The Michigan Cable Act: Are Your Franchise Fees at Risk? Moderator: Katie Holda Michigan Municipal League Speakers: Deborah Guthrie Meridian Twp Communications Director and MiNATOA President Michael Watza Kitch Drutchas and PROTEC January 24, pm

INTRODUCTION 2006 PA 480, the Michigan Uniform Video Services Local Franchise Act has been in place for 5 years. Many changes in the way that cable/video services have been administered and delivered have followed enactment of PA 480. MML is hosting this Webinar to discuss some of those changes, remind municipalities of some of the critical aspects of the Michigan Act and to field questions and offer some answers and resources to our membership and friends.

Background PA 480 passed Many communities received uniform agreements from ATT in Some incumbent cable companies also adopted the uniform agreements in Educational series hosted by MML, MTA and PROTEC, in Many communities continue to operate under pre 2007 agreements. As pre 2007 agreements near expiration, communities are receiving new uniform agreements from their traditional cable company partners. Much of the information available in 2007 needs to be refreshed so that critical dates and issues are not forgotten. Important to know how to properly respond when your community is served a franchise agreement and that agreement is due back to the cable company who served it.

History Pre 2007: Federal Law was THE law. Telecommunications industry sought to enter video/cable market in response to cable industry entry into traditional telecommunications markets and sought an accelerated access to that market. Efforts in Congress failed so they came to the States. About 22 States passed some form of the telecommunication sponsored legislation which sought to dramatically reduce local community regulation and control and expedite the implementation of franchise agreements.

Key Changes in the Law Checklist a. Cable Operators are now called Video Service Providers. MCL (q) b. Timelines: –15 (business) days from receipt of Uniform Franchise - Local government must determine if the proposed franchise is complete - This section is the ONLY basis for denying the franchise - BUT - rarely used - consult counsel before exercising this election MCL (2) –30 days from receipt of Uniform Franchise - Local govt must fill in franchise fees and PEG fees on the uniform franchise and return same to the provider MCL (3) and MPSC Rulings

Key Changes in the Law Checklist c. Fees: –See Franchise Fee blank at page 4 paragraph IV (A) (ii). 5% is the typical number inserted there as the Federal and State Acts allow up to 5% of gross revenue and that is standard – unless you have accepted a lesser amount in other current agreements – in which case you may be limited to the lower amount MCL (1) (a-b) Fees A. A video service Provider shall calculate and pay an annual video service provider fee to the Franchising Entity. The fee shall be 1 of the following: i. If there is an existing Franchise Agreement, an amount equal to the percentage of gross revenue paid to the Franchising Entity by the incumbent video Provider with the largest number of subscribers in the Franchising Entity. ii. At the expiration of an existing Franchise Agreement or if there is no existing Franchise Agreement, an amount equal to the percentage of gross revenue as established by the Franchising Entity of ________% (percentage amount to be inserted by Franchising Entity which shall not exceed 5%) and shall be applicable to all providers B. The fee shall be due on a quarterly basis and paid within 45 days after the close of the quarter. Each payment shall include a statement explaining the basis for the calculation of the fee.

Key Changes in the Law Checklist c. Fees: See PEG Fee blank at page 6 paragraph VII (A) (1-4). This is probably the most commonly contentious section of the agreement. You must choose and insert a % of gross revenue on one of the 4 lines based upon your communities particular circumstance. Actual fees charged range from -0- to almost 4% depending upon the community, provider and circumstance. MCL (8) (a-d) Monetization PEG Fees A. The video service Provider shall also pay to the Franchising Entity as support for the cost of PEG access facilities and services an annual fee equal to one of the following options: 1. If there is an existing Franchise on the effective date of the Act, the fee (enter the fee amount ______________ paid to the Franchising Entity by the incumbent video Provider with the largest number of cable service subscribers in the Franchising Entity as determined by the existing Franchise Agreement; 2. At the expiration of the existing Franchise Agreement, the amount required under (1) above, which is ______% of gross revenues. (The amount under (1) above is not to exceed 2% of gross revenues); 3. If there is no existing Franchise Agreement, a percentage of gross revenues as established by the Franchising Entity and to be determined by a community need assessment, is _____% of gross revenues. (The percentage that is established by the Franchising Entity is not to exceed 2% of gross revenues.); and 4. An amount agreed to by the Franchising Entity and the video service Provider. MCL B. The fee required by this section shall be applicable to all providers, pursuant to Section 6(9) of the Act. C. The fee shall be due on a quarterly basis and paid within 45 days after the close of the quarter. Each payment shall include a statement explaining the basis for the calculation of the fee.

