TelecomMediaTech Law Blog - Telecommunications | Media | Technology | Law & Policy

In a case with far-reaching implications for the television business, for cloud computing and for new technologies, the U.S. Supreme Court found that Aereo’s online video service infringed copyrights held by television producers, broadcasters, marketers and distributors in broadcast television programming.  In a 6-3 decision, the Court decided in American Broadcasting Cos., Inc. et al. v. Aereo, Inc., FKA Bamboom Labs, Inc. that Aereo “publicly performs” a copyrighted work within the meaning of the Transmit Clause of the U.S. Copyright Act and thereby infringed exclusive rights of the copyright holders because Aereo did not license the content.  

Aereo’s service allows subscribers, for a monthly fee, “to watch television programs over the Internet at about the same time as the programs are broadcast over the air.” According to Aereo, the system consists of thousands of small antennas in centralized location that receive over-the-air broadcast programming. The company uses special equipment to allow subscribers to stream the programming. The petitioners in this case were copyright holders who sought a preliminary injunction against Aereo, alleging copyright infringement. The Court did not rule on other claims of copyright infringement raised in the lower courts.

Justice Stephen Breyer, writing for the majority, wrote that Congress amended the Copyright Act in 1976 in part to overrule two U.S. Supreme Court decisions (Fortnightly Corp. v. United Artists Television, Inc. and Teleprompter Corp. v. Columbia Broadcasting System, Inc.) that held that cable systems’ retransmissions of over-the-air broadcasts were not public performances under the Copyright Act. He concluded that

having considered the details of Aereo’s practices, we find them highly similar to those of the CATV systems in Fortnightly and Teleprompter. And those are activities that the 1976 amendments sought to bring within the scope of the Copyright Act. Insofar as there are differ­ences, those differences concern not the nature of the service that Aereo provides so much as the technological manner in which it provides the service. We conclude that those differences are not adequate to place Aereo’s activi­ties outside the scope of the Act.

The majority found, in essence, that Aereo’s system was the modern equivalent of these early CATV, or community antenna television, systems, which used centralized antennas on hilltops or other sites to receive off-air broadcast signals and retransmit those signals via coaxial cable to subscriber homes.  Justice Antonin Scalia, writing the dissent, rejected the majority’s conclusion about Aereo’s resemblance to cable TV services, finding that sufficient technological distinctions existed for purposes of the public performance right and that the majority’s ruling was an “ad hoc rule for cable system lookalikes.” He also argued that Aereo could not be held directly liable for copyright infringement on public performance grounds because “it does not make the choice of content” and therefore does not “perform.” That said, the dissent makes clear that other legal grounds for potential copyright liability were not before the Court, stating that the Networks’ “request for a preliminary injunction – the only issue before this Court – is based exclusively on the direct-liability portion of the public-performance claim (and further limited to Aereo’s ‘watch’ function, as opposed to its ‘record’ function).”

The majority described its decision as a “limited holding” and that Congress “did not intend to discourage or to control the emergence or use of different kinds of technologies.” Justice Breyer wrote:

We cannot now answer more precisely how the Transmit Clause or other provisions of the Copyright Act will apply to technologies not before us. We agree with the Solicitor General that '[q]uestions involving cloud computing,[remote storage] DVRs, and other novel issues not before the Court, as to which ‘Congress has not plainly marked [the] course,’ should await a case in which they are squarely presented.” … And we note that, to the extent commercial actors or other interested entities may be concerned with the relationship between the development and use of such technologies and the Copyright Act, they are of course free to seek action from Congress…

The majority did not address the legal effect of Cartoon Network LP, LLLP v. CCS Holdings, Inc., a 2008 decision by a panel of the U.S. Court of Appeals for Second Circuit. In ruling for Aereo in 2013, a three-judge panel of the same Court cited the Cartoon Network case for the proposition that Aereo’s transmissions were not “to the public” for purposes of the Transmit Clause.  Cartoon Network involved whether transmissions using remote storage DVR services were public performances for purposes of the Copyright Act. While the precise legal issue in Aereo involved near-real-time streaming rather than content storage, the omission is noteworthy because Aereo reportedly relied on the Cartoon Network precedent in designing its system. 

Some Implications of the Court's Decision

There is much ambiguity in the Court’s decision, and its application to new technologies will be a source of much analysis and debate. Even if Aereo had prevailed on the public performance claim at the preliminary injunction stage, other theories of copyright liability would have been considered in further proceedings on remand. In addition, the Court’s decision on public performance grounds meant that the Court did not need to determine whether Aereo would have qualified as a “cable system” that was eligible to obtain statutory copyright licenses for the broadcast programming. Similarly, the Court did not look beyond copyright law to communications law and the rules for broadcast retransmission consent. Moreover, the “record” function was not at issue in the case, so the decision’s application to cloud storage services is undetermined at the U.S. Supreme Court. In short, Aereo represents only a portion of the larger legal picture.

