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September 2013

Pillsbury’s communications lawyers have published FCC Enforcement Monitor monthly since 1999 to inform our clients of notable FCC enforcement actions against FCC license holders and others. This month’s issue includes:

  • FCC Assesses Substantial Fine for Antenna Lighting Outage
  • Big Fines for Children’s Television Violations

Failure to Monitor Antenna Lighting Costly

The FCC issued a Notice of Apparent Liability for Forfeiture (NAL) in the amount of $20,000 to an Alaskan telecommunications company for tower lighting violations.

The height of the antenna structure placed it within the jurisdiction of both the FAA and the FCC. FAA rules required the structure to have dual lighting: red lights at night and medium intensity flashing white lights during the daytime and at twilight.

The company’s troubles began when an agent from the FCC’s Anchorage Enforcement Bureau office observed that the tower was unlit during the daytime. The FCC agent contacted the FAA, which confirmed that no Notice to Airmen (NOTAM) had been issued for the lighting outage. Tower operators are required to notify the FAA immediately of any lighting outage lasting more than 30 minutes. The FCC agent also alerted the tower owner of the situation. According to the FCC, the owner did not appear to have a functioning monitoring system for the tower lighting.

The NAL cited the owner’s failure to visually monitor obstruction lighting on a daily basis or to maintain a functioning alarm system. In response, the owner acknowledged the violation and stated it had identified the source of the problem to be a failing capacitor on the system’s control board. It then replaced the failing component and installed a remote monitoring and alarm system for the antenna structure.

The base fine for failing to comply with tower lighting and monitoring requirements and for failing to provide notification of extinguished lights is $10,000. The NAL stated that the fine was increased to $20,000 as part of the FCC’s policy of fining “large” companies larger dollar amounts to ensure that the fine “is a deterrent and not simply a cost of doing business.”

FCC Actively Pursuing Kidvid Violations

This month, the FCC has once again been bringing enforcement actions against a number of Class A stations for failure to timely file Children’s Television Programming Reports on FCC Form 398. The Commission has issued at least ten NALs for Kidvid violations since the beginning of this month.

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One of the perennial challenges of being a broadcaster is determining what you can air, when you can air it, and how it must be aired without incurring the wrath of the federal government. While the FCC tends to be the federal agency most commonly encountered on content issues, various other government agencies create additional layers of complexity, with the Department of Justice, the Food and Drug Administration, and the Federal Trade Commission all having an interest in what is aired, particularly where it involves advertising. As new products become available and are marketed, the government struggles to keep up, sometimes leaving the media in the lurch as to whether a particular ad is “safe” for airing.

For that reason, broadcasters have stepped carefully with regard to advertisements for medical marijuana (which I’ve discussed previously here), tobacco products, and other items of federal concern. While enforcement encounters with the FCC can be unpleasant, encounters with the DOJ can be downright incarcerating. Fortunately, broadcasters’ encounters with the DOJ are rare, and usually involve the DOJ bringing a court action to enforce collection of an FCC-imposed fine. However, that also means the body of DOJ precedent on substantive content issues can be pretty thin, leaving broadcasters guessing as to what can and cannot be aired.

One area where the DOJ has definitely had a broad role to play is in the advertising of tobacco products. From the original ban on broadcast cigarette advertising implemented in 1971 to its later expansion to little cigars (1973) and smokeless tobacco (1986), the DOJ is the entity charged with enforcing the ban on most types of tobacco broadcast advertising. While a ban on tobacco advertising might seem straightforward, complying with it can be fairly complex, resulting in a number of DOJ decisions regarding what can be said in advertising for tobacco shops and tobacco products not affected by the ad ban. Our recently updated Pillsbury Advisory on tobacco advertising restrictions is a good place to learn more about those nuances.

One new product that continues to garner attention (and confusion) is e-cigarettes, which are battery-powered devices designed to imitate the look and feel of a cigarette, but which deliver nicotine vapor rather than tobacco smoke to the lungs. While e-cigarettes have become fairly common, only limited research has been done on their health effects, and many countries have now regulated them in a variety of ways.

