In a sharply limited decision, the Court, by an 8-0 vote (with Justice Sotomayor not participating) and for the second time since 2009, avoided difficult First Amendment questions about the FCC’s authority to restrict coarse language and nudity on broadcast television. In 2009, the Court held that the FCC’s adoption of the so-called “fleeting expletives” policy for broadcast indecency was neither arbitrary nor capricious in violation of the Administrative Procedure Act. This time, in  Federal Communications Commission, et al. v. Fox Television Stations, Inc., et al, the Court found that this policy, as applied to Fox and ABC, was impermissibly vague in violation of these broadcasters’ due process rights. The Court did not reach the First Amendment issues, choosing instead to vacate and remand the decisions of the 2nd Circuit that struck the FCC’s broadcast indecency policies on First Amendment grounds.

The Fox and ABC cases, which I’ve written about previously, involved challenges brought by broadcasters to the FCC’s broadcast indecency regulations. The broadcasters argued, among other things, that the Court should overturn its precedent in FCC v. Pacifica Foundation granting the FCC limited authority under the First Amendment to regulate broadcast indecency. While the Court today left the First Amendment issues open, Justice Kennedy, writing for the Court, found instead that the FCC “failed to give Fox or ABC fair notice prior to the broadcasts in question that fleeting expletives and momentary nudity could be found actionably indecent.” As a result, according to the Court, the FCC’s policy was impermissibly vague with respect to the broadcasts at issue here. In a brief concurring opinion, Justice Ginsburg wrote that “[t]ime, technological advances, and the Commission’s untenable rulings in the cases now before the court show why Pacifica bears reconsideration.”

Some initial observations:

1)      The FCC’s “Fleeting Expletive” Policy Still Exists. The decision explicitly does not address the constitutionality of the FCC’s current indecency policy “as expressed in the Golden Globes Order [issued March 18, 2004] and subsequent adjudications.” This Order adopted the “fleeting expletives” policy and apparently remains in force. The Court found that the FCC remains “free to modify its current indecency policy in light of its determination of the public interest and applicable legal requirements.”

2)      Timing of the Alleged Violation Is Critical.  The Fox and ABC broadcasts occurred prior to March 18, 2004. According to the Court, “the Commission policy in place at the time of the broadcasts gave no notice to Fox or ABC that a fleeting expletive or a brief shot of nudity could be actionably indecent; yet Fox and ABC were found to be in violation.” As a result, timing of a disputed broadcast is critical for purposes of determining the precedential effect of this decision on other cases.

3)      The decision is limited in scope on indecency. The Court treated “fleeting expletives and fleeting nudity” as part of the same FCC policy articulated in the 2004 Golden Globes Order. This determination enabled the Court to dispose of both cases via the same vagueness rationale, thus avoiding the First Amendment issues.

4)      The Court’s decision gives clues on how it could rule on the Janet Jackson case. The opinion does not address the FCC’s pending Petition for a Writ of Certiorari from the U.S. Supreme Court in connection with the Janet Jackson “wardrobe malfunction” case. The FCC is seeking review of a decision by the U.S. Court of Appeals for the 3rd Circuit, which found that the Commission acted arbitrarily and capriciously, in violation of the Administrative Procedure Act, when it fined CBS stations for violating the indecency policy. The FCC requested that its petition “should be held for [the Fox case] and then disposed of as appropriate in light of the Court’s decision.” In this regard, like the broadcasts for ABC and Fox in today’s decision, the Janet Jackson broadcast occurred prior to the March 18, 2004 release of the 2004 Golden Globes Order. As a result, “fair notice” is again at issue, particularly now that the Court has explicitly determined that the Commission’s policy extends to “fleeting nudity.” Given that the nudity depicted in NYPD Blue lasted about seven seconds and the "wardrobe malfunction" was clocked at less than one second, the Commission should have concerns about the impact of today's ruling on the Janet Jackson case.

5)      Processing the backlog of indecency complaints is a priority.  Big practical issues remain. For example, the FCC has a massive backlog of indecency complaints filed against broadcasters.  Such complaints often slow processing of applications and delay the closing of transactions. For now, observers must watch and wait to see how the FCC decides to proceed.  Expect the FCC to comb through the backlog of complaints and dismiss those cases built on “fleeting expletives” with respect to broadcasts that occurred prior to March 18, 2004.  The FCC could take the opportunity to dismiss those complaints that it deems to not implicate the agency’s current indecency policy.

In light of these developments, don’t expect the floodgates to open for the broadcast of coarse language or brief nudity on your local station any time soon. There are significant questions about how the Commission will enforce its indecency policies going forward. The hardest questions on broadcast indecency and the First Amendment will continue to be debated, but there’s every reason to expect that one day the Court will be asked to address them yet again.  In the meantime, stay tuned.

Video programming markets exist within an expansive, multilayered regulatory structure that shapes the options available to viewers. The structure affects access to programming, access to distribution facilities, the terms and conditions of programming rights and other aspects of production and distribution. While Blodget sees vulnerability in the network model amid alternative means for production, acquisition and distribution, Frommer argues that changes in the TV industry will “happen a lot slower than you think” due to factors such as network bundling contracts and carryovers of cable bundling to the Internet. Program suppliers (whether network or syndicated), broadcasters, cable operators, Internet-based video service providers and others compete in this marketplace, but Federal policy also plays a significant role.

Blodget and Frommer focus on the rise and viability of new à la carte competitors to traditional broadcast, cable and satellite providers. These outlets provide a variety of programming, but such providers have differing levels of bargaining power and must compete to negotiate for programming rights. These providers lack certain regulatory benefits available to cable and satellite companies. Federal law assigns certain rights (and certain burdens) to "multichannel video programming distributors," or MVPDs. To date, the Federal Communications Commission has declined to extend this definition to a category of providers that it calls “Online Video Distributors” (OVDs) which include providers such as Netflix, Hulu and others. In a pending proceeding, the FCC has sought public comment on the definition of “MVPD” due to the wide-ranging policy implications.

An MVPD classification gives a provider certain regulatory benefits with respect to access to programming. For example: 

• Under federal program access rules, among other things, cable-affiliated programmers must make their programming available to MVPDs on nondiscriminatory rates, terms and conditions. Classification issues, however, will impact the universe of parties in the marketplace. An “over-the-top” video provider, Sky Angel, filed a program access complaint against Discovery Communications and Animal Planet in a dispute over a terminated affiliation agreement. Although the complaint remains pending, in its initial ruling, the FCC's Media Bureau found that Sky Angel was not an MVPD because it did not provide subscribers with a transmission path. Extension of MVPD status to such providers would represent a dramatic change in the regulatory regime.

• Federal law provides, with limited exceptions, that no MVPD may retransmit the signal of a broadcast station without the station’s express authority.  Every three years, commercial broadcasters must contact their local MVPDs and must elect whether to have their broadcast signals carried by those operators in accordance with a retransmission consent agreement or to invoke statutory rights of mandatory carriage. In addition, FCC rules require MVPDs to honor broadcasters’ exclusivity rights with respect to certain network, syndicated and/or sports programming. At present, only MVPDs are eligible to seek relief from the FCC to resolve disputes with broadcasters over these rights. Again, definitions matter.

Even non-MVPDs have benefitted from FCC actions to stimulate access to programming by OVDs.  The FCC's approval of Comcast/NBCU joint venture involved several conditions designed to facilitate access by OVDs to programming owned by the joint venture. While the FCC may lack explicit statutory authority to mandate such access, if FCC approval is required for a specific transaction, the agency sometimes requires the transacting parties to adhere to behavioral, structural or other conditions to get such approval. The Commission’s actions in the context of Comcast/NBCU and the Sky Angel case are introductory steps, potentially toward addressing more significant changes down the road.

Of course, access to programming also requires consideration of the benefits and burdens of copyright laws. The Copyright Act grants copyright holders limited bundles of rights to their works, such as rights to perform their copyrighted works in public (which includes broadcast programming and retransmission of such programming on MVPD networks), rights to preclude others from making public performances of these works and rights to reproduction of those works. Qualifying MVPDs can obtain compulsory or statutory licenses to retransmit certain video programming without having to negotiate with many individual copyright holders whose programs are included in the video stream. Copyright law issues are front and center in a legal challenge brought by broadcasters against the launch of Aereo’s subscription-only Internet service. Aereo plans to offer subscribers specific bundles of broadcast network programming for a fee. The networks assert that Aereo’s service constitutes copyright infringement and argue that while other providers pay fees to license the content, Aereo does not. Once again, legal definitions and regulatory uncertainty over emerging technologies affect access to programming.

