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Radio Issues

Radio has fewer unique issues on the front burner in Washington, but at least one is of incredible significance - the performance royalty.  Here are some of the issues facing radio broadcasters:

Performance Royalty:  Even though the performance royalty will have to start from scratch in the new Congress after dying in the Congressional session that just ended (despite having cleared both the House and Senate Judiciary committees for the first time), advocates of the royalty have made clear that they will be pushing on this bill again in the new session of Congress which began this week.  Look for the settlement talks with the NAB to restart now that everyone has returned from their holidays.  As with most issues, this is not an easy one, as the NAB put what many broadcasters thought was its best deal on the table in the Fall, only to have that deal rejected out of hand by the pro-royalty forces.  So don't look for any quick resolution of the issues this year. 

LPFM/FM Translator Issues: At the very end of 2010, Congress passed the long-delayed legislation clearing LPFM stations to operate on channels that are third-adjacent to full power FM operations.  Look to the FCC to adopt rules to implement this legislation, and to finally resolve the issues of what to do with the FM translators left from the 2003 translator window.

General Broadcast Issues

There are numerous issues before the FCC that affect both radio and television broadcasters, some of which have been pending for many years, ripe for resolution, while others are raised in proceedings that are just beginning.  These include:

Multiple Ownership Rules Review:  Last year, the FCC issued its Notice of Inquiry to start its Quadrennial Review of the FCC's ownership rules.  Broadcasters hope that the FCC looks at the relaxation of small market duopoly rules for television and the sub-caps (limiting the number of AM and FM stations that one party can own) for radio, while some public interest groups are seeking tighter rules on ownership, including potentially cracking down on shared service agreements in television.  While the FCC had hoped to have this proceeding close to resolution by this point, the Commission has yet to even issue a Notice of Proposed Rulemaking setting out specific proposals, as certain academic studies on which the FCC planned to rely in making conclusions about the media marketplace, have been delayed.  Delay in resolving ownership issues should  really not be a surprise, as the appeals of the 2003 FCC decision revising the ownership rules, and of the FCC's decision in 2007 slightly relaxing the broadcast-newspaper cross-ownership rules, are still pending.  Look for more action in this proceeding, though probably no decision, this year.

Localism Rules and the Future of Media:  FCC's proposals to impose specific rules on how broadcasters serve the public interest, advanced in its "localism proceeding," are over 5 years old.  The rules that it adopted for television stations mandating on-line public files and detailed reporting on the quantity of news, public affairs, local programming, civic programming , election programming, independently produced programming and many other categories of programing, were adopted over 3 years ago, but have never become effective.  Some had thought that the FCC might be spurred to final action on some of these proposals after its special task force on the Future of Media issued its report as to how media should best serve the needs and interests of residents of their communities.  That report was supposed to have been issued by the end of 2010.  Obviously, that target was not met, so the consideration of all the localism issues seem to be stalled.  But don't be surprised to see that report in the first part of this year, spurring more FCC discussion about these issues - though probably in the form of further comments on the meaning of the report and the impact of its findings on these pending proceedings. 

EEO Rules:  The FCC recently issued some fines for EEO violations by broadcasters, but there are fundamental issues about the FCC's policies that have not been addressed in the 7 years since these rules were first adopted.  Proposals to extend the rules to part time employees, and to require the filing of FCC Form 395 (the form that classifies all employees by race and gender), are still pending.  Also pending are proposals sought in requests for reconsideration of the adoption of the EEO rules that would make the EEO rules comport with today's reality - such as the proposals to allow Internet-based EEO recruiting.  More recently, minority organizations suggested that the enforcement of the rules be suspended until they could be made tougher, as these organizations did not believe that the rules were sufficiently stringent to encourage diversity in the broadcast workforce.  Maybe this will be the year that some of these outstanding issues are finally resolved.

Political Rules:  As more and more money makes its way into the broadcast marketplace for political advertising following the Supreme Court's Citizens United decision, some have suggested that a comprehensive review of the FCC's political rules is in order.  These rules were last reviewed almost 20 years ago, and since then, there have been major campaign reform acts (e.g. the McCain-Feingold campaign reform act or BCRA), and significant Supreme Court decisions repealing portions of that Act.  Sales practices at broadcast stations have also changed, and the FCC has a long-outstanding proceeding on how Internet-based ad sales of remnant broadcast advertising inventory affect lowest unit rates.  With this being an off year before what will no doubt be a huge political year in 2012, if the FCC is going to review the political rules, this would be the time that it should be done.

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Many other issues may be decided through Court actions.  We just saw a ruling on indecency issues this week, and the appeals on that subject may well bring the issue back to the Supreme Court.  So expect more thrashing about on indecency this year, as a final court decision will likely be some ways down the road. 

