The decision here shows how seriously the FCC takes the issue of being able to identify who is trying to influence listeners by providing some form of valuable consideration to a broadcast station in exchange for the broadcast of a message.  This issue is the subject of an FCC rulemaking proceeding, has previously led to fines for other stations (though rarely ones of this magnitude, even where the FCC has found whole programs or portions of programs to have been sponsored - see, for example, the cases we've written about here and here dealing with "video news releases"), and has become part of the proposals for the new on-line public file, suggesting that sponsorship identification information be made available for any "pay-for-play" programming in such a file.  The issue has even become important in the online world, with the FTC issuing rules that require similar sponsorship identification even in connection with social media posts for which the author has received consideration (see our summary of the FTC order here).

So what is the lesson of this case?  First, the case says that the FCC is very concerned about sponsorship identification.  Moreover, it says that the stations need to be especially careful in any sort of paid programming dealing with controversial issues.  Many of the FCC's recent sponsorship fines have been in the areas of issue programming, and in those cases the fines tend to be higher than in commercial cases (compare the cases we wrote about here involving programming dealing with political issues where the host had received consideration for expressing his on-air opinions on controversial issues, with those in the cases linked to above and here, involving commercial programs where the fines were much lower).  So if you are airing programming - especially programming dealing with political or controversial issues - and receiving anything of value for that programming, make sure that the audience knows who is paying for that message to reach the airwaves. 

In reaching it's decision, the order first discusses some proposals that it was rejecting - some for the time being.  For radio broadcasters, the most important of the rejected thoughts was the extension of this rule to radio.  The Commission noted that there were proposals pending and ripe for action as part of the Localism proceeding (which we summarized here), to extend the online public file obligations to radio.  In this week's order, the FCC decided that it was not yet ready to apply these rules to radio.  The Commission noted that there might need to be differences in the rules for radio (implying that, at least partially, there might be resource issues making it difficult for radio broadcasters to comply with these rules), and also finding that it would be better to see how an online file works for TV before extending the rule to radio.  But, from the statements made in the Order, there is no question but that, at some point in the future, some form of the obligations that are proposed for TV will also be proposed for radio broadcasters. 

Also, it is important to note that the FCC's Localism proceeding is not dead yet.  While this week's Order stems from the FCC's Future of Media Report (renamed the Report on the Information Needs of Communities), and that report recommended that the Localism proceeding be terminated, this Order did not do that.  The Commission notes its plans to start a new proceeding designed to force broadcasters to complete a more comprehensive report on their public interest programming.  That proceeding may be where the looming Localism proposals are finally dealt with.  Statements at the meeting and passages in the Order make clear that the examination of the public interest obligations for broadcasters will begin with a Notice of Inquiry, which is a most preliminary stage of an FCC proceeding (which would be followed by a Notice of Proposed Rulemaking after the inquiry comments are reviewed) and then an Order.  So final resolution of these issues seem to be far down the road.  If that is the case, will the Localism proposals stay on the table until the Order in this new proceeding is adopted?  It is certainly unclear from the Commission's statements thus far.

Another suggestion that the Commission considered and rejected was one that asked whether any new proposal should be phased in - with only new information placed online, and old information retained in paper form.  The FCC tentatively rejects that approach, finding that it would be too burdensome for the public to be forced to look in two places for information about station operations.  The Commission also suggests that the burden to move those portions of the public file not already online to an electronic form should not be too great.

Other specifics of the FCC's proposal include the following:

• While the FCC proposes to store the online file on its servers, and to use its site and bandwidth to make the information available to the public, the Commission also proposes that broadcasters keep an electronic back-up file in case there should be issues with the FCC's servers or other systems.
• The political file is proposed to be moved online. The Commission asks about the burden that would impose, as materials are supposed to be placed in the file "immediately" in most circumstances.  The Commission suggests that this should not be a burden as most political orders are taken electronically.  But it does not explain the connection with that fact and the ease of an electronic file.  In most cases, there is more to maintaining a file then simply placing an order into that file, and there is no indication that orders are in the same electronic format as will be the FCC's online file.  The FCC asks if it should provide forms that would make that process easier (though one wonders whether the FCC could come up with forms that are equally usable by all stations that each may have unique selling practices).  The Commission itself acknowledges that there is more to the issue, as it asks how an online political file can be organized so as to make it useful.  Should it be broken down by election, or in some other way?
• While, for privacy reasons, the FCC suggests that letters and emails from the public not be displayed on the online file, it asks a number of other questions about letters from the public:
  • Should all such correspondence continue to be maintained in a physical file, open for inspection, at the station?
  • Should broadcasters be required to report online about the number of letters received from the public, or to summarize their contents in the online file?
  • Are there other ways of making such documents available?
  • Should Facebook posts and other social media communications be made available to the public in some organized fashion as part of the public file obligation?
• Are contour maps generated by the FCC's own website sufficient for the online public file?
• The Public and Broadcasting Handbook is proposed to be eliminated from the public file obligation, as that handbook would simply be available on the FCC's website where all the files are stored
• The FCC proposes to maintain the obligation for TV stations to complete quarterly programs issues lists until any new form, more completely disclosing information about a broadcaster's public interest programming, is adopted.
• The FCC asks if, in the online file, it should post all orders dealing with sanctions imposed on a station for any rule violations, including forfeiture orders (i.e. fines), notices of violation, notices of apparent liability and other citations for violations.  Even though some of these documents are only preliminary findings of violations, which can be rebutted by a licensee, the FCC tentatively concludes that these documents would be important to the public to assess the performance of a broadcaster.
• The FCC proposes some new obligations for the public file, including:
  • An obligation to list the address and telephone number of the main studio and, for those stations operating pursuant to a studio waiver, a toll free phone number and the location of the local public file (one wonders, though, if the file is electronic, will there be any such location for the local file?)
  • An obligation to disclose in the online public file all information about "pay for play" sponsorship identifications.  The FCC notes that all that information is now required to be broadcast, but there is no way for the public to review that information after the program with which it is associated is aired.  The FCC notes that such information should already be in the file for sponsored political and controversial issue oriented program, but suggests that the public and "watchdog groups" should have a permanent, searchable database in which all such sponsorships are revealed.  The Commission notes that such on-air disclosures are, but their nature "fleeting", and that the public should be able to know who is trying to persuade them to buy something.  The FCC does not discuss how such disclosures would be made with respect to network or syndicated programming (e.g. if a network game show concludes with the tag "promotional considerations furnished by Hilton Hotels", how is the station supposed to find that information for inclusion in its file?  What if the promotional consideration was received by the producers of a movie aired by the station?  These questions were asked in the FCC's open proceeding on sponsorship identification and embedded advertising, but these difficult issues are ignored here).
  • Information about shared services agreements, including agreements where stations provide administrative support or news programming to another station, are proposed for posting on the new online file.  These agreements seem to be a particular target of public interest groups, and were characterized by Commissioner Copps as an "end run around our media ownership rules" (see our prior coverage, here). 
• Practical questions about the format in which such documents should be stored are asked.  The FCC is looking for a searchable format that will allow documents to be uploaded to the FCC site in the least burdensome manner possible.
• The FCC asks what notice of the existence of the online file should be required.  The Commission had, in 2007, suggested a twice a day announcement on the air about the file's electronic location, but now asks if a few announcements per week would be sufficient.  Should specific dayparts be mandated, the Order asks.
• The FCC also proposes that the URL of the Public File be on the homepage of the station's website, where is can be easily found by members of the public.
• The FCC proposes to eliminate the obligation on broadcasters to make the electronic file accessible to those with disabilities, as the FCC suggests that the database in which the files will be stored will be designed to be accessible, so that the burden would be on the FCC, not the individual broadcasters.

