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The FCC has announced that full payment of all applicable Regulatory Fees for Fiscal Year 2010 must be received no later than August 31, 2010.

As mentioned in a July 9, 2010 Report and Order, the Commission will mail assessment notices to licensees/permittees reflecting payment obligations for FY 2010, but intends to discontinue such notifications beginning in 2011. Be aware that the notices sent may not include all of the authorizations subject to regulatory fees, and do not take into account any auxiliary licenses for which fees are also due. Accordingly, you should not assume that the notice is correct or complete. Similarly, if you do not receive a notice letter, that does not mean your authorizations are exempt from regulatory fees. It is the responsibility of each licensee/permittee to determine what fees are due and to pay them in full by the deadline.

Annual regulatory fees are owed for most FCC authorizations held as of October 1, 2009 by any licensee or permittee which is not otherwise exempt from the payment of such fees. Licensees and permittees may review assessed fees using the FCC’s Media Look-Up website – www.fccfees.com. Certain entities are exempt from payment of regulatory fees, including, for example, governmental and non-profit entities. Section 1.1162 of the FCC’s Rules provides guidance on annual regulatory fee exemptions. Broadcast licensees that believe they qualify for an exemption may refer to the FCC’s Media Look-Up website for instructions on submitting a Fee-Exempt Status Claim.

For more information on annual regulatory fees, including assistance in preparing and filing them with the FCC, please contact any of the lawyers in the Communications Practice Section.

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July 2010
FCC Eliminates Earlier Proposed Fee Reductions for Radio and Sets Hefty Increases for UHF Television Stations
Last week, just as broadcasters were finishing up with their new Biennial Ownership Report filings, the FCC released its final order setting the annual regulatory fee amounts stations must pay for Fiscal Year 2010. In so doing, the FCC erased promised reductions in annual regulatory fees for radio broadcasters and reallocated the television fee burden from VHF broadcasters to UHF broadcasters, resulting in considerable increases in the fees paid by UHF broadcasters over last year and even over the Commission’s prior proposals for FY 2010.

Background
Each year, the FCC reports to the Office of Management and Budget the amount of money that the FCC estimates it will need to run its operations in the coming year. Congress generally accepts this estimate and sets it as the amount that the FCC is statutorily obligated to raise from its licensees through annual regulatory fees. Between 2008 and 2009, fee amounts increased by about 10%, prompting outcries from broadcasters that the fee increases have historically been too high year to year, and that they were simply intolerable in a year in which the industry was so adversely affected by the economic downturn.

Perhaps because of this, for 2010, the Commission requested, and Congress required, that it raise 1.8% less revenue than it had in 2009. Based on that reduction, in April the FCC released a Notice of Proposed Rulemaking proposing modest, across the board cuts in the amounts paid by radio licensees. Only AM construction permits were to increase–by $20. In contrast to the broad increases in television fees experienced in 2009, the FCC’s proposals were for modest increases in some, but not all, television categories. In most television categories where an increase was proposed, it only amounted to a few hundred dollars over the 2009 level. Even the three categories that were hardest hit (VHF stations in Markets 26-50, and UHF stations in Markets 1-10 and Markets 11-25) only saw increases of a few thousand dollars. Article continues — the full article can be found at FCC Releases Final Regulatory Fee Amount
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In my recent commentary on the Senate version of the DISCLOSE Act (Senate Disclose Act Bill Raises Serious Concerns For Broadcasters), I highlighted provisions related to the Lowest Unit Charge which had the potential to cause a very significant adverse impact on broadcast station revenues from federal election advertising.

Senator Schumer introduced today a revised version of the DISCLOSE Act. While retaining other campaign finance reform provisions, the new version thankfully eliminates the LUC provisions that were the focus of my concern.

The Act has not yet been passed, and could still be modified either in the Senate or in a Conference Committee with the House. We will continue to monitor the bill and let you know if further attempts are made to reinstate the troublesome LUC concepts.