In the U.S., the FDA has expressed serious concerns about the manufacturing and marketing of e-cigarettes, but has not yet been successful in implementing restrictions on e-cigarette sales. However, there have been indications the FDA will move as early as next month to launch a rulemaking to implement restrictions on e-cigarette sales. While it is likely that any ultimate FDA rules will prohibit the marketing of e-cigarettes to minors, it is at this point unknown whether the FDA might try to impose broader restrictions on advertising, and whether such restrictions would stand up in court. What is known is that rulemakings at federal agencies take time, so it will likely be a while before any new FDA rules could be implemented.

That pretty much leaves the question of whether e-cigarettes can currently be advertised up to the DOJ. Given the DOJ’s dim view under existing tobacco ad restrictions of any ad that even mentions the word “cigarette”, many assumed that the DOJ would take a similar view of e-cigarette advertising. However, because the DOJ has not publicly moved to take action against a growing number of e-cigarette ads, broadcasters have so far been left wondering where the government stands on the issue.

We now know the answer to that question. My Pillsbury colleague Paul Cicelski has obtained clarification from the Department of Justice in the form of a letter stating the DOJ’s position on e-cigarette advertising. The letter notes that the ad ban covers “any roll of tobacco” wrapped in paper, tobacco, or any other substance likely to be purchased by consumers as a “cigarette”. It proceeds to note that while e-cigarettes are often manufactured to look like conventional cigarettes, they do not contain a “roll of tobacco” and therefore are not subject to the federal ban on cigarette ads.

So does that mean the floodgates are open on e-cigarette ads? Not quite. First, the DOJ letter indicates that it reflects the views of the Consumer Protection Branch of the DOJ and not “any other governmental office, agency or department,” specifically noting that the Federal Trade Commission has authority over e-cigarette ads that are deceptive, such as those that make health claims without adequate scientific support. Similarly, many states have grown concerned about e-cigarettes and have introduced legislation to restrict their use and advertising. As a result, in addition to being wary of health claims in ads like “e-cigarettes will help you stop smoking”, broadcasters should check the laws of their state for any state-based limitations on e-cigarette advertising. Finally, as noted above, the FDA is clearly interested in this area, and likely will have something to say about e-cigarette regulation once it concludes its soon-to-be-launched e-cigarette proceeding.

Fortunately, the FTC and FDA have traditionally focused their enforcement efforts on advertisers rather than on the media entities carrying the ads, so even if e-cigarette regulations are ultimately adopted, those regulations are unlikely to principally target broadcasters for merely running the ads. As a result, the DOJ’s position on e-cigarettes goes a long way toward resolving a significant source of confusion and angst for many broadcasters while opening up an additional avenue for broadcast ad dollars.

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Today’s exploration in vocabulary:

INTRANSIGENT: characterized by refusal to compromise or to abandon an extreme position or attitude : uncompromising < intransigent in their opposition> < an intransigent attitude> (from Merriam-Webster.com).

RETRANSIGENT: characterized by an insistent belief that negotiations which inevitably result in a signed retransmission agreement with less than a 0.01% chance of viewer disruption are ‘broken’ and demand immediate intervention by Congress < he was retransigent in his refusal to negotiate terms> (from CommLawCenter.com).

In the aftermath of the CBS/Time Warner Cable retransmission deal, I noted that one legacy of that negotiation would be lessened concern by future negotiators of finding themselves in a three way negotiation, with the FCC being the third wheel in the room. Since that time, several interesting developments have emerged. First, the Media Daily News reported that a Time Warner Cable representative revealed that the FCC actively discouraged Time Warner from filing a retrans complaint against CBS, indicating that the agency did not just passively decline to intervene, but sought to avoid being drawn into the middle of the negotiation (“don’t call us, we’ll call you!). If true, that puts an exclamation point on the conclusion that the FCC is none too interested in being drawn into retrans negotiations.

