These are my views and do not implicate any former or current employer or client.  In particular, this blog has not been approved by CBA.  Rather the views below reflect my personal outrage that the government is changing the rules just because so many chose to “pile on” in the C-Band proceeding.

The views expressed here are mine and do not implicate current or former employers or clients.

Hundreds of Billions of Dollars have been invested in, and loaned to, commercial enterprises that operate pursuant to FCC spectrum licenses.  These include radio and TV stations, wireless carriers, satellite carriers and others.  It would come as quite a shock to these enterprises, and to their investors and lenders, to learn that, as some recently have asserted, the spectrum usage rights upon which their businesses depend are merely “a 30 day month-to-month lease” that can be yanked back at anytime by the FCC.  Fortunately for consumers and for our economy, that is not the case!

It is true that the Communications Act provides that licensees shall enjoy the use of, but not the ownership of, their licensed spectrum.  But as often is the case, recitation of this simple fact is the beginning, not the end, of the story.  Provisions of the Communications Act, FCC Regulations and FCC case law make crystal clear that absent bad conduct, FCC licensees are entitled to the legitimate expectation that their licenses will be renewed.  FCC licenses are not 30 day month-to-month leases.

For example, Section 309 (k)(1) of the Communications Act states that the FCC is required to grant a broadcast station’s application to renew its 8 year license if (A) the station has served the public interest convenience and necessity; and (B) the licensee has committed “no serious violations” of the Communications Act or FCC rules, or (C) no other violations that “taken together, would constitute a pattern of abuse”.  That is not a month-to-month lease.

Similarly, 47 CFR 1.949 specifies that wireless licenses shall be renewed if the licensee has met its build-out requirements by the deadline, continued service, and certified compliance with all FCC rules and policies and the Communications Act.

And, in a policy statement (In The Matter Of Assignment Of Orbital Locations To Space Stations In The Domestic Fixed Satellite Service, 3 FCC Rcd. 6972, n.31 (1988)) the FCC made it clear that satellite licensees also enjoy renewal expectancy (“given the capital-intensive nature of the domestic satellite industry, there should be some assurance that operators will be able to continue to serve their customers”).

The statutory, regulatory and case law provisions described above just scratch the surface of the very substantial legal and equitable rights of FCC licensees.  For example, Section 316 of the Communications Act, and case law under that section, severly restrict the FCC’s ability to modify or take back licenses.

The renewal expectancy afforded to all FCC licensees (except “bad actors”) is just common sense.  The essential services that the broadcast, wireless and satellite FCC licensees provide to consumers require substantial equity investment and debt financing.  That critical financial support would evaporate if, as some have asserted, the spectrum usage rights upon which these businesses depend could be yanked back by the FCC on 30 days notice.  In short, simply incanting the soundbite that “the airwaves belong to the public” does not begin to tell the whole story.

As the former President of an association of local TV Stations, former President of Network Distribution for Fox, former President of the ABC Television Network, former Executive VP of The Walt Disney Company and a former Law Professor, I write to strongly support House Majority Whip Steve Scalise’s Bill, The Next Generation Television Act.  This Bill gets it exactly right.  His Bill would repeal a steaming pile of outdated, conflicting and unnecessary government interventions into the market for distributing television programming.  Of all the critical functions for which we need the Federal Government, managing and pricing the distribution of TV programs is not one of them!  The Scalise Bill would enable perfectly capable market forces to assure that consumers have access to the widest possible array of television programming from the widest possible array of distribution platforms.  And it would be fair to all industry segments.

History

In the late 1960’s several Court cases held that Cable retransmission of the programs broadcast by TV Stations did not constitute a “performance” of those programs under the then extant 1909 Copyright Act.  The Supreme Court urged the Congress to write a new law. And the Congress urged the Broadcasters, Cable companies and Programmers to agree on a framework for a new law. In 1972, at an historic meeting where I was present (as a young Law Student), the three industry segments reached the “Consensus Agreement”.  A copy of that Consensus Agreement can be found as Appendix B to a 1992 Report Of The Copyright Office. https://www.copyright.gov/reports/cable-sat-licenses1992.pdf

In 1976 Congress adopted a new Copyright Act that made Cable retransmission of broadcast TV shows a “performance”.  But, because it was thought that it would be burdensome for then fledgling Cable systems to negotiate with myriad program owners, Cable was given a government granted compulsory copyright license.  And the FCC adopted numerous Regulations (including Network Non-Duplication and Syndicated Exclusivity) designed to ameliorate the market disrupting effect of the compulsory license.  Later, compulsory licensing was extended to the Satellite TV industry segment.

