As the dates for the first Presidential primaries draw near, more and more stories appear in the press about attack ads growing in importance.  These ads are coming both from the candidates themselves trying to draw distinctions with their opponents, and from third party, supposedly independent, groups either attacking or supporting one of the candidates.  See, for instance, the recent story in the Washington Post on the increase in third party ads.  These ads have raised political issues on the campaign trail as to whether negative campaigns work, and as to how independent of the candidates the third party expenditures really are.  They also raise legal issues for broadcasters.  Whenever there are attack ads that are run on a broadcast station, there are complaints from the candidate being attacked about how unfair the criticism is.  Broadcasters have to deal with these complaints, and the sponsor of the ads makes a huge difference in the broadcaster's responsibilities to check the truth of the statements made.    As we explain in our Political Broadcasting Guide, broadcasters may not censor the content of a candidate ad, and thus are exempt from any liability for the content of that ad.  But attacks contained in third party ads may require the broadcaster to do some investigation into the claims being made to make sure that they avoid legal liabilities.

For ads run by a candidate or his or her authorized committee, the Communications Act forbids a broadcaster (or cable company that chooses to sell time to political candidates) from censoring the candidate's message.    Because of the no censorship rule, the Courts have ruled that broadcasters are immune from any sort of liability for defamation that may arise from the content of the ad.  Thus, broadcasters cannot reject a candidate's message based on its content (with the possible exception of cases where that content would violate a criminal law, as opposed to just creating some civil liability), and need not take any action in response to a complaint by an opposing candidate that the ad contains incorrect or distorted information.

Attack ads by non-candidate groups, such as unions, advocacy groups, party senatorial or Congressional campaign committees, and other political action committees, are treated much differently.  Because the "no censorship" rule does not apply, and because stations can make the decision whether or not to accept these ads in the first instance, if the ad contains content that could create liability, broadcasters should beware.  Broadcasters could be liable for disseminating claims, especially untrue claims, made in such ads.  So how are broadcasters supposed to deal with these ads?  Do they need to research the content of every ad?  Some ideas from our Political Guide on these questions follow:

What if I get a complaint about the content of a political ad that is bought by a group other than a candidate’s campaign committee? Can I refuse the ad based on its contents?

The “no censorship” rules apply only to ads by candidates and their authorized campaign committees. Thus, the sale by the stations of an ad to a third-party group is purely voluntary. If you get a complaint about a third-party ad, you can pull that ad. In fact, you do not need to run any third-party ads if you do not want to. 

Can I have liability for running an attack ad from a third-party group?

Yes. Because a station has the right to decide whether or not it will run an ad, it can be held liable for the content of that ad. If an ad contains an attack on a candidate that the station knows to be false, or the station is told that the ad is false and the station continues to broadcast the ad and does nothing to investigate whether the ad is in fact false, liability to the station could arise if the claims are in fact false.

How do I know whether or not a third-party ad is true or not?

The station must do a reasonable review of an ad – especially if the truth of the ad has been challenged. If you receive a challenge to the truth of a third-party ad, ask the committee or organization that is sponsoring the ad for information backing up its claims. Review that information for accuracy and reliability, and check with counsel to assess the sufficiency of the backing material to avoid liability for defamation or other torts. It is best to stop running the ad while doing this investigation.

Essentially, if broadcasters receive a challenge to the content of a third-party attack ad, they have a duty to research that content to determine if it is true.  If they do not, and the claim being made is in fact false, they face potential liability for running a falsehood with "malice", e.g. either knowing that it is untrue or recklessly disregarding the truth of the ad.  Most sophisticated political advertisers will have substantiation available for the claims that they have made.  However, even after reviewing the substantiation, these issues are often close calls, and different companies have different tolerance for the legal risk that these ads entail. Thus, stations should tread carefully in dealing with these ads, and consult legal counsel when issues arise.

