Broadcast Law Blog : Broadcast Lawyer & Attorney : Broadcast Law Blog : Seattle, Los Angeles, Washington D.C., New York, San Francisco, Shanghai

Indecency: After the Supreme Court decision in June, upholding the FCC's right to regulate indecency but questioning the current procedure for doing so, the FCC's regulation of indecency is up in the air. Many license renewal applications for both radio and television stations are held up because of pending complaints, and many sales of stations happen only when the seller's agree to escrow funds to cover any indecency fine that may occur at some point in the future – when the Commission decides what standards to apply to the pending complaints. With so many applications held up, it would seem that the FCC should deal with this issue soon.

EEO Rules: There are fundamental issues about the FCC's EEO policies that have not been addressed in the 9 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 from that long-ago proceeding. 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. Maybe this will be the year that some of these outstanding issues are finally resolved.

Privacy Issues: As the digital operations of broadcasters become more and more important, they will face many of the same issues that trouble many of the pure digital media companies. Chief among these issues is that of privacy. Congress, the FTC and other government agencies all are looking at issues as to how to protect the privacy interests of individuals while still allowing digital media companies to use information that allow the functioning of the digital systems, including the placement of advertising targeted to particular individuals based on their interests, as shown through their online habits. The FTC recently issued a report looking to update its enforcement of the Children's Online Privacy Protection Act, and expect that this will be but one of many attempts to impose new regulation on online services in an effort to protect the privacy of individuals.

Political Rules: In the recent election, we saw the effects of the Citizens United case in the significant political spending on broadcast commercials by third-party organizations. While there have been calls for more regulation on such ads, we don't expect action in that area this year. Instead, though, there may be some minor tweaking of the political broadcasting rules, as there are outstanding issues remaining before the FCC – including appeals of the decision of the FCC, issued just before the election, holding that TV stations have to give candidates equal access to certain single-issue candidates – even though such candidates are qualified only in the distant reaches of the station's coverage area, and even when such candidates are "running" for office not with any expectation that they will be elected, but instead simply so that they can get access to television stations to run some controversial commercials not primarily intended to promote their candidacy, but instead to promote their position on some other issue. In an "off-year", this might be the time to address some of these outstanding issues.

Public Interest Programming Reports: At the same time as it began its proceeding to adopt an Online Public File, the FCC began a proceeding to look at the adoption of a new form on which broadcasters would report the public interest programming that they do. This form would replace the Quarterly Issues Programs list, and the Form 355 adopted 5 years ago for television but never implemented. The proposal released in 2011 was simply a Notice of Inquiry, meaning that the FCC would need to adopt a Notice of Proposed Rulemaking to move further on this proposal. While we have not heard much about the status of this proposal lately, with some of the complaints about the usefulness of the Online Public File, this proceeding could bubble up at some point this year although, as no Notice of Proposed Rulemaking has yet to be released, before any new rules were adopted a whole new set of comments would need to be received. So don't expect a new form this year.

Television Issues

Spectrum issues have been the dominant TV concerns in past years, first with the digital transition, and more recently with the "white spaces" rulemaking and the proposals advanced as part of the FCC's Broadband Plan to reclaim part of the TV spectrum for wireless broadband uses. As in past years, these issues remain on the FCC's agenda, as do issues dealing with the carriage of television stations by cable and satellite television providers. Issues about accessibility to video programming and the implementation of other consumer protection issues are also on the agenda. Specific issues for TV include:

Spectrum reclamation: The FCC has issued its Notice of Proposed Rulemaking, proposing methods to implement a "reverse auction," where certain TV stations would bid to be able to sell their spectrum to wireless companies and either go out of business or move to a VHF channel or share spectrum with another station. This proposal has been a high priority of the FCC, and FCC staffers have been spending significant time working to convince broadcasters that there are real opportunities for some broadcasters in this proposal. Much consideration will be given to this proposal this year, and there will be a push to move toward finalizing these rules, as the Commission would like to actually hold the auction in 2014. Part of this process will also involve the "re-packing" of the current TV band, by trying to squeeze the remaining TV stations into less of the TV band, in order to provide more contiguous spectrum to the wireless companies. Look for more details on those proposals as the year rolls on.

Retransmission Consent Reform: There has been much talk in Congress, and a proceeding initiated at the FCC, to determine if the rules governing the negotiation of retransmission consent agreements should be changed. Some multichannel video programming distributors and some public interest groups argue that the FCC should protect viewers who may have their broadcast TV service disappear if a TV station does not reach a deal with a MVPD, while the broadcasters argue that the ability to remove the station from an MVPD is the heart of the negotiation, and removing the risk of the MVPD losing the right to carry the station would hobble the negotiation process. MVPDs also object to TV stations operating through a JSA or Shared Services agreement negotiating jointly, while TV broadcasters see that as a way to equalize their bargaining position, especially for stations not affiliated with the Top 4 networks. Look for some movement in this very controversial proceeding later in the year.

