Broadcast Law is written by David Oxenford of Wiklinson Barker Knauer LLP and all areas of broadcast law. David Oxenford is an attorney representing radio and TV broadcasters and webcasters on regulatory, transactional and music licensing issues.
In our summary of January regulatory issues for broadcasters, we suggested that the Copyright Royalty Board this month might start WEB V, the next proceeding to determine the rates that Internet radio stations and other webcasters pay to SoundExchange for the noninteractive public performance of sound recordings. The current royalties (see our initial article on the decision setting current royalties here, and one that provided more details here) expire at the end of 2020. A proceeding to establish the rates for 2021-2025 is a two-year long process, and would normally begin with a request from the CRB for interested parties to file petitions to participate about now. But, even though the CRB itself is not closed because of the partial government shutdown, according to a notice on the CRB website, the Federal Register (in which the notice soliciting petitions to participate would be published) is only accepting notices relating to public safety and welfare – and the CRB proceeding apparently does not fit in those criteria. So the start of the case will be delayed by this government shutdown until the Federal Register publication can be accomplished.
As we have written before, this is likely to be an interesting case – just in determining who will participate. Broadcasters who stream their signals would likely participate, especially as their digital transmissions are becoming more important to some broadcast stations (see our article here on the fact that smart speakers increase digital listening to radio stations – listening on which the SoundExchange royalties must be paid). Some of the other services that have participated in the past proceedings (including Pandora and iHeart) now offer, in addition to their noninteractive services, interactive or on-demand music services for which royalties need to be directly negotiated with the record labels (see our post here for more details on royalties for interactive services). Will they participate in the upcoming case, or have they negotiated direct deals that cover their more traditional webcasting services along with their interactive services? That remains to be seen. Small commercial webcasters, who were left out of the last proceeding (see our article here), might also be interested in participating. Noncommercial webcasters usually participate in these cases as well. But all interested parties appear to be on hold right now – along with many other industries that rely on government actions – until this shutdown is resolved.
While Copyright Royalty Board decisions on royalties for webcasters, Sirius XM and mechanical royalties get most of the attention, the CRB also sets rates paid by “business establishment services” for the “ephemeral copies” made in their music businesses. Business establishment services are the companies that provide music to businesses to play in retail stores, restaurants and other commercial establishments. These services have come a long way from the elevator music that once was so derided – and now set the mood in all sorts of businesses with formats as varied as the commercial businesses themselves. While the rates paid by these services pay for music rights is a little off-topic for this blog, these rates are a bit unusual, so they are worth mentioning. The Copyright Royalty Board in May announced a proposed settlement between the services that were participating in the CRB case and SoundExchange which will raise the rates gradually from the current 12.5% of revenue to 13.5% over the next 5 years, with a minimum annual fee of $20,000, up from $10,000. These rates, which apply to any company that does not negotiate direct royalties with the sound recording copyright holders, went into effect on January 1, 2019 and will be in place through 2023.
We have written about the rates paid by these services before (see for instance our articles here, here and here). What makes them unusual is that the royalties are not paid to SoundExchange for the public performance of sound recordings, as are the royalties paid by other digital music services including webcasters (here and here) or Sirius XM. That is because, in adopting Section 114 of the Copyright Act, Congress did not want to impose on businesses a new performance right, as there is no general public performance right in sound recordings in the United States. Businesses and other services that do not digitally transmit performances of audio recordings have no obligation to pay copyright holders in the sound recordings (usually the record companies) or artists for the public performance of music. Users do, however, pay fees for the public performance of the underlying composition through ASCAP, BMI and SESAC and GMR. As we wrote here, the Register of Copyrights has in the past suggested that a general public performance right in sound recordings should be paid in the United States. But that would impose new fees on all businesses that use recorded music in the US, from stadiums playing “We Will Rock You” at the appropriate point in a big game, to DJs spinning their discs in nightclubs, to the trendy tunes playing in the hip clothing retail stores, to over-the-air radio. This proposal is therefore very controversial. So, if they are not paying public performance fees, why do background music services have to pay SoundExchange?