I’ve said before that disruption does not occur in a vacuum. The multi-billion-dollar marketplace for video programming services is shaped heavily by regulatory forces. Franchising, copyright, retransmission consent and other legal issues play a role in defining the industry’s buyers and sellers, as well as the terms and conditions of the availability of programming. New providers must manage a variety of legal and regulatory risks to enter and to succeed in this marketplace.

Aereo’s legal approach challenged the existing business model in an effort to bypass licensing negotiations to determine compensation for copyright holders. Chief Justice John Roberts told Aereo’s counsel at oral argument that “your technological model is based solely on circumventing legal prohibitions that you don’t want to comply with, which is fine.” The majority’s reasoning ties Aereo’s practices to precedent from decades ago, despite the technological differences between today's cloud/DVR/Internet services and the community antennas of that era.  Justice Scalia in dissent stated that “I share the Court’s evident feeling that what Aereo is doing (or enabling to be done) to the Networks’ copyrighted programming ought not to be allowed. But perhaps we need not distort the Copyright Act to forbid it.” A major point of contention between the majority and the dissent is whether the case showed that Copyright Act had a “loophole” that should be addressed by the Court or by Congress.

It is noteworthy that the result in Aereo turned less on nuanced technological distinctions and more on broader legal policy:

In other cases involving different kinds of service or technology providers, a user’s involvement in the opera­tion of the provider’s equipment and selection of the con­tent transmitted may well bear on whether the provider performs within the meaning of the [Copyright] Act. But the many similarities between Aereo and cable companies, consid­ered in light of Congress’ basic purposes in amending the Copyright Act, convince us that this difference is not critical here.

This language also illustrates the challenges in applying to new technologies the longstanding legal principle of stare decisis, which means judicial adherence to settled precedent from prior decisions.  The majority endeavored to use legislative history and “Congress’ basic purposes in amending the Copyright Act” to fit Aereo’s business practices into legal precedent. Whether made by lawmakers, judges or regulators, legal rules have a difficult time keeping up with technological change. Rules that are too specifically tailored run the risk of being rendered obsolete, while broader rules can be more vague and difficult to apply as a matter of stare decisis.

The majority stressed that its holding was “narrow” in terms of the intended impact on new technologies. For now, expect the ruling to result in more payments to producers, broadcasters and copyright holders when program distributors seek to license retransmissions of broadcast programming. In any case, as new providers seek to become video programming distributors and existing providers evaluate their options, Aereo will be an important legal touchstone for assessing new business models and technologies for the delivery of broadcast programming.

Now that this month's Federal Government shutdown is over, and after a 16-day suspension in normal operations, the Federal Communications Commission has issued a Public Notice announcing revised deadlines for submitting certain FCC filings. The changes were needed because many of the agency's regular electronic filing systems and web pages were inaccessible during the shutdown. As a result, licensees, applicants, participants in rulemaking proceedings and other interested parties will want to carefully review the Public Notice to help ensure that their FCC filings are made in a timely manner. 

Disruption does not occur in a vacuum. Recently Henry Blodget and Dan Frommer considered whether technological disruption may lead to the "collapse" of the television industry given the recent track record of the newspaper industry. The debate centers on TV viewers’ changing habits, and the Internet, new video providers (e.g., Hulu, Netflix and iTunes) and non-TV displays (e.g., smartphones and tablets) factor heavily into this debate. Technology has enhanced time-shifting, and viewers watch much less programming live (or nearly live) or via a traditional TV.  Some viewers replace linear program streams with on-demand viewing. Reasonable minds can differ on the ramifications of these changes. What this debate lacks, however, is a thorough assessment of the role that the legal systems play in this heavily regulated space – systems that, for better and for worse, can limit and delay industry-wide disruptions. 

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.

Picture a world where each episode of Sesame Street is brought to you by a letter, a number and a candidate for public office.  

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.

On Friday, overwhelming majorities of both the House and the Senate passed a payroll extension bill that includes important changes to spectrum policy.  The legislation is expected to raise $15 billion for the Federal Treasury and to create hundreds of thousands of jobs. The details of the legislation are now delegated to the NTIA, the FCC and other agencies to develop reports and to adopt rules to implement Congress' objectives. 

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.

Stop me if you’ve heard this before.  An entertainer’s provocative gesture during the Super Bowl halftime show riles viewers and leads to calls for action by the Federal Communications Commission. Sound familiar? 

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 FCC has adopted new rules governing how loud commercials may be in digital programming, in response to the Commercial Advertisement Loudness Mitigation (“CALM”) Act.  As a result, beginning December 13, 2012, all digital TV broadcasters, digital cable operators and other digital multichannel video programming distributers (“MVPDs”) must make sure that their digital TV commercials are transmitting at volumes no louder than the accompanying program, in accordance with industry standards.  For the first time the television industry must monitor and if necessary adjust the loudness of television commercials. 

