Ep. 9 - Legal Updates on Local Franchising, Alternative Funding Models & FCC Participation

How important is cable franchising in today's world? When we look at where cable franchising, or where cable subscriptions have been over the past several years, there's no question that it's going down, and we know why it's going down. It's going down because of streaming. But, when you look at the revenue that's being generated from cable television subscriptions, it may surprise people that the number is still at 36. 75 billion dollars a year. So it's still a very, very, it's a big number, right? And when you look at cable subscribers across the country, there's still between 60 and 65 million subscribers across the country. So while they have gone down, there's no question about that. Cable franchises still remain a very valuable contract, again, for both the cable operator and for the local government and cable access organizations. This podcast is for city communications teams and video professionals in government. We talk about expanding service delivery with video and streaming, media accessibility, gear, broadcast and streaming workflows, and more. It's all right here on the Government Video Podcast. Hello, and welcome back to the Government Video Podcast. I'm Michelle Alimoradi, and I'm here this week with Mike Bradley of Bradley Werner Law. He is a telecom specialist working specifically with cable franchise renewals and working with access organizations across the country on the very specific issues that face our industry. We're very pleased to have you back with us today, Mike. We've, had the pleasure of, collaborating with you and your firm on several other projects before, um, and we, we love what you guys are doing. Thanks for being with us today. Well, thanks so much for having me, Michelle. Appreciate it. Mike is joining us today to give us a legal update for the industry. So we're just going to take a look at what you've been up to. For the last six months, right? And, uh, hear about the different types of things that folks are dealing with across the country, and then also some things that are happening at the federal level. And I believe we wanted to start with something that's kind of evolving and changing as we see the role of streaming, um, really overtaking cable. And that's, whether or not stations care about their franchise renewals. Like how important is that still? And what are, what have you been seeing in the last few months? Yeah, and that's a great question, Michelle. It's a question that we get quite a bit is how important is cable franchising in today's world? And, and really it's still a very, important contract that local governments and access organizations have with the cable operators. And it's important for a couple of reasons. First is it's, it's very important to the cable operator. It's still a very valuable contract that the cable operators have to have in order to provide cable service to residents in every jurisdiction. And of course it's also important to the local governments and the access organizations because the cities and access organizations rely on franchise fees and PEG funding. They rely on cable franchises to get those public benefits of the access channels themselves. And so, these still are very valuable, contracts. When we look at where cable franchising, or where cable subscriptions have been over the past several years, there's no question that it's going down, and we know why it's going down. It's going down because of streaming, like you mentioned. But, when you look at, the revenue that's being generated from cable television subscriptions, it may surprise people that the number is still at 36. 75 billion dollars a year. So it's still a very, very, it's a big number, right? And when you look at cable subscribers across the country, there's still between 60 and 65 million subscribers across the country. So while they have gone down, there's no question about that. Cable franchises still remain a very valuable, contract, again, for both the cable operator and for the local government and cable, access organizations. For sure. Are you seeing any other key changes of note in these renewals? Like, I know we were seeing a trend in you know, negotiating around fiber or INETs or other things that people wanted within these contract renewals, anything new or exciting happening in that? Yeah. Well, for sure. You know, one of the, the biggest things that, that we're seeing with cable franchise renewals is, is really on the compliance side. So when local governments are, looking at renewing their cable franchises with their cable operator, one of the first things that the local government needs to do or the franchising authority needs to do is to make sure that the operator is complying with the existing cable franchise. And so one of the things that we're seeing, again this is related to that streaming question. And what we're seeing, really across the board is that franchise fees are being underpaid and and it's really yeah, it's really because of of streaming. And so when you look at how video is being delivered to subscribers using a cable system, it's being provided, through cable channels, it's being provided through some sort of video stream. But it's all, all video programming. And so when you look at, you really have to look at the definition of what a cable service is. And when you look at that definition in federal law, the definition is a video programming or other programming provided over the cable system in a one way format. And when we look at cable operators, streaming products, we can take, the Peacock product from Comcast as an example. So that's an example of, Comcast providing the Peacock service, which is video programming, and delivering it to subscribers over its cable system. Comcast happens to own Peacock, as probably most people know. Now, when you look at that, and you look at the definition of cable service, and you decide, okay, well, what, what is Peacock? You know, is it something different than cable service? Well, you look at that definition of, cable service being video programming. Well, video programming is defined in the Cable Act II, and it's defined as programming like broadcast television. Right now we're recording this during the Olympics, right? And so how can you watch the Olympics right now? You can watch