With 2008 almost upon us, webcasters streaming music on the Internet need to remember that the way of computing and paying royalties to SoundExchange will shift on January 1- a change that may be especially important for broadcast stations.  Under the Copyright Royalty Board decision reached last March, webcasters must pay royalties computed on a per "performance" basis.  A performance is a per song, per listener computation.  In other words, if an Internet radio station plays a song and 15 listeners are logged into the station at the time that the song plays, there would be 15 performances on which the royalty would need to be paid.  While broadcasters objected that they did not (and in many cases could not) track the number of performances that were made by their stations on the Internet, the CRB, on reconsideration of their initial decision, only went so far as the give stations an interim rate based on the number of  "Aggregate tuning hours" that a station served (e.g. one listener listening for one hour, or two for a half hour each would both be the equivalent of one aggregate tuning hour).   See our post, here, on the CRB's reconsideration decision.  The aggregate tuning hour (or ATH) metric is one that is more readily obtain from a content delivery network or other bandwidth provider, and a metric that has been used since the first royalties were established in 2002.  Yet as of January 1, as the interim ATH rate applied only to 2006 and 2007, that method of payment will no longer be available, and many webcasters are wondering what to do to compute the per performance royalty.

Neither the CRB decision nor SoundExchange, which collects the royalties, explained what a webcaster who cannot count performances is to do when the option to pay based on aggregate tuning hours disappears.   The royalty for January performances is due to be paid to SoundExchange on March 16 (45 days after the end of the month), and a webcaster preparing to file its royalty statement on that day will need to have a performance count to include on its statement.  Many Internet radio companies have been trying to determine how to count performances and, while there are some services that offer to provide software to do so, it is my understanding that none are foolproof and, in some cases, they may not be able to get a complete count of performances.  And many smaller stations may not be able to afford such systems.

Several companies including Ando Media, Abacast and Liquid Compass offer services that will count the number of listeners to a stream and synchronize those numbers with the songs that are being served by a station's music scheduling software to compute a number of performances.  Reports of use for filing with SoundExchange are also prepared.  We have not tested these services and cannot endorse them, but are providing this list for informational purposes for webcasters to explore further.  (There may well be other such services available that readers may suggest).  However, as I understand it (and perhaps some readers can correct me if I am not correct), not all of these systems are foolproof.   One of the biggest issues is what happens when music does not run through a station's music scheduling software?  For instance, if a station is picking up syndicated programming where the syndicator selects the music and the music does not run through the station's scheduling software, some of these services may not be able to track the performances that result from such the webcast of such programs.  Other glitches may also exist, e.g. for a radio station where the on-air announcer picks his own music that is never run through any scheduling software. 

These and other ambiguities will hopefully be remedied over time.  However, with the deadline so close, stations should be aware of the change in the rules, and make plans to comply as fully as possible by the new deadlines - which would mean planning right now, if they have not already done so.   

December 22 - just as broadcast stations are running their last-minute ads for Christmas shopping - is the first day of the Lowest Unit Rate period for the Presidential primaries and caucuses to be held on February 5.  According to the list of Presidential primary dates available on the website of the Federal Election Commission, here, states holding their Presidential primary or caucus on February 5 are: New York, California, Illinois, New Jersey, Arizona, Alabama, Arkansas, Alaska, Colorado, Connecticut, Delaware, Georgia, Massachusetts, Minnesota, Missouri, North Dakota, Oklahoma, Tennessee, Utah, and (for Democratic candidates only) Idaho and Kansas.  But, as we explain in our Political Broadcasting Guide, available here, the fact that the Lowest Unit Rate period begins now does not mean that stations need to charge Presidential candidates running ads this weekend the same amount that they charge these same candidates for spots that will run in mid-January, when inventory demands from commercial advertisers will be much less. 

As we explain in our Political Broadcasting Guide:

 What commercial spots do you look at in determining the lowest unit rate for a given class of time?

You look at the spots of that class running at the same time as the candidate’s spots. You need not look any further than those spots running (or being offered on a rate card) during the 45 days before a primary or the 60 days before a general election. But even within the 45 and 60 day periods, the rates can change. If, for instance, a long term package sets your lowest unit rate for a particular class of time, and the last spot from that package is run midway through the political window, after the last spot from the package runs, the rates for that class of time can go up for the rest of the political window. Similarly, if spots are sold on a demand basis, the lowest unit rate can change on an almost daily basis. If there are “fire sales” of spots during particular periods within a window, the lowest unit charge for the fire sale does not set the rates for periods outside of the fire sale period.

