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On Friday, in a number of publications, a story was carried questioning the claims made by the NAB that the broadcast performance royalty being sought by the music industry could amount to 10-35% of the revenue of the radio industry.  A post on the Wired Listening Post blog seemed to have started the story.  This is the royalty which would be paid to the copyright holders in the sound recording – and would be in addition to the royalties paid to ASCAP, BMI and SESAC for the composers of music (see our post on the topic, here and here) .  Wired quoted a spokesman for the Music First Coalition (the music industry coalition seeking the performance royalty) claiming that the NAB’s claims are overstated – and that any broadcast royalty to be paid to sound recording copyright holders would be similar to those paid in Europe for the use of sound recordings, and similar to the amounts currently paid to ASCAP, BMI and SESAC for the use of the musical compositions, in the range of 3-5% of revenues. Only the Radio and Internet Newsletter seemed to question this statement.  From looking at the history of SoundExchange’s claims made in other royalty proceedings, the questions raised by RAIN seem entirely justified.  SoundExchange has consistently argued in connection with all of the other on-going royalty proceedings that the sound recording royalty is far more valuable than the composition royalty – asking for a royalty over 6 times the amount of the composition royalty – 30% of gross revenues.  How can Music First now contend that the royalty will be only a few percent of revenue, when their representaives have consistently requested royalties many multiples of that amount?

At the House Judiciary Committee hearing on the broadcast performance royalty (see our post, here), when committee members asked how much the royalty would be, Marybeth Peters, the Register of Copyrights, suggested that it could a simple matter of applying the "willing buyer, willing seller" criteria of Section 114 of the Copyright Act to broadcasting.  That standard is exactly the same one that led to the current Internet radio royalties which have been so controversial (see our coverage here).  In that proceeding, SoundExchange had asked for royalties of the greater of the per performance royalty that the Copyright Royalty Board imposed or 30% of gross revenue.  While the Copyright Royalty Board did not adopt a percentage of revenue royalty because they feared that it was too difficult to compute for services that had multiple revenue streams, most observers have estimated that the pe performance royalty exceeds 100% of revenue of the small commercial webcasters, and are close to 100% of revenue even for the Internet radio services provided by the major Internet content companies.  In making their offer of a "special deal" to Small Commercial Webcasters on May 23, with royalties between 10 and 12% of gross revenue, SoundExchange specifically stated that it thought that the 10-12% rate was "a below-market rate to subsidize small webcasters … to help small operators get a stronger foothold" in developing their businesses.  While 10% is suggested to be a "below market" rate in an immature industry still struggling to find a business model, the Music First Coalition now suggests that a royalty less than half that amount is what they would request for broadcast radio.Continue Reading Broadcast Performance Royalty – Getting Fooled Again?

The FCC last week approved two television "Shared Services Agreements," here and here, each between the proposed Buyer of a television station and a company that owns another television station in the same market.  In each case, the existing owner would sell advertising time for the station being purchased, as well as provide a loan guaranty for the funds necessary for the purchase of the station.  And the station already in the market would receive from the purchaser of the new station an option to purchase the station in the future, if that purchase is permitted under some future set of multiple ownership rules.  It is interesting that these decisions were released in the same week as the FCC issued two requests for public comment on the multiple ownership rules (see our post here).

These decisions probably mark the outside limit of what two stations can do in a television market where they cannot be co-owned without triggering multiple ownership concerns.  In the radio world, such agreements would not be possible to the same extent.  A radio licensee who provides sales services for another station in the same market, where more than 15% of the advertising time on the station is sold pursuant to such an agreement, would result in an "attributable interest," meaning that such services could only be provided to a station that could be owned under the multiple ownership rules. 

