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I wrote a while back about the Downside of Downsizing, in which I noted an increasing number of calls from broadcasters who had trimmed their staffs to the bare minimum, only to belatedly discover that the remaining employees lacked either the experience or the time to ensure the station’s compliance with FCC and other regulations. This afternoon, the FCC released seven Notices of Apparent Liability announcing the financial damage that taking your eye off the regulatory ball can have.

The seven NALs (1, 2, 3, 4, 5, 6, 7) all involved Children’s Television violations, with the proposed fines ranging from $25,000 to $70,000. The FCC’s grand total for the afternoon was $270,000 in proposed Children’s Television fines. While the simultaneous release of the forfeiture orders may be meant to send a message about the seriousness with which the FCC views violations of the Children’s Television rules, the FCC has been working hard on Chairman Genachowski’s watch to clear out backlogs of enforcement proceedings of all types, and it may be that these particular cases are merely the latest result of that effort.

What is certainly not a coincidence, however, is the hefty size of these fines. These NALs appear to confirm a recent FCC trend of imposing heavier fines for a variety of regulatory offenses. While cynics might argue that the government just needs the money at the moment, there does seem to be a concerted effort at the FCC to “update” its fine amounts to make violations sufficiently painful that licensees will not view them as merely a cost of doing business. It is also worth noting that while the seven NALs involve a variety of kidvid violations (exceeding commercial limits, program length commercials, failure to notify program guide publishers of the targeted age range of educational programs, failure to place the appropriate commercial certifications in the public inspection file, failure to publicize the existence and location of the station’s Children’s Television reports), they all have one other feature in common: each of the stations confessed its transgressions in its license renewal application.

In addition to giving no quarter for the licensees having confessed their own sins, the NALs are quite stern in assessing the severity of the violations. Noting that human error, inadvertence, and subsequent efforts to prevent the recurrence of such violations are not grounds for reducing the punishment imposed, the NALs apply a strict liability standard, cutting stations no slack even where the violation was based upon a misapplication of the rule (e.g., assessing compliance with children’s commercial time limits based upon a programming hour (4:30-5:30pm) rather than a clock hour (5:00-6:00pm)), where a program-length commercial was caused by a fleeting and tiny/partial glimpse of a program character during a commercial, or where the program-length commercial was caused by network content.

To be clear, the FCC staked out no new legal ground in these decisions, which for the most part apply existing precedent, and the NALs do indicate that some of the stations involved had over 100 kidvid violations. What catches the eye, however, is not just the size of the fines, but the terse manner in which the violations are listed, the defenses rejected, and the fine imposed, with each NAL noting that the base fine for a kidvid offense is $8,000, but that an upward adjustment is merited in this particular case, with the ultimate amount often appearing to have been plucked out of the air. The impression licensees are left with is that the FCC has lost patience in plowing through the backlog of enforcement cases, and there will be little or no room for error in FCC compliance going forward.

It’s good that the broadcast advertising market has begun to resuscitate, as now would be a good time to rehire those FCC compliance personnel, particularly the ones that prescreen children’s television content.

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May 2010
The staggered deadlines for filing Biennial Ownership Reports by noncommercial educational radio and television stations remain in effect and are tied to their respective anniversary renewal filing deadlines.

Noncommercial educational radio stations licensed to communities in Michigan and Ohio, and noncommercial educational television stations licensed to communities in Arizona, the District of Columbia, Idaho, Maryland, Nevada, New Mexico, Utah, Virginia, West Virginia, and Wyoming, must file their Biennial Ownership Reports by June 1, 2010.

Last year, the FCC issued a Further Notice of Proposed Rulemaking seeking comments on, among other things, whether the Commission should adopt a single national filing deadline for all noncommercial educational radio and television broadcast stations like the one that the FCC has established for all commercial radio and television stations. That proceeding remains pending without decision. As a result, noncommercial educational radio and television stations continue to be required to file their biennial ownership reports every two years by the anniversary date of the station’s license renewal filing.

