TFM
INFORMATION AND INSIGHT FOR MEDIA FINANCE PROFESSIONALS
SEPTEMBER/OCTOBER 2019
THE FINANCIAL MANAGER
GETTING TO TOMORROW A SPECIAL REPORT LOOKS AT THE PROMISE AND PITFALLS OF NEW TECHNOLOGY 5G Will • How Change Things • Understanding Privacy Perils AI & • Why Automation Matter
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INSIDE THIS ISSUE
The Financial Manager
The Official Publication of the Media Financial Management Association is published six times annually under the supervision of:
FEATURES 10 The Music Rights Fight Debates are escalating over how much media companies should pay to license music. And the stakes are enormous.
MARY M. COLLINS, President & CEO Mary.Collins@MediaFinance.org JANET STILSON, Editor TFMeditor@MediaFinance.org BILL KNIGHT, Art Director wknight5@nyc.rr.com
14 Forging a Stronger Model Newspapers have ventured into the realms of nonprofit and communitybased funding. For many, it’s a matter of survival.
Limited commercial messages of interest to our membership and readers will be accepted. Rates and specifications on request to:
MEDIA FINANCIAL MANAGEMENT ASSOCIATION 550 W. Frontage Road, Ste. 3600 Northfield, IL 60093 telephone (847) 716-7000 facsimile (847) 716-7004 and at www.mediafinance.org. Subscription $69.00 per year.
SPECIAL REPORT:
TECHNOLOGY TRENDS 18 Mobile Moves Ahead What exactly does 5G mean? And what are the implications of this new technology for media businesses?
Copyright, 2019. All rights reserved.
What is MFM?
The Media Financial Management Association is a not-for-profit corporation organized in 1961. The MFM membership includes more than 1,200 of media’s top financial, IT and human resource personnel, station general managers and other media management personnel as well as associate members in the allied fields of auditing, tax, software, sales and the law. MFM sponsors telephone seminars and conferences, publishes special studies and surveys, files position papers with federal agencies on behalf of its members and its industry, cooperates with other media industry groups and helps its members grow and learn both personally and professionally. MFM also is involved in media industry credit matters through its wholly-owned subsidiary, BCCA, which provides members with a Credit Inquiry Service, an annual Conference, directory of Credit Personnel, credit reports accessed via bccacredit.com online credit search, Commercial Credit Reports and a credit and collections handbook. The information and recommendations contained in this publication have been compiled from sources believed reliable. However, no warranty, guarantee or representation is made by the Association as to the absolute correctness or sufficiency of any representation contained in this publication, and statements contained in advertising and articles submitted to the Association are the responsibility of the authors, not the Association or its officers, directors, staff or members. Moreover, this publication is provided with the understanding that the Association is not engaged in rendering professional services through its distribution. The views and opinions expressed are those of the author, and not necessarily the Association.
22 The Regulation Maze Laws governing privacy and cybersecurity have become increasingly complex. Here are five touchstones to help understand them.
26 The Possible Dream Automation and AI could squeeze a lot more money out of advertising sources, if media is willing to invest in them.
DEPARTMENTS 4 From the President Science Without Fiction 6 Dear Expert Ransom Remedies 7 Human Factor Importance of Risks
8 Credit Where Due Removing the Friction 9 Association News Events and a Discount 30 Last Word Changing Drone Rules
The Financial Manager • September/October 2019 3
FROM THE PRESIDENT
Science Without Fiction
TFM’s special report explains how to make new technology work to your best advantage — and how to avoid some pitfalls.
D
ick Tracy had a radio watch in the 1940s. Writer Arthur C. Clarke appears to have anticipated both satellite television and the World Wide Web. Drones and video watches were certainly part of the 1960s cartoon show, The Jetsons. Unfortunately, sci-fi writers skip that messy step between creation and interoperability. Welcome to TFM ’s 2019 special report, “Technology Trends.” This issue takes on the advances that promise to change the world of media and the disruption the industry must address. Take the Internet. Many companies use their web presence to gather data from current and prospective clients. Data is valuable and thus an attractive target for cybercriminals. As Lowenstein Sandler attorneys Mary Hildebrand and Carly Penner explain, U.S privacy and cybersecurity laws vary by state and territory. Making matters even more confusing, definitions of specific terms, such as “personal information,” may be specific to a jurisdiction. Failure to obey regulations can result in significant fines. Chubb’s Patricia Kocsondy takes on another, less savory, aspect of the web in her “Dear Expert” column: best practices when responding to a ransomware attack. Kocsondy provides information about experts who can act when the unthinkable occurs. Drones have compelling When I read the automation article by Prenewsgathering capabilities. miumMedia360’s Joan FitzGerald, I was Yet they are hobbled by laws struck by how technological advances change expectations. The technology for buying local that seem overly restrictive. media has remained unchanged. But now faxes aren’t enough. Advertisers want station groups to be more responsive; agencies to reconcile invoices more efficiently; and both groups to resolve discrepancies quickly. Solutions must skirt potentially expensive pitfalls. In his article about 5G, the National Association of Broadcasters’ Skip Pizzi notes that the term 5G is confusing because there’s so much hype surrounding how this new technology standard will change our world. Fortunately, he takes the time to explain what it can, and may, offer. Pizzi even includes a sidebar about backward compatibility. Our “Last Word” column looks at regulations around those Jetsons-inspired drones. While they have compelling newsgathering capabilities, drones are hobbled by laws that seem overly restrictive. Author Anne Swanson from Wilkinson, Barker, Knauer explains what regulations are being considered and why those changes may be delayed. This issue includes two additional stories and two more columns, all of which relate to technology trends, although that is not their primary focus. TV Music License Committee’s Janet McHugh updates the situation with BMI and ASCAP consent decrees. She suggests that, if these are to be reworked, today’s technology should be part of the solution. Technology has cut into newspaper circulation and advertising revenues. I encourage you to read the thoughtful piece by The Lenfest Institute of Journalism’s Joseph Lichterman; he discusses creative ways to preserve the fourth estate of democracy. Finally, in “Credit Where Due,” author David Frogel from FastPay suggests technological solutions to resolve delays in the invoice-topay process. And “Human Factor” columnist Josef Martens encourages us to take risks, which seems counterintuitive in the face of change. Unlike writers who imagine new technologies, MFM and BCCA members must manage the scarce resources needed to integrate them into ever-evolving business processes. Helping members find the right solutions is one of the ways we work to make Mary Collins is president finance employees more knowledgeable and valuable today and CEO of MFM and BCCA; Mary.Collins@MediaFinance.org. while developing the next generation of media leaders.
4 The Financial Manager • September/October 2019
EDITORIAL ADVISORY BOARD MICHAEL DENSON Director, Credit Services NMCP GREG LECHOWSKI Market Controller, Phoenix Bonneville International CAL MOSTELLA Vice President, Treasurer WarnerMedia JOHN SANDERS Principal Bond & Pecaro MEREDITH SENTER Member Lerman Senter PLLC C. ROBIN SZABO President Szabo Associates ALISON YOUNG Senior Director, Accounting Operations The E.W. Scripps Company JAMIE GRANDE MFM/BCCA Staff Liaison
CONTRIBUTORS JOAN FITZGERALD PremiumMedia360 DAVID FROGEL FastPay MARY J. HILDEBRAND Lowenstein, Sandler LLP PATRICIA KOCSONDY Chubb JOSEPH LICHTERMAN The Lenfest Institute of Journalism JOSEF MARTENS JANET MCHUGH TV Music License Committee CARLY S. PENNER Lowenstein, Sandler LLP M. ANNE SWANSON Wilkinson, Barker, Knauer LLP
FIND GAME CHANGING MEDIA TALENT STREAMLINE YOUR NEXT JOB SEARCH FOR EXPERIENCED AND TECH-SAVVY MEDIA PROFESSIONALS WITH A HIGHLY VISIBLE JOB POST ON TVNEWSCHECK.
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The Financial Manager • September/October 2019 5
DEAR EXPERT
Ransom Remedies
Hackers are attacking companies in more sophisticated ways. Liability expert PATRICIA KOCSONDY explains how to fight back. Dear Expert, I’ve been reading about the Ryuk ransomware attack that affected Tribune Publishing. How can my company reduce fallout from an attack? — Fretful in Fresno Dear Fresno, Since I wrote about ransomware in TFM ’s September/October 2017 issue, attacks have become more targeted and sophisticated. “Bad actors” are becoming better at discovering media companies’ most valued data; oftentimes they encrypt not only the victim’s front-end systems, but also the back-ups. Moreover, the amount of the ransom demand has increased into the seven figures in some cases. Ransomware – a malicious form of malware preventing people from accessing systems and data until a ransom is paid – is the most prevalent type of cyber incident, according to Chubb’s real-time claims data. (Find out more at chubbcyberindex.com.) Unlike WannaCry and NotPetya, newer malware strains like Ryuk are not buckshot ransomware attacks. The bad actors have upped the ante by deploying insidious banking trojans like TrickBots and Emotet. Often used in combination, they penetrate technology systems and networks, typically via an email phishing scam containing a malicious link. Once inside the network, they devote considerable energy to conducting deep reconnaissance of the targeted entity. Their activities include harvesting user credentials; navigating the network to determine which data is crucial to ongoing operations and business value; searching data centers for file backups; and scouring financial statements to discern the company’s wherewithal to pay a certain size ransom. The result is that the bad actors have Do you have a professional puzzle that MFM and BCCA experts might be able to answer? We’ll mine the contact base and find the right person to answer your question. Just contact TFM editor Janet Stilson at TFMeditor@mediafinance.org.
become increasingly successful in launching effective attacks for greater reward. PAY THE RANSOM?
