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The FCC’s Further Notice of Proposed Rulemaking seeking comment on the conversion of low power television stations from analog to digital operation was published in the Federal Register today. Comments on the FCC’s proposals are due on December 17, 2010, with reply comments due on January 18, 2011.

Although Congress established a deadline of June 12, 2009 for all full-power television stations to discontinue analog operations and begin operating only in digital, LPTV and TV Translator stations, as well as Class A TV stations, were seen as needing more time to marshal the resources to transition to digital operation. Accordingly, the Congressionally-mandated analog cut-off date did not apply to these stations. As a result, all full power television stations have ceased over-the-air analog broadcasts, but a significant number of Class A, LPTV and TV translator stations continue to transmit in analog and many questions persist as to how to transition these stations to digital-only operation. The FCC has released a Further Notice of Proposed Rulemaking (FNPRM) in its proceeding examining the digital transition for Class A, LPTV and TV Translator stations. The FNPRM seeks comment on the procedures and timelines by which these stations will complete the transition to digital operations.

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In October of 1996 my boss, the chairman of a $3 billion television production and distribution empire (and one of the smartest television dealmakers I ever met) scoffed when I said that television could be delivered over the Internet. I told him to wait ten years. Well, in 2006 we had YouTube, but I doubt Bill Bevins would count that as television.

In the first ten days of October 2010:

  • I spoke on the “Hot Topics” panel at the annual TPRC conference, where leading academics and policy makers discuss legal, economic, social, and technical issues on national and international information and communications policy. The hot topic this year: over-the-top (OTT) television.
  • A friend called asking for advice – he’d been offered a senior executive post with a very large broadcasting company paying a great salary, and a senior position with a scrappy OTT startup, paying lots of stock and the chance to hit big. In 2010, he sees this as a tough call.
  • I watched Forrest Gump in “high definition” on a 50″ plasma monitor, streamed by Netflix to my son’s Xbox. The quality was stunning.
  • I installed my new AppleTV and watched a high definition podcast, also streamed, and several “high definition” videos on YouTube and Netflix. In several cases, the quality was very good. And the Apple TV interface is much more elegant and easier to use than our FiOS set top box.

I should have told Bill 14 years.

OTT is here. There’s a lot of long tail and niche content online. It’s getting easier to find and use, and if you have a fast broadband connection, the quality can be outstanding. So just what is cord cutting and how do you define OTT? And what do they mean for traditional video providers?

Cord cutting at its extreme means a household drops MVPD service and relies on other sources of television – primarily free OTA television supplemented by long-tail OTT internet services like Netflix and Hulu. OTT means traditional television content delivered through non-traditional (generally Internet) television distribution channels. It doesn’t refer to non-traditional video content (YouTube and other user generated content) regardless of distribution channel. We make this distinction because, rightly or wrongly, we consider YouTube and Vimeo to be something entirely different (and less threatening to incumbent providers) than the delivery of high resolution, full-format, traditional programming over the Internet.

Many fear OTT will lead to tens of millions of households to cut the cord. This is naturally a concern for cable and satellite providers, but many broadcasters worry too, because MVPDs won’t pay broadcasters for cord cutting households. Personally, I think we are likely to see a fair amount of cord cutting in the next few years, and an even larger amount of what I call cord trimming – dropping premium services or higher tier services. In new households, broadband is essential, while pay television service is often optional. And the combination of gorgeous, over-the-air, live high definition broadcast service and increasingly compelling long tail OTT options is likely to be a better option for many households than traditional MVPD service.

But there’s a silver lining for cable systems and broadcasters, and even for DBS providers.

