Posted on August 25, 2011 by David Oxenford

Hurricanes and Earthquakes - Emergency Communications In the Spotlight With CAP Conversion and National EAS Test Coming Soon (Though, For CAP, Maybe Not As Soon As We Thought)

There has been much focus on emergency communications recently, with the East Coast earthquake re-igniting the debate over FM-enabled mobile phones, and with Hurricane Irene forcing stations to gear up for emergency coverage in the coming days.  But even without these unusual events, the emergency communications world has been much in the news, given the current requirement for broadcast stations to be ready for the new Common Alerting Protocol ("CAP"), an Internet-based alerting system, by the end of September, and with the first-ever test of the National EAS system scheduled for November.  The CAP conversion date has recently been the subject of debate in a number of FCC filings - and there seems like a good chance that the September 30 deadline will be delayed - if for no other reason than the fact that the FCC has yet to adopt final rules for the equipment required for such compliance.  The National Test, however, should go on as scheduled.  More on all of these subjects below.

First, the coming hurricane should prompt stations to be ready for potential emergency operations.  The FCC in the past has publicized its Disaster Information Reporting System (DIRS).  Stations can voluntarily register with DIRS to give the FCC a contact person to assess damage after the storm, and to notify the FCC of the need for any aide that the Commission might be able to provide.  During the aftermath of Hurricane Katrina, I was personally involved in discussions with FCC personnel who coordinated with other government agencies to get clearance for diesel tanker trucks to gain access to restricted area to deliver fuel to a client's radio station that was still operational (on generator power) providing emergency information to Mississippi's Gulf Coast. The FCC personnel can be of great assistance in such situations, so DIRS registrations may be worth considering.  The FCC's website also provides helpful information about planning for disaster recovery  and about hurricanes specifically.  FCC emergency contact information is also on their site.

In thinking about emergencies, TV stations need to remember the requirements that they visually provide any information about an immediate emergency threatening discreet groups of viewers.  In the heat of the moment, when rushing to get out information about a tornado that could be spun out of a storm or some other imminent catastrophe, station personnel may not think about their obligation to provide information visually to those who have a hearing impairment.  But, whether through the use of captioning or even a white board, if you are telling viewers in a given area to take cover or any other specific action, or warning them about a specific threat to their safety - provide that information visually as well.  For the visually impaired, you need to run an audible tone before any video-only caption that you may be running to provide an alert that emergency information is about to run.  There are well-organized citizen's groups who have been known to file complaints about stations who do not provide such information - so remember to provide it to avoid facing an FCC penalty because you did good work, but forgot to make sure that your good information was available to all segments of your audience.

Should there be damage to station facilities, the FCC is also good about giving temporary authority to stations to operate with emergency equipment or from unlicensed locations or with a different power than licensed.  Look for other FCC emergency information to be publicized soon if Irene continues on her current track.

In the longer term, there are two notable events upcoming for the EAS system. The first is the conversion to CAP, delayed last year until September 30 of this year.  However, as we wrote earlier this summer, the FCC is still considering specific rules governing the CAP system, and that proceeding raises a number of issues.  One big issue for many rural stations has been the fact that the system needs an always-on, high-speed Internet connection to work - and some stations do not have access to such connections.  Reply comments in that proceeding were only submitted at the beginning of this month, so the Commission has not yet completed its review of the issues.  Because there are no rules, a number of broadcast groups have asked for a 180 day extension of the deadline. Even FEMA (the Federal Emergency Management Agency, which is developing the alerting system) has suggested that the FCC not penalize until early next year any station that is not fully CAP compliant.  Only some equipment manufacturers have suggested that the September deadline be kept in place.  We would look for some word from the FCC soon, and if we would have to bet, we'd expect to see some extension of the deadline in the cards (though one never knows for sure...)

The first nationwide test of the EAS system is also on the horizon - scheduled for November 9.  This is not a test of the CAP system, but will use the traditional "daisy chain" alert that is passed from one station to another (a system that will remain in place after CAP implementation to provide redundancy in the system).  The FCC just published more information about this test.  Many states will be testing their systems before the nationwide test to ensure that systems are fully operational. Check your station's facilities now, as there will be a post-test report filed with the FCC by all stations, and you don't want to be a station that has to report that an avoidable problem that made your station miss the test. 

Finally, there is the debate about whether mobile phones should be enabled to receive broadcast signals, especially in the time of emergency.  The NAB has made much of the fact that cell phone reception in areas affected by this week's earthquake were tied up for some time, while broadcasters were able to get information out to the public. Broadcasting obviously is designed to get a single message out to a mass audience, rather than to provide the one-to-one communication of a phone or even an IP-based system.  Any attempt to require phones to legislatively mandate enabled FM chips in mobile devices is likely to continue to be vociferously opposed by the wireless and consumer electronics industries.  But, as in the case of the earthquake, broadcasters (and Federal emergency managers - see the video here) should continue to get the word out of the importance of broadcasting in emergencies - so that consumer demand can drive the adoption of enabled radios in mobile devices. 
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Posted on October 25, 2010 by David Oxenford

NAB Radio Board Adopts Proposal for Settlement of Performance Tax Issue - Where Do We Go From Here?