Notice that I’ve focused only on certain regulations involving access to programming. A much longer blog post would deal with other important regulatory structures: for example, media ownership, access to network facilities, local video franchising, equipment regulation and the regulator’s role in dispute resolution.  More regulation translates into regulatory uncertainty (for example, over definitional issues), higher transaction costs, more litigation and more intensive lobbying. The lesson here is that the government regulates the video programming industry much more heavily than the newspaper industry, so it’s difficult to translate the problems facing the latter into predictions about the viability of the former.

So between Henry Blodget and Dan Frommer, who’s right about whether the TV business is “starting to collapse”? I see that as a false choice given the unpredictability of this rapidly changing marketplace. The pace of change on the Internet can be dramatic, but where regulation and litigation are involved, the pace can turn glacial. Thanks in part to the legal system, I don’t expect the “TV business” to “collapse” but rather to continue to evolve incrementally, with competition, new and disruptive technologies and government action serving as major drivers.

Under the new rules, TV stations must continue to transmit at least one standard definition stream over-the-air at no charge. These stations will still be licensed separately and thus subject to all of the associated regulatory obligations.  Only full power and Class A commercial and non-commercial TV stations are eligible; LPTV and TV translator stations cannot participate.  The Commission stated that each TV station would be required to continue to cover its community of license, but deferred to a separate proceeding issues related to loss of coverage (e.g., relocation of transmit site, propagation changes resulting from channel change).  Within these parameters, TV stations may enter into agreements to determine how the spectrum will be shared.

The Commission also concluded that, as required by the spectrum legislation, each separately licensed TV station sharing a single six megahertz channel will have one primary stream of programming that is subject to “must carry” rights.  In this regard, the new rules are intended to have no effect on cable or satellite carriage of TV stations, so long as the stations meet existing technical requirements such as providing a “good quality signal” of at least -61 dBm to the cable or satellite provider. 

Expect much more to come as the Commission attempts to clear TV stations and repack the remaining spectrum for use by TV stations, wireless carriers and unlicensed devices. For starters, the FCC will hold a channel sharing workshop on May 22. 

Thanks to a recent appellate court decision, some spending on campaign advertising soon may be directed to an unexpected source: noncommercial broadcasters, such as public radio and TV stations.  In addition, a recent FCC decision has paved the way toward requiring these broadcasters to post online their local public file information about such advertising.  Unless the decisions are significantly modified or stricken, expect these rules to resonate through a political process that relies heavily on broadcast advertising.

A three-judge panel of the U.S. Court of Appeals for the 9th Circuit decided 2-1 to strike federal laws banning the airing of public issue and political advertisements on noncommercial broadcasting stations.  The statute in question, 47 U.S.C. Section 399b, prohibits noncommercial educational stations from broadcasting any of the following: 1) advertisements for goods and services on behalf of for-profit entities, 2) advertisements regarding "issues of public importance" and 3) political advertisements.  The decision invalidates the ban with respect to the last two categories, but not the first. Accordingly, advertisements for goods and services on behalf of for-profit entities remain impermissible.

The appellant, Minority Television Project, Inc. is a noncommercial broadcaster. The FCC had fined MTP $10,000 for "willfully and repeatedly" violating Section 399b by airing paid promotional messages from for-profit companies.  MTP alleged that it had declined to broadcast public issue and political advertisements out of concern of potential FCC fines and forfeitures arising from Section 399b. 

MTP argued that Section 399b violated the First Amendment because the "restriction on advertising was not narrowly tailored to the government's interest in preserving the educational programs on public broadcast stations."  The government countered that the restrictions on advertising were necessary to "preserve the educational nature of public interest broadcasting." Specifically, the government argued that making public stations dependent on advertising would result in stations replacing "their niche educational programs with more popular programs which have greater mass-market appeal, thus endangering the broadcast of the educational programs for which public broadcast stations exist."  

The court considered whether the government’s “broccoli is good for you” rationale passed constitutional muster. The panel rejected MTP’s call to hold the government to the “strict scrutiny” standard of First Amendment justification that applies to other media. Instead, the panel applied the "intermediate scrutiny" standard, and the government was required to prove that Section 399b was “narrowly tailored to further a substantial government interest.” The opinion noted that in a pending case before the U.S. Supreme Court, major broadcasters have challenged the continued application of “intermediate scrutiny” analysis to broadcast speech. The response: “just as golfers must play the ball as it lies, so too we must apply the law of broadcast regulation as it stands today.” According to the panel, the government’s case failed intermediate scrutiny with respect to the bans on issues of public importance and the bans on political advertisements.

Many questions remain as a result of the ruling:

Will noncommercial broadcasters begin accepting political announcements?  Even if a noncommercial station decides to begin accepting political announcements, there are legal risks.  First, the ruling is not yet final because it is subject to further judicial proceedings.  The FCC has a limited period to seek rehearing of the panel's decision. Often, but not always, the full appellate court affirms the decision of a three-judge panel of the same court. The U.S. Supreme Court case may also affect the timing of a decision on rehearing, particularly in the event of a change in the applicable legal standards (such as intermediate scrutiny) upon which the 9th Circuit panel relied.   Also, the ruling applies only to states in the 9th Circuit: Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon and Washington. Noncommercial broadcasters in other states may find that courts in their jurisdictions would determine that they are not bound by the 9th Circuit’s decision.

Will Congress react to the court ruling and change the law? In effect, the panel invited Congress to revisit the law and to provide more evidence to demonstrate that the law is constitutional.  It seems unlikely that Congress would enact such legislation in an election year, assuming that a change in the law is a legislative priority.  Moreover, Congress likely would not intervene while the judicial process is ongoing.

How would the decision impact other rules? The ruling does not address other laws that relate to candidate appearances and advertising on broadcast stations.  For example, federal candidates have statutory rights of “reasonable access” to commercial broadcast stations, but noncommercial broadcast stations are exempt from this statute.  Stations that choose to accept an advertisement from a candidate for any public office are required to give "equal opportunities" to other candidates for the same office, and, unlike the case of the “reasonable access” rules, noncommercial stations have no statutory exemption.  A commercial broadcaster is obligated to provide a candidate the “lowest unit charge” of the station for the same class and amount of time for a given period prior to an election or primary.  If the ruling stands, the FCC would have to adopt rule changes to clarify how these rules would apply to noncommercial stations, which rely on public contributions, underwriting and similar sources of funds for station operations. 

Also noteworthy: last Friday, the FCC adopted new rules requiring broadcasters to post portions of their local public inspection file online.  Some of these requirements will apply to noncommercial television broadcasters effective July 1, 2014, including a requirement to place “any new political file material” on the Commission’s website.  At present, the new rules would not apply to noncommercial radio stations. While the FCC’s new rules don’t explicitly reference the MTP case, they ultimately may expand the scope of the materials that must be kept in the file and made available to the public.

If it’s true that “all politics is local,” then by extension local broadcast stations play an important role in the political process.  As the 2012 election year revs into high gear, many expect significant increases in political ad spending for the broadcast airwaves.

For many noncommercial broadcasters, it’s not easy being “green” or, in this economy, “nonprofit.” Many noncommercial stations may find that their local viewers are valuable targets for political advertisements. In light of funding challenges for such stations and the potential for new revenue sources, these recent legal developments may result in dramatic changes to the political landscape.

The FCC will require television stations to post their public files in a central, FCC-hosted website rather than in the paper file currently maintained at the station’s main studio.  The FCC will post to the public file those items filed electronically with the agency, such as applications and reports.  The licensees will have the obligation to post their remaining public file documents online, such as quarterly issues/programs lists and EEO Public File Reports.  Letters from the public, sponsorship identification and shared services agreements would be retained at the station’s main studio.

Broadcasters have expressed concern that political file information, which includes the rates charged to candidates, is sensitive.  As an alternative to providing data on the rates charged per spot for political ads, broadcasters had proposed measures such as reporting aggregated data regarding the buying habits of candidates and groups and the total amounts paid for political advertising. 