The Federal Bureau of Investigation has advised against paying extortionists. But to pay or not to pay is a decision for the victim organization to make. If the company declines to pay up, it may risk significant disruptions in ongoing business. Many companies are tempted to
The FBI has advised against paying extortionists. But to pay or not to pay is a decision for the victim organization to make. simply pay and move on, eager to resume operations with minimal disruption, financial cost and reputational damage. There is no easy answer. On its website, the FBI states that the decision requires “the evaluation of all options to protect shareholders, employees and customers.” Given that this is a business determination, cyber insurers generally leave the decision to the policyholder. Depending on coverage terms and conditions, policyholders may obtain reimbursement for the cost of the ransom and business interruption losses. ADVANCE PREPARATION
The best solution is for companies to prepare themselves in advance of an attack, so they can respond quickly and decisively if bad actors strike. Otherwise, that most precious commodity, time, is squandered, increasing the length and related cost of the business disruption. This positioning should include
6 The Financial Manager • September/October 2019
proactive plans with internal stakeholders, so each understands their role and contribution. It’s also wise to line up external assistance from specialist law firms, forensic investigators, crisis management experts and firms with bitcoin wallets to pay the ransom in cryptocurrency, should the company decide to pay the demand. Do this before a crisis occurs. Retaining these firms after an attack – an effort that includes recruitment, due diligence and contractual negotiations – can take days or even weeks, inevitably delaying the deployment of an effective incident response. The external services’ level of expertise is also important. Law firms that specialize in cyber-incident response understand the different types of ransomware events and can help select an optimal forensics investigator. Attorneys also can help media companies navigate niche issues such as the legalities of payment and the need to conduct a socalled OFAC check to ensure the bad actor is not listed by the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) in its record of “specially designated nationals and blocked persons.” Forensics firms that specialize in responding to ransomware incidents have expertise negotiating with bad actors. They can also test parts of the decryption code in advance of a ransom payment to help ensure the decryption key will work. In most cases, they can further facilitate the payment in bitcoin. In addition, cyber insurance can help, since some insurers can provide access to a panel of specialists to assist companies with both incident preparedness and response. Patricia Kocsondy is senior vice president and the media professional liability product manager for Chubb. She can be reached at Patricia.Kocsondy@Chubb.com.
HUMAN FACTOR
Out on a Limb
Taking an action without fully understanding what its impact will be can garner some big and important results. BY JOSEF MARTENS
A
s I work with financial services organizations, something I consistently hear is the need to step up performance in three challenging areas: 1) growing client relationships and sales; 2) nurturing an agile culture that allows for adoption to change – especially changes in customers’ needs; and 3) showing an innovative edge to become distinct from the competition. What many don’t realize is that all these challenges come down to the same leadership behaviors and skills: the ability to take risks. Let’s say you want to grow better client relationships. One of the best ways to do this is to take a risk in the relationship. When you do, it indicates that you’re willing to trust the other person. The risk could be as simple as giving a real answer to the question: “How was your weekend?” Or it could be when we see an important client who is usually completely composed show up to a meeting frazzled, and we quietly say to her: “You don’t quite seem your normal self.” These actions open the door to a real conversation, and in most cases the other person reciprocates by also trusting you more. In order to build an agile culture, we need to be willing to let go of our preferred way of doing things. It involves trying new approaches and taking action before knowing what comes next. That is the very definition of taking a risk. Then there is the desire to distinguish ourselves from our competitors. Often, clients choose us because of our prior relationship. But there are also other factors at play. An important one is the customer experience that we offer, and the distinctiveness of that experience. How do we create that experience? By being intentionally different, in a positive way, from the entire competition. Most of us vastly overestimate our skill at taking risks. But there are ways to uncover
those blind spots. Pay attention to yourself and give your actions a rating on a “courage scale” from 1 (very low) to 10. Think of your last networking event, your last team meeting or your last presen-
We can practice risk-taking in many areas. It’s not about any particular situation; it’s about squelching our inner voice and concerns. tation. How much courage do you exhibit? Did you share anything about yourself that makes you a little uneasy because you don’t know how it landed? Did you address the elephant in the room? Did you start the presentation with an unusual opener that got everyone’s attention? Mind you, I’m not suggesting you should aim for 10 – but I am saying that most of the time we’re operating at a courage level of 1 or 2, and it’s helpful to step it up by a couple levels. Many of us share a mistaken belief. Even though we don’t take risks all that often, we believe we can become a prudent risk-taker when the need arises. What really happens when we’re called to take a risk is that we
become more self-aware, a little nervous and our inner voice tells us emphatically, “Don’t do it.” If we want to get better, the first thing to do is to tame that voice and our internal reaction. How do we do this? The Greek philosopher Aristotle has the answer: “[Bravery] then, is not an act but a habit… We become brave by taking brave acts.” We need to practice risk-taking. Only then are we ready when a conversation with the customer requires it; when something in our organization needs us to pivot on a dime; or when we position ourselves differently in the market. Only with practice will we be able to go out on a limb when needed for our business. The good news is that we can practice this in many areas. Remember, it’s not about any particular situation; it’s about squelching our inner voice and concerns. Here are some simple and impactful ways to get in the right mindset: ■■ State your opinion unfiltered. ■■ Speak up when, and as soon as, you see something wrong. ■■ Ask for something you don’t expect to get. ■■ Write down your biggest goal in life and take one action towards it. (You’ll earn bonus points if you share your goal with someone.) ■■ Negotiate something. ■■ Tell someone what you appreciate about them. You’ll think of more ideas as you practice, and you’ll notice how you’ll get more comfortable with it. More importantly, you’ll notice how you get better with the important challenges in your job. Josef Martens helps organizations dramatically improve their performance. You can reach him at JM@JosefMartens.com or (240) 938 1274.
The Financial Manager • September/October 2019 7
CREDIT WHERE DUE
Dropping the Pressure
There are ways to limit the stressful aspects of the invoice-to-pay process. MFM conference panelists provide some answers. BY DAVID FROGEL
T
he invoice-to-pay process is fraught with delays, communication challenges and frustration from both suppliers and agencies. Although the reasons for this are sometimes complex, collaborative software and smarter data sharing can go a long way toward creating a near-frictionless experience for agencies and suppliers. That was one of the messages conveyed at a panel discussion I moderated during Media Finance Focus 2019 in New Orleans this past May, which featured leaders from both media and agency companies. “Both sides, vendors and agencies can benefit from compressing the [payment] cycle,” commented Ed Mockus, director of order to cash at Discovery Inc. Mockus and another panelist, Frank Connolly, the CFO of the media seller Viamedia, noted that paper and PDF invoices are the standard, and usage of electronic data interchange (EDI) is still nascent. “We’re still getting paper invoices in the mail,” said Patrick Kennedy, CFO of the political shop AL Media. “For me, speed and efficiency are critical.” He raised an issue that is important for political agencies: receiving refunds from suppliers quickly. “The goal is not to get a refund; the goal is to repurpose that money for our clients before key election dates.” Breck Templeton, the CFO of the agency 9thWonder, pointed to some other pain points: missing and incorrect invoices, the agency’s need to reconcile media invoices and the cost of issuing checks to suppliers that don’t accept electronic payments. Most agree that solutions for the invoiceto-pay portion of the media lifecycle need to concentrate on three key areas: ■■ Improving and centralizing communication about invoicing and payment issues; ■■ Reducing labor and processing costs; ■■ Expediting payments. Software isn’t a panacea for all that ails the process, but it can go a long way toward
improving visibility into issues and reducing unnecessary emails and phone calls. Whether using a software platform, email or another process, suppliers should have access to the agency invoice status. Invoices that are automatically scanned for issues and fixed before sending will also preempt delays. In an ideal world, agencies should au-
“The goal is not to get a refund; the goal is to repurpose that money for our clients before key election dates.” — PATRICK KENNEDY, AL MEDIA
tomate the distribution of invoice status reports to suppliers using media-buying software and conventional technologies. Suppliers will make life simpler for themselves and their clients if they deliver invoices in EDI format. Generally, PDF and paper-based invoices need to be digitized by agency staff members or a third-party provider. This takes time, causes delays and costs the agency money. Suppliers often believe that sending multiple copies of an invoice increases the
8 The Financial Manager • September/October 2019
likelihood of getting paid, but it can result in more work and confusion for the agency. When a duplicate PDF or paper invoice arrives at an agency, staff members may digitize it once again, only to discover that it’s a duplicate of what they’ve already recorded. Invoices that are missing critical pieces of data, such as order/estimate number and flight dates, also cause delays and sometimes end up in invoice purgatory. It seems obvious that sending an invoice quickly and to the right destination will result in faster payment, but agencies are constantly tracking down missing invoices. Agency policies can compound delays. Advertisers often have payment terms that can exceed 120 days. While agencies have tried to resist, it’s hard not to capitulate, given the highly competitive marketplace. Since most agencies won’t assume the liability of paying invoices before receiving payment, the problem then shifts to suppliers. Here, there are only three options: reject the advertising; accept the advertising and late payment; or use a third party to get paid on a fixed schedule. Some media companies use factoring companies, which advance funds and charge either interest or a flat fee for the accelerated receivables. Most factors leverage receivables as collateral, although I know of at least one firm that will advance payment to suppliers without securing the receivables. Despite the payment-policy push and pull, both agencies and suppliers seem motivated to improve the invoice-to-pay lifecycle. The use of collaborative platforms, better data sha ring a nd more straightforward processes should speed up payments and eliminate much of the unnecessary work. David Frogel is chief strategy officer of FastPay, a media-focused fintech company. He can be reached at david.frogel@gofastpay.com.