A PDF version of this article can be found at Biennial Ownership Reports Are Due by June 1, 2010 for Noncommercial Educational Radio Stations in Michigan and Ohio, and for Noncommercial Educational Television Stations in Arizona, the District of Columbia, Idaho, Maryland, Nevada, New Mexico, Utah, Virginia, West Virginia and Wyoming.

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5/24/2010
The FCC recently released a Notice of Proposed Rulemaking (“NPRM”) proposing to revise and streamline its Part 17 rules regarding construction, marking, and lighting of antenna structures. Pursuant to the Federal Register publication that occurred today, Comments are due on July 20, 2010, with Reply Comments due on August 19, 2010.

According to the FCC, the NPRM’s proposed rule changes are intended to improve safety for pilots and airplane passengers while also “updating and modernizing” the rules by removing outdated requirements currently included in Part 17 of its Rules. The FCC states that the proposed clarifications and amendments to the Rules will allow antenna structure owners to more efficiently and cost effectively ensure rule compliance. The NPRM is largely based upon a Petition for Rulemaking filed by the Wireless Infrastructure Association seeking changes to Part 17 of the Rules.

The FCC’s rules require owners of antenna structures (rather than the FCC licensees and permittees utilizing those structures) to register certain types of antenna structures with the FCC and to exercise primary responsibility for complying with the appropriate painting and lighting requirements. In general, any proposed or existing antenna structure that is more than 200 feet above ground level (60.96 meters) requires notice of construction or alteration to the Federal Aviation Administration (“FAA”) and must be registered with the FCC.

Among other things, the FCC’s NPRM requests comment on the proposed rule changes outlined below.

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There is a growing need for tower space as wireless technologies proliferate, and the potential profits to be made by tower owners leasing space for these new technologies has resulted in the growth of companies whose sole business is to own and manage towers. However, managing towers is not a simple affair, as they are subject to numerous regulations from the Federal Communications Commission and Federal Aviation Administration, not to mention the many other applicable regulations of the Department of Homeland Security, Environmental Protection Agency, Department of Transportation, and Occupational Safety and Health Administration.

The FCC recently released a Notice of Proposed Rulemaking proposing revisions to Part 17, its Antenna Structure Registration rules, with the stated goals of improving compliance and safety and to remove dated and burdensome requirements on tower owners. It also claimed that the proposals will help tower owners, as the FCC puts it, “more efficiently and cost effectively” comply with the FCC’s rules.

While it may be true that the FCC is proposing to streamline aspects of its rules, for antenna structure owners, the NPRM is a mixed bag at best and includes a number of possible new regulations that could increase regulatory compliance burdens. For example, the FCC is proposing new regulations changing the way it evaluates proper tower painting, adding station record retention requirements, changing the required location of signage, and establishing new tower light failure and tower inspection requirements. Of perhaps the greatest concern, the FCC is asking whether it should adopt a whole new set of rules to be consistent with those to be issued by the FAA which could expand notification requirements for construction of new facilities that operate on specified frequency bands, changes in authorized frequency, addition of new frequencies, and new power and height thresholds.
Among the potentially beneficial changes, the NPRM proposes to replace the current tower inspection and observation requirements with a simple rule mandating only prompt reporting of outages, ease the requirement regarding quarterly inspections of automatic control systems associated with tower lighting, clarify the rules regarding the posting of Antenna Structure Registration numbers, create an objective standard for determining when an antenna structure must be cleaned or repainted, and permit tower owners to notify tenants by email when a tower structure has been registered rather than being required to provide a paper notification.

The FCC set the public comment dates in this proceeding through publication in the Federal Register today. Comments are due July 20, 2010, and reply comments are due August 19, 2010. As will be discussed in greater detail in a Client Advisory regarding the proposed rule revisions, the FCC has requested comment on these and a multitude of other changes. A complete copy of the FCC’s NPRM can be found here. Given the breadth of this proceeding, tower owners and tenants should seriously consider providing their input on the proposed rule changes or be prepared to live with the consequences. In worst case scenarios, tower owners can face fines of more than a million dollars for failing to comply with various federal (as well as state and local) regulations, and it is therefore wise for them to register their input on what those regulations will look like.

