CITY OF SAN JOSE CAPITAL OF SILICON VALLEY TO: HONORABLE MAYOR AND CITY COUNCIL COUNCIL AGENDA: 9/1/15 ITEM: Memorandum FROM: David Vossbrink SUBJECT: SEE BELOW DATE: Approved Date SUBJECT: AMENDED AND RESTATED AGREEMENT WITH CREATV SAN JOSE FOR PUBLIC AND EDUCATIONAL ACCESS CHANNEL MANAGEMENT RECOMMENDATION Approve a Third Amended and Restated Agreement between the City of San Jose and the San Jose Community Media Access Corporation (dba CreaTV San Jose) that: a. Extends the term of the agreement by ten years; and b. Revises the franchise fee revenue sharing structure for Public and Educational Access cable programming services for revenue received by the City pursuant to the Digital Infrastructure and Video Competition Act of 2006 (DIVCA) in order for the City of San Jose to provide long-term stability for CreaTV San Jose and increase reinvestment in the City's CivicCenter Television infrastructure. OUTCOME Approval of this agreement will continue existing Public and Educational (PE) Access programming services provided to the community by CreaTV San Jose (CreaTV) for ten years and revises the fee revenue sharing structure to provide greater financial stability for CreaTV and ongoing City investment for CivicCenter Television to sustain open government communications.
Page 2 BACKGROUND The San Jose Community Media Access Corporation was established in 2007 following an extensive community engagement process after the City and Comcast reached a settlement agreement in 2006. Community organizations and stakeholders interested in Public and Educational (PE) programming formed the corporation, now known as CreaTV San Jose, as an independent 501(c)(3) nonprofit corporation. The City and CreaTV San Jose entered into its original seven-year agreement for PE access management in January 2008. In June this year, the City Council approved an extension of the original agreement term by six months, following an administrative six-month extension in January, to allow additional time needed to complete negotiations for a new agreement between the City and CreaTV. CreaTV San Jose Governance Prior to the establishment of CreaTV San Jose, the City of San Jose created a "Board of Conveners" that conducted an extensive public process to identify community members, community organizations, and institutions to serve as the initial board of directors for the new San Jose Community Media Access Corporation. The nonprofit's mission continues to encourage and support the use of Public and Educational access resources among individuals, organizations, and institutions within San Jose; promote a free exchange of ideas and information in the community; and support, manage, produce, and distribute noncommercial community programming in a non-discriminatory manner. The CreaTV San Jose board of directors currently comprises 17 members, including representatives from key institutional partners and interested members of the public. Six board members are appointed by designated community organizations to represent broad constituencies, rather than specific organizations. In addition, the board can appoint up to 19 other members to provide professional expertise in areas such as legal, financial, marketing, and technology. The City also has a non-voting, ex officio representative sitting on the CreaTV San Jose board. The California Digital Infrastructure and Video Competition Act of 2006 (DIVCA) grants state franchises to video service providers. DIVCA provides a funding stream for Public, Educational, and Government Access (PEG) cable access television purposes. PEG funding was originally established to encourage and support the use of these resources for individuals, organizations, and institutions within communities and to promote a free exchange of ideas and information. Before DIVCA, cable television franchises were issued by individual California cities and counties. DIVCA replaced that system so that video franchises are now issued by the California Public Utilities Commission.
