Davis Wright Tremaine attorneys Amber Husbands and David Oxenford conducted a webinar on August 26, 2009 for the Kansas Association of Broadcasters, discussing legal issues of importance to on-air talent. Issues discussed included broadcast indecency, station contests, sponsorship identification and payola issues, potential liability that can arise from the use of
A recent stir was created when a Midwestern television company was reported to have signed a contract with a state government agency, promising to market the agency and its programs throughout the state. This promotion was to include a segment in the company’s televised news promoting the effects of the work of the agency. Questions were immediately raised about whether this was prohibited by FCC rules. But, when the news pieces ran, the company was very careful to state after these segments that they were sponsored by the station and the state agency. As the FCC has no rules about what can be included in the "news" (and probably could not consistent with the First Amendment), the only real issue was one of sponsorship identification. As the licensee did here, if the sponsor of the story is identified, making clear to the public who was attempting to persuade them on the issue addressed, there should be no FCC issues.
This is different from the issues that have arisen previously at the FCC, where there have been fines levied against television stations and cable systems for airing programming that was sponsored, but for which no sponsorship identification was provided (see our posts here and here). This includes the video news release or VNR issues, where the FCC has fined stations for using news actualities provided by groups with a financial interest in the issue that was being addressed, but without identifying the fact that the material was provided by the interested parties. Where a program addresses a controversial issue of public importance, the disclosure rules are more strict, requiring that the station not only disclose that it received money to air a story – but to also disclose anything that it got from the interested party – including tapes or scripts.
In a recent article in Silicon Valley Insider, TargetSpot’s CEO, Doug Perlson, suggests that the financial savior of Internet Radio might be payola – taking money from record companies or artists to play their songs. Putting aside any issues of the financial benefits of such a plan, and the creative and aesthetic issues that pay for play may raise, and since this is a blog written by lawyers, we’ll deal with the legal implications. And as lawyers, we’re forced to play the spoilsport. As set forth below, such a scheme can be done legally (just as it could be on terrestrial radio with the proper disclosures). But, while there has been no legal enforcement of such activities, careful Internet radio operators would best be advised to be careful about just taking the money and playing songs, but instead should make some disclosure of the nature of the service that they are providing.
The payola statute, 47 USC Section 508, applies to radio stations and their employees, so by its terms it does not apply to Internet radio (at least to the extent that Internet Radio is not transmitted by radio waves – we’ll ignore questions of whether Internet radio transmitted by wi-fi, WiMax or cellular technology might be considered a "radio" service for purposes of this statute). But that does not end the inquiry. Note that neither the prosecutions brought by Eliot Spitzer in New York state a few years ago nor the prosecution of legendary disc jockey Alan Fried in the 1950s were brought under the payola statute. Instead, both were based on state law commercial bribery statutes on the theory that improper payments were being received for a commercial advantage. Such statutes are in no way limited to radio, but can apply to any business. Thus, Internet radio stations would need to be concerned.
At its December meeting, the FCC adopted a Notice of Proposed Rulemaking on Localism. At that meeting, while the Commissioners discussed the generalities of the proposals being made, the specifics of the proposals were unknown. The full text of the NPRM has now been released, and it sets out the areas in which the Commission proposes to re-regulate broadcast stations. The order also hints at a number of other proceedings that the Commission intends to launch in the near future, and reminds broadcasters of a number of other existing proceedings that will potentially bring about greater regulation. From the discussion in the NPRM, new rules will apply to all broadcasters – large and small – and potentially place significant burdens on all stations which, as always, are hardest for small stations to deal with. Given the number of new regulatory initiatives discussed by the Commission, the NPRM is a must-read for all broadcasters, and this proceeding is one in which all broadcasters should participate.
Among the specific proposals on which the Commission asks for comments include the following:
Community Advisory Boards: The Commission tentatively concludes that all stations will be required to establish a community advisory board to advise the station on the issues of importance to the community that can be addressed in the station’s programming. The Commission indicated that it did not want to bring back the burden of the ascertainment process that was abolished in the 1980s, but asks how the Board should be established so as to represent the entire community, suggesting that the categories of community leaders that were used in the ascertainment process could be used as a standard to guide the licensee in determining the make-up of the board. Other questions include how often the board should meet, and how the board members should be selected (or elected – though by whom, the Commission does not suggest).
Other Community Outreach Efforts. The Commission also suggests that other community outreach efforts should be considered as possible mandates for broadcasters. These would include the following:
- Listener surveys by telephone or other electronic means (general public surveys were also part of the ascertainment process abolished in the 1980s, so if this were adopted together with the Community Advisory Board, ascertainment would effectively be back)
- Focus sessions or town hall meetings
- Participation of management personnel on community boards, committees, councils and commissions (mandatory civic participation?)
- Specific phone numbers or email addresses, publicized during programming, for the public to register their comments on station operations.