  • Cable systems may lose video subs, but demand for OTT television will drive broadband adoption into more of the 40 million households that haven’t adopted it so far, and it will lead others to upgrade their connections, at higher prices. Since broadband service is generally more profitable than video services, cable profit margins could actually rise even if gross revenue shrinks.
  • Broadcasters could lose retransmission consent fees from cord cutting households, but cord shrinking will affect broadcast competitors – cable networks – before broadcasters, because it’s the expensive higher tiers and premium services that cord-shrinking customers drop. The broadcast and sports channels are the last to go before cord is cut altogether.
  • If total MVPD penetration falls from the high eighties to the mid sixties in the next seven to ten years, as I suspect it will, tens of millions in advertising will migrate back from cable and satellite to broadcast, because reach is still important. Twelve or so years ago, with MVPD penetration in the mid 60s, broadcasters were far more profitable, even without retransmission revenue.
  • Much higher broadband penetration could breathe new life into the DBS business model, which is an incredibly cost efficient way to distribute high quality linear television. With more broadband homes to sell into, DBS providers can create a hybrid satellite-OTT service that meets and in many ways exceeds what the cable operators can do with their own video services.

OTT service will have many effects beyond cord shrinking and cord cutting. But incumbent providers should embrace OTT, because the opportunities it enables – the best of which we can’t imagine yet – far outweigh the risks that it poses to all incumbent business models. It creates opportunities for greater efficiencies and more varied service offerings for all incumbents, if they have the vision to see the opportunities and the perseverance to follow through. Best of all, OTT can make television more satisfying for consumers, more measurable, and easier to use – leading, inevitably, to more usage. In the television business, we all like more usage, as long as we get our share. Getting that share is the challenge and the opportunity.

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Last week, Congress passed the Twenty-First Century Communications and Video Accessibility Act of 2010 (the “Act”) which, among other things, reinstates the FCC’s former Video Description rules for television broadcasters, extends closed captioning of video programming to the Internet, and requires the FCC to examine methods of increasing the accessibility of emergency information. The President signed the bill today, October 8, 2010.

The Act is designed to update the Communications Act to account for the many new technologies available in today’s marketplace and to assure that they are accessible to persons with hearing or vision impairment. The Act outlines a decade-long timetable for the submission of various reports by a new advisory committee to the FCC, and then by the FCC to Congress, and the implementation of further regulations based on the findings of those reports. When fully implemented, the Act will require that specific amounts of digital television programming contain video descriptions, that certain video programming distributed via the Internet contain closed captions, and that consumer electronics devices contain features to promote accessibility and be hearing aid compatible. We have summarized the Act’s requirements in three phases below.

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After we published our Advisory reminding licensees of the deadline to electronically file the Quarterly Children’s Television Programming Report on FCC Form 398 for the Third Quarter of 2010, the FCC disclosed that it has modified its electronic filing system to require the entry of a Federal Registration Number (“FRN”) and password as the final step before the report can be filed. The FCC issued no advance public notice of this requirement, but instead placed the following notice on its webpage dedicated to the Children’s Television Act of 1990, although NOT on the page that licensees visit to prepare and file the report itself:

To enhance the security and integrity of the KidVid database, we now require authentication with an FRN and password associated with the broadcast facility for each Form 398 filing. After you have completed Form 398, you will be prompted to enter this information. You must enter your FRN and password to complete the form. If you have forgotten your FRN password, please contact the CORES helpdesk at 877-480-3201.

Because of the potential for surprises associated with the implementation of this new requirement, we recommend that, if possible, licensees complete their Form 398 filings in advance of the filing deadline. The filing deadline for this quarter falls on Tuesday, October 12, 2010 due to the Columbus Day holiday, so Friday, October 8, 2010 is a good target date for completing the Form 398. This will allow additional time for station personnel to address any issues that arise, such as determining which FRN and password combination(s) will be accepted by the filing system, and, if necessary, to locate the correct information.

Should you have any questions regarding this Alert or the FCC’s children’s programming requirements in general, please contact any of the attorneys in the Communications practice section.

