As previously (and repeatedly) noted here on CommLawBlog, it’s time again to reach into your wallets and pony up this year’s annual regulatory fees.  (The fees are due by 11:59 p.m. ET on September 13.)  A lucky few are exempt from having to make this annual contribution – specifically licensee entities that are tax-exempt under federal or state law.  To be FCC reg fee free, you’ve got to send the FCC documentation proving that you’re tax exempt. 

Since tax exemption tends to be a perpetual status, you might think that, once you have submitted your documentation, you’d be reg fee free forever (unless, of course, the FCC were to be notified at some later point that you had lost your exempt status).

Not so fast.

I have non-profit clients who have had to perform this ritual four or five years in a row.  It’s as if there is no long term memory at the FCC’s fee collection apparatus.  If it were just a few isolated instances, that’d be one thing – but this appears to have been a chronic, if inconsistent, problem that has been with us possibly since the FCC first started collecting regulatory fees. It doesn’t happen to all exempt licensees, but it does happen, in many cases repeatedly, to some. Why the FCC seems unable to keep track of this type of information for all affected licensees from one year to the next is a frustrating and costly mystery.

So the lesson is, even if you are a tax exempt entity, and even if you notified the FCC of your exempt status at some point in the past, and even if the FCC has acknowledged any and all of your previous submissions, do NOT assume that the Commission knows or remembers that you are exempt from this year’s FCC regulatory fees.  Be sure to check on your status and don’t be surprised if it feels like déjà vu all over again.

As we enter the political season, radio stations are being bombarded with reminders about the FCC’s political broadcasting rules – including, of course,  the lowest unit rate (“LUR”) requirement for many, but not necessarily all, political spots. 

LUR, of course, means that stations must provide all political candidates (federal, state and local) with the LUR for advertising bought during a statutorily-specified pre-election windows.  Those windows include the periods: (a) 45 days before a primary election, and (b) 60 days before a general election. 

In general terms, the LUR is the lowest rate of the station for a particular class and amount of time during a particular period.  “Lowest” means lowest.  Thus, candidates must get the benefit of all discounts, including those offered to the station’s most favored commercial advertisers for the same class and amount of time for the same period as that purchased by the candidate.  Note that only ads bought by candidates are entitled to receive LUR. Also, federal candidates must provide the “stand by your ad” certification in order to be entitled to receive the LUR. 

A spot “class” is one that has particular rights and characteristics, such as morning drive,  afternoon drive, fixed position, ROS, etc.  In many instances calculating the LUR for different classes of time can be relatively simple. But in other instances – particularly when different classes are bundled into packages for non-political advertisers, the calculation can get tricky fast.  Unlike state and local candidates, federal candidates cannot be denied “reasonable access” to a station, which means that they are effectively entitled to any and all commercial opportunities as a standard advertiser. (State and local candidates can be limited to certain classes.) So for federal candidates, stations must determine the per-class LUR for each component of the package and make that rate available to the political advertiser, whether or not he/she buys the whole package

That process is already confusing enough – and it has gotten increasingly so as stations have expanded their streamed content on the Internet. How does Internet streaming of content – including political spots – affect LUR calculations?

If a station offers a combined package of broadcast and Internet advertising, LUR rules will apply to the broadcast component.  Also, remember that the equal time requirements apply so if the station sells a package with broadcast spot time and Internet spots to one candidate, then the same should be made available to competing candidates for the same office. In short, be careful when selling combined broadcast and Internet advertising packages and be aware of how such bundling may impact the LUR and your bottom-line.

As we all know, the first NATIONWIDE test of the Emergency Alert System is scheduled for November 9. Lisa Fowlkes, Deputy Chief of the FCC’s Public Safety and Homeland Security Bureau, has passed along the following message about a “virtual roundtable” being conducted next week (August 15, to be precise – see details below) featuring FCC, FEMA, NOAA and other experts. The exercise is intended to help one and all prepare for the nationwide test. Among other topics will be a “best practices guide” which is being developed to guide participants through the entire EAS alert process. 

Additionally, an EAS website has been set up to provide a forum for suggestions and discussion about a variety of EAS-related matters.  Ideas from that website will be among the topics on the agenda at the August 15 roundtable.

