There have been many reports about the attempts by Sirius XM Radio to license music directly from record labels, bypassing any royalty rates set by the Copyright Royalty Board.  Direct licensing would have Sirius pay the record labels or copyright holders for the rights to use music, avoiding any dealings with SoundExchange, which normally collects the royalties for the public performance of sound recordings under the statutory license.  The most recent report about Sirius’ efforts was in the New York Times, here.  Sirius, like webcasters, pays royalties set by the CRB (if they cannot be negotiated among the parties) that cover the public performance of all legally released sound recordings.  While webcasters currently have royalties that are in place through 2015, the royalties for Sirius end in 2012, and are being litigated now (see our story here on the last royalties set by the CRB for Sirius).  To avoid the uncertainty of litigation, with which webcasters are very familiar, Sirius has been attempting to license music directly from the copyright holders.  This is not a new story – Rhapsody reportedly tried the same thing earlier this year, and Clear Channel tried to get royalty waivers from independent artists several years ago in exchange for more exposure for their music (see our stories, here and here).  Each time a music service suggests that it might want to license music directly to try to recognize some savings over the rates established through CRB litigation, the music community objects – see, for instance, the statements of unions AFTRA and AFM here, that of SoundExchange here, and that of A2IM (the association of independent record labels), here.  But what is really wrong with the efforts of services to negotiate lower royalties?  If you believe the testimony of SoundExchange’s own witness in the Copyright Royalty Board proceedings – nothing at all.  In fact it is to be expected. 

In the CRB proceeding that was held in 2005-2006 (and from which, most of the settlements arose that now govern the royalties for sound recordings played by Internet radio stations), SoundExchange relied on a number of witnesses, including one expert, Michael Pelcovits, an economist whose model was the principal testimony relied on by the CRB in establishing the rates they determined to be reasonable.  In his written testimony, Mr. Pelcovits stated as follows:

…a rate that is set too low may have serious economic dangers.  By setting a rate too low, inefficient entry may be encouraged, and inefficient levels of production will be encouraged, which can hinder the development of an efficient market.  It is also worth noting that setting the statutory rate too high will not necessarily be harmful to the market.  If the price is too high, parties can (and are almost certain to) negotiate agreements for rates lower than the statutory standard.  Thus, a rate that is set too high is likely to "self-adjust" because of the sellers’ natural incentive to meet the market. 

(Emphasis added).  The statutory rate referred to in this quote is the rate that is set by the CRB.  What this quote says is that, if that rate is set too high, then parties will naturally negotiate after-the-fact to try to find what the real market rate should be, and that such negotiations should be expected – not feared as many seem to be claiming as these attempts to cut deals come to light.  In other words, the music community seemed to favor (and expect) such negotiations, before they were against them it in their statements today. 

Continue Reading The Debate Over Sirius’ Attempt to Directly License Music – SoundExchange Once Said A Marketplace Negotiation to Adjust for High Rates “Was to Be Expected”

Last week, I did a presentation on the issues facing broadcasters at the Kansas Association of Broadcasters annual convention (a copy of the slides from my presentation is available here).  I spoke about some of the day-to-day issues that can get broadcasters into trouble, as well as some of the big policy issues that broadcasters need to consider.  My presentation was preceded by a session conducted by the agent in charge of the Kansas City field office of the FCC, who emphasized the many issues that the field agents discover at broadcast stations that can lead to fines.  In the week since I returned from Kansas, it seems like the FCC has wanted to demonstrate the examples given by their agent, as there have been a large number of fines demonstrating the breadth of technical issues that broadcasters can face.  Fines (or "forfeitures", as the FCC calls them) were issued or proposed for issues ranging from faded tower paint, tower light outages, EAS problems, operations with excess power, and the ubiquitous (and very costly) public file violations.  Fines of up to $25,000 were issued for these violations – demonstrating how important it is not to overlook the day-to-day compliance matters highlighted in my presentation.