Page 3 Prior to the enactment of DIVCA, the City had a local franchise agreement with Comcast that provided funding for PEG purposes. In 2013, Comcast moved from its local franchise with the City to a DIVCA franchise. AT&T also operates its cable service in San Jose pursuant to a separate DIVCA franchise. Public, Educational and Government Channels Since 2008, CreaTV San Jose has managed the following PE access channels for the community on behalf of the City: Public: Community Channel 15, which includes content from and for the general public and a wide range of nonprofit organizations; and Silicon Valley Channel 30, which features more than 100 County of Santa Clara board meetings a year as well as programming created or sponsored by CreaTV San Jose. Educational: College Channel 27 and Classrooms Channel 28 that include K-12 and higher-education programming on the Comcast cable system. In May this year College Channel 27 became "Bay Voice Channel 27," a regional community education channel that serves 400,000 Comcast Cable subscriber households in 15 cities in Santa Clara and San Mateo counties. Three community media centers - CreaTV San Jose; KMVT 15 Silicon Valley Community Media, Mountain View; and Midpeninsula Community Media Center, Palo Alto - co-curate Channel 27. The channel features content from local college partners, including Evergreen, West Valley, Mission, San Jose City colleges and San Jose State University, as well as programming covering politics, civic engagement, and the arts. The City itself manages the Government access channel as CivicCenter Television (Comcast Channel 26), which is principally committed to the cablecasting of San Jose Council, committee, and designated commission meetings. The City has contracted separately with CreaTV San Jose for staffing CCTV operations through a competitive Request for Proposals process in 2010. This arrangement followed deep City budget cuts and staff layoffs that essentially eliminated City staff capacity to support video production services for Citywide and departmental communications programs. Under the direction from the City Manager's Communications Office, CreaTV contract employees provide basic coverage for cablecasting City Council and other official meetings. The City is currently developing a separate procurement for CCTV production services and staffing.
Subject: Amended and Restated Agreement with CreaTV San Jos6 for Public and Educational Access Page 4 June Council direction When the amendment to further extend the original agreement by six months came before Council in June this year, the City Council gave direction to staff to: a. Return in August with a proposal for a multi-year agreement with CreaTV; b. Explore operational funding for CreaTV; and c. Explore partnering with CreaTV for the operation of the City's Government access channel. This memo also addresses this additional policy direction. ANALYSIS Services Provided CreaTV San Jose has successfully operated a Community Media Center (CMC) for the past seven years under the current agreement that now expires in January 2016. Although the agreement provides an option to renew for additional three-year terms, both the City and CreaTV San Jose have agreed that an updated agreement with a longer term is appropriate to reflect changes in funding, City and community needs, advances in technology, and trends in the cable industry. The CreaTV San Jose CMC is a video production facility and media center that is available for use by the general public, community-based organizations, and schools to create video programming carried on the Public and Educational access channels and streamed on the Internet. The CMC includes two studios, six editing suites, and field production equipment that qualified members can check out and use to produce content, and it provides training in video production and in the use of other media. Access to equipment and facilities is open to those who become CreaTV San Jose members and receive training or a certification from CreaTV that they have met skill requirements. The CMC also is the 24/7 playback center that provides all programming on Public and Educational Access cable channels 15, 27, 28, and 30 to the cable company for distribution, and it is responsible for equipment maintenance and development and management of volunteers. In 2011, CreaTV San Jose launched extensive youth media programs by placing studios, field cameras, and editing equipment in 17 schools. In 2013, CreaTV San Jose placed additional equipment for youth media programs in six City community centers. Content produced by youth airs on Classrooms Channel 28. CreaTV also provides video production services for large and small community and City events. Since 2010, when City budget cuts included the elimination of staffing for direct operations of CivicCenter Television, CreaTV San Jose has provided contract staffing for broadcast and