Payments are made for the “ephemeral copies” made by these services, and paid under Section 112 of the Copyright Act. Ephemeral copies are those copies made in the digital transmission process – everything from the server copies that the music services make in their music storage systems when they put the programming together to the copies made elsewhere on the Internet as these tunes make their way to the ultimate user. If a retailer just wanted to play CDs in its stores, there would be no SoundExchange liability as there would be no ephemeral copies (though, except where very limited uses of music are made pursuant to very strictly defined exceptions under the Copyright Act, there would still be an obligation to pay ASCAP, BMI and SESAC and GMR for the performance of their musical works i.e. the underlying lyrics and music of a song – see our article here). But the digital transmission makes the difference and requires that the companies providing these digital music services pay these business establishment license fees.
The rates themselves are interesting, in that they are so high for the making of copies that are essentially transitory. As we have written before, there are debates as to whether these ephemeral copies really have any independent value at all. In connection with royalties for other digital music services, they are in effect treated as part of the performance royalty, and are usually just a percentage (under 10%) of that royalty. But, in connection with the Business Establishment Service, where they are the entire royalty, the rate is 12.5%-13.5% of the entire revenue of the business – presumably just a way of getting a performance royalty by a different name. These rates have all been set through settlements between the parties – presumably as the parties don’t want to face the huge costs of litigating for an uncertain outcome, so these theoretical issues have never been tested.
So business establishment services – those music services digitally providing music to commercial establishments to use in their businesses, need to be aware of the new royalties and the higher fees that kicked in on January 1, 2019.
Along with the draft NPRM we wrote about yesterday to consider changes to the FCC’s rules for granting new construction permits for noncommercial stations and LPFMs, the FCC last week issued another draft order to be considered at its January 30 meeting, assuming that the partial government shutdown has been resolved and the FCC has returned to normal operations. This draft order would adopt the FCC’s proposal advanced last year (see our article here) to abolish the filing of the FCC Form 397 Mid-Term EEO Report, as that form is no longer necessary as the information gathered by the form is now largely available in every broadcasters online public file – which the FCC can review at any time. As the information is already available, the draft order concludes that it is redundant to separately file that same information in a Form 397.
The Form 397 requires the filing of a licensee’s last two Annual EEO Public Inspection file reports. These are documents available in the online public file. The Form 397 also requires the name of person at the station who is in charge of EEO matters. The FCC says that this information is already generally available in the public file, both through an EEO Form 396 filed with the station’s last license renewal, and through the general station contact for questions about the website. The only information that would not be readily apparent from the online public file is whether or not the station is part of a station employment unit (a station or group of commonly owned stations serving the same general service area and sharing at least one common employee) subject to a Mid-Term EEO review. Any TV station who prepares an EEO Public Inspection File Report would be subject to a Mid-Term review as the law requires such review for all TV stations with 5 or more full-time employees – the same employee threshold at which a station must prepare a EEO Public Inspection File Report. But for radio, the Public Inspection File Report must be prepared if the employment unit has 5 or more full-time employees, while a Mid-Term Report is only triggered for radio if the employment unit has 11 or more full-time employees. To inform the FCC as to whether a station is still subject to Mid-Term review, the FCC will require, when a radio station uploads its Annual EEO Public Inspection file report, that it tell the FCC whether or not it is part of an employment unit with 11 or more full-time employees.
This makes clear a fact (stated explicitly elsewhere in the draft order) that the FCC will continue to conduct EEO Mid-Term reviews, even if the Form 397 is no longer required. The FCC conducts reviews of broadcast station’s EEO performance at the time of the filing of the license renewal application, in these Mid-Term Reports, and as a result of random audits, which 5% of all broadcast stations go through each year (see our article here about the last random audit). See our article here on the basics of broadcasters EEO obligations, as updated here by the FCC’s changes in its requirements for the wide-dissemination of information about station job openings.
If adopted at the January meeting, these changes will not go into effect until May 1. In the interim, TV stations in New York and New Jersey will still need to file their Form 397s by February 1 (assuming the FCC has reopened by then) and TV stations in Delaware and Pennsylvania will need to file their Form 397 reports on April 1, 2019. Radio is past the mid-term for all license renewals, with the first set of new radio renewal applications due to be filed in June of this year (see our artilce here on getting ready for license renewal) – with TV to begin filing in June of 2020. So, if adopted at the January meeting, the real effect of this rule change will not be felt until 2023, when radio next reaches the mid-term of the renewal cycle.