Continue Reading An Option, A Guaranty, and a Shared Services Agreement – OK By the FCC

In a Further Notice of Proposed Rulemaking, the FCC last week asked for public comment on a series of initiatives to promote the ownership of broadcast stations by minorities and other Socially Disadvantaged Businesses ("SDBs").  These proposals, which include the potential for the sale without requiring any divestitures of clusters of radio stations which exceed the multiple ownership rules now in effect, and the potential for investors to invest in stations controlled by SDBs, even if such investment would otherwise violate the existing multiple ownership rules.  The Further Notice was issued in response to a petition filed over a year ago by the Minority Media Telecommunications Council, which asked for a withdrawal of the FCC’s Notice of Proposed Rulemaking on the Multiple Ownership Rules (which we summarized here) because that Notice did not address the promotion of minority ownership of broadcast stations.  MMTC claimed that the Third Circuit’s remand of the 2003 Multiple Ownership decision mandated that consideration.  Comments on the Further Notice, which will be resolved as part of the current multiple ownership proceeding, are due on October 1, and replies on October 15. 

The Notice raises a number of suggestions for regulatory changes to foster the ownership of broadcast stations by minority owners and other SDBs.  In addition to allowing the transfer of grandfathered radio clusters that no longer comply with the multiple ownership rules, these include specific proposals that would accomplish the following:

  • Allowing investment by exiting broadcasters and others with attributable media interests into companies controlled by minorities without the investment being counted against the ownership holdings of the investing company
  • Allowing minority groups to purchase unbuilt construction permits, and get sufficient time to construct those stations, even if the construction permit is otherwise to expire as it has been outstanding and unbuilt for over three years
  • Granting some non-minority owned companies waivers to exceed the multiple ownership limits if they sell stations to SDBs (including a proposal to create tradable credits for creating minority-owned stations)
  • Allowing for the waiver of the alien ownership limits if the investment by foreign companies would assist a minority-owned company in getting into the broadcast business.
  • Revival of the policies permitting minority distress sales (where a broadcaster against whom there were issues pending which could lead to a revocation of a license could sell their station to a minority group and avoid the revocation proceeding) and minority tax credits  (where a broadcaster who sells to a minority group could defer gains on sale if the money was reinvested into any broadcast company in the future)

Continue Reading FCC Proposes Multiple Ownership Exceptions to Foster Minority Ownership

If you are a broadcaster, you know that it’s not going to be a good day when you walk into a hearing on the possible extension of the performance royalty in sound recordings to over-the-air broadcasters and see buttons saying "I Support a Performance Right NOW" on the lapels of every other witness on the panel – including the Register of Copyrights, Marybeth Peters.  But that was the scene in Washington, as the House Judiciary Committee’s subcommittee on Courts, the Internet and Intellectual Property held a hearing as to whether the right to collect a royalty for the public performance of a sound recording (the actual song as sung by a particular artist, as opposed to the underlying musical composition) should be paid by broadcasters.  Broadcasters in the United States have paid only a royalty on the public performance of the composition (to ASCAP, BMI and SESAC), and have never paid a royalty for the public performance of the sound recording.  The lack of a sound recording royalty has always been justified in the past on the theory that the artists and copyright holders in the sound recording benefit more than composers through the airplay of the sound recording, as they receive the bulk of the proceeds from CD sales, and the performers benefit from the promotion of live performances.  As they benefit from the promotion provided by the airplay of the song, there is no need for any sort of performance royalty.  As the music and radio businesses have both thrived in the United States – more so than anywhere else in the world – it seemed that this arrangement was mutually beneficial.

But, in recent years, the consensus over this mutually beneficial arrangement seems to have broken down.  Starting in 1995, a performance right in sound recordings has been imposed on digital services, including the royalty on Internet radio which has recently been so controversial (and about which we have written so much, here).  And, with the recent downturn in the record companies’ business, additional sources of revenue are being sought – thus the RIAA and SoundExchange, the collective that receives sound recording performance royalties, have started a Congressional push to require the collection of royalties from over-the-air radio.  And that push was reflected in the hearing held on Tuesday before a House Committee that seemed clearly to favor the imposition of this royalty on broadcasters.Continue Reading House Judiciary Committee Hearing on Broadcast Performance Right – No Breaks for the Broadcasters

