FCC Whacks TV Max

No consent for retransmission of TV signals? That’ll be $2.25 million, please.

If you’ve ever wondered what would happen if you retransmitted the programming of TV stations without their consent, and then dissembled about it to the FCC, listen up. If you go that route, you could be looking at a fine north of $2,000,000. That’s right – two MILLION dollars plus.

Do we have your attention?

We know about the likely penalty thanks to a Notice of Apparent Liability For Forfeiture and Order (Order) – directed to TV Max, Inc. and its affiliates and its individual controlling principals – for violating Section 325(b) of the Communications Act and Section 76.64 of the Commission’s rules. Those sections lay out the general retransmission consent rules governing multichannel video programming distributor (MVPD) carriage of over-the-air TV signals other than through the “must-carry” process.  According to the Order, TV Max retransmitted the signals of six broadcast stations without obtaining their consent.  For doing so, TV Max is looking at a proposed fine of $2,250,000.  Since the Commission has penalized MVPD’s for retransmission consent violations only a couple of times in the past – and then only in the low five-figure range of $15,000 (reduced from a maximum potential of $250,000 or so) – we can probably assume that TV Max really ticked off the FCC.

In fact, the Order provides a model for how to infuriate the Commission.  [Practice tip:  We strongly recommend that MVPDs avoid this model.]

First, some background.

Under the must-carry/retrans consent system established by Congress a couple of decades ago, every three years TV stations elect how they will make their signals available to MVPD’s for retransmission. The two choices: either (a) require the MVPD to negotiate to obtain the station’s consent or (b) elect must-carry, which allows the MVPD to carry the TV signal. If a station elects retransmission consent, the MVPD may not (with at least one very narrow exception discussed below) carry the station’s signal without the express consent of the station. 

TV Max is an MVPD in the Houston area, providing service to approximately 10,000 subscribers in 245 apartment/condo buildings. It carried the signals of six Houston stations which had all elected retransmission consent. It had retrans consent agreements with the six stations, but those agreements had all expired by March, 2012; the carriage continued well beyond that date.

The TV stations complained to TV Max, and then to the Commission starting in April, 2012. In response, TV Max had a story. It claimed that it was subject to the Master Antenna TV (MATV) exception to the rules. Under that exception, the owners of a multi-unit apartment or condo building can put up a master antenna for their building and provide carriage of OTA TV signals to the building’s units without the stations’ consent, as long as: (a) the OTA signals are in fact received by the MATV facilities; (b) those signals are made available at the viewers’ option and without charge to the viewers; and (c) the MATV antenna and facilities are under the ownership and control of a building owner or the viewers in that building.   

So TV Max wrapped itself in the MATV exception, claiming that the signals were being delivered to the viewers through MATV facilities on each building.  

There was one big problem with that claim. It apparently wasn’t true.

According to the Commission, by the time TV Max’s previous retrans consent agreements had expired, only some of its buildings actually had MATV equipment installed. And even after it had supposedly completed installation of such gear on all its buildings (by late July, 2012), TV Max was still not providing the OTA stations’ programming to all buildings through those MATV systems. (It was apparently using a metropolitan-wide optical fiber system, or “fiber ring”, rather than in-building, coaxial-based MATV systems.)   By December, 2012, the Media Bureau had investigated the matter – even convening a “lengthy conference call” with all the parties – and had concluded that TV Max was violating the retrans consent rules. It so notified TV Max.

Nevertheless, TV Max apparently continued its carriage of the stations’ programming. But, in answer to follow-up inquiries from the Bureau in April, 2013, it told the Bureau that since June, 2012, the stations’ signals “ha[d] not been carried on any fiber ring owned or controlled by TV Max.” This claim was apparently based on the fact that sometime in mid-2012, TV Max had sold “certain” of its assets – including head-end and “cable TV subscriber assets” – to a couple of other companies. TV Max seemed to be saying that any carriage after mid-2012 had not been its fault.

What TV Max didn’t mention to the Commission was the fact that, according to readily available public records, the companies that acquired those assets are apparently controlled by some or all of the same folks who control TV Max, a fact which plainly undermined the credibility of TV Max’s seeming profession of innocence.

The Commission unsurprisingly concluded that “it appears that TV Max simply assigned the cable operation and fiber optic network to two related companies in an effort to evade responsibility for its ongoing violations.” In the Commission’s view, TV Max’s April, 2013 response was “lacking in candor”. And, of course, TV Max’s historic and on-going unauthorized carriage of the OTA signals violated the rules.

In calculating the forfeiture to be meted out, the Commission noted that TV Max was guilty of “egregious misconduct” featuring repeated, intentional violations the resulted in “substantial economic gain”. So while the standard rate-card fine for retrans violations is $7,500 per violation (up to $37,500 per day), the FCC felt it needed to send a message to TV Max (and anybody else who might be inclined to follow TV Max’s game plan). Using some unstated math, the Commission came up with a total fine of $2,250,000. According to the Commission, it could have come down even heavier on TV Max, but concluded that, because of TV Max’s relatively small size, that wouldn’t be necessary. Essentially, the final amount was designed to deter future similar violations and ensure that the forfeiture is not considered an affordable cost of doing business. (The Commission did, however, observe that even higher upward adjustments might be “quite appropriate in other cases”.)

Over and above its sheer size, there is at least one additional interesting aspect of the proposed fine. While the Order doesn’t dwell on this, it makes strikingly clear that the forfeiture is being imposed not only on TV Max, but also – jointly and severally – on TV Max’s individual principals and related entities. As we have previously observed here, the imposition of monetary penalties on the individual principals of corporate wrong-doers seems inconsistent with the usual concept of “corporation”. If nothing else, the TV Max case reflects the FCC’s willingness to ignore the corporate veil.

TV Max still has the opportunity both to argue to the FCC that the forfeiture should be reduced and to fight the entire case anew in court.  It’s hard to imagine, though, that this matter is likely to end well for TV Max. 

No MVPD likes to pay retransmission consent fees.   But the TV Max case provides a cautionary tale of how an MVPD should not deal with that concern.

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Comments (1) Read through and enter the discussion with the form at the end
Neal McLain - June 30, 2013 7:28 AM

So how will this affect Aereo? I assume that Aereo can accurately claim that the connection between each customer's unique antenna and the customer's premises is not "carried on any fiber ring owned or controlled by" Aereo -- i.e., it can accurately claim that it doesn't own the internet. But the MATV-exclusion clause in the FCC rules specifically states that any video distribution system is a "Cable system or cable television system ... but such term does not include ... (b) A facility that serves subscribers without using any public right-of-way." [47 CFR 76.5(a)(2)]

I don't think Aereo can successfully claim that the internet doesn't cross public right-of-way.

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