Looking into the Crystal Ball: What Can Broadcasters Expect from Washington in 2010?

Another year is upon us, and it’s time for predictions as to what Washington may have in store for broadcasters in 2010. Each year, when we look at what might be coming, we are amazed at the number of issues that could affect the industry—often issues that are the same year to year, as final decisions are often hard to come by in Washington with the interplay between the Federal Communications Commission (FCC) and other government agencies, the courts and Congress.

This year, as usual, we see a whole list of issues, many of which remain from prior years. But this year is also different, as we have a list topped by issues such as the suggestion that television spectrum be re-allotted for wireless uses, and the prospect of a radio performance royalty—both changes that could fundamentally affect the broadcast industry.

The new administration at the FCC is only beginning to get down to business, having filled most of their decision-making positions. Thus far, its attention has been focused on broadband, as it works diligently to complete a report to Congress on plans for implementation of a national broadband plan, a report that is required to be issued in February (and which may nevertheless be delayed).

But, from what little we have seen from the new Commission and its employees, there seems to be a willingness to re-examine many of the fundamental tenets of broadcasting. And Congress is not shy about offering its own opinions on how to make broadcasting “better.” This willingness to re-examine fundamentals at the heart of broadcasting should make this a most interesting, and potentially frightening, year. Some of the issues likely to be facing television, radio, and the broadcasting industry generally are set out in this advisory.

Television issues

At this time last year, we were discussing the end of the digital television transition, and expressing the concern of broadcasters about the FCC’s White Spaces decision allowing unlicensed wireless devices into the television spectrum. While the White Spaces process still has not been finalized, that concern over the encroachment on the TV spectrum has taken a back seat to a far more fundamental issue of whether to repurpose large chunks of the television spectrum (if not the entire spectrum) for wireless users, while compressing television into an even smaller part of what’s left of the television band—if not migrating it altogether to multichannel providers like cable or satellite, with subscription fees for the poorest citizens being paid for from spectrum auction receipts.

This proposal, while floated for years in academic circles, has in the last three months become one that is being legitimately debated in Washington, and one that television broadcasters have to take seriously, no matter how absurd it may seem at first glance. Who would have thought that just six months after the completion of the digital transition, when so much time and effort was expended to make sure that homes that receive free over-the-air television would not be adversely impacted by the digital transition, we could now be talking about abolishing free over-the-air television entirely?

Such a sea change obviously cannot happen overnight, and it is a process sure to be resisted as broadcasters seek to protect their ability to roll out new digital multicast channels and their mobile platforms. But it is a real proposal which, if implemented, could fundamentally alter the face of the television industry. Watch for this debate to continue this year.

Spectrum conflicts with radio will also be on the table. There have been proposals for the re-allotment of TV Channel 6, and perhaps even Channel 5, for use by radio. Particularly given the issues that many major market television stations had with the digital conversion of VHF stations, and the demand by more and more entities for radio spectrum, this proposal could theoretically be ripe for action. It has already been advanced for public comment by the FCC in several proceedings.

More likely, this year will see further consideration of the issue, as there are many issues that would need to be resolved—such as who would pay for the few remaining TV stations on these channels to move elsewhere on the TV band, plus questions of how the spectrum, if reallocated for radio use, would be divided. More on this topic is included below in the radio discussion.

The FCC will also have to complete the digital transition of TV translator stations and low-power television (LPTV) stations, which were not bound by the June 2009 DTV conversion deadline. The FCC will need to set a digital conversion deadline—a conversion that many translator and low-power licensees are not looking forward to paying for, but which may be necessary to preserve their over-the-air viewership as the analog tuner becomes an historical relic.

This transition may also bring to the fore questions about the use of LPTV stations on Channel 6 as quasi-radio stations broadcasting audio that can be received on 87.7 or 87.9 on most radio receivers as analog television audio signals are just below the bottom of the FM dial. This use of Channel 6 stations for FM broadcasting would disappear if LPTV stations go digital, and thus there may be resistance to the transition from that element of the LPTV community.

Another carryover issue from 2009 is the status of the Satellite Home Viewer Extension and Reauthorization Act (SHVERA) extension, authorizing DirecTV and DISH Network to rebroadcast local broadcast television signals to satellite TV subscribers in their markets. That authorization expired at the end of 2009, and has been extended by Congress, but only until March 2010.

While everyone seems to agree that a further extension is appropriate, many parties are trying to load up the bill with all sorts of goodies from the wish lists of various industries—everything from a mandatory extension of local-into-local service into every television market (as urged by TV interests) to changes in must-carry and retransmission consent schemes and rules on the importation of distant network affiliates (sought by various multichannel video providers) to issues about allowing the carriage of in-state TV stations in markets with counties that currently receive their television service from stations in adjoining states. These and other issues will need to be resolved before a more permanent extension is adopted.

Radio issues

The most fundamental issue for radio broadcasters is the potential for the broadcast performance royalty—which would require that radio stations pay not only the composers for the use of music on the radio (which they currently do through ASCAP, BMI and SESAC payments), but also pay performers (and the record companies, as the copyright holders in these performances) for the use of their recordings on the air. Radio has never paid such performance royalties, although digital cousins of radio—including satellite radio, Internet radio and cable radio—have paid these royalties for the last decade.