The largest of these fines was for $25,000.  This fine was imposed on a station for failing to have operational EAS equipment, not having an enclosed fence around the antenna site, and a missing public file.  The fine was originally proposed in a Notice of Apparent Liability (the first step in imposing an FCC fine, when the FCC spells out the apparent violation and the fine proposed, and the licensee is given time to respond to the allegations), released in July (see our post here).  The licensee failed to respond to the Notice of Apparent Liability, thus the fine is now being officially imposed.

Continue Reading A Host of FCC Fines of Over $20,000 for Technical and Tower Issues – And a Presentation on How to Avoid FCC Problems to the Kansas Broadcasters

With less than a week to go before the first ever Nationwide Test of the Emergency Alert System ("EAS"), changes are being made for the November 9 test.  In a Public Notice released today, the FCC announced that the EAS message that will be conveyed will be only 30 seconds long, not the two or three minutes that were originally planned.  There were some concerns expressed by certain groups, include groups representing cable television operators, that while the test was underway, certain automatic systems would kick in, overriding the visuals from the programming channel being broadcast.  The automatic EAS alerts that would be transmitted in a textual format would not specifically say that they were being conveyed as part of a test.  While the audio accompanying the test would provide that information, representatives of the hearing-impaired community were concerned that some people might believe that a real emergency was taking place.  While the FCC and FEMA had initially indicated that a two or three minute test was necessary to make sure that the message could be conveyed throughout the whole daisy chain system and that the system would be capable of conveying a long message that might be necessary in the event of a real emergency, it appears that they have now agreed that a 30 second message will be sufficient, and less likely to start a "War of the Worlds" panic among those who don’t hear the audio message from the test.

The EAS Handbook for this Nationwide test (which we wrote about last week, here) is supposed to be at the control point of all stations and has been revised to take into account the new length of the test.  The revised handbook is available here.  Also, the Commission has made heard complaints about Form 1 on its on-line reporting system for this test, which we also wrote about last week.  One complaint was that the form required information about the location of the station in geographical minutes in decimal format, not in the minutes and seconds as expressed on the face of FCC licenses and in most FCC databases.  Many broadcasters had complained about that requirement – not knowing how to convert from minutes and seconds to minutes in a decimal format.  In response to those complaints, the Form has been revised to provide a link to a decimal converter program – where you can put in the minutes and seconds as expressed on your license and get the decimal expression of the transmitter site location.  Other minor changes in the form have also been made – including making some information (like a cell phone number for someone at the station) optional.

Continue Reading Revisions to Nationwide EAS Test Plans – Shorter Message and Changes in the FCC Handbook and Forms

The Third Circuit Court of Appeals today issued its decision in the case dealing with the FCC’s fine for the Janet Jackson "clothing malfunction" Super Bowl incident.  The Court once again rejected the FCC decision – essentially upholding a 2008 decision that had found the FCC’s indecency fine to be an arbitrary departure from prior precedent.  The Court found that the Commission had a policy of not finding a "fleeting image" actionable, and the Commission did not explain why it was changing its policy, or even acknowledge that it was in fact changing policy. The 2008 decision had been remanded to the Third Circuit by the Supreme Court after the Court’s decision on the Golden Globes case (see our summary here and here), dealing with "fleeting expletives", to determine if the Supreme Court’s decision had any impact on this case.  In today’s decision, the Court also found that a fine cannot be imposed on a party who did not know that the conduct in which it was engaging could lead to a fine.  Bob Corn-Revere and Ronnie London from our firm litigated this case, and have written a much more detailed explanation of the Court’s decision.  That explanation can be found here.  The full Third Circuit decision can be found here. 