Key Changes in the Law Checklist (cont’d) d. Preserving PEG Channels To preserve PEG channels, your community must request same in writing and utilize each PEG channel 8 hours per day. MCL (1,2,14) e. Signing or Not: The Industry encourages signing as does the Michigan Act and in some cases will make concessions for your signature. Why not sign? Challenges to the Act continue and it may be difficult to challenge your franchise on the basis of new law from the legislature or the courts if your community has signed the document. However, not signing has some peril as some of the providers have argued that not signing voids the fees you fill in on the agreement. f. Audits are limited to once every two years, there is a limit on look backs to three years, shortages of more than 5% cause the provider to pay for the audit and there is no prohibition to community group audits. MCL

Key Changes in the Law Checklist (cont’d) g. Challenges to the Act - Preemption: Meridian, Dearborn, Bloomfield and Warren v Comcast ACM and Lansing FCC Petitions Detroit v Comcast h. Interplay with the Federal Cable Act: Letters from industry invoking the Federal Renewal Process and what to do about it i. The Future: Potential Changes to State or Federal Statutes: Michigan Senate Hearings and the Federal Cap Act Bill HR 1746: 112hr1746ih.pdf 112hr1746ih.pdf

Resources MML MiNATOA PROTEC Cable/Telecom Counsel

Resources (cont’d) Copy of Video Franchise Agreement niform_video_service_local_franchise_agr eement_184653_7.doc Copy of PA fay55enj5piuf))/documents/mcl/pdf/mcl- Act-480-of-2006.pdf

Deborah Guthrie Biography Deborah's career in the television industry began in 1996 at HOMTV as an intern, while she was studying Telecommunication at Michigan State University. Deborah received her Bachelor of Arts in 1997 and started freelancing in the sports industry. In 2008, Deborah was hired as a full time Production Manager at HOMTV, overseeing program productions and training student interns. She quickly was promoted to Senior Production Manager and the Intern Coordinator, overseeing productions and the internship program. In 2008, Deborah was promoted to Station Manager overseeing all aspects of the station; including launching a second channel through the availability of grant awarded to Meridian Township through the Center's for Regional Excellence program. In 2011, Deborah successfully reorganized the cable division into the Cable Communications Department and Deborah promoted as the first Director of Communications at Meridian Township. She oversees communications for the township through print, social media, broadcasting, and news. Since 2008 Deborah has been heavily involved in spearheading proposals for legislative changes to protect Public, Educational, and Government channels (PEG), protecting PEG fees and franchise fees. She has successfully appeared in court testifying against channel slamming. She has also appeared before the Michigan Senate Energy and Technology Committee on matters relating to Public Act marks Deborah's second term being elected by her peers to serve as Chapter President of Michigan NATOA. Deborah is also a long time member of the Alliance for Community Media. She has won numerous awards for election programming, informational programming, and community interest pieces. She is married with two children. Her oldest son is 21 and was just shipped off to Marine boot camp. Her youngest son is entering college this fall. He plans on playing college football and becoming a police officer. Her husband is a broadcast engineer and is often recruited for volunteer help at HOMTV. Deborah Guthrie Communications Director, Meridian Township HOMTV/CAMTV 5151 Marsh Rd. Okemos, MI O: F:

Michael J. Watza Biography Martindale Hubbell AV Rating 2007 Super Lawyer Designation Michael J. Watza is Co-Chair of the Governmental and Commercial Litigation Practice Groups at Kitch, a full service Law firm based in Detroit, with offices in Lansing, Marquette, Mt. Clemens, Chicago, Ill. and Toledo, OH. Mr. Watza's practice provides litigated, legislative and regulatory solutions on behalf of municipal, non profit and private sector clients concerning Complex Litigation, Governance Issues, Telecommunications and Energy. Michael has represented clients in State and Federal trial and appellate courts across Michigan as well as attended to regulatory matters before the Michigan Public Service Commission, Michigan Tax Tribunal, Department of Labor and Economic Growth and the Federal Communications Commission. Michael has represented clients in the halls of the Michigan Legislature and Congress through negotiation, drafting and testimony regarding legislation on various issues including energy, transmission line siting, telecommunications, cable, pipeline regulation, the formation of inter-governmental authorities and tort reform. Michael also serves as General Counsel to PROTEC and the Mobile Technology Association of Michigan, is a member of the NATOA National Board, the Michigan Gaming Control Board, Covenant House Central School Board in Detroit, Chairman of the Novi EDC, Chairman of Attorney Grievance Commission Grievance Panel #9, Immediate Past Chairman of the Administrative Law Section of the State Bar and Council Member of the Public Corporation Law Section of the State Bar. In 2008, Michael was successful in protecting Michigan PEG channels from unilateral digitization to the 900 channel tier by obtaining an injunction in Federal Court in Dearborn v Comcast. Michael is an adjunct faculty member at Michigan State University Law School having taught Communications Law and Policy and Ethics and the Practice of Law. Michael J. Watza Kitch Drutchas Wagner Valitutti & Sherbrook One Woodward 24th Floor Detroit, MI E Mail: O: (313) Fax: (313) M: (248)

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