While broadcaster representatives have thus far been able to beat back attempts to impose this performance royalty for the use of sound recordings, both the House and Senate Judiciary Committees passed forms of this legislation in 2009, and proponents of the royalty will be pushing for a vote on these bills this year.

With the potential for a crippling new cost to be imposed on radio if these royalties are adopted and imposed on top of the royalties already paid to ASCAP, BMI and SESAC (which are themselves in negotiation for new royalty rates as their old rate agreements expired at the end of 2009), music radio could be dealt a severe blow if the proposal were to be adopted in this time of decreasing revenue.

While the new President of the National Association of Broadcasters (NAB) has seemingly taken a somewhat more conciliatory tone in dealing with this issue (no more claims that the royalty will be discussed only at knifepoint), it is difficult to see where the revenue to pay such royalties would come from. But it will be an issue that will be fought hard this coming year.

The digital transition in radio will also need to be addressed. While many stations are already operating with digital over-the-air streams of programming, the Commission is still faced with resolving proposals for increased power for HD radio operations (in-band on channel or IBOC digital radio), which some broadcasters have opposed as holding the potential for adjacent channel interference. While a compromise proposal to allow for IBOC power increases has been offered to the Commission, it has not yet been adopted. Watch for action on that front soon.

Low-power FM (LPFM) stations may become more common this year, as legislation to remove a ban on those stations causing third-adjacent channel interference to full-power FM stations may well be enacted by Congress this year. A bill to do so has passed the House, and will likely be considered soon in the Senate. The House bill did protect some full-power stations from real cases of interference, as well as certain existing services, such as existing translators and stations providing reading services for the blind. But the bill must also be addressed by the Senate, and we will have to see what makes it into the final legislation.

The related issues of the relationship between LPFM stations and other FM users also remain to be resolved at the FCC. A new LPFM window has been held up by issues about how to process the thousands of FM translator applications that remain pending from the 2003 translator window. Similarly, issues remain to be resolved about whether LPFM stations, which were authorized as secondary services, should be protected from power increases or other facility changes by full-power stations. Perhaps the removal of third-adjacent channel protections will alleviate some of the conflicts, but others are bound to remain.

The proposals discussed above to recapture some of the television spectrum, including Channel 6 and possibly Channel 5, and to use that spectrum for new radio stations, may provide a further outlet for LPFM stations alleviating some of the conflict with translators and full-power stations. Proposals are already pending to immediately allow LPFM stations on 87.5, 87.7 and 87.9 MHz—all parts of Channel 6 that can be heard on most FM radio receivers. But a longer-term solution could result from this reallocation, giving LPFM stations places to operate without restricting FM upgrades or endangering FM translators. Other proposals have even suggested that some or all AM stations could be moved onto these channels. This is likely to be a long-term project, but one that may get further serious consideration this year.

Finally, the FCC, under Interim Chairman Michael J. Copps, has suggested rules that could limit the ability of FM stations to change their city of license in order to move toward a larger community, undoing some of the flexibility accorded to stations in recent years. Action on this proceeding might be forthcoming, or will perhaps be rolled into the localism proceeding discussed below.

Issues for both radio and television

The FCC’s localism proceeding remains on the table, proposing a host of requirements to ensure that broadcasters are serving their communities and the “public interest.” While comments have been filed and the proceeding has been ready for resolution for more than two years, the proposals raise so many controversial issues that resolution will not be easy.

Some proposals seem to be dead—such as that for a main studio fully staffed during all hours of operation and located in the station’s city of license, as regulators realize the costs such a requirement would impose and the likely impact the requirement would have on new entrants and on the 24-hour operations of some stations. Yet requirements for some form of mandatory ascertainment of community needs, plus some enhanced disclosure of public interest programming, seem more likely.

Some of the proposals rumored to be on the table include requiring that broadcasters be judged by whether they perform certain tasks, set out on a menu of options, that would demonstrate their service of the public interest. One would hope that any such set of menu options would be broad enough to recognize all the diverse ways that broadcasters serve their communities, and not so restrictive as to make every station meet the public interest in the same cookie-cutter way, thus eliminating the diversity in approaches that has allowed the broadcast industry to flourish.

The difficulty with localism issues is illustrated by the Commission’s rules, adopted more than two years ago, requiring TV stations to document in minute detail their public interest programming on the new FCC Form 355. This rule has never become effective, as the form has never been approved by the Office of Management and Budget as being in compliance with the Paperwork Reduction Act.

As this form required so much new information, for no appreciable purpose, it seems unlikely that it could survive such a review. Broadcasters argued that such documentation would require hiring new staff whose only role would be to fill out the form. In an era of declining revenues for broadcasters, hiring a person to deal with these issues would, of necessity, require cutbacks in other areas, possibly compromising service to the public.