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The Department of Homeland Security’s Federal Emergency Management Agency (FEMA) announced in a public notice released today that it has adopted the Common Alerting Protocol (CAP) v1.2 Standard for FEMA’s Integrated Public Alert Warning System (IPAWS). Under the FCC’s Rules, Emergency Alert System (EAS) participants (e.g., radio and television stations, and wired and wireless cable television systems) must be able to receive CAP-formatted EAS alerts no later than 180 days after FEMA publishes the technical standards and requirements for CAP transmissions. Although FEMA’s public notice does not mention the 180 day clock, an FCC representative stated today that the 180 day period commences with issuance of the FEMA public notice. As a result, all EAS participants should assume that the release of the public notice today (September 30) initiated the 180 day period to acquire and install CAP-compliant equipment.

At its essence, IPAWS is a network of alert systems through which FEMA is upgrading the way Americans receive alert and warning information, providing that information through as many communications pathways as possible. CAP is an alerting format that uses digital technology to allow a consistent warning message to be disseminated simultaneously over as many different warning systems as possible. In addition to enhanced audio and video, CAP permits digital photos and text to be included in emergency alerts and AMBER alerts.

FEMA and the FCC are to be commended for their hard work in seeking to improve EAS and better alert the American people in the event of an emergency. However, EAS participants and equipment manufacturers alike have argued that 180 days is not enough time to acquire equipment compatible with the new CAP standards and to configure EAS systems to receive and relay CAP messages. Manufacturers of EAS equipment may not be able to meet the sudden demand for new equipment by that deadline if every EAS participant is indeed required to have CAP-capable equipment installed within 180 days. Many EAS players have also noted that the 180 day time frame does not take into account legitimate budgeting concerns, given that the equipment alone can cost $2,000-$3,000. With tight federal, state, and local budgets, most EAS participants will likely get no assistance in acquiring the equipment necessary to make the new alerting system work.

There is also the issue of equipment certification and testing. FEMA is expected to wrap up its initial certification process by issuing a list of CAP-certified equipment by the end of November. But it isn’t clear if the FCC will conduct its own certification process to provide EAS participants and EAS equipment manufacturers with the certainty of FCC rule compliance they would like prior to moving forward with acquiring CAP-compliant equipment. Many also complain that it remains unclear if parties will be able to fully test the reliability of their new CAP equipment until late 2011, given that the first national FEMA test of CAP is not expected to occur until that time.

Also, while EAS participants are required to meet the 180 day deadline, there are no rules requiring state or local Emergency Management Agencies or public safety departments to be able to actually deliver such alerts by that deadline. So while EAS participants will need to be able to receive national CAP messages delivered by FEMA, they will also need to make sure that their new equipment can simultaneously receive older “legacy” messages that may continue to be issued locally. And if states decide to implement a CAP-compliant EAS system in the future, there is no guarantee that the equipment they acquire then will be fully compatible with the equipment purchased earlier by EAS participants in that state.

The good news is that staff at both FEMA and the FCC have been made aware of these and other concerns surrounding the 180 day deadline and seem sympathetic to those concerns. It is therefore possible that the 180 day compliance period could be extended, but EAS participants should not rely on that being the case. Because of this, EAS participants will need to carefully assess their situation to determine when and how to select EAS equipment appropriate to their needs. EAS participants that wait until too late to focus on this issue will certainly face an emergency of their own.

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The FCC today released an order refining, but largely reaffirming, its earlier decision to allow unlicensed devices to operate in the TV band as long as they do not cause interference to existing users such as TV stations and wireless microphone operators. While many refer to this spectrum as “white spaces” on the theory that it is vacant spectrum located between existing television signals, veterans of the digital television transition question whether white spaces more appropriately fall into the same category of mythical creatures as unicorns.
The digital transition’s compression of television stations that previously occupied Channels 2-69 nationwide into Channels 2-51 took a miraculous feat of engineering (and the displacement of a lot of LPTV stations). Many stations had to be wedged into the shrunken TV band with a shoehorn, which, at least in urban areas, left very little free spectrum. While the phrase “white spaces” evokes a mental image of vast open prairies, the densely populated areas that are the target markets for manufacturers of unlicensed equipment are already spectrum congested, and are more likely to offer “white spots” or “white specks” than white spaces. The benefit of the Commission’s order will likely be greater in rural areas, where spectrum congestion is not an issue even after the digital transition.