While not really DC issues, copyright proceedings to determine ASCAP and BMI rates for both radio and TV could also be important.  Renewing old agreements or, particularly for radio, the potential reduction of obligations for music royalties to these organizations, are likely to be the subject of litigation that will take place this year.  Noncommercial broadcasters may also have to asses these issues, as the Copyright Royalty Board has just issued a notice commencing a proceeding to decide the royalties paid ASCAP, BMI and SESAC by noncommercial broadcasters for the next 5 years.

With their online activities becoming more and more important to broadcasters, actions that could affect advertising and on-line programming become ever more important.  One of the major areas likely to be considered this year that could affect online businesses is in the area of privacy regulation.  Both the FTC and the Commerce Department recently issued proposals for privacy regulation (see summaries of these reports from our firm's Broadband Law Advisor Blog, here and here), and Congress has been considering this area as well.  Look for more action here, and assess its potential impact on Internet advertising, recommendation software and other business practices. 

These are but some of the legal and regulatory issues that will be facing broadcasters in the upcoming year.  Each year, we make these predictions, and there are always numerous other issues arise that we did not anticipate.  So watch the trade press and the pages of this blog to see what trouble Washington can make for broadcasters as this year progresses.

At next Tuesday's FCC meeting, the Commission will begin its consideration of the future of over-the-air TV, as initially laid out in its Broadband Plan.  While we will see the specifics of the FCC action this coming week, they are rumored to include proposals to encourage the compression of the TV band - encouraging TV stations to move into the VHF band (apparently, despite laws imposed by physics, not by man, which have thus far dictated that these channels suffer from more interference and worse coverage than DTV stations that operate on UHF channels), to share channels (by multicasting programming now appearing on separate channels, perhaps in Standard Definition instead of true HD), and, in some cases, to surrender channels entirely in exchange for some share of auction proceeds from so-called "incentive auctions."   How these changes will be implemented will be seen after the meeting.  Assuming that the changes are voluntary options afforded to broadcasters and not mandates, the changes may assist in the natural evolution of television.  But, if mandated or otherwise forced (e.g. through spectrum taxes on some perceived value of the frequencies), then regulatory changes may artificially affect the natural progression of the media.

Pogue also notes his observation that people often have very personal reactions to technology, and those reactions can color their perceptions about whether change is good or bad - with two people looking at the same change but from different personal biases having completely different reactions to the same change.  We have noted that how a personal bias can affect the reaction to regulatory events, for instance in reaction to changes in rules regarding HD radio, with some detractors being the first to comment on any post we write about that technology, convinced that it will do nothing but degrade the FM band, while others see it as a way to bring new life to radio.  That same observation applies to the changes being considered for TV.  Some, apparently including many at the FCC, see broadband, and wireless broadband in particular, as the way in which people will receive entertainment and information in the future - essentially dooming TV as we have known it for the past 70 years.  Others see a renaissance of over-the-air television being upon us with the new potential of the Digital Television transition being recognized through new opportunities for programmers on multi-cast channels and, with mobile DTV just beginning to be rolled out, for new services that will reinvent the service for the future.  After all, it has been less than 18 months since the digital transition for over-the-air TV was completed.  Another truism we have heard about technology is that people tend to overreact to changes in the short-term, while underestimating those changes in the long term.  Of course, those long-term consequences are the most difficult to predict.  One hopes that the actions of the government in the upcoming week don't reflect the attitudes of a few who overestimate the impact of new technologies and artificially restrict the choices of consumers in selecting their own media future. 

As those who regularly read the posts on this blog, I regularly speak with broadcasters around the country at various meetings and seminars, as do other attorneys in our group.  Broadcasters everywhere are interested in better serving their communities, and in figuring out how to meet the competition from the new media.  That competition can only be met by better serving local communities - not by providing content that can be just as easily provided by satellite or Internet providers.  But, while broadcasters know that they have to serve their local communities, they don't want to be told by the government how they are supposed to provide such service.  The needs of each community - and of the audience of each station - are different, and the broadcaster is in the best position to determine how that need is best met.  Rules that might seem appropriate and reasonable for a station in New York or Washington, aren't going to necessarily work for a station in Oshkosh, Wisconsin or Tri-Cites, Washington.  In fact, a radio station in a small community may very well not even be able to implement a plan that the government - looking at major market stations where the most attention is always focused - might think reasonable.  And, whether that is a tax or a specific set of regulations, the ability of any of these government agencies to dictate how the public can best be served by broadcasters is suspect.

