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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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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.

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The press is buzzing with news, leaked late yesterday and announced today in a document entitled The Third Way: A Narrowly Tailored Broadband Framework, that FCC Chairman Genachowski is proposing to reclassify the transmission component of broadband Internet access as a “telecommunications service” subject to FCC regulation. As almost everyone in the telecom world knows, the US Court of Appeals recently found that the FCC does not have direct jurisdiction to impose “network neutrality” rules as long as it classifies broadband as just an “information service.”

With the Chairman’s support, three of the five FCC Commissioners now favor reclassifying broadband as a telecommunications service, a first step towards adopting network neutrality rules.

For broadcasters, the net effect of net neutrality rules isn’t as easy to assess as it may at first seem. As producers and distributors of broadband and mobile services, net neutrality rules should assure broadcasters that their content will not be blocked or unfairly degraded by broadband network operators. Broadcasters that provide mobile news apps and operate rich media web sites have the same general interest in nondiscriminatory network access as do Internet behemoths like Google, Amazon and eBay.

On the other hand, broadband providers have argued convincingly that their networks are extremely expensive to build and that they must have flexibility to manage Internet traffic on their networks to assure a good quality of service to their subscribers. If the FCC limits broadband operators’ ability to manage traffic, those operators may have to upgrade their infrastructure, raising costs to web publishers and end users alike.

Mobile network operators assert that network neutrality rules could have proportionally greater adverse effects on them. Mobile network capacity is generally more costly and less robust than that of copper and fiber networks. If network neutrality rules increase the load on mobile networks and limit the ability of network operators to manage that traffic, their arguments that they need more spectrum to meet growing demand may be more convincing.

At this stage, no one knows how any proposed network neutrality rules would treat mobile broadband operators. However, it is plausible that aggressive network neutrality rules could increase the load on mobile networks, and mobile operators are sure to argue that they will need more spectrum to respond.

With broadcast spectrum already squarely in the sights of the same FCC that is now proposing to impose network neutrality rules, broadcasters should pay close attention to this debate.

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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.

Should there be any questions concerning this matter, please contact any of the attorneys in the Communications Practice.

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When the U.S. Supreme Court overturned various restrictions on political spending by corporations in the Citizens United decision, it set off a flurry of activity in Washington. Many, including famously the President in his State of the Union address, derided the decision as opening the political process to the corrupting influence of corporate cash. Many in Congress promised a swift legislative response to minimize the impact of the Court’s ruling. Regardless of where you stand on the Court’s decision, I have to say I was disturbed by a number of statements coming out of Capitol Hill afterwards which made clear that the speakers had no understanding of the laws already on the books relating to political advertising on electronic media. Some promised to change the law to what it actually already is (although they apparently didn’t know it), and others pointed out “problems” that would result from the Citizens United ruling that current law already prohibits from occurring.

Grandstanding without basis is, however, a well-established Washington tradition, and I presumed that when legislative staffers got together to draft the legislation, they would quickly figure out that these criticisms and unneeded solutions had been off-base. I apparently was too optimistic. Today, Senator Schumer of New York unveiled the Senate version of the legislation (Senate link not yet available) at a news conference on the steps of the Supreme Court. The President publicly applauded the legislation, and the House has promised hearings within a week on its version of the bill in hopes of enacting it quickly enough to govern this Fall’s elections. The DISCLOSE Act (the acronym for “Democracy Is Strengthened by Casting Light On Spending in Elections”), as its name indicates, requires ample disclosure when corporations or unions spend money on ads relating to a federal political campaign. Unfortunately, it does not stop there, and attempts to then rewrite political advertising laws contained in the Communications Act of 1934 that were not impacted by the Citizens United ruling. These changes appear to be an effort to require broadcasters, as well as cable and satellite operators, to subsidize the ads of not just candidates, but of their national political parties as well, in an effort to make their ad dollars go farther than those of a corporation exercising its rights under Citizens United.