The FCC adopted rules for the digital operation of FM radio stations (known as HD Radio or the Ibiquity In Band On Channel system – IBOC for short) in 2007 and allowed the Media Bureau to amend those rules as technical developments warranted.  In 2010, the Bureau authorized an increase in the power level of the digital portion of the FM signal by 6 db in all cases, and up to 10 db upon a showing that such an increase would not cause significant interference to adjacent channel stations (see our summary here). As the digital signal is carried on "sidebands" of the analog signal, which operate on part of a station’s assigned  frequency that is closer to adjacent channel radio stations, an increase in power on these sidebands has the potential for causing interference to closely spaced stations.  In a Public Notice released today, the FCC asked for comments on whether it should allow stations to increase power at different levels on each sideband.  As set out by the Bureau, in some situations, a station may be closely spaced to another station on one side of its frequency, on a channel either higher or lower than the one on which the station operates, but not on the other side of its channel.  By increasing power on only the sideband furthest from the adjacent channel station, the station can protect the adjacent channel station, yet still enjoy the possibility of expanded coverage that the higher power provides.

As set forth in the Notice, this proposal is advanced by Ibiquity (the company that holds the patent on the digital radio system) and NPR, which has been very active in promoting its use.  According to studies that they have produced (and which are linked to in the public notice), a digital operation with greater power to one sideband than another is technically possible.   The FCC asks if it is a good idea, and gives interested parties 21 days to file comments (measured from the date that this notice is published in the Federal Register) and an additional 14 days to file replies to the initial comments.  In the past, we have found digital radio operations to be among the most controversial topics about which we write, with some who feel that the system is not working and will never work, and others who see much promise in the digital sound and multiple channels allowed by the system.  We look forward to seeing the comments filed in this proceeding, to see whether these attitudes continue to persist within the industry.

As Federal funding to public broadcasters faces serious challenge in a Washington looking to cut the budget for all but the most essential government services, and where voluntary contributions to all noncommercial broadcasters have been constrained by the economic issues faced by the entire nation, more and more noncommercial broadcasters are facing tough questions about the future.  We’ve seen colleges and municipalities sell stations that have been community fixtures for decades, and noncommercial groups (including some religious broadcasters) deciding to call it a day and liquidate their holdings.  At the same time, the ratings success of many noncommercial broadcasters (both public broadcasters and those owned by religious or other community organizations), especially in the radio world, are showing much success in developing a large listening audience.  With noncommercial stations, by law restricted to raising funds without commercial advertising, many are looking for new ways of operating.  How are FCC regulations and interpretations reacting to these new realities? 

The FCC’s Future of Media Study (and the resulting Report on the Information Needs of Communities that we summarized here) recognized the importance of the diversity provided to communities by noncommercial broadcasters and, without detailing any proposals, indicated support for the development of new funding sources for those stations.  Similar general statements were echoed in the hearing on the report recently held by the FCC in Arizona.  But the options of the FCC in pursuing solutions are limited.  In a recent decision, a noncommercial entity that operated a number of stations in small rural markets asked for a waiver of the FCC’s underwriting rules to allow it to air a limited amount of advertising for commercial entities, restricted to the top of the hour, and presented so as to not break up normal programming.  The applicant justified the request on the current financial climate that made donations and grants hard to come by, especially in the rural areas where this group operates its stations.  While the Commission’s staff expressed sympathy for the applicant’s financial plight, it stated that it was powerless to waive the Communications Act, which prohibits noncommercial stations from broadcasting "any advertising."  Faced with this prohibition, and a fear of opening the floodgates to similar requests, the FCC denied the waiver.

Continue Reading Financial Challenges to Noncommercial Broadcast Funding – What Is the FCC Doing?

The full text of the FCC’s Order overturning its 2007 decision on online public inspection files for TV broadcasters and the adoption of the Form 355 "enhanced disclosure form" has now been released.  This order, adopted at the FCC’s open meeting this week (held on October 27, 2011, which we wrote about here), also contains a Further Notice of Proposed Rulemaking again suggesting an online public file, but this time it would be one hosted by the FCC.  In reading the full text, more details of the FCC’s proposal become clear.  As set forth below, the Order suggests everything from a future application of these rules to radio once the bugs have been worked out, to an examination of whether a station needs to save Facebook posts and other social media comments in the same way that it preserves letters from the public and emails about station operations, to a proposal for stations to document in their files information about all "pay for play" sponsorships.  Comments on these proposals, and the others summarized below, which include a request for detailed information about the costs of compliance with the proposals, are due 30 days from when the order is published in the Federal Register, with Reply Comments due only 15 days thereafter.  The FCC, after sitting on these obligations for almost 5 years, now seems to be ready to move quickly. 

