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Earning Income as a PEG Access Facility - Legal Considerations

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PEG, legal, Moss & Barnett, Brian Grogan, Wisconsin Community Media,

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Earning Income as a PEG Access Facility - Legal Considerations

  1. 1. 1Earning Income as a PEG Access FacilityLegal ConsiderationsWisconsin Community Media - Spring ConferenceMilwaukee, WI – April 26-27, 2013Brian Grogan, Esq.
  2. 2. QuestionHow do community programming centers makeup revenue lost from decreasing franchise feesor reduced/eliminated PEG fees?First – why is this happening now?2
  3. 3. Problem• Cable operator revenue is not growing– Thus franchise fee revenue is relatively static• Cities cannot impose franchise fee on:– Telecommunications – regulated by PUC– Broadband – regulated by FCC• Community programming centers depend ontwo types of revenue to operate:1.Franchise fees– if city dedicates a portion for local programming2.PEG fees– except state franchising statutes – Wisconsin3
  4. 4. Why This is Happening Now?• Some subscribers are disconnecting from cable– Growth of DBS has been significant– Over the top cable is having an impact– Wireless devices– Economy – high cost• Millennial generation not dependant on cable– Few college students subscribe to cable– All college students have broadband service4
  5. 5. Basic Cable Subscribers51975-2011SOURCE: SNL KAGAN/NCTA
  6. 6. 6DBS Subscribers2002 18,240,0002003 20,360,0002004 23,160,0002005 26,120,0002006 29,100,0002007 30,600,0002008 31,300,0002009 32,600,0002010 33,300,000SOURCE: JULY 2012 FCC REPORT ON COMPETITION
  7. 7. DBS Impact on PEG• No local or state franchise• No franchise fees• No PEG fees• No local PEG content7
  8. 8. Basic Cable Phone SubsYear /Subs1998 .11999 .32000 1.02001 1.52002 2.52003 3.02004 3.8Year/Subs2005 5.92006 9.52007 14.92008 19.62009 22.22010 23.92011 25.3in millions8
  9. 9. 9High Speed Internet Customers(IN MILLIONS)1997 - 2011SOURCE: SNL KAGAN
  10. 10. 10Cable Industry Revenue (,000s)Year Res Video Other Rev Total Rev1996 $24,136 $2,984 $27,1201997 $26,270 $3,532 $29,8021998 $27,626 $6,152 $33,7781999 $30,050 $7,341 $37,3912000 $32,541 $9,575 $42,1162001 $35,734 $9,743 $45,4772002 $36,738 $11,160 $47,8982003 $39,338 $15,056 $54,3942004 $41,813 $18,212 $60,0252005 $43,832 $21,846 $65,6782006 $46,518 $25,354 $71,8722007 $49,105 $29,719 $78,8242008 $51,811 $34,470 $86,2812009 $53,040 $36,861 $89,9012010 $55,470 $38,310 $93,7802011 $56,938 $40,660 $97,598SOURCE: SNL KAGAN – NCTA website (in millions)
  11. 11. Finding New Revenue• PEG organizations• Seeking new sources of revenues• Breaking free of years of self-imposed restraint• PEG channels are not limited to noncommercialuse.11
  12. 12. Cable Act• No prohibition on commercial speech on PEG– If a municipality determines advertising is usefulto fund programming on local government at workor other appropriate PEG programming, I findnothing in the Cable Act that would prevent amunicipality from doing so.• Time Warner Cable v. City of New York, 943 F.Supp. 1357, 1387 (S.D.N.Y. 1996)12
  13. 13. FCC Guidance• Federal law previously permitted a cableoperator to:– prohibit the use of a PEG channel forprogramming that contains:• obscene material, sexually explicit conduct,indecency, nudity, or material soliciting orpromoting unlawful conduct.• However, the U.S. Supreme Court determinedthat this law was unconstitutional.13
  14. 14. FCC Guidance• Cable operators may not control the content ofprogramming on public access channels– Exception:– Cable operator may refuse to transmit a publicaccess program which the cable operatorreasonably believes contains obscenity.14
  15. 15. Wisconsin State Law• Section 66.0420(2)(s):“PEG channel” means a channel designated fornoncommercial public, educational, orgovernmental use.• Line item veto by Governor in 2007.15
  16. 16. Franchise• In Wisconsin:– Since 2007 State issues the franchise– No more local franchise• If your city is not in Wisconsin– Must carefully review local franchise with operatorfor possible contractual restriction16
  17. 17. Local Code• Many cities continue to have antiquated localcode provisions governing cable• These cable ordinances often date back 20+ yrs– Well before the 2007 Wisc. state franchising law• These cable ordinances may containnoncommercial PEG requirements– May contain requirements that channel time mustbe made available to residents “Free of Charge”17
  18. 18. Traditional Noncommercial Use• Identification of financial supporters– similar to PBS sponsorships• Solicitation of financial support for– charitable, educational or governmental purposes• Programming offered by– accredited, non-profit, educational institutions– Telecourses18
  19. 19. Sponsorship• One that finances a project or an event carried outby another person or group• Especially a business enterprise that pays for radioor television programming in return for recognition• i.e. advertising time• http://www.pbs.org/insidepbs/guidelines/howto.html19