As we wrote on Friday, the government shutdown affects many aspects of FCC operations – and could affect the ability of the FCC to hold its regular monthly meeting, now scheduled for January 30. With the FCC likely shut down for most of this week, just before closing, the FCC released its agenda for the January 30 meeting (which would normally have been released this week – 3 weeks before the meeting). One interesting item on the agenda was a Notice of Proposed Rulemaking to change certain aspects of the criteria used to evaluate applicants for new noncommercial broadcast stations and LPFMs, and the operations of those new stations after a construction permit is issued. The draft NPRM is here. As with all draft items released with the agenda of an upcoming FCC meeting, the draft is subject to change before that meeting.
It appears that the NPRM was not prompted by any single group representing noncommercial broadcasters, but instead raises a number of issues and problems that have been raised before the FCC in comparative cases in the last decade, which use a “points system” process to determine which mutually-exclusive noncommercial applicant should have its application granted. The point system relies on paper hearings to determine which applicant has the most points, awarding applicants preferences on factors such as whether they have few other broadcast interests, whether they are local organizations, and whether they are part of state-wide networks. The NPRM also looks at the restrictions on what successful applicants can do, once they receive their construction permits to build new stations – including the length of LPFM CPs, the transferability of those CPs, and restrictions imposed on changes to certain NCE technical facilities after a CP grant.
The FCC looks for comments on the following issues:
Whether it should eliminate the current requirement that NCE applicants include in their governing documents specific provisions obligating the applicant to maintain localism and diversity in order to receive points as “established local applicants” and for “diversity of ownership.” The current obligation requires that applicants, to receive a “diversity credit” in their application, need to have articles of incorporation or by-laws that specifically state that they cannot acquire new stations that would affect the credit they received in the FCC review of the applications. Localism must be maintained by provisions in organizational documents restricting the residence of board members. The FCC suggests that these obligations are unnecessary – the actual conduct of the applicant can be weighed by the FCC whether or not the company’s governing documents contain explicit restrictions.
Can the FCC improve the NCE tie-breaker process and reform the process for establishing mandatory time-sharing plans where ties in the comparative process remain? Full-power NCE station applicants who are tied in the FCC points system end up in a tie-breaker process (see, for instance, our article here that discusses the process). Where that process does not produce a clear winner, according to the NPRM, parties are often allowed to negotiate for years over the terms of a time-sharing agreement before the FCC intervenes to force a sharing arrangement. The FCC asks if there should be a hard time limit on sharing negotiations. Should the FCC set the sharing restrictions if there is no resolution? Should there be circumstances where, if no settlements can be reached, all applicants should be dismissed? The Commission notes that in the LPFM process, a more definitive process exists for forcing time sharing, and asks if portions of that process should apply to full-power NCEs as well. Minor changes to the LPFM time sharing process are also proposed.
Should the FCC clarify aspects of the “holding period” during which NCE permittees must maintain the characteristics for which they received comparative preferences. One of the specific issues to be reviewed is the requirement that, if an applicant receives a “307(b) preference” for serving areas that have no noncommercial service or service from only one other noncommercial station, the applicant cannot change transmitter sites where it would lose service to some or all of the areas of proposed coverage for which it received a preference, even if that lost service is made up by service to new noncommercial white or grey areas. This restriction has prevented some successful noncommercial applications from constructing their new stations when proposed transmitter sites became unavailable and no alternative sites covering the exact same underserved areas were available.
The FCC proposes to reclassify as “minor” (1) all ownership changes to governmental applicants, provided that the change has little or no effect on such applicant’s mission, and (2) gradual board changes in non-stock and membership LPFM and NCE applicants. This eliminates issues that sometimes arise with long-pending applications when gradual Board changes result in a majority of the governing board of an applicant changing, which under FCC processing rules would result in a dismissal of an application. The FCC has from time to time been forced to waive that rule (for instance in connection with the processing of applications from the 2003 FM translator window that ended up being dealt with in settlements more than a decade after they were filed). In the case of existing NCE stations, the FCC has taken the position that gradual changes in the Board of an applicant do not require a “long-form” transfer application that would otherwise apply to a major change in ownership (see our article here). The FCC is proposing to apply the same rules to the processing of applications for new stations.