MVPDs apparently heard that message as well. They redoubled their efforts on Capitol Hill to have Congress change retrans law, running an ad in Politico aimed at members of Congress and making sure that a discussion of retransmission negotiations occupied an inordinately large portion of two hearings in the House of Representatives last week regarding reauthorization of the Satellite Television Extension and Localism Act (STELA). STELA is the law that permits carriage of distant broadcast signals by Satellite TV providers until the end of 2014. A bill to extend that authority is deemed by most to be must-pass legislation, meaning that retrans reform advocates are hoping to use it as a vehicle to modify retrans laws. That is a long shot effort, but not nearly as daunting as attempting to pass a standalone retrans bill.

Still, that did not prevent Representative Eshoo, who has been sympathetic to the pleas of MVPDs in the past, from introducing draft legislation last week titled The Video CHOICE (Consumers Have Options in Choosing Entertainment) Act. As described by its sponsor, the bill, among other things:

  • “Gives the FCC explicit statutory authority to grant interim carriage of a television broadcast station during a retransmission consent negotiation impasse.”
  • “Ensures that a consumer can purchase cable television service without subscribing to the broadcast stations electing retransmission consent.”
  • “Prohibits a television broadcast station engaged in a retransmission consent negotiation from making their owned or affiliated cable programming a condition for receiving broadcast programming.”
  • “Instructs the FCC to examine whether the blocking of a television broadcast station’s owned or affiliated online content during a retransmission consent negotiation constitutes a failure to negotiate in ‘good faith.’ “

At one of last week’s hearings, Representative Eshoo appeared to concede that the bill had little chance of passage, indicating it was “a series of ideas intended to spur constructive and actionable debate on ways to improve the video marketplace for video content creators, pay-TV providers and, most importantly, consumers.”

However, the bill demonstrates why government involvement is more complicated than proponents of retrans reform might assert. For example, regarding the requirement that viewers be able to subscribe to cable without subscribing to retrans stations, if the reason for changing the law is to ensure consumers are able to get broadcast programming over their cable system during retrans negotiations, giving consumers the right to not get the broadcast programming at any time over their cable system is not very helpful. In fact, this provision seems to concede that consumers can just use an antenna for broadcast programming rather than rely on their cable system, and since that is the case, these same consumers can just use an antenna to avoid any retrans-based disruptions, obviating the need for the law in the first place.

Because that result is so obviously illogical, I have to assume that this provision is instead aimed at preventing the unfairness of consumers being charged for a broadcast channel they aren’t receiving from their cable provider during a retrans disruption. That, however, has nothing to do with the retrans negotiation itself, and the stated provision wouldn’t fix that problem. If the retrans agreement has expired and the cable system therefore isn’t carrying the broadcast channel, the cable system also isn’t paying the broadcaster for retransmission. As a result, any money paid by subscribers for broadcast content they aren’t receiving is merely an economic windfall for the cable system. If that is the bill’s concern, the solution is to require MVPDs to issue subscriber refunds instead of pocketing the cash. Interfering with negotiations intended to put an end to that inequitable subscriber scenario would actually be counterproductive, as it merely causes the inequity to be extended longer still.

The provision prohibiting bundled negotiations has an even simpler flaw–if broadcasters are prohibited from accepting carriage of their cable networks as a form of compensation for granting retrans consent, they will be forced to shift to requesting all-cash compensation. Doing that, however, would increase a cable operator’s out of pocket program costs while eliminating a currently available avenue for bringing negotiations to a successful conclusion. The result would be more drawn-out and contentious all-cash negotiations that would serve to increase subscription fees, precisely the opposite of the bill’s intent.

