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 1

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? 2

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 2.PEG fees – except state franchising statutes – Wisconsin 3

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 4

5. DBS Impact on PEG  No local or state franchise  No franchise fees  No PEG fees  No local PEG content 5

6. 6 Cable Industry Revenue (,000s) YearRes VideoOther RevTotal 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. 7

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) 8

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 9

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. 10

11. Wisconsin State Law  Section 66.0420(2)(s): “PEG channel” means a channel designated for noncommercial public, educational, or governmental use.  Line item veto by Governor in 2007. 11

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 12

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” 13

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 14

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/how to.html http://www.pbs.org/insidepbs/guidelines/how to.html 15

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. 16

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? 17

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. 18

19. New PEG Revenue Options  Sponsorships  Advertising  Memberships  Charging for channel time  Resale of programming  Studio/editing leasing  Production services  Other? 19

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  2 nd 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. 20

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? 21

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” 22

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 23

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 24

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. 25

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 26

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 27

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? 28

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 29

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.comBrian.Grogan@lawmoss.com Web site: www.lawmoss.comwww.lawmoss.com Questions