was reasonably related to the use of the product or service in the broadcast. The VNR was included in a news segment about non-prescription sleep aids, but the segment did not contain any other sleep-aid products.  And (because it was a VNR for the product itself) the segment dwelled on and discussed at length the underlying product "Nelson's Rescue Sleep." Citing to a 44-year old FCC Public Notice that provided guidance to broadcasters in the early 1960s about the sponsorship ID rules, the FCC found that the use of the VNR in this situation obviated the exception for free material and that a sponsorship identification should have been included.   A copy of the FCC's decision is available here. 

The FCC's forfeiture order was adopted exactly one year to the day that the material was aired by the cable operator, and thus, seems to have been issued now so as to avoid the possibility that the statute of limitations prevent the Commission from issuing a fine.  Although this is the first such VNR fine against either a cable operator or television broadcaster, it seems likely that more such decisions will be forthcoming.  Indeed, Commissioner Adelstein, who has championed this novel interpretation of the sponsorship identification rules, was quick to issue a statement applauding the Enforcement Bureau for its decision.  Given that the decision seems to cross into the territory of a cable operator's or broadcaster's editorial and journalistic discretion protected by the First Amendment, one can imagine that the cable operator (and any broadcasters fined in the future) will attack vigorously the FCC's interpretation of its sponsorship ID rules with respect to VNRs.

UPDATE:  On Thursday (September 27, 2007), the Commission issued a further decision involving the same cable operator, fining the operator an additional $16,000 for four more VNR incidents similar to the one discussed above.  In each instance, the cable operator included video that was received for free in a program aired on the system without attribution or a sponsorship identification.  The Commission concluded that the free video clips contained extensive images, discussion, and mention of the particular product, which triggered the sponsorship ID rules.  A copy of that decision is available here. 

Posted By Brendan Holland In Payola and Sponsorship Identification , Programming Regulations , Television | Permalink | 0 Comments | Email entry

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.

Posted By David Oxenford In Intellectual Property , Internet Radio , On Line Media , Payola and Sponsorship Identification | Permalink | 0 Comments | Email entry

In April, the FCC agreed to Consent Decrees calling for fines totaling $12.5 million from four of the country's largest radio broadcasters in order to settle allegations that these companies had engaged in violations of the FCC's payola rules. Recently, another public radio company stated in one of its SEC filings that it had received an inquiry from the FCC about practices at its stations, and rumors have been heard in Washington that there have been letters of inquiry on the subject sent out to other broadcast companies.  With this atmosphere, we thought that an analysis of the terms of the Consent Decrees, which imposed very specific operating conditions on these broadcast companies, was in order.  Thus, we have just published a detailed analysis, A $12.5 Million Teaching Tool - The Payola Consent Decrees, here.  This memo details provisions of those Consent Decrees which impose conditions on these companies requiring, among other things: limits on gifts that their employees can take from representatives of record companies, reporting requirements about their dealings with music companies, and requirements for the education of these companies employees about the requirements of the payola rules.  As set out in the memo, these Consent Decrees can serve as a set of best practices for all broadcasters in complying with the payola rules.

With the FCC restarting its Localism proceeding, about which we wrote yesterday, which asked for public comment on payola practices of broadcasters, the FCC's focus on payola has not abated with the $12.5 million fines imposed by the Consent Decrees.  So broadcasters should be assessing their policies to make sure that, if they get an inquiry letter from the FCC, they are able to provide responses that would lead to trouble.  We hope that this memo helps with that assessment.

Posted By David Oxenford In Payola and Sponsorship Identification | Permalink | 0 Comments | Email entry

The FCC today issued the long-awaited text of its decision on Digital Audio radio - the so-called IBOC system.  As we have written, while adopted at its March meeting, the text of the decision has been missing in action.  With the release of the decision, which is available here, the effective date of the new rules can be set in the near future - 30 days after its publication in the Federal Register.  With the Order, the Commission also released its Second Further Notice of Proposed Rulemaking, addressing a host of new issues - some not confined to digital radio, but instead affecting the obligations of all radio operations.

