The FCC has released the agenda for its first open meeting of the year, scheduled for this Thursday, January 17, 2008.  The agenda consists solely of presentations by the various Bureau Chiefs discussing their various policies and procedures in implementing the agency’s "strategic plan."  Such an agenda, while not common, is not unheard of, especially for the first meeting of the year, and especially after so many controversial decisions were made in the last two meetings at the end of 2007.  

This agenda was released a few days after House Energy and Commerce Committee Chairman John Dingell announced an investigation of the Commission’s rulemaking procedures and management practices.  FCC Chairman Kevin Martin has been under fire from Republicans and Democrats alike in both the House and Senate, especially following the agency’s December meeting in which the newspaper/broadcast cross-ownership ban was modified, as we discussed here.  Congress has criticized the agency’s lack of transparency, and infighting among the Commissioners has become open and much talked about in Washington, as reflected in meetings that are often delayed by hours and in Commissioner’s Copps’ vitriolic dissenting statement read aloud at the December meeting. 

Continue Reading FCC to Hold Open Meeting Featuring Bureau Chief Presentations – While Congress Investigates

This week, the Copyright Royalty Board issued an Order denying a request by SoundExchange for rehearing of certain aspects of the decision released last month setting the royalties for satellite radio – XM and Sirius.  These are the royalties for the use of sound recordings by these services on their digital systems.  The decision, which set royalties at 6 to 8% of revenues of these services, and the denial of the rehearing motion, provide examples of how the CRB applies the 801(b) standard of the Copyright Act.  In setting royalties, that standard assesses not only the economic value of the sound recording, but also the public interest in the wide dissemination of the copyrighted material and the impact of the royalty on the service using the music.  The satellite radio decision sets a royalty far lower than that assessed on Internet radio – where the royalty is set using a "willing buyer, willing seller" standard looking only at the perceived economic value of the sound recording.  That willing buyer, willing seller standard is also proposed for broadcast radio in the recently introduced performance royalty bills now pending before Congress (see our summary here) – so it could be expected that any royalty set using that standard would be higher than that set for satellite radio. 

The initial Copyright Royalty Board decision, the full text of which is available here, first made a determination of how to compute the royalty.  While both the satellite radio companies and SoundExchange initially suggested a percentage of revenue royalty given that satellite radio can’t count specific listeners, the parties later amended their proposals (after the Internet radio decision) to include a computation based on the frequency of a song’s play, to try to more closely approximate the Internet radio performance-based model (about which we wrote here).  In addition to the suggestion that this metric more closely approximated that used in the Internet radio decision, the satellite radio companies suggested that a metric based on the songs played would give them the opportunity to adjust their use of music to reduce their royalty obligation.  The satellite companies suggested that, if the royalty was too high, they could reduce the number of different songs that they played.  While not specifically referenced in the decision, it is possible that they also considered the possibility of getting waivers from artists to encourage playing particular songs, which could further reduce a royalty based on a per song computation.  The Board declined to provide that option, finding that the percentage of revenue option best took into account the business of the companies.  The Board also suggested that it doubted that satellite radio really had the ability to lessen the use of music in reaction to a high royalty rate.  (The Board does not discuss the possibility of royalty waivers, which are essentially worth nothing in a situation where the royalties are based on a percentage of a service’s entire revenue). 

Continue Reading Satellite Radio Music Royalty Reconsideration Denied By Copyright Royalty Board – What a Difference A Standard Makes

Investors in broadcast properties often seek to have their interests "insulated" from "attribution"   meaning that the interests do not count in a multiple ownership analysis.  In other words, if a party has an attributable interest in a company owning a broadcast station, that interest counts in determining whether the party can, under the FCC’s multiple ownership rules, own an interest in another station in the same market.  The FCC has extensive case law describing when an interest is non-attributable and does not count in a multiple ownership review.  In most cases, a non-attributable interest is one that does not hold voting rights on most company decisions.  However, the Commission has always recognized that the non-attributable, non-voting equity owner may retain certain voting rights when dealing with certain fundamental company actions, as necessary to protect the fundamental integrity of their investment.  In the recent decision approving the transfer of the Ion Media Network broadcast stations, the FCC clarified some of the permissible voting rights of nonattributable shareholders.