ASSOCIATION NEWS
UPCOMING EVENTS Media Outlook 2020
Sept. 12, 2019 Lowenstein Sandler 1251 Avenue of the Americas, 17th Floor New York This ever-popular annual event focuses on issues that will impact media companies in the year ahead. Among the speakers is Jared DiPalma, CFO of NBC News. He’ll explain how the journalism unit plans to expand globally, an effort that will be enhanced by NBCUniversal’s recent purchase of Sky. And he’ll also discuss coverage of the 2020 elections. Another Outlook speaker is the well-known media analyst Marci Ryvicker, managing director at Wolfe Research. She’ll discuss the challenges facing programmers, cable operators and newer media entrants as they navigate the rapid change in consumer viewing habits. Outlook is overseen by two co-chairs: Antonella Ricciardi, senior vice president and group controller at NBCUniversal, and George Berbari, director, international finance at A+E Networks.
Newspaper Fly-In
Sept. 27, 2019 Las Vegas Review-Journal 1111 W Bonanza Rd. Las Vegas Newspaper finance professionals are descending on Las Vegas to spend meaningful time together exchanging ideas and information. During a series of roundtables, attendees will share thoughts about opportunities and strategies that work. They will have the ability to earn CPE credits. The event is organized by two co-chairs: Steve Hall, CFO of the Las Vegas ReviewJournal, and Mike Lavey, chief accounting officer and controller at Tribune Publishing.
Los Angeles Regional Seminar October 15, 2019 Skirball Cultural Center 2701 N. Sepulveda Blvd. Los Angeles
sionals in the area and learn about the hottest topics impacting the industry. While the subjects that will be covered weren’t finalized as this issue of TFM went to press, the organizers are considering a production accounting panel, an economic outlook, media consumption trends and a session focused on the future. More information about these three events is available on mediafinance.org.
DISTANCE LEARNING DISCOUNTS Save money on Distance Learning Seminars (DSL) during a very special promotion. By purchasing tickets to 11 sessions in advance, you’ll only pay for the cost of six regular registrations, a discounted price of $350. A pack of six registrations costs the same as four, $200. Corporate members get access to any DSL free of charge. A la carte purchases are $50 for members and $75 for non-members.
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The Financial Manager • September/October 2019 9
THE
MUSIC RIGHTS FIGHT Debates are escalating over how much media companies should pay to license music. And the stakes are enormous. By JANET McHUGH
I
RECENTLY TOOK MY 21-YEAR-OLD SON
(an aspiring lawyer) to see To Kill a Mockingbird on Broadway. We both had read the book in middle school. But I wanted him to understand a legal case – whether real or fictionalized – showcasing the idea that one man with good intentions and a keen legal mind could take on the system. Such a lawyer can fight the good fight for the cause of justice, win or lose. That’s why I became an attorney, and I wanted my son to have that same ideal. The attraction of business law, with its ability to help me pay large tuition bills, has delayed my becoming the Atticus Finch of modern times. There still are opportunities, however, for individuals to work within
government and the courts (including the court of public opinion) to accomplish things that solve big problems and just make sense. A case in point are the ongoing legal arguments against terminating the consent decrees that help curb the power of two performance rights organizations (PROs), ASCAP and BMI. That move is being contemplated by the U.S. Department of Justice (DOJ), and it has serious consequences for media companies. Without regulation, ASCAP and BMI could charge whatever they want. Music users – who already pay well over $1 billion dollars each to ASCAP and BMI – would be held hostage. They would either be forced to pay exorbitant fees or infringe on the copyright laws.
10 The Financial Manager • September/October 2019
If the consent decrees are terminated it may lead to “the day the music dies” in your favorite TV programs or at your favorite bar. Those of us arguing in favor of maintaining the consent decrees are seeking fairness and order in what could become a very chaotic world of music-use licensing. Since I wrote about this for TFM in the November/December 2018 issue (see “Discord Over Music Rights”), there have been some developments worth noting, not the least of which is the DOJ’s decision to go ahead and begin a review of the consent decrees. At press time, the Television Music License Committee (TVMLC) and many other music users affected by a possible termination or modification of the consent
LEGAL MATTERS
has “music in the can.” They don’t control and oftentimes can’t determine what music is actually being transmitted to consumers. Because of the “take it or leave it” aspect of these licenses (with the “leave it” option likely resulting in potentially crippling copyright infringement lawsuits), ASCAP and BMI wield enormous market power. Decades ago, the DOJ brought antitrust lawsuits against the PROs. These lawsuits were resolved with the imposition of consent decrees, which rein in ASCAP and BMI’s enormous clout. The decrees were put in place, among other reasons, so that music users would not be subject to the full extent of ASCAP’s and BMI’s market power, thereby allowing for the negotiation of more reasonable license fees. The decrees provide limited government oversight of the PROs, including the establishment of the “rate court” previously mentioned. Because of the decrees, PROs must give music users automatic licenses on request and freedom from copyright infringement concerns. Only three years ago, the DOJ looked at several aspects of the consent decrees at the request of ASCAP and BMI. After exhaustive investigation, it concluded “the current system has well served music creators and music users for decades and should remain intact.” The consent decrees continue to provide a check on potential anticompetitive behavior. decrees were expected to file comments responding to these questions. Comments were due by mid-August. Before delving into recent actions, let’s review why the decrees are so valuable. DECYPHERING THE DECREES
The consent decrees specifically pertain to ASCAP and BMI, the two largest PROs in the United States. Their primary function is to pool the copyrights held by composer, songwriter and publisher members or affiliates. BMI and ASCAP’s repertories are estimated to comprise almost 90% of all musical works in the U.S. This music is publicly performed in restaurants, bars, on TV, radio and on various music streaming services.
