More than two years ago, America’s “Big Four” broadcast television networks united in seeking to stop a streaming service from bringing over-the-air channels to their users without the requisite retransmission consent agreements.
On August 31, a New York Federal District Court finally offered a glimmer of what could be a rough ride ahead for the David Goodfriend-helmed Locast. He declined to honor a request from the controversial donation-based service for summary judgment in the case, which focuses on copyright infringement. Why? Its non-profit argument may be full of holes.
Late in the day Wednesday (9/1), Locast reacted.
As first reported by Matthew Keys, writing for Fierce Video, Locast’s solicitation for donations is a key reason the court has denied the streaming service’s request for summary judgment.
Here’s the key issue that will be addressed by the court: Locast in 2020 earned more than $4.3 million. Operational expenses for Locast in 2020 totaled $2.4 million. If it is a non-profit, where did the remaining $1.9 million go?
Federal District Judge Louis Stanton makes it clear that the answer is perhaps a key determinant as to whether or not Locast can continue with its current operational structure, in which it does not pay the ever-important retransmission consent fees that MVPDs have been forking over to broadcast TV station owners in increasing amounts in recent years.
Locast argues that it is simply taking what is available at no cost to viewers — free-to-air television — and providing a public service by bringing those signals via IP to apps and computer users through the internet for a suggested donation. It has also explained that donor funds are used to help Locast expand to other markets.
The latter statement is perhaps a bigger concern for the court. Judge Stanton ruled that there is no provision in the federal Copyright Act that allows Locast to use donor funds to help grow into other markets, while some Copyright Act exemptions do allow Locast to use donations to maintain and operate the service.
As such, Locast can’t expand with donor funds. And, if that is held up by higher courts should an appeal be in the works, Locast’s business model could be severely hampered.
“Expansion is nowhere mentioned, and it is therefore excluded from the short, tightly-crafted grant of exemptions,” Stanton said.
As RBR+TVBR reported on June 2, 17 DMAs have gained access to Locast since January 2020; Raleigh-Durham became the 33rd market where it is available to consumers. Then came Miami-Fort Lauderdale, followed by Minneapolis-St. Paul and Detroit.
While Locast users need not pay for the service, donations are highly encouraged. In fact, those who don’t get the regular pledge drive solicitations are limited to students, first-line health care professionals and others who may be financially prohibited from paying a suggested minimum of $60 annually for Locast.
As Stanton sees it, pointing to the 2020 balance sheet for Locast, “Based on the undisputed facts, it is clear that the Locast service is not offered without charges other than those ‘necessary to defray the actual and reasonable costs of maintaining and operating’ its service. The payments defendants elicit from users are charges assessed on users to avoid constant service interruptions…[it] is not merely a recurring gift to a charitable cause.”
To be clear, a summary judgment is not a final order from the court. Rather, it signals that a trial is on the way, short of an out-of-court settlement and capitulation from Locast.
That’s not likely.
The Electronic Frontier Foundation, which is acting on Locast’s behalf, expressed its disappointment that the court ruled against Locast on its copyright defense. “The court interpreted the law in an artificially narrow way,” it argues. “Congress wrote copyright’s nonprofit retransmission exception to make sure that every American has access to their local broadcast stations, and expanding access is exactly what Locast does. This ruling that nonprofit retransmitters can’t use viewer contributions to expand access will do the opposite of what Congress intended.”
The Foundation claims that more than 3 million people use Locast to access local TV, “including many who can’t afford cable and can’t pick up their local stations with an antenna.” It continues, “This ruling threatens their access to local news and vital information during a global pandemic and a season of unprecedented natural disasters. And it treats copyright law not as an engine of progress but a moat protecting the privileged position of the four giant broadcasting networks.”
With Locast calling Stanton’s ruling “disappointing” in user communication sent via email late Tuesday, it commented, “We are evaluating our options and will keep you posted as the situation develops.”
R. David Hosp, a Partner at Orrick, Herrington & Sutcliffe, adds that his legal team also disagrees with the court’s conclusions and reasoning. “Our client is in the process of evaluating the decision and formulating next steps. Locast provides a valuable service to its over 3 million users who are otherwise unable to access the over-the-air broadcasts to which they are entitled by virtue of their location or economic circumstances. Our client remains committed to its mission of delivering free, local broadcast TV service to all Americans, and particularly for those consumers who can’t afford pay-TV services like cable, satellite, or streaming, or who can’t get their local broadcast channels using an over-the-air antenna.”
What’s next for Locast? “Stopping the interrupt” is first and foremost, as of Wednesday evening.
In an email to its registered users, Locast revealed that it is “suspending immediately all programming interruptions to request donations.”
This was a problem noted by Stanton, as these interruptions suggested that Locast was indeed a fee-based service.
This change means that anyone located in a market Locast serves who signs up will get the service “without interruption, regardless of whether or not they donate.”
Of course, Locast adds that “it is up to you whether or not to contribute to Locast. But if you currently contribute, we humbly request that you continue to do so. And if you don’t contribute, we hope that you will do so if you can afford it.”
While Locast disagrees with Stanton’s order, it stopped the programming interruptions “out of respect” for the court’s order.