The NAB Radio Board today voted to adopt a Terms Sheet to offer to the musicFirst Coalition which, if agreed to by musicFirst and adopted by Congress, will settle the contentious issue of whether to impose a sound recording performance royalty (the "performance tax") on over-the-air broadcasters.  If adopted, that will mean that broadcasters in the United States, for the first time, will pay a royalty to artists and record labels, in addition to the royalties paid to ASCAP, BMI and SESAC that go to the composers of the music.  What does the Term Sheet provide, and what will this mean for broadcasters, webcasters and others who pay music royalties?

The Term Sheet sets out a number of points, including the following:

  • A 1% of gross revenue sound recording royalty to be paid to SoundExchange
  • A phase-in period for the 1% royalty, that will be tied to the number of mobile phones that contain an FM chip.  A royalty of one-quarter of one percent would take effect immediately upon the effective date of the legislation adopting it.  The royalty would rise in proportion to the number of mobile phones with enabled FM chips.  Once the percentage of phones with FM chips reached 75%, the full royalty would take effect.
  • The 1% royalty could only be changed by Congressional action.
  • The royalty would be lower for noncommercial stations and stations with less than $1.25 million in revenue - from a flat $5000 for stations making between $500,000 and $1.25 million in revenue down to $100 for those making less than $50,000 per year.
  • Broadcasters would also get a reduction in their streaming rates - but only when FM chips in mobile phones exceed 50% penetration.  The reduction would be tied to the rates paid by "pureplay webcasters" (see our summary of the Pureplay webcasters deal here), but would be set at a level significantly higher than pureplay webcasters, rising from $.001775 in 2011 (if FM chips were quickly deployed) to $.0021575.
  • Future streaming royalties would not be set by the Copyright Royalty Board but by a legislatively ordered rate court - presumably a US District Court similar to that which hears royalty disputes for ASCAP and BMI.
  • An acknowledgment by AFTRA that broadcasters can stream their signal on the Internet in their entirety - apparently agreeing to relieve broadcasters from any liability for the additional amounts due to union artists when commercials featuring union talent are streamed
  • An agreement that broadcasters can directly license music from artists and reduce their  liability for the new royalty by the percentage of music that the broadcasters is able to directly license
  • Agreements to "fix" issues in Sections 112 and 114 of the Copyright Act in making the provisions of these laws regarding ephemeral copies and the performance complement consistent with the waivers that major record labels gave to broadcasters when the NAB reached its settlement with SoundExchange on streaming royalties last year.  See our post here on the provisions of those waivers.
  • musicFirst would need to acknowledge the promotional effect of radio in promoting new music, and would need to work with radio in attempting to secure legislation mandating the FM chip in mobile phones.

[Clarification - 10/26/2010 - Upon a close reading of the Terms Sheet, it looks like the phase in of the 1% royalty and the delay in the streaming discount only kick in if Congress does not mandate active FM chips in cell phones.  If the mandate is enacted, then the full 1% royalty and streaming discount is effective immediately. Given the opposition of much of the wireless industry to a mandated FM chip, this may represent a recognition that the legislation requiring the active FM chip will not be enacted in the near future]

What does this all mean?

First, this is but an offer to musicFirst, which has to be accepted.  Today, musicFirst issued a cautious statement, saying that they were still studying the proposal, but expressing disappointment that the NAB did not accept the proposal that "both parties agreed upon in July."  That in itself is an interesting statement, as the NAB has been very clear to state that it has never agreed to anything in July - but that it instead needed to vet the musicFirst proposal with its members before agreeing to anything.  Presumably, musicFirst itself had to seek approval for any deal.  As any deal would need the blessing of Congress to become effective and binding on broadcasters and copyright holders, each party would need broad approval for any deal from all affected parties.  So how could the NAB member involved in the discussions and those representing musicFirst have "agreed" to any proposal back in July, when no such broad approval had been received for a deal that was not yet public?

And what has really changed in this Term Sheet from what was discussed in July?  Seemingly, very little.  While this Terms Sheet proposes a phase in of the 1% royalty depending on how many phones are FM enabled, the July proposal made the whole deal contingent on mandated FM chips in cellphones.  In effect, this proposal is more favorable to copyright holders than was the proposal on the table in July, as at least some royalty would be paid even without that mandate.  So how could the labels complain about that provision?

The only other substantive change appears to be the provision that allows direct licensing of music to reduce the liability of broadcasters.  But this too seems to be noncontroversial.  How can musicFirst, which claims to be standing up for the rights of copyright holders and musicians to be compensated for the use of their work, turn around and say that those copyright holders that want to exercize their rights by waiving the royalty be denied that right?

