A new President and a new Chair of the FCC have already demonstrated that change is in the air in Washington. Already we’ve seen Chairman Pai lead the FCC to abolish the requirement that broadcasters maintain letters from the public about station operations in their public file (which will take effect once the Paperwork Reduction Act analysis is finalized), revoke the Media Bureau guidance that had limited Shared Services Agreements in connection with the sales of television stations, and rescind for further consideration FCC decisions about the reporting of those with attributable interests in noncommercial broadcast stations and the admonitions given to TV stations for violations of the obligation for reporting the issues discussed in, and sponsors of, political ads (see our article here). Also on the table for consideration next week are orders that have already been released for public review on expanding the use of FM translators for AM stations and proposing rules for the roll-out of the new ATSC 3.0 standard for television. Plus, the television incentive auction moves toward its conclusion in the repacking of the television spectrum to clear space for new wireless users. Plenty of action in just over 3 weeks.
But there are many other broadcast issues that are unresolved to one degree or another – and potentially new issues ready to be discussed by the FCC this year. We usually dust off the crystal ball and make predictions about the legal issues that will impact the business of broadcasters earlier in the year, but we have waited this year to get a taste for the changes in store from the new administration. So we’ll try to look at the issues that are on the table in Washington that could affect broadcasters, and make some general assessments on the likelihood that they will be addressed this year. While we try to look ahead to identify the issues that are on the agenda of the FCC, there are always surprises as the regulators come up with issues that we did not anticipate. With this being the first year of a new administration that promises a different approach to regulation generally, what lies ahead is particularly hard to predict.
But, we’ll nevertheless give it a try – trying to guess the issues that we will likely be covering on the Blog and dealing with on behalf of our clients this year. We’ll start today with issues likely to be considered by the FCC, and we’ll write later about issues that may arise on Capitol Hill and elsewhere in the maze of government agencies and courts who deal with media issues. For information about standard filing dates for broadcasters, see our calendar of regulatory deadlines for broadcasters published last month.
So here are some issues that are on the table at the FCC. The aftermath of the TV incentive auction may well suck up much of the attention, especially in the first half of the year, and we’ll write about that separately. But there are many other issues to consider. We’ll start below with issues affecting all stations, and then move on to TV and radio issues in separate sections below.
General Broadcast Issues
Issues likely to be considered this year that could affect both radio and television broadcasters, include:
Multiple Ownership Rules Review: Last year, the FCC addressed its long outstanding Quadrennial Review of the broadcast multiple ownership rules by declining to make any changes in its ownership rules except to effectively ban new Joint Sales Agreements in television except between two stations that can be commonly owned under the multiple ownership rules, and requiring more reporting on various forms of shared services agreements (see our articles here and here). Despite calls for reform and relaxation of the rules, no changes were made in the local TV ownership rules nor in the ban on the cross-ownership of newspapers and broadcast stations. Both of the Republican Commissioners dissented from that decision, suggesting that times had changed and the rules needed to adapt.
Now those same Republicans are in the majority at the FCC, and broadcasters are expecting things to change. Already, petitions for reconsideration of this decision have been put on public notice for comment, with comments by broadcasters and newspaper companies supporting reconsideration, and public interest groups and some cable associations (with respect to loosening of the local television ownership rules) questioning the need for changes in the rules adopted last year. Issues to be considered on reconsideration include revisions to the local ownership limits for TV (including loosening or abolishing the ownership caps for TV stations in individual markets), elimination of the newspaper-broadcast cross-ownership rule, and elimination of the FCC’s recordkeeping requirements for stations operating with Shared Services Agreements. For radio, a request is on file to change the Commission’s treatment of the ownership attribution of stations in embedded markets. We would expect FCC action this year on these proposals (any appeals of which would likely be consolidated with appeals of last year’s decision which are pending in the US Court of Appeals).
Also under consideration is whether the FCC should continue to apply “the UHF discount” in assessing compliance with national ownership caps for TV, an issue which is discussed in more detail in the Television section, below.