Setting aside the wisdom or constitutionality of that approach, the rub is that the legislation was apparently drafted in such a rush that aspects of it quite literally make no sense. For example, the relevant section of the bill is entitled “TELEVISION MEDIA RATES”, but it then amends the political advertising provisions of the Communications Act that affect both television and radio. Even if the impact on radio was unintended, the matter is further confused by a requirement that the FCC perform random political audits during elections of at least 15 DMAs of various sizes, and that each DMA audit include “each of the 3 largest television broadcast networks, 1 independent television network, 1 cable network, 1 provider of satellite services, and 1 radio network.”

Similarly, the statutory exceptions to the requirement for providing equal time to a candidate’s opponents when the candidate appears on-air would be amended to exclude certain appearances by a candidate’s representative as a triggering event. However, since only the appearance of a candidate can trigger equal time in the first place, creating an exception for appearances by a candidate’s representative serves no purpose.

Further indicating that the bill is premised on a misunderstanding of the current law, the Reasonable Access provisions of the Communications Act would be amended so that instead of FCC licensees being required to provide federal candidates with “reasonable amounts of time,” they would be required to provide “reasonable amounts of time, including reasonable amounts of time purchased at the lowest unit charge ….” The premise of this change appears to be a lack of understanding that all time sold to a candidate in the 45 days before a primary and the 60 days before a general election must be sold at the lowest unit charge for that class of time. The broadcaster has no discretion to charge anything but the lowest unit charge during that time, making this change pointless as well.

A number of other odd provisions in the Senate version of the bill that would significantly impact media companies (and not just broadcasters) is discussed in an Advisory we issued to our clients earlier today. Two of particularly great concern would drastically reduce the lowest unit charge for political advertising while significantly expanding the pool of entities eligible to receive lowest unit charge. It is worth noting that none of these media-oriented provisions appear to be in the House version of the bill, so hopefully they will be excised from the Senate bill before any harm is done. Regardless, broadcasters, as well as cable and satellite providers, need to be vigilant to ensure that these provisions, if not eliminated outright, are at least heavily modified before any final bill emerges.

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April 2010
Recent FCC enforcement actions reported in this month’s Enforcement Monitor include:

  • FCC Issues $30,000 and $12,000 Fines to Three Co-owned Commercial Television Stations and Three Co-owned Class A Television Stations for Failure to Publicize the Existence and Location of Their Quarterly Children’s Television Programming Reports
  • FCC Fines Nonresponsive Texas Cable Operator $38,000 for Emergency Alert System and Antenna Structure Violations
  • FCC Fines Broadcasters $7,000 for Failure to Timely File License Renewal Applications and for Unauthorized Operation
  • Idaho Station Fined $4,000 for Failure to Fully Disclose All Material Terms of a Contest

Continue reading →

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4/29/2010
Several members of Congress led by Senator Schumer and Congressman Van Hollen introduced today the “Democracy Is Strengthened by Casting Light On Spending in Elections” Act–the DISCLOSE Act. The House and Senate versions differ, with the Senate version vastly expanding eligibility for Lowest Unit Charge, reducing the Lowest Unit Charge, prohibiting preemption of political ads, and requiring the FCC to perform political audits of broadcasters, cable, and satellite operators.

The DISCLOSE Act is primarily aimed at reversing, to a large degree, the recent 5-4 decision of the Supreme Court in Citizens United v. Federal Election Commission, in which the Court held that corporations, and by implication unions, have a constitutional right to make independent expenditures for advertising supporting or opposing the election of political candidates. As we reported in a Client Alert in January of this year, the decision opened the way for increased political advertising by invalidating limits on corporate political ad spending. The decision allows, among other things, corporations (and unions) to purchase airtime at any time to directly advocate for or against candidates for federal elective office. While the decision invalidated limits on corporate spending on political advertisements, it did retain certain disclosure and disclaimer requirements found in the Bipartisan Campaign Reform Act.