Of course, the provision of the bill that has drawn the most attention is the first one, which would allow the FCC to mandate continued carriage of a broadcast station during retrans negotiations. You don’t have to be a rocket scientist to see the flaws in that idea; the big one being that retrans negotiations would never end since the MVPD has no incentive to agree to any deal as long as it can continue to retransmit the programming at the prior subscriber rate (or for that matter at any arbitrary fee that is less than what it would pay in an arm’s length negotiation). To try to solve that problem, the law would need to create some methodology for determining when FCC-imposed retransmission should end if no deal is reached. The logical point in time would be when negotiations cease. However, all such a law would accomplish is to move the time of the retrans disruption to a different date, while incentivizing broadcasters to formally declare negotiations broken off (most likely because the law incentivized MVPDs to negotiate as slowly as possible in the first place by granting forced retransmission). Such incentives merely encourage arbitrary disruptions in the negotiations, making it more difficult to promptly complete negotiations, and causing uncertainty, expense, and aggravation for everyone.

An alternative to that approach would be to limit the FCC’s authority to impose forced retransmission under such a law to a fixed period (e.g., one month), but all that would do is shift any program disruption by a month. In other words, the industry would just move from three-year retransmission agreements to two-year-and-eleven-months agreements that are followed by a one-month FCC-imposed retrans period. In either case, if a retrans disruption was going to occur because the parties couldn’t agree on price, then the disruption is going to occur no matter how the legislation is written.

The unavoidable truth is that the rare retrans disruption doesn’t occur because the parties didn’t begin negotiating early enough to get a deal done; it occurs because the parties can’t agree on price and won’t change their views on pricing until the pressures of a retrans disruption are upon them. In the end, private contractual negotiations are about agreeing on the value of an item to be conveyed, and if the parties can’t agree on that, a transaction doesn’t happen. All the king’s horses and all the king’s men can’t change that. To think otherwise is merely to be retransigent.

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As we prepare to head down to Orlando for the NAB/RAB Radio Show next week, I wanted to remind those who will be at the Show that Pillsbury is again sponsoring the Leadership Breakfast. This year, the event will be in Gatlin Ballroom D at the Rosen Creek Shingle Hotel on Thursday, September 19, beginning at 7:15 a.m., with the presentations to begin at 7:45 am. As before, we will have opening remarks from Marci Ryvicker, a Managing Director with Wells Fargo Securities and Wall Street’s number one broadcast analyst, and then a panel featuring Lew Dickey (CEO of Cumulus Media), Mary Quass (CEO of NRG Media), Jeffrey Warshaw (CEO of Connoisseur Media), and Larry Wilson (CEO of Alpha Broadcasting and L&L Broadcasting).

This year’s event should prove to be especially timely because of changes in the economy and the increased M&A activity, particularly with regard to radio. Cumulus has just announced deals with Townsquare Media to sell some stations and acquire others as well as a separate deal to buy Westwood One; Connoisseur as well as L&L Broadcasting have been active in buying stations; and NRG is always in the hunt. Beyond the particulars for individual companies are new technological developments, including the placement of an FM chip in Sprint’s mobile phones, which will help make radio that much more ubiquitous in the digital world.

The Leadership Breakfast is always a packed event (in part because of a free hot breakfast!), and I expect this year to be no different.

On a separate front, my Pillsbury partner Scott Flick will be speaking on an NAB panel (to be held on Wednesday, September 18, at 10:15 a.m. in Gatlin Ballroom A4) entitled “And the Answer Is: What is Radio Regulatory Jeopardy?” As regular readers of CommLawCenter have probably picked up from his posts here, Scott has an encyclopedic knowledge of FCC rules and decisions, and the session will no doubt be an entertaining and informative look at troublesome FCC issues.

Some of my other colleagues — including Dick Zaragoza, Miles Mason and Andy Kersting — will also be at the Show. One of the great benefits of NAB shows is the opportunity to catch up with old friends and meet new ones, so if you are going to be there, feel free to reach out to any of us and we’ll try to get together. We look forward to seeing you there.

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When CBS and Time Warner announced Monday they had ended their month-long standoff over retransmission of CBS programming on Time Warner cable systems, the announcement brought a sigh of relief from Time Warner subscribers, particularly the NFL fans among them, and the usual press statements putting each party’s best spin on the highly confidential result. However, the real legacy of these negotiations will be to alter how retrans agreements are negotiated in the future, and the somewhat surprising result will be less, not more, retrans blackouts.