The decrees require the two PROs to issue licenses covering all works in their repertory upon request from music users. If the parties are unable to agree on an appropriate price for a license, the decrees provide for a “rate court” proceeding in front of a U.S. district judge. Neither decree contains a termination date. The debates over rates charged by ASCAP and BMI are usually complicated, because the PROs bundle their music into a single license. Music users simply cannot pick and choose or realistically secure licenses for all of the works they play directly from songwriters and publishers. Adding to the complexity, traditional TV programmers and streaming services like Netf lix transmit content that already
ENTER THE MIC COALITION
When Assistant Attorney General Makan Delrahim suggested in 2018 that the DOJ should review the ASCAP and BMI consent decrees again, the MIC Coalition stepped up to the plate. (MIC is pronounced “mike,” as in microphone.) And it continued its efforts when the DOJ announced in June 2019 that it has once again opened a review of its ASCAP and BMI consent decrees. The coalition had been formed due to a growing need: the world of music licensing is incredibly complicated and unnavigable without high-priced legal counsel and economists. It’s non-transparent and subject to government requirements. The MIC Coalition is composed of a
The Financial Manager • September/October 2019 11
LEGAL MATTERS group of associations whose members transmit licensed music over the nation’s airwaves, through the Internet and in stores, hotels, restaurants, bars and taverns throughout the country. In addition to the TVMLC, the coalition’s members include the National Association of Broadcasters, American Beverage Licensees, American Hotel and Lodging Association, National Restaurant Association, Radio Music License Committee, National Retail Federation, National Association of Theatre Owners, Consumer Technology Association and Wine America. It is committed to a rational, sustainable and transparent system that will drive the future of music and ensure that consumers have continued access to music across a variety of platforms, venues and services. The coalition realized that the potential modification or termination of the consent decrees with no replacement framework would have a serious impact on music users and the fees they pay to all PROs. With that in mind, it has been educating the public and Congress about the negative impacts of either possible outcome. As the MIC continues its work on that
is critical to facilitate more efficient licensing and accuracy in payment. Composers cannot be paid if users and distributors do not know who owns what or who should be paid. As it now stands, music users like TV CLEARING THE AIR and radio stations do not know precisely While the DOJ gears up for its examination what they’re licensing from each PRO. It’s of the decrees, the U.S. Congress is review- not clear who owns a given piece of music ing copyright laws and which PRO each that govern music copyright owner is licensing. The MIC The consent decrees affiliated with. Coalition is hopeful either must stay in There have been that it will advance place or be replaced various attempts to reform legislation create such a dataachieving a healthy with an alternative base within the U.S. balance in the new framework including a Copyright Office or music economy. comprehensive data base as an independent This includes the initiative. For examcreation of a modern for musical works. ple, the MIC Coamusic copyright dalition supports protabase to finally provide a transparent, ac- posed legislation known as the Transparency curate and fully searchable record of music in Music Licensing and Ownership Act. ownership and licensing information availThe legislation focuses exclusively on the able to everyone. In the words of Atticus creation of a database of musical works (as Finch: “Best way to clear the air is to have it opposed to also including sound recordall out in the open.” ings, which was previously addressed by Readily available ownership information Congress in the Music Modernization Act passed last year). TVMLC and the MIC Coalition are committed to working with the music producing community, all performing rights organizations and all music licensees to HE CURRENT DEPARTMENT OF JUSTICE (DOJ) REVIEW OF THE DECREES IS ITS create a fair and transparent system that second in five years. Its purpose is to determine whether the decrees should be prevents anti-competitive practices. Both maintained in their current form, modified or terminated. organizations want to achieve fair comIn explaining his decision, Makan Delrahim, assistant attorney general for the DOJ’s antitrust division, noted: “The ASCAP and BMI decrees have been in existence in some pensation to composers and publishers and form for over 75 years and have effectively regulated how musicians are compensated for reasonable, competitive-market-based rates the public performance of their musical creations.” for consumers. He went on to say: “There have been many changes in the music industry during this time, In order to achieve this, the consent deand the needs of music creators and music users have continued to evolve. It is important crees either must stay in place or be replaced for the division to reassess periodically whether these decrees continue to serve the with an alternative framework including a American consumer and whether they should be changed to achieve greater efficiency and comprehensive data base for musical works. enhance competition in light of innovations in the industry.” As Harper Lee wrote in Go Set a WatchAs part of its public comment process, the DOJ wants to know, among other things, whethman, the sequel to her novel, To Kill a Mocker the consent decrees continue to serve important competitive purposes. The Television ingbird: “I guess it’s like an airplane: they’re Music License Committee and the MIC Coalition feel strongly that the answer is “yes.” the drag and we’re the thrust, together we As Elizabeth Frazee, executive director of the MIC Coalition, explains: “The ASCAP and BMI consent decrees were originally established to guard against anticompetitive make the thing fly. Too much of us and behavior, and we have seen no evidence that they have outlived their intended purpose. If we’re nose-heavy, too much of them and anything, they are more critical than ever in an increasingly complex and diverse licensing we’re tail-heavy – it’s a matter of balance.” environment which, without measures that ensure an orderly market, is ripe for abuse.” With the songwriting, publishing, governFrazee added: “Modifying the existing decrees for the sake of change, alone, will not lead ment and music-using community working to the advent of a new and improved licensing regime that yields greater competition or together, I think we can make this fly. front, the TVMLC has been exploring whether it should be working to secure fair and reasonable license fees with newer PROs, including Global Music Rights (GMR) and Pro Music.
ARGUMENTS PRO AND CON
T
adequately protects consumer interests.” The consent decrees were created because the system of licensing performance rights was not working. There was no competitive marketplace. Nothing has changed. ASCAP and BMI still control 90% of the performance rights in musical works.
12 The Financial Manager • September/October 2019
Janet McHugh is executive director of the TV Music License Committee. She can be reached at (917) 750-3166 or janet@tvmlc.com.
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The Financial Manager • September/October 2019 13
FORGING A Newspaper organizations have ventured into the realms of nonprofit and community-based funding. For many, it’s a matter of survival.
14 The Financial Manager • September/October 2019
NEWSPAPER ADVANCES
BY JOSEPH LICHTERMAN
S
HORTLY AFTER PURCHASING THE PHILADELPHIA INQUIRER IN 2014, THE BILLION-
aire H.F. “Gerry” Lenfest made what is now an oft-quoted aside: “I just figured out how to become a millionaire in the newspaper business. It’s easy. You start out as a billionaire, and you buy a bunch of newspapers.” Though it was meant as a joke, Lenfest’s quip held a truthful resonance. The traditional business models that once made the newspaper industry highly profitable were no longer sustainable. The continued decline of print circulation, along with Facebook and Google’s domination of the online advertising market, had forever changed the news business. Lenfest saw another path forward. In 2016, he created The Lenfest Institute for Journalism, where I work. It’s a nonprofit dedicated to supporting sustainable business models for local journalism. He also donated his ownership stake in the Inquirer to the institute, establishing it as a laboratory for re-inventing local journalism. The Inquirer is now a for-profit public-benefit corporation owned by the nonprofit Lenfest Institute. Lenfest endowed the institute with $20 million and later pledged another $40 million in matching grants. He came to believe that local journalism should serve the best interests of its community, and likewise the community should support local journalism through a mix of philanthropy and earned revenue. His model was much like that of a local symphony, museum or zoo – which solicit donations while also selling individual tickets and memberships. “Eventually I foresee foundations taking ownership of newspapers,” Lenfest told Philanthropy magazine in 2014. The institute is far from alone in pursuing new revenue streams that rely on community support for local journalism. Outlets of all sizes and stripes – from legacy metro newspa-
STRONGER MODEL pers to nonprofit digital startups – have solicited their communities’ support in order to maintain the independence of their journalism. A TEXAS HYBRID
A case in point is the Texas Tribune (texastribune.org), which turns 10 this year. It has become a national leader in nonprofit news. While the news site has nonprofit tax status, it is run with the discipline of a commercial business in order to maintain financial health. The Austin-based site covers Texas political news, and it had about $9.1 million in revenue last year. About half of its income came from major gifts from individuals and foundations. The rest came from website sponsorships, events, membership and elsewhere. The Tribune has made diversifying its revenue a priority in coming years. Last year, the site published a strategic plan, which outlined its editorial and business goals through 2025. On the revenue side, the Tribune’s aim is to increase its revenue by 10% annually to continue to fund its operational expenses while also raising additional money dedicated for The Financial Manager • September/October 2019 15
NEWSPAPER ADVANCES experimentation and other uses. “If this sounds aggressive, it is. But given the capacity of high-net-worth individuals, deep-pocketed foundations and corporate behemoths in our midst, we believe it’s highly attainable,” the Tribune stated in its strategic plan. SEATTLE AMBITIONS
Indeed, many local foundations and high net-worth individuals have committed their philanthropic dollars to specific topics or causes and are often willing to support specific reporting, at both nonprofit and for-profit news organizations. In 2013, for instance, The Seattle Times launched Education Lab, a solutions-focused reporting project covering education in the city. The project was backed by, among others, The Bill & Melinda Gates Foundation, which has a particular interest in both Seattle and education. To date, the Times has raised more than $5.5 million to support its public service journalism. It has also launched topic-focused projects such as Traffic Lab, covering the city’s wicked congestion issues, and Project Homeless, which reports on homelessness in the region. While funders specify which topics they’d like to support, the Times sets clear boundaries. Financial contributors have no control over editorial coverage. The Times also clearly discloses the sources of all donations that supported stories in both print and online coverage. In April, the Times created its Investigative Journalism Fund, which enables individual donors to make contributions to support the paper’s investigative reporting. Because the Times is a for-profit organization, it works with the nonprofit Seattle Foundation to help facilitate the donations and gifts. Developing this model has taken time. The initial model for Education Lab was developed over a two-year span, said Seattle Times director of development Kristi Waite. As the Times created its community-funded reporting projects, it realized it needed to find topics that serve all the stakeholders. “You have to have something that news wants to cover,” Waite said at a recent Lenfest Institute event on fundraising in journalism. “You have to have something that funders are interested in. And it has to serve the community.” Other for-profit outlets have taken notice and begun working to fund their journalism
through philanthropy. Report for America (RFA), for example, is a new program that places reporters in local newsrooms. RFA pays for half of a reporter’s salary. The host newsroom is responsible for the rest, and the program encourages outlets to turn to local funders for additional support. The Lenfest Institute is among them. Since its 2017 launch, Report for America has placed 61 journalists in 50 news organizations. “Report for America promotes new models for shared investment in local journalism, increasing the chances of sustaining watchdog community reporting,” explained Charles Sennott, the CEO and editor-in-chief of the GroundTruth Project on the organization’s site. GroundTruth launched the Report for America initiative. SALT LAKE GAMBIT
Another experiment in community-supported local journalism is underway in Utah. In May, The Salt Lake Tribune announced that it was asking the Internal Revenue Service to
THE LENFEST
LEGACY
W
HILE H.F. “GERRY” LENFEST
died in August 2018 at 88, the organization he founded has continued carrying out his mission of supporting outstanding local journalism. The Lenfest Institute for Journalism helps newsrooms to acquire digital tools that empower reporting and enables community-focused work so that news operations are truly representative of the communities they serve. Among the institute’s funded projects is Spotlight PA, a collaborative 10-person investigative team covering Pennsylvania state government in Harrisburg. The Lenfest Local Lab, meanwhile, has partnered with local outlets to experiment with new technologies that deliver local news and information. And the Lenfest Fellows program, a two-year fellowship at the Inquirer for journalists of color, is designed to help diversify the Inquirer’s newsroom. To date, the Lenfest Institute has raised funds from local and national foundations, individuals and others to support local journalism in Philadelphia and around the United States.