In reaching it’s decision, the order first discusses some proposals that it was rejecting – some for the time being.  For radio broadcasters, the most important of the rejected thoughts was the extension of this rule to radio.  The Commission noted that there were proposals pending and ripe for action as part of the Localism proceeding (which we summarized here), to extend the online public file obligations to radio.  In this week’s order, the FCC decided that it was not yet ready to apply these rules to radio.  The Commission noted that there might need to be differences in the rules for radio (implying that, at least partially, there might be resource issues making it difficult for radio broadcasters to comply with these rules), and also finding that it would be better to see how an online file works for TV before extending the rule to radio.  But, from the statements made in the Order, there is no question but that, at some point in the future, some form of the obligations that are proposed for TV will also be proposed for radio broadcasters. 

Also, it is important to note that the FCC’s Localism proceeding is not dead yet.  While this week’s Order stems from the FCC’s Future of Media Report (renamed the Report on the Information Needs of Communities), and that report recommended that the Localism proceeding be terminated, this Order did not do that.  The Commission notes its plans to start a new proceeding designed to force broadcasters to complete a more comprehensive report on their public interest programming.  That proceeding may be where the looming Localism proposals are finally dealt with.  Statements at the meeting and passages in the Order make clear that the examination of the public interest obligations for broadcasters will begin with a Notice of Inquiry, which is a most preliminary stage of an FCC proceeding (which would be followed by a Notice of Proposed Rulemaking after the inquiry comments are reviewed) and then an Order.  So final resolution of these issues seem to be far down the road.  If that is the case, will the Localism proposals stay on the table until the Order in this new proceeding is adopted?  It is certainly unclear from the Commission’s statements thus far.

Continue Reading Text of Online Public File Order Released – Details of What the FCC is Considering, and Suggestion that Radio May Be Next

At its meeting today, the FCC vacated its 2007 Order mandating an online public file and the filing of the Form 355 “Enhanced Disclosure” form that detailed the public interest service of television broadcasters. But these requirements are not gone, as the Commission has adopted a Further Notice of Proposed Rulemaking asking to reinstate an obligation for an online public file, and a Notice of Inquiry is apparently circulating at the FCC that would propose a substitute for the Form 355. The proposal for the new online public file apparently also suggests including new information in the online file, including information about sponsorship identification and copies of shared service agreements. While the text of the FCC order is not yet out, from the information provided at the FCC meeting, the following matters appear to be on the table at the FCC:

  • The FCC proposes that TV broadcasters will need to have an online public file, submitted to and maintained on servers at the FCC rather than on each individual station’s website
    • Several Commissioners suggest that the Commission will develop a mechanism for accessible storage of online public files, which may be searchable by the public
    • The online public file form will automatically import other FCC filings that are required to be in the file
    • Until the FCC electronic database is perfected, the documents will be placed online in their current formats
  • Letters from the public concerning station operations are proposed to be excluded from the online file out of privacy concerns, though broadcasters will still need to keep those letters in a public file at the station.
  • The online public file is proposed to include the political file, which was exempt under the 2007 rule as it would be too burdensome to update that report rapidly during an election season
  • The online file is proposed to include additional material not now required to be in the public file, including:
    • Copies of shared services agreements
    • Sponsorship identification information that is now only broadcast on air in connection with the program in which sponsored material is included
  • The FCC is currently considering a Notice of Inquiry, a draft of which is apparently circulating among the Commissioners now, that proposes some form of enhanced disclosure form that will replace the Form 355 (and the current Quarterly Programs Issues list) to document the public service provided by TV broadcasters

Continue Reading FCC Proposes Revised Rules for Online Public File – Including Political File – and Discusses the Public Interest Obligations of TV Stations

