Brian T. Grogan PowerPoint presentation to Wisconsin Community Media 2015 Spring Conference (April 30-May 1, 2015). How do community programming centers make up revenue lost from decreasing franchise fees or reduced/eliminated PEG fees?

1. Underwriting / Advertising
_______________________
Wisconsin Community Media
2015 Spring Conference
Hilton Milwaukee City Center
Milwaukee, WI
April 30 - May 1, 2015
Presented by: Brian T. Grogan, Esq
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2. Question
How do community programming centers
make up revenue lost from decreasing
franchise fees or reduced/eliminated PEG
fees?
First – why is this happening now?
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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 on
two types of revenue to operate:
1.Franchise fees
– if city dedicates a portion for local programming
1.PEG fees
– except state franchising statutes – Wisconsin
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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 dependent on
cable
• Few college students subscribe to cable
• All college students have broadband
service
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5. DBS Impact on PEG
 No local or state franchise
 No franchise fees
 No PEG fees
 No local PEG content
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6. 6
Cable Industry Revenue (,000s)
Year Res Video Other Rev Total
Rev
1996 $24,136 $2,984 $27,120
1997 $26,270 $3,532 $29,802
1998 $27,626 $6,152 $33,778
1999 $30,050 $7,341 $37,391
2000 $32,541 $9,575 $42,116
2001 $35,734 $9,743 $45,477
2002 $36,738 $11,160 $47,898
2003 $39,338 $15,056 $54,394
2004 $41,813 $18,212 $60,025
2005 $43,832 $21,846 $65,678
2006 $46,518 $25,354 $71,872
2007 $49,105 $29,719 $78,824
2008 $51,811 $34,470 $86,281
2009 $53,040 $36,861 $89,901
2010 $55,470 $38,310 $93,780
2011 $56,938 $40,660 $97,598
SOURCE: SNL KAGAN – NCTA website (in millions)

7. Finding New Revenue
 PEG organizations
 Seeking new sources of revenues
 Breaking free of years of self-imposed
restraint
 PEG channels are not limited to
noncommercial use.
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8. Cable Act
 No prohibition on commercial speech on
PEG
• If a municipality determines advertising is
useful to fund programming on local
government at work or other appropriate
PEG programming, I find nothing in the
Cable Act that would prevent a municipality
from doing so.
 Time Warner Cable v. City of New York,
943 F. Supp. 1357, 1387 (S.D.N.Y. 1996)
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9. FCC Guidance
 Federal law previously permitted a cable
operator to:
• prohibit the use of a PEG channel for
programming that contains:
 obscene material, sexually explicit conduct,
indecency, nudity, or material soliciting or
promoting unlawful conduct.
 However, the U.S. Supreme Court
determined that this law was
unconstitutional
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10. FCC Guidance
 Cable operators may not control the
content of programming on public access
channels
• Exception:
• Cable operator may refuse to transmit a
public access program which the cable
operator reasonably believes contains
obscenity.
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11. Wisconsin State Law
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12. 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
operator for possible contractual restriction
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13. Local Code
 Many cities continue to have antiquated
local code provisions governing cable
 These cable ordinances often date back
20+ yrs
• Well before the 2007 Wisc. state
franchising law
 These cable ordinances may contain
noncommercial PEG requirements
• May contain requirements that channel
time must be made available to residents
“Free of Charge”
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14. 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
• Telecourses
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15. Sponsorship
 One that finances a project or an event
carried out by another person or group
 Especially a business enterprise that pays for
radio or television programming in return for
recognition
 i.e. advertising time
 http://www.pbs.org/insidepbs/guidelines/howto.
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16. Qualified Sponsorship Activities
 This is any payment made by a person engaged in a
trade or business for which the person will receive no
substantial benefit other than the use or
acknowledgment of the business name, logo, or
product lines in connection with the organization's
activities. “Use or acknowledgment” does not include
advertising the sponsor's products or services.
 For example, if, in return for receiving a sponsorship
payment, an organization promises to use the
sponsor's name or logo in acknowledging the
sponsor's support for an educational or fundraising
event, the payment is a qualified sponsorship
payment and is not subject to the unrelated business
income tax.
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17. Advertising
 Generally refers to the sale or exchange of a
good or service or
• the solicitation of donations, remuneration or
barter
 Does advertising =
• a pastor asking for donations?
• a political candidate asking for contributions?
• a plea for Save the Starving Children?
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18. Advertising
 A payment is not a qualified sponsorship payment if, in
return, the organization advertises the sponsor's products or
services.
 Advertising includes:
• Messages containing qualitative or comparative language, price
information, 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
established part of the sponsor's identity is not, by itself,
advertising. In addition, mere distribution or display of a
sponsor's product by the organization to the public at a
sponsored event, whether for free or for remuneration, is
considered use or acknowledgment of the product rather
than advertising.
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19. New PEG Revenue Options
 Sponsorships
 Advertising
 Memberships
 Charging for channel time
 Resale of programming
 Studio/editing leasing
 Production services
 Other?
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20. 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 gain
A cable operator may refuse to cablecast on a
public access channel any programming that does
not meet the legal criteria for dissemination in
that forum.
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21. Policies
 Written policy setting forth acceptable
advertising
• Avoid viewpoint discrimination
 Should a government access channel accept
sponsorship/advertising funding from an
entity:
• That bids on City contracts?
• Provides services to the City?
• Is currently lobbying controversial legislation
under the purview of the City?
• Is a candidate for City office?
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22. 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”
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23. Unrelated Business Income Tax
Unrelated business income is the income
from a trade or business regularly carried
on by an exempt organization and not
substantially related to the
performance by the organization of its
exempt purpose or function.
Additional UBIT Info:
http://www.irs.gov/pub/irs-pdf/p598.pdf
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24. UBIT Analysis
1. Ascertain organization’s exempt purpose
• Articles of Organization
• Limited by 501(c)(3)
2. Is business activity substantially related
to the accomplishment of exempt
purpose?
If not, then UBIT
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25. Consequences of UBIT
 The business income is taxable; and
 If the unrelated activity is a substantial
part of the organization’s activities,
potential for loss of exemption.
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26. How Can You Develop Alternative
Sources of Revenue
 Analyze services you can provide/sell
 Determine what might be saleable
 Conduct market research to understand
the profit potential
 Balance the promise of profit with the
mission of the organization
 Develop products or services
 Create a business plan
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27. Business Plan Details
 Business model and how it operates
 Competitive landscape and how the nonprofit
can compete effectively to sell goods/services
 Structure, roles and responsibilities of staffing
for the business
• Stay true to mission statement – discuss with
city
 Pricing, promotion, packaging, and
distribution of the products/services
 Financial plan
 Day-to-day operational plan for the business
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28. Questions to Think About
 Are we in a fairly stable financial situation?
 Do we have core assets/personnel that could be
transformed into saleable products or services?
 Is there a potential market with a willingness and ability
to pay for these products/services?
 Would the sale of these products/services be a
complement 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 potentially
provide some startup capital for an earned income
venture?
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29. Processes to Undertake
1. Analyzing assets to determine potential
products/services to sell
2. Conducting market research to determine
competitors and consumers
3. Pilot testing a product/service
4. Creating a business plan including
marketing, staffing, financial model, risks
and mitigations
5. Launching the business
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30. 30
Brian T. Grogan, Esq.
Moss & Barnett, A Professional Association
150 South Fifth Street, Suite 1200
Minneapolis, MN 55402
(612) 877-5340 phone / (612) 877-5031 facsimile
E-mail: Brian.Grogan@lawmoss.com
Web site: www.lawmoss.com
Questions