it on NBC, you know, during prime time, but you can also watch it on Peacock pretty much 24/7 probably. Right. And so it's the exact same programming as a broadcast channel. So when you look at this video programming delivered by streaming, it seems to me that this is a cable service. Now the cable industry doesn't agree with that assessment. And they do not. Why would they want to agree with that? Right, right. They don't, they don't agree. They're not including any revenue derived from streaming in their calculation of gross revenues. And that's what franchise fees are paid on. And as, as we know, local governments and access organizations rely on that franchise fee revenue or pay fee revenue, which is often tied to gross revenues in today's world. And it's a significant amount of money that's not being collected and paid as franchise fees. Is this discovery that franchise fees are being underpaid only happening when folks are starting to get into their contract renewals and, you know, then suddenly looking into what revenue is coming in? Um, is there something that folks could be doing on a regular basis to monitor whether or not they're getting their fair share of fees, what are we seeing? What are you seeing? You know, That's a great question, Michelle, because local governments, franchising authorities should be reviewing how they're getting paid on a regular basis. And by that I mean every three to five years they should be doing some sort of an assessment through, you know, a financial consultant or maybe through their own finance department. And making sure that they're getting the benefit of their bargain, meaning they're getting paid the appropriate amount of franchise fees. On a 10 year contract, that's checking in like two to three times on whether or not they're getting a fair payout. That, I think that's right. And I think that's, that's probably good governance, right? You're making sure that you're getting paid what you're supposed to get paid under that contract. It comes up a lot of times during franchise renewal because that's a natural time where we look at compliance with the existing franchise. There's usually nothing to stop a, a franchising authority from looking into those franchise fee payments during the term of their contract. And what recourse does an organization have if they've discovered, say, three years into a 10 year contract or, or better yet, they're looking now nine years into a 10 year contract and discovering they've been underpaid for a very long time. What recourse does that organization have at that point? Are they gonna try to recoup that in the new contract? Do they have to recoup that before they sign the new contract. All those are really good points. I think, number one, as far as franchise compliance, that's going to differ between jurisdictions according to their franchise, or maybe even according to their state law. But, there is a way to enforce your franchise and the franchise fee underpayment. For sure, on a, through a local process. Local governments should definitely be looking when they're looking at renewing their, their franchise, they should be looking at language, making sure they're not unintentionally excluding revenue that should be included in their gross revenues. What would be the common revenues that folks are overlooking? Well, you just want to make sure you're not, um, inadvertently excluding internet revenues, for example. Because the cable operator may claim that these are internet revenues and not cable service revenues. So I think that's probably the biggest one. I think you also want to make sure that your definition of gross revenues is broadly construed and have language actually in your franchise that says that. Yeah, and that was going to be my other follow up to you because it seems like we've seen certain states going after very specific language to define what they are due from streaming revenues. Um, whereas other states, it seems to be a little bit more nebulous. What is the ambiguity that is leading to people not understanding what they're due, and how can we help folks be more proactive to maybe their existing contract and the future ones that they negotiate? Yeah, you know, I, I think probably the biggest issue, uh, that's causing some confusion is, differentiating between a cable operator providing video programming by a streaming over its cable system. Versus a standalone, streaming operator. So something like Netflix or Apple TV or Amazon Prime. And um, there's been some, some lawsuits relating to whether these over the top streamers are subject to cable franchising rules usually under state law, state, franchising laws. Yeah. So these state level lawsuits that we're seeing, tend to be geared towards those streaming only services. That's right. Yeah, I don't think there's been a case decided in the country related to how, video programming delivered via streaming is a cable service. That's a really big difference because it's, it's the fact that it's a cable operator delivering video programming. Yeah. Over its cable system. That's the big difference. And, um, and I think a lot of times there's confusion there. That if a local government isn't paying super close attention to what that those lawsuits are about, they could be perhaps misled as, as far as what the impact of those lawsuits really are. That's great. That's really important. I think for a lot of cities and, and PEG organizations to understand going into this. So anything else that we should be thinking about? In terms of franchise renewals, that seems to be new or, um, particularly unclear in terms of what the future holds. You know, I think a lot of, a lot of local governments across the country are starting to look at, you know, where is modern franchising going? Hi, Michelle here. We hope you're enjoying this episode of the government video podcast. I'm taking a short break from today's discussion to remind you that this podcast is brought to you by Cablecast Community Media. We're a cross platform video solution from Tightrope Media Systems. And despite our name, we help cities, towns, and other local media organizations get their video to viewers on all digital platforms, including cable. If your organization operates a cable channel, um, but we help you reach residents whenever and wherever they watch. Be it on your city's website, on