The FCC proposes to eliminate certain tolling notification requirements and toll NCE and LPFM broadcast construction deadlines without notification from the permittee, based on certain pleadings pending before, or actions taken by, the agency. Currently, an applicant has to ask the FCC for tolling to stop the clock on the expiration of a CP from running. Inexperienced applicants acting without counsel often don’t realize that they need to request tolling, as do applicants who wrongly think that a tolling event may be able to be resolved quickly. By forgetting to ask for tolling, these permittees can lose out on potential time in which to construct their new stations.
The FCC proposes to extend LPFM construction permits from 18-months to a full three years, the same period that applies to other construction permits (a construction period which LPFM permittees can currently receive – but they have to timely request such extensions at the end of the initial 18 month construction period).
The FCC proposes to eliminate the current rules prohibiting the sale of unbuilt LPFM construction permits and requiring a 3-year holding period for newly licensed LPFM stations. The FCC proposes instead to allow the assignment/transfer of LPFM permits and stations after an 18-month holding period as long certain safeguards are met – including that there is no profit in the sale and as long as the new owner satisfies all FCC eligibility criteria (including offering the same comparative attributes as the original applicant if the CP was granted after a point-system analysis).
Interested parties will have the opportunity to comment on these proposals once the FCC adopts the final NPRM and the NPRM is published in the Federal Register. Theoretically, interested parties can now ask the FCC to make changes in the NPRM before it is adopted – perhaps suggesting other NCE rule changes that should be considered. However, with the FCC shutdown, opportunities to reach the appropriate people to implement such changes may be limited. Stay tuned to see when and whether this tentative proposal matures into a final NPRM.
We typically publish our article about upcoming regulatory dates before the beginning of each month, but this month, the looming FCC shutdown and determining its effect on filing deadlines pushed back our schedule. As we wrote on Friday, the effect of the shutdown is now becoming clear – and it has the potential to put on hold a number of the FCC deadlines, including the filing of Quarterly Children’s Television Reports due on January 10 and the uploading of Quarterly Issues Programs lists, due to be added to station’s public inspection files on January 10. The FCC-hosted public inspection file database is offline, so those Quarterly Issues Programs lists can’t be uploaded unless the budget impasse is resolved this week. Certifications as to the compliance of TV stations with the commercial limits in children’s television programs would also be added to the public file by January 10 – if it is available for use by then. While these and other dates mentioned below may be put on hold, there are deadlines that broadcasters need to pay attention to that are unaffected by the Washington budget debate.
We note that the FCC’s CDBS and LMS databases are up and operating, though most filings will be considered to be submitted the day that the FCC reopens. As the databases are up and operating, many applications can be electronically filed – so TV stations might as well timely upload their Children’s Television Reports on schedule by January 10, to avoid any slow uploading that may result from overloading of the FCC’s system as the FCC reopens. Other FCC deadlines are unaffected by the shutdown – most notably, as we wrote on Friday, those that related to the repacking of the TV band following the TV incentive auction. The FCC has money to keep its auction activities operating so staff are working to keep the repacking on track. Deadlines coming up for the repacking include a January 10th deadline for stations affected by the repacking to file their Form 387 Transition Progress Report. Auction deadlines proceed whether or not the FCC is otherwise open for business.
FCC filing deadlines in certain rulemaking proceedings may well also be on hold if the shutdown continues. Deadlines for pleadings will be pushed back to the day after the day the FCC resumes its normal operations. Comments are due in the FCC’s proceeding to determine what to do with Class A “clear channel” AM stations on January 22 (see our summary here), but these could be affected if the shutdown persists.
Even the FCC meeting scheduled for January 30 could be in jeopardy if the shutdown runs through the end of the month. That meeting is scheduled to feature the adoption of the FCC’s order abolishing the FCC Form 397 Mid-Term EEO Report (see the draft order here, released last week) and the start of a rulemaking proceeding to make some changes in the FCC’s standards for deciding between mutually exclusive applications for new noncommercial broadcast stations, including LPFM facilities (see the draft order here).