Here’s Lisa’s message:

You’re invited by the FEMA Integrated Public Alert and Warning System (IPAWS), Federal Communications Commission (FCC), National Oceanic and Atmospheric Administration (NOAA), and industry experts to the next EAS Participant Virtual Roundtable: Are You Ready for the Nationwide EAS Test?

This virtual roundtable will share, build, and refine elements of the best practices guide with industry; discuss overall improvements to the system through coordinated State/local and EAS Participant activities; share and discuss an EAS Test public awareness and information toolkit for State, Territorial, and local government and EAS Participants; review the technical process to receive and relay the EAN; and conclude with elements of an EAS Test Preparation Checklist.

Participating Government and Private-Sector Organizations:

Federal Emergency Management Agency (FEMA)
Federal Communications Commission (FCC)
National Oceanic and Atmospheric Administration (NOAA)
International Association of Emergency Mangers (IAEM)
National Emergency Management Association (NEMA)
Society of Broadcast Engineers (SBE)
Society of Cable Telecommunications Engineers (SCTE)
American Cable Association (ACA)
National Cable and Telecommunications Association (NCTA)
Tennessee Association of Broadcasters (TAB)
Washington Military Department Emergency Management Division (WMDEM)

Primary Entry Point Administrative Council (PEPAC)

Event Details

What: EAS Participant Virtual Roundtable: Are You Ready for the Nationwide EAS Test?
When: August 15^th, 2011; 11:00 am- 1:00 pm (Eastern)
Where: Microsoft Live Meeting 2007 (https://www323.livemeeting.com/cc/eiip/join?id=IPAWS&role=attend) 

IPAWS will briefly recap elements of the best practice guide and discuss a variety of topics with virtual roundtable participants, including:

·         EAS Receive and Relay Process

·         EAS Originator Message Content and Quality

·         State and Local EAS Testing

·         EAS Equipment Operation and Maintenance

·         Nationwide EAS Test Information Toolkit

·         EAS Test Preparation Checklist 

In order to prepare EAS Participants for the November 9, 2011 Nationwide EAS Test, FEMA IPAWS, the FCC, and NOAA are partnering with industry leaders and experts to draft a comprehensive technical best practices guide on end-to-end National EAS message procedures. The guide will be updated incrementally with the EAS community through webinars, roundtables, and other activities leading up to the Test.

Want to contribute to the best practices guide? Please visit A National Dialogue on the Emergency Alert System website: https://nationaldialogue-emergencyalertsystem.ideascale.com/ to vote on ideas and solutions for a variety of EAS discussions. Ideas from the website will be directly discussed in August 15^th virtual roundtable. Follow us on Twitter @NationalEASTest (https://twitter.com/#!/NationalEASTest) for events and information updates.     

For more information on the Nationwide EAS Test, please visit the FEMA IPAWS website: http://www.fema.gov/emergency/ipaws/eas_info.shtm 

Please contact ipaws@dhs.gov for a meeting invitation and questions.
Microsoft 2007 Live Meeting link:
https://www323.livemeeting.com/cc/eiip/join?id=IPAWS&role=attend (this will not be active until the morning of August 15^th)  

Microsoft Live Meeting Connection Information:

The Live Meeting Client must be installed in order to hear the audio portion of the program. 

Microsoft Windows (XP or later) and sound card are required.  Please refer to the Live Meeting Instructions for configuring your system. http://www.fema.gov/pdf/emergency/ipaws/livemtginstruct.pdf.

Use the following URL to log in to the Webinar:
https://www323.livemeeting.com/cc/eiip/join?id=IPAWS&role=attend

This appears to be an excellent opportunity to get updated on both the nationwide test and the overall EAS process -- and maybe even to contribute some good ideas to help make it work as smoothly as possible. As the November test approaches, we’re all bound to hear a lot more about EAS – the virtual roundtable could be a good place to start reminding yourself of just what’s involved, particularly if you’re feeling a bit rusty, EAS-wise.

Five years ago I was quoted in an article in Billboard about whether Spanish-language broadcasters get a pass when it comes to enforcement of the FCC’s indecency rules. Several English-language broadcasters – including Howard Stern (who quoted me on the air) – have frequently complained that the FCC does not enforce the rules equally.  Suspected reasons for the disparity: fewer complaints get filed against Spanish language programs, and the Spanish-speaking staff at the FCC has traditionally been undermanned. 

Now a couple of groups are looking to change the first of those possible reasons.