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.

Today’s announcement from the FCC’s Enforcement Bureau – a proposed forfeiture of $15,000 against Lebron – caught our attention. We are all aware that certain NBA players have a lot of time on their hands during the National Basketball Association lockout. Nevertheless, Lebron was alleged to have operated an unlicensed radio transmitter in Guayama, Puerto Rico in violation of Section 301 of the Communications Act. As it turns out, upon closer inspection, LeBron James has not taken his talents to Puerto Rico and likely will not be paying the $15,000 fine. Expect confused Cleveland fans to rejoice at the news. 

The Fairness Doctrine, a longtime controversial feature of the Federal Communications Commission’s media policy and a landmark of First Amendment law, died Wednesday in Washington, DC. It was 62. 

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.

Media ownership is in the news again as the Federal Communication’s Commission’s latest modifications to its media ownership rules have been affirmed in part and remanded in part by a three-judge panel of the U.S. Court of Appeals for the 3rd Circuit.  Most significantly, while most of the rules were affirmed, the FCC’s changes to its newspaper/broadcast cross ownership rule (“NBCO”) and its revenue-based “eligible entity” definitions were remanded for further consideration.  

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 FCC recently released a long-anticipated report on the future of journalism and localism, prepared by the FCC Working Group on the Information Needs of Communities. 

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.

Effective immediately, the Federal Communications Commission will no longer accept rulemaking petitions for TV stations to change their licensed channels. This is unfortunate news for stations who are still studying ways to improve free local over-the-air DTV service. 

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 …

As part of the process of filing for FCC renewal of their broadcast licenses, commercial and noncommercial full power radio and FM translator stations licensed to communities in the District of Columbia, Maryland, Virginia and West Virginia must begin their post-filing announcements on June 1, 2011.  Radio stations must air these announcements at least once a day on the 1^st and 16^th days of June, July and August as follows: 

●          At least three of the announcements between 7:00 a.m. to 9:00 a.m. and/or between 4:00 p.m. to 6:00 p.m.

●          One announcement between 9:00 a.m. to noon

●          One announcement between noon to 4:00 p.m.

●          One announcement between 7:00 p.m. to midnight. 

If the broadcast station does not operate during these hours, two of the announcements must be broadcast during the first two hours of operation.

FM translator stations must publish the text of the post-filing announcement in a daily, weekly or bi-weekly newspaper of general circulation in the community of license at least once immediately following filing of the license renewal application.

For more information about the broadcast license renewal process, see my blog pieces here and here.

The FCC is seeking comments on the economic impact that low power FM stations (“LPFM”) may have on full-service commercial stations.  These comments will form the basis of a report that the FCC must submit to the Congress as required by the Local Community Radio Act of 2010 (“LCRA”). The LCRA relaxed technical restrictions on LPFM stations in an effort to help grow LPFM service.  For example, the LCRA requires the FCC to eliminate the third-adjacent channel protection that full-service FM stations now enjoy from LPFM stations, FM translator stations and FM booster stations.  The LCRA also allows the FCC to grant LPFM stations a waiver of second-adjacent channel protections to full-service FM stations.  These changes when taken together could allow a significant increase in new LPFM stations, possibly to the detriment of full-service FM stations; hence the necessity and importance of the FCC report to the Congress. 

The FCC wants comments from the public on the current and potential economic impact that the addition of new LPFM stations could have on full-service FM stations.  The FCC left unanswered whether the agency will include the potential economic effect in its report.  The FCC also wants comments on the appropriate measurement for the economic impact; the effect of LPFM stations on audience ratings or advertising revenue. 

This approach has three problems.  The first is the difficulty for the FCC to develop any meaningful metrics that measure the effect of LPFM stations on full service stations with regard to advertising revenue.  LPFM stations compete indirectly with full-service FM stations.  LPFM stations must operate as noncommercial stations, financed through underwriting and listener support.  Full-service FM stations sell advertising time based on ratings.  It will be challenging for the FCC to compare the noncommercial economics of LPFM to the commercial economics of full-service stations. 

Second, Congress seeks information on the effect LPFM stations will have on full service FM stations only.  The LCRA, however, would make it possible for FM translator stations and FM booster stations to relocate closer to urban markets or for the FCC to license new stations.  FM translator and booster stations extend the reach of full-service stations, presumably with some economic impact on other full service stations.  In addition, FM translator stations can now rebroadcast AM stations, extending the reach of those stations. 