As the agencies consider these proposals, there will no doubt be more review of their actions by Congressional committees, some of which may be more suspicious of any regulations imposing any burdens on business.  In fact, there are reportedly issues about who is conservative enough to be chair of the House Energy and Commerce Committee that oversees the FCC.  But while Congressional oversight may influence Commission decisions, Congress rarely intervenes to overturn any FCC actions once they are taken.  Thus, the actions of the FCC and the other government agencies looking at issues about the future of the media are important. 

The FCC's Future of Media study will provide important input into the FCC's proceeding on potential revisions to the multiple ownership rules, and to the still unresolved proceeding on localism.  We hope that any recommendations that come from the study will truly be limited to those which really will be limited and effective, and not one size fits all regulations that will impose obligations without demonstrable and achievable benefits. 

As with any new line of business, there will always be bumps. Unfortunately, my legal brethren are often the ones that create those bumps, occasionally inflating those bumps into small mountains. Legal and regulatory obstacles have scared some broadcasters away from aggressive on-line efforts. I’ve spent much time in the last few years helping clients navigate their entry into the digital world – whether it be in connection with music royalties, concerns with liability from user-generated content or social media pages, the privacy rights of those who sign up for loyal listener clubs, or copyright issues in connection with repurposed content. There are not always easy answers about how a digital broadcaster can do what it wants to do.  And Congress and the FCC will no doubt come up with new legal challenges to broadcasters as they develop their on-line presence – witness our recent posts about the Congressional mandate to close caption broadcast video programming repurposed to the Internet and the Commerce Department inquiry into the protections of copyrighted content and its impact on digital media innovation. 

But, with time and the energy and imagination of all those involved in the radio industry, in one way or another these issues can be worked out. What broadcaster, after years of dealing with the FCC and its attitudinal fluctuations, can’t handle some new regulatory wrinkle? While, in the digital world, the wrinkles may come not come from the FCC but from one of the alphabet soup of other government agencies that Washington has to offer, it’s just another set of rules that the digital-age broadcaster has to help shape, and then adapt to once they are set. Having dealt with content regulation before, the broadcaster has a leg up in adjusting to regulation in the digital world. It’s just a matter of paying attention to the issues, reading the trade press, communicating with your attorney, and participating in the media organizations who always have given you guidance. Just make sure that they are providing the guidance that you need as you become more and more immersed in the on-line world.

And while some of the questions about regulation, royalties and legal issues facing digital media seem today to have no clear answers, remember how new much of this technology really is. Who carried a computer with them 15 years ago, much less a computer that connected to the Internet wirelessly, fits into your pocket and makes phone calls as well? 15 years ago, streaming music on the Internet was essentially a technical possibility only for the geeks. The oldest Internet radio companies that are still operating are at most a decade old. And some of the biggest players in Internet radio and video - like YouTube and Pandora - have been streaming for just 5 years. With much of the digital media so new, and developing and changing so fast, it is no wonder that the law has not caught up. I emphasized the fact that regulation has not caught up with the digital media developments in several recent presentations that I have done summarizing some of the digital media issues facing broadcasters as they travel on their digital safaris. See, for instance our posts here and here on some of these recent presentations. Yet, even with this legal uncertainty, many companies are venturing forward and exploiting the opportunities that the new media bring – staking out their place in the new media universe.

The rewards for radio broadcasters expanding their reach into the digital world may well be great – in terms of audience and advertising growth and potentially even in terms of regulation. It goes without saying that the Internet offers radio broadcasters the ability to connect visually with listeners (and to better serve their advertisers), and the social networking opportunities can enhance the sense of community that good radio stations have long sought to engender. Radio can leverage its brands to bring all sorts of new services to listeners, and use its connection with its audience to promote those services. And it may bring other benefits in terms of regulatory relief. The ability of so many digital media companies to reach listeners, viewers and local residents through the new media may well spell the doom of the “scarcity” rational that has underlied so much broadcast regulation in the past. We have just this week seen three former FCC Chairman say that, given the changes in the media industry, the broadcast multiple ownership rules are no longer relevant. In the past, the scarcity rationale was the basis for most broadcast regulation – the theory was that broadcasters needed to be regulated because they were so intrusive, and spectrum so scare, that only good actors should be allowed to use it. Thus, restrictions that would never have been allowed to be imposed on newspapers were tolerated by the Courts when they were applied to broadcasters. With the Internet available to give you all the content that you want, when you want it, the justification for this scarcity regulation is fast disappearing.

The digital media obviously poses challenges for radio, but also great opportunities. Radio needs to be there as it develops, to ride the wave, and exploit the new media. Radio can interact with its audiences as never before, and provide new services that were not possible a decade ago. I have radio clients who essentially run on-line newspapers, magazines, and even local television stations – without a printing press or a television transmitter. The opportunities are limitless – by unleashing radio’s creativity onto the digital media, radio will remain relevant in the digital age, and the industry will continue the good fortune that it has so long enjoyed. Digital media companies are going after radio’s audiences (see, for instance, this summary of the recent comments of Pandora founder Tim Westergrin about how that service will be taking on broadcaster’s drive time domination), so broadcasters must be ready to meet the challenge by competing on all platforms that are available in the digital media marketplace. Tomorrow is here today, and it is time to take advantage of its opportunities, and meet its challenges.

