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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.”

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One of many questions persisting since the release of the FCC’s National Broadband Plan has been “what is the impact on low power television stations?” Officially, the NBP’s call for repurposing television broadcast spectrum was not to affect LPTV stations, as the NBP indicated that LPTV stations would not be required to participate in the spectrum repacking and reallocation proposed for full power television stations.

As we noted at the time, however, it was unclear how the NBP’s spectrum reallotment proposals could not have a substantial impact upon the LPTV service. When full power stations are repacked into fewer channels to make room for wireless broadband, the secondary status of LPTV stations seems to ensure that they will be squeezed out of existence by the repacking. The NBP’s sunny language regarding the future of LPTV service therefore appeared more about selling the plan politically than about actually addressing the reality of spectrum repacking.

Today, President Obama issued a Presidential Memorandum directing the heads of all Executive Departments and Agencies to cooperate in “unleashing” the wireless broadband revolution by working with the NTIA and FCC to free up the 500 MHz of additional spectrum envisioned by the NBP. Immediately after the President’s action, the FCC’s Media Bureau released a Public Notice slamming the door on a much-anticipated opportunity to file digital LPTV and Translator applications that was scheduled to begin on July 26, 2010.

The Media Bureau had announced this filing opportunity on June 29, 2009, almost a year ago to the day of today’s announcement rescinding it. The filing opportunity was to have been for those seeking authorizations to build new digital LPTV stations. It was announced just after the conclusion of the nationwide DTV transition and the channel-shifting by full power stations (and displacement of LPTV stations) that process entailed. Applicants that had been prevented from filing before could now examine this vastly changed spectrum landscape with an eye toward providing LPTV service in places and on channels not previously available. Applications were to be considered on a first come, first served basis. To prevent a potential deluge of applications, the Media Bureau broke the process into two steps. In the first step, the FCC began permitting the filing of digital LPTV applications in rural areas in August 2009. The second step was to permit such applications in all areas of the country beginning in January 2010. As mentioned above, that date was first delayed until July 2010, and now, indefinitely.

Today’s announcement that new LPTV applications will not be permitted in urban areas, at least until the spectrum rulemakings surrounding the National Broadband Plan are resolved, officially confirms that the LPTV service is indeed going to be affected by the NBP’s thirst for broadcast spectrum. In a nod to that future reality, the Media Bureau also announced that the FCC will allow existing analog LPTV stations to apply for companion digital channels. While that may at first seem contrary to the goal of clearing broadcast spectrum, the purpose is to encourage the transition of the LPTV service to digital, which will ultimately allow it to be packed into less spectrum. However, even the transition of LPTV service into digital format is not likely to clear the amount of television spectrum envisioned by the NBP. As a result, if today’s action dropped the proverbial shoe on applicants for new LPTV stations, there likely will be one more shoe to drop… on existing LPTV stations.

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The FCC announced in April 2009 its intent to implement a new version of its biennial Ownership Report form, and to require that all commercial broadcast stations file a new Ownership Report with the FCC by November 1 of odd-numbered years. Since that time, the FCC has had to delay the original November 2009 filing deadline a number of times, for reasons ranging from its electronic filing system grinding to a halt and being unable to handle the sheer mass of the new reports, to technical glitches with the form itself, delays in Office of Management and Budget approval, and fierce opposition from broadcasters at the FCC, OMB and now in court based upon the paperwork burden and privacy concerns the new form raises. As we discussed in an earlier Client Alert, the FCC’s revised deadline requires parties to report their November 1, 2009 ownership data on the new form by July 8, 2010.

As that deadline draws near, however, it looks like there are still a few obstacles that the FCC must navigate. As we reported in a recent Client Alert, the FCC yesterday responded to a petition filed with the U.S. Court of Appeals for the DC Circuit by a group of broadcasters. Those broadcasters have asked the court to stop the FCC from implementing the revised Form 323, arguing that the requirement that all “attributable” principals provide their Social Security Number (SSN) to obtain a Federal Registration Number (FRN) for the new ownership report violates the Administrative Procedure Act and the Privacy Act. In its court-ordered response to these allegations, the FCC claims it has complied with the law, and that the broadcasters’ claims are moot in any event because filers are no longer actually required to provide their SSNs and can instead apply for a “Special Use FRN” (SUFRN) (love that acronym!) to complete the new ownership report form.

That response is not, however, entirely accurate. The FCC initially refused to create a Special Use FRN for purposes of reporting ownership interests. It feared that broadcast investors would choose to use that option rather than supplying their SSN, thereby undercutting the FCC’s ability to determine precisely which “Ted Jones” was the owner of a particular radio station. The FCC relented only when it became clear that many broadcasters would be unable to file their Ownership Reports at all since they had no ability to force their investors to reveal SSNs, and the FCC’s electronic filing system would not accept an ownership report if all attributable investors listed did not have an SSN-obtained FRN.