Remote Station Operations. Comments are sought as to whether television stations should be forbidden to operate without being manned during all hours of operation. Radio operations will be addressed in the proceeding to consider the public interest issues posed in the Digital Radio Proceeding (see our summary here).
Quantitative Programming Guidelines. The Commission proposes to adopt quantitative standards for programming that a station would have to meet to avoid extra processing and scrutiny at license renewal time. Questions include what categories of standards should be established (just local programs – or more specific requirements to set required amounts of news, public affairs and other categories – and how to define what programming would qualify in each category), should requirements be established as specific numbers of minutes or hours per day or per week or by a percentage of programming or through some other metric, should other specific requirements or measurements be established?
Main Studios. The commission suggests reverting to the pre-1987 requirement that each station maintain a main studio in its community of license
Network Programming Review. The Commission asks whether rules should be adopted to require that local network affiliates have some ability to review all network programming before it is aired. If so, what programs would be exempt from the requirement (e.g. live programs), how much prior review is necessary, would such a right disrupt network operations?
Voice Tracking. The Commission asks if "voice-tracking," (i.e. a radio announcer who provides announcing on a radio station from outside a local market, sometimes including local inserts to make it sound as if the announcer is local) should be limited or prohibited, or if disclosure should be required.
Local Music. While the Commission indicates that it did not think that a ban on national playlists was required, it did ask whether broadcasters should be required to report the songs that they play, and how they choose their music. With that information, the Commission asks if it should consider the amount of local music played when assessing whether a station has served the needs of its community at license renewal time.
Class A TV. The Commission asks whether it should adopt rules that permit more LPTV stations to achieve Class A status, meaning that they would no longer be secondary stations subject to being forced off the air by interfering uses of the TV spectrum by full-power TV stations.
The FCC today adopted a Report on its Localism proceeding, accessing the evidence that it gathered in its three year long investigation of whether broadcasters were adequately serving the interests of their local communities. We wrote long ago about some of the specific issues that the FCC was reviewing in this proceeding – everything from the public interest programming of broadcasters to their music selection process to their response to local emergencies. Among the report’s conclusions were findings that not all broadcasters were adequately assessing the needs of their communities or serving the public interest through coverage of local news and other local events. Because of these perceived weaknesses in broadcaster performance, the FCC adopted a Notice of Proposed Rulemaking, much as we expected in our post here, tentatively concluding that re-regulation of the broadcast industry was necessary, bringing back some form of ascertainment and some specific quantifiable requirements for public interest programming.
As in the case of the Multiple Ownership order adopted today (summarized here), the full text of the FCC Report and the Notice of Proposed Rulemaking has not been released. Instead, only a short Public Notice, and the statements of the Commissioners at the meeting, are available to determine what was done. From these notices, it appears that three tentative conclusions were reached. They are, as follows:
More Low Power TV stations should be able to get Class A status, meaning that they are no longer a secondary service that can be "bumped" by a new full power television station or by changes to the facilities of a full-power station
Each licensee should be required to establish a community advisory board made up of specific groups of community leaders, with whom the station would meet on a regular basis to assess the needs of the community
The FCC’s license renewal standards should contain specific quantitative requirements for public service programming
While these may sound like noble decisions, there are many details and much history that the Commission needs to address before these proposals become final FCC rules.
On Tuesday, the Senate Judiciary Committee held a hearing on the possibility of imposing on broadcasters a performance royalty for the use of sound recordings. This would be a new royalty, paying for the public performance of the recording of a song by a particular artist – a fee that would be on top of the fees that broadcasters already pay to ASCAP, BMI and SESAC for the public performance of the underlying compositions. Unlike the House of Representatives Judiciary Committee Hearing, about which we wrote here, this hearing was a much more measured proceeding, weighing carefully the implications of imposing a new royalty – both as to whether it was really necessary to encourage creation of more music by performers, and as to whether radio stations could afford to pay such a royalty. In fact, in closing the hearing, Senators asked the representatives of the Broadcasters and of the musicians to provide the committee more information on these two issues.
The Music First Coalition seeking the new royalty was represented by two recording artists, Lyle Lovett and Alice Peacock. Committee members were clearly excited to have Mr. Lovett testifying, thanking him repeatedly for taking time out from his touring schedule (he had played a concert the night before in suburban Washington, at the Birchmere Club in Alexandria that Senator Leahy, Chairman of the Committee, said was attended and enjoyed by some of his staffers), and the committee was even treated to a few bars of Ms. Peacock’s song "Bliss." But between the performances and the star treatment, committee members did ask hard questions – including whether a royalty was really needed. Both artist stated that music was their passion, that they would be performers no matter how much they were paid. If passion drove the creation of music, asked one Senator, as the purpose of copyright is to encourage the creation of artistic works, why is a new royalty on broadcasters even necessary?