16 The Financial Manager • September/October 2019
recognize the newspaper as a nonprofit operation. While other news organizations – such as The Philadelphia Inquirer – are for-profits owned by nonprofits, the Tribune would be the first legacy newspaper in the United States to make the transition to nonprofit status. The move is far from a sure thing. The IRS has a narrow definition of what types of organizations can qualify as a nonprofit. There is no category for news outlets. Instead, nonprofit news operations qualify as educational entities. That definition raises questions. For example, if it succeeds in its bid to become a nonprofit, could the Tribune still cover the Utah Jazz basketball team? What about local arts coverage? One thing’s for sure: the paper has already said it would stop endorsing political candidates, because 501c(3) organizations can’t engage in partisan political activity. “What we do is charitable in nature,” Tribune vice president of business development Fraser Nelson said at the recent Lenfest Institute event. She emphasized that the full scope of the Tribune’s coverage serves the public good and educates readers about their community. If the Tribune’s nonprofit status is approved by the IRS, the process could likely take over a year. Even then, the paper would still face the same challenging headwinds as the rest of the industry. Last year, it laid off 34 of the 90 journalists in its newsroom. Regardless, it’s a positive sign to see increased willingness by communities across the United States to support journalism as a critical civic good. And whether that support takes the form of funding startup publications; enabling experimentation at legacy outlets; or wholesale changes to a news organization’s business model, it’s clear that philanthropic support of journalism will become an increasingly key pillar of the news business model in the years to come. That’s what Lenfest envisioned when he established the Lenfest Institute and gifted ownership of the Inquirer in Philadelphia. “Money is a responsibility when you have [my] kind of wealth,” Lenfest said in 2016 when he announced the creation of the institute. “What would this city be without the Inquirer and Daily News?” Joseph Lichterman is manager of editorial and digital strategy at The Lenfest Institute of Journalism. He can be reached at (248) 953-9313 or joseph@lenfestinstitute.org
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The Financial Manager • September/October 2019 17
MOBILE
MOVES AHEAD What exactly does 5G mean? And what are the implications of this new mobile technology for media businesses? By SKIP PIZZI Cutting-edge mobile phones, like Samsung’s Galaxy S10 Plus, will be radically improved as 5G becomes the norm.
P
EOPLE LIKE LABELS.
Companies like labels. Industries like labels. In today’s complex world, they simplify things, and allow us to sort them into more easily understood categories. So how much simpler could the label “5G” be? One number and one letter – a thing of beauty. But as Einstein famously said, “Everything should be made as simple as possible, but
18 The Financial Manager • September/October 2019
no simpler.” And that’s where the problems with understanding 5G begin. The label is applied to a very wide range of technologies, and it is understood to mean different things by different people, companies and industries. That kind of confusion certainly has occurred for other forms of emerging technology. But in the case of 5G, the term has been leveraged by marketers for their particular purposes, and already
co-opted into substantial hype and resulting misconceptions. The value of the label 5G has been thereby diluted, and its value diminished rather than increased in helping us understand what the technology is, and what it means to the businesses that may use or be affected by it in the near future. SO, WHAT IS 5G?
The origin of the term comes from the world of wireless
SPECIAL REPORT: TECHNOLOGY TRENDS
technology standards, where it implies (as you might guess) the fifth generation of cellular phone technology. But as in the passage of previous generations of technologies, the boundaries between them are not hard and fast. (See sidebar, page 20.) 5G will replace 4G in two distinct phases. First, the introduction of 5G will prompt the rollout of new mobile software, because the new technology allows somewhat more efficient
use of existing wireless bandwidth than 4G does. This is an incremental change, not unlike previous transitions between wireless technology generations. This transition has already begun in some markets, and will continue over the next few years, as new mobile devices that support the technology become available. But the second phase of 5G will truly open up new horizons, as it will allow far faster
connections. This is mostly due to its use of wholly new, higher frequency operations – so-called “millimeter wave” (mmWave) bands – which allow wider bandwidth connections per user. Don’t expect to see this broadly deployed until the mid2020s, however. And even then, it will only be found in densely populated urban areas. Even 5G’s strongest champions agree that it’s unlikely mmWave 5G will ever be seen in rural areas.
Until now (i.e., through the 4G era), wireless phones have operated in various bands between 600 MHz and 6 GHz regions, but with the full deployment of 5G, frequency bands above 24 GHz (mmWave) will be used. That will allow users to connect to the network on much wider-bandwidth channels. As a result, full 5G deployment will provide consumer devices with connectivity up to 20 times faster than with 4G, while
The Financial Manager • September/October 2019 19
SPECIAL REPORT: TECHNOLOGY TRENDS also increasing the capacity of simultaneous users per cell. If this seems too good to be true, bear in mind that these higher transmission frequencies will necessarily limit the coverage zones for individual cells to much smaller areas. They may be as small as a few tens of meters in diameter per cell. This means that the 5G mmWave deployments will require vast numbers of transmitters and antennas spaced closely together for the system to work practically for customers, which is why the full impact of 5G will only be felt in urban areas. Notwithstanding the geographically limited nature of mmWave deployments, though, other benefits promised by 5G generally include: ■ Greater robustness, such a s fewer dropped calls; ■ Low latency, for faster data transfer; ■ More sophisticated antenna design to allow more users to connect at higher
■
■
speeds in a given area without interference; Network slicing, which allows multiple forms of usage to share the network simultaneously, such as smartphones and Internet-of-things (IoT) devices; Edge computing/virtualization, which puts cloud computing servers physically closer to customers, further reducing latency and reducing network congestion.
IMPACT ON MEDIA
Another 5G feature, which worries some in the traditional media businesses, is its socalled “broadcast mode.” This allows a oneto-many delivery format akin to broadcast radio or television service. Such capability already exists in the current 4G LTE system, but 5G further expands it. Yet even 5G’s broadcast mode is not infinitely scalable like traditional broadcasting has always been. Even if it was, the economics of the system do not appear likely to entice mobile network operators into
THE WIRELESS EVOLUTION
M
OST OF US HAVE ALREADY EXPERIENCED TRANSITIONS BETWEEN GENERATIONS
of modern mobile telephony. It seems almost miraculous how the world of cellular phones has evolved so quickly over the mere four decades in which it has existed. But there’s no magic to the evolution – just good standards and practices by the industry. There are international standards bodies that continually work to allow wireless services to develop at a relatively fast pace. Among them is the International Telecommunications Union, a part of the United Nations that manages and resolves the use of different telecommunications methods used in different countries and regions. Another is the 3rd Generation Partnership Project (3GPP), which develops international standards for interoperable mobile broadband software and hardware. 3GPP has developed an approach called long-term evolution, which expects new releases of backward-compatible mobile telephony standards to be issued on a regular basis. This means that wireless network operators can support multiple generations of consumer equipment simultaneously over periods of time. For example, when the industry moved from 3G to 4G, there was no mystical night during which everyone’s phones upgraded. People’s older phones continued to work like they used to, even as new technology was deployed by carriers. At the same time, customers who purchased new phones could enjoy the benefits of the latest services. Wireless operators maintain and continue to support the legacy generation of technology for a long period of time after they begin to deploy the next generation of technology. This also means that wireless operators require adequate spectrum to operate multiple, parallel systems during any transition between technology generations. And of course, the Internet – to which wireless phones allow mobile connectivity – also evolves in an elegant fashion, as managed by the standards of the Internet Engineering Task Force and the World Wide Web Consortium. Ideally, customers never notice these evolutions, since their old phones continue to work until they replace them with new phones, which then work better. What customers don’t recognize is that their new phones may be connecting to a different network than their old phones did, even though they are still using the same wireless provider’s services. This quiet evolution is designed to theoretically continue indefinitely.