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Last week, we listened to FCC Chairman Julius Genachowski speak at the National Association of Broadcasters convention in Las Vegas. One topic he made a point to discuss was the recent Petition filed by cable and satellite companies arguing that the retransmission consent process is unfair, and asking the government to intervene in private contractual disputes to decide how broadcasters can and cannot negotiate carriage deals, including mandating arbitration of disputes and requiring stations to permit “interim carriage” of their programming while negotiations are ongoing. However, the issue is not stations “yanking” their signals from cable and satellite operators while negotiations drag on, but the failure of operators to secure the right to retransmit the programming when their current retransmission agreement expires, as the Communications Act requires. Indeed, it is the same basic contractual process that cable and satellite operators go through when seeking to extend carriage of non-broadcast networks, except that non-broadcast networks wield nationwide control over access to their programming, whereas broadcasters wield such control only in individual markets.

While the Chairman did say in his speech that the marketplace is the “preferred method” for resolving disputes that come up during negotiations, he also referenced the Petition’s claim that broadcasters were to blame for a rise in cable fees, stating: “Some ask: Is free TV really free when cable rates go up because of retransmission fees?”
However, that rhetorical question is just that — rhetorical. Free TV can only survive as free TV if it is financially able to produce/compete for the programming also sought by non-broadcast networks. The only way that is possible in a 500-channel world is for broadcast stations to have the dual revenue stream (advertising and retransmission fees) enjoyed by their non-broadcast competitors. Only by being financially viable can broadcast stations remain as a free alternative for those wishing to “cut the cable” or “dump the dish.” In fact, as digital multicasting allows stations to deliver multiple free programming streams, free TV becomes a more attractive option and a more effective check on rising cable rates.

Unlike a cable network, a broadcaster can never “yank its signal” from the public when retransmission negotiations falter and what often seems to be missing from the debate is that the public does not “lose” a TV station’s signal when it is dropped by a cable system during a retransmission consent dispute because the signal is available to viewers for free over the air. The law merely prohibits a cable or satellite operator from reselling broadcast programming to viewers if the operator itself is unwilling to pay the going rate for it. In that regard, it is no different than any other business transaction, except that the public can always choose to “avoid the middleman” and obtain the programming directly from the television station (for free) by using an antenna. In this context, and particularly in light of the extreme rarity of program disruptions occurring during retransmission negotiations, cable and satellite operators have a difficult challenge making the case that carriage negotiations with broadcast stations are significantly different than carriage negotiations with cable networks.

The fundamental difference between these negotiations is mostly one of degree — broadcast programming tends to regularly be among the most popular programming, making it more valuable to those wishing to resell it to their subscribers. However, broadcast programming will only remain popular if broadcasters continue to earn the revenues necessary to produce and purchase such programming. A cynical observer might therefore conclude that the desire to prevent broadcasters from receiving a share of subscription revenues commensurate with audience ratings is only partially about reducing cable and satellite systems’ operating costs, and just as much about keeping those revenues out of the hands of those who compete with cable and satellite for ad sales and audience. Systems overpaying for fringe cable networks while underpaying for far more popular broadcast programming harms free local TV without any countervailing benefit (unless you are the owner of a fringe cable network).

Also, the problem with forcing interim carriage during negotiations (aside from the fact that its a violation of the Communications Act) is that the continued availability of a station’s programming for retransmission is not, as cable/satellite operators frequently claim, an unfair “bargaining chip” used by broadcasters in retransmission negotiations — it is the entire point of the negotiation. Requiring that broadcast programming continue to be made available at last year’s rate during negotiations, as the Petition urges, provides cable operators with an obvious incentive to drag out the negotiations as long as possible rather than bring them to a rapid conclusion and begin paying the current rate. Imposing an interim carriage requirement would actually destabilize retransmission negotiations, as broadcasters would be forced to declare the negotiations terminated in order to end the interim carriage and hopefully force the cable/satellite operator back to a serious negotiation. Encouraging cable/satellite operators to delay negotiations long past the expiration of their existing retransmission agreements, and then forcing broadcasters to declare an official end to the negotiations as the only way of ending lower cost interim carriage and forcing a serious offer from the cable/satellite operator, is inherently more likely to result in carriage disruptions than the current process.