  20. 20. Qualified SponsorshipActivities• This is any payment made by a person engaged in a trade orbusiness for which the person will receive no substantialbenefit other than the use or acknowledgment of the businessname, logo, or product lines in connection with theorganizations activities. “Use or acknowledgment” does notinclude advertising the sponsors products or services.• For example, if, in return for receiving a sponsorship payment,an organization promises to use the sponsors name or logoin acknowledging the sponsors support for an educational orfundraising event, the payment is a qualified sponsorshippayment and is not subject to the unrelated business incometax.20
  21. 21. Advertising• Generally refers to the sale or exchange of agood or service or– the solicitation of donations, remuneration orbarter• Is a pastor asking for donations advertising?• A political candidate asking for contributions?• A plea for Save the Starving Children?21
  22. 22. Advertising• A payment is not a qualified sponsorship payment if, inreturn, the organization advertises the sponsors products orservices.• Advertising includes:– Messages containing qualitative or comparative language, priceinformation, or other indications of savings or value;– Endorsements; and– Inducements to purchase, sell, or use the products or services.• The use of promotional logos or slogans that are an establishedpart of the sponsors identity is not, by itself, advertising. Inaddition, mere distribution or display of a sponsors product bythe organization to the public at a sponsored event, whether forfree or for remuneration, is considered use or acknowledgmentof the product rather than advertising.22
  23. 23. New PEG Revenue Options• Sponsorships• Advertising• Memberships• Charging for channel time• Resale of programming• Studio/editing leasing• Production services• Other?23
  24. 24. Goldberg v. Cablevision Systems• New York has a noncommercial state requirement• PEG producer sought to sell:– $39 duplicate tape or $5 transcript of program• 2nd Circuit held– Message would not render program “commercial”– Primary role was to disseminate message– Not to produce financial gainA cable operator may refuse to cablecast on a publicaccess channel any programming that does not meetthe legal criteria for dissemination in that forum.24
  25. 25. Policies• Written policy setting forth acceptable advertising– Avoid viewpoint discrimination• Should a government access channel acceptsponsorship/advertising funding from an entity:– That bids on City contracts?– Provides services to the City?– Is currently lobbying controversial legislation underthe purview of the City?– Is a candidate for City office?25
  26. 26. Nonprofit Fears• Detract from the mission of the nonprofit• Undermine the organization by introducing“market forces”• Be too difficult or complex to manage• Put the nonprofit status at risk• Impose “Unrelated Business Income Tax”26
  27. 27. Unrelated Business Income TaxUnrelated business income is the income froma trade or business regularly carried on by anexempt organization and not substantiallyrelated to the performance by the organizationof its exempt purpose or function.Additional UBIT Info:http://www.irs.gov/pub/irs-pdf/p598.pdf27
  28. 28. UBIT Analysis1. Ascertain organization’s exempt purpose– Articles of Organization– Limited by 501(c)(3)2. Is business activity substantially related to theaccomplishment of exempt purpose?If not, then UBIT28
  29. 29. Consequences of UBIT• The business income is taxable; and• If the unrelated activity is a substantial part ofthe organization’s activities, potential for lossof exemption.29
  30. 30. How Can You DevelopAlternative Sources of Revenue• Analyze services you can provide/sell• Determine what might be saleable• Conduct market research to understand theprofit potential• Balance the promise of profit with the mission ofthe organization• Develop products or services• Create a business plan30
  31. 31. Business Plan Details• Business model and how it operates• Competitive landscape and how the nonprofit cancompete effectively to sell goods/services• Structure, roles and responsibilities of staffing for thebusiness– Stay true to mission statement – discuss with city• Pricing, promotion, packaging, and distribution ofthe products/services• Financial plan• Day-to-day operational plan for the business31
  32. 32. Questions to Think About• Are we in a fairly stable financial situation?• Do we have core assets/personnel that could betransformed into saleable products or services?• Is there a potential market with a willingness and ability topay for these products/services?• Would the sale of these products/services be acomplement to, not a distraction from, our mission?• Is our staff, board, council, elected officials– for the most part, open to risk and experimentation?• Do we have access to funders who could potentiallyprovide some startup capital for an earned incomeventure?32
  33. 33. Processes to Undertake1. Analyzing assets to determine potentialproducts/services to sell2. Conducting market research to determinecompetitors and consumers3. Pilot testing a product/service4. Creating a business plan including marketing,staffing, financial model, risks and mitigations5. Launching the business33
  34. 34. 34Thank YouBrian T. Grogan, Esq.Moss & Barnett, A Professional Association4800 Wells Fargo Center, 90 South Seventh StreetMinneapolis, MN 55402-4129(612) 877-5340 phone / (612) 877-5999 facsimileE-mail: GroganB@moss-barnett.comWebsite: www.moss-barnett.com

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