Posted on July 26, 2011 by David Oxenford

$12,000 Consent Decree Payment Demonstrates FCC Concerns About Sponsorship Identification Policies

A consent decree entered into by a radio broadcaster, which included a $12,000 "voluntary contribution" to the US Treasury, demonstrates once again the FCC's concerns about sponsorship identification issues.  The week before last, we wrote about the FCC fine levied on a television broadcaster for not including sufficient sponsorship information when a "video news release" was broadcast on a local television station without disclosing that the video footage had been produced by the automobile company whose products were featured.  The recent FCC Report on the Information Needs of Local Communities (formerly known as the Future of Media report) also focused on the need for more disclosure in connection with sponsored material carried on broadcast stations and other media (see our summary here).  With a long outstanding Rulemaking proceeding on these issues that remains unresolved (see our summary here), the Commission almost appears as if it is setting its policies in these areas through case law rather than through the rulemaking process.

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).

This Consent Decree, together with the other recent Commission actions targeting sponsorship issues, reminds broadcasters to be careful to disclose anything of value received by a station in exchange for any on-air content.  As I've warned broadcasters many times, it's not the fact that you were paid to say something on the air that is a problem, it's the lack of disclosure of the payment.  If the message that is conveyed about the product or service is not clearly a commercial message,  then you need to disclose the sponsorship.  Even in a traditional commercial, if it is not clear who bought the commercial, disclosure needs to be made in connection with the commercial itself (where, for instance, the sponsor is not the actual provider of the product or service, e.g. where an ad for a store is bought by the mall owner and not the store itself).  

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. 
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Posted on July 26, 2010 by David Oxenford

FCC Announces One Million Dollar Payola Consent Decree With Univision - What's It Mean for Radio Broadcasters?

The FCC today announced a $1,000,000 Consent Decree with Univision Radio to settle payola investigations underway at both the FCC and the Department of Justice.  Payola, or "pay for play" as it is called in the FCC Press Release issued today, is a violation of FCC rules and Federal criminal law, which both prohibit the broadcast of program content for which payment was received without disclosing the receipt of that consideration.  The payment of money to programming employees in exchange for the playing of certain music on the radio has been the situation where pay-for-play has received the most publicity.  Where payment is made for playing a song, without acknowledging to the public that the station's decision to play the music was based on payments and not on the station's determination of the merit of the music being played, then a violation exists.  In many cases, it is station employees who receive the payment, sometime unknown to station management.  But where the station has not taken sufficient steps to guard against pay-for-play situations by its employees, the licensee can still face penalties.  The Consent Decree sets out specific steps for Univision to take to make sure that the situations alleged to have occurred at the company's stations don't reoccur in the future.

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.

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Posted on July 22, 2007 by David Oxenford

Music Waivers Dropped Amid Payola Allegations - What's the Impact for Future Waivers for Webcasters?

As reported in Digital Music News and other publications on Friday, Clear Channel Communications dropped its waiver of music royalties from its on-line agreement signed by musicians submitting songs to the Company in hopes that their music would be played on the Company's radio stations.  In writing about this decision, most publications attribute the decision to the petition filed with the FCC by the Future of Music Coalition and other public interest groups arguing that the waiver requests constituted a form of payola - the giving of something of value (the waiver of the right to receive a royalty) in exchange for the playing of music.  However, on close inspection, that would appear to be a misunderstanding of the royalty, as there would seem to be no royalty that would be affected by the waiver in connection with the playing of this music by radio stations, and therefore there would be no payola over which the FCC has any jurisdiction.

According to the Future of Music petition, Clear Channel's promise to play new music was made in connection with the payola settlement that it and other companies entered into with the FCC, and was apparently contained in a side letter filed with the FCC, as it was not spelled out in the settlement agreements themselves. See our analysis of the settlement agreements, here.  The side letter promised that the Company would dedicate a certain amount of radio airplay on the Company's radio stations to new local music.  However, such play would not implicate any music royalties - so a waiver of royalties would not confer any benefit on the Company.  Broadcast stations pay no royalty for the use of a sound recording - thus the waiver that Clear Channel requested was without any value as there was no royalty to waive.  While broadcast stations do pay a royalty for the composition (the underlying words and music of a song), stations play flat fees to ASCAP and BMI that are a function of the station's market size and power - not a function of how many songs are played.  Thus, as there is no sound recording royalty and a flat fee for the composition royalty unaffected by any waivers, the waiver did not confer any benefit to the Company in connection with its broadcast operations.  Thus, there where would appear to be no payola issue over which the FCC would have any jurisdiction.

