CommLawBlog : Broadcast & Communications Lawyers & Attorneys : Fletcher Heald & Hildreth Law Firm : Telecommunications, FCC Regulation, Communications Act

The NPRM suggests that the FCC might allow only one percent of a station’s annual air time to be devoted to third-party fundraising – a cap that could be applied to all digital program streams for TV (although, oddly enough, the FCC seems to forget about multiple streams on digital FM stations). The length of each individual fundraising program might be limited. The Commission also asks whether such programs should be produced by the station itself (rather than the third party benefiting from the fundraising), and whether the beneficiaries should include only organizations local to the station’s service area and/or organizations with a Section 501(c)(3) exemption from the IRS.

The NPRM says that one of the motivations underlying possible relaxation of the fundraising restrictions is the “need to remove unnecessary burdens on broadcasters who aim to serve their communities”. Of course, imposition of a new requirement that such extended fundraising be station-produced or limited only to certain qualifying organizations hardly suggests “removal” of burdens, but maybe that’s just us. And then, there are the reports.

The NPRM suggests that NCE stations might be required to file reports, annually, to let the Commission know, for each fundraiser:

• the date and time of the fundraiser;
• the name of the non-profit entity benefited by the fundraiser and whether this entity is a local organization;
• the specific cause, if any, supported by the fundraiser;
• the type of fundraising activity;
• the duration of the fundraiser; and
• the total funds raised.

And as long as reports might be filed, why not also require that they be placed in the station’s local public inspection file, too? That would, the Commission supposes, “help to ensure that the public has access to information about how NCE broadcasters are serving the public interest and their local communities”. (Don’t worry – the Commission assures us that it doesn’t “believe that filing such reports would be unduly burdensome”.)

And over and above the reports, the Commission suggests that it might be inclined to include, on the license renewal application form, a new certification requirement relative to compliance with third-party fundraising limits.

So much for “removing unnecessary burdens”.

The FCC is itself limited in its ability to regulate in this particular area. The First Amendment of your friendly U.S. Constitution, for example, limits governmental restrictions on speech based on the content of programming and the identity of the speaker. And Section 399B of the Communications Act prohibits a noncommercial station from accepting funds to express the views of any person with respect to any matter of public importance or interest or to support or oppose any candidate for political office. That cuts out fundraising for issue-oriented or political organizations in most states.  (While the U.S. Court of Appeals for the 9th Circuit has struck down this part of the 399B restriction, the FCC says in the NPRM that it plans to honor that decision only in states located in the 9th Circuit, once the Court’s mandate becomes effective.)

On the other hand, Section 399B restricts only programming for which a station receives consideration; it does not stop a station from broadcasting political material as a free public service, as long as the station doesn’t editorialize in its own name. 

Then there’s the Corporation for Public Broadcasting (CPB), which requires CPB-funded stations to devote the substantial majority of their daily program hours to CPB-qualified programming. Such programming is defined as “general audience programming that serves demonstrated community needs of an educational, information, and cultural nature.” Fundraising for third parties will not likely be popular if it threatens a station’s CPB grant. 

So in the end, any relaxation of FCC-imposed limits on third-party fundraising may benefit only religious, student-operated stations, and the handful of community stations that do not receive CPB funding.

The proposed relaxation is not necessarily endorsed by all the stations it would affect. For sure, some NCE stations may be attracted by the public service opportunities the relaxation might provide. But other licensees prefer the present rule, which enables them to turn down requests for fundraising by blaming the FCC’s prohibition, which effectively ties their hands. If the rule is lifted, licensees can probably expect a barrage of such requests, followed by PR headaches (e.g., hard feelings and criticisms) when some (or all) of those requests are rejected. 

And here’s a tip to anybody who might view fundraising as a potentially lucrative revenue opportunity: beware the recent KUSF case, which indicates that NCE stations selling program time are not supposed to be paid more than their expenses.

The NPRM has been published in the Federal Register. If you have something to say in this proceeding, comments are due by July 23, 2012, with reply comments due by August 21.

The story starts a decade ago. In 2002, the FCC fined a San Francisco public station, KMTP-TV, $10,000 for broadcasting numerous prohibited advertisements. KMTP-TV paid the fine, but then sued in federal District Court in California for reimbursement. Its claim: all of the advertising prohibitions are unconstitutional restrictions on the station’s speech. The District Court upheld the prohibitions on advertising, and KMTP-TV appealed to the Ninth Circuit, which released its decision earlier this month.