Also, note that the Lowest Unit Rate window in effect for Presidential candidates does not mean that you need to give those same rates to other political candidates in other races, where the primary for those other elections are most likely at some time later in the year.  See our post here, for more details.

Stations in those states listed above - take note and make sure that your political practices are in place and ready for the coming onslaught of political ads.

We wrote yesterday about the introduction of a bill in the House and the Senate proposing to impose a performance royalty on broadcasters for the use of sound recordings on their over-the-air signals.  At that time, we did not have a copy of the bill itself, but were basing our post on press releases and a summary of the provisions of the bill that was available on Senator Leahy's website.  We have been able to obtain copies of the bill titled the  "Performance Rights Act" - or actually of the "bills," as the House and Senate versions are slightly different.  Reading those bills, many of the questions that we had yesterday are answered, and some new questions are raised as to how this bill, if enacted, would affect radio broadcasters.

One question about which we wrote yesterday was whether these bills would require that any royalty be determined by the Copyright Royalty Board using a "willing buyer, willing seller" standard or the 801(b) standard that takes into account more than a simple economic analysis in determining the royalty.  The 801(b) standard is used for services in existence at the time of the adoption of the Digital Millennium Copyright Act (essentially cable audio and satellite radio) and evaluates not only the economics of the proposed royalty, but also factors including the interest of the public in the dissemination of copyrighted material and the disruption of the industry that could be caused by a high royalty.  In connection with the recent CRB decision on the satellite radio royalties, the potential disruption of the industry caused the CRB to reduce the royalty from what the Board had determined to be the reasonable marketplace value of the sound recordings (13% of gross revenues) to a figure rising from 6 to 8 % of gross revenues over the 5 year term of the royalty.  In the Internet radio proceeding, using the willing buyer, willing seller model, no such adjustment was made.

In these bills, the proposal is to use the willing buyer, willing seller standard for broadcasting.  For a service that has been around far longer than any other audio service, it would seem that a standard that assesses the impact of a royalty on the industry on which it is being imposed would be mandatory.  Who wants to disrupt an entire, well-established industry that has served the public for over 80 years?.  But such a reasonable term is not part of the proposal here.

Another issue that we did not address yesterday are the specific requirements imposed on digital music services that restrict their ability to pre-announce when a song is going to play, that prohibit them from making any efforts to encourage the recording of sound recordings, and require that they identify in text the song being played.  These requirements also mandate that services observe the "performance complement", i.e.the restrictions on playing more than a specified number of songs from the same CD or by the same artist within a given period of time (e.g. no more than 3 songs from the same CD in a 3 hour period, nor more than 2 in a row; no more than 4 songs by the same artist in a 3 hour period).  For details of these requirements, see our memo, here.  The question of whether or not to impose these requirements on broadcasters is where the House and Senate bills diverge - the Senate not requiring these efforts for broadcasters; the House proposing that they be observed.  Obviously, requiring some of these limitations could significantly change the way some broadcast stations are programmed.

Clearly, these bills are but the opening salvo in a battle that is certain to intensify.  Already, there is a bill pending in the House of Representatives, the Local Radio Freedom Act, with over 130 co-sponsors, that rejects the idea of a performance royalty for broadcasters given the potential for disruption to their public service programming.  Just as the FCC is suggesting the re-imposition of more stringent and detailed public interest requirements (see our summary here), broadcasters cannot afford to be hit by a new cost of doing business that could in theory take a large percentage of their gross revenue.  As we've written before, in other proceedings, SoundExchange has requested royalties of 20 or 30 per cent of gross revenues.  Imagine what a royalty even half that would do to broadcasters.  Certainly, it is not the modest royalty that would not impact broadcaster's public service, as initially suggested by the supporters of this royalty.  With Congress about to recess for its Christmas vacation, we will all have time to ponder these issues before they are considered again next year. 