mobile streaming apps, on over the top platforms like Fire TV, Roku, Apple TV, or even on their mobile phone. And we even help you push your content live to social media. We've been helping small non commercial stations launch professional, affordable, and efficient video initiatives for over 25 years. And our customers love us because we have great customer support and we have fierce industry loyalty. So if your organization is in need of cross platform video automation and delivery for local coverage of city council meetings or other local events, reach out to our team and schedule a demo today. And if you do, be sure to mention that you heard about it here on the Government Video Podcast to receive a special discount. That's all for me for right now. Back to the episode. When you're looking at cable franchises, there's a lot of really good success stories that local governments and access organizations can tell, right? Through cable franchising, local governments have made sure that, um, cable systems serve all the residents to provide all the same services at, at all the same costs. And that's a really good and powerful story to tell. And when you translate that to broadband, and I think most people realize that even though cable is still, you know, very significant, we know that the future really lies in broadband. And so I think cities are starting to look more and more towards, you know, how could franchising be a part of developing broadband in a way that provides equal opportunity and equal access to the same types of services across their entire franchise area. And so we're starting to see, you know, more and more interest in that. It's also when, when you look at, the funding of access television, when we know that the funding is declining generally with cable franchising, broadband franchising could be another way of enhancing that public benefit of access television and access television funding. So it's kind of a natural, I think, for local governments to start looking at that. It's the future. There's a lot of reasons to have this kind of long term protection for local governments and their residents. There's a historic amount of broadband spending going on by the federal and state governments right now, and there aren't any real long term protections for residents and for that spending and so it's really kind of a real natural good time to be having that discussion as to whether or not local government should be involved in franchising broadband companies just to make sure that residents have that equal access to broadband, they have the same access to the same types of quality of service and that these public benefits, which could include access television, it could include other, you know, digital equity types of, of issues to make sure that those are all brought forward as we, go through kind of this historic time of spending money on, broadband. As we move into, exploring broadband in these negotiations, um, how do the stakeholders change at that point? Who else is involved? Who else is in the room? As you're exploring, you know, community impact and figuring out how to make the best decisions for those types of negotiations. Yeah, that's, that's a really good question. I think the first question is, you have to look state by state to see if there is authority for the local government to franchise broadband in the first place. So, in some places, that, yeah, you have to start there. So, looking at your state constitution, your state laws, your home rule charters for the cities to see what authority does your local government have related to broadband right now? I would suggest that in a lot of places across the country, state laws need to change in order to franchise broadband. And so in, in Minnesota, for example, Minnesota put forward an act called the Equal Access to Broadband Act. And that would allow local governments to franchise broadband and do all of those things that we were just talking about as far as making sure that residents get that same quality of service across the board. So there's not one part of town that has lightning fast service and the other side of town doesn't. And those are some of the things that broadband franchising can bring. And Minnesota passed this? Minnesota did not pass it. Minnesota introduced it last year. It had several hearings. It passed out of committee. It went to the House floor, the House of Representatives. But unfortunately it didn't, it did not pass in Minnesota last year. But that was the first year it was brought forward. It had a lot of support, obviously, to go all the way to the House floor. And, um, you know, we'll see if they, they bring it forward next year. I can provide a, a link to your, your audience for that, to that legislation, but it's House File 4182. That's great. Yeah. And we'll link that on our website on cablecast.tv. And people can check that out for a model that they might want to bring to their state. And, um, yeah, I think that's great. So we're thinking about broadband now in the future of franchise renewals and, and anything else on franchise renewals that you wanted to throw in? Well, one other thing I just thought I'd mention is, is about, protecting or standing up for PEG funding. And, you know, we've talked about PEG funding in terms of franchise fees, and PEG fees through cable franchises. You know, I think other jurisdictions are now starting to look at whether or not there should be another source of, of funding that makes sense to make sure that access television stays viable, moving forward. And there's a lot of different ways that access organizations and local governments can, can look to that. Again, it's usually it involves some type of legislative change at the state level. Um, but there's a number of models out there that local governments can look at. One is that Equal Access to Broadband Act that I just mentioned in Minnesota. That allows the franchising of broadband. But other states are looking at some other alternatives. So for example, the state of Vermont just recently passed this last session an appropriation funding for access television organizations in the state of Vermont. So that is, it is, uh, it will be, you know, very, very beneficial to those access organizations serving the state of Vermont. The other states like the state of New York, are looking at ways of having