Even when the FCC later relented and created the SUFRN, it limited its use to the filing of biennial ownership reports (as opposed to post-sale ownership reports or other FCC applications). The FCC also made clear that the use of a SUFRN, while technically allowing broadcasters to file their ownership reports through the electronic filing system, did not comply with its rules and that it expected broadcasters to have obtained SSN-obtained FRNs before the next biennial ownership report is due in November 2011.

Since that time, and under continuing pressure from communications lawyers and privacy advocates (who are often one and the same), the FCC appears to be growing more flexible about the use of SUFRNs in completing ownership reports. Action by the court in the short time remaining until the July 8, 2010 filing deadline may determine just how flexible the FCC will need to be in that regard, and whether the filing deadline might have to be extended yet one more time.

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Earlier this week, FTC Chairman Jon Leibowitz began the FTC’s final workshop concerning the future of media “How Will Journalism Survive the Internet Age?” by dismissing as a ” non-starter” any chance that his agency would recommend new taxes to support or “save” journalism. In advance of this workshop, the FTC staff had prepared and released a discussion document entitled “Potential Policy Recommendations to Support the Reinvention of Journalism.” One of the goals of the document is to try and save the current newspaper business model by, in part, imposing substantial new taxes on other media, including broadcasters. While the FTC says that the term “journalism” used throughout the document does not mean that that the FTC favors newspapers over broadcasters or other media, a close reading of the draft indicates that newspapers would be the primary beneficiary of the FTC proposals should they be adopted.
Shortly after the release of the document, the FTC issued a statement to the effect that the draft did not reflect a formal intention on the part of the FTC to seek new taxes and that the paper was for discussion purposes only. However, in order to fund the proposals, including those to provide potentially billions of dollars in subsidies and various tax breaks and credits to newspapers, the document proposes that the government institute:

• A 7 percent tax on broadcast spectrum to raise $3 to $6 billion while at the same time relieving broadcasters of their obligation to air “public-interest programming.”

• A 5 percent tax on consumer electronics that “would generate approximately $4 billion annually.”

• A spectrum auction tax “on the auction sales prices for commercial communication spectrum, with the proceeds going to the public-media fund.”

• A 2 percent sales tax on advertising to generate approximately $5 to $6 billion annually” and to change “the tax write-off of all advertising as a business expense in a single year to a write-off over a 5-year period [to] generate an additional $2 billion per year.”

• A 3 percent Internet Service Provider-cell phone tax requiring consumers to pay a tax on their “monthly ISP-cell phone bills to fund content they access on their digital services” to raise $6 billion annually for the FTC’s proposals.

While the FTC’s look to the future of news gathering might be noble, the proposals to raise taxes on broadcasters, consumer electronics, Internet Service Provider customers, and others would undoubtedly increase costs for consumers and businesses alike, not to mention they raise a host of First Amendment and Constitutional questions regarding politicization and governmental interference with a supposedly impartial press.
In the real world, most newspaper publishers recognize that innovation and new business models are the best ways to survive and thrive going forward as opposed to having the government impose harsh taxes on other media in the “robbing Peter to pay Paul” manner envisioned by much of the FTC report. According to press reports, John Sturm, President and CEO of the Newspaper Association of America commented on the FTC report by stating that “We’ve never sought or asked for anything like a bailout” and Rupert Murdoch is on record warning against the FTC proposals and the “heavy hand” of governmental regulation.

Chairman Leibowitz stated that the FTC’s workshops “have always been more about the future of journalism than saving the past.” While the Chairman might be right, the staff report circulating at the FTC would suggest otherwise as many of its proposals are clearly backward looking. Given the stakes and dollar amounts involved, broadcasters, consumer electronics manufacturers, Internet Service Providers as well as consumers should pay close attention to this proceeding as it continues to unfold at the FTC. The FTC plans to issue its final report on the future of media sometime this Fall.

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Not only broadcast stations, but churches, schools, concert venues, live theater, film productions, business presenters, sporting events, and motivational speakers will have to change the way they operate, starting this weekend. As we wrote in a Client Advisory back in January, the FCC set June 12th, 2010–the anniversary of the DTV transition–as the date by which wireless microphones and other devices must cease using the spectrum that was formerly TV channels 52-59. While popularly referred to as the “700 MHz Band”, the spectrum being cleared actually runs from 698 MHz to 806 MHz.

Although the elimination of wireless microphones from this band has drawn the most attention, many other devices commonly use this spectrum and must also cease operating in this band on June 12th, 2010. These include wireless intercoms, wireless in-ear monitors, wireless audio instrument links, and wireless cuing equipment. The impact is not limited to audio devices, as even devices that synchronize TV camera signals using the 700 MHz Band must vacate the band starting this weekend.

