GET SET FOR PLENTY OF D.C. ACTION IN 2007

People invest in hog futures and wheat futures. What about TV regulation futures? If they were traded on a commodities exchange, it could be a wild ride for 2007 investors.

Futures markets aside, all TV station owners and managers already have a big stake in legal and regulatory developments this year. The FCC is at full strength, the new Democratic-controlled Senate Commerce Committee has already set an FCC oversight hearing for Feb. 1, and appellate courts are preparing to rule. Profiled briefly below are four of the most important issues—indecency, the DTV transition, must carry/retransmission consent and video franchising.

Broadcast Indecency:  Two major federal court appeals of FCC indecency rulings are moving toward 2007 resolution. Further along is Fox v. FCC, in New York's 2nd Circuit Court of Appeals. It involves FCC indecency findings last March, but no fines, for variations of the "s" and "f" words in two Fox Billboard Music Awards shows; an ABC NYPD Blue episode; and the word "bullshit" in a CBS morning news interview. In November 2006, the FCC reversed its NYPD Blue ruling (because no one complained from the airing station's market) and its CBS interview finding (on reconsideration, the language was held not indecent in context). Oral argument was held Dec. 20, 2006, and the case is now ripe for decision. The court could uphold the FCC, reverse it and/or send the case back to the FCC for further action.

The second appeal, in the federal 3rd Circuit in Philadelphia, involves the FCC's $550,000 fine against CBS for Janet Jackson's 2004 "wardrobe malfunction" at halftime of Super Bowl XXXVII.  The FCC found that CBS failed to prevent the exposure of Jackson's breast for one tenth of a second in primetime. Appeals briefs have been filed and the next step is scheduling oral argument. 

In the balance between First Amendment freedoms and the Communications Act's empowerment of the FCC to limit airwave indecency, the FCC in 2006 tended to emphasize enforcement. This year the appeals could alter that emphasis and produce clearer station guidelines.

The DTV Transition: All U.S. TV broadcasters must cease analog transmission and become all-digital in just over two years—on Feb. 19, 2009. More than 1,500 full-power stations already broadcast digital signals in addition to analog. Low-power and translator stations are in an earlier stage of digital conversion. Full-power broadcasters may want to keep an eye on low-power digital applications for their markets for interference or other problems, and follow FCC conduct of the low-power process.

Part of the full-power transition is the Digital-to-analog Converter Program.  Congress empowered the National Telecommunications and Information Administration (NTIA) to spend up to $2.5 billion to distribute $40 coupons starting Jan. 1, 2008, to TV households having analog-only sets and no cable or satellite TV. This 15% of the TV audience would lose free TV when analog signals end in February 2009. The coupons will subsidize purchase of low-cost converters to display digital off-air signals on analog sets.

NTIA collected public comment last year and is drafting coupon rules. On Jan. 26, it will request proposals for vendor support for the program. Stations concerned about over-the-air-only viewership should follow 2007 developments. The industry will be asked to help publicize the plan. To that end, the National Association of Broadcasters has already added staff.

Multicast Must Carry:  In 2005  the FCC affirmed, over the objection of then-Commissioner (now FCC Chairman) Kevin Martin, that cable must carry applies only to a station's primary digital stream (and any additional material qualifying as "program-related"), but not to additional multicast channels. As a result, unless the FCC or Congress changes the law, stations can get carriage of multicast material only through retransmission consent negotiations with cable operators. Broadcasters argue that the lack of assured carriage undermines development of new diverse programs and services that are part of the promise of DTV. Chairman Martin has sought to revisit the denial of multicast must carry. A vote was postponed last year, however, when the newest commissioner, Republican Robert McDowell, publicly questioned FCC authority to require it. The two Democratic commissioners have generally viewed multicast must carry more favorably, though they tie it to quantifiable public interest obligations for stations. Majority Democrats in the new Congress are likely to take greater interest in must carry, and localism, as well. The importance of the issue increases as the all-digital deadline approaches.

Retransmission Consent:  In 2006, TV group owners and cable MSOs battled publicly over carriage terms for broadcast signals. Two of the reasons are the advent of digital and some broadcasters' efforts to break cable's traditional refusal to pay cash for the right to carry stations. Highly publicized, some disputes involved at least the threat of viewers losing popular broadcast signals. FCC rules require good faith bargaining and provide for complaints. But if viewers continue to face loss of favorite programs because the broadcaster pulls signals or the operator drops them when talks fail, the FCC or Congress could step in to revise retransmission consent rules.  

Video Franchising: Historically, the FCC is broadcasting's main regulator, while cable's is local franchising authorities. In 2006, growth of new competitors to cable—notably AT&T's IPTV "U-verse" and Verizon's fiber optic "FiOS" systems—cued the question of how they should be regulated. The telcos eschew cable regulation and have persuaded some state legislatures to shield them from local franchising. Cable wants equal treatment, the FCC has not yet settled telco video regulation, and U-verse and FiOS are providing service and carrying broadcast signals under agreements with stations.

Into this volatile mix strode the FCC last month with a 3-2 (Republicans for, Democrats against) video franchising decision that critics say exceeds FCC authority and muddies the waters. The telcos like it; cable and cities do not. At this writing the FCC had not released the full text, but its public notice summary indicates that the decision lets telcos provide "interim" video service if their local franchise applications are not granted or denied within 90 or 180 days; prohibits certain "unreasonable" franchise requirements; and requires reduction of the maximum 5% annual franchise fee by the amounts of other costs of franchise compliance. Multiple court challenges, perhaps by cable, consumer groups and others, seem likely, along with congressional hearings and perhaps legislation. 

For television broadcasters, 2007 video franchise developments may determine whether must carry, manner-of-carriage and other broadcast protections in cable law will apply to the new entrants; whether any cable retransmission consent changes will affect telco video; and whether there are opportunities to improve existing signal carriage law for broadcasters, perhaps as to cable, satellite and new competitors. Broadcasters have rights to protect at each phase of the developing law on these and other questions.

The above  are only highlights at a time of potentially great change in TV law and regulation. Media ownership, increased television transactions, the role of broadcasting in homeland security (FCC emergency alert system requirements took effect Dec. 31) and other issues and likely to be in play this year.

TV owners and managers should follow developments and look for opportunities to shape them. Simultaneously, they must not let down their guard on compliance with existing law. Both steps are key to protecting the investments that television has in those broadcast regulation futures.

This is the first in a series of monthly columns on TV law and regulation by Michael Berg, a veteran communications lawyer and the principal in the Law Office of Michael D. Berg. He is also the co-author of FCC Lobbying: A Handbook of Insider Tips and Practical Advice. He can be reached at mberg@michaelberglaw.com or 202-298-2539.