Early February brings the obligation for EEO Public Inspection File Reports to be uploaded to the public file of Commercial and Noncommercial Full-Power and Class A Television Stations and AM and FM Radio Stations in Arkansas, Kansas, Louisiana, Mississippi, Nebraska, NewJersey, NewYork, and Oklahoma that are part of an Employment Unit with 5 or more full-time employees. Stations with those due dates should be prepared to upload their Public File Reports by February 1 if the FCC’s Public Inspection File database is up and operating by then.
Deadlines not affected by the shutdown include ones imposed by other government agencies. For instance, the Copyright Office and Copyright Royalty Board are not affected by the shutdown. We would expect that the CRB will this month be issuing its invitation for interested parties to file Petitions to Participate in the next proceeding to determine the royalty rates to be paid to SoundExchange for the digital performance of music by webcasters (see our article here). As we wrote here, with the increase in digital performances of broadcast stations through Alexa and other smart speakers, it is more important than ever for broadcasters to secure a reasonable royalty rate for the streaming of their signals. This proceeding will determine the royalty rates for Internet radio for 2021-2026.
Upfront minimum fee payments will also be due under various music license agreements by the end of the month. This would include the royalties to be paid to SoundExchange under most of the current royalty deals. For most webcasters, a payment of $500 per each channel streamed is due by the end of the month.
No doubt, other deadlines will arise this month, particularly if the government shutdown is resolved. As always, we have highlighted here just some of the more notable regulatory deadlines. Check with your own station’s counsel for more information about deadlines that may apply to your own stations.
Do you have a deal to buy a new station or a planned technical modification that needs FCC approval? Well, it looks like those plans may have to wait as the budget controversy in Washington has shut down the FCC. But what does the shut-down really mean for broadcasters? The FCC clarified some of the questions broadcasters have in a Public Notice released Wednesday.
Most applications will not be processed, though the FCC has made clear that it will have FCC staff members available to deal with issues related to the TV spectrum repacking that was caused by the incentive auction. So for those stations needing FCC approvals for actions relating to the repacking of the TV band, the FCC will be functioning. Unlike in past shutdowns (see, for instance, our article here), the FCC website will remain up and generally will be operating, and the CDBS and LMS databases used for most broadcast applications will continue to function (though without any sort of tech support if an applicant has problems). Certain other databases relevant to some aspects of broadcast operations (like the public complaint filing system, the International Bureau’s database used for filing earth station applications, and the tower registration database) will not be available. Perhaps most surprisingly, as the FCC does not specifically mention it in the Public Notice, the FCC has shuttered its Online Public Inspection File database for broadcasters. With that database not working, public file updates (including the Quarterly Issues Programs lists that are due to be added to the files by January 10, cannot be uploaded unless the government reopens. Note that, in the FCC’s orders adopting the online public inspection file obligations, stations are supposed to be able to provide access to their political files when the FCC system is offline (see our article here). While no access to the rest of the file is required, stations are supposed to be able to provide access to back-ups of the political file. Luckily, with few elections taking place at the moment, this should not generally be a widespread issue, but it could obviously become an issue should the shutdown persist.
For the applications that can be prepared in the databases that will remain available, they will all be considered to have been received the day after the day the FCC reopens. Other FCC filing deadlines that fall within the shutdown period (which will include yesterday as the FCC was not open for regular business all day) will be postponed until the day after the day that the FCC reopens. Exception to the suspension of these deadlines deals with auction deadlines – including those due to the repacking of broadcast stations following the incentive auction and an auction of mutually exclusive FM translators. Those deadlines remain in place as auction related activities are separately funded so the auction process continues. Depending on the length of the shutdown, the FCC may reexamine other deadlines that fall within the period that routine operations of the government are closed.
There are certain other emergency functions of the FCC that remain open even during a shutdown, including the filing of STAs where there are issues of life or property. Routine STAs already in place authorizing temporary operations are extended through the end of the shutdown (except where they involve repacking issues). The FCC has a meeting scheduled for January 30 (assuming the FCC is open by then). Routinely, the FCC would have released its agenda for that meeting next week. In anticipation of the shutdown, the agenda was released yesterday (here), and contains several matters of interest to broadcasters which we will cover in subsequent posts. The tentative draft orders for that meeting that were released yesterday (here) pose an interesting question of how, with most of the FCC staff furloughed, interested parties are supposed to bring issues about the draft orders to the FCC’s attention.