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5/18/2010
Prepaid “cards, codes and other devices” redeemable solely for telephone services are exempt from a new federal law that goes into effect August 22, 2010. However, if they can also be redeemed for related technology services, these products will (at least in most instances) be subject to provisions restricting fees, prohibiting expiration in less than five years, and imposing strict disclosure requirements if fees are charged or the products expire.

On March 23, 2010, the Federal Reserve Board (“Board”) issued its Final Rule implementing Title IV of the federal Credit Card Accountability, Responsibility and Disclosure Act of 2009, which was signed into law by President Obama on May 22, 2009 (collectively, the “CARD Act”). The CARD Act amends the federal Electronic Funds Transfer Act (EFTA), and the Final Rule amends the EFTA’s implementing regulation, Regulation E. It takes effect August 22, 2010. It applies to prepaid card products sold to a consumer on or after August 22, 2010, or provided to a consumer as a replacement for such product. State laws that are consistent with the CARD Act are not preempted, which means the CARD Act provides a minimum floor. State laws that provide greater protection for consumers are not inconsistent with the CARD Act.

The CARD Act restricts most fees and expiration dates on prepaid cards, and requires various disclosures if fees are charged or the products expire. This Advisory, one of several Advisories on the CARD Act, focuses on the exemption for cards, codes and other devices useable solely for telephone services (referred to collectively as “Prepaid Calling Cards”).1 Companies that offer or issue Prepaid Calling Cards may be surprised to learn that if these products are also redeemable for related technology services, they will not qualify for this exemption. All persons involved in issuing or distributing Prepaid Calling Cards should review and potentially revise their disclosures, as well as their redemption policies and procedures.

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5/17/2010
The long strange trip of the Satellite Television Extension and Localism Act (“STELA” for short) seems finally to be ending. After satellite carriers’ ability to import distant broadcast signals into stations’ local markets expired on December 31, 2009, Congress passed a number of short-term extensions of the predecessor law, SHVERA. The Senate passed three different versions of the bill since late 2009. The House, with a lightning fast voice vote, accepted the Senate’s last version unchanged and sent the legislation to the White House for a signature from the President. The President is expected to sign the bill shortly.

Reauthorization of Distant Signal Carriage For Five Years
STELA reauthorizes the provisions of SHVERA which allow satellite carriers to offer the signals of network stations from other markets to subscribers unable to receive their local network-affiliated stations over the air. It also updates the law to reflect the transition to digital television.

Expansion of Distant Signal Carriage Rights of Satellite Providers
A number of subtle revisions to the existing distant signal carriage provisions work together to increase the area into which satellite operators can import distant signals, and conversely, the area in which a local broadcaster can enjoy exclusive rights in the programming for which it has contracted with its program suppliers.

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The U.S. Supreme Court today announced that it is declining to hear Cablevision’s challenge to the must-carry rules, letting stand a Second Circuit ruling upholding the validity of the 1992 rules. Approximately 40% of broadcast stations rely on must-carry to ensure carriage on their local cable systems, with the remainder electing to negotiate retransmission terms for carriage. A closely divided Supreme Court affirmed the validity of the must-carry rules over a decade ago, but Cablevision sought to argue that things have changed since the days of cable monopolies, and that the rules can’t be justified in a world where cable now competes with satellite and other providers for subscribers. However, the real change that Cablevision was banking on was the change in the composition of the Court, with two of the five justices that voted to affirm must-carry in 1997 having left the court, and a third affirming vote, Justice Stevens, having now announced his impending retirement.

Cablevision therefore had reason to think that its appeal, which in many regards was just a “do over” of the earlier unsuccessful challenge, had a chance with the Court’s new mix of justices. What is interesting, and reassuring for broadcasters, is that for the Supreme Court to agree to hear an appeal requires the votes of only four justices, rather than a majority of the nine justices. Declining to hear the appeal means that not even four justices, much less a majority of the court, were interested in reviewing the Second Circuit’s affirmation of the must-carry rules.