A reminder to all radio and television broadcast stations, both commercial and noncommercial, that Quarterly Issues Programs Lists reporting on the important issues facing the stations' communities, and the programs aired in the months of October, November, and December dealing with those issues must be prepared and placed in the stations' public inspection file by January 10, 2008.  The failure to have a complete set of Quarterly Issues Programs lists, which were timely prepared and placed in a station’s public file, can lead to significant fines at license renewal time so all stations are urged to prepare their Quarterly Issues Programs lists in a timely fashion.  See our full advisory for further details.

In addition, commercial full power and Class A low power television stations are reminded that Children's Television Programming Reports on FCC Form 398 must be prepared and filed electronically with the FCC by January 10, 2008.  The Reports must also be placed in the stations' public inspection files by that date.  Our recent advisory is available here with all the details, including the requirements for DTV stations airing multiple program streams and details about the new Form 398.  Quarterly certifications regarding compliance with the commercial limitations in Children's Programming should also be prepared and placed in the public inspection file by January 10th. 

In a pre-Christmas surprise that most broadcasters could do without, identical bills were introduced in Congress on Tuesday proposing to impose a performance royalty on the use of sound recordings by terrestrial radio stations.  Currently, broadcasters pay only for the right to use the composition (to ASCAP, BMI and SESAC) and do not pay for the use of sound recordings in their over-the-air operations of the actual recording.  This long-expected bill (see our coverage of the Congressional hearing this summer where the bill was discussed) will no doubt fuel new debate over the need and justification for this new fee, 50% of which would go to the copyright holder of the sound recording (usually the record label) and 50% to the artists (45% to the featured artist and 5% to background musicians).  The proponents of the bill have contended that it is necessary to achieve fairness, as digital music services pay such a fee.  To ease the shock of the transition, the bill proposes flat fees for small and noncommercial broadcasters - fees which themselves undercut the notion of fairness, as they are far lower than fees for comparable digital services.   

While, at the time that this post was written, a complete text of the decision does not seem to be online, a summary can be found on the website of Senator Leahy, one of the bills cosponsors.  The summary states that commercial radio stations with revenues of less than $1.25 million (supposedly over 70% of all radio stations) would pay a flat $5000 per station fee.  Noncommercial stations would pay a flat $1000 annual fee.  The bill also suggests that the fee not affect the amount paid to composers under current rules - so it would be one that would be absorbed by the broadcaster. 

The summary of the bill says that it would make other broadcasters not covered by these flat fees subject to Section 114 of the Copyright Act -meaning that their royalties would be set by the Copyright Royalty Board.  But the summary does not make clear what standard would be used.  Would it be the "willing buyer, willing seller" standard that is used for (and produced such controversially high rates for webcasters - see the various discussions of those issues, here), or the more lax 801(b) standard that just resulted in a 6-8% of revenue royalty for satellite radio and has resulted in a 7% royalty for cable audio services (see our post here)?  That may well be a crucial issue.

Already, opponents of the performance royalty have signaled their opposition, suggesting that the low, introductory rates for small and noncommercial broadcasters are just that - an opening rate that will allow the royalty to be imposed, but will quickly be raised.  They point to a similar experience in Canada, where there was a low starting rate for smaller broadcasters that grew over time at the request of the recipients of the fees.  In fact, when one compares the proposed royalties for small broadcasters with those paid by small webcasters, even those paying under some form of the Small Webcaster Settlement Act, an Internet radio station with $1.25 million in revenue would pay over $130,000 in royalties for sound recordings - which would seemingly raise questions either of fairness (why is the Internet radio company paying so much if a similar broadcaster only pays $5000), or suggests that SoundExchange will try to have the rates raised in the future.  And imagine what a $130,000 royalty would do to a small broadcaster's business.

SoundExchange and the Music First coalition have also issued their own press release supporting the bill.  With a bill finally introduced, the battle will really begin.  Watch for the fireworks in 2008.

[Update - December 19, 2007 - see our update, here, prepared after we reviewed a copy of the Bills introduced in Congress]