How Far Can a Network Go?

A recently issued declaratory ruling from the FCC in the matter of Rocking M Radio, Inc. (DA 10-242), (hereinafter "Rocking M") is a veritable primer on FCC policy regarding network programming and the licensee-network relationship. For those wishing a refresher course, it is a good review.

A broadcast station group owner caused its stations to enter into affiliation agreements with its commonly owned local programming network. At the time of the agreements, the programming network and the stations were owned and controlled by members of the same family. Later, the stations were sold and wound up in Rocking M, which contested various features of the affiliation agreements as contrary to law and unenforceable. On nearly all points, the Commission agreed.

History

The Network affiliation agreement contained the following features:

1. A perpetual term which could be terminated by the network but not by the station. A change in format (including primary language of the station and demographics) or a cancellation by the station would not terminate the agreement.

2. The affiliation agreements bound all successor assignees of the station licenses.

3. If the station did not broadcast the network programming, it was nevertheless required to broadcast the network-supplied commercials.

After Rocking M obtained the stations, it decided to change the format to Spanish. The language and nature of information supplied by the network was no longer useful to Rocking M and, in its opinion, was inappropriate to the demographics of the new audience. The network would not release Rocking M from the obligations of the affiliation agreements, taking the position that it was obligated to run the network-supplied commercials even if it did not run the programming. Rocking M took the position that enforcement of these agreements would amount to an unauthorized transfer of control, substituting the judgment of the network for that of the licensee on how best to serve the public interest, and requested the Commission to declare these provisions of the affiliation agreements invalid and unenforceable. Specifically, it asked:

1. Can a network affiliation agreement bind a broadcaster to air network programming and commercial matter?

2. If a change in format makes the network-supplied programming inappropriate for the new audience, is the broadcaster still required to carry the programming?

3. Can a network enforce a substantial liquidated damages provision for failure to broadcast network programming?

4. Would an obligation to air network-supplied programming or face substantial penalties contravene § 310(d) of the Communications Act, which prohibits an unauthorized assignment or transfer of control?

5. Can the agreement be enforced under threat of a significant damages award?

The FCC Declaratory Ruling

With one exception, the Commission answered each of these questions in favor of the licensee, concluding that under §310(d) a licensee must retain ultimate control over programming and that an affiliation agreement cannot bind a licensee to broadcast fixed amounts of specific programming and accompanying commercials in perpetuity. Further, a licensee must be free to exercise its own judgment on how best to serve the public interest. A contract that contravenes these principles cannot be enforced.

The former licensee had included a provision in the purchase agreement that a portion of the consideration for the assignment was buyer's agreement to provide the seller with "ongoing access" to the stations. The Commission ruled that this amounted to an impermissible reversionary interest, prohibited under §73.1150(a) of its rules.

The one point that did not go in favor of the licensee related to damages and local court jurisdiction. The Commission reaffirmed its consistent position that resolution of a private contractual dispute concerning money damages is properly brought before a local court of competent jurisdiction, and that the Commission will not interfere in contractual matters that do not seek to enforce performance of the invalid provision. However, it would be a violation of §310(d) for a program supplier to seek judicial enforcement of a contractual provision that interferes with a licensee's right to determine programming and that excessively high liquidated damages for breach may bring a licensee's control into question. It stated further that the Commission has never suggested a comparable principle with respect to actual damages.

Importantly, the Commission noted that, while it has imposed monetary penalty limitations on television affiliates in the narrow context of preemptions protected by the "right to reject" rule of §73.658(e), that limit is inapplicable to these affiliation agreements. That section prohibits network contracts provisions that would hinder a station from rejecting any network program which the station reasonably believes to be unsatisfactory, unsuitable or contrary to the public interest, or from preempting for a program the station believes to be of greater local or national importance.

This column is provided for general information purposes only and should not be relied upon as legal advice pertaining to any specific factual situation. Legal decisions should be made only after proper consultation with a legal professional of your choosing.