Note that a key feature of this issue that has persisted since the early 1970’s is that it straddles Copyright and Communications Policy issues.  That means that it straddles the jurisdiction of the Judiciary and the Commerce Committees.  [In one meeting on Capitol Hill in the early 1970’s I (a young law student) opined that we should not let Committee jurisdiction get in the way of doing what was right.  In a stern rebuke that I will never forget, then House Commerce Chair John Dingell informed me “There is no issue more important than the scope of the jurisdiction of the Committee on Energy And Commerce”.]

Shortly after the 1976 Act, Cable systems began carrying both broadcast TV Stations and hundreds of non-broadcast channels – channels like Discovery, History Channel, HBO, Showtime, etc.  Because compulsory licensing does NOT cover the hundreds of non-broadcast channels, their carriage is proof that the Cable operators CAN secure performance rights without the need for a compulsory license.

By 1992 Congress found that Cable systems were paying carriage fees to the non-broadcast channels but not to the Broadcasters and that this was unfair to the Broadcasters.  The simple way to fix this would have been to repeal the compulsory licenses as then suggested by The Copyright Office and by Fox Broadcasting Company where I was employed.  But the legislative vehicle moving through Congress was a Commerce Committee Bill.  So, instead of repealing the Copyright Act compulsory licenses, Congress simple layered over them a Communications Act Retransmission Consent right requiring Cable/Satellite operators to negotiate and pay for the right to use the Broadcast “signal” carrying the compulsorily licensed programs.  In effect, Congress giveth with the right hand and then taketh with the left, creating a huge government bureaucracy.  Cable/Satellite operators get the program rights through the compulsory license but must negotiate and pay for the “signal”.  It is a ridiculous “legal fiction” that the Cable/Satellite operators (and consumers) desire the signal – they want the programs!  What we have today is a direct product of the jurisdictional straddle that has haunted this issue forever.

It Is Passed Time To Undue This Mess

As Majority Whip Scalise correctly perceives, it is passed time to repeal this whole mess and to defer to market forces.  His Bill does so in an even-handed and fair way that is certain to enhance consumer welfare.  Below are some of the questions I have heard raised about his Bill and my responses.

Will It Work?

Some continue to argue that the compulsory licenses are necessary for Cable and Satellite operators to retransmit broadcast programs.  Honestly, that is just silly.  For decades Cable and Satellite have been clearing the rights to programs on non-broadcast channels without a compulsory license. The channel owner clears all the rights and then sublicenses them to the Cable/Satellite operator.  Clearing the rights for programs on Broadcast channels could work the same way.

What About OTT Streaming Services?

In recent years some have argued that Congress should extend compulsory licensing to online streaming services.  But those services are multiplying and flourishing without compulsory licensing. Netflix has grown like a colossus over the industry.  And many streaming services like Hulu and Direct Now carry BOTH Broadcast and non-broadcast programs without the need for compulsory licenses.  In fact these streaming services are simply more proof that there is no need for the compulsory licenses.

Will The Broadcasters Have To Pay More To License Programs?

Some Broadcasters have expressed the fear that they will have to pay higher license fees for programs if they need to secure the right to sublicense those programs to Cable/Satellite retransmitters.  I do not believe that will be the case.  Many of the programs on TV Stations are Network shows secured as part of a Network Affiliation agreement.  The Networks already charge the local Stations as much as the market will bear – some argue they charge too much. And Retransmission Consent fees have been acting as a proxy for copyright and routinely are split between the Network and the Station.  There is no evidence that any of this would change if we get rid of the “legal fiction” that that Cable/Satellite operators are paying for the “signal” rather than the programs.