20 The Financial Manager • September/October 2019
entering the radio or television business. However, one media sector that does seem particularly vulnerable to new competition from 5G is the multichannel video program distributor (MVPD) business. Some wireless operators are considering the use of 5G as a “last meter” (or “last tensof-meters”) delivery method for IP-based service bundles to the customer without stringing cable into the home. 5G’s wideband, wireless connection from the antenna on the street pole to the homes on the block (or to the multiple units of an apartment building) are an appealing and potentially cost-effective alternative to traditional hard-wired fiber or coax – or even small-dish satellite – delivery of television and/or broadband Internet service to residential customers. So some 5G effects may be felt by traditional fixed (i.e., wired) rather than mobile operations. Or, put another way, 5G offers wireless operators new ways to compete with traditional wired telecom businesses. Nevertheless, the net result of 5G’s impact on existing media businesses may be ultimately beneficial, as traditional operators find ways to use 5G services to improve operations. For example, content creators will benefit from enhanced connectivity for live backhaul of content from remote sites, while weather forecasters and other data-collectors can deploy massive numbers of sensors using IoT devices for accelerating their services. Crowd sourcing of content or audience interaction also could be boosted by the increased capacity and speed of 5G. Yet another possibility is convergence with the similarly IP-based ATSC 3.0 system soon expected to be deployed by television broadcasters, by which broadcast transmission and wireless broadband service can be used together and simultaneously to provide rich and responsive media experiences to tomorrow’s audiences. Yes, there’s a lot to like – and some to worry – about 5G among media businesses. The best advice now is to avoid the hype and continue to study the real prospects for the technology, to learn how it can best work with, or against, your existing services. Skip Pizzi is vice president of technology education and outreach at the National Association of Broadcasters. He can be reached at Spizzi@nab.org.
The Financial Manager • September/October 2019 21
SPECIAL REPORT: TECHNOLOGY TRENDS
THE
REGULATION MAZE
22 The Financial Manager • September/October 2019
Myriad laws governing privacy and cybersecurity have become increasingly complex. Here are five touchstones to help understand them.
By MARY J. HILDEBRAND & CARLY S. PENNER
I
T MAY SEEM THAT PRIVACY AND CYBERSECURITY
laws in the U.S. are disorganized, with multiple layers of jurisdiction at the federal and state levels jockeying for position. It appears that way because it is that way. Unlike Europe, Canada and some other countries, the U.S. has no comprehensive privacy and cybersecurity laws. Instead, the U.S. has adopted specific laws for industries that are viewed as particularly risky from a privacy and security perspective. To name just a few, the Health Insurance Portability and Accountability Act covers the healthcare industry. Financial service companies have the Gramm-LeachBliley Act. And activities for children must comply with the Children’s Online Privacy Protection Act (COPPA). The Federal Trade Commission (FTC) has used its broad authority under Section 5 (which prohibits unfair and deceptive trade practices) to become the de facto regulator of many online activities, including privacy policy enforcement and establishing security standards. (See sidebar on Wyndham, page 25.) As awareness about privacy and cybersecurity has grown, so have demands for more effective laws. While various bills have been introduced in Congress, passage appears unlikely especially with the next election cycle gearing up. State legislatures have stepped into the void, passing or amending dozens of laws in this area over the last year or so. Currently, there are 50 different state data breach laws, along with laws specific to Guam, Puerto Rico and the Virgin Islands. In practice this means if your personal information is implicated in a data breach, your rights are determined by where you live. Each state takes a unique approach to how they protect the privacy and security of their residents’ personal information. Europe, often our largest trading partner, implemented the General Data Protection Regulation (GDPR) last year. Even if your business doesn’t operate in the EU, it’s important to know that the GDPR exists for two reasons. First, under certain conditions the GDPR can apply to businesses outside its borders that process personal information on individuals located in the EU. Second, The Financial Manager • September/October 2019 23
and perhaps more important to U.S.-based businesses, the GDPR’s principles and terminology are reflected in the new California Consumer Privacy Act (CCPA) and other recent U.S. laws and proposed legislation. The GDPR is tough on violators, with massive fines possible (2% to 4% of worldwide annual revenue or $20 million, whichever is greater). With this legal framework as the backdrop, here are five privacy and cybersecurity touchstones for your business.
No. 1 — New U.S. Laws
The most notable upcoming privacy and cybersecurity law in the U.S. is the CCPA, which goes into effect at the start of next year. Your business may be covered by CCPA even if you do not have a physical operation or location in California. Under CCPA, a “business” is any for-profit entity that does business in California; collects (or has collected) consumers’ personal information; determines the purpose and means of processing such information and satisfies one or more of three thresholds: 1) the business has an annual gross revenue in excess of $25 million; 2) alone or in combination, the business annually buys, receives for commercial purposes, sells or shares for commercial purposes, the personal information of 50,000 or
more consumers, households or devices, or 3) it derives 50% or more of its annual revenues from selling consumer personal information. Even if you’re not a “business,” you may be a “service provider” or “third party,” with different obligations under CCPA. Consumer choice and transparency are core principles of the CCPA, particularly the right to object to the sale of consumer data. “Sale” is broadly defined to include selling, renting, sharing, disclosing, disseminating, making available, transferring or otherwise communicating consumer personal information to another business or third party for valuable consideration. Website visitors may opt out of letting the business sell their data via a button placed directly on the site. T he Ca lifornia law seems to be a trend-setter in the U.S. So far more than a dozen additional states have bills in play to implement comprehensive privacy laws. They include New Jersey, New York, Massachusetts and Maryland. These new GDPR-like bills are not the only U.S. laws to keep in mind. In the last few years all across America states have been enacting new cybersecurity laws and sector-specific laws. In 2018, Colorado and Nebraska enacted laws that require formal security programs.
A MATTER OF SEMANTICS
C
OMMON TERMS IN ONE COUNTRY (OR STATE) LAW CAN HAVE A COMPLETELY
different meaning in the laws of a different jurisdiction. Failure to grasp these distinctions may cost your business money and time, in terms of day-to-day communications and contractual commitments. Here’s a common scenario: someone stole the email credentials of an executive at your company and collected the names and contact information of all of your company’s clients. The customers include individuals that reside in all 50 states in the U.S. and a dozen European countries. Nothing more was taken. Is this a data breach of personal information? Personal information means different things depending on the governing law in the state where the client lives. If your client works in Boston, but lives in New Hampshire, then New Hampshire law determines whether the data stolen is personal information. Most U.S. states would not define name and email address as personal information. However, the California Consumer Privacy Act (CCPA), which becomes effective on Jan. 1, 2020, and Europe’s General Data Protection Regulation (GDPR) define personal information broadly. The name and email address of individuals residing in California and in the EU would be considered personal information. In the U.S., the words “process,” “store,” and “disclose” have different – and well understood – meanings. Not so, say the drafters of the GDPR and the CCPA. When applied to data, the GDPR defines “process” to include storing, disclosing, recording, collecting, transmitting and destroying personal information. It’s no coincidence that the CCPA adopts a similarly broad view of the term.
24 The Financial Manager • September/October 2019
Vermont passed a law to regulate data brokers, requiring them to register and make disclosures to the Vermont attorney general and implement an information security program. New York has been in the news for recently entering the third stage of the NYS DFS Cybersecurity Regulation, which requires financial institutions to be more transparent and protective of the data they process and store. There have been rumors and pushes both inside and outside the federal government for a national privacy law to lower the burden on trying to comply with the laws of all 50 states.
No. 2 — Data Breach
In recent years the fear of a data breach has been keeping corporate technology leaders up at night, and for good reason. Serious data breaches are not only potential career killers for the professionals involved, but also generate regulatory investigations, lawsuits, fines, reputational damage, drops in stock prices and business disruption. If you sustain a data breach, you’ll need to be aware of applicable federal, state and foreign laws. Thus, the U.S. should not be the only country on your radar. If a data breach implicates personal information related to individuals in the EU, then the GDPR will determine your obligations. Canada also recently adopted a country-wide data breach notification statute. And other countries, such as Australia, also have data breach reporting requirements that must be observed if you process data in that country. With so much at stake, and potentially dozens of laws in play, preparation is key to staying out of the news. It is essential that organizations have a formal written incident response plan in place, conduct appropriate training and consider purchasing cyber insurance.
No. 3 — Business Websites
Recently, privacy policies have evolved to include not only descriptions of data-related activity on business websites, but data practices associated with the company’s products and services. A website’s privacy policy creates a contract with every user and/or visitor to the site and, as applicable, customers that purchase a company’s products and services.