Obviously, there are many concerns for broadcasters, who already chafe at the burdens of maintaining a public file which is rarely if ever visited by the public.  New obligations to take that information, and perhaps compile more, and put it online, adds a new layer of worry to many TV broadcasters, especially smaller ones.  The FCC seems cognizant of that possibility, and asks for a full Cost/Benefit Analysis of the proposed rule.  The FCC wants broadcasters to determine the costs of complying with the various proposed obligations, and those in the public interest community to determine what the value of the benefits would be.  The FCC recognizes that the value of the benefits might be difficult to assess, so the Commission asks how the benefits to the public can be maximized while the burdens on the broadcaster are minimized.

There will no doubt be much more debate on these topics in the weeks to come.  But the FCC seems to be in a rush to get this proceeding done, as many public interest groups and Commissioner Copps have complained about the lack of action on the 2007 rules and the localism proposals.  So start preparing your comments now for filing once the FCC announces the dates for submission of comments.  We will certainly have more coverage of this important issue for broadcasters on these pages in coming weeks and months. 

In this most recent "payola" case, a complaint was lodged against a Texas radio station owned by Emmis Broadcasting alleging that the host of one music program was receiving compensation from a local music club, a local record store, and a manager of local bands in exchange for featuring music on the show.  The allegation contended that other local bands could not get their music played on this show without sponsoring Station events hosted by this particular personality.  The Consent Decree does not resolve the question of whether these allegations were true, but instead requires that the licensee make the voluntary contribution, adopt procedures to make sure that Station employees are aware of the requirements of the sponsorship identification rules, and report  to the Commission on a regular basis on the actions taken by the licensee to ensure compliance with the FCC rules.  In addition to general requirements that the Station educate its employees about the sponsorship identification rules, the Consent Decree also contained conditions setting forth rules governing the relationship that station employees could have with record labels, even though the decree makes no mention of any allegations of improper consideration having come from record companies.  These conditions were ones that appear to have come from consent decrees entered into with a number of broadcasters 4 years ago in the last major FCC payola investigation (which we wrote about here).

So watch your employees to make sure that, if they get something for free in exchange for any on-air mention, they need to disclose that the free stuff that they got.  If your on-air DJ got free donuts from the bakery next to the station in exchange for saying on-the-air how good they were, mention that they got the donuts for free.  If a TV station got a doctor from a local hospital to be an on-air commentator on health issues as part of a deal for the hospital to buy ad time, mention that the health segment of the news was sponsored.  Even if you get free tickets to a concert with the understanding that you'll give them away on-air and promote the show - mention that the promoter gave you the tickets when you give them away.  Disclose the free stuff - and avoid the need to negotiate a consent decree like that done in the recent case. 

The FCC has issued a Forfeiture Order, confirming a $4000 fine levied against a Minneapolis TV station for airing a video news release ("VNR") without sponsorship identification.  This case was previously discussed in our March 25th blog entry, when the Commission issued a Notice of Apparent Liability ("NAL") against the station for this violation.  The primary lesson to be learned from this decision is that video supplied for free may require sponsorship ID if furnished for the purpose of identifying a product or furthering a sponsor's message beyond any independent (i.e., newsworthy) reason a station has for airing it.

In arguing against the NAL, the station put forth several arguments, all of which were rejected by the FCC.  The station argued that its use of a video supplied by General Motors for a story about the popularity of convertibles in the summer was equivalent to use of a company press release, which the FCC has found acceptable in the past.  But the FCC said that use of a press release without sponsorship ID is permitted only if references to products or brand names are "transient or fleeting."  Here, by contrast, the FCC found the identification of GM cars to be "disproportionate to the subject matter of the news report."

The Commission reaffirmed its earlier finding that this forfeiture does not violate the station's First Amendment rights or the anti-censorship provisions of the Communications Act.  Rather, the Commission noted that the sponsorship identification rules are merely disclosure requirements that do not restrict speech in any way.

This decision reinforces the need for TV stations to be aware of commercially supplied videos, whether or not they are supplied with or in exchange for money or any other consideration.  If a station's use of such video contains anything more than "transient or fleeting" images of commercial products, sponsorship identification may well be required.  In this case, the station could have complied merely by providing a visual credit stating "Video provided by General Motors."  RTNDA guidelines on the use of VNRs can be found here. 

This issue has already been a big deal on the video side of the media house, with both broadcasters and cable companies having been fined for including material in their programs without disclosing that they had received consideration for the inclusion of the material.  Recently, we wrote about two TV stations who were fined by the FCC for broadcasting "video news releases", where the stations broadcast content from third parties which was deemed to have a promotional message included for the third party's product, where the station did not specifically disclose that the video material had been provided at no charge to the station.  The provision of the tape alone was deemed to be consideration.  Almost four years ago, we wrote about another station that was hit with a fine when a syndicated TV talk show host was revealed to have been receiving government money to promote a government program (No Child Left Behind), was promoting that government program during his show, and not mentioning that he had received this consideration.  The station was fined - even though they did not produce the program, as they had not inquired about whether any sort of consideration had been received by the host.  The Communications Act puts the burden on stations to reveal sponsors when consideration has been paid for the airing of any programming, and the FCC has said that this burden requires that the station take efforts to make sure that all programming - even that coming from syndicators - complies with the rules.   

So how is a station to know if a syndicator has made all necessary sponsorship identifications?  I think that the FCC expects that stations ask, and get contractual assurances that there are no such issues. Radio broadcasters have long had on-air employees sign payola and pluggola affidavits, which really are looking at the same issue - did someone pay for something played on the air.  Seemingly, the FCC is looking to a station to take that same position with third parties who provide it programming.   And, where political speech is involved, consideration is viewed even more strictly than where the product being promoted is simply a commercial good.

Watch as this issue develops, and take care when airing any program element where the station has received anything of value in exchange for the airing of that programming.

While we have not yet closely read the entire 475 page report, which was tiled The Information Needs of Communities: The Changing Media Landscape in a Broadband Age, we can provide some information about some of the FCC's recommendations, and some observations about the recommendations, the process, and the reactions that it received.  One of the most important things to remember is that this was simply a study.   As Commissioner McDowell observed at the FCC meeting, it is not an FCC action, and it is not even a formal proposal for FCC action.  Instead, the report is simply a set of recommendations that this particular group of FCC employees and consultants came up with.  Before any real regulatory requirements can come out of this, in most cases, the FCC must first adopt a Notice of Proposed Rulemaking, or a series of such notices, and ask for public comment on these proposals.  That may take some time, if there is action on these suggestions at all.   There are some proposals, however, such as the suggestion that certain LPFM rules be adopted in the FCC's review of the Local Community Radio Act so as to find availability for LPFM stations in urban areas, that could be handled as part of some proceedings that are already underway.

