A consent decree, requiring $50,000 payment to the FCC by the licensee and programmer of a noncommercial radio station, demonstrates two potential problem areas for broadcasters involved in LMA or Time Brokerage (TBA) arrangements. First, for noncommercial licensees it makes clear that the programmer cannot be paying the licensee any more for the programming time on the station than the costs of operation of the station itself – the licensee cannot “profit” from the LMA payments and use money for other non-broadcast activities of the licensee. Second, for any party engaged in an LMA, it is important for the licensee to maintain control over station operations – even if the bulk of the programming is coming from its LMA partner.

The lesson of this case for the noncommercial licensee is that an LMA can’t be looked at as a revenue-generating activity for the licensee. In this case, the licensee received significant LMA payments that were about twice the amount of the actual costs of its operation of the station. These excess payments were to be credited to the ultimate purchase price of the station should the programmer choose to exercise an option at the end of the LMA term. However, these payments were apparently not characterized as option fees, but instead as LMA payments.

In a case involving a station that was then owned by the University of San Francisco, which came before the FCC about 4 years ago and was resolved in June 2012, the FCC entered into a very similar consent decree. There, it also imposed a $50,000 penalty on the University licensee that entered into an LMA with a potential buyer where the payments exceeded station operating expenses. In both that case and this one, the FCC pointed to Section 73.503(c) of the rules which allows third parties to provide programming to noncommercial licensees, but does not allow payments beyond the cost of the broadcast of those programs. The rule goes on to clarify that “payment of line charges by another station network, or someone other than the licensee on a noncommercial educational FM broadcast station, or general contributions to the operating costs of a station” are not prohibited. From both the San Francisco case and the one released on Friday, the clear message is that the “general contributions to the operating costs of the station” cannot exceed those costs. So licensees cannot use an LMA to raise money to finance other operations of their entities that are not related to the broadcast operations.

In the San Francisco case, the Chief of the Media Bureau issued a further statement saying that the decision was not meant to limit the sales price of noncommercial stations, nor did it necessarily prohibit the payment of option fees, but there have not been other published decisions interpreting this statement. In the view of the FCC, a noncommercial licensee gets a noncommercial license to serve the community, not as a fundraising tool, and so it should not use the station to financially support its other activities through LMA payments in excess of station expenses (or payments for any other programming that exceed station operational costs, for that matter).

The decision is also worth considering for all stations involved in an LMA – not just noncommercial operators. Part of the contribution made by the parties was as a result of the FCC’s determination that there had been a premature transfer of control of the station because the station’s licensee did not have any employees regularly at the station. While the FCC permits programming to be provided to stations by third parties, the fact that the licensee is not producing its own programming does not absolve it from both supervising that programming and observing the FCC rules about main studio staffing – requiring that a station have two employees who report to the station’s main studio as their principal place of business on a daily basis, at least one of whom must physically be present at the studio during normal business hours. See more about the main studio staffing rules in our articles here and here. FCC staffers have many times said that a station licensee who enters into an LMA cannot just “go to the beach” and collect checks from the station programmer, but instead must remain actively involved in the operation of the station on a day-to-day basis.

Anyone involved in an LMA needs to review their operations in light of this decision. Station licensees need to make sure that they have employees of their own at the station on a daily basis. Noncommercial licensees involved in LMAs, especially those that were entered into before the San Francisco case, need to be sure that the consideration being paid as an LMA fee does not exceed the operational expenses of the station – or risk substantial penalties.