The National Hispanic Media Coalition (NHMC) and the Gay & Lesbian Alliance Against Defamation (GLAAD) have filed a complaint (173 pages in all, including extensive attachments) with the FCC against a TV station in the Los Angeles area. The focus of their complaint: the Spanish-language television talk show “José Luis Sin Censura” (translation: “José Luis Uncensored”).

They’ve also posted a collection of examples (including a number of NSFW items, such as semi-clad women) demonstrating their point on YouTube.

In recent years the NHMC – a non-profit, media advocacy organization aimed at improving the image of Latinos in the media – has been increasingly active in filing complaints against what it perceives to be offensive content on the airwaves.  Two years ago it asked the Commission to investigate the use of “hate speech”, and particularly such speech directed against Latinos, on the airwaves.    For its part, GLAAD – an organization aimed at promoting understanding, increases acceptance, and advancing equality for the LGBT community – has been working against the “José Luis Sin Censura” show for years. It claims that its efforts have prompted a number of prominent sponsors to pull their advertising.

The latest complaint echoes the charges that were raised in the 2006 Billboard article, namely that the FCC does not enforce indecency rules again Spanish and other foreign language broadcast stations in the same way that it does against English language stations.  In fact, the complaint quotes from (and attaches a copy of) the 2006 Billboard article. It will be interesting to see whether the Commission’s reaction does anything to alter the perception that, for whatever reason, its indecency enforcement activities have historically reflected some cultural bias. 

Language and cultural differences aside, though, the complainants may run into a different problem. The claims that NHMC and GLAAD are advancing accuse the TV licensee of broadcasting indecency. But the Commission’s ability to regulate indecency has been shaken by a couple of court cases, as my blogging colleagues have chronicled (here, for example, and here). So even if the FCC would like to demonstrate conclusively that it is an equal opportunity indecency enforcer, it may find itself without the ability to do so. Stay tuned.

We concluded that report by pointing out that we didn’t know how long this regulatory telenovela would take to play out, or what the final upshot would be.

We now know.

Univision Radio, Inc. has entered into a Consent Decree with the Enforcement Bureau. No admissions of wrong-doing, mind you, but Univision Radio does agree to make a “voluntary” contribution to the Feds to the tune of $1,000,000. Plus, it agrees to an extensive set of “Compliance Plans” and “Business Reforms” designed to discourage sponsorship ID violations.

URI gets something in return.

Meanwhile, out on the Left Coast, Univision Services, Inc. (the successor-in-interest to UMG) has copped a plea to criminal mail fraud in connection with a scheme “to defraud radio stations”. The fraud involved payments by UMG to various station employees in return for airplay of UMG music; the stations were defrauded because the under-the-table payments meant that the stations could not themselves get those payments in return for airplay which would, theoretically, have been the subject of proper IDs.

While the U.S. Attorney obviously had extensive, compelling evidence of UMG’s guilt, the plea documents make clear that the misconduct was limited to UMG and apparently did not infect the remainder of the extensive UCI operation. According to the plea agreement, “the government’s investigation has not discovered evidence that any officers, directors, or employees of UCI . . . were aware or had reason to be aware of the illegal conduct occurring at UMG.”

So let’s get this straight. Executives and employees of UMG – which is not an FCC licensee and is technically no longer in existence – admitted to making payments in the hope of receiving airplay. And even though there’s apparently no evidence linking that misconduct to others in the Univision organization, it’s still worth $1,000,000 to buy an Invincibility Cloak protecting Univision interests from any further regulatory unpleasantness potentially arising from that misconduct.

As strange as all this sounds, the deal makes sense. Putting an absolute lid on this problem before it metastasizes has considerable value. Since the available evidence of misconduct somewhere in the Univision operation (i.e., chez UMG, in particular) was, it seems, overwhelming, it was probably just a matter of time before petitioners, objectors, and other unfriendlies would start to wield that evidence against Univision’s licenses. As a matter of self-preservation, better to plunk some cash down now, get your immunity, and move on.

It remains to be seen whether the FCC will pursue this matter further against any non-Univision stations whose call signs may have popped up in the investigation. Recall that UMG, the admitted culprit, was accused of spreading pay-for-play cash around a bunch of non-Univision stations. Neither the plea agreement nor the consent decree directly absolves or condemns any other stations (although the plea deal does indicate that the UMG payola scheme was designed to keep other station owners in the dark). But since the matter is still pending at the FCC, those other stations that received LOIs will have to wait and see if this is the end of the matter.