When a change in the law in 1992 gave broadcasters the right to negotiate with cable system operators wishing to resell their programming to the public, the idea was to balance the playing field between cable networks, which relied on both ad revenue and a share of cable subscriber fees, and local broadcast stations, which had only ad revenue to support their operations. Prior to that time, broadcasters had effectively subsidized competition from cable because cable system operators could resell broadcast programming without paying for the underlying content, and then use the profits to launch and invest in cable networks that competed with broadcasters for both programming and advertising. These economics are what initiated the migration of sports programming from broadcasting to cable.

In the early retrans negotiations, which I’ll refer to here as Retrans Version 1.0, cable still had local monopolies, leaving broadcasters in the awkward position of attempting to negotiate with a party whose only “competition” was the broadcaster’s free signal. If the broadcaster’s programming disappeared from the local cable system, subscribers couldn’t leave for a new provider. Their only option was to put up an antenna and continue to be a subscriber in order to receive non-broadcast content. Under those circumstances, cable operators didn’t see any reason to pay money for the right to resell broadcast programming–they were the only resellers in town. The result was very few retransmission blackouts, as broadcasters knew that dropping off of the only cable system in town would hurt the broadcaster a lot more than the cable operator.

Unable to obtain money for retrans rights, the compensation broadcasters typically received for permitting retransmission of their signal was the right to program additional channels on the cable system. This cost the cable operator little to nothing while providing it with yet more free content from the broadcaster, making it an easy “give” in retrans negotiations. Ultimately, however, it ended up providing the public with its first great benefit from retransmission negotiations–the launch of a plethora of diverse new program services that not only developed into some of today’s most popular cable networks, but provided an alternative to existing cable networks that were largely owned by the cable systems themselves.

Retrans Version 2.0 commenced after Congress passed the 1999 Satellite Home Viewer Improvement Act, which finally allowed satellite TV to carry local broadcast signals. As a TV service wanting to be competitive to cable, satellite TV operators knew they needed to provide local broadcast signals and fought hard to persuade Congress to change the law to make that a reality. However, lacking the monopoly status enjoyed by most cable systems at the time, satellite TV operators understood they couldn’t replicate the strongarm negotiating tactics that had been employed so successfully by cable operators. Instead, they agreed to pay broadcasters money for the right to retransmit broadcast content, allowing them to attract subscribers away from cable and ultimately end cable’s monopoly. For the first time, broadcasters had competing multichannel providers vying for the right to resell their content to subscribers. As satellite TV’s market share grew, cable operators needed to ensure continued access to the most popular programming on their systems to fend off that competitive threat, and grudgingly began paying for the right to resell broadcast programming as well.

While you might think these competitive developments would have quickly led to a mature market for program retransmission rights with stable pricing, reaching that inevitable destination has been slowed by two factors. The first is simply that the monopoly years of cable so badly distorted market forces that the market for retransmission rights didn’t begin to develop until satellite TV became a competitive force and the retransmission contracts in place in 1999 began to expire, requiring negotiation of new retransmission deals. This occurred much later in markets where satellite-delivered “local into local” service was delayed because of capacity limitations of the satellite systems themselves. Even then, progress was slow for broadcasters, with cable operators being understandably resistant to paying for something they previously saw themselves as receiving for free. One of the best examples of this era is the cable operator who told us during negotiations that he believed paying for the right to retransmit broadcast signals was “unethical” and proceeded to carry my client’s broadcast programming illegally. The negotiation was concluded shortly after the cable operator became the first party ever to be found in violation of the FCC’s rules on good faith retrans negotiations, and the FCC ordered retransmission to cease until an agreement was in place.