In short, given the past statements of the two Republican commissioners who now form the majority at the FCC, expect to see deregulation in these ownership rules. Fast consideration can be given to those issues that are already before the FCC on reconsideration. It may be a longer time before we see other changes, e.g. changes in the local radio ownership rules, But we expect change are coming.
General Regulatory Underbrush: The new Administration, and both of the Republican commissioners, have indicated a real interest in doing away with rules with little real public interest benefit that require the time and resources of broadcasters to achieve regulatory compliance. We would expect action in this area this year, with new proposals being advanced to cut down on the regulatory burden of broadcasters and other FCC regulates. Already eliminated is the requirement that broadcasters retain letters from the public about station operations – the last vestige the paper public file for many stations. Some broadcasters suggest that the FCC go even further and reduce other public file requirements. When the file was on paper and stored at the station (as it still is for many radio licensees), broadcasters were almost unanimous in stating that the file was virtually never visited – except perhaps when a competitor sought to stir up trouble, or when a local university broadcasting professor assigned a class project requiring students to visit stations and ask to view their public files. Now that these are online and hosted by the FCC, viewership statistics for these files might be very illuminating to see just how often they are visited by the public.
The main studio rules themselves are viewed by some as being an anachronism by many broadcasters. Over the years, the FCC has eliminated rules that require specific amounts of programming originated from main studios. Now that the public file has gone online, all of the theoretical reasons for mandating access to the studio has disappeared. While it may still be important that local residents be able to communicate with their local stations to report matters of public interest and to comment on station operations, do these matters really require a local main studio manned during all business hours? As much communication already takes place by electronic means, and face-to-face meetings can easily be set up by making appointments, the costs of manning a main studio could be eliminated. Especially given the security concerns noted in the proposals on the elimination of the paper public file, we would expect the FCC to review the main studio rule, and perhaps many other rules, in the near term. Many other similar areas may be ripe for review in the coming months as well as the FCC looks to abolish unnecessary regulation.
EEO Rules: One of those other areas ripe for the review that take up significant amounts of broadcaster’s time and resources is EEO. There are fundamental issues about the FCC’s EEO policies that have not been addressed in the 12 years since these rules were first adopted. Already teed up to the Commission is a proposal that would make the EEO rules comport with today’s business reality by allowing required EEO recruiting outreach to be conducted solely through online sources, a reversal of the position taken in several recent cases (see our post here). As Commissioner O’Rielly has been a big proponent of online recruiting (see our article here), we would not be surprised to see this proposal to move quickly through the FCC.
One question that has arisen since the election is whether EEO reform should go even further. The new administration has floated ideas about transferring FCC oversight of certain activities from the Commission to other agencies specialized in handling such issues. Some broadcasters have noted that the EEOC and state employment agencies are charged with overseeing all employers to assure that they do not discriminate in hiring. Is there really a need for the FCC to impose additional EEO burdens on broadcasters on top of the paramount requirement that they don’t discriminate? At the same time, many equal employment advocacy groups argue that these rules are still important, and even that they should be more stringent in certain areas. Time will tell whether the FCC takes further steps to review the regulatory burdens on broadcasters in this area, but we would expect that the issue will be raised with the FCC.
FCC Reform. While Congress is considering its own proposals for regulatory reform of the FCC, one issue that has been mentioned in many articles on the new administration has been the proposal to reduce the scope of the issues considered by the agency – leaving many issues to other agencies with more expertise. Leaving merger review to antitrust authorities, leaving sponsorship and contest issues to the FTC, and moving authority for EEO to the EEOC and state employment agencies would be some examples of where power could be devolved from the FCC. Will it? It certainly would be a process that would take more time than many of the other changes mentioned in these pages so it will be something to watch.
Political Rules: We just saw the new FCC rescind the decision of the old one – a decision which had attempted to clarify its political disclosure rules by requiring broadcasters disclose in their public files a list of all issues addressed by any political ad, and all executive officers or directors of third-party groups buying political advertising time. The decision was rescinded, but the issues remain pending. The two Republican commissioners expressed concern that they had not approved the final decision in these cases. Some clarification of this decision is likely, if only to address whether, in candidate ads, stations really need to look at each candidate ad and identify all of the specific issues addressed. Look for further action on these issues to come quickly.