The Commissioner suggested that a relaxation of the ownership rules, which is currently under consideration (see our post on the pending Notice of Inquiry on the multiple ownership rules), could help existing media companies compete in the new media world.  We've written before about the concern that the prohibition against the cross-ownership of broadcast stations and daily newspapers (except in the largest markets where waivers are available, see our post here) might well outlast the newspaper.  But there are other issues to be debated - whether to allow radio broadcasters to own more stations in their markets (to compete with Internet and satellite radio which can both provide hundreds of channels of programming to any market).  And whether to allow television consolidation in smaller markets where economic realities seem to be dictating that independent television stations may not be able to survive.  These efforts will, of course, be subject to debate, as many still react with an almost automatic suspicion of more media consolidation (see our post on the opposition to shared services agreements in the TV world).  These issues, too, should play out in more detail in the coming months, as the FCC releases its Notice of Proposed Rulemaking on reform of the multiple ownership rules, where it will set out in more detail potential changes in the ownership rules that it will seriously consider in its Quadrennial review of these rules.  Watch for more on this proceeding, probably late in the year. 

The Commission is also, on a different track, completing its Future of Media proceeding (which we have summarized before).  That proceeding also looks at whether and how the local news and information needs of today's consumer are being met by the media, and how those needs will be met in the future.  This study, too, is expected sometime near the end of the year.  There have been discussions by those involved in these proceedings that the ownership review, while not formally tied to the Future of Media study, will nevertheless look at the findings of that review to inform its discussion of the ownership issues facing the FCC.  If that is in fact the case, and the Future of Media report is not completed until the end of the year, how can the modification of the ownership rules that relies on this study be completed before the end of the year?

The majority of the Commission is new since the last ownership review was completed in late 2007.  Given the emphasis on so many new issues since that time (including the broadband roll out and the proposals to reclaim some of the television spectrum for wireless broadband uses), one wonders if the Commission really will have the capacity to move quickly on the ownership review, which always involved many controversial issues.  And, with issues such as shared service agreements, newspaper-broadcast cross-ownership, television duopoly in small markets, and revisions to local radio ownership rules all seemingly on the table, there is no lack of controversy that will face the Commission this year.  So, prepare your comments, and get ready to let the FCC know what you think by the July 12 deadline.

This reliance on the new media, and the mantra that is being chanted regularly by the new Commission, seemingly approaches media issues from a position where there is an assumption (perhaps rebuttable, but there nevertheless), that the new media is where all the action is and where all the attention should be placed.  This is reflected by the proposals (about which we wrote here, and which have gained much press since we wrote about these ideas) to re-allot television spectrum to broadband, with the idea that this will serve the new media at the expense of the dinosaurs in the broadcast industry - exchanging a sure thing that serves virtually the entire country for a promise of service in the future.  It also ties into a feeling that seems to be pervading government, that the "traditional media" can no longer be counted on to serve the needs of the public.  Not only is there this appointment, but there is also the upcoming workshop at the FTC on how newsgathering will survive in the future in light of the technological and economic challenges to newspapers and other traditional media.  Perhaps, in the words of Monty Python, it's time for the broadcast industry to rally and cry - "not dead yet" - as a vibrant though challenged industry is being almost assumed by the regulators to be out of business.

The Capital Formation workshop is perhaps a good sign that the Commission has not totally abandoned the broadcast industry, as the Public Notice announcing that event does specifically refer to the broadcast industry.  The lack of financing to acquire broadcast stations has been cited by many observers as the biggest impediment to minorities and other new entrants getting into broadcast ownership.  We are bound to hear those issues discussed in this week's workshops on the new multiple ownership proceeding.  While the Capital Formation workshop may be one way to address that deficit, we do note that the companies who are identified as participating do not seem to have a broadcast background, but from their descriptions in the public notice, they all seem to be more invested in technology companies.  Will potential owners who attend the session be disappointed by the lack of broadcast investors who are present?

These actions show the conflicted nature of the FCC when it comes to broadcasting.  What kind of reform is possible, and what kind of broadcast industry will we see in the future?  Will regulation recognize the change in technology and allow broadcasters to adapt to the changes, or will regulation force that change, or will broadcasters continue to be regulated as they always have been (or as they once were 25 years ago as some proponents of more regulation seem to suggest)?  These will no doubt be questions addressed on these pages many times in the coming months.