Last month, we wrote about the US Court of Appeals throwing out the FCC’s decision to issue fines to broadcasters for the use of an occasional “fleeting expletive,” i.e. one of those impolite words that once in a while will slip onto a broadcast station’s airwaves, most usually in a live and unscripted program. The Court looked at the FCC’s decisions in this area and determined that they were inconsistent and did not provide the guidance that a broadcaster needs to determine what is and what is not permitted on the airwaves. Thus, the fines were thrown out as the Court found the FCC’s decisions to be arbitrary and capricious.  In an attempt to reinstate the FCC’s authority to regulate in this area, Senator Sam Brownback of Kansas, the author of the legislation which raised potential broadcast fines to $325,000 per violation of the indecency policy, last month suggested that he would introduce legislation that would overturn the Court action.  That proposal was preempted by Senate Commerce Committee, which earlier this month approved a bill introduced by Senator Rockefeller which would, very simply, state that the FCC had the jurisdiction to fine stations for a single word or phrase that they broadcast.  While the bill was approved by the Committee, the full Senate and the House of Representatives would need to approve the legislation before it could become law.

The proposal to give the authority back to the FCC to fine a station for an isolated utterance  is possible in theory, as the Court decision was based on the lack of consistency, clarity and guidance that the FCC provided to broadcasters about its standards, and not based on constitutional grounds.  However, reading the Court decision, one can see that the Court went out of its way to question the constitutional basis of the FCC regulation in this area. See our summary of the decision, here and here. A piece of Congressional legislation can reverse a Court ruling which was based on statutory interpretation, but it cannot reverse a decision that is based on a finding that a government action is unconstitutional. A constitutional amendment – which is obviously very rare –  is necessary for that.Continue Reading New Legislation Proposed to Overturn Court Decision on Indecency – Let’s Worry About the Constitution Later

The FCC released an order today, fining a broadcaster $20,000 for misrepresentations made in its license renewal application about the completeness of its public inspection file.  The fine issued in this case was not a fine for the fact that the file was incomplete (two stations in the cluster had each already been fined $4000 for the actual public file violations), but instead the fine was issued because the licensee had certified in its renewal application that the public file had been complete and accurate at all points during the course of the license term.  This case highlights both the need to keep an accurate public inspection file, and the need to carefully consider all certifications made in FCC applications.  Incorrect certifications can lead to fines and potentially even more severe sanctions if the FCC finds an intentional misrepresentation or lack of candor – the potential loss of a license.  Admitting a minor paperwork transgression like an incomplete public file will result in a fine – an inaccurate certification which appears to try to hide a problem can lead to far more severe consequences. 

In this case, the FCC found that the licensee had not maintained Quarterly Issues Programs lists.  The licensee claimed that its obligations had been met through a listing of public service announcements that the stations had put in their files.  The FCC rejected that argument, citing the requirement in its rules requiring that Quarterly Issues Programs lists contain "a narrative description of what issues were given substantial treatment" by the licensee as well as the programs that treated each issue.  In addition, the time and date of broadcast of each program, as well as its title and duration, is to be provided.  A simple list of PSAs does not meet these requirements – as it does not list the issues addressed, much less provide the detailed program information required by the rule.  For a summary of the Quarterly Issues Programs list obligations, and a model form to be used to meet the obligations, see our most recent memo on the subject, here.   Remember, the Quarterly Issues Programs Lists are a broadcast station’s only official record of how they have served the public interest needs of its community, so be sure that adequate attention is paid to the completion of these forms.Continue Reading Big Fines for Public File Violation that Escalated

In March, we wrote about the concurring opinion of Commissioner Copps in connection with the sale of Univision Communications, where the Commissioner asked whether it was in the public interest to allow the sale of broadcast companies to private equity firms.  That theme has now been picked up by Congress, as Congressman John Dingell, Chairman of the House Energy and Commerce Committee, and Ed Markey, Chairman of the Telecommunications Subcommittee, jointly sent a letter to the FCC asking for answers to a series of questions about the impact of private equity ownership of media and telecommunications facilities.  The letter, here, cites the Univision case, the acquisition of Clear Channel and the sale of a number of Radio One radio stations to private equity firms, and suggests that these firms may be more interested in cutting expenses and maximizing profits to the detriment of the public interest.  The letter asks a number of questions about whether the FCC has adequate information about such ownership to assess its impact on the public interest.