So what does that mean? Well, a true optimist from the broadcasters’ perspective would hope it means that three or less justices question the validity of the must-carry rules, and that future appeals will have a very uphill battle to claim five votes in favor of overturning the rules. An optimist for the cable industry would argue that a lot of factors go into determining whether the Court should grant certiorari, only one of which is the likelihood of a resulting decision reversing the lower court. The truth, of course, lies somewhere in the middle, and we may never find out whether the Court’s decision to deny certiorari was a hard-fought internal battle over the merits of the appeal, or merely a simple vote where the justices expressed no appetite for revisiting the issue for any number of reasons.

In the meantime, must-carry remains the law of the land, and it will likely be a while before another appeal can work its way up through the system to reach the Supreme Court. As a result, broadcasters relying on must-carry rights can breath a sigh of relief, at least for now.

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Call it just a recessionary recess, but radio stations strapped by the tough (but finally improving) advertising market breathed a sigh of relief today. In a continuing battle between the Radio Music License Committee (RMLC) and ASCAP over the music license fees paid by radio stations to the composers represented by ASCAP, US District Court Judge Denise Cote ruled that while the dispute is being resolved, the interim payments due ASCAP will be reduced by some $40 million dollars compared to the 2009 ASCAP fees.

The seeds of the dispute were first planted years ago, in economic boom days, when ASCAP fees were based upon a percentage of a radio station’s revenues. The radio industry sought to slow the rapid rise in ASCAP fees resulting from economic growth in the radio industry. To accomplish this, the RMLC and ASCAP ultimately agreed on a flat rate fee structure not directly connected to station revenues.

You can guess what happened next. The economy plummeted, radio revenues plummeted, but the ASCAP flat rate fees did not. Suddenly those fees represented an ever larger percentage of station revenue, with the result that playing music was becoming a very pricey part of station operations. There are also additional complications in a digital world. Does your ASCAP license cover your station’s audio stream on the Internet and elsewhere? How about those new HD multicast streams you’re now transmitting?

With the hope of addressing the growing impact of ASCAP fees, as well as these related issues, the RMLC and ASCAP entered negotiations over the fees to be paid by radio stations in 2010 and beyond. When no agreement could be reached, the RMLC commenced a rate proceeding in the US District Court. While it may be years before that proceeding is concluded, the interim rate set by Judge Cote represents the rate that will apply going forward. It supersedes the temporary 7% rate reduction agreed to by the RMLC and ASCAP earlier, but is not retroactive to January 1, 2010. It will continue to apply until the rate proceeding is concluded and a new rate is established, at which point the new rate will be applied retroactive to January 1, 2010, and any upward or downward adjustment for fees already paid will be made.

In the meantime, radio stations should begin seeing reductions in their ASCAP bills in the coming months, which will provide a welcome bit of relief to cash-strapped stations.

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Given that low power television (LPTV) stations have been trying unsuccessfully for many years to obtain must-carry rights comparable to those enjoyed by full-power stations, it is often overlooked that some LPTVs do, in fact, have carriage rights. However, these must-carry rights are available only to a select few LPTV stations.

Specifically, an LPTV station is “qualified” for mandatory carriage only if: 1) it broadcasts at least the minimum number of hours required of full-power stations by the FCC’s rules; 2) it meets all the obligations applicable to full-power television stations including, among other things, with respect to non-entertainment programming, and provides local news, informational and children’s programming that addresses local needs that are not being met by full-power stations; 3) it complies with interference restrictions consistent with its secondary status; 4) it is located no more than 35 miles from the cable system’s principal headend and delivers a good quality signal to that headend; 5) the community of license of the station and the franchise area of the cable system were both located outside the largest 160 markets on June 30, 1990 and the population of the community of license was not larger than 35,000 as of that date; and 6) there is no full power television station licensed to any community within the county served by the cable system.

The last two criteria are typically the most difficult obstacles for LPTV licensees to overcome, as cable systems are only required to carry LPTVs in the smallest of markets and, even in those areas, only when there is a dearth of full-power stations in the area. While the restrictions are difficult for most LPTV stations to meet, a recent FCC decision shows that it is not impossible. In that case (found here), digital LPTV station WRTN-LD, located just outside of Nashville, Tennessee, was able to convince the FCC, over the objections of Comcast, that the station is a “qualified” LPTV station entitled to must-carry rights on Comcast’s cable system. While Comcast argued that the station is part of the Nashville market and therefore ineligible for must-carry rights, the station was able to demonstrate that its service area was outside the Nashville market and that it met the other qualifying criteria.