The text provides the details for many of the actions that were announced at the March meeting, including authorizing the operation of AM stations in a digital mode at night, and the elimination of the requirements that stations ask permission for experimental operations before commencing multicast operations.  The Order also permits the use of dual antennas - one to be used solely for digital use - upon notification to the FCC.  In addition, the order addresses several other matters not discussed at the meeting, as set forth below. 

Posted By David Oxenford In AM Radio , Digital Radio , Emergency Communications , FM Radio , Multiple Ownership Rules , Noncommercial Broadcasting , Payola and Sponsorship Identification , Political Broadcasting , Programming Regulations , Public Interest Obligations/Localism | Permalink | 2 Comments | Email entry

The FCC today issued a Public Notice announcing that it has approved four consent decrees settling its investigation into possible payola violations by several large radio broadcasters.  A copy of the public notice summarizing the action is available here, and copies of the full consent decrees can be found on www.fcc.gov.   

CBS Radio, Citadel Broadcasting Corporation, Clear Channel Communications, Inc. and Entercom Communications Corp. each entered into a consent decree with the Commission to end the FCC's investigation into possible violations of the payola rules for failing to provide the required sponsorship identification related to material broadcast on the stations.  In addition to making a combined contribution of $12.5 million to the U.S. Treasury, the broadcasters agreed to implement certain business reforms and compliance measures, such as:

• Prohibiting stations and employees from exchanging airtime for cash or items of value except under certain circumstances;
• Placing limits on gifts, concert tickets, and other valuable items from record labels to company stations or employees;
• Appointing compliance officers who will be responsible for monitoring and reporting company performance under the consent decrees; and
• Providing regular training to programming personnel on payola restrictions.

The consent decrees contain a fair amount of detail regarding the documentation and monitoring that will be required by these stations under these agreements, as well as new details regarding the interaction between radio stations and record promoters.  We are preparing a full summary of the consent decrees, along with an analysis of the impact these orders may have on broadcast radio, so check back early next week. 

Posted By David Oxenford In Payola and Sponsorship Identification | Permalink | 2 Comments | Email entry

In the agenda for next week's FCC meeting, one of the items to be discussed is the proposed acquisition by Citadel Communications of the radio stations currently owned by ABC Radio, a subsidiary of the Disney Company.  As Citadel is one of the broadcasters against which payola issues have reportedly been raised, certain parties objected to this transaction based on these and other issues.  As we have reported, there have been rumors of a large payola settlement between the FCC and broadcast companies including Citadel involving millions of dollars in fines.  As the agenda item for next week's meeting indicates that the Commission will consider not only the proposed acquisition of the stations, but also a Notice of Apparent Liability, will this be the first case to actually impose the rumored fines for payola?  Watch the FCC meeting next week to see if payola issues are in fact resolved.  We'll also see if the FCC provides any guidance on payola issues, and what kinds of conduct it sees as being prohibited by the payola rules.

Posted By David Oxenford In FCC Fines , Payola and Sponsorship Identification | Permalink | 0 Comments | Email entry

For weeks, there have been rumors that the FCC would soon settle allegations of payola against four of the nation's largest radio operators.  According to an article in the New York Times, a settlement has in fact been reached - resulting in a $12.5 million fine.  Coming on the heels of the rumored $24 million settlement with Univision for violations of the children's television rules, this may evidence a new "get tough" policy with rule violators by the FCC.

According to the Times article, the payola settlement agreement was reached at the same time as an agreement between these companies and the Association of Independent Music agreeing to devote substantial broadcast time to independent music.  The consent decree with the FCC also reportedly places a number of conditions on the broadcasters similar to those agreed to in consent decrees with then NY State Attorney General Eliot Spitzer.   We suggested a number of ways for broadcasters to avoid problems with the FCC rules dealing with payola issues in an advisory, here.  While payola has always been a serious issue - in fact one that could result in criminal time - the reported fines should make this a top-of-mind issue for all broadcasters.