The Circuit agreed with the FCC that Congress does have a substantial interest in supporting the types of “high quality educational” programming found on NCE stations. (The Court does not address the obvious question of how the term “high quality” programming is defined or who is defining it.) And the Court was also on board with the government’s claim that Congress had enough evidence supporting its general theory that the goals of noncommercial broadcasting would be undermined if advertising were permitted. (That’s the theory that NCE stations would (a) abandon niche educational programming in favor of more mass-market programming and (b) alter the content of their programming to attract advertisers.) To be sure, the evidence wasn’t particularly empirical and much of it dated back to 1981 and earlier – but the Court reasoned that Congress’s judgment is entitled to substantial deference.

Accordingly, the Court upheld the ban on regular advertising.

Political and issue advertising, however, were another story.

In the Court’s words,

neither logic nor evidence supports the notion that public issue and political advertisers are likely to encourage public broadcast stations to dilute the kind of noncommercial programming whose maintenance is the substantial interest that would support the advertising bans.

To illustrate this, the Court focused on two types of programming – public affairs and children’s/family programming – touted by the government as the types of NCE programming that Congress intended to protect. 

As to children’s programming, the Court concluded that allowing political/issue advertising would have minimal effect. That’s because most viewers of such programming (i.e., children) can’t vote, so (according to the Circuit) NCE stations would have no incentive to alter that programming to suit the preferences of a political candidate or “issue group” and thereby attract their advertising dollars.

As to public affairs programming, the Court acknowledged that stations might change the content of such programming to attract political and issue advertising on various sides of important issues. But the Court could find no evidence – either before Congress when it enacted the ban or before the District Court that initially upheld it – that suggested that Congress was, or should have been, worried about that speculative notion. To the contrary, Congress appeared to be concerned exclusively with “commercialism”. Campaign ads and issue ads don’t promote “commercialism” because, in the Court’s view, they “do not encourage viewers to buy commercial goods and services”.

Additionally, the Court was struck by the fact that the discriminatory effect of the advertising ban. The ban permits announcements that promote the goods and services of non-profit companies, but forbids political/issue announcements. Such governmental line-drawing based on the content of the communications at issue raises serious constitutional questions. The FCC was unable to justify to the Court’s satisfaction the content-based distinction drawn by the statutory prohibition.

So what does this all mean? For openers, it means that NCE stations – at least those in the states within the Ninth Circuit – can now sell advertising time to political candidates and groups seeking to address important public issues. That could alter some candidates’ strategies – since NCE stations may provide more direct access to certain audience demographics. It will certainly alter the operations of many NCE stations, which will now be able to market themselves to at least certain limited classes of advertisers.

By the way, (1) what states are in the Ninth Circuit, and (2) why does that matter? 

Answer to Question 1: Alaska, Arizona, California, Guam, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington. 

Answer to Question 2: Because the Ninth Circuit has jurisdiction over only those cases arising in those states, and its decisions thus affect only those states. It is therefore at least conceivable – but not, in our view, likely – that the Commission could take the position that stations located outside of the Ninth Circuit are still subject to the advertising prohibitions. (We think it unlikely that the Commission will go that route because to do so would create, in effect, two separate sets of rules based purely on the accident of geography. It’s hard to imagine that the FCC would be eager to head down that road.)

Those public stations that elect to jump into the political advertising game will have to familiarize themselves with the complex of political ad rules that routinely beleaguer their commercial counterparts. Equal opportunities, lowest unit rates, political file obligations, etc., will presumably all have to be implemented in some fashion, even though the Court’s decision did not address any of those niceties. 

One thing that NCE stations won’t have to worry about: the “reasonable access” provision of the Communications Act. That provision mandates that candidates for federal office are entitled to “reasonable access” to advertising time. The precise extent of “access” that might be deemed “reasonable” has bedeviled the Commission and the courts for years. But the Act expressly exempts NCE stations from that obligation, and the Ninth Circuit’s decision does not alter that exemption.

Where do we go from here? The Commission could fold up its litigation tent and accept the Circuit’s decision, leaving it to Congress to amend the Communications Act to address the decision if Congress sees fit.

Alternatively, the Commission could ask the Ninth Circuit to reconsider its decision. The three-judge panel did include one dissenter, which might give the Commission some hope.  Or it could ask the full Circuit to rehear it en banc. Or it could go for broke and ask the Supremes to take a look. In the meantime, unless the FCC requests and is granted a stay of the effectiveness of the Circuit’s decision, the ban on political/issue ads on NCE stations (at least in the Ninth Circuit) is gone until further notice.

Check back here for updates on how the Commission chooses to proceed.

In closing, we note that KTMP is probably frustrated. In all likelihood, KTMP launched its appeal not with the goal of trashing the ban on political/issue ads, but rather to get rid of the more general ban on commercial advertising which had gotten it into hot water at the FCC. While it obviously came up short on that score, KTMP’s efforts have nonetheless established an important precedent for all NCE stations.