As long as the FCC lives up to the Prime Directive of not causing interference to existing inhabitants of the TV band, the benefits of better utilization of spectrum are hard to dispute. Broadcasters understand as well as anyone the challenge of eking out every last ounce of potential from spectrum. However, broadcasters are understandably concerned with a significant change made by the FCC in today’s order — the elimination of the FCC’s requirement that white spaces devices be able to sense local signals and avoid causing interference to them. By eliminating that requirement, the FCC removed the “safety valve” it had installed in its original plan. Instead, the FCC is placing its faith entirely in the creation of one or more privately-created and run databases of existing spectrum users that unlicensed devices will consult before selecting a frequency on which to operate.

Many in the broadcast industry have been strong proponents of requiring unlicensed devices to have “sensing” capability rather than relying solely on a national database of existing signals. “System redundancy” is an important feature in designing reliable communications systems, and removing that redundancy inevitably makes for a less reliable system. As the FCC has noted, eliminating the “sensing” requirement will reduce the cost of unlicensed devices, but as we discovered in the recent Gulf oil spill, short term decisions to reduce costs by reducing safety margins can have far greater and more expensive long term consequences.

While lacking any backup protection, a spectrum database could be a workable solution if properly implemented. However, the challenges of implementation are immense. Ensuring the accuracy of the database itself will be a challenge given constantly changing spectrum use by new and existing operators. Also, signals propagate differently depending on frequency, what part of the country you are in, local terrain, and various other factors, making the database either incredibly complex, or inadequate to address real world circumstances.

Viewers of TV stations in Fresno, whose real world signals extend far beyond their predicted contours because of terrain effect, will suddenly be subject to interference from unlicensed devices. In addition, you have to think that users of those unlicensed devices aren’t going to be too happy when their wireless network won’t function because (unknown to them) it is receiving interference from a TV signal that the database swears isn’t there.

Because of these and many other issues, the FCC needs to keep an open mind as it implements its proposed use of white spaces. A well-performing database that keeps licensed and unlicensed operators adequately separated is in everyone’s interest. If some of the FCC’s initial conclusions need to be rethought in order to accomplish that, those discussions will be healthy ones.

Equally important is ensuring that equipment manufacturers fastidiously comply with the FCC’s interference protocols. Broadcasters are rightly concerned that non-compliant or just poorly designed and manufactured unlicensed devices can cause immense damage, and the FCC lacks the tools to put the genie back in the bottle should that occur. Fining such manufacturers after the fact won’t help much if millions of interference-inducing devices are already out there interfering with the public’s ability to watch TV, listen to a sermon, or attend a Broadway show. As the FCC proceeds down this path, getting it right is going to be far more difficult than just getting it done.

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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 Iowa and Missouri, and noncommercial educational television stations licensed to communities in Alaska, American Samoa, Florida, Guam, Hawaii, Mariana Islands, Oregon, Puerto Rico, Virgin Islands and Washington, must file their Biennial Ownership Reports by October 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 October 1, 2010 for Noncommercial Educational Radio Stations in Iowa and Missouri, and for Noncommercial Educational Television Stations in Alaska, American Samoa, Florida, Guam, Hawaii, Mariana Islands, Oregon, Puerto Rico, Virgin Islands and Washington

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One of the great things about being a communications lawyer is the wide array of issues you deal with over the course of a day. Contract lawyers negotiate contracts, and litigators litigate, but communications lawyers negotiate contracts, litigate, argue government policy, and generally are thrown into the breach whenever a problem emerges affecting their clients. As a very senior communications practitioner said when I was a young lawyer, “if you want to be a communications lawyer, you better be very good at your trade or have a damn good smile!”
Because of the diversity of communications issues out there, you never know when you answer the phone what the issue will be. One question I have received on multiple occasions over the years is whether it’s true that radio stations are prohibited from airing the sound of a police siren. I have had broadcasters swear there is a flat prohibition on this and that they were taught about it early in their career. While there is no outright prohibition, this “old broadcaster’s tale” stems from a 1970 FCC proceeding where several complainants sought such a ban. The FCC declined to prohibit these sound effects, but basically told broadcasters to use common sense when airing them. Not coincidentally, 1970 was the year that R. Dean Taylor’s song Indiana Wants Me made it to Number 5 on the Billboard charts, complete with siren. A siren-free version of the song was also produced to appease nervous radio stations (take a listen to the “with sirens version“; go ahead, I’ll wait till you get back).