The conclusions about LPFM seem similarly to be drawn from inherent perceptions, not from statistical analysis.  The study, in its initial analysis of the state of LPFM, states that any detailed information on the performance of LPFM stations generally is difficult to come by.  At best, they cite a few anecdotal reports of how such stations are serving their communities.  Yet, the report reaches the conclusion that the Commission, in implementing the Local Community Radio Act, should interpret that act to ensure that LPFM stations have access to urban audiences, without any assessment of conflicting positions that others may have on that issue.

But, if perceptions color the results, broadcasters can actually feel somewhat comforted in that some of their message is being heard at the FCC.  The report does find that the public trustee model of regulating broadcasters is "broken."  That model of course mandates that the broadcaster, in exchange for its use of the public spectrum, must broadcast programming that serves the public interest.  The report looks at the last 30 years of broadcast regulation, and finds that no broadcast station has lost its license for not serving the public interest.  It also questions the use of quarterly program issues lists as providing the basis of reviewing the service provided by broadcasters, as these lists are not filed with the FCC, are not uniformly kept, and are not regularly reviewed by anyone but the broadcaster.  

However, even though the report finds the public trustee model to be broken, it does not suggest a raft of new detailed regulations for broadcasters to follow (although Commissioner Copps, in his statement on the report, seems to suggest that the study should have suggested that kind of regulatory scheme).  Instead, the report seems to suggest that, if the public has more information about the performance of broadcasters, it should be able to better judge the performance of those broadcasters.  Thus, the report suggests the on-line public file.  It acknowledges that the Enhanced Disclosure forms that were adopted three years ago for TV stations, but never implemented, were excessive in their requests for information.  The report suggests that, instead, broadcasters provide a simpler, more streamlined on-line report as to their public interest programming (of course, no form is supplied, so how simple such a form would be is impossible to ascertain).  Moreover, the report suggests that the Localism proceeding, which many broadcasters had feared because of its very specific prescriptions as to how every station should operate, be terminated by the FCC - stating that many of the proposals in that proceeding were unduly burdensome. 

The report also suggests that more sponsorship information be provided by broadcasters as to the source of material contained in their news reports.  The concept of the video news release (which we have written about here) seemed to weigh on the report's writers.  They suggest that disclosure of where content in news programs originated be made not only on the air, but also online.

The Fairness Doctrine also was addressed by the report.  The authors find that the Doctrine inhibited the production of news, and was therefore properly found unconstitutional by the FCC in the late 1980s.  The report suggests that the FCC rule setting out the Doctrine be specifically repealed.  At the public meeting, Mr. Waldman suggested that this would mean that all shards of the Doctrine would be removed - perhaps at long last ending the specter of the Zapple Doctrine that we have written about from time to time during political seasons.

In discussing noncommercial programming, the report suggests, in response to a proposal from the National Religious Broadcasters Association, that the prohibition in FCC policies against noncommercial stations fundraising for other local nonprofit organizations be repealed or modified.  Waldman suggested that it made no sense that a noncommercial religious station could not do a fundraiser for some local soup kitchen, when the FCC has regularly waived that rule for fundraisers for distant disasters (see our posts on Haiti and Japan relief, where we raise that question).

There are many other nuggets buried in this report that we will no doubt discover as we read it in depth. While the report was simply a study, it was a study done with the cooperation of much of the FCC staff.  So ideas and opinions expressed in the study may give broadcasters a good barometer of the attitudes of some at the Commission.  So we will slog through the remainder of the report to see what we can find.  Watch for more articles on the findings and implications of the report in coming days. 

Both cases rely on an FCC Public Notice, first issued in 1963 and updated in 1975 (which I have been unable to locate on the FCC's website), which sets out examples of how to comply with the sponsorship identification rules. These two old Public Notices were cited, but not reproduced, in a 2005 Public Notice, warning broadcasters to be careful with their use of VNRs.  The specific example cited by the FCC was one set out in these notices dealing with a film on scenic roadtrips provided by a bus company.  In the examples provided, the FCC stated that if the video did not show the bus company's name, or the bus company's name was shown only "fleetingly" in pictured of the highway in a manner reasonably related to the program, there would be no sponsorship identification requirement.  In cases where the bus company's name was clearly shown, "disproportionate to the subject matter of the film", then sponsorship identification would be required "as the broadcaster has impliedly agreed to broadcast an identification beyond that reasonably related to the subject matter of the film."  Based on these examples, the FCC levied the fines in the cases just released.  An examination of the facts of these cases is important to understand these fines and how far the FCC ruling in these cases extends.

The second case was, to me, a much closer call.  In a health program sponsored by a local hospital, a New Jersey TV station aired a report on how to fight a cold.  The report talked about how taking products with zinc at the outset of a cold could reduce the length and severity of the cold.  The report mentioned the "Zicam Travel Well Survey by Harris Interactive", and had a clip of one doctor saying that "an internasal preparation, like Zicam" could reduce the severity of a cold.  These were the only verbal mentions of Zicam, though the FCC states that there were 4 different visual shots of the Zicam product. As Zicam was the only product mentioned, and the referenced to Zicam were clearly identifiable, the FCC found that this VNR also violated the standards set out above.

These cases force broadcasters to be very aggressive in reviewing any film, video, or presumably audio programming that comes to them from any source, to see if it clearly identifies a product, and appears to push the product of a single company.  it would appear that this case will require that the station make inquiries to see if such productions do in fact originate from a company trying to push its products and, if so, the station must make an on-air acknowledgment of that fact when the program segment is aired.  It would seem that many broadcasters already acknowledge when they use film or video from received from some other source, but these new fines make clear that this practice must be integrated into every station's policies now.

The NAB, in announcing the availability of these spots, suggested this same precaution.  We've written before about issue ads, and the need to place notations in the public file about these ads. For instance, when stations ran ads on the broadcast performance royalty, we suggested that same treatment (and proponents of the royalty complained that broadcasters might not be making such notations).  What needs to go in the public file?  As the issues are Federal ones (as opposed to state and local issues that have lesser disclosure obligations), the requirements are similar to those that apply to political candidates. 

• If the request to purchase time is accepted or rejected
• If the ads are accepted, the dates on which the ad is run
• The rates charged by the station (or in the case of the NAB spots, that there was no charge but the ads themselves were furnished at no charge)
• Class of time purchased
• The issue to which the ad refers
• The name of the purchaser of the advertising time including:
  • The name, address and phone number of a contact person
  • A list of the chief executive officers or members of the executive committee or board of directors of the sponsoring organization.

Remember - issue ads don't implicate equal time or lowest unit rates - so taking these ads from the NAB should not be an issue for the station in terms of triggering any obligations for spots taking a contrary view.  But note the broadcast of these issue ads in your public file just to avoid any issues about whether "issue ad" obligations were met.