With the Fourth of July fading into the past and Labor Day looming ominously just beyond the horizon, hurricane season is upon us. Lisa Fowlkes, Deputy Chief of the Commission’s Public Safety & Homeland Security Bureau, has asked us to pass along to our clients and readers some important FCC contact information in case Mother Nature turns nasty in the coming weeks and months.

The link to the FCC's emergency contacts page, including its 24/7 Operations Center, is http://www.fcc.gov/pshs/about-us/contacts.html.

Also, the Bureau continues to encourage communications service providers – particularly broadcasters – to register with the Commission’s Disaster Information Reporting System (DIRS) and to participate in DIRS if the system is activated.  The link to the DIRS login page is https://www.fcc.gov/nors/disaster/Login.cfm.  FEMA and FCC emergency response personnel (ESF-2) use DIRS reports to coordinate needed assistance (e.g., fuel, generators, etc) in the aftermath of natural disasters. (“ESF-2” is FEMA-speak for “Emergency Support Function #2” – the governmental system that, among other chores, supports the restoration of the communications infrastructure and coordinates Federal communications support to response efforts during incidents requiring a coordinated Federal response.)

Thanks for the reminder, Lisa. We all hope that none of us will need to call on the guv’mint to “restore communications infrastructure”, a notion which conjures up images of worst case scenarios.   But the unfortunate truth of the matter is that Big Storms are beyond our control. This is one of those cases where a timely ounce of prevention is clearly worth a pound of cure.

Two weeks ago I moderated a panel of Spanish language radio broadcasters from across the country who gathered on Capitol Hill top brief Congressional staffers on the detrimental effects of such legislation.  If passed into law, the PRA would impose hundreds of millions of new fees on local radio stations for music aired free to listeners. Fifty percent of the new fee would go directly to the record label companies, three out of four of which reside outside the United States.

The bill was approved by the House Judiciary Committee last week, over the objections of various minority groups that wanted a hearing on the potential effects of the bill.  As we said in our letter to Speaker Pelosi, the PRA "would disproportionately harm present and future minority radio broadcasters and their listening communities" and could bankrupt as many as one-third of all minority-owned radio stations.  Another point we make in the letter is that there has been no examination of whether radio should be compensated for the promotional value of their airplay; as a result, the PRA “is not ripe for floor consideration”.  

While the bill is not, by any means, a uniquely minority-focused issue, it is clear that many minority owned stations, which frequently struggle in a healthy economy, and are barely surviving in the economic downturn. They could be snuffed out entirely by the imposition of an additional performance fee. As Amador Bustos of Bustos Media noted during the Capitol Hill briefing I moderated, "The performance tax would be the added and final nail in the coffin for these small broadcasters like ours, and I think that it is just absolutely ludicrous that the record companies are trying to sort of bite the hand that feeds them." The encouraging news is that while our letter was making its way to the Speaker’s desk, additional lawmakers threw their support behind a bipartisan resolution opposing "any new performance fee, tax, royalty, or other charge" on local radio stations.

“It’s like throwing a surprise party for a friend, and at the end of the night your friend charges you for an appearance fee.”

That's how Spanish Broadcasting System VP/GM Frank Flores described the push by record labels to impose a performance fee on radio stations. Flores’s comparison, which was a reference to the roughly $2 billion in music sales that the Free Radio Alliance claims is earned by the record industry as a result of the free airplay of their songs on commercial radio, was made during a May 5 panel discussion by leading Spanish-language radio broadcasters, which I moderated. The broadcasters gathered on Capitol Hill to brief Congressional staffers on the potential impact of a performance royalty on their stations. Flores went on to say that "we have worked real hard with the record labels and the artists.  And to be honest with you, a lot of these artists wouldn't be where they are if it wasn't for these radio stations."

Univision Radio's top morning show host, Eddie "Piolín" Sotelo, and ten other Spanish-language radio broadcasters told a room of Congressional staffers that a new performance tax on local radio stations could mean bankruptcy and more job losses for many Hispanic stations. “The performance tax would be the added and final nail in the coffin for these small broadcasters like ours, and I think that it is just absolutely ludicrous that the record companies are trying to sort of bite the hand that feeds them," Amador Bustos of Bustos Media told the audience.