While that would seem to be an issue, in recent hearings on the FCC multiple ownership rules, which will come up for a full review in 2010, certain public interest group representatives suggested that gathering detailed information about a station’s public service should be seen as a cost of doing business, and that owners who did not want to shoulder this burden should simply get out of the business. With such views being advanced in the multiple ownership proceeding, questions of how to modify the Commission’s ownership rules will not be easily resolved.

The FCC’s 2007 modest relaxation of the broadcast-newspaper cross ownership rules has never been fully implemented, causing us to wonder whether the restrictions will outlive the newspaper itself. Broadcasters, especially small-market TV operators, have also been looking for the ability to combine operations under more flexible rules—an issue to be examined by the FCC in this upcoming 2010 proceeding (though don’t expect any final resolution this year).
 
The troubles of the newspaper industry, and of some broadcast stations, in funding their news operations, have given the FCC and the Federal Trade Commission (FTC) pause, with both agencies conducting reviews of how the government may be able to facilitate good journalism in the 21st century. The FCC has gone so far as to appoint a Special Advisor to the Chairman to look at the issues of how the media should best serve their local audiences and how to ensure that service is forthcoming to local communities.

One wonders what the government can do to mandate what are essentially business decisions. But some fear that any review of content issues, whether it is in the guise of community service, localism or some other form, could be a backdoor way to bring back the Fairness Doctrine, which many conservative pundits have predicted.

Certainly, many of these proposals would face constitutional and practical problems in implementation. Nonetheless, these are matters that broadcasters should continue monitoring.
 
In the advertising world, the FCC will be resolving its embedded advertising and product placement proceeding, where some “public interest” groups have advocated a total ban on such advertising, while others have suggested immediate sponsorship identification, through a crawl or superimposed caption, of any product for which consideration has been paid for its inclusion.

The related issue of video news releases—whether stations have to identify on-air anything given them at no charge (e.g., a script, video footage, etc.), before its inclusion into a news report—will also likely be resolved. Some have also suggested that the Commission may be planning some adjustments to its payola rules, though what those changes would be, and how they would improve on the current rules, is hard to fathom.

We have also written about the FTC’s recent actions on sponsorship identification (especially for the new media) and celebrity endorsements, obligations that are only now being fully implemented.

There is also a real concern that the Congressional committees that oversee the FCC may push proposals for content regulations. Issues about limits on prescription drug advertising have been raised both independently and as part of the health care debate. Proposals on restrictions on violent programming and on advertising directed to children are also possible, especially in connection with ads for food considered unhealthy (however that may be defined).

Congress also seems poised to pass a law regulating loud commercials—mandating that the volume on commercials be kept the same as that in programming, no matter how hard (and in some cases subjective) that may be to ensure in reality.

Protecting children from violent or other potentially harmful content has also been the subject of both FCC and FTC proceedings, which may spur further actions this year. Indecency issues will also continue to be litigated in the courts, as both the Janet Jackson clothing malfunction and the Golden Globes fleeting expletive cases are considered after their remand by the Supreme Court. The constitutional issues left unresolved by the Supreme Court may well be considered by the Courts of Appeal rehearing these cases, though an ultimate decision on the constitutional issues are probably several years down the road when these cases finally make their way back to the Supreme Court (so look for indecency on our list of issues again next year).

And 2010 will also be a big political broadcasting year. While the political broadcasting rules have for the most part remained unchanged for almost two decades, there are aspects of the rules that need to be addressed, as the technology has changed since the current rules were adopted.

The FCC has a long-outstanding proceeding to decide how online sales of broadcast inventory by various advertising clearinghouses and aggregators affect a station’s lowest unit rate. It is interesting that the proceeding itself has outlasted most of the companies that were offering the online sales of broadcast inventory.

Also, as both radio and TV are now multicasters in the digital world, the FCC has not yet addressed how reasonable access and other political rules apply to multicasting. Are a station’s multiple streams each considered a separate “station” for reasonable access purposes, or can a station decide that candidates can be accommodated on one or more streams and kept off others? While this may not be a big issue in this election, as most multicast audiences are small, the issue will no doubt grow in significance in future elections.

Copyright issues could also impact the broadcast industry this year. We discussed the performance royalty above. But both radio and television have outstanding issues on their ASCAP and BMI royalties that could lead to rate court proceedings to decide what should be paid to composers for the use of their music. And TV broadcasters have brought a suit against SESAC to try to bring it under the antitrust laws, a suit that radio broadcasters may well consider joining at some point in the future.

Conclusion

Just a cursory look at the broadcast issues to be dealt with by Washington this year is enough to give any broadcaster pause about the future. These are just some of the issues that could impact broadcasters. Broadband rollout, network neutrality and regulation of wireless and wired carriers can fundamentally affect the competitive landscape for the media industry in general. And there is a host of other regulatory issues that we have not addressed here, including some that are not even on the radar yet, but which are nevertheless bound to arise.

In an industry rapidly adapting to new media competition and changes in the economy, broadcasters cannot afford to face the heavy hand of government regulation. Broadcasters need the freedom to adapt to marketplace changes and to address the new realities of the advertising supported media. One can only hope that Washington recognizes these new realities and regulates with a realistic hand, not one based on the realities of a totally different time and place. Stay tuned to see what develops in this new year.