The Consent Decree is virtually identical to the $12.5 million in settlements reached three years ago with four of the country's largest radio broadcast companies.  At that time, we published an advisory that explored each of the provisions of the Consent Decree and the obligations that it imposed on the broadcasters that were involved - and suggested that all stations use it as a Guide to their operations to insure that they, too, don't find themselves facing a similar situation in the future.  As payola seems to run in cycles, check out our Guide and make sure that you are taking steps to insure compliance with the FCC rules and policies on payola.

The principal reason is the public file. Commission rules require that the sponsor of an issue ad be identified in a broadcaster's public file, along with the sponsor's principal officers or directors.  This is required for any ad dealing with a controversial issue of public importance.  The ad does not need to deal with a political issue, or one to be considered by a government body.  Any controversial issue of public importance merits the public file treatment.  For ads dealing with a "federal issue", one to be considered by the US Congress, any Federal administrative agency or any other branch of the United States government, additional disclosures need to be made in the file (which we have listed before), setting out all the information that you would need to provide with respect to a candidate ad - including the price paid for the ad and the schedule on which the ad will run. 

So, in considering whether a spot is an issue ad, why go through the trouble of worrying too much about it.  If it deals with something that looks controversial, err on the side of caution.  Consider it an issue ad, place notice in your public file, and go on with your business!

Television Issues.

In the television world, at this time last year, we were discussing the end of the digital television transition, and expressing the concern of broadcasters about the FCC’s White Spaces decision allowing unlicensed wireless devices into the television spectrum. While the White Spaces process still has not been finalized, that concern over the encroachment on the TV spectrum has taken a back seat to a far more fundamental issue of whether to repurpose large chunks of the television spectrum (if not the entire spectrum) for wireless users, while compressing television into an even smaller part of what’s left of the television band – if not migrating it altogether to multichannel providers like cable or satellite, with subscription fees for the poorest citizens being paid for from spectrum auction receipts. This proposal, while floated for years in academic circles, has in the last three months become one that is being legitimately debated in Washington, and one that television broadcasters have to take seriously, no matter how absurd it may seem at first glance. Who would have thought that just six month after the completion of the digital transition, when so much time and effort was expended to make sure that homes that receive free over-the-air television would not be adversely impacted by the digital transition, we could now be talking about abolishing free over-the-air television entirely? This cannot happen overnight, and it is a process sure to be resisted as broadcasters seek to protect their ability to roll out new digital multicast channels and their mobile platforms. But it is a real proposal which, if implemented, could fundamentally change the face of the television industry.  Watch for this debate to continue this year.

The FCC will also have to complete the digital transition of TV translators and LPTV stations, which were not bound by the June 2009 DTV conversion deadline. The FCC will need to set a digital conversion deadline – a conversion that many translator and low power licensees are not looking forward to paying for, but which may be necessary to preserve their over-the-air viewership as the analog tuner becomes an historical relic. This transition may also bring to the fore questions about the use of LPTV stations on Channel 6 for quasi-radio stations broadcasting audio that can be received on 87.7 or 87.9 on most radio receivers as analog television audio signals are just below the bottom of the FM dial. This use of channel 6 stations for Fm broadcasting would disappear if LPTV stations go digital, and thus there may be resistance to the transition from that element of the LPTV community.

Another carryover issue from 2009 is the status of the SHVERA extension, authorizing DirecTV and DISH Networks to rebroadcast local broadcast television signals to satellite TV subscribers in their markets. That authorization expired at the end of 2009, and has been extended by Congress, but only until March. While everyone seems to agree that a further extension is appropriate, many parties are trying to load up the bill with all sorts of goodies from the wish lists of various industries – everything from a mandatory extension of local-into-local service into every television market (as urged by TV interests), to changes in must-carry and retransmission consent schemes and rules on the importation of distant network affiliates (sought by various multichannel video providers), to issues about allowing the carriage of in-state TV stations in markets with counties that currently receive their television service from stations in adjoining states. These and other issues will need to be resolved before a more permanent extension can be granted.

Radio Issues

The most fundamental issue for radio broadcasters is the potential for the broadcast performance royalty – which would require that radio stations pay not only the composers for the use of music on the radio (which they currently do through ASCAP, BMI and SESAC payments), but also to pay performers (and the record companies, as the copyright holders in these performances) for the use of their recordings on the air. Radio has never paid such royalties, though digital cousins of radio – satellite radio, Internet radio and cable radio – have paid these royalties for the last decade. While broadcaster representatives have thus far been able to beat back attempts impose this performance royalty for the use of sound recordings, both the House and Senate Judiciary Committees passed forms of this legislation in 2009, and proponents of the royalty will be pushing for a vote on these bills this year. With the potential for a crippling new cost to be imposed on radio if these royalties are adopted and imposed on top of the royalties already paid to ASCAP, BMI and SESAC (which are themselves in negotiation for new royalty rates as old rate agreements expired at the end of 2009), music radio could be dealt a severe blow if the proposal was to be adopted in this time of decreasing revenue. While the new NAB President has seemingly taken a somewhat more conciliatory tone in dealing with this issue (no more claims that the royalty will only be discussed at knifepoint), it is difficult to see where the revenue to pay such royalties would come from. But it will be an issue that will be fought hard this coming year.

The digital transition in radio will also need to be addressed. While many stations are already operating with digital over-the air streams of programming, the Commission is still faced with resolving proposals for increased power for HD Radio operations (In-Band On Channel or IBOC digital radio), which some broadcasters have opposed as holding the potential for adjacent channel interference. While a compromise proposal to allow for IBOC power increases has been offered to the Commission, it has not yet been adopted. Watch for action on that front soon.

LPFM stations may become more common this year, as legislation to remove a ban on those stations causing third-adjacent channel interference to full-power FM stations may well be removed by Congress this year. A bill to do so has passed the House, and will likely be considered soon in the Senate. The House Bill did protect some full power stations from real cases of interference, and certain existing services like existing translators and stations proving reading services for the blind. But the bill must also be addressed by the Senate, and we will have to see what will be in the final legislation.

The related issues of the relationship between LPFM stations and other FM users also remain to be resolved at the FCC. A new LPFM window has been held up by issues on how to process the thousands of FM translator stations that remain pending from the 2003 translator window.  Similarly, issues remain to be resolved on whether LPFM stations, which were authorized as secondary services, should be able to be protected from increases in power or other facility changes by full-power stations. Perhaps the removal of third-adjacent channel protections will alleviate some of the conflicts, but others are bound to remain.

The proposals discussed above to recapture some of the television spectrum, including Channel 6 and possibly Channel 5, and to use that spectrum for new radio stations, may provide a further outlet for LPFM stations to remove some of the conflict with translators and full-power stations. Proposals are already pending to immediately allow LPFM stations on 87.5, 87.7 and 87.9 – all parts of channel 6 that can be heard on most FM radio receivers. But a longer term solution could result from this reallocation, giving LPFM stations places to operate without restricting FM upgrades or endangering FM translators. Others have even suggested that some or all AM stations could be moved onto these channels. This is likely to be a long-term project, but one that may get further serious consideration this year.

 Finally, the FCC under Interim Chairman Copps, suggested rules that could limit the ability of FM stations to change city of license to move toward larger communities, undoing some of the flexibility accorded to stations in recent years to change city of license to reach larger audiences. Action on this proceeding might be forthcoming, or will perhaps be rolled into the localism proceeding discussed below. 

