Bureau concludes that KUSF(FM) programming arrangement monetized too much; $50K “voluntary contribution” extracted from buyer and seller

Local marketing agreements – a/k/a LMAs or Time Brokerage Agreements or TBAs (among other catchy titles) – have been a common feature of the broadcast landscape for a couple of decades now. The regulatory boundaries relative to LMAs have become reasonably well established, at least as far as commercial stations are concerned.

For noncommercial (NCE) stations, not so much.

But NCE stations are now officially on notice that, when they broker airtime to a third-party programmer, the collection of any fees in excess of “reimbursement of operating expenses” is verboten.   That news comes to us through a Consent Decree (CD) between (a) the University of San Francisco and Classical Public Radio Network, LLC, on the one hand and (b) the Media Bureau, on the other. The CD provides that the Media Bureau will grant the license assignment of NCE Station KUSF(FM), San Francisco, from USF to CPRN – provided that USF and CPRN make a joint “voluntary contribution” to Uncle Sam to the tune of $50,000. 

Why the hefty price tag (which, by way of comparison, is exactly twice the fine issued to Google for thumbing its nose at the Commission)? Because, under the CPRN/USF deal as initially implemented, CPRN was making it worth USF’s while to hand programming time over to CPRN while the assignment application was pending. Oh yeah, and CPRN and USF guessed wrong about how the FCC would feel about that.

The deal presented to the Commission in January, 2011 specified that CPRN would buy KUSF, a mainstay of the NCE scene in San Fran for 35 years, for a cool $3.75M.  Among the various terms and conditions was an LMA of sorts, in this case titled a “Public Service Operating Agreement” (PSOA). The PSOA provided that, while waiting for the FCC’s blessing to become licensee of the station, CPRN would take over all of the airtime of the station.  In return, CPRN would pay to USF a flat monthly fee (initially $5,000, rising to $7,000 per month after a few months) in addition to reimbursement of all operation expenses.  (The expenses specifically covered were: the cost of broadband or other circuits used for delivery and reception of the programming, electrical power to the transmitter site, regulatory fees, insurance rider, and telephone expenses incurred at the transmitter site.)

These terms would be fairly conventional in a commercial transaction. But NCE stations are subject to different rules. Those would be Sections 73.503(c) (for radio) and 73.621(d), for TV, which specify that NCE licensees

may broadcast programs produced by, or at the expense of, or furnished by persons other than the licensee, if no other consideration than the furnishing of the program and the costs incidental to its production and broadcast are received by the licensee. The payment of line charges by another station network, or someone other than the licensee of a noncommercial educational FM broadcast station, or general contributions to the operating costs of a station, shall not be considered as being prohibited by this paragraph.

That language is not a model of clarity or specificity. In an effort to divine the precise metes and bounds of the rule, CPRN and USF apparently combed through the FCC’s records, checking other NCE transactions that (a) included provisions similar to the PSOA and (b) had received FCC approval. Based on that research, CPRN and USF felt that their deal conformed to the rules.

They guessed wrong.

Responding to complainants’ concerns about the deal, the Bureau sent CPRN and USF a letter of inquiry. From the CPRN/USF responses to that letter, the Commission found that the PSOA violated Section 73.503(c). But the CD does not indicate precisely what aspects of the KUSF deal accounted for that violation. Presumably the fees over and above operating expense reimbursements were a problem, but were the separate reimbursements all OK, or were they, too, excessive in some respect? The CD doesn’t say.

In an unusual statement issued in connection with the CD, Media Bureau Chief William Lake said that the rules forbid payments “unless they are limited to reimbursement of operating expenses”. That seems a bit different from the actual language of the applicable rules, so while Lake’s statement may have been intended to be helpful, it doesn’t seem to clarify things much – other, of course, than to make clear that any payments not tied to reimbursement of some sort are impermissible.

On top of that, CPRN and USF were also found to have violated Section 1.17, which prohibits false certifications. In their assignment application, both parties had certified – incorrectly, as it later turned out – that their deal was consistent with FCC rules. In the CD the Bureau did acknowledge that this particular violation was not as serious as it might have been, since the seller and buyer had not tried to hide the terms of the agreement. Indeed, they had filed the agreement with the Commission as part of their application.

What about all those earlier applications that the Commission granted with LMA provisions – you know, the ones that CPRN and USF relied on for their belief that the PSOA would pass muster?  Lake acknowledged that the PSOA was not necessarily dissimilar from a “practice” that “developed in past NCE radio transactions, in apparent violation of the rule, without [the Bureau’s] knowledge”. 

Of course, the Bureau could have known about the specific terms of other NCE transactions that the Bureau had approved, if the Bureau had examined the materials that the parties to those transactions had filed. But the Commission does not typically make it its business to learn the finer points of sale and brokerage contracts, so the fact that similar provisions might have been included in previous deals does not mean that the Commission had approved them, or was even aware of them. (In fact, the PSOA’s violation of this provision may well have gone unnoticed, had the sale of KUSF not been so controversial, attracting press scrutiny and resulting multiple informal objections and petitions to deny.)

The bottom line here was probably best expressed by Lake, who admonished that NCE licensees may not “monetize their licenses by selling program time for a profit.” How the Bureau will identify such improper “monetization” isn’t clear, a fact that Lake tacitly acknowledged by urging any NCE licensee or programmer who might not be certain about the prohibition to contact the Bureau’s staff to discuss the matter in advance.