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At a recent presentation on legislative matters affecting the communications industry, I noted that broadcasters, while lately feeling much under siege, should not underestimate their part in the digital future. It is true that the government wants broadcasters’ spectrum (the National Broadband Plan), cable operators want broadcasters’ programming, ideally for free (the retransmission battles in Congress and at the FCC), politicians want broadcasters’ airtime (the DISCLOSE Act), musicians want broadcasters’ money (the Performance Tax), and the Internet would love to have broadcasters’ audiences. However, the conclusion to be drawn from those facts is that broadcasters have what everyone else wants, and need to themselves capitalize on those important assets.

Let there be no doubt that broadcasters are in for some challenging times fending off those who covet their riches, but that is a far better position than having no riches to covet in the first place. As the possibilities for television and radio multicasting become better developed through experimentation and innovation, mobile video gains the prominence in the U.S. that it is experiencing overseas, and broadcasters continue to refine how best to leverage their content on multiple platforms, broadcasters have as good an opportunity as anyone to make their mark in a digital future, while others fall by the wayside as “one-idea wonders.”

Unfortunately, government has begun to place its thumb on the scale, discouraging broadcasting while encouraging other wireless uses. The latest example is this week’s introduction of the Spectrum Measurement and Policy Reform Act (S. 3610) by Senate Communications Subcommittee Chairman John Kerry (D-Mass.) and Senator Olympia Snowe (R-Maine). The legislation would encourage broadcasters to abandon spectrum for a share of the government’s auction proceeds for that spectrum, and authorize the government to impose spectrum fees on broadcasters. In other words, the FCC can use spectrum fees to “encourage” broadcasters to relinquish their spectrum.

This government push is propelled by one of the oldest myths regarding broadcasting, and one of the newest myths. The first myth is that broadcasters are the only licensees who have not paid for their spectrum, and therefore merit less leeway in how they use it, or whether they get to use it at all. Of the thousands of broadcasters I have worked with over the years, however, only a handful actually received their spectrum for free. The vast majority bought their stations (and FCC licenses) from another party, paying full market price, and therefore being really no different than the wireless telephone licensee that also bought its FCC authorization from a prior licensee. Whether some earlier, long-gone broadcast licensee that built the station enjoyed some financial windfall doesn’t bring any benefit to the current licensee. The current licensee inherited the dense regulatory restrictions of broadcasting, but not the “free spectrum.”

In addition, new broadcast licensees have generally purchased their spectrum at FCC auction since Congress changed the law in 1997, just like wireless licensees. Despite that, no one has suggested that even these more recent licensees should be released from FCC broadcast regulations because they paid the government for their spectrum.

The second and newer myth, propogated by advocates of the National Broadband Plan, is that broadcasting is a less valuable use of spectrum than wireless broadband since spectrum sold for wireless uses goes for more money at auction than broadcast spectrum. That is, however, a distorted view of value. Everyone, including the FCC and the wireless industry, has denoted broadcast spectrum as “beachfront property” from a desirability standpoint, meaning that it is not the spectrum, but the regulatory limits placed on it, that is creating the difference in cash value at auction. An alternate way of viewing it is that the public receives that difference in auction value every day from broadcasters in the form of free programming and news, rather than in the form of a one-time cash payment to the government. That the public receives more value for their spectrum from continuing broadcast service than from a one-time auction payment (that is swallowed by the national deficit in a matter of seconds) becomes more obvious when you realize that the public will then spend the rest of their lives leasing “their” spectrum back from the auction winner in the form of bills for cellular and broadband service.

An apt analogy is national parks. Would selling them outright for industrial use bring in more cash than keeping them and allowing them to be enjoyed by the public? Certainly. Is selling them for industrial use therefore the most valued use of parkland? Hardly.