I was reminded of all this today when I received a client call asking about a radio ad from the oil company ARCO that includes the Emergency Alert System tone at the beginning of the spot. The Society of Broadcast Engineers has posted an MP3 of the ad here.

The EAS tone differs from police sirens in two important ways. First, the airing of the EAS tone or a simulation of the tone where no emergency or authorized EAS test exists is flatly prohibited by Section §11.45 of the FCC’s Rules (“No person may transmit or cause to transmit the EAS codes or Attention Signal, or a recording or simulation thereof, in any circumstance other than in an actual National, State or Local Area emergency or authorized test of the EAS.”). It could also potentially violate Section 73.1217, the FCC’s prohibition on broadcast hoaxes.

Second, unlike members of the public who usually can discern from context whether a siren or other emergency sound is a cause for concern (does Indiana really want them?), the electronics that monitor radio signals do not have this capability. As a result, the airing of the commercial has accidentally activated EAS receivers around the country, which hear the alert tone and activate the local emergency alert system as though an actual emergency is occurring. It appears the tone in the spot was tweaked to speed it up a bit, but apparently not enough to avoid fooling at least some EAS receivers.

Stations airing the spot, particularly where EAS activations have occurred, should get in touch with their communications counsel immediately. The FCC’s words from 1970 are still relevant here: “The selection and presentation of advertising and other promotional material are, of course, the responsibility of licensees. However, in this selection process, licensees should take into account, under the public interest standard, possible hazards to the public. Accordingly, in making decisions as to acceptability of commercial and other announcements, licensees should be aware of possible adverse consequences of the use of sirens and other alarming sound effects.” It may take 40 years, but what goes around, comes around.

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Anyone who has enjoyed March Madness knows that Lady Luck often intervenes in a team’s journey to the NCAA Final Four. But is getting to the game a literal roll of the dice for spectators too? The Seventh Circuit Court of Appeals in Chicago has recently ruled that a lawsuit can go forward which claims that the NCAA’s ticket sales for the NCAA tournament are an illegal lottery akin to a game of poker or roulette.

Those who run sweepstakes and contests live in fear of having such an accusation leveled against their promotional campaigns. While they know that they must avoid combining the three elements of a lottery: (1) prize, (2) chance, and (3) consideration (such as money), those who are new to the industry can often be heard to say “it’s not like this is real gambling or anything.” Much of the time, the focus is on how to make sure that “chance” or “consideration” (or both) are not present in your promotional game. There is very rarely any debate as to whether there is a “prize,” as there is usually little point to having a promotion without one. Yet, it is that issue which is at the heart of the case against the NCAA. More to the point, the Court seems to have been influenced by the fact that Final Four tickets are highly sought after, so the chance to buy them in and of itself could be a “prize.”

For years, the NCAA has used random selection to determine who will be allowed to purchase tickets to its Final Four basketball games. According to the plaintiffs in this case, to have a shot at scoring a pair of tickets, they were required to pay the NCAA in advance for both the face value of the tickets and a “non-refundable handling” fee of $6-$10. To maximize the chance of being selected, each person could enter up to ten times, submitting the face value of ten tickets plus handling fees, although participants would only be allowed to purchase a single pair of tickets if selected, regardless of the number of entries submitted. After the random selection process, “winning” entrants would receive two tickets and a refund of the face value of the other nine entries, while those who were not selected would receive a refund of the face value of ten pairs of tickets. However, none of the applicants received a refund of the handling fees.