Other changes from the proposals set out in July seem cosmetic and insubstantial. 

So what comes next?  Obviously, musicFirst must formally respond.  Then the details of a deal must be worked out.  While the Terms Sheet may, at first glance, seem detailed and thorough, in fact it is but an outline of a deal.  Any deal will need to be written into statutory language and offered to Congress.  And this will not be easy, as each term will need to be defined, and the language will need to be carefully reviewed to make sure that there are no unintended consequences.  Many questions will need to be fleshed out.  How are the percentages of FM-enabled cell phone penetration measued?  What standard would a rate court use to determine the streaming royalty if that royalty is not set by the CRB?  How is gross revenue defined?  How are stations that are part talk and part music treated?  Issues that will need resolution.

Then, any agreement must be presented to Congress.  Adoption of the deal as proposed may not be all that simple, as there may well be attempts by other interested groups to latch on to any bill to attempt to remedy other problems with the royalty process.  Why should Internet radio pay royalties that are a minimum of 25% of gross revenues for large pureplay webcasters like Pandora, if radio is paying but 1%.  Why should smaller webcasters with revenues between $500,000 and $1.25 million be paying 12 or 14% of revenues, when a small radio station pays only $5000, less than a tenth of what the webcaster with the same revenues would pay?  Expect that others will attempt to use the process to raise issues such as these, so the Congressional process will not necessarily be quick and easy.

All in all, while this may seem like the beginning of the end of the performance royalty dispute, we will no doubt hear much more about these issues in the weeks to come.  We will write more about the issues in the days to come, especially as reactions to this proposal are made public by various parties either involved in the discussions, or from those that are affected by their outcome.  A no doubt very interesting debate is sure to play out in the coming days and weeks. 
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Posted on August 5, 2010 by David Oxenford

NAB Board Comes to DC to Discuss Radio Performance Royalties - Is There a Deal in the Works?

The debate over the proposed performance royalty (or "performance tax") on over-the-air radio is once again front page news in all of the broadcast trade press, as radio executives who make up the NAB Radio Board reportedly are making their way to Washington, DC to decide on whether to pursue a settlement with those seeking to impose the royalty.  What's on the table?  Reportedly a very low (perhaps 1% of revenue as reported in some of the trades) royalty for terrestrial radio, a royalty set in legislation for at least a several year period.  In exchange, broadcasters would get a break on streaming royalties and a push towards getting working FM chips into cell phones - a potentially big audience boost for radio operators.  But from all we have heard, this is not, by any means, a done deal.  What will happen?

We wrote just a few weeks ago about a proposed settlement and why it might or might not be a good idea, and received many comments on our post.  As was clear from the comments, many are not sure why a settlement of any sort makes sense at this point, when the NAB has so far bottled up the royalty in Congress, and where the next Congress is, at least in the eyes of many, going to be far more Republican and, in some people's eyes, a lot less likely to impose the royalty.  Proponents of a settlement respond that the royalty is not necessarily a partisan issue, with Republicans such as Senator Hatch of Utah, Congressman Issa of California, and many members of the Tennessee delegation taking strong positions in favor of the royalty.  So, just because there is a change in Congress (if it in fact occurs) does not necessarily mean that the current Performance Rights Act or some other version of the royalty proposal would be dead.  Moreover, as we wrote in our recent post, there still is the remainder of the current Congress to get through, including the "lame duck" session after the election, when Congressmen who may no longer have jobs will be voting on much legislation, including many big budget bills in which a performance royalty rider can get hidden. 

But any settlement talk raises important questions about the details contained in any settlement proposal -  like whether the record companies, after getting their nose under the proverbial tent, to a place where they can start munching on the revenues of radio stations, will be satisfied with just 1% of the pie.  Will they be back in a few years looking for more?  How can that level of royalty be guaranteed for the long term?  

And what will radio really get in return?  A reduction in the streaming royalties of 25% would be nice - especially for those broadcasters who have already built up substantial audiences at the current high rates.  But will the many broadcast stations who are not now streaming because of the high per performance royalty see this discount as enough of a benefit to start their streaming operations?  And what about the proposal to push for getting activated FM chips in cell phones?  How likely is that to happen?  Will it be a mandatory part of the deal - so that there is no deal unless this requirement is adopted? 

There are many questions that will no doubt be debated tomorrow at the NAB Board meeting.  Individuals involved in the negotiations will no doubt provide details on many of the questions that we have asked here, and information to which we are not privy, which may answer some of the concerns that broadcasters have about any possible settlement.  And there are no doubt many details to be worked with out with the other side even if the Board approves continuing down this settlement path at its meeting tomorrow.  We will all have to wait to see what the next steps are - and what the ultimate impact will be on the future of the broadcast radio industry.
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