When the requirement that broadcasters have an antidiscrimination provision in their advertising contracts became effective, the FCC’s Enforcement Bureau issued a Fact Sheet that stated that broadcasters needed to make sure that this provision was not only in their own contracts, but also in that of rep firms and others who sold advertising on behalf of the stations (see our coverage here).  Many stations feared that this policy would alone be difficult or impossible to enforce, as the stations simply had no way of policing the actions of the reps.  There was also the fear that advertisers and their agencies would not want to sign agreements with these provisions, or that they would nevertheless buy advertising that avoided certain minority-formatted stations, just without the open "no urban, no Spanish" dictates that the rule was designed to guard against.  In an action this week, the American Association of Advertising Agencies, or the 4As as it is more popularly known, adopted a policy requiring equal opportunities for all "vendors" of member agencies.  As stations are considered vendors to the advertising agencies, selling them ad time, this policy is read as prohibiting its members from selecting stations on which to advertise with a discriminatory purpose – essentially filling in the other side of the equation that the FCC tried to enforce through the broadcast certification.  The 4As policy can be found here.  The policy establishes a procedure for complaints to its members for perceived violations of the policy.

This action was applauded in statements by FCC Commissioners McDowell and Copps, who both recognized that the FCC certifications could go only so far in combating discriminatory ad buying practices.  By having a strong partner in a strong trade organization working on these issues from the buyers’ side, the potential for the policy to have a real impact is increased.  The action should make the lives of broadcasters easier, by making advertisers more aware, through their own trade organization, of the general public policy against discrimination in advertising.  But broadcasters are in no way excused from continuing to enforce the FCC policy, and including the required disclaimer in their advertising contracts and other sales materials.  See our article here  for more information about this policy, some suggested language for the certification, and for ideas of what to do if the station does not routinely use advertising contracts in the sale of all of its advertising time.  Remember, this obligation on broadcasters is reviewed through a certification that the policy is in place at the station on the license renewal application, so take this requirement very seriously. 

The FCC has released its EAS Handbook, specially directed to the Nationwide EAS Alert that will occur on November 9.  This Handbook is to be posted at all stations that are participants in the EAS Network (which is virtually all stations) for purposes of this test only (stations should also have the standard EAS Handbook at their control points, but this Handbook will be used for the Nationwide Test).  Cable systems are also participating in the EAS system and are included in the test as well. As we have written before, the November 9 test is the first time that the Emergency Alert System (originally adopted in the 1960s as the Emergency Broadcast System) will be tested for a national alert, even though that was the original, and remains the primary, focus of the EAS system.  EAS is now used mostly for localized weather and Amber alerts. 

The Handbook also points to three FCC forms, to be accessed and filed online through the FCC’s website.  While the use of these electronic forms are, according to an FCC Public Notice summarizing the EAS obligations, not mandatory, any station not choosing to use this system will have to file a paper report at the FCC by December 27 providing all of the required information.  If you elect to use the simplified electronic forms, Form 1 is to be completed by all stations and cable systems prior to the November 9 test, to provide information about the station or system and a contact person.  Form 2 is to be submitted on November 9, indicating whether the test was received.  Form 3 is submitted after the test, by December 27, to report information about how the test was received, or why it was not received.  Stations deciding to use the electronic filing (which is easier than getting an original and a mandatory copy to the FCC if a paper form is filed) should begin to review and complete Form 1 immediately.

In addition, the NAB has provided much material on the EAS Nationwide test, available here, including PSAs that stations should run now alerting the public that the November 9 test is only a test and not a real emergency, and also providing a suggested slide for TV stations to air during the test itself.  The message that this is only a test, to be aired by radio stations, is contained in the Emergency Action Notification message that will be sent to stations during the alert.  A sample of that text is in the EAS Handbook.  As this is an important test of the EAS system, and will require broadcasters to report on their compliance, everyone should be preparing to take part – and checking their systems to make sure that they are fully functional – now. 

Continue Reading FCC Releases Handbook for Nationwide EAS Test – First FCC Form to be Filed Now In Anticipation of the November 9 Test