The questions posed by the letter include the following:

  • Whether the FCC currently tracks ownership of media properties by private equity companies.
  • Whether the FCC has assessed the impact of private equity ownership on localism and, if it has not, should it
  • Whether the FCC has adequate information to assess the impact of media ownership by these companies on multiple ownership considerations
  • Whether the Commission’s Equity-Debt Plus rules need to be revised to take account of private equity ownership
  • If the ownership of these entities is sufficiently public and transparent for the Commission to review that ownership.

The letter was addressed to Chairman Martin, and he was given until July 20 in which to respond.Continue Reading Congress Asks FCC to Answer Questions about Private Equity Ownership of Media Properties

In the last week, several new LPFM issues have arisen – one a Congressional push to authorize more of these stations by ignoring third adjacent channel interference to full power stations, and another involving complaints to the FCC about LPFM stations being forced to change channels or cease operation because of interference from changes made by full power stations. The latter issue has apparently arisen in the context of stations taking advantage of the FCC’s rules which made it easier to effectuate changes in the cities of license of FM stations (see our summary of the rule changes here), causing more movement of such stations. Both of these issues could present issues for FM broadcasters. 

The Congressional action was initiated by the introduction of legislation in both the House and the Senate that would eliminate third adjacent channel protections that full power stations have from LPFMs. Those protections have been the subject of controversy since the FCC authorized the LPFM service.  LPFM advocates have contended that the interference protections are unnecessary, as most FM receivers should be able to distinguish between stations on third adjacent channels. The NAB contends that the protections are needed as there are still many radios that would be affected by that interference. Full power stations, except for those authorized at short-spacings prior to 1964, are protected from third adjacent channel interference from each other. Competing engineering studies have been done, the FCC has not acted on this question (and in fact Congress had prohibited such action years ago).  But now, some feel that the time for some liberalization of the rules is in order.Continue Reading LPFM v. FM – More Stations Coming?

As the clock ticks down to the July 15 effective date of the royalty rates for Internet Radio as determined by the Copyright Royalty Board, webcasters held a Day of Silence today, June 26, to demonstrate to listeners what may well happen if the rates go into effect, and to galvanize their listeners to ask Congress for relief. With the Day of Silence bringing publicity to the Congressional efforts to put the webcasting royalties on hold and to change the standard applied by the Copyright Royalty Board so that it is not focused completely on a hypothetical "willing buyer, willing seller" model, it’s worth looking at some of the other issues that have arisen in the royalty battle in the last few days – including further pleadings filed in connection with the Motion for Stay currently pending in the US Court of Appeals, and the Congressional hearing that will occur on Thursday. 

As we’ve written before, there is currently pending a Motion for Stay of the CRB decision which was submitted jointly by the large and small webcasters and NPR.  Last week, the Department of Justice, acting on behalf of the Copyright Royalty Board to defend the royalty decision, and SoundExchange, each filed oppositions to the Motion for Stay. Each raised many of the same arguments. First, they argued that the large webcasters had procedurally forfeited their rights to challenge the question of the $500 per channel minimum fee by not raising their objection early enough in the CRB proceeding. The DOJ also argued that the damage from the minimum fee was speculative as there was no way to know how that minimum fee would be interpreted. The DOJ contended that, as it was unclear that SoundExchange would prevail on any claim that those Internet Radio services that produced a unique stream for each listener would have to pay $500 for each such stream, the question might end up in a lawsuit – but wouldn’t inevitably lead to the irreparable harm that is necessary for a stay to be issued.Continue Reading A Day of Silence, A Motion for Stay, and A Congressional Hearing – As the Internet Radio Clock Ticks Down