As we wrote, the royalty waiver only confers a benefit in the on-line world, especially in on-demand services such as downloads and podcasts, not subject to the statutory royalty set by the Copyright Royalty Board.  Over these services, the FCC has no jurisdiction.  Moreover, the impact of any proposal to limit these waivers, as suggested by the Future of Music petition and by a letter written to the parties to the payola settlement by Senator Russ Feingold investigating how the settlement was being implemented, presents some real issues in for services such as Internet Radio that are looking to these waivers as a possible means of reducing their royalties.

Since the decision of the Copyright Royalty Board on Internet Radio, it has always been assumed that one way some services could reduce their royalties was to get direct licenses from musicians.  SoundExchange has made much of the fact that artists were free to waive the collection of royalties if they felt that this was in their best interest by encouraging Internet Radio stations to play their music.  There have even been discussions by several parties of setting up  clearinghouses for music that could be played royalty-free as a way of encouraging the use of that music - and allowing Internet Radio stations to reduce their obligations and survive under the new royalties.  For instance, see a report, here, that Polka musicians are setting up their own system for giving Internet Radio stations rights to play their music without royalties.  If providing royalty-free music to Internet Radio stations constitutes some sort of legal issue, such exchanges could be imperiled.

While the Future of Music Coalition has suggested that the FCC petition continue even though Clear Channel has withdrawn their waiver, some consideration should be given as to whether the waiver policy is really contrary to the public interest  - or if such waivers may actually promote the widespread use of new and otherwise underexposed new music.  And for more than just polka music....

 
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Posted on June 24, 2007 by David Oxenford

Musicians Trade Waiver of Royalty Rights in Exchange for Exposure - Maybe Not Such a Bad Idea

Should artists waive their rights to performance royalties in order to get airplay on broadcast or Internet radio stations? That questions has come to the fore based on a click-through agreement that Clear Channel included on a website set up to allow independent bands to upload their music for consideration for airplay by its stations. While artist groups, including the Future of Music Coalition, condemned that action, there are always two sides to the story, as was made clear in a segment broadcast on NPR’s Morning Edition, in which I offered some comments. As set forth in that segment, artists may be perfectly willing to allow unrestricted use of a song or two in order to secure the promotional value that may result from the airplay that might be received. For the broadcaster or Internet site seeking such permission, getting all rights upfront may well be an important consideration in deciding whether or not to feature a song – especially in the digital media.

Critics of the waiver made much of the fact that the site was set up at least partially to meet Clear Channel’s informal commitment made as part of the FCC payola settlement to feature more independent music, even though that commitment was not a formal part of the settlement agreement.  (See our summary of the payola settlement, here).  Even to the extent that the informal commitments made by the big broadcasters encompassed making time available to more independent musicians, the critics ignore the fact that the companies do not need any waiver of any sound recording performance royalty in connection with the over-the-air broadcast of those songs, as there currently is no public performance right in a sound recording for over the air broadcasting (though artists and record lables are now pushing for such a royalty, see our story here). Thus, the use of the waiver was only for the digital world – which was not covered by the FCC's jurisdiction over payola promises or the promises to increase the use of independent music. So, effectively, the company is being chastised for trying to minimize their costs on giving the music even greater circulation through their digital platforms than they initially promised.

And even in the digital world, the releases gives the company the opportunity to provide even more exposure to music through services that the existing compulsory royalty for Internet radio doesn't cover.  For instance, the current royalties do not allow digital sites to feature any of that music in any sort of podcast or interactive service without specific permission from the artist.  Would a big broadcaster want to go through the extra trouble of securing such rights for a few plays on an interactive service or for inclusion of such music in a podcast?  Probably not for a new, unknown act.  When looking to expose new bands or those with limited exposure, it would seem that a waiver of whatever limited royalty an independent artist would receive from the statutory royalty (at the rate of approximately one-tenth of a penny per play, less the artist’s share of SoundExchange’s operating costs) would be a good deal in exchange for the possibility that the Company would feature the song on multiple digital platforms.

It would seem to me that the problem here was not the concept of a waiver of rights, but perhaps was due more to the execution through the click-through license. With all of the focus recently put on music rights by the Interent radio royalty controversy and other recent proceedings, more artists are becoming familiar with their rights and many would generally understand the language of that agreement.  Maybe the fact that the waiver was "discovered" by artist groups led to their surprise, and surprise often leads to the public outcry. But, when you look at the details of the controversy, there may be less fire than smoke in this case.
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