While there have been calls for even more disclosure since the Supreme Court’s Citizens United case allowed for more significant political spending on broadcast commercials by corporations and other third-party organizations, that traditionally has not been an issue that the current majority political party has wanted to tackle. Another area that loomed large with the last administration was in the area of sponsorship identification. We saw the FCC impose a large sanction – $540,000 – on a radio operator for not fully identifying the sponsor of an issue ad. Plus there are complaints pending against many TV stations for not identifying the “true” sponsor of a PAC ads, where the PAC was principally funded by a single individual. We are still looking at other outstanding issues pending before the FCC from previous elections – including appeals of the decision of the FCC, issued just before the 2012 Presidential 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. The FCC also asked about the “last in, first out” policies that some stations use to determine which ads to preempt when they have too many preemptible ads, and whether such policies, when applied to political candidates, are an issue. While these questions are outstanding, they would not seem like high priority issues for this new administration, so we’ll have to see if they are even addressed in the coming year. Given that this is an off-year in the election calendar, perhaps it would be a good time for all sorts of political broadcasting issues to be tackled by the FCC, but we are not sure if it will be a priority.
Foreign Ownership of Broadcast Stations. In late 2013, the FCC issued a statement clarifying its policies on the foreign ownership of broadcast licensees, making clear that what was thought to be an absolute prohibition on the ownership of more than 25% of the stock of the parent company of a licensee by non-US citizens was in fact only a guideline that could be exceeded if proposed greater foreign ownership of a station would not adversely affect the public interest. While many thought that this would bring an influx of foreign investors to the US broadcast marketplace, the first company to file an application seeking FCC consent under this new policy was Pandora, and not because it believed that its foreign ownership exceeded 25%, but instead because, as a public company, they could not absolutely prove the citizenship of all of their shareholders using standards that the FCC adopted in the 1970s, long before many of the current ways of trading public securities came into being. Last year, the FCC simplified rules for public companies to assess their foreign ownership, and early this year approved two transactions involving Spanish-language broadcasters allowing foreign ownership to exceed 25%, and this week approved another application allowing a Cayman Islands-based company to increase its investment in Pandora. Still pending, however, is a case where foreign owners seek to acquire 100% of a radio company, as well as other cases involving other foreign ownership combinations in excess of 25%. While the Republican Commissioners were fully supportive of the liberalization of the foreign ownership rules that have occurred thus far, we wonder if the political rhetoric about foreign trade will inhibit the FCC from taking the next step to approve 100% foreign ownership of a broadcast station. Given the number of pending cases, some indication should come relatively soon (or if they are not approved in the next few months, that alone may provide some indication there as to the new administration’s view on these issues).
Indecency: After the Supreme Court decision in June 2012, upholding the FCC’s right to regulate indecency but questioning the current procedure for doing so, the FCC’s regulation of indecency has been up in the air. In 2013, the FCC took public comments asking how it should proceed in this area, suggesting that it reserve enforcement actions for egregious violations – and asking for comments on how such complaints should be identified. While 2015 brought a $325,000 fine for a violation of the indecency rules (the first fine of that magnitude issued by the FCC), in general, the FCC has been quiet in enforcing its indecency rules since the Supreme Court decision. As the FCC’s 2013 proposals drew many agitated comments and prompted much media attention, we question whether a clarification of these long-ambiguous rules will be in the cards in the first year of this new administration.
Public Interest Programming Reports: In a proposal released in 2011, the FCC issued a Notice of Inquiry 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 in 8 years ago for television but never implemented. The proposal 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. We have not heard much about the status of this proposal lately. 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. Given the inclinations of the current majority of Commissioners, we would not expect any action on this matter this year (except to, perhaps, close the book on the proposal).