Like homeowners in a buyer’s market, cable and satellite operators are no doubt unhappy that market conditions are currently less in their favor compared to the “good old days”, but that hardly makes the market “broken” or “unfair.” Trying to fix something that isn’t broken is a surefire way to break it badly, and it is the public that would be forced to pick up the pieces.

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Death, taxes … and FCC annual regulatory fees. Its that time of year again and the FCC has issued its latest annual Notice of Proposed Rulemaking containing regulatory fee proposals for Fiscal Year 2010. Those who wish to file comments on the FCC’s proposed fees must do so by May 4, 2010 with reply comments due by May 11, 2010.
For one of the few times in recent history, the annual fee amount the FCC is proposing to collect is actually less than the amount from a previous year. Consistent with this, and with a few exceptions, most of this year’s fees are the same or less than last year’s fees for all AM, FM, and television stations, as are the fee amounts for LPTV, Class A, translator, booster, and broadcast auxiliary licenses.

One big change in this year’s fee proposals is the elimination of the exemption for digital stations to pay fees now that the DTV transition has ended. Going forward, all digital full-service television stations will be required to pay a full license fee, including those stations that were operating pursuant to digital Special Temporary Authority as of October 1, 2009. It is also important to point out that the Commission is proposing to charge only a single fee for each low power or Class A facility simulcasting in both digital and analog.

The Communications Section will shortly be publishing a full Advisory on the proposed Reg Fees, including fee tables and charts for you to use to calculate your payments that will be due later this year.

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This week saw generally positive news for television broadcasters on the broadband front. First, the U.S. Court of Appeals for the D.C. Circuit ruled that the FCC does not currently have authority to regulate the network management policies of Internet providers. Aside from the fact that the Court’s ruling challenged the FCC’s ability to require Internet providers to treat all network traffic equally, i.e., to apply “net neutrality,” the decision also calls into question key aspects of the FCC’s ambitious National Broadband Plan, many of which assumed the FCC had broad authority to regulate the Internet. Because the Court struck at the very heart of the National Broadband Plan, the Court’s decision may undermine other aspects of the plan, including its controversial proposal to reclaim 120 MHz of spectrum from television broadcasters that we discussed in a previous post.

Another shifting wind came in the form of Verizon CEO Ivan Seidenberg, who publicly stated he does not believe there is going to be as great a spectrum shortage as the FCC predicts, and that “confiscating [TV] spectrum and repurposing it for other things, I’m not sure I buy into the idea that that’s a good thing to do,” and adding “I think the market’s going to settle this. So in the long term, if we can’t show that we have applications and services to utilize that spectrum better than the broadcasters, then the broadcasters will keep the spectrum.”

It is unclear whether the Commission will appeal the Court’s decision, and broadcasters still have a long way to go before they can breathe easier about their spectrum being repurposed for auction to wireless companies. Still, after being forced headfirst into a gale force national debate over the “best use” of their spectrum, any calming of those winds is certainly welcome.

While all this is good news for broadcasters, the FCC certainly isn’t giving up and going home. Just today, the FCC released its “Broadband Action Agenda” setting the timing for more than 60 rulemakings and other notice-and-comment proceedings, including a rulemaking involving broadcast spectrum reclamation scheduled for the Third Quarter of 2010. While the FCC’s authority over the Internet may be up in the air, it continues to exercise vast authority over broadcasters. One dark scenario (for everyone) is that the FCC rushes forward and reclaims broadcast spectrum, only to have its National Broadband Plan collapse before being implemented. In that situation, the damage to the public’s broadcast service would be done, the spectrum would still be auctioned, but likely with reduced demand (and excessive supply) driving down auction revenues for the government, and the public ending up no closer to the broadband nirvana envisioned by the FCC’s proposal.

Stay tuned, as this is a story that will be unfolding for quite a while.

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