a fee or tax on streaming services and then funding access television, through those types of taxes or fees on what I would call over the top types of streaming services. I think it's really important to look at the, the value of access organizations. Today. Oh, yes. . Right. And and they are, that's why we're here. Yes. Right. I mean, they are more valuable than ever. And I would just suggest that, you know, during COVID, how were we able to watch government meetings? If it wasn't for access television, we wouldn't be able, really able to do that at all. And yes, and we a, we were able to shift into online meetings very quickly. In large part due to access television organizations having the facilities and capabilities of doing all those things. Yes, and, another aspect of this that we don't talk about or we haven't been talking about as much on this podcast, but we will start to is, you know, we talk about city council meetings and things like that in terms of government services, but we haven't gotten into as much of what these organizations do for school districts as well, which is very important. Yeah. And then look at, um, look at newspaper services in cities across the country and look at local news for even, you know, major metropolitan areas, all of that's declining. So more and more your local newspaper, if you still have one, by the way, most, most of them in suburban areas are disappearing, you know, quickly, but even the ones in major metropolitan areas, you're getting more and more national feeds, national articles in your local paper. And so you're having fewer and fewer local reporters reporting on the local news. And so, where do residents get their information about what their local government is doing? It's typically not through the local newspaper and it's not through, local broadcast news station anymore. It really is directly through your access television facility. They're the ones that are, um, broadcasting the meetings live. The perfect access to that and, uh, and local governments are able to share information through their social media sites and, you know, other distribution methods. But they're all, I would suggest, or at least most of them are connected somehow, to your access television facilities. So it's very, very important for sure. I agree. You had some other points that you wanted to bring in about FCC participation recently, and I wanted to make sure we had some time to talk about that. Yeah, for sure. It's super important to participate, uh, at the FCC level if you're a, a local government or an access organization, really now more than ever. And I would just, uh, suggest, you know, when you're looking at that broadband franchising, there are some, out of date rules at the FCC that need to be changed and you should be looking at coordinating with other local governments and access organizations and letting the FCC know that those rules have to be changed. There's a rule called the mixed use rule that prohibits the regulation of non cable services provided over a cable system. That rule is by and large rejected by the Sixth Circuit on appeal, but the rule hasn't changed. Same thing with a rule called the in kind rule that a lot of your listeners will know about. That's the, the rule that kind of reclassified how franchise fees are calculated and allowing for the inclusion of certain non cash cable requirements, uh, to be included in the, in the franchise fee. That was, Essentially resulting in fewer payouts of actual operator dollars. Yes. Correct. Yes. And, you know, the FCC rule says that the fair market value of those non cash requirements can be included. Meaning, fewer franchise fees because you're using fair market value. And the fair market value is determined by? It would be determined by the cable operator's rate card. And the rate card's their highest level of pricing, uh, that they have. And the um, the Sixth Circuit Court of Appeals, on review of that, of that order, said no, it's the marginal cost, not the fair market value cost. Well that's, that's a really big difference. But when, when you look at the FCC rule in the Code of Federal Regulations, it still says fair market value. So if you're a local government attorney that does a practice in this area regularly, you're going to look at that rule and say, Oh yeah, well that's what it says. Because it does still say that, even though we know it's been overturned, at the Sixth Circuit Court of Appeals. So, that's one thing that local governments should be doing. They should be letting the FCC know that these rules need to be changed, and they need to be changed right now. They should also participate in rulemaking like the digital discrimination. So, for example, we represented a large group of clients across the country. On having the FCC adopt rules prohibiting digital discrimination. At the same time, we talked about how important it was for local governments to be involved in franchise. So it was a really good opportunity to visit with the FCC about that. And in those rules, they actually adopted, uh, best practices that included franchising practices which was important. And that you probably heard, your listeners probably heard that the FCC recently reclassified broadband as a telecommunications service rather than an, an information service. But in that, they specifically left a lot of flexibility for local governments to be involved in the regulation of broadband. So, when you participate in these rules, you know, your voices are heard. And, I think it also shows the value of franchising. And, so when you look at, uh, a docket like the all in cable pricing docket, it was really important for local governments to participate in that and show that local governments as franchising authorities are standing up for, for consumers, um, at not only the local level, but also at the federal level. So, it is very important to participate at the FCC. Well, that's great. Thank you so much, Mike, for letting us in on what you've been up to in the last few months and some of these important details that people need to be looking out for with their contract renewals, with FCC participation, and just generally staying on top of ways that they can continue to access the funding that they need to stick around and serve residents. We look forward to having you on the podcast again. We'll see you next time.