Obviously, the shutdown will be disruptive, and station sales and most facilities modifications will be on hold until the FCC reopens. As these rules about what is available and what is not are complex and open to interpretation, consult your own attorney about how the shutdown impacts your operations. And watch the news to see when we can expect the FCC (and the other agencies affected by the partial government shutdown) to restart their operations.
Yesterday, I noted a news story about a bar that stopped hosting live music when it was hit with a lawsuit by BMI because it had not paid royalties for its use of music. The issue of music in bars and restaurants also came up in a continuing legal education seminar on music licensing that I moderated the week before last. Given that I have not written on this topic in some time, I thought that it was worth a reminder that retail outlets, including bars and restaurants, have to pay music royalties to ASCAP, BMI, SESAC and perhaps GMR for the performance of music in their venues, except if they fit within very detailed exceptions that allow for certain businesses to avoid those payments.
We wrote an article here that goes into detail on the exceptions. Basically, for very small businesses, their employees can use a single device of the type used in a home to play music. This exception was designed to allow businesses to allow their employees to have personal audio devices to entertain themselves. So that portable radio on the counter of the dry cleaner or at the secretary’s desk can play music without paying royalties. For larger businesses there is a different exception that allows them to avoid liability but only if they meet very specific rules.
This exception is based on the physical size of the business and the number of broadcast receivers that it uses. It applies only when the business plays an FCC licensed radio or TV station (or cable or satellite TV programming) where the originator of the programming has paid the appropriate fees. The business that takes advantage of this exception can’t charge an admission fee. And the business must fit into one of these categories:
It has less than 2,000 gross square feet (excluding parking – but the parking area must be just used for parking – so the area around the gas pumps or other actively used outside areas would probably count toward the 2,000 square feet) or, for “food service or drinking establishments” (bars and restaurants), the square footage is less than 3750 gross square feet (excluding parking as long as the parking is only used for parking, e.g. it does not become a patio during good weather);
Or, if the business has more than the square footage set out above, then:
If the business only plays the radio, it can have no more than 6 total speakers, no more than 4 of which can be in one room (or adjoining outdoor space)
If the business plays TV, it can have no more than 4 TVs, none bigger than 55 inches (diagonal screen size), and no more than one in any room (and there can’t be more than 6 speakers providing the TV audio, with no more than 4 in any one room)
Note that this exception is not limited to consumer-type radios, but the business can only play FCC licensed radio or TV stations (cable and satellite TV count as TV too). No CDs, no hooking up to an iTunes library and no streaming services. If a business plays any of these other services, or features live music, then they must get public performance licenses.
For even more detail on these issues, see the article that I co-authored in the ABA Intellectual Property Division’s magazine Landslide that is available here. Avoid trouble – get the licenses that you need.
This morning, the FCC has started to email out notices to numerous radio stations throughout the country, notifying them that there are issues with their online public inspection files. The email notices do not reveal what the specific problem is – but instead simply say that there are issues and ask for notice of corrective actions to the FCC. We have been warning of the FCC’s concern about incomplete or inactive online public files for some time, and the potential impact that noncompliance could have on license renewal, which starts for radio stations in the Washington DC area in June 2019, and then moves across the country in this three-year renewal cycle (see, for instance, our articles here and here). Clearly, this is a warning to stations that the FCC is watching their public files, and that compliance problems will bring issues, and possibly fines, if the files are not complete by license renewal time (or even earlier if documents were not timely created).
As we have written before (here and here), the biggest issues will likely be with stations not uploading Quarterly Issues Programs Lists and, for stations that are part of clusters with 5 or more full-time employees, Annual EEO Public Inspection file reports. Look at your file now and make sure that you are in compliance with these and all other public file obligations to insure that you do not have issues that can come back to haunt you at renewal time – or at any other time that the FCC decides to use its enforcement authority to start issuing fines.