Page 5 webstreaming of all City Council, committee, and designated commission meetings under a separate agreement. In addition, CreaTV San Jose has provided significant support for the broadcasting of offsite events such as mayoral and councilmember inaugurations and the annual State of the City addresses. In 2014 CreaTV San Jose launched CreaTV Pro, a commercial video production service that primarily serves local businesses. Under federal law, CreaTV Pro revenues are taxable and commercial content cannot be distributed on PEG Access channels. Funding History Under both the Comcast franchise agreement with the City and the subsequent DIVCA franchise, Comcast is required to pay 1% of its gross revenues received for services provided in San Jose that is reserved for PEG access capital costs. Comcast is also required to pay the City 5% of its gross revenues as rent or toll for the use of the City's rights-of-way (franchise fee). PEG payments currently amount to approximately $1,600,000 per year, and under the Federal Cable Act cannot be used for general operating expenses by either the City or by CreaTV San Jose. PEG franchise fees can only be spent on capital costs related to PEG access channel equipment and facilities. AT&T also has a state franchise under DIVCA, which requires the AT&T system to carry the same PEG channels that Comcast currently carries and also to pay 1% of its gross revenues in San Jose to support PEG capital costs, as well as the 5% franchise fee. Under the original agreement, CreaTV San Jose received approximately $2,000,000 that the City Council had designated to cover PEG operating costs following the City's franchise settlement agreement with Comcast in 2006. In addition, the original agreement allocated 90% of the revenue designated for PEG capital purposes to CreaTV San Jose, and the other 10% to the City for CivicCenter Television, and both restricted for capital costs. The agreement also stipulated that payments to CreaTV San Jose are contingent upon the City's receipt of those funds from Comcast. When the original agreement with CreaTV was developed in 2008, the City was in a stronger financial position, the new nonprofit community media center had significant start-up capital costs, and CivicCenter Television's operation in New City Hall was using new equipment. The agreement recognized this by allocating 90% of the PEG capital restricted revenue to CreaTV to support its start up. Since then, CivicCenter TV's equipment now needs substantial upgrades and replacements for older systems or end-of-life devices. The new agreement, with an updated reallocation of PEG funds as described below, will provide the City with additional but restricted resources to reinvest in CivicCenter Television while continuing to provide substantial support for CreaTV's ongoing capital needs. The cable television industry continues to see significant changes in service and revenue models as it faces consolidation within the industry and competition from webstreaming and video-ondemand services outside of cable. Although in recent years the number of cable subscribers has been shrinking nationwide as more customers "cut the cord," actual revenues to the cable companies, and therefore franchise revenues, have increased as the companies have been able to
Page 6 charge higher rates for premium and additional services. Looking ahead, there is great uncertainty in the cable and television industry whether cable companies will be able to continue to maintain their customer base or increase revenues. For this reason, projections of future franchise revenues for the City and CreaTV also are uncertain. Public and Educational Access Management Over the past seven years, CreaTV San Jose has been an efficient, effective, and prudent steward of its share of the City's PEG fees for Public and Educational access television and production. The City annually receives CreaTV San Jose's financial report, budget, and audit, and the City has the right to make recommendations regarding any fiscal controls it believes would be appropriate to ensure the organization's long-term fiscal viability. The agreement allows the City to review CreaTV San Jose's financial strategies and to require changes if those strategies appear to threaten the organization's long-term sustainability. The agreement also allows for termination should the nonprofit fail to follow the City's recommendations in this regard. This approach is intended to ensure that CreaTV San Jose is using the public funding provided under this agreement in a way that will allow the organization to provide the required services and sustain itself. Current CreaTV Projects Examples of current and proposed projects to extend the reach of video story telling in San Jose by CreaTV include: A partnership between CreaTV and Content Magazine will provide opportunities for San Jose residents to create "day-in-a-life" videos using Go Pro cameras. These stories will be mapped and showcased online and in public spaces. A collection of about 40 stories from its "We Are San Jose" studio tapings that are currently airing on Channel 30 also will be displayed in San Jose libraries, VTA stations, and the Flea Market. The Alum Rock Branch Library has reached out to CreaTV to help to teach monolingual Spanish-speaking adults how to create their oral histories by using still photos, voiceovers, video, and music. The library is collecting these stories for an exhibit. CreaTV is a winner of the PayPal "Small Biz Challenge" and is working with PayPal. engineers to design an app that will collect input from the community via ipads in public spaces throughout San Jose. Video, audio, and text feedback will be used to create programming from public responses to support community conversations about San Jose issues and culture.