Border Media's Miguel Villarreal noted the potential for more layoffs in the radio business. After the panel discussion, the broadcasters walked the halls of Congress through the afternoon, meeting with members of the Congressional Hispanic Caucus. 

The event was organized by the Free Radio Alliance, which opposes passage of HR 848, the bill which would impose a performance fee on radio stations that air recorded music. Under the terms of the bill, 50% of the royalties would go directly to the recording labels. After the panel discussion, the broadcasters met with members of the Congressional Hispanic Caucus throughout the afternoon. According to one broadcaster, the broadcasters were able to obtain additional support in opposition to the bill and in favor of the Local Radio Freedom Act, a non-binding resolution opposing the performance fee.

For decades the Federal Communications Commission has refused, as a matter of policy, to allow lenders and equity investors to take security interests in the FCC licenses that permit spectrum users — broadcasters, wireless operators and all the rest — to use the spectrum.

While this may not seem like a big deal to some, many lenders disagree: They claim that the FCC's policy significantly impedes the flow of communications-related investment funding.

While debates over the wisdom of the FCC's policy have flared up periodically over the years, the FCC has not budged and its policy has remained unchanged.

But the current credit crunch has brought this issue into focus for renewed reevaluation. With the availability of capital drying up for small- and medium-size broadcasters and telecommunications companies, it is important to examine any kinks in the financial pipeline that might unnecessarily slow, or block, the flow of capital.

To understand how the "securability" of FCC licenses affects lending practices, it is helpful to understand how lenders evaluate whether to make broadcast loans.

As a general rule, of course, lenders like to have some assurance that they will be able to get their money back. If a borrower's business is successful, repayments are made from cash flow. But if the business stumbles or fails, the lender may not be able to rely on cash flow.

With that in mind, lenders normally require borrowers to provide, in addition to a promise to repay, a commitment of other assets as security for the loan. If the borrower's business fails, the lender gets its money back by laying claim to the secured assets.

In deciding whether (and if so, how much) money to lend to a prospective borrower, a lender generally reviews the borrower's assets to be sure that there will be enough to secure the loan.

Some businesses are asset-intense. A car dealership, for example, or a jewelry store will have inventory the dollar value of which can be easily calculated. Determining how much an inventory-based business is good for can be reasonably simple.

The trouble with broadcasting is that it is not an inventory-based business. There is no warehouse full of appliances or parking lot full of automobiles that a lender can look to as collateral for a loan. In fact, there is rarely even any owned real estate.

The broadcaster's only real assets (other than the microphones, antenna and transmitter) are its FCC license and the airtime that the broadcaster can program and sell as a result of that license.

Another measure of the credit-worthiness of a business is its cash flow. However, many new or growing broadcasters have little cash flow. This is especially true if the prospective borrower plans to change the programming on the radio or TV station being acquired.

In that instance the borrower's business is more like a start-up with no cash flow at the outset. As a result, in many broadcast-related deals, cash flow valuation is not available as a practical matter. Instead, lenders are forced back to asset-based security.

But again, with broadcasting, there is no inventory in which to take a security interest.

Hands off

And therein is the dilemma.

Almost invariably, the broadcaster's most valuable asset is its FCC license. But that is precisely the one asset that the FCC will not permit lenders to take as collateral.

So with no established and reliable cash flow and insufficient assets, many small- and medium-sized companies looking to enter the broadcasting business or expand their existing holdings are having trouble finding funding.

That raises the obvious question: If an FCC license could be used for security, wouldn't that encourage lenders to provide funding which is not now available? If so, doesn't that mean that the FCC's "no securitization" policy is impeding the flow of capital into broadcast markets?

Because of the FCC's policy, lenders — many of whom are known for the "belts and suspenders" approach to doing any kind of business — are often hesitant to lend to broadcasters, particularly new entrants to the field.

Consequently, the pool of senior lenders familiar with broadcast and telecom valuations is relatively small, and the pool of those willing to finance transactions below $10 million is even smaller.

The source of senior debt financing for broadcasters is generally limited to a small group of national lending and financial institutions that possess more sophisticated media lending groups. These lenders frequently will attempt to mitigate their risk by requiring the borrower to set up separate "license subsidiaries," which are entities that are created for the sole purpose of holding the FCC license (all other assets of the company are held by an operating or tangible asset subsidiary). The lender can then take a security interest in the equity of the license subsidiary as a means of getting as close as possible to obtaining something akin to a lien on the FCC license.