Third, the FCC will not consider the potential economic impact on full-service stations due to interference from LPFM stations.  LPFM stations are prohibited from causing interference to full-service FM stations, and there are also practical limitations to such LPFM station interference. In the event interference does occur, it is more likely that full-service stations will cause interference to LPFM stations than the reverse.  Such prohibitions and practical considerations do not assure that such interference may not occur; accordingly, for the report to the Congress to be meaningful, it must account for the economic impact associated with such interference, if any. 

Comments in this proceeding (MB Docket No. 11-83) are due on June 24, 2011, and replies are due on July 25, 2011.

The Federal Communications Commission's Enforcement Bureau has released an Enforcement Advisory reminding broadcasters of their obligation to include non-discriminatory language in advertising agreements.  This follows on the FCC’s recent revision of the license renewal application (Form 303-S, March 2011 version) that broadcasters must file with the FCC during the license renewal cycles, which begin on June 1, 2011. As I’ve blogged previously, the new renewal application requires applicants for commercial broadcast stations to certify that the licensee’s advertising agreements do not discriminate on the basis of race or ethnicity and that all such agreements contain certain nondiscrimination clauses.  Prohibited discrimination would include “no urban/Spanish” dictates. 

Broadcasters must have a good faith basis for making this certification and a reasonable basis for believing that factual information provided to the FCC is truthful and accurate.  For example, a broadcaster relying upon a third party for advertising agreements still remains responsible for complying with the FCC’s non-discrimination requirements.  Applicants who cannot make this certification must include an exhibit explaining the reasons why including an explanation of the person and matters involved and why the FCC should grant the renewal application. 

The certification covers the period from March 14, 2011 (the effective date of the new Form 303-S) through the date that the station files renewal application.  For subsequent renewal applications, the certification will cover the entire renewal term. 

NCE licensees are not required to make this certification.

The Federal Communications Commission’s job description includes the responsibility to implement rules and procedures for awarding new broadcast stations and for permitting incumbent AM and FM stations to relocate their facilities, and by extension, their service areas.  The FCC recently revised its criteria for selecting among competing proposals for new AM stations, new FM allotments and FM stations seeking to change their community of license. The new rules fall short of providing broadcasters with the necessary flexibility to relocate radio stations where they will provide the maximum service to the public. 

Section 307(b) of the Communications Act requires the FCC to make a fair, efficient and equitable distribution of radio service.  In discharging this obligation when awarding new AM or FM stations or approving community-of-license changes, the FCC relies upon four priorities for selecting among competing proposals: 

• (1) first fulltime aural (reception) service;
• (2) second fulltime aural service;
• (3) first local (transmission) service; and
• (4) other public interest matters. 

The FCC gives equal consideration to Priorities (2) and (3), and competing parties who propose the highest priority service or, if the priorities are equal, propose service to the larger community or population, will be entitled to a preference for their proposed station or community.  The FCC is concerned that reliance upon these priorities has caused the FCC to favor urbanized areas – at the expense of smaller communities or rural areas – when granting new AM stations, new FM allotments and community of license changes.  Under the new rules, the FCC will de-emphasize population differences as a principal metric in awarding Section 307(b) preferences in favor of a “more realistic” evaluation of the totality of the station’s proposed service.  The FCC will emphasize that the goal of Section 307(b) is to prevent excessive concentration of radio service in larger cities. To the FCC, Section 307(b) essentially is a listener-centric consumer statute rather than a broadcaster-centric mandate designed to promote spectral efficiency.

Revised Priority 3 Showing: First Local Service in A Community Located Near an Urbanized Area.  The most important change to the FCC’s rules is the rebuttable presumption that any proposal for first local service (Priority 3) for a community near an urbanized area that could place a principal community contour signal over at least 50% the urbanized area, or could be modified to place such coverage, will be presumed to serve the entire urbanized area rather than the proposed community.  This presumption may be rebutted by a compelling showing:  (1) that the proposed community is truly independent of the urbanized area; (2) of the community’s specific need for an outlet for local expression separate from the urbanized area; and (3) the ability of the proposed station to provide that outlet. 

The required showing can be based on the existing three-prong test established in Faye & Richard Tuck:  (1) the degree to which the proposed station will provide coverage to the urbanized area; (2) the size and proximity of the proposed community to the central city of the urbanized area; and (3) the interdependence of the proposed community of license and the urbanized area.  The FCC has heightened the scrutiny of factors in support of the third prong.  For example, applicants must submit evidence of the number of local residents who work in the community, not merely extrapolations from commute times or listing local business in the community.  Similarly, the application must include evidence that the community’s residents perceive themselves as separate and distinct from the urbanized area, rather than statements to that effect from town officials or business leaders.  In addition to demonstrating independence, a compelling showing sufficient to rebut the urbanized area presumption must also include evidence of the community’s need for an outlet of local expression.  Examples could include the community’s rate of growth, the existence of substantial local government necessitating coverage, and physical, geographical or cultural barriers separating the community from the remainder of the urbanized area. 