The Incentive Auction has been the dominant concern for TV broadcasters for several years now, and, barring any last minute glitches, this will be the year that it concludes. The Reverse Auction is now closed, and the Forward Auction only has to finalize the allocation of particular channels to winning bidders to close the book on the auction itself, a process that the FCC has said will conclude by the end of March. But then will come reality – the repacking of the remaining TV stations into a much smaller TV band during a 39 month transition period. This smaller band, until the next generation of digital television through ATSC 3.0 becomes a reality, will have less room for new television stations, and may result in the loss of some LPTV and TV translator operators.
While the repacking will be the center of attention for many television stations, there are many other issues before the Commission that could also have a significant impact on the operation of the remaining TV stations. But there are perhaps not as many issues as in years past, as the FCC concluded the proceeding last year dealing with the relationship between television and MVPDs, and also seemingly decided to not pursue any expansion in the definition of an MVPD to include online video providers. So what is left for TV stations to deal with this year? The two big issues are likely to be the review of last year’s decision on the UHF discount and how it is applied for multiple ownership purposes, and implementation of ATSC 3.0. Review of local TV ownership rules and the treatment of Joint Sales Agreements are also likely on the table for FCC consideration this year. Specific issues for TV include:
UHF Discount: Last year, the FCC voted 3 to 2 to eliminate the UHF Discount which counts a UHF station as reaching only half of a TV market’s population in assessing a television company’s compliance with the current rules that limit any company to at most stations reaching 39% of the US TV households. The FCC had concluded that the digital conversion made the discount counterproductive as UHF stations have better coverage in a digital world, instead of suffering from the coverage issues that they faced in analog TV at the time that the rule was adopted. The Republican Commissioners, who are now in the majority at the FCC, have suggested that the rule should not have been repealed without Congressional authorization, and that any review needs to be tied into a review of the local TV ownership rules. As the local TV rules are now themselves subject to review (as described below), and a petition for reconsideration of the abolition of the UHF discount has already been published in the Federal Register, received comments pursuant to that notice and is now ripe for action, we would look for some reexamination of last year’s decision at some point relatively early this year.
Local TV Ownership Rules: Last year’s FCC ownership decision did not seriously review the local TV ownership rules. Many TV station owners argue that these rules are outdated. In a multichannel universe, most households have access to dozens, sometime hundreds of nationwide or worldwide networks; many of the most watched channels are commonly owned with no harm to the public. Yet the FCC’s local television ownership rules prohibit the combination of two local stations in all but the largest TV markets (those that will have 8 independent broadcast television owners after the combination) and prohibit the combination of two top-4 stations in any market. As then-Commissioner (now Chairman) Pai once noted, the FCC will allow Charter and Time Warner Cable to combine, but won’t let two TV stations in a small market merge. Moreover, especially in small markets, where the operational costs of running a TV station with local programming is not much different than the costs in large markets but the potential economic return is vastly smaller, having multiple commonly owned stations may be the only way to insure that a market has multiple over-the-air programming options. While a year ago, reform of these rules may have seemed far-fetched, today they seem very possible.
ATSC 3.0: A year ago, ATSC 3.0 was not even on our list of issues for the coming year. Today, it looks like it could become a reality this year. At next week’s FCC meeting, we are going to see a decision starting the formal rulemaking to adopt technical standards for the voluntary new transmission standard, and looking to set the rules of the road for that conversion. Given the promises of the new standard’s ability to integrate into today’s online digital media world while transmitting multiple programming steams and all sorts of IP-compatible data, many broadcasters see their economic future tied up in the new standard. Given the need to re-engineer so many TV stations as part of the incentive auction repack, this seems to be the time to adopt and implement the new standard – so watch for quick action on the rulemaking that is being put forward by the FCC.
Accessibility: In the last few years, many new rules on making video programming accessible to hearing or visually impaired viewers have come into effect. These include rules mandating the quality of closed captioning, the captioning of online video clips, and rules about making available audio versions on TV stations’ SAP channels of emergency warnings carried in crawls and otherwise visually presented during entertainment programming. The latter issue is still not totally resolved, as there is no technical methodology for easily converting visual images (such as weather maps) into speech for broadcast on the SAP channel (see our post here). Also pending is the resolution of remaining issues relating to the repurposing of captioned broadcast video onto the Internet. The FCC left open certain issues about the new captioning requirements for video clips – including whether to require that they be captioned when used on third-party websites, and how to deal with “mash-ups” of video clips taken from TV programs with video that comes from other sources. These issues have not been ones of partisan contention in the past, but whether they will be a high priority for the new Commission remains to be seen.