Issues for Both Radio and Television

The FCC’s Localism proceeding remains on the table, proposing a whole host of requirements to assure that broadcasters are serving their communities and the “public interest”. While comments have been filed and the proceeding ready for resolution for over two years, there are so many controversial issues raised by the proposals that coming to any resolution will not be easy. Some proposals seem to be dead – like that for a fully manned main studio during all hours of operation, located in the station’s city of license, as regulators realize the costs that such a requirement would impose, and the likely impact that the requirement would have on new entrants and on the 24 hour operations of some stations. Yet requirements for some form of mandatory ascertainment of community needs, plus some enhanced disclosure of public interest programming, seem more likely. Some of the proposals rumored to be on the table include requiring that broadcasters be judged by whether they perform certain tasks set out on a menu of options by which they would demonstrate their service of the public interest. One would hope that any set of menu options would be broad enough to recognize all the diverse ways that broadcasters serve their communities, and not so restrictive as to make every station meet the public interest in the same cookie-cutter way, and thus eliminating diversity in approaches that has allowed the broadcast industry to flourish.

The difficulty with localism issues is illustrated by the Commission’s rules, adopted over two years ago, requiring TV stations to document in minute detail their public interest programming on Form 355. This rule has never become effective, as the form has never been approved by the Office of Management and Budget as being in compliance with the Paperwork Reduction Act. As this form required so much new information, for no appreciable purpose, it seems unlikely that it could survive such a review. Broadcasters argued that the information required to be documented would require the hiring of new staff whose only role would be to fill out this form. In an era of declining revenues for broadcasters, hiring a person to deal with these issues would, of necessity, require cutbacks in other areas, possibly compromising service to the public. 

While that would seem to be an issue, in recent hearings on the FCC multiple ownership rules, which will come up for a full review in 2010, certain public interest group representatives suggested that gathering detailed information about a station’s public service should be seen as a cost of doing business, and that owners who did not want to shoulder this burden should simply get out of the business. With views such as that being advanced in the multiple ownership proceeding, questions of how to modify the Commission’s ownership rules will not be easily resolved. The FCC’s 2007 modest relaxation of the broadcast-newspaper cross ownership rules has never been fully implemented, causing us to wonder if the restrictions may well outlive the newspaper itself.  Broadcasters, especially small market TV operators, have also been looking for the ability to combine operations under more flexible rules – an issue to be examined by the FCC in this upcoming 2010 proceeding (though don’t expect any final resolution this year).

The troubles of the newspaper industry, and of some broadcast stations, in funding their news operations, has given the FCC and the FTC pause, with both agencies conducting reviews of how the government may be able to facilitate good journalism in the 21^st century. The FCC has gone so far as to appoint a Special Advisor to the Chairman to look at the issues of how the media should best serve their local audiences and how to assure that service is forthcoming to local communities.  One wonders what the government can do to mandate what are essentially business decisions.  But some fear that any review of content issues, whether it be in the guise of community service or localism or some other form could be a backdoor way to bring back the Fairness Doctrine, which many conservative pundits have predicted.  Certainly, many of these proposal would face constitutional and practical problems in implementation. Yet these will be matters which broadcasters will need to continue to monitor. 

In the advertising world, the FCC will be resolving its embedded advertising and product placement proceeding, where some “public interest” groups have advocated a total ban on such advertising, while others have suggested immediate sponsorship identification, through a crawl or superimposed caption, of any product for which consideration has been paid for its inclusion. The related issue of video news releases – whether stations have to identify on-air anything given them at no charge (e.g. a script, video footage, etc.) before its inclusion into a news report – will also likely be resolved. Some have also suggested that the Commission may be planning some adjustments to its payola rules, though what those changes would be, and how they would improve on the current rules, is hard to fathom. We’ve also written about the FTC’s recent actions on sponsorship identification (especially for the new media) and celebrity endorsements, obligations that are only now being fully implemented.

There is also real concern that the Congressional committees which oversee the FCC may well push proposals for content regulations. Issues on limits on prescription drug advertising have been raised both independently and as part of the health care debate. Proposals on restrictions on violent programming and on advertising directed to children are also possible, especially in connection with ads for food considered unhealthy (however that may be defined). Congress also seems poised to pass a law regulating loud commercials – mandating that the volume on commercials be kept the same as that in programming, no matter how hard (and in some cases subjective) that may be to assure in reality.

Protecting children from violent or other potentially harmful content has also been the subject of both FCC and FTC proceedings, which may spur further actions this year.  Indecency issues will also continue to be litigated in the Courts, as both the Janet Jackson clothing malfunction and the Golden Globes fleeting expletive cases are considered after their remand by the Supreme Court.  The constitutional issues left unresolved by the Supreme Court may well be considered by the Courts of Appeals rehearing these cases, though an ultimate decision on the constitutional issues are probably several years down the road when these cases finally make their way back to the Supreme Court (so look for indecency on our list of issues next year).

And 2010 will be a big political broadcasting year.  While the political broadcasting rules have for the most part remained unchanged for almost two decades, there are aspects of the rules that need to be addressed as the technology has changed since the current rules were adopted. The FCC has a long-outstanding proceeding to decide how on-line sales of broadcast inventory by various advertising clearinghouses and aggregators affect a station’s lowest unit rate. It’s interesting that the proceeding itself has outlasted most of the companies that were offering the on-line sales of broadcast inventory.  Also, as both radio and TV are now multicasters in the digital world, the FCC has not yet addressed how reasonable access and other political rules apply to multicasting.  Are a station's multiple streams each considered a separate “station” for reasonable access purposes, or can a station decide that candidates can be accommodated on one or more streams and kept off of others.  While this may not be a big issue in this election as most multicast audiences are small, the issue will no doubt grow in significance in future elections. 

Copyright issues could also impact the broadcast industry this year. We discussed the performance royalty above.  But both radio and television have outstanding issues on their ASCAP and BMI royalties that could lead to rate court proceedings to decide what should be paid to composers for the use of their music.  And TV broadcasters have brought a suit against SESAC to try to bring it under the antitrust laws, a suit that radio broadcasters may well consider joining at some point in the future, 

Conclusion 

Just a cursory look at the broadcast issues to be dealt with by Washington this year is enough to give any broadcaster pause about the future.  And these are just some of the issues that could impact broadcasters.  Broadband rollout, network neutrality, and regulation of wireless and wired carriers can fundamentally affect the competitive landscape for the media in general.  And there are a whole host of other regulatory issues that we have not addressed here, including some that we have no idea are on the agenda but which are nevertheless bound to arise. In an industry rapidly adapting to new media competition and changes in the economy, broadcasters cannot afford to face the heavy hand of government regulation.  Broadcasters need the freedom to adapt to marketplace changes and to address the new realities of the advertising supported media. One can only hope that Washington recognizes these new realities and regulates with a realistic hand, not one based on the realities of a totally different time and place.  Stayed tuned to these pages to see what develops in this new year.