In the past, the FCC has permitted nonattributable owners to vote on certain fundamental actions of a company without threatening the owner’s nonattributable status.  Such fundamental actions included changes in the articles of organization or the by-laws of the company, a sale of more than 10% of the assets of the company, a merger or transfer of control of the company, a declaration of bankruptcy, or the issuance of new stock.  As these actions could all affect the fundamentals of the economic interests of the nonattributable owners, votes on these actions was permitted.  In the Ion Media case, new rights were found to not affect the non-attributable status of their investments

Continue Reading FCC Clarifies Permissible Activities of Nonattributable Investors

The National Telecommunications and Information Administration ("NTIA") now has made available the coupons for consumers to use to buy converter boxes that will allow analog television sets to pick up the digital signals of television stations.  We have written about the NTIA program before, here.  Digital signals are now available in most markets, and these signals will be the only signals available from full power television stations after the February 17, 2009 digital conversion deadline. The coupons, valued at $40, will be available until they run out (and, by most estimates, Congress has not appropriated enough money for every household to get coupons).  They are available to any household regardless of financial need, but can be used only to buy certain very simple converter boxes to convert over-the-air digital transmissions to analog so that the digital programs can be seen on analog television sets that are not hooked up to cable or satellite (cable and satellite systems will provide signals that will not need the use of these boxes).  The NTIA has a very helpful website, here, to explain the coupon program.  The applications for the coupons are available here. 

Any household can apply for up to two coupons.  Coupons cannot be aggregated to buy a single box – so the multiple coupons will only be of use to households with more than one set that is not connected to cable or satellite.  As set forth on the NTIA site, the boxes are expected to cost between $50 and $70, so the coupon will not completely cover the cost of the box.  What is perhaps most interesting is that, even though the applications for the coupons can be filed now, the coupons will not be sent out for another month or two, as there are no boxes yet available in local retail outlets.

Continue Reading Coupons For Converter Boxes Now Available From NTIA, So That Consumers Can Watch Digital Television on Analog Sets

On the last day of 2007, the FCC released a 108 page order detailing its rules for the final stages of the transition of US full power television stations from analog to digital, a transition that is to be completed in less than 14 months.  The Third Periodic Review, as the order is titled, covers in detail the timing of required construction of the final facilities for each full power television station, as well as various details on other transition issues.  While we will prepare a more detailed summary of the order, some of the more significant issues that the Commission addressed include the following:

  • Established firm construction deadlines for final digital facilities for television stations which have not yet constructed those facilities. The deadlines are:
    • February 17, 2009 for stations moving to a new digital channel, or to their analog channel, for their ultimate digital operations
    • May 18, 2008 for stations that will remain on their current digital channel and which already hold a construction permit for their digital operations
    • August 18, 2008 for stations that will remain on their current digital channel but which do not have a construction permit for their ultimate facilities
  • Extensions of these deadlines will be permitted only upon a showing that the circumstances preventing construction were unexpected or beyond the control of the licensee, including zoning and financial inability – though these standards were made more limited than those that previously applied.  Any extension beyond February 17, 2009 will be granted only if it meets the Commission’s tolling standards, e.g. there is litigation which must be resolved before the construction can begin or an Act of God that temporarily precludes construction.
  • By February 18, 2008, each television station licensee must file a new form with the FCC, Form 387, detailing the status of construction of the digital facilities of the station, and must update the information periodically if they have not yet completed their DTV construction.
  • The Commission has agreed to allow stations to receive Special Temporary Authority to operate with limited facilities, and to even cease analog broadcasting before the end of the transition or for periods of up to 30 days, if necessary to facilitate their ultimate construction, under certain specific guidelines and after prior notification that must be given to viewers. 
  • The current freeze on applications for increased facilities will be lifted after August 18, 2008
  • The Commission adopted new interference standards for applications for improvement in digital stations
  • Any digital station, whether operating as a licensee or permittee, must pay fees for any ancillary or supplementary services that they provide with their digital spectrum
  • Provided a format for the station identification that must be used when a digital station uses a secondary channel to rebroadcast another station, such as a low power television station.