As reported in Digital Music News and other publications on Friday, Clear Channel Communications dropped its waiver of music royalties from its on-line agreement signed by musicians submitting songs to the Company in hopes that their music would be played on the Company’s radio stations. In writing about this decision, most publications attribute the decision to the petition filed with the FCC by the Future of Music Coalition and other public interest groups arguing that the waiver requests constituted a form of payola – the giving of something of value (the waiver of the right to receive a royalty) in exchange for the playing of music. However, on close inspection, that would appear to be a misunderstanding of the royalty, as there would seem to be no royalty that would be affected by the waiver in connection with the playing of this music by radio stations, and therefore there would be no payola over which the FCC has any jurisdiction.
According to the Future of Music petition, Clear Channel’s promise to play new music was made in connection with the payola settlement that it and other companies entered into with the FCC, and was apparently contained in a side letter filed with the FCC, as it was not spelled out in the settlement agreements themselves. See our analysis of the settlement agreements, here. The side letter promised that the Company would dedicate a certain amount of radio airplay on the Company’s radio stations to new local music. However, such play would not implicate any music royalties – so a waiver of royalties would not confer any benefit on the Company. Broadcast stations pay no royalty for the use of a sound recording – thus the waiver that Clear Channel requested was without any value as there was no royalty to waive. While broadcast stations do pay a royalty for the composition (the underlying words and music of a song), stations play flat fees to ASCAP and BMI that are a function of the station’s market size and power – not a function of how many songs are played. Thus, as there is no sound recording royalty and a flat fee for the composition royalty unaffected by any waivers, the waiver did not confer any benefit to the Company in connection with its broadcast operations. Thus, there where would appear to be no payola issue over which the FCC would have any jurisdiction.
Should artists waive their rights to performance royalties in order to get airplay on broadcast or Internet radio stations? That questions has come to the fore based on a click-through agreement that Clear Channel included on a website set up to allow independent bands to upload their music for consideration for airplay by its stations. While artist groups, including the Future of Music Coalition, condemned that action, there are always two sides to the story, as was made clear in a segment broadcast on NPR’s Morning Edition, in which I offered some comments. As set forth in that segment, artists may be perfectly willing to allow unrestricted use of a song or two in order to secure the promotional value that may result from the airplay that might be received. For the broadcaster or Internet site seeking such permission, getting all rights upfront may well be an important consideration in deciding whether or not to feature a song – especially in the digital media.
Critics of the waiver made much of the fact that the site was set up at least partially to meet Clear Channel’s informal commitment made as part of the FCC payola settlement to feature more independent music, even though that commitment was not a formal part of the settlement agreement. (See our summary of the payola settlement, here). Even to the extent that the informal commitments made by the big broadcasters encompassed making time available to more independent musicians, the critics ignore the fact that the companies do not need any waiver of any sound recording performance royalty in connection with the over-the-air broadcast of those songs, as there currently is no public performance right in a sound recording for over the air broadcasting (though artists and record lables are now pushing for such a royalty, see our story here). Thus, the use of the waiver was only for the digital world – which was not covered by the FCC’s jurisdiction over payola promises or the promises to increase the use of independent music. So, effectively, the company is being chastised for trying to minimize their costs on giving the music even greater circulation through their digital platforms than they initially promised.
In April, the FCC agreed to Consent Decrees calling for fines totaling $12.5 million from four of the country’s largest radio broadcasters in order to settle allegations that these companies had engaged in violations of the FCC’s payola rules. Recently, another public radio company stated in one of its SEC filings that it had received an inquiry…
The FCC, after taking two years off, is looking to finish their field hearings on Localism by scheduling a hearing in Portland, Maine on June 29. This hearing is not one of the six hearings to discuss possible new multiple ownership rules, but instead a continuation of the hearings started by Chairman Powell after public controversy over the 2003 multiple ownership rules. In an ironic twist of fate, this public notice was released on the Friday before the National Association of Broadcasters Educational Foundation hosts their Service to America Awards Dinner to honor broadcasters and the public service commitment that they have to their communities. Thus, while the FCC is looking in the hinterlands for evidence of the responsiveness of the broadcast industry to the needs of their listeners, some of the best evidence of that service was on display some 12 blocks from the FCC’s headquarters.
The Localism hearings were part of a larger proceeding begun in response to the controversy after the 2003 multiple ownership rules. When the Democratic Commissioners, Congressional legislators from both parties, and a variety of citizen’s groups from across the political spectrum complained about how the public’s input was not sought before the rules were adopted, the FCC tried to respond to some of those complaints by putting out a Notice of Inquiry on Localism. The proceeding was to assess how well broadcasters were serving their communities, and the Notice asked for public comment on a grab bag of issues including the following:
- whether a broadcaster’s public interest obligations should be quantified (bringing back obligations abolished in the 1980s that required specific amounts of the programming of broadcast stations to be devoted to news and public affairs programming),
- should broadcasters be required to play specific amounts of local music,
- is payola a major issue,
- whether more programming should be devoted to political campaigns,
- whether the voices of minorities were being heard on the airwaves.
- if the FCC should authorize more LPFM stations and take other steps to make airtime available to new entrants