Which brings us to the second factor that has delayed countless retrans negotiations and slowed the maturation of the market for broadcast retransmission rights–the possibility of government intervention. Retrans negotiations over the past decade have been conducted with a spectral third party in the room–the threat of governmental intrusion into the negotiations. While the FCC previously concluded that it has no authority to force any particular result in retrans negotiations beyond ensuring that the parties are negotiating in good faith, that has not stopped cable and satellite TV operators from regularly calling upon the FCC to intervene in negotiations. When the FCC resists, the call goes to Congress to “fix” retransmission laws or provide the FCC with authority to step in and alter the dynamics of a retrans negotiation. While such multichannel distributors certainly are hoping to place the government’s heavy thumb on their side of the scale, creating even the possibility of government intervention generates uncertainty which the cable or satellite TV operator hopes will cause the broadcaster to take the deal that’s on the table.

Uncertainty, however, is the enemy of efficient negotiations. When each party knows exactly where it stands, the parties focus on reaching an agreement and getting the deal done as quickly as possible. Where the possibility of government intervention is introduced, the parties cease focusing on each other and start playing to the FCC (or Congress). At best, that means grandstanding and delays in the negotiations while one party hopes to generate enough noise to entice the FCC to step in and get a better result than the party can negotiate on its own. At worst, it means creating high visibility blackouts in an effort to draw the FCC or Congress into launching retrans “reform”. Both approaches are the antithesis of efficient and swift negotiations, with one party quite literally putting off “getting down to business” in hopes that it is buying time for the FCC to join the fray. This approach has unfortunately made some Retrans 2.0 negotiations slow, messy, and unpleasant for all involved, including subscribers.

That is why this week’s CBS and Time Warner deal, regardless of its economic terms, is a watershed event. The negotiations started in typical Retrans 2.0 fashion, resulting in a blackout of CBS programming on Time Warner systems and the traditional public exchange of unpleasantries between the parties as government intervention was sought to protect subscribers from the loss of CBS programming. In fact, some have speculated that Time Warner dug in its heels specifically to create a high profile program disruption that might draw in Congress or the FCC. The FCC played its part in the drama, with a spokesman for the acting Chair of the FCC announcing just five days into the blackout that the agency “stand[s] ready to take appropriate action if the dispute continues.”

However, it is what happened in the nearly four weeks of CBS blackout after that comment was made that carried us from Retrans 2.0 into the world of Retrans 3.0. Specifically: the blackout occurred in the highest profile markets, but the government did not step in; the blackout was geographically widespread, but the government did not step in; the blackout involved high-profile network programming, but the government did not step in; the blackout drug on far longer than imagined, but the government did not step in; the blackout affected a major sporting event and threatened to affect upcoming NFL games, but the government did not step in. In short, it presented one of the most politically-appealing invitations for the government to second guess the path of a free market retrans negotiation, and the government declined to do so. Perhaps just as important, viewers came to realize that the sun still rose in the morning despite the CBS blackout, antenna manufacturers enjoyed a sales boost, and a retrans deal was achieved in less time than it typically takes Congress to name a post office.

Having seen the government’s lack of enthusiasm for getting involved in one of the most extreme examples of a blackout, parties to retrans negotiations will hopefully be able to retire “threatening to involve the government” as a negotiating tactic. While I have no illusions that such threats will now cease, their impact has been considerably diminished over the past month. The CBS/Time Warner dispute presented an unprecedented opportunity for broadcasters and multichannel providers to peer into the deepest recesses of their corporate closets and confirm that there is no government bogeyman residing within, waiting to pounce on unsuspecting negotiators. Freed from the need to look over their shoulder during retrans negotiations, or to play to the governmental crowd, parties can focus on getting retrans deals done quickly and efficiently, without being distracted by the uncertainties and contingency planning surrounding disruptions from outside the negotiating room.

Blackouts are caused by one or both parties to a retrans negotiation misgauging their negotiating power relative to the other party. While that will inevitably still happen from time to time for the same reasons it happens in any business negotiation, the legacy of Retrans 3.0 is that it should no longer happen because one party thinks that if it delays enough, or causes enough of a public stir over a retrans dispute, the FCC will come to its rescue. The result will be better for all, including subscribers.