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Radio armageddon: VIA v. CCU

Womble Carlyle Sandridge & Rice attorney Gregg Skall is practically licking his chops over the best clash of titans since King Kong faced off against Godzilla. The issue is the cancellation of the Viacom's Howard Stern show by six Clear Channel stations. Here is Mr. Skall's take on this impending legal bloodbath:

The Broadcasting "Trojan War"

By Gregg Skall

Womble Carlyle Sandridge & Rice, PLLC

Anyone who saw the recent war epic Troy, can't help but feel the same tinge of excitement in learning that two major armies are again locked on the battlefield and promise a spectacular display of warrior tactics. In this case, the warriors are none other than the two goliaths of the broadcasting industry. As reported in RBR July 1, Clear Channel Communications and Infinity Broadcasting have locked horns, and wills, over Clear Channel's cancellation of the Howard Stern Show.

Expect to hear a fair amount of jockeying about whether the Stern show violated, or continues to violate FCC rules and over the alleged indecent content of the program. This is to be expected since Clear Channel recently paid a record fine of $1.7 million for its carriage of Stern programming, and since it has been axiomatic since 1943 when in NBC v. US, Mr. Justice Frankfurter for the majority of the U.S. Supreme Court, affirmed the FCC rule that affiliation contracts with programmers may not prevent or hinder a station from rejecting or refusing network programs which the station reasonably believes to be unsatisfactory or unsuitable.

However, what this case may boil down to is not communications law, but plain old contract law. A quick read of the complaint, filed in New York City's southern district federal court, bears this out. It would be easier to evaluate if the actual Stern show contracts were available. Unfortunately, while the complaint states that copies of the Clear Channel/Stern contracts are attached, RBR confirmed that they were not available from the court. So, all we have to evaluate the case is the content of Infinity's complaint, which is clearly cast in to shine the best light on itself. Still, it is instructive.

Infinity lays this out as a clear and simple contract case. It admits that the twenty-year running Stern show has been the subject of FCC proceedings, but uses that fact to imply that the Show's notoriety and high ratings are what made it attractive to Clear Channel. It argues that, unsolicited, and fully aware of the program and its content, Infinity sought out and entered into six Program License Agreements for Stern. Consistent with NBC v. US, those contracts provided Clear Channel the right to reject certain programs, but to exercise that Supreme Court certified right, it must do so on a program-by-program basis after having made reasonable efforts to contact the syndicators prior to rejecting each program. Also, it recites that the agreement requires Clear Channel to pay the license fees regardless of a proper exercise of the rejection right. Infinity claims that Clear Channel's wholesale "suspension" of the program was a material breach in itself, further exacerbated by its later unilateral refusal to remit license fee payments.

According to the complaint, Clear Channel claimed it had the right to cancel the programs in bulk and cease payments because Licensors had committed an "anticipatory breach" by "failing to supply Programs in conformance with all applicable laws and regulations," and identified two programs that it alleged contained "indecent" material in violation of FCC rules.

Essentially, Infinity is arguing that it does not matter whether the programs violate FCC rules. Clear Channel has the right to reject the programs, but only one at a time and only after having followed the procedure it agreed to in the contract, and that it has agreed to pay for them whether carried or not. It knew the nature of the Stern show, in fact that is why the show was attractive to Clear Channel. Indeed, the contract provides that Clear Channel must indemnify Stern and Infinity against any fines they receive for the program content. Clear Channel cannot now avoid its contractual obligations because what it contemplated actually happened and it got in trouble for carrying the programs. It did not follow the correct procedure and it must pay, whether or not it carries the programs. Contract law, unadulterated, pure and simple.

We have not seen the Infinity response, but it may well go like this. FCC law and policy, buttressed by one of the oldest landmark Supreme Court decisions under the Communications Act of 1934, provides the broadcast licensee with a right to reject programs. The licensee cannot bargain away its right to reject programming it believes unsuitable for its audience, and what may be unsuitable may change based on custom, mores and law. The Stern show is delivered on very short notice, leaving little or no real time to comply with the rejection procedures set forth in the license. A contract that recognizes the immutable broadcaster right and obligation to select programs cannot claim to respectfully provide such a right while laying out a procedure so difficult and convoluted to comply with that it effectively grants no right at all. Such a contract provision might be claimed to be void ab initio, or from the beginning. Of course, that leaves Clear Channel in the Hobson's choice position of arguing that it entered into a contract it knew from the beginning violated law and policy or that it could not have foreseen that the stations actually would have to reject programming. Neither seems very attractive.

Of course, a huge programming public policy controversy has developed and Clear Channel, right in the middle of it, is interested in repairing its relationship with the government. In fact, Infinity alludes that such is the real interest of Clear Channel by mentioning that the Stern "suspension" announcement came on February 25, 2004, one day before Clear Channel's CEO was to testify before Congress on proposed broadcast indecency legislation. Whatever Clear Channel argues in its Answer, we know it will be interesting, tactical and spectacular spectator sport . . . except most broadcasters have a much greater stake in this battle than as mere spectators.