The FCC rejected this proposal in favor of gradually phasing in the requirement that TV broadcasters post their political files, based on their most current political data, online.  This requirement will take effect for the top four national networks in the top 50 markets later this summer and starting July 1, 2014 for the remaining television broadcasters.  Other stations could request a waiver based on financial or technical hardship.  The FCC will defer consideration of adopting these online requirements for radio licensees and multichannel video programming distributors for now until the FCC has experience with online posting by TV broadcasters.

The FCC’s previous effort to require broadcasters to post their public files online never took effect. Broadcasters pursued legal challenges at the FCC, in court and with the Office of Budget and Management (“OMB”).  Instead of seeing the appeal process through, the FCC abandoned its effort and started a new proceeding in October 2011. The agency adopted substantially the same requirements for posting the public file online in today’s action.

Expect legal challenges to the new rules along the same lines as previous challenges.  Presumably the first goal will be to request that the courts stay the FCC’s new rules while considering the legal challenges.  The stay request most likely would argue that disclosing the political file information online would cause irreparable harm even if an appeal of the new public file rules were successful.  Absent some kind of legal delay, network stations in the top 50 markets most likely would have to begin posting their political files online as early as this summer – just in time for the fall election season.

Stay tuned – we will have more on this decision next week.

Below is our take on some of the main provisions of the legislation as it applies to spectrum policy and wireless broadband services. 

Incentive Auctions and Band Clearing

Aside from public safety, the main driver of spectrum legislation was the need to address the spectrum crunch (real or imagined) for mobile wireless interests. To do this, Congress decided to offer TV broadcasters compensation to voluntarily relinquish their spectrum for repurposing by the FCC for broadband uses. Congress granted specific authority for a two-phase voluntary "incentive auction" that would clear a portion of the TV band (Channels 2-51) for mobile interests and, as part of that process, change the TV "white space" landscape. Because Channel 51 is adjacent to the Lower 700 MHz A Block (formerly Channel 52), the FCC is expected to attempt to "re-pack" the TV stations into the lower portion of the UHF band (beginning with Channel 14). The auction process is expected to take several years.

Under the legislation's language, "relinquishment" of a TV station means (1) relinquishing all usage rights to a channel, (2) relinquishing a UHF channel for a VHF channel, or (3) sharing a channel with another TV station. In lieu of relocation reimbursement, TV stations can obtain, as appropriate, a waiver of FCC rules to make flexible use of their spectrum so long as the TV broadcaster provides at least one programming stream at no charge. Depending on how the FCC ultimately interprets this provision, TV broadcasters could obtain a limited right to offer broadband on their spectrum alongside video service, but only if they forego relocation reimbursement.

Significantly, the FCC is required to reallocate and auction the T-Band (470-512 MHz, i.e., Channels 14-20) used by public safety in 11 major markets, with the spectrum sale used to cover relocation costs. Although not stated in the legislation, the FCC can also clear other users -- land mobile, for instance -- out of the TV bands. The FCC also can relocate radioastronomy users on Channel 37 at a cost of up to $300 million. The ability to relocate Channel 37 users could be a significant band-clearing opportunity because that channel operates as a nationwide encumbrance in the heart of the TV band.

TV White Spaces

Early House Majority versions of the bill would have required the FCC to auction all unlicensed spectrum (though it was unclear whether this included white space spectrum that had previously been allocated). The version of the legislation that passed essentially creates two flavors of white space.

• First, the existing TV white space and the TV white space remaining after the re-packing -- remember, that's several years away -- will be available for fixed and mobile wireless use. There will no doubt be a loss of TV white space in many markets as a result of the incentive auction, but Congress and FCC staff expect that there will vacant TV channels will remain in many rural areas after the re-packing. The re-allocation of Channels 14-20 will create additional spectrum in major markets for TV stations to relocate, and the possible relocation of Channel 37 radioastronomy users will also clear spectrum.
• Second, the FCC has the discretion to use relinquished spectrum or other spectrum to implement guard bands that would, in practice, create a nationwide unlicensed allocation as recommended in the National Broadband Plan. The FCC may "permit" the use of guard band for unlicensed use, but is not required to, and the guard bands must "be no larger than is technically reasonable to prevent harmful interference between licensed services outside the guard bands." (Reports were that earlier versions of the bill used the phrase "technically necessary.") Based on our discussions with the FCC, they see a guard band acting as a "duplex gap" band between LTE-Advanced uplink/downlink spectrum allocations, though this thinking is only preliminary and the ultimate band plan, channel sizes and technical rules will be determined through an FCC rulemaking proceeding. The limits of the FCC's discretion on guard bands appear to be subject to interpretation.

3550-3650 MHz

Earlier versions of both the Senate and House bills would have required the FCC to auction the 3550-3650 MHz band (with certain exceptions). The band is not allocated for commercial use; rather, the Department of Defense uses it at present. The final version removed the auction mandate, but requires NTIA to give priority to options involving exclusive non-Federal use and to choose sharing only if NTIA and OMB determine that relocation of a Federal user is not feasible because of technical or cost constraints. Thus, the 3550-3650 MHz band could be subject to auction ("exclusive use") unless it is not feasible to relocate Federal users.  If that's the case, commercial and Federal users could share the band under technical rules the FCC would adopt. The radar uses in the 3550-3650 MHz band may be difficult to relocate, which would make the case for shared unlicensed use easier.

Other Unlicensed Bands

The spectrum legislation identifies two additional bands for possible unlicensed use. First, NTIA, the Department of Defense and other agencies will study spectrum-sharing and risks to incumbent Federal users if unlicensed U-NII devices were allowed to operate in the 5350-5470 MHz and 5850-5925 MHz bands – a total of 195 MHz of spectrum. The agencies will issue reports on their findings. The report for the 5350-5470 MHz band is due in eight months, and the report on the 5850-5925 MHz band is due in 18 months.

Wireless Facilities Deployment

An under-appreciated section of the bill provides significant benefits to wireless companies, fixed and mobile, that want access to towers owned by state and local governments. Under the legislation, a local government must approve an "eligible facilities request" to modify an existing wireless tower or base station that does not "substantially change" the physical dimensions of the tower or base station. An "eligible facilities request" is a request to collocate new transmission equipment, remove transmission equipment or replace transmission equipment. The FCC will decide how to interpret "substantial change" pursuant to a rulemaking proceeding. In addition, GSA is required to develop master contracts for wireless antenna structures on property owned by the Federal government.

Conclusion

The new spectrum legislation is a beginning, not an end. Many details have yet to be determined, but many interests – including broadband providers, whether fixed or mobile, broadcasters, public safety users and others -- can find something to like in the new legislation.

In response to an FCC inquiry, the broadcaster stated that between March 2009 and May 2009, it aired program matter on behalf of Workers Independent News (“WIN”) in exchange for consideration.   The program matter consisted of 45 ninety-second spots, 27 fifteen-second promotional announcements, 2 two-hour programs and 1 one-hour program.  The broadcaster claimed that the appropriate sponsorship identifications were made for 34 of the 45 ninety-second spots.  The broadcaster stated that these 11 spots referenced WIN and the narrator but did not specifically state that the program was sponsored, paid for or furnished by WIN.  The announcements were directed toward a state legislative issue impacting the local economy.

The broadcaster argued that it had satisfied the sponsorship identification requirements by 1) identifying the sponsor by name in each announcement and 2) including each announcement within the other commercial matter for WIN, not within the station’s news content.  The FCC rejected each argument.  The FCC reminded the broadcaster that the purpose of the sponsorship identification rule is to provide listeners and viewers with information concerning who is attempting to persuade them.  The FCC determined that the mere mention of WIN did not provide sufficient information to the listener.  The FCC determined that Section 73.1212(f) of the Commission’s Rules, which considers mentioning the sponsor’s corporate or trade name during commercial matters as acceptable sponsorship identification, did not apply in this instance.

The FCC similarly rejected the broadcaster’s argument that the announcements were included within other commercial matter and not within the station’s news programming.  The FCC concluded that because the 11 announcements focused on a state legislative issue impacting the local economy, it would not be apparent to the listeners that the announcements were indeed sponsored programming, even if commercial programming surrounded the announcements.