Revised Public Interest Showing (Priority 4).  In determining whether a proposed allotment betters serves the purposes of Section 307(b) under Priority (4), the FCC will look favorably upon proposals emphasizing service to underserved areas; i.e., those receiving fewer than five aural services.  A proposal to provide service to a third, fourth and/or fifth aural service to at least 25% of the population in the proposed primary service area, provided the proposed community of license has two or fewer local transmission services, will receive a dispositive Section 307(b) preference under Priority (4). 

The table below compares the rule changes for Priority 3 and Priority 4 for proposals for new AM services, for new FM services and for changes in communities of license: 

Proposals for New AM Service.  In considering competing proposals to provide new AM service, the FCC will apply the new rebuttable presumption of service to an urbanized area along with the revised Priority (4) showing. The determination of whether a proposal could cover 50% or more of an urbanized area will be limited to a consideration of minor modifications to the proposal, without changing the proposed antenna configuration or site, and the spectrum availability as of the close of the filing window.  If the FCC cannot make a 307(b) determination among competing applicants using these criteria, the FCC will make the selection using an auction process.  The FCC will not apply these new procedures to pending applications for new AM stations and major modifications to AM stations filed in the 2004 AM Auction 84 filing window.  The FCC will however apply these new procedures to any other pending applications.

Proposals for new FM Allotments.  In considering competing proposals for new FM service, the FCC will apply the new rebuttable presumption of service to an urbanized area along with the revised Priority (4) showing provided coverage is to more than a de minimis population.  The determination of whether a proposal could cover 50% or more of an urbanized area is more expansive for new FM allotments than new AM allotments.  The applicant must certify that there are no existing towers in the area to which, at the time of filing, the applicant’s antenna could be relocated pursuant to a minor modification application to serve 50% or more of the urbanized area.  If the revised Priority (4) does not apply, then the FCC considers raw population totals in support of Priority (4).  These new rules will not apply to any non-final FM allotment proceedings, including “hybrid” coordinated application/allotment proceedings.  The revised procedures will apply to all pending petitions to amend the FM Table of Allotments and to all other open FM allotment proceedings and non-final FM allotment orders. 

Proposals to Change Community of License.  The FCC’s strictest requirements will apply to existing broadcast stations seeking to change their community of license.  The FCC will apply the rebuttable presumption of service to an urbanized area along with the revised Priority (4) showing.  Proposals that would create a white or grey area would be prohibited.  The FCC would strongly disfavor any change that would result in the net loss of a third, fourth or fifth reception service to more than 15% of the population in the station’s current protected contour.  Applicants must not only set forth the size of the populations gaining and losing service but also the number of services those populations will receive if the application is granted and an explanation of how the proposal advances the revised Section 307(b) priorities.  The FCC will strongly disfavor any proposed removal of a second or local transmission service from a community of substantial size (with a population of 7,500 or greater).  These procedures will apply to any pending applications to change community of license. 

The FCC’s new procedures have several problems.  First, the agency presumes a problem where none exists in light of existing protections against the migration of radio stations from rural to urban markets.  New and existing stations have limitations on their ability to migrate into urbanized areas due to the FCC’s technical rules relating to mileage separation, city-of-license coverage, prohibitions against removing a sole first local service from a community, and restrictions on the filing of contingent applications. 

Moreover, the FCC does not consider the population of the urbanized area in adopting its new policies.  An “urbanized” area can have as few as 50,000 people but is treated under the rules the same way as one with hundreds of thousands, or even millions, of people.  The technical and policy restrictions already in place make it extremely difficult for an existing or new station to be located in one of the larger urban markets.  The new policies now will make it extremely difficult to relocate stations to the smaller or newer urbanized markets. The FCC also does not consider the population migration that has occurred over the past several decades.  Instead, the FCC would seem to prefer to lock radio stations in to their current communities, restricting a station’s ability to improve their service to better serve the public.  It is ironic that in adopting its policies for expanding broadband service, the FCC seeks to reclaim spectrum under the guise of promoting spectrum efficiency but in its new rules implicitly reject spectrum efficiency as an important objective for broadcast services. 

The FCC does not hide its preference for auctioning broadcast spectrum to the highest bidder instead of placing greater emphasis on Section 307(b) determinations.  The auction process works against the FCC’s goals of increasing broadcast ownership by minority and females. Further, the FCC fails to consider the considerable time between the initial proposal for a new AM or FM broadcast station and the auction of the station – a time lapse where changed economic conditions and business plans can affect construction and operation of the new station.  Case in point: Auction 91 will auction 144 new FM station construction permits, 37 of which are holdovers from the prior auction where no winning bid was placed.  This underscores the lack of interest of certain allotments made to rural areas. 