SPECIAL REPORT: TECHNOLOGY TRENDS The privacy policy has to reflect the reality of your data practices, not simply aspirations for the business. While policy content varies considerably from business to business, there are several topics common to most policies. For example, the policy should describe the personal information collected from visitors and/or customers; the purpose of collection; and how the personal information is used and shared. If you use cookies or third-party analytics providers, that must be disclosed. In the U.S., where collecting the personal information of children is strictly regulated under COPPA, it’s recommended that websites not meant for children include a statement advising that children under 13 should not be using the site or providing personal information. All businesses should be aware that their geographic location and the residency of their users impact the content of privacy policies. U.S. business sectors, states, the federal government, and many foreign countries have additional or different requirements for a privacy policy. There is renewed emphasis on being transparent with your users regarding their personal information. In one memorable proceeding during 2018, the French data protection authority (the CNIL) fined Google LLC $50 million in part due to the lack of transparency with regard to its collection of personal information. Specifically, the CNIL found that Google’s description of its purpose for collecting personal information, and the imprecise and incomplete descriptions of the personal information collected, did not allow users to understand the extent of Google’s processing of their information. If the CNIL was trying to get a clear message out to the rest of us they succeeded: to avoid fines or consumer distrust, privacy policies must be clear, concise and transparent regarding all processing of personal information.
No. 4 — AdTech
Today most businesses engage in some form of online advertising, marketing activities or data analytics. At their core, these functions depend on the collection, acquisition and processing of personal information. An inquiry to your director of marketing and sales could be very enlightening. It’s
common to rely not only on internal data processing activities, but to source personal information from vendors and engage third-party companies, such as remarketers, to assist in obtaining and retaining customers and predicting their future behavior. Transparency and consent requirements within recent data protections laws, like the GDPR and CCPA, pose significant challenges to all players in the adtech industry and their customers. This is particularly difficult because personal information often passes through many intermediary adtech companies on its way to your business, starting at the point of collection. The CCPA may be particularly problematic for adtech, because California residents have the right to prohibit the sale of their personal information. Because the act has a broad definition of the term “sale,” there
A LESSON
FROM WYNDHAM
T
HE WYNDHAM WORLDWIDE
Corp. data breach is one of the most well-known examples and is used as a case study for what not to do if your goal is to stay out of the Federal Trade Commission (FTC) crossfire. The FTC initiated legal proceedings against Wyndham in 2012 alleging that the company violated Section 5 of the FTC Act by failing to employ reasonable data security measures. That enabled hackers to obtain consumer data and run up millions of dollars in fraudulent charges on consumers’ credit and debit cards. The FTC cited inadequate security practices such as storage of consumer payment card information in clear readable text; failure to remedy known security vulnerabilities, enabling servers to use default user IDs and passwords that were easily hacked; and failing to monitor incident response procedures, such as monitoring the network for malware. Wyndham spent millions of dollars in legal and vendor fees during the investigation. They settled with the FTC, and the consent order imposed stringent information security obligations on Wyndham that will last for 20 years.
is a genuine risk that sharing with adtech companies will also be prohibited. Industry organizations, such as the International Advertising Bureau Europe, have attempted to address these concerns by adopting voluntary frameworks, such as the Transparency and Consent Framework (TCF) of 2018. As of this writing, it’s not clear how widespread compliance with TCF has become or whether the regulators regard the approach as valid, but most commentators consider it a step in the right direction. The link between adtech and your business operations is direct. Limitations on adtech’s right to collect and process personal information impacts not only the bottom line, but your ability to leverage such data for marketing, advertising and analytics purposes. These data-driven activities depend on a robust supply of personal information across demographics and geographies. While these new laws arguably protect consumer rights regarding their personal information, the potentially adverse business impact should not be minimized or ignored.
No. 5 — Know the Flow
Managing privacy and cybersecurity risk begins with some very basic questions about data flow in the organization. You’ll need to know: 1) what personal information is collected, received and/or acquired; 2) where and how personal information is collected, received and/or acquired, and from whom; 3) the individuals related to the data (and where they are located); 4) about disclosures of data to third parties (including the recipients and their locations); 5) how and why the data is used by your organization; and 6) where/how the data is stored, retained and destroyed. Needless to say, the five touchstones we’ve outlined are complex. But as you consider various state, federal and international laws, bear in mind that understanding them is a process, not an end in itself. It’s important to prioritize data flows and functions, then tackle the ones most critical to the business or most risky first. Mary J. Hildebrand is a partner, founder and chair of the Privacy and Cybersecurity Practice at Lowenstein, Sandler LLP. Carly S. Penner is an associate in the same practice. They can be reached at MHildebrand@lowenstein.com and CPenner@lowenstein.com, respectively.
The Financial Manager • September/October 2019 25
THE
POSSIBLE Automation and artificial intelligence could squeeze a lot more money out of advertising sources, if media is willing to invest in them.
T
H E H I G H - D R AMA
race between candidates running for the U.S. presidency is expected to mount as more debates take place over the coming months. And with that will come a huge increase in the amount of money that political marketing teams invest in advertising – most notably TV stations, where the majority of spending traditionally takes place. Kantar is projecting a 34% increase in 2020 election spending across all forms of media compared with the 2016 election cycle, to $6 billion. This means exciting revenue growth for sellers and a growing momentum to rapidly place and run ads – particularly in swing states. However, “spending” $6 billion is not necessarily a straight-
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forward process. As all political agencies know, less than 100% of the intended advertising investment is actually spent during a campaign. Hundreds of millions of dollars could be left on the table. Additionally, a portion of the advertising that runs during the campaign may not meet the agency’s business rules, resulting in credits to the agency for ad dollars not invested. It’s easy to pinpoint the main problem: outdated back-office technology, particularly in the television industry, which is plagued by manual processes and work-arounds that cause errors and slow transactions. Those issues have real revenue implications. While this holds true for all forms of television, it’s mission critical for local broadcast
stations, whose perennial ad client categories – like automotive and telecommunications – have been in a low-growth to flat mode, on average, in recent years. What’s more, while some marketers that had delved into digital solutions are now investing more of their budgets in television, digital’s much easier buying processes continue to give TV a run for the money. Several companies that provide automated and artificial intelligence solutions are bent on helping media companies transform the ad buying and selling processes so that heavy-lifting tasks are handled in ways that are accurate, accelerated and in-flight. For media companies using legacy workflow and software systems, the challenge in implementing the new solutions
SPECIAL REPORT: TECHNOLOGY TRENDS
DREAM generally boils down to two areas. The first is competing technical priorities. Media companies that know they need to invest in automation are pulled in many directions as they also expand digital advertising and create consumer services using new technology, like ATSC 3.0. The second is the concern that automation will introduce new transaction fees, like digital advertising has experienced. In that realm there is a significant transaction “tax” paid to ad tech companies for each transaction. The investment bank Luma Partners estimated the transaction tax to be as high as 40% back in 2017. Television media companies don’t want to repeat the mistakes of their digital counterparts. Despite those difficulties, the promise of automation and
artificial intelligence is tantalizing. When executed properly, they make sure that 100% of the advertising dollars are invested so that media sellers can reclaim lost revenue. This helps eliminate three different problems: ■ Credits for advertisements that didn’t run or didn’t run correctly; ■ Make goods – in other words, additional ad placements for spots that were either preempted or didn’t match guaranteed audience levels; ■ Write-offs for issued invoices that were successfully contested by buyers or not paid due to ongoing disputes about discrepancies. AGENCY PERSPECTIVE
Agencies that manage fast-moving accounts also should be
By JOAN FITZGERALD
motivated to bring A I and automation into their backend systems to execute transactions more quickly and with more accuracy, and without spending more money to accomplish this. “Our goal is to improve the workflow process to create more efficiency and effectiveness for our clients. Our clients want the right outcomes for their brands, and they need results right away. We need to be able to transact faster and more accurately without increasing the cost of doing business,” says Karine McMaster, vice president, director of advanced local media at Dentsu Aegis. But that only will solve part of the problem for them. An executive at a political agency told me that his team was still doing invoice reconciliation – interrogating station sellers
about invoices line-by-line to determine how much credit the political client was owed – a full nine months after the 2018 election concluded. Invoice reconciliation is a significant problem at all advertising agencies, not just political agencies. It is time-consuming and labor-intensive. Because of this, less than 100% of the clients’ money is invested. Automation and AI find errors before they become problems in the invoice, which is a big win for buyers and sellers alike. “We wa nt to buy med ia with more precision to deliver a better response to advertising for our advertisers,” says Kyle Roberts, president of Smart Media Group. “It’s critically important that we get data faster to drive our investment decisions, so we can make sure
The Financial Manager • September/October 2019 27
SPECIAL REPORT: TECHNOLOGY TRENDS all of our client dollars are invested.” That perspective is shared by many different types of marketers, from fast-moving brands to direct response advertisers. If a clothing retailer needs feet in the stores for a sale on Friday, it won’t do the buyer much good if the ads are run the following Monday. Direct response advertising agencies have their own particular problems. They play an unwelcome game of “chicken” with their advertising investments by making educated guesses regarding how much advertising to order, knowing that TV stations are likely to bump some of the ads in favor of other spot advertisers that pay them more money. Unfortunately, the percentage of unaired ads varies. Let’s say the brand’s budget for advertising is $70,000. To spend $70,000, a direct response client’s agency may have to place an order worth $80,000, or $90,000 or $100,000. And it could take months to determine the actual cost of a campaign. It all boils down to a “lose-lose-lose” situation for buyers, sellers and advertisers. Advertisers expect that the dollars they allocate to advertising will be invested. When that doesn’t happen, they don’t meet their communication goals with consumers. When buyers invest less than 100% of the advertiser’s money, they don’t meet client-service-delivery goals for the advertiser and receive a lower commission. When
sellers place less advertising, their revenue is reduced. THE STATION POV
Sources at leading broadcast TV station groups estimate that revenue lost due to invoice reconciliation is between 1% and 6% annually. Based on Kantar’s estimate that the local TV industry garners $18.2 billion annually, the shortfall due to discrepancies is between $182 million and 1.2 billion.