The FCC’s analysis and determination is not surprising, but the way the FCC arrived at the $44,000 fine is.  The FCC relied upon its forfeiture guidelines, which establish a base forfeiture amount of $4,000 for each sponsorship identification violation.  The FCC multiplied this amount by the 11 announcements to arrive at the $44,000 fine, thereby treating each announcement as a separate violation.  While the FCC has discretion here, the fine seems somewhat excessive given that the broadcaster complied with the sponsorship identification requirements for the program length material and for an overwhelming majority of the announcements.  The FCC should have taken this into consideration and imposed a lesser fine.  This could represent a shift in how the FCC determines forfeitures in the future.  Regardless, this decision should serve as a wake up for broadcasters of the importance of complying with the Commission’s rules.

The message from the Commission is clear and unmistakable.   The agency will fine broadcasters for each violation regardless of mitigating circumstances.  Substantial or good faith compliance will not be enough.  Broadcasters should review their procedures for broadcasting commercial matter both to determine compliance with the sponsorship identification rules and to make sure that no commercial matter slips through which inadvertently does not include the requisite sponsorship identification.

This football season, the entertainer in question is musical artist M.I.A., who drew attention when she “flipped off millions of viewers during TV’s most-watched telecast of the year.”  During her halftime performance, she made the “middle finger” gesture while singing a song in which the “S-Word” was implied but not clearly sung. The incident, which some have called a “middle finger malfunction,” recalls the 2004 Super Bowl halftime show involving Janet Jackson.  The FCC imposed $550,000 in fines ($27,500 per station) against Viacom-owned CBS broadcast stations for Ms. Jackson’s infamous “wardrobe malfunction,” only to have the fines twice stricken by an appellate court – once on appeal from the FCC, and once on remand from the U.S. Supreme Court. 

So far, the FCC has not commented regarding whether any indecency complaints have been filed with the Commission about last night's program. Thanks to statutory changes made a few years ago, the maximum forfeiture penalty for broadcasts of indecent, obscene or profane material is now higher than when the Jackson case was decided: $325,000 for each violation or each day of a continuing violation, capped at $3 million for a single act or failure to act. 

I've previously blogged about the U.S. Supreme Court's review of the FCC’s authority to regulate broadcast indecency with respect to “fleeting expletives” (language such as the “F-Word” or the “S-Word”) and nude buttocks. The “middle finger” gesture, however, involves neither nudity nor spoken language and is not at issue in those cases. So, does a middle finger gesture on broadcast TV violate the FCC’s rules?

While many use the terms “indecency” and “obscenity” interchangeably, in fact the FCC enforces laws that target discrete categories of obscene or indecent programming on broadcast (not cable or satellite) TV: 

• The FCC defines indecent material as “language or material that, in context, depicts or describes, in terms patently offensive as measured by contemporary community standards for the broadcast medium, sexual or excretory organs or activities.”  Such material may only be broadcast during safe harbor hours (i.e., 10 p.m. to 6 a.m.).

• The Supreme Court defines obscene material (which cannot be broadcast at any time) as material that meets a three-pronged test: 
  • An average person, applying contemporary community standards, must find that the material, as a whole, appeals to the prurient interest;
  • The material must depict or describe, in a patently offensive way, sexual conduct specifically defined by applicable law; and 
  • The material, taken as a whole, must lack serious literary, artistic, political or scientific value.

With respect to specific FCC guidance, the FCC does not appear to have issued any order finding the “middle finger” gesture to be obscene or indecent. A few years ago, the FCC briefly mentioned the gesture (fn. 94) in assessing a fine against Fox for “fleeting expletives” used by entertainer Nicole Richie during a televised awards show. The FCC argued that Fox was on notice that Ms. Richie had demonstrated a “penchant for vulgarity” by using the middle finger gesture during a previous broadcast. Separately, press reports indicate that the FCC received complaints about a 2009 awards show broadcast on NBC where director film Darren Aronofsky made the gesture on camera, but no FCC decision has been issued in connection with this broadcast. Alternatively, some have questioned whether FCC policies regarding the use of certain “visual images” in conjunction with song lyrics would encompass the middle finger gesture.

In my view, this sort of "Flying Fickle Finger of Fate" should not be deemed an FCC violation. There are definitional issues, First Amendment concerns and questions of whether the FCC has given fair, adequate notice.  Given the uncertainty about the FCC’s authority to enforce broadcast indecency policies due to the pending U.S. Supreme Court case, even if complaints are filed with the FCC, it is unlikely that the FCC would reach a decision on the complaints before the Court issues its decision.  In the meantime, it remains to be seen whether this halftime performance will sway public opinion on the issue or will influence the Court’s decision.

The Court is considering the Federal Communications Commission’s authority to regulate nudity and “fleeting expletives” on the broadcast airwaves in Federal Communications Commission, et al. v. Fox Television Stations, Inc. et al. The case involves the FCC’s appeal of two court decisions – one involving the Fox network and one involving the ABC network – that struck down the FCC’s “broadcast indecency” policies.  At issue is whether these FCC decisions violated the First and/or Fifth Amendments to the U.S. Constitution and whether the Court will reshape the FCC’s authority to enforce indecency standards for the broadcast airwaves.

Nudity, “Fleeting Expletives” and the Constitution

The consolidated appeal involves network broadcasts containing instances of the “F-Word” (used by Cher during a 2002 awards show on the Fox network and by Nicole Richie during a 2003 awards show on the same network), the “S-Word” (also used by Richie in the same show) and a bare backside (which appeared for fewer than seven seconds in a 2003 episode of ABC’s “NYPD Blue”).  The broadcasts aired outside the FCC’s “safe harbor” hours of 10 p.m. to 6 a.m., and in each instance, the FCC found the broadcasts to be actionably indecent, which the FCC defines as “language or material that, in context, depicts or describes, in terms patently offensive as measured by contemporary community standards for the broadcast medium, sexual or excretory organs or activities.” The U.S. Court of Appeals for the 2nd Circuit eventually overturned these two determinations in separate appeals. 

• Fox Television Stations, Inc.  In the case of the two live awards show broadcasts, the FCC found the broadcasts to be indecent based on changes that the FCC made in January 2003 to its “fleeting expletives” policy. The FCC declined to issue a sanction, however, because the broadcasts occurred prior to this policy change. In 2007, the U.S. Court of Appeals for the 2nd Circuit found that the FCC’s policy was arbitrary and capricious under the Administrative Procedure Act (“APA”).  In 2009, the U.S. Supreme Court reversed and remanded the 2nd Circuit’s decision on APA grounds without reaching the constitutional questions. On remand, the 2nd Circuit in July 2010 struck the FCC’s orders on constitutional grounds, finding the FCC’s policy to be impermissibly and unconstitutionally vague.   

• ABC, Inc. In the case of the NYPD Blue episode, the FCC imposed an indecency forfeiture of $27,500 against several ABC network-owned stations and affiliates, finding that the view of a woman’s unclothed buttocks was “sufficiently graphic and explicit to support an indecency finding,” that the shots were “repeated” and that the scene was “pandering, titillating, and shocking.” In the ABC case, the 2nd Circuit, in reliance on its 2010 decision in the Fox case, tossed the FCC’s fine against the ABC stations (both network and affiliates).        

The Supreme Court has consolidated the FCC’s appeals of these two decisions by the 2nd Circuit.  The case brings new attention to the Court’s landmark broadcast indecency decision in 1978’s FCC v. Pacifica Foundation. There, the Court found that the FCC did not violate the First Amendment when it applied its definition of indecency to a broadcast of George Carlin’s famous “filthy words” monologue.  In upholding the FCC’s authority, the Court noted 1) the “uniquely pervasive presence” of the broadcast media, 2) that airwaves are available in the privacy of the home, 3) that broadcasting is “uniquely accessible” to children and 4) in the government’s interest “in the ‘well being of its youth’ and in supporting ‘parents’ claim to authority in their own household.”  Here, the Court has been asked to overrule Pacifica, and as expected, the oral argument dealt extensively with this precedent. 

Takeaways from the Oral Argument

• While it is problematic to read too much into questions that the Justices ask at oral argument, the Justices clearly struggled with the implications of the FCC’s broadcast indecency enforcement.  Justice Sotomayor, who formerly served as a Judge for the 2nd Circuit, is not participating in the case.  As a result, any 4-4 decision would allow the 2nd Circuit’s decision to stand.  In addition, this consolidated appeal involves two related cases involving different parties as well as different aspects of the FCC’s policy (i.e., nudity vs. “fleeting expletives”); accordingly, the Court may decide to treat these categories differently with separate rulings.