Page 7 Proposed Agreement Terms City staff has been working with CreaTV San Jose over the past several months to develop an updated agreement for providing PE services for the community that meets the needs for both CreaTV and the City. Key issues include the length of the term and renewal options; adjustment of the allocation for PEG capital-restricted funds; identification of alternative funding to support general operations; and flexibility for adjusting to changes in technology, the cable industry, and public policy that might affect PEG operations and opportunities for both CreaTV San Jose and the City in the future. Because of legal requirements, franchise fees earmarked for PEG are restricted for paying for capital and equipment costs only, which limits both CreaTV and the City. CreaTV has been very resourceful and energetic over the past seven years to raise a significant portion of its operating funds through fees for service, contributions, and grants, as well as its strategic use of the City's initial and unrestricted grant of $2,000,000 from the Comcast settlement agreement in 2008. However, CreaTV's long-term challenge continues to be developing new and increase current sources of ongoing and unrestricted operational funds to ensure its financial sustainability. The proposed agreement addresses long-term stability for CreaTV principally by lengthening the term of the new agreement and restructuring the allocation of franchise fees. Taken together, the two reallocations of franchise and PEG fees result in the same net total revenue for both the City and CreaTV. The significant difference, however, is to increase the non-restricted franchise fees for CreaTV that can be used for its general operating expenses; increase the restricted PEG funds used by the City to reinvest in CivicCenter Television infrastructure, and reduce the nonrestricted revenue for the City's General Fund. The reallocation of the restricted PEG fees also will allow the City to address technology investments essential to support CivicCenter Television as current equipment and systems reach the end of their useful life, and replacements become necessary as technology changes and vendor support becomes uncertain. Staff anticipates the need for more than $1,000,000 over the next several years to replace systems such as for broadcast automation, operations control room, media storage, encoders, character generators, cameras, and related equipment. 1. Lengthen the Term of the Agreement to Ten Years. The longer term ensures stability for CreaTV through 2025, which in turn strengthens its financial position when CreaTV seeks grants or loans that might be critical to its future. The 2008 agreement was for seven years with a newly constituted organization without a record of experience. The option for renewals remains the same and provides for renewal periods of at least three years. 2. Use of Non-Restricted Cable Franchise Fee Revenue. Beginning July 1, 2016, CreaTV will receive funding from the General Fund equivalent to 3% of the total unrestricted franchise fee revenue received by the City (the "5% Unrestricted Fee"), or $240,000 per
Page 8 year, whichever is greater. Under the original agreement, the entire 5% Unrestricted Fee has been retained by the City for supporting the General Fund. Currently, this fee generates approximately $8,000,000 annually. At current franchise activity levels, this change will provide CreaTV with at least $240,000 annually in unrestricted resources that can be used to support its general operations, where it currently receives no unrestricted funds. The change will reduce the City's General Fund resources available for general purposes by the same amount, which will be incorporated in the General Fund 2017-2021 Five-Year Forecast and the 2016-2017 Proposed Budget next year. 3. Reallocation of Capital-Restricted PEG Franchise Fee Revenue. Beginning with the execution of this agreement, CreaTV will receive 75% of the PEG fee revenue streams that are restricted to be used for capital expenditures in support of PEG facilities (the "1% Restricted Fee"), and the City will receive 25%. This changes the split from the current allocation of 90% to CreaTV and 10% to the City. Currently the 1% Restricted Fee for PEG Capital generates approximately $1,600,000 annually. This change will reduce CreaTV's annual share of the restricted funds by $240,000 from $1,440,000 to $1,200,000, and will correspondingly increase the City's share from $160,000 to $400,000. 4. Future revenue streams. The agreement has been updated to recognize that if new revenue streams from other DIVCA Franchise Operators should occur in San Jose in the future, then the City would transfer them to CreaTV in the same proportions as outlined for revenues from the currently active franchises. 5. Agreement Cleanup. The original agreement contained extensive provisions regarding the initial establishment of CreaTV and its new relationship as the City's partner for Public and Educational Access cable television. Those sections are no longer necessary after more than seven years of successful operation by CreaTV and therefore have been removed from the agreement. Expanding the Partnership As directed by the City Council in June, staff has discussed with CreaTV additional matters related to its unique partnership with the City. These include the exploration of: 1) whether CreaTV could directly operate CivicCenter Television and Government Access Channel 26 instead of the City and the tradeoffs associated with any change; and 2) new opportunities that could potentially enhance CreaTV's operational revenues while extending the reach of video production programs for City departments and the community. Neither City staff nor CreaTV recommend any changes for the City's role for managing the current operations of Channel 26. As noted earlier in this memo, the City itself is responsible for Channel 26 since CivicCenter Television is principally committed to the governmental function of cablecasting San Jose Council, committee, and designated commission meetings. Regardless of whether contracted employees or City staff are operating the cameras and other equipment,