Like all FTC Guidance concerning advertising, the revised guidelines are specific regulations, but instead they set out standards (in essence a safe harbor) that outline how the FTC will review advertising to determine if it is “false and deceptive” or otherwise misleading to the consumer in violation of Section 5 of the FTC Act.  The revised guidelines provide specific examples as to how they will apply to insure sufficient disclosure so that the listener has all the background necessary to be able to evaluate the strength of the endorsement for him or herself.  For broadcast advertising, the new guidelines make clear that endorsers can themselves be liable for misleading statements made during a product pitch.  So a radio announcer paid to try a diet plan or some other product and to report about its results on the air needs to be sure not only that his statements are truthful, but that the “results” claimed are in line with what the advertiser can actually prove for the product through clinical study and research.  The radio pitchman cannot turn a blind eye to claims that are inherently incredible.  In the past, a simple disclosure that "your results may vary" or "these results are not necessarily typical" was sufficient.  Today, that disclaimer is no longer enough.  Instead, the new guidelines state that any testimonial about the results of using a product be accompanied with a disclosure of the results that a typical user can expect to get from the product.  So the announcer must be informed as to what results can be expected by the typical user, and that these results are objectively verifiable, so that the proper disclosure can be made.  As the announcer (or the station) can now be liable for statements made in such testimonials, stations should take care to be prepared to make the required disclosures. 

The FTC guidelines on new media have created garnered the greatest attention in the popular press. The guidelines expanded the need to disclose "material connections" between an advertiser and endorser in circumstances where the connection might not be obvious to the consumer. In this context, the FTC made explicit application of the Guideline's principles to bloggers and other "non traditional" media. The rules may actually be more stringent for new media than for traditional media (including radio and television). The FTC's believes that people expect that a newspaper or broadcast reviewer, for example, may have received the books they review, or saw the movie they critique, for free. However, the public is unlikely to be harmed as the traditional media reviewer has an unbiased editor or supervisor to review their comments, so the reviewer's opinions are less likely to be swayed by the free stuff they receive. The FTC distinguishes the blogger, who receives "swag" directly and may not have any sort of supervision and review for his or her on-line comments. Thus, the FTC guidelines suggest that the fact that the blogger got the free stuff is not public knowledge, and thus the receipt of the free stuff must be disclosed (even for low-value product samples if there is a continuous flow of such items). The key is whether the reviewer reasonably expects to continue to receive free product for review. Advertisers are required to train and monitor "their" bloggers for compliance and to insure product claims aren't being made beyond what the advertiser could otherwise support. Radio stations that have independent bloggers or other new media producers, who are not under the direct supervision of station management, may need to be sure that these people are aware of the need to disclose the "material connections" with advertisers or promoters of products, and that bloggers or other new media producers who have disclosed "material connections" not make claims about products that the product's owner could not itself make in advertising that it runs.

The FTC has provided numerous examples of what it sees as permissible and not permisible in the Report on this subject. Broadcasters should become familiar with these guidelines, and use them as an opportunity to refresh themselves on FCC sponsorship identification requirements as well. Don’t get caught by a too aggressive promotional campaign.

Section 315 of the Communications Act deals with these issues, stating that these records must be kept for any request to purchase time on a "political matter of national importance", which is defined as any matter relating to a candidate or Federal election or "a national legislative issue of public importance."  Clearly, health care would fit in that definition.  The specific information to be kept in the file includes:

• If the request to purchase time is accepted or rejected
• Dates on which the ad is run
• The rates charged by the station
• Class of time purchased
• The issue to which the ad refers
• The name of the purchaser of the advertising time including:
  • The name, address and phone number of a contact person
  • A list of the chief executive officers or members of the executive committee or board of directors of the sponsoring organization.

While the MusicFirst petition claims that it neither seeks to abridge the First Amendment rights of broadcasters nor to bring back the Fairness Doctrine, it is hard credit that claim.  After all, the petition goes directly to the heart of the broadcasters ability to speak out on the topic, and seems to want to mandate that broadcasters present the opposing side of the issue, the very purpose of the Fairness Doctrine.  As we've written, the Fairness Doctrine was abolished as an unconstitutional abridgment on the broadcaster's First Amendment rights 20 years ago.  As an outgrowth of this decision, FCC and Court decisions concluded that broadcasters have the right to editorialize on controversial issues, free of any obligation to present opposing viewpoints.  What is it that makes this case different?

Moreover, it was clear even before the abolition of the Fairness Doctrine that broadcasters are not "common carriers," meaning that they do not have to accept every ad or message that anyone wants to put on their airwaves (Common carriers, like telephone companies, have to transmit every message that is given to them).  The broadcaster can serve as an editor or journalist, picking and choosing the message that it wants to convey to its listeners.  The only exception is for Federal political candidates, who have legislated a right of "reasonable access" - legislation that has not been challenged in the Courts in recent memory.  But regardless of the rights of political candidates, this exception is in no way relevant to the MusicFirst Coalition.

The MusicFirst petition also suggests that broadcasters may be improperly characterizing spots that they run against a performance royalty as Public Service Announcements ("PSAs").  Yet that also is not a relevant criticism, as the FCC did away with all of its mandatory program logging requirements back in the 1980s.  Thus, whether broadcasters characterize the announcements are PSAs, or Entertainment or News or anything else has no current significance for regulatory purposes.  Note that the localism rules adopted but not yet effective for TV, and those proposed for radio, would bring back the mandatory classification of broadcast programs and give the PSA classification regulatory significance if and when these proposed rules become effective.  But it is certainly not an objection at this point.

The PSA suggestion is tied into another claim that the radio broadcasters running these announcements may not be meeting their public file issues under the Bipartisan Campaign Reform Act ("BCRA") which requires that a broadcaster who runs advertising discussing "Federal issues" put information into their public files similar to that which is maintained for political candidates (see our post, here, for details on that requirement).  While we have advised our clients to comply with these rules, especially if anything of value has been provided to the station in connection with the ads (including scripts or pre-produced spots), where the station airs its own editorial message on the issue, the spots do not seem to fall into the BCRA requirements as they are not sponsored programming, which is essentially what those requirements address.

Ignoring other procedural and substantive issues in the petition (including its failure to name names - in most cases omitting information about the stations which supposedly engaged in the complained of conduct and of the artists who were discriminated against), the issue seems to boil down to a First Amendment issue.  No one would suggest that performers be required to allow broadcasters to attend their concerts to speak against the royalty, so why should broadcasters be compelled to give voice to a position to which they are fundamentally opposed?  We will see what the FCC does with the MusicFirst petition in coming months.  Given the recent statements of the proposed new Chair of the FCC at his confirmation hearing that he has no intention of reviving the Fairness Doctrine, the prospects are that this petition will be simply one more publicity volley in a protracted war over the broadcast performance royalty.

This is different from the issues that have arisen previously at the FCC, where there have been fines levied against television stations and cable systems for airing programming that was sponsored, but for which no sponsorship identification was provided (see our posts here and here).  This includes the video news release or VNR issues, where the FCC has fined stations for using news actualities provided by groups with a financial interest in the issue that was being addressed, but without identifying the fact that the material was provided by the interested parties.  Where a program addresses a controversial issue of public importance, the disclosure rules are more strict, requiring that the station not only disclose that it received money to air a story - but to also disclose anything that it got from the interested party - including tapes or scripts.