Broadcasters have been good tenants of the government’s spectrum, paying the public every day for the right to remain there. If they stop those public service payments, they lose their license, making way for a new tenant. This new legislation aims to entice these paying tenants from their spectrum so that the spectrum can be sold outright to the bidder who perceives the greatest opportunity to extract a greater sum than the auction payment from the public. That may be poor public policy, but it is at least voluntary for the broadcaster, though not for the public. Threatening to tax broadcasters with spectrum fees until they surrender their spectrum is not marketplace forces at work, but the government forcing the marketplace to a desired result. Proponents of wireless broadband must have little confidence in their value proposition if they feel they can come out ahead only if they first devalue broadcast facilities by imposing yet more legal and financial burdens on broadcasters.

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Last month, the House of Representatives passed the DISCLOSE Act (“Democracy is Strengthened by Casting Light on Spending in Elections Act”), H.R. 5175. The bill responds to the decision of the U.S. Supreme Court in Citizens United v. Federal Election Commission which held that corporations (and presumably unions and other associations) have a constitutional right to make independent expenditures in election campaigns. The bill would, if it becomes law, impose significant new disclosure requirements related to political expenditures, prohibit government contractors from making campaign expenditures, and ban such expenditures by U.S. corporations owned 20% or more by foreign nationals or which have certain other foreign ties.

The Senate’s companion DISCLOSE Act bill, S. 3295, was introduced on April 29 by Senators Schumer, Feingold, Wyden, Bayh and Franken, and remains pending at this time. The focus of this commentary is on a provision in the Senate bill, but not the House version, that we believe has the potential to have a very significant adverse impact on broadcast station revenues from federal election advertising.

In our previous discussions of the DISCLOSE Act here and here, we pointed out that the Senate bill would allow national committees of any political party (including a national congressional campaign committee of a party) to take advantage of Lowest Unit Charge (LUC) rights previously only available to legally qualified candidates or their official committees. Similarly, it would extend Reasonable Access rights to national party committees which are now only available to federal candidates. In addition, it would effectively make all federal candidate and party committee advertising non-preemptible, regardless of the class of advertising purchased. Stations would also be required to promptly list all requests of candidates and party committees to purchase time on the stations’ web sites.

While troublesome, these and other provisions in the DISCLOSE Act pale in significance, in our view, to the proposed amendment to the LUC provisions of Section 315 of the Communications Act. Under Section 315, as currently in effect, legally qualified candidates for elective office are entitled to receive during specified pre-election periods “the lowest unit charge of the station for the same class and amount of time for the same period” that is then clearing on a station. Under the Senate version of the DISCLOSE Act, federal candidates and party committees (but not state or local candidates) would be entitled to receive the “lowest charge of the station for the same amount of time that was offered at any time during the 180 days preceding the date of use.”

This is troublesome for two reasons. First, the bill eliminates the “same class” and “same period” provisions in current law. Because “class” refers to the level of preemption protection which the advertiser has purchased, federal candidates and committees would be entitled to obtain non-preemptible status while paying rates that commercial advertisers would pay for immediately preemptible spots. Similarly, because “period” refers to the day part or rotation involved, stations could not charge more to federal candidates and committees for the most desirable spot placement – fixed position in prime or drive time – than they charge commercial advertisers for the same length spot that runs in the least desirable time period or rotation – late night or run of schedule (ROS).

Second, the new 180 day look-back provision means that stations will be required to give federal candidates and committees the lowest rate that has run on the station in the past half year, rather than which is currently running on the station. Therefore, if the LUC period occurs during a period of strong advertising demand, or a station has increased its rates due to extrinsic factors, such as improved programming or a format change, the station will still be required to give federal candidates and committees preferential rates that no other advertiser can currently obtain.

We view these provisions, if adopted, as creating a perfect storm for broadcasters. The number of entities entitled to reasonable access and lowest unit charge rights will be greatly expanded. Stations will be required to give non-preemptible access to federal candidates and national party committees in their most desirable time periods at their lowest rates for any advertising. Rather than election years being seen as a period of enhanced revenues for broadcasters, this provision might well cause election years to be viewed as a major drag on station revenues.

For some reason, this proposal to dramatically change the prevailing law has received little publicity in the press or in releases from proponents or opponents of the bill. A little sunshine on this part of the bill appears appropriate.