• Much of the oral argument focused on differences in content between broadcast channels and cable channels and on the pervasiveness of broadcasting compared to other forms of media. Broadcasters have asserted that Pacifica should be overturned because of the changes in the media landscape since 1978, among other reasons.  For example, Carter Phillips, counsel for Fox, asked “how is it permissible to allow the FCC to regulate the broadcast networks on standards that are fundamentally different than cable, the internet and every other medium that exists?” Justice Alito voiced his opinion that “broadcast TV is living on borrowed time. It is not going to be long before it goes the way of vinyl records and 8 track tapes.” 

• While the facts before the Court involve television broadcasts, the Solicitor General, representing the FCC, argued that overturning Pacifica would “sweep away indecency restriction with respect to radio as well as television” and that “a lot of the most vile and lewd material really is in radio.”  Justice Breyer asked whether the “First Amendment forbids the application of a good guideline to this case” and referred to the potential reversal of Pacifica as “earthshaking.”

• While some Justices appeared to have little appetite to overturn Pacifica, several Justices questioned the FCC’s handling of specific situations. For example, Justice Kagan said “the way that this policy seems to work, it’s like nobody can use dirty words or nudity except for Steven Spielberg.” Her comment refers to the FCC’s findings in other cases that the films “Saving Private Ryan” and “Schindler’s List,” both directed by Steven Spielberg, were not indecent. 

• Chief Justice Roberts said that “[a]ll we are asking for, what the government is asking for, is a few channels where you can say I’m not going to – they are not going to hear the S word, the F word. They are not going to see nudity.” Justices Kennedy and Scalia considered whether to hold broadcast media to a different standard in an effort to preserve a “safe haven.”  Justices Kennedy and Scalia cited the “symbolic value” of allowing the government to use public airwaves to “insist upon a certain modicum of decency.”  It is noteworthy that Scalia wrote the opinion in the recent Brown v. Entertainment Merchants Association case, where the Court found that video games qualify for First Amendment protection. There, Justice Scalia wrote that “Crudely violent video games, tawdry TV shows, and cheap novels and magazines are no less forms of speech than The Divine Comedy, and restrictions upon them must survive strict scrutiny.” 

• There was extensive discussion about the role of advertisers in encouraging broadcasters and cable programmers to limit the use of material that falls within the FCC’s indecency definition. Counsel also discussed whether and how broadcast standards and practices would be affected if Pacifica was overruled or limited.  

• Counsel for Fox disputed the suggestion by Justice Kagan that the current system “seems to work.” He argued that the “whole system has come to a screeching halt because of the difficulty in trying to resolve these issues.” He referred to the hold up of many TV license renewals at the FCC, an issue we’ve blogged about previously.  

• The FCC’s actions and its indecency policy were challenged as unconstitutionally vague under the Fifth Amendment on the grounds of a lack of fair notice of what was prohibited and of arbitrary and discriminatory enforcement. Some Justices questioned the FCC’s approach.  Justice Ginsburg referenced the “appearance of arbitrariness about how the FCC is defining indecency in concrete situations.” The Solicitor General conceded that “there is not perfect clarity in this rule” but that “the alternative [for example, bright-line proscriptions against certain words or nudity] … would be worse.”  He also argued that “there isn’t really a vagueness issue left with respect to the fleeting expletives in the Fox case, because the Court said [in 2009] that there is no problem of arbitrary punishment because there was no forfeiture or other sanction.” By contrast, the FCC fined ABC for the “NYPD Blue” broadcast, and the Solicitor General agreed that the vagueness issue remained in play for that broadcast. 

• As for the nudity in the courtroom?  The Justices asked about permissible displays of nudity on broadcast television – for example, whether broadcasters could air the musical “Hair,” the opera “Metropolis” or other programs without running afoul of the indecency regulations. Seth Waxman, counsel to ABC, pointed out that the FCC has pending complaints “about the opening episode of the last Olympics, which included a statue very much like some of the statues that are here in this courtroom, that had bare breasts and buttocks.” Time will tell whether these courtroom displays will sway any of the Justices. 

The Court is expected to rule on this case during its current term, which ends in June.

Who Must Comply?  The new rules apply to digital TV commercials broadcast on digital TV or cable stations as well as to digital MVPDs.  The new rules do not apply to analog broadcasts or to non-digital MVPD service.  The new rules will not apply to noncommercial broadcast stations unless the stations transmit commercial advertisements as part of an ancillary or supplementary service.  Under limited circumstances the FCC may grant waivers based upon financial hardship.

Who is Responsible for Compliance?  Complying with the new rules will vary based on whether the commercial is locally inserted or embedded.  “Locally inserted” commercials are added by the station or MVPD prior to transmission to the public, while “embedded” commercials are placed in the programming by a third party and then transmitted by the station or MVPD.  Most stations or MVPDs will have a higher standard of care for locally inserted commercials than for embedded commercials.

What is the Standard of Compliance?  The FCC has created safe harbors for embedded and for locally inserted commercials.  For embedded commercials, stations and MVPDs must have the proper equipment to pass through compliant programming from third parties.  Compliant programming means programming that uses industry accepted standards for ensuring that commercials will be transmitted at appropriate levels consistent with the Commission’s rules and the CALM Act.  The equipment must be properly installed, maintained and utilized.  The stations and MVPDs must obtain certifications of compliance from the programmers, must conduct annual spot checks of non-certified programming and must conduct spot checks of specific channels in the event the FCC so directs.    The spot checks will vary depending upon the size of the television station or MVPD, with rigorous spot checking for the largest entities and less to no spot checking for the smaller stations and MVPDS.  The FCC plans to phase out the spot checks after completion of two annual spot checks, as more programmers certify compliance.  A station or MVPD is eligible for the safe harbor for embedded commercials in a particular program if the programmer provides a certification that the programming is compliant and the station or MVPD has no reason to believe the certification is false.

For locally inserted commercials, in addition to proper installation and maintenance of equipment, the station or MVPD must maintain records showing the use of the equipment in the regular course of business and that the equipment is maintained and tested to ensure continued proper operation.  The station or MVPD must be able to certify that it has no knowledge that the equipment is in violation of industry standards and if a violation has occurred, that the equipment has been repaired in a prompt manner.

Television stations, cable operators and MVPDs will need some time to adapt to these new requirements.  Although the requirements do not go into effect for a year, common sense dictates taking steps now to get ready for the new requirements.  This includes researching and if necessary making plans to purchase any equipment, establishing procedures for complying with the new rules and above all, keeping accurate and complete records.

Presumably, it will take months (perhaps years) for some programmers to bring all of their programming (and inserted commercials) into compliance.  Therefore, careful scrutiny of programming should be undertaken, certainly during the two-year period when the FCC will require spot checking.

The 2007 Report and Order required television broadcasters for the first time to post their public inspection file (with the exception of their political file) online if the station had a web site.  In addition, broadcasters would have been required to complete and post Form 355 on their websites on a quarterly basis.  The FCC claimed these changes would not change the materials that broadcasters would have to maintain in the local public inspection file but by posting the material online would make the contents more readily available to the public.  Understandably, broadcasters appealed the FCC decision, concerned about the onerous burdens of the new rules.  Almost four years later, none of the new public file requirements have gone into effect for the reasons discussed above. 

Recognizing the impasse that it faced, today the FCC vacated the 2007 Report and Order -- in essence the agency rescinded its proposals.  Instead, the FCC commenced a new rule making proceeding to achieve the same goal of broadcasters posting the public file online.  Under the new proposal: 

●          The FCC would create an online portal that broadcasters would use to post their local public file.  Broadcasters would not have to place the information on their website.

●          Broadcasters would not have to post information already on file with the FCC; the agency would import that information to the online public file.

●          Broadcasters would not post online some information, such as letters and e-mails from the public.

●          Broadcasters could be required to post other information, such as sponsorship identification information (i.e., political) and shared services agreements.

●          A revised enhanced disclosure form would be adopted.

●          Data tools would be created for the public to access and evaluate this information.

The FCC views today’s proposal as consistent with a government-wide mandate to increase transparency and with the Commission’s broader efforts to modernize data while transitioning from a paper to electronic world.  What is left unsaid is the enormous cost that these proposals will impose on television broadcasters.  It does not necessarily follow that the low barrier to accessing this information will serve the public interest.  The placement of this material online, while commendable on one hand, could open the floodgate for the filing of spurious petitions against broadcasters.  Broadcasters could experience a significant increase in expenses in defending against such frivolous complaints.  One need look no further than the deluge of indecency complaints made possible by the FCC with on-line filing to see how ineffective and costly this process (no matter how commendable) could be.