While such gambits may be attractive (or at least acceptable) to a relatively small universe of lenders, it is clear that the burdens these extra hurdles impose tend to shrink the pool of available capital sources and force the borrower to incur additional costs for the loan (by, e.g., forcing the creation of a multi-subsidiary structure).

As a result, many smaller local and regional banking institutions are reluctant to make broadcast loans. Such bankers are already constrained by leverage and loan-to-value ratio limitations. Add to that the fact that the balance sheet compositions and income statements of media companies tend to be (a) different from those of traditional companies and, therefore, (b) unfamiliar to local and regional banks.

Limitation

What the banks end up seeing is a heavily regulated business where the ability to secure the loan is limited. Moreover, they see an enterprise that is difficult to appraise on anything but an asset basis.

For this reason, they usually will not loan beyond the value of any tangible collateral the broadcasters may have — such as real estate that may be owned at a tower or studio site — or beyond any SBA guaranty, where such a guaranties is available.

This is ironic because in most other businesses and industries, local and regional banking institutions are the greatest sources of small- and medium-sized business loans.

It is especially ironic because regional banks frequently have a longstanding relationship with the community and the businesses that operate in their regions, just as local broadcasters do.

However, broadcasters (and other FCC-regulated companies) are often unable to take advantage of these financing sources because those banks are unfamiliar with the methods of valuating broadcast properties and the loan structures and leverage granted in such loans.

The unfortunate bottom line: Local banks are not actively participating in a sector where they are needed the most.

Because local and regional financing options tend to be few and far between, broadcasters are forced to rely on an ever-dwindling group of large national media lenders — but those lenders are usually subject to floors that will not allow them to finance transactions below the $15 to 20 million level.

Aggravating the increasing shortage of willing and knowledgeable lenders is the fact that significant consolidation in the banking industry has reduced both the number of players with media expertise and the number of players actively participating in syndicated financing.

As a result, there are fewer players in general and specifically fewer players making loans below the $10 million and $15 million threshold.

Impediment?

This problem possibly could be addressed through a concerted effort to familiarize smaller regional banks with mechanisms to effectively secure broadcast loans.

For example, through a series of programs or seminars, local banks could be introduced to industry valuation methods and exit multiples.

A similar approach could be taken with state and federal banking regulators, to demonstrate to them the sometimes subtle distinctions between, on the one hand, most broadcast and communications loans and, on the other, highly-leveraged transactions based solely on the asset value of the collateral.

Confusion between those two types of transaction can lead to mischaracterization of broadcast loans as undesirable or worse. Such educational programs could be presented by, or in cooperation with, state and regional banking associations, as well as through national organizations.

The second, far more controversial, method of addressing the problem involves reevaluating the FCC's ban on security interests in FCC licenses.

The FCC's justification for the policy has been that FCC licenses are not property that can be pledged. Instead, a license is, in the FCC's view, merely a permissive entitlement that allows the broadcaster or wireless company to use the public's airwaves for limited periods, subject to renewal.

Broadcasters themselves have often embraced this rule because it provides them with protection against unscrupulous predatory lenders looking to snatch away FCC licenses.

These are all valid points. However, they do not diminish the fact that, in the eyes of many, the FCC's ban on license liens acts as a significant impediment to the flow of capital into the market.

Over and above the problems mentioned above, the security interest ban adds additional risk for foreign banks (a potentially significant source of capital for broadcasters) that are already disincentivized by strict, federally-imposed limits on foreign ownership or control of FCC broadcast licenses.

Moreover, the ban on security interests prevents lenders from being able to bundle broadcast or telecom loans for sale on the secondary market as is done with mortgage-backed securities in the housing market.

Many lenders legitimately note that no one would expect to obtain a home loan without first providing the protection of a mortgage to the lender. Moreover, the theoretical basis of the FCC's concerns runs counter to the practice of other regulatory agencies, which routinely permit liens on licenses (such as liquor and casino licenses).

At the federal level, the Federal Energy Regulatory Commission has permitted liens on certain types of authorizations for energy generation and distribution. The ability to create such liens facilitates the project financing of these business endeavors.

Notwithstanding the cloud that has recently been cast over the lending industry in the wake to the subprime mortgage melt-down, mortgage-backed securities — and the ability to sell them on the secondary market to institutional buyers such as Fannie Mae and Freddie Mac — have been a major engine behind the U.S. housing market and the ability of many to obtain loans to purchase homes.