The reason for the FCC’s band-clearing effort is to make it available (and interference free) for public safety operations, as well as for providers of wireless service that have acquired the right to use portions of the band. Those failing to cease operating their 700 MHz devices are subject to fines ($10,000 is the FCC’s base fine for illegal operation), arrest, and criminal sanctions, including imprisonment, as the FCC notes that “interference from wireless microphones can affect the ability of public safety groups to receive information over the air and respond to emergencies,” putting “public safety personnel in grave danger.” While it may be tempting to continue using 700 MHz equipment in hopes that you won’t get caught, your community theater production does not want the liability of causing interference to a rescue operation by public safety personnel.

To avoid this result, users of affected 700 MHz equipment must either modify their equipment to operate in other permitted portions of the spectrum, or cease using the equipment entirely if it cannot be modified to operate in other bands. To assist users in determining whether they have a 700 MHz microphone, the FCC has created a webpage listing many makes and models of wireless microphones, as well as the frequencies on which they operate. The site also includes contact information for many of the manufacturers of wireless microphones to obtain further information about particular microphones.

So inspect your equipment and do the research necessary to determine whether it operates in the 700 MHz Band. If so, see if it can be modified to prevent operation in that band. If not, then it looks like this weekend would be an excellent time to go shopping for that new microphone you’ve always wanted.

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If you are a Fox affiliate, your fax machine (if you still have one) probably has a message on it from the FCC waiting for you, courtesy of the latest struggle between Fox and the FCC over indecency enforcement. In a Notice of Apparent Liability released today, the FCC states it received over 100,000 complaints about a January 3, 2010 episode of American Dad aired on the Fox Television Network. Although the NAL doesn’t discuss the allegedly indecent content, it appears all of the complaints relate to a single segment of the episode which brings to mind that old college query, “if Jack helped you off the horse…” (if you missed that part of college, don’t worry, you didn’t miss much).

While the FCC’s enthusiasm for enforcing its indecency restrictions has waxed and waned over the years, what has usually been constant is the relatively slow path from complaint, to investigation, to resolution. It has not been uncommon for years to pass between these steps, which makes the sequence of events leading up to this NAL all the more interesting. In this case, the FCC sent a letter of inquiry to Fox just 18 days after the episode aired. The letter attached a single redacted complaint that the FCC indicates was “representative of the complaints received by the Commission,” and asked Fox, among other things, whether the description in the complaint of the allegedly indecent content was accurate, which Fox-owned stations aired it, and which Fox Television Network affiliates had the contractual right to air it.

According to the NAL, when the response to the letter arrived at the FCC, it was not from Fox, but from the single Fox affiliate named in the “representative” complaint. As a result, the response didn’t address a number of the FCC’s questions, including the request for a list of Fox affiliates that likely aired the program. To no one’s surprise, the FCC was not pleased. The NAL indicates that the FCC followed up with another letter on March 19, 2010 (note once again the lightning pace, with the FCC’s follow-up letter going out just 18 days after the affiliate’s response was filed). The FCC summarizes that letter as “describing [Fox’s] failure to respond to the LOI and requiring a full and complete response to all the Bureau’s inquiries no later than March 23, 2010,” just four days after the FCC letter was issued.

The NAL indicates that Fox didn’t respond to that letter, which also obviously did not please the FCC. In response, the FCC issued the NAL, which proposes a $25,000 fine against Fox for failure to respond to an FCC inquiry. The NAL notes that the base fine for such an infraction is $4,000, but that a “significant increase” in the fine is appropriate because “misconduct of this type exhibits contempt for the Commission’s authority and threatens to compromise the Commission’s ability to adequately investigate violations of its rules.”

Suspecting, perhaps, that a $25,000 fine would not overly concern an operation the size of Fox, the FCC proceeded to the nuclear option: “Given the continued absence of a response from Fox and the incomplete response received from [the affiliate], contemporaneously with the release of this NAL, the Bureau is sending letters of inquiry to all licensees that air Fox Television Network programming.” The NAL later notes that letters of inquiry are being sent to 235 Fox owned or affiliated stations. The FCC is obviously counting on Fox receiving a firestorm of protests from its affiliates, who now have 30 days to respond to the individual letters of inquiry, which include a request for copies of any complaints about the episode received by the stations themselves. The letters of inquiry are going out today by certified mail, but it appears that the FCC has already faxed the letters to many Fox-affiliated stations.

Both the speed and severity of the FCC’s response indicate a desire to send a very clear message to licensees that there is a new sheriff in town, and not a very patient one at that. This NAL adds an exclamation point to my missive last week about the FCC stepping up its enforcement sanctions to ensure that licensees don’t view them merely as a cost of doing business. Fox affiliates are about to be caught in the crossfire of the next skirmish in the indecency battle between the FCC and Fox, and they are doubtless not too pleased about it.

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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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5/18/2010
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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