These concerns do not even include the considerable expense broadcasters will incur transferring the contents of the local public file online, whether to a station website or the FCC.  Nor does this take into consideration the costs broadcasters will incur morphing their Quarterly Issues/Programs Lists into the new enhanced disclosures form, in the event the FCC decides to implement a revised form.

Radio broadcasters should take heed.  If the Commission successfully adopts and implements these new requirements, rest assured that one day soon the FCC will extend these requirements to radio broadcasters as well.

I’ve blogged about some of the dos and don’ts of the FCC’s license renewal process here.

The cause of death was the FCC’s decision to eliminate an “unnecessary distraction” as it deleted “83 outdated and obsolete media-related rules,” said FCC Chairman Julius Genachowski. The Fairness Doctrine had remained on the FCC's books despite not being enforced since 1987. Other announced deletions included the vacated 2003 broadcast flag rules and certain cable rules that had not been properly amended to reflect the Commission’s repeal of the personal attack and political editorial rules in 2000. Yesterday's decision also referenced the executive order signed by President Obama in January aimed at eliminating burdensome or unnecessary regulations of independent agencies. 

Born in 1949, the Fairness Doctrine was part of the FCC’s effort to require broadcasters to adequately cover, and to air conflicting viewpoints on, issues of public importance. At 20, the Fairness Doctrine survived a constitutional challenge in Red Lion Broadcasting Co. v. FCC. The U.S. Supreme Court found in 1969 that broadcasters have First Amendment speech rights but that the scarcity of broadcast frequencies justified the FCC’s exercise of authority via the Fairness Doctrine and associated rules. 

Nevertheless, by 1987 the FCC decided to stop enforcing the Fairness Doctrine, finding that the doctrine did not serve the public interest. In 1989, the U.S. Court of Appeals for the District of Columbia affirmed without reaching the constitutional issues. The change in enforcement paved the way for expansion in political talk radio. The Fairness Doctrine, however, remained on the FCC's books, and questions lingered about whether it would be revived.

The Fairness Doctrine is survived by other FCC rules governing political broadcasting, including requirements for broadcasters to provide reasonable access to candidates for federal elective office, to provide equal opportunities to political candidates for any legally qualified office, to apply the lowest unit rate for candidate ads during specified days before primaries and elections and to properly identify sponsors of political ads. Yesterday’s order did not address the “Zapple Doctrine,” a rule based on the Fairness Doctrine that required stations to provide “quasi-equal” opportunities when supporters of a candidate appear on a broadcast station. Unlike the Fairness Doctrine, the Zapple Doctrine never has been explicitly overturned. In addition, the ongoing vitality of the Red Lion decision and the FCC's regulatory authority likely will be among the issues in the U.S. Supreme Court’s consideration of the FCC’s appeal of U.S. Appeals Court decisions finding FCC indecency policies to be unconstitutional.

The Order will take effect upon publication in the Federal Register.

LPTV stations operating on one of the out-of-core channels must cease operations by December 31, 2011.  LPTV stations operating in analog must cease operations by September 1, 2015.  As always, LPTV stations must be aware of additional deadlines or else risk losing valuable rights.  These deadlines fall into two categories:  out-of-core LPTV stations and analog LPTV stations. 

To accommodate these new transition dates, the FCC:

●  Extended all existing digital construction permits for LPTV stations until September 1, 2015.

●  Dismissed applications for new analog low power television facilities that did not request operation on digital facilities by May 24, 2010.

●  Determined that if an LPTV station holds a construction permit for an unbuilt analog and unbuilt digital companion channel, and the analog permit expires and is forfeited, the digital permit is also forfeited (notwithstanding the later expiration date on that permit).

The maximum permissible digital Effective Radiated Power (“ERP”) for LPTV stations operating on VHF Channels 2 to 13 is increased to 3 kilowatts.  The maximum ERP for LPTV Stations operation on UHF Channels 14 to 51 will remain at 15 kilowatts.

Beginning December 1, 2011, LPTV stations providing ancillary or supplementary services will be required to file the annual Ancillary and Supplementary Services Report (FCC Form 317) and pay a fee of five percent of the gross revenues of any ancillary and supplementary services provided.

While it is understandable that the FCC wants to clear the out-of-core channels to accommodate the new licensees in the 700 MHz band, the timing is unfortunate.  If the FCC decides in the future to repackage the in-core channels as part of allocating spectrum for broadband, whether voluntary or otherwise, LPTV stations could find themselves in the undesirable position of having to change channels not once but twice, with the associated costs.

It is important that LPTV stations focus on these expiration deadlines, especially if they are operating in the out-of-core channels.  Failure to take timely action may result in LPTV stations finding themselves off the air --- permanently.

The decision retains the status quo for most of the media ownership rules and does nothing to resolve the NBCO rule – to the contrary, the regulatory uncertainty that clouds the troubled newspaper industry’s ability to combine operations with local broadcasters will continue until the FCC adopts a new NBCO rule. 

Similarly, the decision to remand to the FCC for further consideration changes in the media ownership rules to promote diversity in ownership for minorities and females fails to provide guidance on what criteria are necessary for any rules to survive Constitutional scrutiny. 

The only certainty provided in the decision is that the FCC’s media ownership rules for television and radio remain largely unchanged from almost a decade ago despite the radical changes that have reshaped the media marketplace.  And, most likely, significant changes to those rules will not occur in the foreseeable future. 

In light of this action, many commenters have focused on picking winners and losers.  If only it were that simple, given the recent history of the FCC’s efforts to modify its broadcast ownership rules (click to enlarge):

The panel's decision focused on the 2008 NBCO rule, the Diversity Order and the FCC ownership and cross-ownership caps for radio and television.  The Court vacated and remanded the 2008 NBCO rule, finding that the FCC provided inadequate notice of and time for the public to comment on the new NBCO rule in violation of the Administrative Procedure Act.  The Court expects the Commission to address the court’s concerns and provide proper notice and allow comment in the context of the ongoing 2010 Quadrennial Review of the Commission’s media ownership rules.  The judges refused to consider challenges to five permanent waivers of the NBCO rule granted in 2008, concluding that the parties had not yet exhausted their administrative appeals before the FCC and that the appropriate venue for appealing any such decision is the U.S. Court of Appeals for the D.C. Circuit and not the 3rd Circuit.

The Court rejected various appeals challenging the Commission’s decision to retain the pre-2003 rules with regard to ownership caps for radio and TV stations in local markets and cross ownership of TV and radio stations in the same market.  The appeals sought to increase or eliminate the ownership caps altogether.  The Court held that the FCC’s authority to adopt ownership caps did not infringe upon First Amendment rights because the rules are rationally related to substantial government interests in promoting competition and protective viewpoint diversity.  Further, the judges found that the FCC had provided sufficient reasons for the ownership caps in its 2003 order. 

The Court rejected the definition of eligible entity adopted by the FCC in the Diversity Order, finding that the agency did not show how the new definition would increase broadcast ownership by minorities and females.  The judges concluded that most of the proposed expansion of eligible entities was focused either on small businesses or reinforcing existing prohibitions against discrimination.  The Court noted that the correlation between ownership of broadcast stations by small businesses and minorities and women were approximately the same, suggesting that most small business owners were minorities or females.  The Court instructed the FCC to consider other proposed definitions (such as socially or economically disadvantaged business) that might expand broadcast ownership by minorities and women.  The Court instructed the FCC to complete this review within context of the ongoing 2010 Quadrennial Review. 

As is often the case in life, the Court's decision represents a partial victory and partial defeat for all interested parties.  Critics of media consolidation should be pleased with the remand of the NBCO rules.  Because the remand is based on procedural deficiencies, however, the FCC could adopt new rules that allow the same or greater flexibility for NBCO in the future.  Proponents for amending the media ownership rules to reflect the current economic and market place realities cannot be surprised with the Court's decision to leave in place the Commission’s pre-2003 media ownership rules.  On the other hand, proponents of reducing the ownership caps cannot be pleased either, since the panel left intact the Commission’s media ownership caps and cross-ownership rules in effect prior to 2003 (see our Comparison of Changes in the FCC's Media Ownership Rules). Even the remand on the Diversity Order, while encouraging to proponents of increasing media ownership for minorities and women, does not guarantee that meaningful rules can be implemented that will pass constitutional muster.  In other words, while the adoption of gender and race neutral proposals most likely would survive a constitutional challenge, it is difficult to see how such neutral proposals would achieve the objective of advancing minority and female ownership in the broadcast industry rather than provide additional window dressing.