The FCC’s new procedures also are tilted against relocating new or existing radio stations near or within urbanized areas.  Concerned with the alleged migration of new and existing radio stations from rural markets to urbanized markets, the FCC creates roadblocks and imposes high costs for parties interested in a station near or within an urbanized area.  The new Tuck showings impose a financial burden that will deter many applicants from proceeding. 

In short, the new rules represent a missed opportunity to adopt a balanced approach between serving rural and urbanized areas.  Broadcasters must have the flexibility to go where the people go.  Sadly, the FCC’s new policies work against the public’s interest.

In a challenging economy, regulatory compliance may become the first casualty for a business.  A recent lack of diligence in meeting basic Federal Communications Commission obligations spelled trouble for four broadcasters in FCC enforcement actions announced last week. The FCC fined these broadcasters a combined $38,000 because their stations’ local public inspection files were missing the required quarterly issues/programs reports. 

Under FCC rules, broadcasters must place in their local public inspection file at the end of each quarter a list of those programs broadcast on the station responsive to issues of importance to the community.  These quarterly issues/programs reports form the basis for documenting broadcasters’ license-renewal expectancy, which in turn protects broadcasters from the filing of competing applications for their broadcast license at license renewal time. 

When the FCC inspects a broadcast station, even on an unrelated matter, it is almost a certainty that the FCC will check the station’s local public inspection file.  The FCC may inspect the local public file as part of a random inspection or in response to a complaint and may discover the missing quarterly issues/programs reports.  Broadcast licensees must disclose on their license renewal application if any reports are missing. 

The individual fines ranged from $8,000 for missing quarterly/programs reports for two full years to $12,000 for missing reports for three full years. 

The next license renewal cycle for radio broadcasters begins on June 1, 2011.  Now is the time for broadcasters to review their local public inspection file and make sure it is complete and accurate.  Most state broadcasters associations will also conduct a mock inspection.  These can be valuable in avoiding costly fines later.  It will be too late once the FCC inspector or a member of the public stops by to check out the file.

The license renewal cycle for radio stations is fast approaching, and to paraphrase Yogi Berra, for many broadcasters the familiar renewal process should be “déjà vu all over again.”  That said, broadcasters should take care to prepare their renewal applications to avoid common filing errors and should review their practices to help ensure that they can obtain renewal of their license through filing a complete and correct renewal application with the Federal Communications Commission – particularly in light of recent changes in the renewal application. 

The renewal cycle for radio stations begins on June 1, 2011 (the deadline for stations licensed to communities in Maryland, Virginia, West Virginia and the District of Columbia to file their renewal applications) and winds up on April 1, 2014 (the license renewal deadline for stations licensed to communities in Delaware and Pennsylvania).  Between these dates, radio stations licensed to the remaining U.S. states and territories will file their license renewal applications.  TV stations operate on a different renewal cycle. 

The FCC has released a new version of the license renewal application (Form 303-S), which licensees must use in this renewal cycle.  The revised Form 303-S includes a question on the FCC’s anti-discrimination policy and whether the broadcast station has been silent, as discussed below. 

What can we expect to see during this license renewal cycle?  

○          Renewed and vigorous review of a licensee’s EEO Public File Report obligations.  Licensees with five or more full time employees must prepare an EEO Public File Report on the anniversary of the date when the station would file its license renewal application.  The EEO Public File Report must be placed in the station’s local public inspection file and must be posted on the web site for the station, if one exists.  When the broadcaster files the renewal application for the station with the FCC, the broadcaster must also file the station’s two most recent EEO Public File Reports.  The FCC has stepped up enforcement in this area, recently fining two radio stations for incomplete EEO Public File Reports.  Additional enforcement action is expected in the future. 

○          Fines for filing late or incomplete renewal applications.  The FCC fined broadcasters during the last renewal cycle for late filed or incomplete renewal applications.  Expect to see the FCC continue that trend, with little-to-no tolerance for broadcasters who submit incomplete renewal applications. 

○          Review of whether the station complies with the FCC’s non-discriminatory policy regarding sales contracts.  Licensees will be required to certify in the renewal application that the station’s advertising sales agreements do not discriminate on the basis of race or ethnicity and that all such agreements include nondiscrimination clauses.  Because of uncertainty regarding what language must be included in a sales agreement to satisfy this requirement, broadcasters should review their sales policy carefully. 

○          Was the station silent during the license term?  The renewal application requires licensees to certify that the station has not been silent (or operating with reduced power) for more than 30 days.  If the licensee cannot make this certification, the licensee must submit an exhibit listing the exact dates during the preceding license term when the station was silent or operating with reduced power. 

○          Enforcement Bureau hold on the renewal application.  The FCC generally defers processing renewal applications if the Enforcement Bureau has put a hold on processing the application.  The most common reason that the Enforcement Bureau would put a hold on a renewal application is because of a pending indecency complaint against the station. The FCC has not yet granted renewal applications for a small number of radio stations from the last renewal cycle because of indecency complaints. 