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In light of today’s decision by the US Court of Appeals for the Second Circuit invalidating the FCC’s indecency policy, it would be hard to justify writing about anything else. From my first days as a young lawyer screening programs before they were aired (I still remember assessing the legalities of airing a live satellite feed of “Carnaval” from Rio) to defending stations accused of airing indecent programming in FCC enforcement actions, the FCC’s indecency policy has been an ever-present, ever-broadening part of the practice. While the definition of indecency has remained largely constant (“language or material that, in context, depicts or describes, in terms patently offensive as measured by contemporary community standards for the broadcast medium, sexual or excretory organs or activities”), its interpretation has always been a moving target.

When the Supreme Court originally found that requiring indecent content to be channeled into late-night hours was constitutional, it did so based upon a narrow view of what qualified as indecent content (basically George Carlin’s “Seven Dirty Words” routine) and the assurance of the FCC that restrained enforcement would protect First Amendment concerns. Over the next twenty years or so, broadcasters programmed accordingly, and with a few exceptions, broadcasters and the FCC learned to coexist on the issue of indecency.

However, the rise of cable television placed immense pressure on both television and radio broadcasters to more precisely map the boundary between “decent” and “indecent” content. While most broadcasters remained determined to stay on the “decent” side of that line, they could no longer afford to remain at such a safe distance from that line as to be deemed “fogey programming” by a generation of consumers that did not distinguish between broadcast programming and cable programming. To these viewers, all channels are equal, and whether programming arrives by cable, satellite, or antenna is beside the point. To reach this audience, many programmers struggled mightily to make their programming more edgy and relevant to young adults. This programming stayed clear of Carlin’s seven dirty words, and focused more on situation and entendre to engage its audience.

In response, the FCC stepped onto a slippery slope, seeking to broaden its interpretation of indecency by expanding its view of what constitutes “patently offensive” material. The FCC was not prepared for the mission it undertook. What at first appeared to be a slippery slope of line drawing quickly became a well-greased plunge into the abyss of eternal peril. Those filing complaints at the FCC often urged the agency, as a practical matter, to forget that indecency must be patently offensive and instead sought action against content that was merely offensive to the complainant. The result has been a gut-wrenching high speed slalom down the slippery slope, resulting in the FCC’s headfirst encounter today with the large oak doors of the Second Circuit’s courtroom.

Although the court based today’s ruling on a finding that the FCC’s interpretation of indecency is impermissibly vague, and therefore chilling of protected speech, the problem actually goes far deeper than that. Some of the greatest damage to free speech has resulted from complaints where just about everyone, including the FCC, would agree that indecency is not present. While baseless complaints were once met with a prompt and pleasant FCC letter notifying the complainant that the subject of their complaint was categorically not indecent, the FCC in later years treated every complaint even mentioning the word “indecency” as a reason to put a hold on that station’s license renewal or sale application for literally years until the FCC could investigate the complaint. In the meantime, these stations struggled, as a delayed license renewal made obtaining financing difficult, and a delayed sale often meant that the contract to sell the station expired before the FCC could resolve the indecency complaint and approve the sale. Under these circumstances, it is pretty easy to see how a station would be hesitant to say anything offensive to anyone, even without the potential for a $325,000 indecency fine.

Among the “indecency” complaints I have encountered that were holding up a station’s applications at the FCC was a complaint from a politician who didn’t like what a station said about him (apparently using the word “indecent” in his complaint got it put into the indecency pile), and a complaint that a Spanish word yelled at soccer matches when a goal is scored sounds too much like a bad word in English. When such complaints are allowed to languish or become the basis of a pointless inquiry, they interfere with the operations of a station, serve to chill future speech, and create a “bunker mentality” among broadcasters that anything they say will be held against them.

So where does this leave us? Well, as a pragmatic matter, the court’s ruling will not become effective until it issues its mandate, and the FCC may ask that the court delay taking that action while the FCC seeks a rehearing en banc or review by the Supreme Court. If the court’s ruling does become effective, it will apply only within the jurisdiction of the Second Circuit (which includes Connecticut, New York and Vermont). Both legally and politically, the FCC will feel compelled to pursue an appeal, and the result of that effort will determine the future of its indecency enforcement efforts across the US.