One of my last jobs was with a large producer and distributor of television programs including programs sold to local TV Stations on a market-by-market basis (“syndicated” programs).  I asked the executive in charge of those syndicated sales whether local Stations would be charged more if the boilerplate license agreement was amended to include the right to sub-license the programs to local cable/satellite operators. After polling the sales representatives the executive answered “no” because the sales representatives currently sell the show to the highest bidder in the market and that dynamic would not change.

Would Copyright Be A Stronger Foundation For Broadcaster Retransmission Fees?

There is one bedrock principle in all of this – Broadcasters, just like non-broadcast channels, deserve to be paid by any retransmitter.  In my opinion Broadcasters should favor repealing the compulsory licenses.  There is a strong argument that copyright actually would give local TV Stations a stronger foundation for their second revenue stream.  Currently some Cable/Satellite operators have mounted a non-stop attack on the Communications Act Retransmission Consent fees charged by Broadcasters for their “signal”.  By contrast, pure copyright is bedrock Constitutional principle that is harder to argue against.  Local TV Stations would have an entire army of fellow copyright owners to help them defeat any effort to undermine basic copyright rights.  Simply stated, pure copyright is simply a stronger foundation to assure a continued second revenue stream for Broadcasters.

What About The Rights Of Program Owners?

This might be the easiest of all.  When a programmer goes to bed at night its first prayer is for the right to direct and control the exploitation of the programs it has created unfettered by government intervention.  The Scalise Bill is the answer to that prayer.  In any rational world, this Bill will have the vigorous and unqualified support of program owners.

A Caveat On Must-Carry

I very strongly support all of Majority Whip Scalise’s Bill dealing with repeal of compulsory licenses and associated Statutes and Regulations.  And, I support his continuation of Must-Carry for public Stations.  I express no opinion regarding the future of Must-Carry Regulations for commercial Stations, leaving to others to determine whether there are public policy reasons to continue those Regulations, at least for certain categories of Stations.  Repeal of compulsory licenses does not require repeal of Must-Carry.  Must-Carry Stations would need only certify that they had secured the right to sub-license the performance rights in the programs on their schedule.

The One Truly Unthinkable Course Of Action

As noted I strongly favor repeal of the compulsory licenses and all of the Statutes and Regulations that exist to ameliorate the market disrupting effect of the compulsory licenses – Retransmission Consent, Syndicated Exclusivity, Network Non-duplication, etc.  The one truly unthinkable action would be to leave the Compulsory Licenses in place but repeal any of those ameliorating Statutes and Regulations.

I have testified before Congress on these issues multiple times.  Links to two recent examples are below:

Testimony before the House Judiciary Committee, September 2013 – https://judiciary.house.gov/wp-content/uploads/2016/02/Padden-testimony-091013.pdf

Testimony before the Senate Commerce Committee, July 2012 – https://www.gpo.gov/fdsys/pkg/CHRG-112shrg86916/html/CHRG-112shrg86916.htm

Preston Padden

On July 10, 2017 Microsoft scored a public relations coup in The New York Times.  The headline read, “To Close Digital Divide, Microsoft to Harness Unused Television Channels”.  How perfect!  Microsoft would be the selfless servant of the noble goal of providing residents and businesses in rural communities with the same high-speed Internet access enjoyed by those in big cities.  

There was only one problem.  The Microsoft plan was, in the words of highly respected Harvard Law Professor Susan Crawford, a cynical “hustle”.  Wired, 7/26/17.  Microsoft’s real goal is to get for free the scarce electromagnetic spectrum it wants to be a major player in the coming Internet Of Things – a world where all the devices in our lives and in industry will be connected to each other.  Providing and managing those connections will be a huge business and Microsoft wants in.  Its rural “White Spaces” Proposal is a pretext to get free spectrum in the TV Band nationwide. Microsoft already has access to “White Spaces” channels in rural America. If Microsoft’s real objective was to serve these rural areas, why is it asking the FCC to create “White Space” channels in downtown New York, Los Angeles, Chicago and other urban areas?