Accessibility: Each year, accessibility issues play a more and more important role in video transmissions – with this year bringing further obligations for video providers to caption television programming that has been repurposed for the Internet, including mobile applications. We would also expect that the FCC will rule on many of the waiver requests that are on file from independent programmers who had received closed-captioning waivers that were revoked when the FCC decided that it had been using the wrong standard for such waivers. The Commission also has a proceeding in which comments have recently been filed that seeks to impose rules requiring that TV broadcasters provide a second audio channel to convey to the blind emergency information that is presented visually on-screen. This would be to aid the blind, in the same way that the current requirements for on-air video captioning is required to aid the hearing-impaired. Look for more action in this area later this year.

White Spaces: The FCC has authorized the operation of wireless devices in the television spectrum, and permitted these operations throughout portions of the east coast of the United States. Expect that the roll-out of authorizations for full-implementation of white spaces to continue this year.

LPTV/Class A TV: As these stations look toward a mandatory digital conversion in 2015, expect that there will be more examination of the qualifications of Class A TV stations to retain their protected status. As the FCC looks to the spectrum auctions, Class A TV stations may tie up spectrum that will otherwise be available for the repacking of the TV band or auction to wireless companies. Thus, expect the FCC's scrutiny of these stations to continue through 2013 – especially with the license renewals of many of these stations coming due.

Radio Issues

Radio has fewer unique issues on the front burner in Washington, but something always comes up. Here are some of the issues we see coming to the fore in 2013 for radio broadcasters:

Performance Royalty: Even though things were relatively quiet on the performance royalty in the last Congress, we would not be surprised to see the issue resurface in 2013. SoundExchange, for the first time in a long time, will not be directly fighting a royalty proceeding at the Copyright Royalty Board. As, as described below, the issue of the streaming royalty rates will likely be in front of Congress, giving more opportunities for this issue to be considered.

Streaming Royalties: In 2012, the Internet Radio Fairness Act  was introduced in Congress, looking to apply a single standard for deciding the royalties to be paid by all digital music services. With a new proceeding to determine Internet radio royalties to begin in 2014, we expect that this bill will be back on the table early in 2013, and there will be significant pushes to get it through Congress this year – and significant push-back from SoundExchange and the record labels.

SESAC Antitrust Action: Broadcasters affiliated with the Radio Music Licensing Committee has filed an antitrust lawsuit against SESAC, seeking to bring it under the same kind of consent decree as ASCAP and BMI so as to try to rein in the rates that SESAC is able to command. Expect lots of litigation on this case this year, but no resolution, as these cases are very long and complex.

LPFM/FM Translator Issues: At the end of 2012, the FCC issued its long-awaited order finally dealing with the processing of FM translators left over from the 2003 FM translator window, and setting up procedures for processing LPFM applications once the translators are dealt with. The FCC has already issued an order setting January deadlines for translator applicants to pick the translators that they will prosecute under the application processing limitations imposed in last month's order. Expect the FCC to push hard to deal with all 2003 translators this year, and to open an LPFM window at the end of the year (October being the projected time, but it could potentially slip to later in the year).

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 other challenges may be coming from Washington for broadcasters as this year progresses.

A second concern claimed by RMLC is that it is effectively impossible to avoid a SESAC license. According to the complaint, SESAC does not make available a complete and accurate inventory of all of its music so that a user can try to weed all SESAC music out of its playlist to avoid paying its fees. In addition, there are claims that SESAC licenses music that it is impossible for stations to avoid playing – like music in commercials (music in McDonald’s commercials was given as an example). Given that stations can’t reasonably avoid all SESAC music, they cannot avoid having to deal with its licensing demands (or face the potential statutory liability of up to $150,000 for each violation, i.e. each musical selection they play without a license).

The RMLC action is not the first time that an antitrust law suit has been filed against SESAC. Very similar allegations have been raised by several television companies and documented on the website of the Television Music Licensing Committee. These issues were raised in an antitrust complaint filed in 2010. While a Judge denied SESAC’s motion to dismiss the complaint in 2011, there still is much litigation to go on that law suit. So, with the TV case still not even having gone to trial despite a two and a half year head start, don’t expect a fast resolution to the claims made in the RMLC proceeding. But stations should monitor this action and any updates on its status from the RMLC, as this proceeding may well have an impact on station’s licensing obligations in the future.

(Note: Corrected, 10/16/2012, as to the details of the Court in which the complaint was filed.)