Many of the issues for radio are occurring outside the jurisdiction of the FCC, as they deal with copyright issues – especially in the area of music licensing. These issues are considered in Congress and in the Courts, and we will discuss them in a separate article. Other issues affecting radio – like EEO and other possible FCC deregulatory actions, were discussed above in the section on issues affecting all stations though, in many cases, they may affect radio operators more directly than other services. But there are some other radio-specific issues that the FCC will likely consider this year. These include:
AM Radio: Late in 2015, the FCC finally took its first steps to help revitalize AM radio. The first effort to assist AM owners began last year, when the window for filing to move FM translators as much as 250 miles to serve an AM station opened. Hundreds of FM translators around the country were moved to serve AM stations. At the FCC meeting next week, we expect the FCC to adopt the order that it put out for public review last month, allowing greater latitude for the location of FM translators for AM stations.
But issues still remain. The FCC has promised to open another window this year, where AM stations that could not buy translators during last year’s windows can file for new translators to rebroadcast their AMs, if there are frequencies available in their community. Other fundamental AM issues, like lessening protections of clear channel stations or, more dramatically, moving to a fully digitized transmission system, are contentious and a resolution seems far off. Chairman Pai has been a big proponent of the rescue of AM, so look for some attention to these issues in the coming year as the Chairman spearheads efforts to find solutions to these difficult issues.
FM Translator Issues: Believe it or not there are still FM translator applications left from the 2003 FM translator window that have not been disposed of. While most of the mutually exclusive applications settled, and thousands of new FM translators from that window were granted in 2013 (see our articles here and here), there are still applications that are mutually exclusive that remain to be processed. Look for an auction for these final applications to be announced after the incentive auction has been completed.
Local Radio Ownership Rules: While review of the local TV ownership rules is an issue pending before the FCC right now in petitions for reconsideration of the FCC decision on those rules from last year, review of the radio rules (except for the limited issue of how these rules are applied in embedded markets) is not directly on the table. Yet, more and more, broadcasters are talking about whether those rules need to be examined. The issue of whether the sub-caps still make sense, limiting the number of AM or FM stations that one owner can hold in a given market, will be an issue that will be debated more and more in the coming year. While a broadcaster can own up to 8 stations in the biggest markets (those with at least 45 radio signals), they are limited to owning only 5 FM stations. As the audio marketplace is no longer one where radio dominates as it once did in the past, and as the competition only seems likely to increase as the connected car becomes more common, it seems like it is time for these rules to be re-examined.
Other Technical Rules: While not specifically teed up for consideration, we would not be surprised if the FCC looks at other technical rules that have posed issues for radio broadcasters in the past. One area of concern has been the rural radio rules that have restricted the movement of stations to areas where they can serve the most people. Could this policy be up for review? Are there other processing issues that have slowed the provision of service and the highest and best uses of radio facilities? Broadcasters have an FCC that seems much more receptive to business concerns. Thus, we would expect that there will be more proposals that are brought forward in the coming months to lessen the regulatory burden on broadcasters, and to create more opportunities for them to thrive in the coming years.
These are but some of the legal and regulatory issues that will be facing broadcasters in the upcoming year. There are many other issues that can pop up at any time – especially in the unpredictable atmosphere of a new administration. And there are many issues in Congress or at other agencies that could affect broadcasters. We will write about those issues in other articles in the near future. But, just from the list here, you can see that there is plenty of change on the regulatory horizon for broadcasters likely for 2017 – probably more than we’ve seen in decades. So pay attention as the issues arise – as, in the coming months, there may be many business opportunities that arise from regulatory changes. Be ready to take advantage of them!