That places the FCC in a very high stakes game of poker. Does it place an ever larger bet on trying to defend its existing policy? If it does, it runs the risk that the Supreme Court will rule that the very notion of indecency enforcement is unconstitutional in light of a changing media landscape and the FCC’s seeming inability to apply a narrow and restrained enforcement policy. Or, does it fold this hand and return to the table later with a “back to basics” indecency policy similar to what was once found constitutional by the Supreme Court? One thing’s for certain–for the first time in a long time, broadcasters are holding all the right cards in this game.

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We are frequently asked by broadcasters during the political season whether they are required to provide political candidates with free spot availabilities because they are running “free” or “no charge” spots for commercial advertisers. These spots, of course, are really not free at all. They have a cost, but it is hidden in the cost of the other spots in the package.
The FCC has said that bonus spots to churches, charities, non-profit organizations and governmental entities do not need to be considered for purposes of computing a station’s lowest unit charge (LUC). Thus, the bonus spots (or PSAs) given an organization such as the Office of National Drug Control Policy — which required one free spot for every paid spot — do not affect stations’ LUC.
Much more common are the bonus spots that are given to a for-profit commercial advertiser as an inducement to enter into a package deal. For example, a radio station may offer an additional 20 Run-of-Schedule (ROS) spots for no additional charge to commercial advertisers who enter into a package deal to buy 20 drive time spots at full rate card price.
Sometimes these are listed simply as “bonus spots,” and no price is allocated to the spot at all. In such cases, the station is required to divide the total number of spots of all types in the package into the total consideration paid to compute the price for each spot in the package, including the “no charge” spots. So, if a radio station charges $1,000 for a package consisting of 20 drive time spots (shown on the invoice as $50 each) and 20 ROS spots (shown on the invoice as “bonus”), the FCC would divide the total number of spots (20+20=40) into the total package price ($1000) and say that the rate for LUC purposes of both the drive time and ROS spots is $25 each. This may well be lower than any drive time spot running on the station, and higher than any ROS spot. Because candidates may “cherry pick” spots in a package, and buy only one at the package rate, this leads to a very harsh result, because a candidate would be able to buy one or many drive time spots at the low $25 rate without having to buy any ROS spots.
In other cases, the advertising contracts for such package deals list price for the bonus spots as “no charge,” “free” or “$0.00.” While the FCC has said that it would not rule out the possibility that a station could assign a value of “zero” to a bonus spot, it said that such assignment would have to be based on the station’s normal commercial sales practices. Moreover, listing a bonus spot as free would trigger a requirement that the station make the spots available to candidates at no cost. In our experience, few, if any stations are in the business of giving away free advertising — at least unless tied to the purchase of full priced spots.
To avoid these traps, the station should put a price on each spot in the package, without changing the total package price. For example, if the station were to assign a price of $48 to each drive time spot, and $2 to each ROS spot, the charge to the customer stays the same, and the station has preserved the rates of its most valuable time. And, because most candidates want their ads to appear in better time periods, we believe it is unlikely that candidates would purchase ROS even at these low rates.
It is best that these rates be shown on the station’s contracts and invoices. However, the FCC recognizes that advertisers and agencies want to believe they are receiving “something for nothing” even though we all know there is no such thing as a free lunch. Therefore, stations are permitted to create a contract and invoice showing the “no charge” rate in a package, so long as there is a contemporaneous memo attached to the contract in the station’s records (but not sent to the advertiser or agency) that allocates the rates properly (in this case, $48 and $2), is signed and dated and can be produced upon request by the FCC. By doing so the station can send a contract and subsequent invoice to a commercial advertiser showing a “no charge” rate, while preserving the maximum value for the station’s best spots. These memos should be created, signed and dated at the time the contract is executed.
Stations should consult counsel as to how to deal with outstanding advertising packages that list spots as “free” or “no charge.”