 

Continue Reading FCC Releases Order Addressing the Process for the Final Transition to Digital Television

As the dates for the first Presidential primaries draw near, more and more stories appear in the press about attack ads growing in importance.  These ads are coming both from the candidates themselves trying to draw distinctions with their opponents, and from third party, supposedly independent, groups either attacking or supporting one of the candidates.  See, for instance, the recent story in the Washington Post on the increase in third party ads.  These ads have raised political issues on the campaign trail as to whether negative campaigns work, and as to how independent of the candidates the third party expenditures really are.  They also raise legal issues for broadcasters.  Whenever there are attack ads that are run on a broadcast station, there are complaints from the candidate being attacked about how unfair the criticism is.  Broadcasters have to deal with these complaints, and the sponsor of the ads makes a huge difference in the broadcaster’s responsibilities to check the truth of the statements made.    As we explain in our Political Broadcasting Guide, broadcasters may not censor the content of a candidate ad, and thus are exempt from any liability for the content of that ad.  But attacks contained in third party ads may require the broadcaster to do some investigation into the claims being made to make sure that they avoid legal liabilities.

For ads run by a candidate or his or her authorized committee, the Communications Act forbids a broadcaster (or cable company that chooses to sell time to political candidates) from censoring the candidate’s message.    Because of the no censorship rule, the Courts have ruled that broadcasters are immune from any sort of liability for defamation that may arise from the content of the ad.  Thus, broadcasters cannot reject a candidate’s message based on its content (with the possible exception of cases where that content would violate a criminal law, as opposed to just creating some civil liability), and need not take any action in response to a complaint by an opposing candidate that the ad contains incorrect or distorted information.

Continue Reading As Presidential Races Heat Up, So Do the Attack Ads – Legal Issues For Broadcasters Dealing With Third Party Political Ads

With 2008 almost upon us, webcasters streaming music on the Internet need to remember that the way of computing and paying royalties to SoundExchange will shift on January 1- a change that may be especially important for broadcast stations.  Under the Copyright Royalty Board decision reached last March, webcasters must pay royalties computed on a per "performance" basis.  A performance is a per song, per listener computation.  In other words, if an Internet radio station plays a song and 15 listeners are logged into the station at the time that the song plays, there would be 15 performances on which the royalty would need to be paid.  While broadcasters objected that they did not (and in many cases could not) track the number of performances that were made by their stations on the Internet, the CRB, on reconsideration of their initial decision, only went so far as the give stations an interim rate based on the number of  "Aggregate tuning hours" that a station served (e.g. one listener listening for one hour, or two for a half hour each would both be the equivalent of one aggregate tuning hour).   See our post, here, on the CRB’s reconsideration decision.  The aggregate tuning hour (or ATH) metric is one that is more readily obtain from a content delivery network or other bandwidth provider, and a metric that has been used since the first royalties were established in 2002.  Yet as of January 1, as the interim ATH rate applied only to 2006 and 2007, that method of payment will no longer be available, and many webcasters are wondering what to do to compute the per performance royalty.

Neither the CRB decision nor SoundExchange, which collects the royalties, explained what a webcaster who cannot count performances is to do when the option to pay based on aggregate tuning hours disappears.   The royalty for January performances is due to be paid to SoundExchange on March 16 (45 days after the end of the month), and a webcaster preparing to file its royalty statement on that day will need to have a performance count to include on its statement.  Many Internet radio companies have been trying to determine how to count performances and, while there are some services that offer to provide software to do so, it is my understanding that none are foolproof and, in some cases, they may not be able to get a complete count of performances.  And many smaller stations may not be able to afford such systems.

Continue Reading Internet Radio Reminder – No More Aggregate Tuning Hour Royalty After January 1

December 22 – just as broadcast stations are running their last-minute ads for Christmas shopping – is the first day of the Lowest Unit Rate period for the Presidential primaries and caucuses to be held on February 5.  According to the list of Presidential primary dates available on the website of the Federal Election Commission, here, states holding their Presidential primary or caucus on February 5 are: New York, California, Illinois, New Jersey, Arizona, Alabama, Arkansas, Alaska, Colorado, Connecticut, Delaware, Georgia, Massachusetts, Minnesota, Missouri, North Dakota, Oklahoma, Tennessee, Utah, and (for Democratic candidates only) Idaho and Kansas.  But, as we explain in our Political Broadcasting Guide, available here, the fact that the Lowest Unit Rate period begins now does not mean that stations need to charge Presidential candidates running ads this weekend the same amount that they charge these same candidates for spots that will run in mid-January, when inventory demands from commercial advertisers will be much less. 

