Underwriting Compliance Guide: 1. Introduction

1.      Introduction

            a.         About this Compliance Manual

Noncommercial stations such as LPFM stations, Class D stations, full-power stations and even noncommercial television stations are very special.  These stations are allowed to operate on channels that are especially reserved for noncommercial stations and off-limits for commercial stations.  LPFM and Class D stations are permitted to operate on channels and from locations that commercial stations are not able to operate from.  With this special level of access to the broadcast spectrum comes various responsibilities.  The core responsibility is that these non-commercial educational or “NCE” stations are not to operate as a profit-making business. This means that NCE stations are unable to carry “commercials” which promote a business that may have donated (or underwritten) the station.  While NCE stations are unable to air commercials, they are permitted to identify for-profit businesses that support the station by announcing their name, contact information and even a non-promotional description of the business. This Compliance Manual is to assist everyone involved with an NCE station from the on-air staff all the way up to the board of directors.    I hope that you use this manual not only to learn about underwriting laws but to review in periodically to give yourself a refresher and when necessary, as a reference when working with the underwriting aspect of your station.

            b.         FCC Broadcast Order #1

The Federal Communications Commission (FCC) was created in 1934 by legislation called The Communications Act of 1934.  The FCC was delegated by Congress to manage the nation’s civilian communications including by radio and by wire. Section 307(c) of the original Communications Act ordered the new FCC to investigate reserving spectrum for noncommercial educational broadcasting.  In implementing the Communications Act, the very first order from the newly formed Broadcasting Division at the FCC read as follows:

The Commission shall study the proposal that Congress by statute allocate fixed percentages of radio broadcasting facilities to particular types or kinds of non-profit radio programs or to persons identified with particular types of non-profit activities , and shall report to Congress, not later than February 1, 1935, its recommendations together with the reasons for the same.

(1 FCC 25, 47 USC §307(c) (1934)).

            c.         Section 399b of the Communications Act

Section 399b of the Communications Act is the current statute that pertains to NCE broadcasting.  Section 397(6) of the Communications Act defines an NCE broadcast station or “public broadcast station” as a station which:

(A) under the rules and regulations of the Commission in effect on November 2, 1978, is eligible to be licensed by the Commission as a noncommercial educational radio or television broadcast station and which is owned and operated by a public agency or nonprofit private foundation, corporation or association; or (B) is owned and operated by a municipality and which transmits only noncommercial programs for education purposes.

47 USC §397(6)(A)

The relevant portions of Section 399b reads as follows:

(a) “Advertisement” defined.  For the purposes of this section, the term “advertisement” means any message or other programming material which is broadcast or otherwise transmitted in exchange for any remuneration, and which is intended –

(1) to promote any service, facility or product offered by any person engaged in such offering for profit;

(2) to express the views or any person with respect to any matter of public importance or interest; or

(3) to support or oppose any candidate for public office.

(b) Offering of services, facilities, or products permitted; advertisements prohibited.

(1) Excepted as provided in paragraph (2), each public broadcast station shall be authorized to engage in the offering of services, facilities, or products in the exchange for remuneration.

(2) No public broadcast station shall make its facilities available to any person for the broadcasting of any advertisement.

47 USC § 399b(a)~(b).

Section 399b simply states that an advertisement can include any message broadcast to promote any person or other entity offering a product or service for-profit, “personal messages” and paid political announcements and that such advertisements are prohibited.  The section further states that while a NCE station is restricted from advertising, it can provide other products and services that may or may not be related to broadcasting as long as it does not involve advertising over the station.

            d.         A brief history of noncommercial broadcasting in America

When the NCE (then just called "Educational") service was first created in the 1930s, the status was afforded mainly to accredited school systems that were going to use the station to broadcast academic programming to classrooms. In a 1939 case, Moody Bible Institute was denied NCE status because their educational program was not an actual school system and programming was intended to be heard solely by the public and not "multiple units" of a school system. (7 FCC 491 (1939)). In fact, §73.503(a) of the rules which discusses the basic eligibility of NCE licensees has not changed in 80 years. Over the years, the Commission would make various policy decisions that would shape the requirements to be NCE.  This would include the requirement of having a school as long as the broadcast station was being used to advance the organization’s educational program.  This included faith-based organizations.  One of the most known decisions was RM-2493, a petition that challenged the ability for religious organizations to be NCE licensees.  While the FCC confirmed that a religious broadcaster can be considered NCE, it spawned many urban legends stating that the FCC was trying to ban religious programs from TV.  To this day, the FCC still gets inquiries from concerned citizens about RM-2493.

In 1970, those who underwrote programs could only be identified at the beginning and end of the program.  Those who funded the operation of the station’s operation could only be identified three times per day.  In 1970, only the name of the person or organization could be identified. and the rules specifically prohibited announcing any product or service which it may have a connection.   Later in the year, the rules would be changed again to permit programs lasting longer than one hour to include underwriter acknowledgement once per hour and for station operations, one (and only one) underwriter could be mentioned per hour. 

Until the early 1980s, NCE stations could not even promote not-for-profit organizations or offer any goods or services over the air.  In 1981, the FCC would remove restrictions that prohibited promotion of events where the station did not receive any consideration, eliminate the restrictions on timing and frequency of the announcements and eliminate the restriction of “name only” acknowledgement announcements and to permit informational messages (such as location, product lines and services) but not any promotion.

In 1984, the FCC introduced Enhanced Underwriting and Donor Acknowledgements where elements such as slogans (that identified but didn’t promote), location information, value neutral descriptions of a product line or service and information on brand names.  The broadcast of telephone numbers would eventually become permissible in 1986.  To this day, there has been no significant change in the underwriting policy since the 1986 public notice.

            e.         Why is LPFM a non-commercial service as opposed to commercial?

While we hear the stories about the grassroots movements that evolved after the passage of the Telecommunications Act of 1996 as being key players in the LPFM movement, we tend to forget that the original Petitions for Rulemaking to create LPFM came from Nicolaus Leggett, Don Shellhardt, both radio hobbyists (RM-9208) as well as from Rodger Skinner, a Low Power Television (LPTV) entrepreneur (RM-9242).  Both petitions envisioned some form of a commercial service, especially RM-9242 which envisioned a full commercial service in the same manner as the LPTV service. 

In the original Notice of Proposed Rulemaking for LPFM, the FCC did ask for comments about the viability of a commercial service.  The concept of a commercial service was opposed by many in the grassroots movement.  As the FCC stated in the Report and Order that originally created LPFM in 2000:

“Our goals in establishing this new service are to create opportunities for new voices on the air waves and to allow local groups, including schools, churches and other community-based organizations to provide programming responsive to local community needs and interests.  We believe that a commercial service is more likely to fulfill this role than a commercial service.  Commercial broadcast stations, by their very nature have commercial incentives to maximize audience in order to improve their ratings and thereby increase their advertising revenues.”

Creation of a Low Power Radio Service, Report and Order, 15 FCC Rcd 2205 (2000) ¶ 17

The fact is that if LPFM was to be commercial, many groups that have LPFM stations today would likely not have them.  Because of other laws previously passed by Congress, commercial stations are required to pay annual regulatory fees, filing fees, be exempt from national ownership caps and subject to auctions.  A commercial LPFM service would be the same.