Posted By David Oxenford In Payola and Sponsorship Identification | Permalink | 0 Comments | Email entry

About this time every year, predictions are offered as to what will happen in the coming year.  Since everyone else does it, we've offered our own predictions as to what Washington has in store for the broadcast industry in 2007.  Find a copy of our predictions in the memo on our firm website, here.  The advisory offers our thoughts on many of the regulatory issues affecting broadcasters that may well come out of Washington this year.  Our observations are offered on the status of considerations including multiple ownership, the digital television transition, payola, indecency, Internet radio and even the political broadcasting rules. 

Let us know if you think our crystal ball is a little cloudy.

Posted By David Oxenford In Advertising Issues , Digital Television , General FCC , Internet Radio , Multiple Ownership Rules , Payola and Sponsorship Identification | Permalink | 0 Comments | Email entry

According to reports, the Commissioners are considering a proposal, circulated by the Enforcement Bureau, to settle the FCC’s ongoing payola investigation, which was prompted in part by Eliot Spitzer’s well-publicized settlements with various radio and record companies in New York State. The hollywoodreporteresq.com posted a story that cites industry and government sources as saying the FCC is close to resolving the investigation into alleged payola infractions by radio broadcasters and record labels. 

The article seems to confirm recent reports that the FCC has agreed to allow assignment applications to proceed even where they involved stations against which payola allegations were pending, as long as the seller agreed to remain liable for any FCC misconduct that was later found, even though the seller would no longer own the station.  Allowing sales to occur despite pending allegations of misconduct, through these so-called "tolling agreements," indicate that the Commission has determined that the misconduct (at least in the cases in which they were allowed) won't result in a license revocation (though a fine is still quite possible).

The Commission’s investigation has been underway for some time, after being prompted by Mr. Spitzer’s investigations. At the time the FCC’s investigation commenced in 2005, Commissioner Adelstein predicted that the practices unearthed “may represent the most widespread and flagrant violation of any FCC rules in the history of American broadcasting.” Early in 2006, letters of inquiry were issued to Clear Channel Communications Inc., CBS Radio Inc., Entercom Communications Corp. and Citadel Broadcasting, and the proposed settlement presumably would include some or all of these broadcasters. The story reports that the settlement calls for a commitment by the parties to better educate people in the industry about proper conduct and avoiding payola, as well as their commitment to dedicate some specific amount of airtime to independently produced music. In exchange, the broadcasters would avoid an admission of wrongdoing. 

Posted By Brendan Holland In Payola and Sponsorship Identification | Permalink | 0 Comments | Email entry

Today, press reports stated that the FCC has sent letters of inquiry to 77 television stations inquiring about their use of Video News Releases (VNRs) without properly notifying their audience about the source of such releases.  VNRs are essentially pre-produced segments provided to television stations for inclusion in their programming.  The Washington Post carried a story, here, describing some of the stories which triggered the FCC investigation.  These reportedly included a report from an electronics show used by several TV stations in their news reports.  The producer of the report had been paid by the electronics manufacturers featured in the story for including their products in the story.

The FCC released a Public Notice in April, 2005 detailing its policies on VNRs.  The Public Notice makes clear that a station must disclose who paid for material broadcast on a station, whether or not the station received the consideration.  Clearly, if an advertiser paid a station for airing a news report, the station would be required to disclose the payment.  But the Public Notice makes clear that the station also owes its audience a disclosure even if it received no consideration, if the party that produced the material broadcast on the station received some consideration, and the station could discover that consideration by asking the producer if he or she was paid or through other means of reasonable investigation. 

Posted By David Oxenford In Payola and Sponsorship Identification | Permalink | 0 Comments | Email entry