It is uncertain how the Commission will revisit these issues in the 2010 Quadrennial Review.  The Commission must address the 3rd Circuit’s remand of the NBCO rule and the Diversity Order.  After the 3rd Circuit rejected the media ownership rules the Commission adopted in 2003, the Commission in 2008 decided to retain the pre-2003 rules.  The Commission could adopt a new NBCO allowing for ownership of newspapers and broadcast stations or retain the pre-2008 rules and not allow any cross ownership.  

Most likely the Commission will adopt new rules to assist minorities and women in participating in ownership of broadcast stations.  The challenge for the Commission will be to adopt new rules that are beneficial while remaining race and gender neutral.  For example, it is unclear whether reintroducing the tax certificate policy for the sale of broadcast stations to minorities and females would withstand Constitutional scrutiny, though tax certificates can be helpful in promoting diversity by giving small businesses leverage in a negotiation. 

The biggest challenge will be for broadcasters seeking to relax the Commission ownership caps.  Broadcasters should file comments in the 2010 Quadrennial Review urging relaxation of the ownership caps, for example.  Presumably the Commission will issue a public notice in the future inviting comment on the issues raised by the 3rd Circuit’s decision.  We have blogged previously that application of the duopoly rules for television stations in medium to smaller markets, without the safety net of “small market” waivers, undermines localism.  

At the same time broadcasters must recognize that, once again, the media ownership rules are in a state of uncertainty and litigation, which likely will remain unresolved for the near future.

The 6,500 translator applications have caused friction among proponents of FM translator and LPFM stations.  Translator applicants are frustrated by the FCC’s processing delays, while LPFM proponents are concerned that granting these applications will preclude the licensing of future LPFM stations, especially in larger markets.  Further complicating the matter: a substantial number of the pending applications were filed by two affiliated applicants; Radio Assist Ministries and Edgewater Broadcasting. 

Prior FCC action has focused on balancing the competing concerns of the translator and LPFM factions.  In 2007, the FCC adopted a cap preventing applicants from filing more than 10 applications in any application filing window.  Applying the cap to the translator applications would require dismissal of 80 percent of the applications. 

The FCC seeks public comment on its conclusion that the 10 application cap is inconsistent with the Local Community Radio Act of 2010 (“LCRA”), which became law in January 2011.  The LCRA repealed the requirement that LPFM stations operating on the third adjacent channel to a full-power station must provide interference protection to that station.  The LCRA also assigns a co-equal status to translators, booster stations and LPFM stations.  The FCC also seeks comment on whether the FCC has authority to give priority to later-filed LPFM applications over a pending translator application, given the co-equal status under the LCRA.  The FCC is not seeking comments on relaxing certain technical restrictions as required under the LCRA. 

The FCC is considering several alternatives to address the competing concerns of translator and LPFM stations.

• Opening a joint translator/LPFM filing window.  Under that proposal, the FCC would dismiss the pending translator applications and would open a new filing window for new translator and LPFM stations.
• Prioritizing future LPFM applications over the pending translator applications. The FCC is uncertain whether this proposal would satisfy the co-equal status set forth in the LCRA.
• Dismissing some of the pending translator applications for markets in which there are an insufficient number of LPFM channels as determined by the FCC.

The FCC proposes establishing LPFM channel “floors” based on market size.  For example, all pending translator applications in Markets 1-20 would be dismissed if there are not at least eight available LPFM channels in the market.  Lower LPFM channel floors would be established for markets 21-50, 51-100, 101-150 and smaller markets in which more than four translator applications are pending.  The FCC’s analysis of the results for pending translator applications based on specific rated markets are available in Excel and PDF formats.

The FCC is suspending processing of any pending applications for existing FM translator stations that propose a first-time transmitter site within any market that has fewer LPFM channels than the proposed channel floor.  The FCC also is imposing an immediate freeze on any new translator applications proposing a move into a new market.

The FCC remains concerned about the trafficking of authorizations granted for the translator applicants.  The FCC seeks comments on what limitations can be imposed under the LCRA, including national application caps of 50 or 75 and local application caps. 

Finally, the FCC is reconsidering its restriction on the use of FM translator stations to rebroadcast AM stations.  At present, only FM translator stations with licenses or permits in effect by May 1, 2009 may rebroadcast the signal of an AM station.  The FCC seeks comment on whether the May 1, 2009 limit should remain intact or should be extended to include the pending 6,500 translator applications. 

The FCC’s approach, eliminating the 10-application cap and potentially increasing the number of FM translator stations that may rebroadcast AM stations, nevertheless contains several proposals that could halt the progress in providing programming to communities.  More than 500 AM stations now use FM translator stations to rebroadcast their AM signals, making it possible to provide local news, information, sports and other programming (especially during evening hours for daytime-only AM stations) that otherwise might not be available.  The proposed LPFM channel limitations undermine that progress.  Even more troublesome is the immediate suspension of processing translator applications and the freeze on so-called market move-ins.  To broadcast AM stations over FM translator stations, it is often necessary to move the translator station closer to the AM station.  The freeze would make it extremely difficult to move translator stations to locations to rebroadcast AM stations, with the resultant diminution in service to the public. 

All in all, while the FCC purports to balance the competing concerns of translator and LPFM stations, the FCC’s proposals actually give an advantage to LPFM, in part by failing to address the impact to AM stations that also rely on translator service.

Comments and Reply Comments must be filed within 30 days and 45 days after publication of the FCC's rulemaking proposal in the Federal Register.

The report, entitled “Information Needs of Communities: The Changing Media Landscape in a Broadband Age,” could be a potential road map for the FCC moving forward on overhauling and updating the agency’s regulatory approach to print, broadcast, cable and the Internet. The report’s conclusions and recommendations are important because they signal the most current thinking of FCC staff about their roles as regulators.  Nevertheless, a lengthy process remains to transform these recommendations into regulations and policy.  It is unclear how many recommendations ultimately will be adopted. 

The working group comprises journalists, scholars, entrepreneurs and government officials, all of whom the FCC selected.  In 2009, a bipartisan commission by the Knight Foundation considered how technology is changing how the media functions and communities receive and process information.  The Knight Commission called on the FCC to examine these issues more closely, which led to formation of the working group.    

The report presents an optimistic view of the state of journalism.  News and information gathering is more vibrant than ever, and local news continues to play a vital role for media.  Commercial and nonprofit media are working on collaborative projects.  Nonprofit media have become more varied and more important.  The Internet has led to the free exchange of ideas and information.  The report, however, observes that the abundance of media outlets does not necessarily translate into an abundance of reporting. 

How does the working group propose to bridge this gap between the growth of media outlets and the reduction in reporting?  Through a combination of reducing regulatory burdens on media, encouraging entrepreneurship and philanthropy, and focusing on the historically underserved.  Here are some key components of the report: 

Online Disclosure and Transparency.  The report advocates that broadcasters should be required to provide more information about their operations online.  For example, the report recommends: 

• eliminating the FCC’s requirement that local television stations retain a paper copy of their quarterly-issues programs lists and replacing it with a streamlined, web-based form. The form could include the amount of community-related programming, news-sharing and partnership arrangements, how multicast channels are being used, sponsorship identification, disclosures and the level of website accessibility for people with disabilities. 

• requiring broadcasters to disclose any pay-for-play arrangements online in addition to the current required on-air disclosures. 

• requiring satellite operators to post their disclosure forms online. 

• migrating online or eliminating any material that FCC licensees are required by law to keep in public files and repealing the burdensome enhanced disclosure rules adopted in 2007.  These rules, which have not taken effect, were designed to replace the broadcaster’s quarterly issues/programs lists with a standard form that would report detailed programming information to the Commission and would post the completed form on the Internet. 

• terminating the FCC’s localism proceeding, which proposed among other items that broadcast stations create community advisory boards, require staff to be on site whenever a station was on the air and provide reports on the quantity of local music played. 