Microsoft is a great American company whose current management is highly respected.  That management is trying to recover from the disastrous missteps of its predecessors in famously missing the mobile revolution.  While Apple, the wireless carriers and others were investing heavily in the future, former CEO Steve Ballmer kept Microsoft on the sidelines.  He stated, “There’s no chance that the iPhone is going to get any significant market share. No chance.”  TGAAP 7/11/14.  Current Microsoft CEO Satya Nadella has acknowledged, “We clearly missed the mobile phone, there’s no question.  Our goal now is to make sure we grow new categories.” V3.co.uk, 10/25/16. 

Among those new categories is the Internet Of Things.  But having missed the mobile revolution, Microsoft seems to not understand one of the central building blocks of a mobile business – investing in spectrum.  The recovery Microsoft seeks will not be found by trying to get for free the mobile spectrum resources for which other competitors pay dearly.  One can be sympathetic about Microsoft’s past missteps, and root for them to do better in the future, without believing that they deserve Spectrum Welfare.

There are at least four ways that Microsoft can acquire the spectrum it wants to be a player in the Internet Of Things without seeking a public hand out.  First, it can contract for capacity with one or more of the nation’s wireless carriers who paid for their spectrum in FCC auctions. Second, Microsoft could participate in upcoming FCC spectrum auctions.  Reminiscent of its mistakes in mobile, Microsoft sat on its hands and failed to participate in the most recent FCC auction where it could have bought the exact same 600 MHz spectrum it now wants for free.  Third, Microsoft could buy spectrum in a secondary market transaction – the kind of transaction routinely used by other companies seeking spectrum.  In fact, there are several investors who, with an eye toward future resale, did buy 600 MHz Spectrum in the auction (again, the exact same spectrum Microsoft wants) who would be only too happy to sell to Microsoft.  Finally, Microsoft could simply buy a business that already owns spectrum.

In the 600 MHz auction, I led a Coalition of TV Station owners who were interested in selling their channels.  The auction was a success. But because Microsoft sat on the sidelines, demand was below expectations.  As a result, many Stations that wanted to sell were not purchased and all of the 600 MHz Spectrum that was available was not reallocated.   Now those Stations, and the Stations that never wanted to sell, are being subjected to an involuntary “repacking” process in which they must move to new channels and erect new antennas and other transmitting equipment.  

The repack is a Herculean task for which there is not enough time or money. Worse yet, there are not enough channels for all the TV stations including translator stations that bring network programs and local news to rural areas and low power stations that provide important local programming.  The Microsoft “White Spaces” plan – its land grab for free nationwide 600 MHz Spectrum – would seriously exacerbate these difficulties. Granting Microsoft’s request would mean that more consumers would lose more of the TV programming that they rely on today.

Microsoft’s bet seems to be that it’s cheaper to hire slick PR muscle and to try to hoodwink regulators into handing out free spectrum than to buy spectrum like everyone else.  As someone whose 600 MHz auction battle scars are still healing, I sure hope they are wrong.

Preston Padden is the former President of the ABC Television Network and a senior executive at Fox and Disney.  Presently he is a consultant to broadcasters, to broadcast associations and to spectrum investors.

[Note: Regrettably, no one paid me to write this. The views and experiences are my own.]

I have longtime friends who believe that the public interest requires the FCC to strictly limit the ownership of multiple TV stations. I genuinely understand and respect their opinions. But, my personal experience over 40 years in the industry suggests that TV ownership limits intended to enhance diversity may, in fact, prevent the creation of meaningfully diverse competitors.

My first job out of law school in 1973 was at Metromedia, Inc. Metromedia had emerged out of the ashes of the Dumont Television Network. In the late 1940’s television pioneer Dr. Allen Dumont warned the FCC that it must assign at least four VHF stations to all the major markets to assure the survival of the then extant four television networks. But in it’s Sixth Report And Order On Television Allocations in 1952, the FCC did not listen and Dr. Dumont was proven “dead right” – his network folded. The FCC’s allocations decision condemned the nation to decades of service from only three commercial television networks. Reading this history was my first lesson in how well meaning FCC Rules can have unintended consequences for competition and diversity.