Broadcasters, whether radio or TV, should use care when accepting anything of value in exchange for agreeing to broadcast any material on the air - whether it be music or news or any other type of programming.  We wrote about some of the considerations that stations should use in connection with payola concerns, which is really another aspect of the same issue.  With the FCC's scrutiny on this area, stations need to err on the side of caution, and be sure to identify sponsored programming whenever it appears. 

With the digital conversion, one would think that television broadcasters have all the technical issues that they need for 2009. But the FCC’s recent adoption of its “White Spaces” order, authorizing the operation of unlicensed wireless devices on the TV channels, insures that there will be other issues to watch. The White Spaces decision will likely be appealed. While the appeal is going on, the FCC will have to work on the details of the order’s implementation, including approving operators of the database that is supposed to list all the stations that the new wireless devices will have to protect, as well as “type accepting” the devices themselves, essentially certifying that the devices can do what their backers claim – knowing where they are through the use of geolocation technology, “sniffing” out signals to protect, and communicating with the database to avoid interference with local television, land mobile radio, and wireless microphone signals.

Radio, too, has its own technical issues to deal with. The Commission will be faced with resolving proposals for increased power for HD Radio operations (In-Band On Channel or IBOC digital radio), which some broadcasters have opposed as holding the potential for adjacent channel interference. The Commission will also be faced with resolving proposals for making the measurement of AM antenna patterns easier but, on a most fundamental level, it has also been asked to recapture some of the television spectrum, including Channel 6 and possibly Channel 5, and to use that spectrum for new radio stations. While some worry about the increased competition that new radio channels could bring, others see the expanded FM band as a way to eliminate congestion on the current band – giving LPFM stations places to operate without restricting FM upgrades or endangering FM translators – and others have even suggested that some or all AM stations could be moved onto these channels. This is likely to be a long-term project, but one that may get serious consideration this year.

Programming, too, may come in for more review this year. The Commission’s rules, adopted a full year ago, requiring TV stations to document in minute detail their public interest programming on Form 355, has never been implemented, as the form has never been approved by the Office of Management and Budget as being in compliance with the Paperwork Reduction Act. As this form required so much new information, for no appreciable purpose, it seems unlikely that it could survive such a review. Thus, the Form may be revised before being implemented, or it may wait for new FCC programming rules to be adopted as part of the FCC’s localism proceeding, mandating some form of public interest programming, which could then be used to justify the collection of some data requested by the questions on Form 355.

Other aspects of the localism proceeding seem likely to be resolved in 2009. The proposal for a fully manned main studio during all hours of operation, located in the station’s city of license, seems to be less likely to be adopted as regulators realize the costs that such a requirement would impose. Yet requirements for some form of mandatory ascertainment of community needs, plus some enhanced disclosure of public interest programming, seem more likely. Some of the proposals rumored to be on the table include requiring that broadcasters be judged by whether they perform certain tasks set out on a menu of options by which they would demonstrate their service of the public interest. One would hope that any set of menu options would be broad enough to recognize all the diverse ways that broadcasters serve their communities, and not so restrictive as to make every station meet the public interest in the same cookie-cutter way, and thus eliminating diversity in approaches that has allowed the broadcast industry to flourish.

The return of the Fairness Doctrine, which many conservative pundits have predicted, is unlikely because of the constitutional and practical problems of implementation. Yet some fear that  mandated political coverage and issue-responsive programming, which is more likely,  may effectively take the place of the Doctrine. Restrictions on violent programming could also be at the top of the Congressional agenda, as Senator Rockefeller, the new head of the Senate Commerce Committee, has supported such regulation in the past. . 

In the advertising world, the FCC will be resolving its embedded advertising and product placement proceeding, where some “public interest” groups have advocated a total ban on such advertising, while others have suggested immediate sponsorship identification, through a crawl or superimposed caption, of any product for which consideration has been paid for its inclusion. The related issue of video news releases – whether stations have to identify on-air anything given them at no charge (e.g. a script, video footage, etc.) before its inclusion into a news report – will also likely be resolved. Some have also suggested that the Commission may be planning some adjustments to its payola rules, though what those changes would be, and how they would improve on the current rules, is hard to fathom.

There is also real concern that the Congressional committees which oversee the FCC may well push proposals for limits on prescription drug advertising. The new chairman of the House Energy and Commerce Committee, Henry Waxman, has favored a moratorium on such advertising while the industry works out rules that restrict various perceived abuses. If industry voluntary agreements don’t satisfy Congress, new restrictions on advertising directed to children are also possible, especially in connection with ads for food considered unhealthy (however that may be defined).

Copyright issues could also impact the broadcast industry this year – perhaps in ways more fundamental than any of those other issues listed above. For radio, we may see the webcasting royalties issue be resolved one way or the other. Congress has given webcasters and the recording industry until February 15 to settle the webcasting royalty issues and, if that doesn’t result in a resolution of the issue, the pending appeals will be argued this year and perhaps resolved by the end of the year. 

2009 will also bring about a renewed attempt by the recording industry to impose a performance royalty on broadcasters for their over-the-air signals, the “performance tax” as it has been labeled by the NAB. That performance royalty would require broadcasters to pay the recording industry and recording artists royalties for the use of music over the air – in addition to the ASCAP, BMI and SESAC royalties that are already paid to the composers. The recording industry was able to get that proposal through the House Judiciary Committee last year, and will make a renewed attempt to have it adopted by Congress. If such an attempt is successful, this could potentially result in the transfer of billions of dollars from broadcasting to the recording industry.

TV has its own copyright issues, as the law permitting Dish and DirecTV to import local broadcast stations into local markets must be renewed, and some have suggested that this might be the time to reexamine the must-carry and retransmission consent process for both cable and satellite. While nothing firm is on the table, this issue could arise just as retransmission consent fees are beginning to offer television broadcasters a meaningful new revenue stream.

All of these issues seem like plenty - but we haven't even discussed the resolution of the indecency cases currently pending before the Supreme Court that should come this year.  The Commission ended 2008 with several large EEO fines, and this year may bring the resolution of long-pending petitions for reconsideration of the current EEO rules, as well as resolution of whether the Form 395 Annual Employment Report  will make its reappearance and whether the information on the form should be available to the public to judge the EEO performance of broadcasters or should the information be used simply for industry profiling.  Commissioner Adelstein suggested that the information should be public in his concurring opinion on these recent fines.  The FCC's change in its multiple ownership rules to allow some broadcast-newspaper combinations is still on appeal as it becomes increasingly irrelevant (as newspaper companies don't have the money to buy broadcast station, and broadcasters probably don't want to buy newspapers), and other issues as to the local radio ownership rules and the attribution of TV JSAs are still pending and may be resolved one day - perhaps this year.  Even political rules may be revisited in 2009 - as the Commission has never issued rules implementing the BCRA requirements, and it also has a long-pending proceeding to determine how to assess spots sold by on-line auctions for lowest unit rate purposes. 