The vast majority of commercial radio stations will elect to be covered by these settlement agreements. While there were a few commercial religious broadcasters that elected to separately negotiate with ASCAP and BMI, other commercial stations either must accept the agreements or negotiate or litigate with ASCAP and BMI over the terms of the agreements on their own – a very expensive proposition.  And not only would litigation be expensive, it would be hard to reach a deal that reduced royalties beyond the reduction reached by the RMLC negotiations.  The RMLC deals even resulted in credits against future royalties for overpayments by broadcasters in the past - BMI's reductions being built into the current royalty, ASCAP's being paid as a yearly credit against future royalties (causing many recent Asset Purchase Agreements in connection with the sale of radio stations to build in a clause asking for future credits to the seller for past "prepayments" of these fees). 

Broadcasters hate to pay for anything that they don’t think confers a benefit on them. This fee, while seemingly a little obscure, indeed pays real, tangible benefits to most stations in helping to control royalty costs.  Paying RMLC should not be viewed as an imposition by the vast majority of stations – as the payments provide funding for the RMLC to negotiate or litigate future royalty issues – including potentially with SESAC, which is currently not covered by any antitrust decree (see our article on SESAC here). Without guaranteed funding, the RMLC would not be as effective as it has been in rolling back the royalty fees that had been in place before the new agreements, and and it would not be as effective in fighting increases in the royalties in the future.

Both ASCAP and BMI had agreements in place with the radio industry that expired at the end of 2009.  Negotiations with the RMLC have been ongoing since the last agreements expired (see our article here).  The settlement just announced with BMI, and that announced a few months ago with ASCAP, were voluntary agreements to avoid the rate court proceeding.  Those proceedings can be very expensive, take a long time and, as with any litigation, the outcome can be unpredictable

SESAC, on the other hand, has never been subject to any antitrust consent decrees.  They were never thought to be large enough to merit antitrust scrutiny.  While some TV stations have brought an antitrust action against SESAC, seeking to have some kind of relief from what the TV stations claim is prohibited collusive behavior, that case is still progressing, will likely take a long time and, like any litigation, the outcome is uncertain.

Unless and until some court rules otherwise, SESAC is not subject to any rate review.  They are a for-profit company.  And like any for-profit company, they can negotiate rates and charge essentially what they want for their product.  Like any other commercial transaction, stations can decide not to play SESAC music, and not pay them.  But if they play any SESAC music, and don’t have a direct license from the publisher for the rights to use the music, they need to get an agreement with SESAC.  While SESAC has general licenses for broadcasters and most pay roughly the same amounts, as this is a commercial transaction, the deals can be negotiated by the user and by SESAC to fit particular circumstances.  And SESAC tends to charge separately for streaming, HD and other music uses, so there may be some opportunity to negotiate blanket deals covering all of these services.  But their rates are currently up to them, not subject to court review. See our article here for more information about SESAC. 

But, for now and the foreseeable future, SESAC is not likely to be “next” for the radio industry.  As for BMI and radio, we should see what the rates are there in a few weeks. 

Broadcasters obviously already pay for music that they play – to ASCAP, BMI and SESAC. And the rates that are being paid to these organizations may well be going up in the coming year, as both the ASCAP and BMI deals with the radio industry are to be re-negotiated this year. Of course, this money goes to the composers of the music, not to the performers (and the copyright holders in the performances – the record companies) who would be receiving the proposed new performance royalty on sound recordings. The proposed legislation states that the imposition of the performance royalty on sound recordings is not to have any effect on the amount that broadcasters pay to ASCAP, BMI and SESAC. Thus, the money would by necessity have to come from other station operations. Some broadcasters have suggested that one way of paying a sound recording royalty would be to simply pay what they are paying now to ASCAP, BMI and SESAC into a pot, and let the artists, composers and labels fight for it. This, of course, is opposed by the composers who rightly see the royalty as one of the principal ways in which they are compensated, as they do not share in the profits from the sale of CDs and downloads, but instead get a flat fee for a “mechanical royalty” established under Section 115 of the Copyright Act, and the composers do not typically get money from concert tickets or merchandise receipts that performers may enjoy.

This is not, as suggested by royalty proponents, a simple matter of broadcasters getting more money to pay for any royalty. It is a zero sum game, and if the money can’t come from the composer’s royalty, it has to come from station operations. Given the high fees sought (and received) by the recording industry for the performance royalty in sound recordings from digital services (where the least that has been paid is 6-8% of gross revenues by satellite radio, and that was only after the computed "willing buyer willing seller" royalty was found to be twice that amount but adjusted down to preserve the stability of the industry, and after having been initially adjusted based on the finding that half of the gross revenues of satellite radio were the result of talk programming not subject to the royalty), broadcasters could be asked to pay a huge bill (see our post here on computing that bill). And, with the FCC poised to potentially impose new localism requirements on broadcasters that would entail even more operational costs, something has got to give. Broadcasters hope that it is not their economic viability that is the thing that does the giving.