• formally repealing any remnants of the Fairness Doctrine, which was stricken in 1987. 

Universal Broadband. The report finds that local media innovation, as well as the information health of communities, requires a universal and open Internet. Efforts to expand broadband would include the use of voluntary incentive auctions for commercial and noncommercial broadcasters. 

Underserved Audience.  The report recommends that the FCC ensure that modern media work for people in historically underserved areas.  The report suggests: 

• reserving TV channels 5 and 6 for TV and radio opportunities for new small businesses, including those owned by minorities and women. 
• implementing the Local Community Radio Act in a manner that supports the growth of LPFM stations. 
• that Congress restore the tax certificate program to promote diversity in media ownership. 

State-based C-SPANs. To promote the availability of local public affairs programming, the working group recommends establishment of a state-based C-SPAN in every state and that Congress give regulatory relief to multichannel video programming distributors who help facilitate such networks. 

Media Ownership and Access.  The report remains neutral with respect to increased media ownership, favoring an approach that considers the impact of the Commission’s rules as currently crafted or proposed on local news and public affairs reporting in the community as a whole.  The report implies that the focus of media ownership is whether the arrangement contributes to the overall media health of the community.  This approach may give some hope to broadcasters in smaller markets that the FCC may someday be more open to consolidation. The report also recommends re-assessment of the effectiveness of the satellite TV set-aside for educational programming and of cable TV leased access systems. 

Public Interest.  The report’s public interest analysis is its most interesting and surprising aspect.  The report concludes that many rules intended to advance public interest goals are ineffective and out of sync with the information needs of communities and the nature of modern local media markets.  In some cases, policies do not achieve their intended goals.  In other cases, policies that might have once made sense have not kept up with changes in media markets.  Several policies are not sufficiently oriented towards addressing the local information gap.  Most of all, any rules or policies must live within and respect the essential constraints of the First Amendment. 

Notably, the report states that government is not the solution to providing robust local news and information but can remove obstacles confronting those working to solve these problems.  Instead, most of the solutions to today’s media problems will be found by entrepreneurs, reporters and creative citizens, not by legislators or administrative agencies. 

In 475 pages filled with recommendations, the report defies a quick and simple analysis.  At first blush, one is stricken by the report’s ambitious, comprehensive nature; in the end, however, such scope guarantees that each and every recommendation will not ultimately become law.  Some will face Constitutional challenges (such as any laws that specifically favor minorities or females as opposed to small businesses) and others will face challenges from competing interests and other stakeholders.  All of this assumes of course that there is no change in administration next year, in which case the report could find itself relegated to the dustbin of history, as have so many previous reports. 

One last point: it does not necessarily follow that adoption of these recommendations will result in massive government deregulation.  For example, while substitution of a new disclosure form for the quarterly issues/programs list and elimination of the enhanced disclosure form is certainly welcome news, the report does recommend adopting a new disclosure form.  A parallel example may be the changes in the FCC’s Equal Employment Opportunity (“EEO”) policies; a change from the agency’s traditional analysis to the modern EEO Program Reports.  Although the changes modernized the EEO process, by no means did it unburden broadcasters’ EEO obligations. 

Even with these provisos, the report represents an impressive accomplishment in bringing the discussion of journalism, localism and the media into modern times.

What has prompted legislation and new regulations designed to give viewers serenity from loud commercials?  According to the FCC, complaints about loud commercials are not new, but the rise of digital television has expanded the dynamic range of audio, both in program material and in commercials. The FCC stated that it has received more than 800 complaints about “loud commercials” since January 2008.  The CALM Act is not only specific in how Congress expects the FCC to tackle the issue, it also sharply limits the FCC’s authority on the matter.

As the CALM Act requires, the new rules would incorporate a technical standard published by the Advanced Television Systems Committee (“ATSC”) called ATSC A/85. A consumer’s home receiver would be capable of automatically adjusting volume based on metadata (called a “dialnorm”) encoded in the programming.  These volume adjustments would occur as programming transitions between program material and commercials or when the viewer changes channels.  Under the proposed rules, the ATSC A/85 standard and “successor” standards would be incorporated by reference into the rules and that public notice and an opportunity for comment would not be necessary.

For broadcasters and MVPDs, the new regulations likely will produce disquiet about increased regulatory risk and legal liability. Some considerations: 

• The rules would apply to all commercials transmitted by a broadcaster or an MVPD. There be no exceptions for commercials that are inserted by third-party content providers; thus raising questions about who bears the ultimate responsibility for compliance.  The rules would not be enforced directly against third-party content providers, and there will be situations where responsibility remains to be allocated – for example, if an MVPD carries a broadcast station’s programming that contains loud commercials.
• The FCC has raised some interpretive questions regarding what counts as a “commercial advertisement” for purposes of the rules. For example, the FCC wants to know whether the rules would include political ads by a legally qualified candidate or promotions of specific video programs. In addition, the FCC has asked about the impact on noncommercial broadcast stations, which are legally prohibited from broadcasting advertisements.
• Broadcasters and MVPDs would have new burdens to demonstrate compliance with the rules in response to a consumer complaint alleging loud commercials.  Compliance could occur with respect to a “safe harbor” under the statute or in other ways.  To qualify for the safe harbor, the entity would have to install, utilize and maintain in a “commercially reasonable manner” the equipment and necessary software to comply with the ATSC A/85 standard.  The FCC has sought comment on what practices are “commercially reasonable” for this purpose.  The FCC also wants to know other ways compliance can be demonstrated. For example, stations and MVPDs may choose to enter into agreements with content providers whereby the provider would agree to deliver content that complies with ATSC A/85 RP. The station or MVPD would remain responsible but could choose to negotiate for indemnification clauses in these contracts.
• Broadcast stations and MVPDs would be able to apply for a limited, one-year waiver from the CALM Act requirements based on financial hardship.  The FCC cites a Senate Committee report that estimates the cost of equipment as ranging from a few thousand to about $20,000 per device.  Under the FCC’s proposal, financial hardship would be demonstrated based on evidence of the station’s financial condition, cost estimates for new equipment, a detailed explanation of the justification for the postponement and an estimate of the time to comply.  Waiver proponents would not be required to demonstrate financial hardship.  The FCC has sought further comment regarding whether blanket waivers may be necessary in smaller markets.
• The FCC has identified “practical challenges” in compliance for some MVPDs who use a different type of audio system than the AC-3 system for which the technical standard was designed but who nevertheless would be subject to the rule.  The FCC has sought comment about these challenges.
• Some providers receive program material from third-party programmers.  The FCC wants input on the technical ability to pre-screen that content for loud commercials.
• The FCC has proposed a consumer-driven complaint process whereby consumers would be permitted to prepare and submit an online form that relates specifically to complaints about loud commercials.  There would be no filing fee, but the complainant would be required to submit contact information and specific information about the programming that is the subject of the complaint.  The broadcaster or MVPD receiving the complaint would be expected to retain records and documentation to demonstrate compliance. 

Despite the prevalence of digital video recorders (or more importantly, their fast-forward functionality) and the volume button on remote controls, through the CALM Act, Congress has charged the FCC to act quickly to combat loud commercials.  As the NPRM makes clear, however, questions remain, and we have yet to hear the answers.    

Today’s announcement comes after the FCC staff’s completion of nearly 100 channel changes since lifting its filing freeze on May 30, 2008. FCC staff apparently believes that licensees have had sufficient time to evaluate engineering options and presumes there is no pent-up demand for channel changes. Such speculation might have been avoided if instead of an immediate freeze, a short filing window was established to permit filings for channel changes before the freeze became effective. 

FCC staff indicates that the freeze is necessary to facilitate the re-packing and reallocation of portions of the TV Band for broadband services, as recommended in the National Broadband Plan. While the FCC lacks authority to conduct incentive auctions, it may re-pack the TV band to create more spectrum for wireless broadband. FCC Chairman Julius Genachowski signaled his interest in repacking the TV band in his April 12, 2011 remarks at the NAB Show. FCC staff has been doing a road show around the country promoting the benefits of incentive auctions, so this action comes as no great surprise. 

What is becoming clear is that TV stations should begin contemplating a second DTV transition and the possibility of changing channels yet again. In the meantime, FCC staff has taken a step toward minimizing the number of moving parts in this transition by making sure that TV stations stay put, for now. 

For more information, don’t change that channel …