With these (and other) possible changes in the regulatory landscape, one can only hope that the government regulates with a light touch. While the Democrats who have been on the FCC during the Bush years have advocated tough, detailed regulatory mandates, the Obama administration has offered the hope of a less doctrinaire, more inclusive regulatory process. Given the economic outlook for the coming year, and the costs and likely disruptions of the digital transition, an administration that promises hope should deliver some to broadcasters simply by taking a break from excessive regulation to give everyone a chance to adjust to the new realities of 2009. But stayed tuned to these pages to see what develops in this new year. 

This investigation seems to be very similar to a case about which we wrote last year, where the FCC issued fines to a station group that aired programming that included commentator Armstrong Williams, who had been receiving consideration to speak in support of the No Child Left Behind program.  The FCC has also been looking at similar issues in its Sponsorship Identification and Embedded Advertising Proceeding, about which we wrote here.  In both of these proceedings, the FCC has warned broadcasters that they need to assess whether anyone who is supplying programming material to the station is receiving consideration for the views expressed on that programming, particularly where that programming involves something that could be considered a controversial issue of public importance.  Thus, stations should be asking networks, program syndicators, and others appearing on a program whether they are receiving any consideration for the views that they are about to express - particularly where that is not clear from the context of the program.  While the FCC has not explicitly so stated, it would seem like an interview of an author about his new book or an actor about his new movie would clearly imply that the author or actor received consideration.  But where someone is expressing an opinion on some matter where it is unclear that there is any commercial or financial interest, and such an interest does indeed exist, the station should be aware  of that interest and disclose that connection on-air.  See our discussion here for another case where the FCC imposed fines on a cable system for not disclosing such interests.  One more thing to worry about!

The payola statute, 47 USC Section 508, applies to radio stations and their employees, so by its terms it does not apply to Internet radio (at least to the extent that Internet Radio is not transmitted by radio waves - we'll ignore questions of whether Internet radio transmitted by wi-fi, WiMax or cellular technology might be considered a "radio" service for purposes of this statute).  But that does not end the inquiry.  Note that neither the prosecutions brought by Eliot Spitzer in New York state a few years ago nor the prosecution of legendary disc jockey Alan Fried in the 1950s were brought under the payola statute.  Instead, both were based on state law commercial bribery statutes on the theory that improper payments were being received for a commercial advantage.  Such statutes are in no way limited to radio, but can apply to any business.  Thus, Internet radio stations would need to be concerned.

So is the idea a non-starter?  Not at all.  Just as in the broadcast world, the key is disclosure (see our Advisory on avoiding payola issues).  On a radio station, the FCC's payola rules are not violated if the fact that the plays are paid for is disclosed to the audience.  So disclosure that the "following 15 minutes of programming has been paid for by the Universal Music Group" and the playing of only UMG songs during that period would be fine under the FCC rules.  Under the NY State prosecutions, concerns were also expressed about notifications to automatic airplay monitoring services, so notice to such services might also be required.  The same would seemingly hold true for Internet radio.  If you wanted to create the Sony Music channel sponsored by Sony, and it was branded that way, it would seem as if it would be difficult to argue that there was any deceptive practice.  Disclosure in writing on the website in a manner where that disclosure was clear and conspicuous could also suffice.

The Silicon Alley article does make one good point - that a pay for play scheme would limit royalties that a digital music service would pay - as it is likely that any service that is getting paid to play songs would also get a waiver of the royalties for those songs (see our post on waivers here).  When confronted with a proposal where artist would waive royalties in exchange for airplay, artist groups complained that the waiver of royalties without disclosure, in and of itself, constituted consideration for airplay and would be "payola" if not disclosed.  We'll save discussion of that issue for another day, but disclosure solves any issue that may exist.

This proposal for "payola radio" is not so far-fetched, even being suggested at a Congressional hearing on the broadcast performance royalty (or, as the NAB refers to it, the "performance tax").  In that hearing, a Congressman suggested that, if artists and labels really wanted a market system, it should be a full market system, where some artists may be able to hold out for payment for the playing of their songs, while others would have to pay to get on the air.  Broadcasters have had concerns about such a system, as small market stations might never get paid for play and might be forced to pay, while large market stations could be important enough to the promotion of a song to demand payment for its airplay.  For artists, small artists on independent labels would also be losers, as they could be cut out of the broadcast world if they couldn't afford to pay (see our post here about the Congressional hearing and the concerns about this issue).

Payola radio - an interesting idea - but be careful to execute it carefully.

A recent New York Times article helped bring the proceeding to the attention of the general public.  The article writes about television stations which are paid to have morning show hosts place coffee cups with identifiable logos (in this case cups of McDonalds coffee) on the desk of the news anchors of a morning news program.  Under some of the proposals identified in the Notice of Inquiry in this proceeding, some sort of identification (perhaps a crawl or superimposed message) of the sponsor for the placement of those cups would be required concurrently with the visual images of the cups on the screen.  The same would be true of the appearance of a product in any scripted comedy or drama, and perhaps even when feature films are run on TV in which the filmmaker was paid to include specific products in the movie.   Adoption of any of these suggestions could certainly change to face of broadcast television, particularly as it adapts its advertising practices to deal with Digital Video Recorders and other technological advances.  For broadcasters to retain their flexibility in such matters, they should file comments on or before the September 22 filing deadline. 

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. 

The Commission also questioned whether there was a need for sponsorship identifications in interview programs where there was consideration given to the program for the inclusion of broadcast material.  The FCC worried about "hidden commercials."  That discussion was most likely triggered by the concerns over Video News Releases ("VNRs") and by payments to spokesmen to plug government programs without disclosing that they had been paid (as in the Armstrong Williams program which was the subject of a fine about which we wrote here, and the recent controversy about ex-military officers who offered on-air opinions on the War on Terror without disclosing their financial connections to the Defense Department).  However, it would seemingly have a far greater impact.  In watching television programs in the last few days, I've been wondering how far the FCC's concern could go.  On virtually every talk program, from the late night programs like the Daily Show or the Leno or Letterman, to daytime TV programs like Oprah or the Today Show, one staple is the author who is plugging his or her book or the actor plugging his or her movie.  Could the provision of the guest on these programs for no payment by the TV show be construed as the receipt of valuable consideration by the book publishers or movie companies who are paying the costs of the promotional tour by the author or actor?  Watching another cable television talk program, I noted the presence of numerous coffee cups with a recognizable logo on the desk of the hosts.  Was that coffee paid for by the hosts, or was it provided by the coffee company just for the promotional value of having its cups appear on screen?  While FCC policy currently allows the provision of material used in a program at no charge if the material is not unnecessarily highlighted in the program (so the piano may be provided by Steinway and its logo may be seen when the focus is on the player's fingers, there is no tight focus on the logo nor is there a plug at the end of the concerto remarking on how amazing the piano was).  But would even the existing indirect plugs be permitted (without a sponsorship identification) if rules were adopted to address some of the concerns expressed by the FCC. 

The way that the advertising and broadcasting businesses work together could be profoundly affected by this proceeding.  Read our Advisory, read the FCC's Notice, and watch for the comment date.  Think about the concerns that should be addressed by the Commission before enacting any new rules in this area, and let them know of these concerns before any new rules are adopted.