The plaintiffs filed a class action lawsuit alleging that the ticket distribution process is an illegal lottery. They allege that the opportunity to purchase a pair of Final Four tickets at face value is a prize, that the prize is distributed by chance, and that they paid consideration for that chance in the form of the handling fees that were not refunded. From this assessment, the plaintiffs conclude that the NCAA is engaged in illegal gambling in the sale of Final Four tickets.

The trial court initially dismissed the case based on an Indiana court of appeals case, Lesher v. Baltimore Football Club, which held that the Indianapolis Colts were not engaged in gambling when they used a similar ticketing system. In Lesher, however, the handling fees were refunded for all but the tickets that were actually purchased. The Lesher court decided that there was no “prize” involved in the Colts ticket distribution scheme because a “prize” is “something of more value than the amount invested.” Ticket purchasers “invested the price of the tickets and received in exchange either the tickets or the entire amount invested . . . those receiving tickets got nothing of greater value than those who received refunds.” With regard to the NCAA’s ticket sales, though, the Seventh Circuit faulted the trial court for relying on Lesher. According to the Seventh Circuit, the plaintiffs had adequately argued the existence of a “prize” because they asserted that the fair-market value of the NCAA Final Four tickets was much greater than the face value at which the winners had purchased them, and that the plaintiffs had “invested” the handling fees to participate in the random drawing.

While the trial court will ultimately have to decide these issues, the Seventh Circuit’s ruling certainly nudges the trial court in an interesting direction, and the result may expand the definition of what qualifies as a “prize.” This case is a reminder of the importance of structuring promotions with care to avoid the legal morass and potential liability facing the NCAA in this class action lawsuit. Marketers and broadcasters cannot merely rely on doing things the way they were done in the past to protect against lawsuits and prosecution. That approach is, quite simply, a gamble.

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You may have noticed that more and more television shows these days seem to be including “product placement,” a form of advertising in which a product, corporate logo, or brand name is positioned as a “prop” in a program or is used as an integral part of the story line. We have all seen the prominently displayed Coca-Cola cups placed on the judges table in front of Simon, Randy and Paula during American Idol. And although Apple stated that it made no payment for what seemed like an entire episode of Emmy Award winning Modern Family devoted to the iPad, many in the media and the public wondered if what amounted to a half-hour advertisement for the iPad was legal.

Does the FCC have rules regarding product placement? Are program producers and broadcasters required to disclose placement deals to viewers?

The simple answer is yes. The FCC considers product placement to be “embedded advertising” that is subject to the FCC’s “sponsorship identification” rule. The rule says that if a program producer, broadcast station, or a station employee receives anything of value, directly or indirectly, in exchange for causing material to be broadcast, the sponsorship and the identity of the sponsor must be disclosed on-air.

Congress decided long ago that members of the public have a right to know when someone has paid to have material aired by a TV or radio station. As a result, if a station or network enters into a placement deal, the deal must be disclosed on the air. Undisclosed product placement can amount to illegal payola.

The FCC’s rules and the Communications Act aren’t limited to just requiring that broadcasters make the necessary disclosures. They also require program producers to notify the broadcaster if they have a deal to include any sort of product placement in a program. This allows the broadcaster to then make the necessary on-air disclosures.

More than two years ago, the FCC began considering whether it should adopt more stringent rules on how television programmers and broadcasters let viewers know when “props” in television shows are actually paid pitches made by an advertiser. However, the FCC has not yet resolved the question. The FCC’s proceeding was fashioned as a “Notice of Inquiry,” which means that the FCC will subsequently need to issue a Notice of Proposed Rulemaking before any new rule can be adopted. Because of this, we are not likely to see the matter resolved soon.

While the FCC’s product placement/embedded advertising proceeding is currently in limbo, broadcasters, networks, and program producers need to keep in mind that product placement deals — when not disclosed on-air — violate the FCC’s sponsorship identification rule. The use of product placement in advertising is only going to increase as advertisers respond to a changing industry, including the use of DVRs, online availability of content, and other tools that let viewers skip traditional commercials. When entering into product placement deals, program producers, networks and broadcasters need to remember that the FCC, and not just the public, may be watching.