As the Dumont Network was going out of business, it spun off to shareholders its owned TV stations in New York, WABD (named for Dr. Dumont) and in Washington, D.C., WTTG (named for Dumont Chief Engineer Thomas T Goldsmith). Businessman John Kluge acquired de-facto control of the new company and adopted the name Metromedia. A passionate competitor and risk taker, Mr. Kluge struggled to fulfill the FCC’s continuing priority public interest objective to create a fourth free-over-the-air commercial television network.

Kluge aggressively sought to expand Metromedia’s portfolio of owned television stations – the indispensible foundation of any network. But his efforts were thwarted by the FCC’s own Rules limiting the ownership of multiple stations. One particularly prominent obstacle was the FCC’s “Top 50 Policy” that required a “compelling public interest showing” to own more than 3 TV stations, or more than 2 VHF stations, in the top 50 markets. Of course, the TV stations owned by the three entrenched networks were “grandfathered” and exempt from compliance with the FCC’s ownership Rules and policies. The first decade of my life in the industry was consumed drafting, and advocating for, waivers of the FCC’s TV station ownership limits and its Top 50 Policy in order to advance Metromedia’s quest to launch a fourth network.

Meanwhile, Kluge and his executives, including television legends Al Krivin and Robert Bennett, were hard at work investing in compelling programming. They developed a late night show entitled “Thicke Of The Night” launching the career of comedian Alan Thicke. They spent a fortune on a five night-a-week primetime variety show hosted by Jerry Lewis. And they developed first-run sitcoms like “Dusty’s Trail” (essentially “Gilligan’s Island” on a Western wagon train). At the same time, Metromedia set industry records for daily local public affairs programming including the programs “Midday” in New York, “Chronicles” in Boston and “Panorama” in Washington.

But, the greatest programming in the world could not overcome the handicap imposed on Metromedia by the FCC’s TV station ownership Rules and policies. Mr. Kluge was not able to fulfill his dream, and the FCC’s policy objective, of creating a fourth network.

So, in 1985, Kluge sold his TV stations to Rupert Murdoch who also acquired the then bankrupt 20^th Century Fox film studio. Together with Barry Diller and Jamie Kellner, Murdoch set out to create the long sought fourth network. Again, FCC Rules got in the way. On behalf of Fox it fell to me to seek waivers of TV station ownership limits and other Rules intended to promote diversity like the TV/Newspaper cross-ownership Rule and the Financial Interest And Syndication Rule. In other words, the effort to create meaningful diversity required waivers of FCC Rules intended to create diversity!

The good news is that because the benefits of granting the Fox waiver requests were so strong – creation of a fourth free network and saving more than a hundred jobs at the New York Post – even strong supporters of TV ownership regulation like Senator Ted Kennedy, Governor Mario Cuomo and Senator Dan Inouye supported our waiver requests. But the point is that there is something fundamentally wrong when creating new competition and diversity requires waivers of Rules intended to promote competition and diversity.

I offer this history because I lived it. On many occasions I thought, “Why can’t the FCC see that these TV station ownership restrictions are preventing the creation of meaningful entities of scale that could bring to viewers the benefits of greater competition and diversity”? In today’s world of hundreds of cable/satellite networks, the Internet and OTT providers, that question is more compelling than ever.

Recent initiatives by the current FCC have given me some hope that the Commission’s well intentioned but counter productive and outdated TV ownership Rules finally may be repealed. If so, consumers almost surely will benefit from the emergence of additional free over-the-air networks. And at a time of escalating TV costs and cord cutting, enabling the creation of additional competitive and diverse free networks would be a great public service.

Some of my longtime friends seem to oppose repeal of the TV station ownership Rules because one beneficiary of repeal might be Sinclair Broadcasting Company, a company widely believed to have conservative views. But these same friends would be the first to insist that Federal licensing decisions cannot – must not – be based on political views.

I have not always been on the same page with Sinclair, particularly during a business dispute over the first round of Fox affiliation renewals. But, Sinclair has emerged as a genuine television industry leader, especially on technology issues. And, for all we know, the next beneficiary of deregulation could be Tegna, Scripps, George Soros or Tom Steyer. And that is what free markets, competition and diversity are all about. My real world experience with the television ownership Rules leaves no doubt that consumers will be well served by their repeal.