Sources at leading broadcast television station groups estimate that revenue lost due to invoice reconciliation is between 1% and 6% annually. Many types of discrepancies can occur, including the wrong creative message; an ad that did not run in the right time period; a spot used in the wrong rotation or pattern; or the wrong number of ads placed. One major TV station group finance manager estimated that creative errors alone – when the wrong commercial ran – accounts for between 7% and 10% of all lost revenue.
SHOULDERING THE LOAD
M
ANY COMPANIES HAVE MATERIALIZED IN RECENT YEARS THAT ARE INTENT
on helping media buyers and sellers perform various tasks using automation or artificial intelligence (AI). Generally, they do this in three different ways: Manual tasks – Automation excels when it is used to replace time-consuming, tedious, repetitive actions that lead to errors and slow decision-making. Quite simply, it gathers and centralizes the data required for expert decision-making much faster than humans can. It finds errors instantly. Large data sets – AI is extremely beneficial when the volume of data for analysis is simply too large for humans to handle in a timely manner, given the immediate turn-around that’s required in today’s transactional environment. Consider that thousands of advertising buyers each run tens or hundreds of advertising campaigns in a short time period. AI establishes a translation layer between buyers and sellers so that naming conventions and business rules don’t get in the way of seamless, real-time transactions. Problem solving – AI is able to identify a set of possible solutions to tough media problems so that staff members can focus on selecting the right solution and spend more time on revenue-generating, client-focused activities. As part of the process, AI interrogates large datasets and creates a set of possible solutions instantly, much faster than humans can create them. Make no mistake, people ultimately decide upon the optimal solution, analyzing choices and assessing trade-offs. Once the solution is selected, automation can store the solution to memory so that it can be reused where needed. Once solved, always solved.
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In many instances, agencies discover that discrepancies have occurred after a campaign has run. Automation and AI allow for in-flight reconciliation, because buyers and sellers are able to track potential problems in real-time or near real-time. To understand the significance of this, consider that today the number of manual tasks in the back-offices of agencies and television stations is staggering. Local television ad sellers require staff to key-enter crucial ad-buying data and business-rules information from agency buyers. Then they need to personally email performance reports to agency buyers. Communication regarding advertisements that didn’t run or didn’t run correctly is time-consuming, requiring multiple phone calls and emails between buyers and sellers. Additionally, when advertising is preempted and does not run, approvals by the agency to authorize the changes aren’t automated and can take days or weeks. There is another speed bump: when crucial transactional information is stored at each individual television station instead of in a centralized location at the station group level, finance executives face hurdles in obtaining the data they need to quickly and effectively measure business performance. Critical historical data about the inevitable changes that happen during a campaign are not at their fingertips. They can’t quickly determine the status of every advertisement in the invoice. Politicians often describe idealistic worlds as they lay out how they intend to change opportunities for Americans in their speeches. Like them, I foresee a day and age with significant changes, but my scenario could be much easier to obtain than electioneering promises. Imagine a world in which invoices are clean, accurate and discrepancy-free. Reconciliation requires a simple sign-off by the agency finance team so that invoices are paid immediately. In-flight reconciliation is possible. In fact, media problems might even be eliminated before a campaign begins. Automation and AI are key to making those dreams come true. Joan FitzGerald is senior vice president of advanced TV at PremiumMedia360, an advertising data automation company. She can be reached at (703) 927-2744 or joan.fitzgerald@premiummedia360.com.
The Financial Manager • September/October 2019 29
LAST WORD
Widening Drone Vistas
The FAA may ease up restrictions that ban drones from flying over people. But some say it’s not going far enough. BY ANNE SWANSON
O
ver the last several years, small unmanned aerial systems (sUAS), also known as drones, have provided compelling coverage of natural disasters such as Hurricane Michael and California wildfires. However, most of the drone imagery has not included individuals due to the Federal Aviation Administration’s (FAA’s) current rule restricting drone operations over people. While there have been some waivers, the rule has greatly limited coverage of breaking news events, particularly in urban areas. But that may be changing. The FAA has now proposed modifications to this restriction. Under the new proposal, there are three categories of permissible sUAS operations, which are defined primarily by the level of the injury risk that they pose. Category 1 is simple and straightforward: operators would be able to fly drones weighing 0.55 pounds or less over people without restriction. Category 2 would allow sUAS above that weight to operate over people if the drone manufacturer can demonstrate that the resulting injury from a crash into people would be below a certain severity threshold (measured as no more than the injury caused by a transfer of 11 foot-pounds of kinetic energy from a rigid- object). In Category 2, the drone cannot have exposed rotating parts that could lacerate human skin. Category 3 allows for a higher injury threshold: an injury no more severe than from the transfer of 25 foot-pounds of kinetic energy. But it limits individuals’ exposure to possible injuries through three additional operational requirements: a) the drone may not be flown over open-air gatherings of people; b) operations need to take place over restricted-access areas with all individuals in the defined area receiving notice of the drone flights; and c) for operations in unrestricted areas, the sUAS may transit, but not hover, over people. The FAA received nearly 1,000 comments
on its proposals, with roughly a half dozen from media-related parties. All media commentators supported liberalization of the rule, in many cases contending that the FAA’s proposal had not gone far enough. They took issue with the 0.55-pound weight cap for Category 1 as too restrictive. Many parties contend that the information upon which the FAA based the kinetic energy and injury thresholds is outdated and derived from commercial space studies
that have nothing to do with operations just above the earth’s surface. Others noted that the proposals were more restrictive than some of the closed-set waivers currently issued to the film and television industry and asserted that the FAA should consider adopting risk-mitigation factors from those waivers. Regardless, the new proposals are certainly an improvement over current restrictions, which the FAA adopted in mid-2016. Under the current rule, drones may not operate over human beings unless the individuals are directly participating in the drone’s operation or located under a covered structure or inside a stationary vehicle that provides reasonable protection in the event of a crash. “Directly participating” is defined very narrowly; the term includes only the pilot-in-command, the operator manipulating the sUAS controls (if other than the pilot), a designated visual observer and any other
30 The Financial Manager • September/October 2019
person necessary for safety, such as someone maintaining the operation’s perimeter. Filming non-participants at an angle is allowed, as long as the sUAS does not fly directly over them. This performance-based approach has allowed some clever, but safety-conscious operators to cover events with people from a distance. Waivers of the current rule are available, but fewer than 40 have been issued. Only a handful have gone to media operations. Obtaining a waiver involves submitting extensive (and expensive) testing data to demonstrate operational safety. The waivers include lengthy conditions to ensure that the operations meet FAA safety standards. Prior to adoption of the 2016 rule, the FAA had issued case-by-case authorizations for drone operations, including for closedset filming by the movie industry. Those authorizations involved numerous conditions to ensure safety, such as providing safety briefings to all individuals on the set and obtaining their consent to overflights. In adopting the 2016 rule, the FAA specifically rejected a suggestion that these measures would offer sufficient risk mitigation to allow operations over people outside of closed sets. The FAA is reviewing comments about its new proposal. However, it has stated that finalization of any decision on operations over people must wait until the the agency first concludes another proceeding dealing with remote identification, or “license plates,” for drones. That proceeding is not expected to conclude for at least a year. M. Anne Swanson is a partner in the law firm Wilkinson, Barker, Knauer LLP. She can be reached at (202) 383-3342 or ASwanson@wbklaw.com.
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Collecting MORE for you requires a blend of strength and delicacy.
There is an art to collecting media receivables. Not everyone can do it or do it well. Some accounts need a firm approach during the collection process. A show of strength. Other accounts react better to gentle persuasion. A softer MORE delicate touch. The trick is not to be so firm or so strong to lose future business opportunities or too soft as you may never collect the debt. The true art of debt collection lies in knowing when and how much of each technique to use, blending the approach to the account. At Szabo Associates, we’re masters at being hard as steel or soft as a feather. We know what to say and when and how to say it.
It’s because we have MORE experience and MORE training than anyone in the industry. Not to mention a proprietary database that has chapter and verse on thousands of media clients and their payment histories. Szabo has been successfully collecting media receivables longer and better than anyone else. Is it any wonder we collect MORE for our clients?
Szabo Associates, Inc. 404-266-2464 www.szabo.com info@szabo.com
MORE is better than less.