Page 9 the management responsibility for the Government Access channel remains with the City, along with the legal, policy, institutional, and technical accountability associated with its effective operation. The City has already contracted with CreaTV San Jose for providing part-time contract employees to operate CCTV coverage under the direction from the City Manager's Communications Office. This began in 2010 when deep budget cuts and staff layoffs essentially eliminated the City's capacity for video production services and for staffing meeting coverage, and the City conducted a competitive process to select a service provider as an alternative. Delegating a larger role to CreaTV for operating Channel 26 would not change the City's fundamental obligations to provide government programming, Sunshine transparency, and policy oversight. Since already there is no duplication of effort, further delegation would not provide for any greater efficiency of operations or savings for the City, or any financial advantages for CreaTV. There is, however, great potential for using CreaTV for video co-productions with the City. This could include video production services and training to support the development of Citywide and departmental visual communications projects, and the potential development or expansion of community services based on video production through satellite centers that could align with the missions of departments such as the Library or Parks, Recreation & Neighborhood Services. Since these activities likely would represent new or enhanced service levels for the City, departments would need to establish priorities and develop budget proposals that identify resources, institutional arrangements, and outcomes. This effort would be outside of the foundation agreement between CreaTV and the City, and better explored in partnership with specific departments. PUBLIC OUTREACH This memorandum will be posted on the City's Council Agenda website for the September 1, 2015, Council meeting. EVALUATION AND FOLLOW-UP Execution of the new agreement provides long-term stability for both CreaTV and the City for the funding and operations of Public, Educational, and Government cable access programming and services. Under the agreement, CreaTV will continue to regularly provide the City with annual reports about its management, operations, programming, and finances.
Page 10 COORDINATION This memorandum has been coordinated with the City Manager's Budget Office, the Office of the City Attorney, and the Finance Department/Risk Management. COST SUMMARY/IMPLICATIONS As shown in the chart below, the proposed amendment to the agreement with CreaTV will maintain the overall funding to CreaTV at the current level of approximately $1,440,000 annually from cable franchise fees in the General Fund. However, the uses of these funds, which are currently entirely restricted for capital expenditures, will now be split between restricted capital expenditures ($1,200,000) and unrestricted expenditures, including operating expenditures ($240,000). This change will reduce the amount of unrestricted funding in the General Fund by $240,000 and will increase the amount dedicated to CivicCenter television infrastructure by that amount. The change in the distribution of the restricted capital funds from 90% for CreaTV and 10% for the City to 75% Create TV/25% City will be effective upon execution of the agreement and is expected to result in the shift of approximately $180,000 in Fiscal Year 2015-2016 and $240,000 ongoing. The budget actions reflecting this shift will be brought forward for City Council consideration in October 2015 as part of the 2014-2015 Annual Report actions that will also include the annual reconciliation of the PEG funds. The allocation of 3% of the unrestricted franchise fee revenue, or a minimum of $240,000, to CreaTV will be effective July 2016. This will factored into the General Fund 2017-2021 Five- Year Forecast and 2016-2017 Proposed Operating Budget. City/CreaTV Cable TV Franchise Fee Allocations Franchise Fees Total Estimated Annual Revenue Revenue Split City Share CreaTV Share Original agreement 5% Unrestricted $8,000,000 100% City $8,000,000 0 1% PEG Capital* $1,600,000 10% City / 90% CreaTV 160,000 $1,440,000 Total $9,600,000 $8,160,000 $1,440,000 Revised proposal 5% Unrestricted $8,000,000 97% City / 3% CreaTV $7,760,000 $240,000 1% PEG Capital* $1,600,000 25% City/ 75% CreaTV $400,000 $1,200,000 Total $9,600,000 $8,160,000 $1,440,000 * Restricted for capital equipment and related expenses understate and federal law
Page 11 CEOA Not a Project, File No. PP10-066(e), Services that involve no physical changes to the environment. Is/ David Vossbrink Director of Communications For questions, please contact Communications Director David Vossbrink at 408-535-8170.