A change in the FCC's policy would free up not only capital at the national level but also, most importantly, capital from local and regional lending sources that are intimidated from making loans to broadcasters and other telecom companies.

Worth study

This is not a new debate.

In the 1990s a consortium of lenders filed a petition with the FCC requesting a relaxation of the security interest policy in order to free up the credit crunch that preceded the 1996 Telecommunication Act. However, the petition lay largely ignored by the FCC.

Thereafter, following a series of court cases addressing the issue, the FCC began to allow security interests in the "proceeds" of FCC licenses, but would not go farther than that.

More recently, in 2004, the FCC's Federal Advisory Committee for Diversity in the Digital Age — formed by former FCC Chairman Powell to investigate ways to free up capital and create business opportunities for minority-owned media and telecom companies — made a number of formal recommendations.

Specifically, the committee urged: (i) a policy change to allow private lenders to take security interests in FCC licenses; and (ii) the creation of a Freddie Mac-like entity to purchase bundled broadcast and telecom loans on the secondary market.

Although such an FCC policy change (along with rule changes that would relax the foreign ownership limits by institutional lenders seeking to make domestic broadcast and wireless loans) could assist in freeing up the flow of capital, it would be a mistake to think that these FCC prohibitions are the sole cause of the mid-market gap or the credit crunch suffered by small- and medium-sized broadcast businesses.

The rapidly changing media and telecom landscape is equally at fault, as are the ever-growing competition faced by traditional broadcasters from podcasts, satellite radio, Internet video and Internet streaming, and generally falling valuations.

Still, the credit problems have naturally been exacerbated by the country's current financial downturn and corresponding mortgage and credit crises that have infected most financial institutions.

So serious has the situation become that in July, the FCC hosted an en banc hearing on barriers to communication financing in New York to probe the causes and possible solutions to the credit crunch in the telecom and media markets.

Again, it would be a mistake to say that a single silver bullet — be it educational programs for local or regional banks or a loosening of the FCC's regulatory choke chain — exists that will magically free up needed capital to the broadcasting or telecom sectors.

However, in order to address the problem, the FCC must probe and understand the methods used by banks and lending institutions to evaluate prospective financings and work with those institutions to address the problems faced.

While many possible solutions are beyond the control of the FCC, the limits on the ability of lenders to secure broadcast loans is one that should be studied and evaluated.

The claims arise from a lawsuit filed in Los Angeles two years ago. The plaintiff there, one Daniel Mireles, claims that he was wrongfully discharged from his position as Vice President of Promotions at Univision Music. (As always, the pivotal role of the “disgruntled former employee” should never be underestimated.) According to his complaint, Mireles was instructed by management-level executives of Univision and Fonovisa (a record label owned by Univision) to make “cash payments to the program directors and others at radio stations in order to increase the airplay of Fonovisa’s records”. While Mireles alleges that he resisted those instructions initially (apparently he had been involved in a payola investigation in the 1990s and was understandably gun-shy about going through the meat grinder again), he acknowledges that, between February-June, 2006, he was given some $720,000 to pay to “individuals at radio stations”. The goal was apparently to “get Fonovisa’s records played more frequently on the radio”.

Mireles claims that, in drawing up his list of “individuals at radio stations”, he spoke with people at “approximately fifty or more” stations. He allegedly made deals to make payments ranging from $3,000-$10,000 per month.

The Bureau’s letter asks standard questions relating to charges of payola as well as questions concerning, for example: (1) the station’s relationship with, among others, Univision Music Group, and (2) the station’s own internal policies and practices relating to awareness of and compliance with the sponsorhip ID rules. The letter also requires that the licensee turn over any responsive documents it might have in its files.

Of course, regardless of what may or may not have surfaced in Mireles’s litigation, at present it appears that all we have on the table are allegations, pure and simple. As far as we can tell, Mireles’s case has not to date generated any findings of misconduct by any radio station or station personnel and, of course, much more than mere allegations is needed to justify the imposition of any penalty.

It’s not clear where this is going or how long it will play out. Just last year, the Commission shook a grand total of about $10 million out of Clear Channel, Entercom and CBS in “voluntary contributions” arising from the Spitzer-triggered payola inquiries launched a year or two earlier by the Commission. Whether the FCC will have similar luck this time around remains to be seen.