○          Timing of assignment applications.  The FCC will not grant an assignment or transfer application for a station while the renewal application for the station remains pending before the FCC. It is important that broadcasters plan the sale or transfer or a broadcast license to avoid overlapping with the renewal application. 

During the last renewal cycle, the FCC issued some hefty fines to broadcasters for common and avoidable filing mistakes:

○          Failure to file the license renewal application in a timely manner.  License renewal applications must be filed four months before the broadcast license expires.  For example, if a broadcast license expires on October 1, 2011, the renewal application must be filed before June 1, 2011.  During the last renewal cycle, some broadcasters waited to file their renewal application until just before the license expiration date.  Worse, others did not file until after their license had expired! 

○          Failure to file the license renewal application electronically.  A licensee must file their renewal application with the FCC electronically.  The FCC will not accept filings submitted on paper. 

○          Failure to pay the filing fee in a timely manner.  Commercial licensees must pay the filing fee for a renewal application within 14 days of submission of the application.  The FCC must receive payment by the 14th day.  Several times during the last cycle, licensees timely submitted their license renewal application only to forget to pay the filing fee. 

○          Failure to request special temporary authority to continue broadcasting.  If a licensee does not file their renewal application before the license expires, the broadcaster no longer has FCC authority to broadcast its signal.  The broadcaster must file with the FCC a request for special temporary authority for the station to continue broadcasting. 

○          Make sure the station local public inspection file is complete.  The renewal application requires broadcasters to certify the station’s local public inspection file is complete and documents timely placed in the file.  The most common documents missing from the local public file during the last renewal cycle were the station’s quarterly issues/programs lists.

            The FCC may have streamlined its license renewal process over the years, but the obligations of broadcasters to serve their community remain.  Now is the time for broadcasters to make sure their station is ready for the new license renewal cycle.  Review your local public inspection file and make sure it is complete and accurate.  Know when you must file your license renewal application.  Above all, be diligent and treat the license renewal application with the importance it deserves.

Less than one month remains until the close of the filing window to participate in the Federal Communications Commission’s upcoming auction of 144 FM broadcast construction permits to the public.  The auction is scheduled to begin on April 27, 2011.  Applicants interested in participating in the auction must file an application with the FCC between January 31, 2011 and February 10, 2011.

The construction permits are associated with so-called “vacant” FM allotments. The FCC has assigned certain FM channels to certain communities via allotment, and the FCC will auction the rights to build FM radio facilities using these channels.  Of the 144 vacant FM allotments in this auction, 37 are holdovers from the last FM auction.  This means that no party placed the minimum bid for these vacant allotments before the last auction closed. The minimum bid for the majority of the allotments is $25,000 or less.  Only 14 of the allotments have minimum bids of at least $60,000. Seven allotments have minimum bids of $100,000. Three allotments have minimum bids of $60,000 and four allotments have minimum bids of $75,000.

The application must include ownership information about the applicant; identify the vacant allotments for which the applicant intends to bid, and whether the applicant has any agreements with other parties regarding the auction.  Under the FCC’s anti-collusion rules, applicants are prohibited from discussing their applications, including bidding strategies, with other applicants in the auction, unless each applicant identifies the other in their application.  This prohibition applies to each applicant until the auction is closed.

Time is of the essence.  Although the auction is more than three months away, interested parties must file their applications for the auction by February 10.  These applications are not placeholders for the auction; the application locks in the applicant’s qualifications to bid in the auction, identifies the allotments on which the applicant may bid, and any bidding arrangements applicants might have with third parties.  Applicants will not be able to amend their applications after February 10 to improve their situation in the auction.  Advance preparation now is necessary.

The FCC suffered another setback to its broadcast indecency policy earlier this week when the U.S. Court of Appeals for the 2nd Circuit threw out the FCC’s fine against the ABC Television Network and its affiliates for broadcast of an NYPD Blue episode.  Although the decision is not binding precedent, the willingness of the 2nd Circuit to throw out yet another FCC indecency fine on constitutional grounds raises the stakes when the U. S. Supreme Court hears this and related indecency cases in the future. 

The case involved a February 2003 broadcast by the ABC Television Network of an episode of NYPD Blue that depicted a woman’s nude buttocks for less than seven seconds.  In February 2008, the FCC determined that the depiction was indecent and fined ABC and each of its affiliates $27,500 per station for broadcasting the program.  ABC and its affiliates appealed the FCC’s decision to the 2nd Circuit.

In July 2010, in a separate case, the 2nd Circuit found the FCC’s “fleeting expletives” indecency policy unconstitutionally vague and therefore in violation of the First Amendment when applied to a Fox Television broadcast involving expletives uttered by Cher and Nicole Richie in the 2002 Billboards Music Awards Show.  Last November, the 2nd Circuit denied the FCC’s request for reconsideration of that decision.  

