The broadcast trade press is full today with the news that NAB CEO Gordon Smith will be stepping back from that position at the end of the year, to be replaced by current COO (and former head of Government Relations) Curtis LeGeyt. As many will remember, Smith took over the organization over a decade ago during a turbulent time for the industry. At the time, TV stations faced increasing calls for other uses of the broadcast spectrum, and radio stations faced a possible performance royalty on their over-the-air broadcasts of sound recordings. Since then, through all sorts of issues, there has been a general consensus in the industry that its leadership was in capable hands and meeting the issues as they arose.
But many issues remain for broadcasters – some of them ones that have never gone away completely. The sound recording performance royalty for over-the-air broadcasting remains an issue, as do other music licensing issues calling for changes to the way that songwriters and composers are compensated, generally calling for higher payments or different compensation systems (see our articles here on the GMR controversy and here on the review of music industry antitrust consent decrees). TV stations, while having gone through the incentive auction giving up significant parts of the TV broadcast spectrum, still face demands by wireless operators and others hungry for more spectrum to provide the many in-demand services necessary to meet the need for faster mobile services (see our articles here on C-Band redeployment and here on requests for a set aside of TV spectrum for unlicensed wireless users). But competition from digital services may well be the biggest current issue facing broadcasters.
Digital services compete directly with broadcasters for both audience and advertising dollars. The FCC’s 2017 changes in the ownership rules upheld by the Supreme Court last week (see our article here) were premised on changes brought about by digital competition. Certainly, the abolition of the newspaper-broadcast cross-ownership restrictions was directly tied to the newspaper industry being fundamentally weakened by digital competition. Forty-five years ago, when the prohibition was initially approved, newspapers had the largest share of the local advertising market. As much of their readership and advertising is gone, many papers are struggling to stay alive. Thus, the newspaper has gone from a competitor whose combination with a broadcaster threatened the competitive balance in a market to one where that combination can be a lifeline to the paper.
The TV rules were also relaxed by the Court’s decision. In light of competition from streaming services and online content, the FCC decided to allow TV owners in small and medium markets to own up to two TV stations, so that those owners can continue to provide the local services and free entertainment for which they have been known. While there have been some calls to revisit those decisions, one can only imagine that the pandemic has accelerated trends toward more reliance on streaming services. Moving away from the modest 2017 relaxation in local TV ownership rules in today’s environment would only set the stage for a weakened TV industry in the future.
Radio too faces these threats (see our articles here and here). As radio audiences are eroded by streaming and podcasting, and over-the-air radios are becoming harder and harder to find in stores and even in homes, one cannot help but see the impact of digital competition on the health of the industry. In 2019 when the FCC took comments on the radio ownership rules, economic studies showed that the big tech companies are now taking more than 50% of local advertising dollars in virtually every market in the country. This has reduced the revenue that formerly supported local media like radio (which has always received the bulk of its advertising sales from local advertising, not national ads). Allowing local radio stations to combine to battle the digital media giants will be another battle that will have to be faced by the NAB in the near term.
Regulation of the online platforms themselves is certainly going to be another issue on which the NAB will have to weigh in. We recently wrote about the proposals for changes to the antitrust laws to allow broadcasters and other traditional media companies to jointly negotiate for fair compensation and other rules of the road with online service providers who distribute their content. The NAB already has endorsed that call. That issue will no doubt be just one of the many issues about digital regulation that will arise. There have been some calls for creating a must-carry/retransmission consent regime for the virtual MVPDs that are now competing with traditional cable and satellite TV providers. And there are a whole host of other proposed regulations on these digital platforms that the NAB will no doubt need to consider (see our article here for a summary of some of these issues).
These big picture items are just some of the many regulatory issues facing broadcasters. There are always tax issues (like advertising sales taxes and ad tax deductibility) that could cause problems for broadcasters. Other advertising issues regularly arise. In the past few months, we have seen more and more calls for limitations on press freedoms and First Amendment protections that should trouble broadcasters. And the FCC is always doing something that could affect broadcasters in some way, requiring industry vigilance.
The broadcaster’s regulatory plate is full. We look forward to seeing Senator Smith at industry events during the remainder of his term to wish him well and thank him for his service. And we extend our congratulations to Curtis LeGeyt and look forward to working with him, as he will now be charged with tackling all of the issues that face the industry in the coming years.