Today, the FCC’s Incentive Auction reached its “Final Stage”.  This means that, for the first time, the prices at which participating broadcast stations were frozen are real.  I am happy for the winning broadcasters.  I am disappointed for the participating broadcasters who did not win.  And I am deeply grateful to the dedicated FCC staff who worked tirelessly for four years to turn a bare statute into an auction.

When this process began the carriers proclaimed their urgent need for 600 MHz spectrum.  But, there was great concern whether broadcasters could be brought to the auction.  In part through the work of the EOBC, the broadcasters showed up.  But, interest among the carriers declined.  In the end, the carriers left 42 MHz of 600 MHz spectrum on the table – spectrum broadcasters were willing to sell.

A full post mortem will take time.  But it appears that delay, complexity and shifting carrier priorities led to a result that was less than it could have been.

Television Broadcasters, existing wireless carriers, potential new wireless entrants, speculators and the FCC itself all are curious about how the long awaited U.S. Incentive Auction of 600 MHz spectrum will play out.  Prominent questions include:

–       How much spectrum will the FCC clear?

–       How much will the cleared spectrum cost the FCC?

–       How much impairment will there be in the spectrum blocks offered to carriers and other bidders?

–       How many television stations will be assigned a repacked channel in the duplex gap or elsewhere in the new flexible use band?

In a new analysis conducted on behalf of a former Member of the Expanding Opportunities For Broadcasters Coalition, Cramton and Associates attempted to answer these questions.  Peter Cramton is a highly expert auction economist having advised 12 governments and 36 bidders in spectrum auctions around the world.  He has assembled a team of remarkably talented associates.  For their just completed Incentive Auction analysis they developed a full suite of auction tools including sat solvers, reservation (exit) price models, pre-solvers and performance analysis modules, an auction simulator (including what may be the only private sector replication of the FCC’s ISIX interference standards) and a clearing target optimizer.  All of these tools faithfully replicate the tools the FCC will use to run the auction and fully implement U.S. government agreements with Mexico and Canada.

The Cramton team did not “back into” their findings.  Most importantly, they did not start with assumed clearing targets.  Instead they made reasonable (even conservative) assumptions regarding broadcaster participation and then let the optimizer program work its magic.  For example, in the base case they assumed that affiliates of the top 5 commercial networks and PBS in the top 50 markets – the markets most critical to establishing the clearing target – would not tender their channels.  And they performed thousands of simulations that tested varying levels of TV Station reservation prices to assure robust results.

Of course, no pre-auction simulation can predict actual auction results with 100% accuracy.  But, the Cramton results represent a highly reliable estimate of the likely outcome of the Incentive Auction.  Those results include the following:

–       The FCC is likely to clear at least 114 MHz.  Tendering one additional TV Station beyond the base case in each market – perhaps through channel sharing – clears 126 MHz.

–       At 114 MHz, national impairment is likely to be only 4.9% and will be concentrated along the Mexican border, with minor impairment in the Northeast (4.5% national impairment comes from Mexico – so only 0.4% of the impairment comes from U.S. Stations).

–       At 114 MHz, 96.8 % of the spectrum blocks offered to bidders in the top 40 markets will be “Category 1” blocks.

–       Clearing 114 MHz is expected to cost the FCC approximately $42 Billion (including broadcaster repacking reimbursement and the cost of running the auction) or $1.49 MHz/Pop.  Because this is an actual simulation, not a “prediction”, there is no estimate of how much more carriers and others may bid.

–       At 114 MHz, only between 1 and 3 TV Stations will be assigned a channel in the duplex gap or elsewhere in the flexible use band – fewer even than FCC Chairman Wheeler’s July 16 press conference estimate.

The results of the new Cramton analysis should give comfort to television broadcasters, to wireless carriers and to the FCC Officials who have worked tirelessly to implement Congress’ auction mandate.

This is commendable super due diligence by the FCC Staff and it is great news that there is no change in the March 29 date. The extra filing time for stations and the emergence of well funded new entrant bidders, like Facebook exec led Rama, assure that more broadcasters will be able to benefit from the historic bidding frenzy for the last available low band spectrum.