This case serves as a reminder to all licensees to investigate options and not merely presume that no help is available at the FCC or elsewhere. For LPTV licensees in particular, a quick review of the LPTV carriage criteria above with respect to their own situation is well worth the effort involved.

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While the FCC has traditionally steered clear of copyright issues, that has grown more difficult as the preferred method of content protection shifts from court actions to copyright protection built into the hardware. The FCC therefore found itself in the middle when Hollywood insisted that cable and satellite set-top boxes be designed so that programming could be embedded with code preventing the box from outputting the programming through any output unsecured against copying (principally analog outputs). Consumers and consumer electronics manufacturers fought back, noting that early generation DTV sets only had analog inputs, and that allowing programming to be restricted to the digital outputs of set-top boxes would deprive those early adopters of programming unless they bought new DTV sets.

In balancing the desire of Hollywood for an ironclad grip over its programming, and the adverse impact upon consumers just as the FCC was trying to persuade them to transition to digital television, the FCC prohibited the use of Selectable Output Control (SOC), but did not prohibit set-top boxes from being manufactured with SOC capability. The idea was that the FCC might later be presented with a business model requiring the use of SOC, and the FCC did not rule out the possibility of granting a waiver if the applicant could demonstrate that consumers would not be harmed by the use of SOC.

The FCC today released a decision partially granting a waiver request from the MPAA that would allow cable and satellite companies, at the request of the program provider, to use SOC to prevent set-top boxes from outputting recent theatrical HD movies over “unsecured” outputs. The business model proposed in the waiver request is the release of movies through Video on Demand services while those movies are potentially still in theaters, and long before they become available on DVD or Blu-Ray disc. The MPAA persuaded the FCC that studios would never release their content to home viewing this early in a film’s marketing life unless assured that it wouldn’t result in the content immediately being pirated over the analog outputs of set-top boxes.

In addition to the traditional opposition from consumer electronics manufacturers, who will face the wrath of consumers unable to get their components to work with the restricted outputs, the National Association of Theatre Owners (NATO) also objected. They argued that such an early release model would undercut their business, and that “instant availability of films will reduce choice and limit the ability to develop ‘sleeper’ hits in movie theaters.” Similarly, the Independent Film and Television Association (IFTA) asserted that SOC would reduce access to independently produced films.

The FCC chose, however, to grant a waiver, stating its belief that “home viewing will complement the services that NATO and IFTA members offer and provide access to motion pictures to those consumers who cannot or do not want to visit movie theaters.” While the FCC has long claimed not to be in the business of picking winners and losers in its technology decisions, that loud groan you hear is theater owners concerned that they are about to be “complemented” out of business by an ever-improving (and now speedier) home viewing experience.

In an effort to prevent SOC from being abused, however, the FCC did not grant the open-ended waiver sought by the MPAA. For example, the FCC limited the time during which SOC restrictions can be applied to 90 days, or whenever the movie becomes available on prerecorded media, whichever comes first. It also prohibited SOC from being used to promote proprietary connections (by blocking output to acknowledged copyright-secure connections on retail devices in favor of a Hollywood-preferred connection). The FCC also made clear that if “companies taking advantage of this waiver market their offering in a deceptive or unpredictable manner that does not allow consumers to ‘truly understand when, how, and why SOC is employed in a particular case’,” the FCC “will not hesitate to revoke this waiver.”

Finally, to prevent MPAA members from gaining an unfair advantage over other movie producers, the FCC is making the waiver available to any provider of first-run theatrical content that files an “Election to Participate” with the FCC. Such providers will be required to submit a detailed report to the FCC on their use of SOC two years from commencing use of SOC under the waiver so that the FCC can later assess whether the waiver needs to be modified or terminated. Whether the FCC will actually revisit the decision remains to be seen, but keeping its options open is likely a wise idea, as this is a decision that could well have cascading unintended consequences for all involved.