The Fox decision played a role in the NYPD Blue case as well.  In August 2010, ABC filed a motion for summary judgment requesting that the 2nd Circuit throw out the February 2008 forfeiture against ABC and its affiliates on grounds that the 2nd Circuit decision in the Fox case invalidates the forfeiture.  The 2nd Circuit agreed, holding that the Fox case struck down not only the FCC’s “fleeting expletive” policy but the FCC’s indecency policy in its entirety.  The court did not consider relevant that Fox broadcast a live unscripted show whereas ABC broadcast a scripted, recorded show.

The 2nd Circuit decision is not precedential (future parties may not rely on the decision); rather it is an order dismissing the petitioning broadcasters’ motion for summary judgment.  What is relevant is the 2d Circuit, the FCC and ABC agreed that the decision in the Fox case invalidated not only the FCC’s fleeting expletive policy, but the agency’s underlying indecency policy as well. 

It is unclear whether the FCC will appeal the nonbinding NYPD Blue decision.  Some expect the Supreme Court next term to hear argument on the Fox case, at which time the Supreme Court could consolidate the Fox case, today’s decision and the indecency case involving the "wardrobe malfunction" at the 2004 Super Bowl, pending before the 3rd Circuit.  The Supreme Court could rule narrowly on the issue on the constitutionality of the FCC’s fleeting expletives policy or more broadly with regard to the FCC’s entire indecency policy.

Passage of the Local Community Radio Act of 2010 (“LCRA”) by the Congress authorizes the FCC to issue new licenses for thousands of LPFM radio stations across the country, providing new outlets for new voices in new areas. Specifically, the LCRA: 

• Eliminates the requirement that a proposed LPFM station protect full power radio stations operating on the third adjacent channel, unless the full power station broadcasts radio reading services.
• Allows LPFM stations to operate in closer proximity to full power stations operating on the second adjacent channel.  The LPFM station must cease operation if there is any complaint of the LPFM station causing interference to the full power station.
• LPFM stations will remain secondary services and must cease operation if the LPFM station causes interference to public reception of a full power radio station.
• A full power radio station may still displace a LPFM station; presumably the elimination of the third adjacent channel protection will make it easier to find a new channel for a displaced FM station. 
• LPFM stations will have co-primary status with FM Translator and FM Booster Stations; meaning that a LPFM station must protect a previously authorized FM Translator or Booster Station and vice versa. 

This new law is important because the FCC has been given authority to grant licenses for new LPFM stations across the country in markets previously unavailable to LPFM stations. This is expected to help further the diversity goals of the FCC and the broadcast industry. The LCRA provides clarity for full power, FM Translator, FM Booster and LPFM stations by setting in stone their interference rights vis-à-vis each other.  This is a “big win” for the National Association of Broadcasters (or NAB) because it provides solace to incumbent broadcasters concerned that LPFM stations might gain priority over full power and secondary stations. 

It remains uncertain when the FCC will issue a filing window for the public to submit applications for construction permits for new LPFM stations; and whether the FCC will proceed with a new filing window before or after dealing with the backlog of thousands of FM translator applications pending before the FCC since March 2003. Early resolution of the pending FM translator stations could make it possible for the FCC to grant even more LPFM stations, thereby providing additional outlets to promote diversity.

Following the passage by Congress earlier this year of the Satellite Television Extension and Localism Act (STELA, for short), the FCC adopted new rules to provide satellite subscribers with greater flexibility to receive certain television stations from other markets.

The FCC revised its rules to make it easier for satellite subscribers to receive a significantly viewed (SV) out-of-market station. Previously, satellite subscribers could receive an out-of-market SV station with the same network affiliation as the local in-market station only if the satellite subscribers received the local in-market network station. Now satellite subscribers need only receive the satellite carrier’s local-into-local service package.

These changes may tilt retransmission consent negotiations in favor of the satellite carriers, who could favor an out-of-market SV station to the in-market station based on the amount of retransmission consent fees that are negotiated. Many broadcasters have entered into agreements that provide for little or no compensation for out-of-market subscribers.

The FCC reasons that subscribers would prefer receiving the in-market station to the out-of-market SV station, that satellite carriers will negotiate in good faith with in-market stations, and that SV stations usually are available only in a portion of the market. Time will tell, but there is good reason to be skeptical. Satellite carriers will inevitably use SV stations as a substitute, instead of a supplement, to an in-market station if any disputes arise about compensation for retransmission consent. If this happens, broadcast localism goals of the FCC will be undermined and Congress may be called back to the table to clean up the mess.

The FCC must deliver to Congress a report on in-state broadcast programming by August 27, 2011. The FCC seeks comment and data from the public in preparing this report.