As we explain in our Political Broadcasting Guide:

 What commercial spots do you look at in determining the lowest unit rate for a given class of time?

You look at the spots of that class running at the same time as the candidate’s spots. You need not look any further than those spots running (or being offered on a rate card) during the 45 days before a primary or the 60 days before a general election. But even within the 45 and 60 day periods, the rates can change. If, for instance, a long term package sets your lowest unit rate for a particular class of time, and the last spot from that package is run midway through the political window, after the last spot from the package runs, the rates for that class of time can go up for the rest of the political window. Similarly, if spots are sold on a demand basis, the lowest unit rate can change on an almost daily basis. If there are “fire sales” of spots during particular periods within a window, the lowest unit charge for the fire sale does not set the rates for periods outside of the fire sale period.

Continue Reading Lowest Unit Rates Start Today (December 22) for Super Tuesday Primaries

We wrote yesterday about the introduction of a bill in the House and the Senate proposing to impose a performance royalty on broadcasters for the use of sound recordings on their over-the-air signals.  At that time, we did not have a copy of the bill itself, but were basing our post on press releases and a summary of the provisions of the bill that was available on Senator Leahy’s website.  We have been able to obtain copies of the bill titled the  "Performance Rights Act" – or actually of the "bills," as the House and Senate versions are slightly different.  Reading those bills, many of the questions that we had yesterday are answered, and some new questions are raised as to how this bill, if enacted, would affect radio broadcasters.

One question about which we wrote yesterday was whether these bills would require that any royalty be determined by the Copyright Royalty Board using a "willing buyer, willing seller" standard or the 801(b) standard that takes into account more than a simple economic analysis in determining the royalty.  The 801(b) standard is used for services in existence at the time of the adoption of the Digital Millennium Copyright Act (essentially cable audio and satellite radio) and evaluates not only the economics of the proposed royalty, but also factors including the interest of the public in the dissemination of copyrighted material and the disruption of the industry that could be caused by a high royalty.  In connection with the recent CRB decision on the satellite radio royalties, the potential disruption of the industry caused the CRB to reduce the royalty from what the Board had determined to be the reasonable marketplace value of the sound recordings (13% of gross revenues) to a figure rising from 6 to 8 % of gross revenues over the 5 year term of the royalty.  In the Internet radio proceeding, using the willing buyer, willing seller model, no such adjustment was made.

In these bills, the proposal is to use the willing buyer, willing seller standard for broadcasting.  For a service that has been around far longer than any other audio service, it would seem that a standard that assesses the impact of a royalty on the industry on which it is being imposed would be mandatory.  Who wants to disrupt an entire, well-established industry that has served the public for over 80 years?.  But such a reasonable term is not part of the proposal here.

Continue Reading More on the Broadcast Performance Royalty Bills

A reminder to all radio and television broadcast stations, both commercial and noncommercial, that Quarterly Issues Programs Lists reporting on the important issues facing the stations’ communities, and the programs aired in the months of October, November, and December dealing with those issues must be prepared and placed in the stations’ public inspection file by January 10, 2008.  The failure to have a complete set of Quarterly Issues Programs lists, which were timely prepared and placed in a station’s public file, can lead to significant fines at license renewal time so all stations are urged to prepare their Quarterly Issues Programs lists in a timely fashion.  See our full advisory for further details.

In addition, commercial full power and Class A low power television stations are reminded that Children’s Television Programming Reports on FCC Form 398 must be prepared and filed electronically with the FCC by January 10, 2008.  The Reports must also be placed in the stations’ public inspection files by that date.  Our recent advisory is available here with all the details, including the requirements for DTV stations airing multiple program streams and details about the new Form 398.  Quarterly certifications regarding compliance with the commercial limitations in Children’s Programming should also be prepared and placed in the public inspection file by January 10th.