In the Matter of
APPLICATIONS BY AMERICAN BROADCASTING COS., INC. For assignment of Licenses
of Stations WABC, WABC-FM, WABC-TV, New York, N.Y.: WLS- FM, WBKB, Chicago,
Ill.; KGO, KGO-FM, KGO-TV, San Francisco, Calif.; KABC, KABC-FM, KABC-TV, Los
For Transfer of Control of Stations WLS, Chicago, Ill.; KQV and KQV-FM, Pittsburgh, Pa.; KQV-FM, Pittsburgh, Pa.; WXYZ, WXYZ-FM, WXYZ-TV, Detroit, Mich. For Assignments and Transfers of Ancillary Radio Facilities
Docket No. 16828
MEMORANDUM OPINION AND ORDER
7 F.C.C. 2d 245, 9 Rad. Reg. 2d (P & F) 12 (1966)
RELEASE NUMBER: FCC 66-1186
December 21, 1966 Adopted
BY THE COMMISSION: COMMISSIONERS BARTLEY, COX, AND JOHNSON DISSENTING AND ISSUING SEPARATE STATEMENTS.
1. This proceeding involves applications by American Broadcasting Cos., Inc. (ABC), for Commission approval of assignments and transfers of licenses for 17 broadcasting stations to a new corporation of the same name which will be a wholly owned subsidiary of International Telephone & Telegraph Corp. (ITT). The substance of the proposed transaction is that ABC will be merged into ITT, so that ultimate control will pass from the present stockholders of ABC to a new group of stockholders which will be composed of the present ABC stockholders plus the present ITT stockholders.
2. ABC and ITT entered into a merger agreement on February 14, 1966. On March 31, 1966, the applications herein were filed with the Commission. Public notice of the filing of these applications was given, as required by statute and regulation. 47 U.S.C. section 311, 47 CFR 1.580. Proxy statements relating the details of the proposed mergers were mailed to all the shareholders of ABC and ITT, and the shareholders of both corporations voted overwhelming approval of the proposed merger.
3. On July 20, 1966, the Commission sent letters to the presidents of ABC and ITT requesting further information relating to the proposed future operations of the new licensee company. On July 25, 1966, replies to these letters were received by the Commission from ABC and ITT. On August 18, 1966, the Commission issued an order and notice of oral hearing before the Commission en banc. The Commission there noted that the applications contain and are accompanied by masses of data and numerous exhibits setting forth in great detail all of the factual information normally sought by the Commission in transfer proceedings, together with a large amount of additional information concerning the corporations involved. The Commission stated that the great bulk of data supporting the applications is factual and statistical in nature, and the Commission's review of the data did not indicate any questions of fact. In light of these considerations, the Commission accepted the factual representations in the filings herein as authentic and accurate statements of fact and as evidence of record herein. The order also provided that in order to preserve the right of any interested party to raise any questions of fact, any party desiring to offer other or further evidence might file a written statement of such evidence within 20 days of the date of release of the order. The order provided that any statement of facts so filed would be accepted and received as evidence, subject to all proper objections and arguments as to relevance and materiality, unless an objection was filed challenging the authenticity or accuracy of such evidentiary statements within 5 days after the filing and service upon the parties of any such statements. A hearing was ordered before the full Commission to be held on September 19, 1966, and it was provided that any interested party desiring to appear and be heard should file a statement on or before September 5, 1966, indicating such intention and designating an attorney or other spokesman.
4. Pursuant to the order of August 18, 1966, ABC and ITT field a number of statements and exhibits setting forth substantial additional data concerning those companies and their plans. ABC and ITT filed notices of intention to appear at the hearing and named attorneys and corporate officials to attend and speak on behalf of the respective corporations.
5. Hubbard Broadcasting, Inc. (Hubbard), filed a timely petition to deny the application for assignment of the license of WABC, New York, N.Y., one of the stations owned and operated by ABC. Hubbard has no objection to the transfer of any of the other licenses or properties involved in this proceeding. Hubbard also filed timely notice of intention to appear at the hearing on September 19, 1966, and did appear by its attorney, who was heard by the Commission.
6. The proposed ABC-ITT merger, the submission of the merger agreement to the shareholders of each corporation, the filing of the applications with the Commission, the Commission's further inquiries to the parties, the setting of the matter for hearing before the Commission, and the hearing before the Commission, all received wide publicity in the general press, the trade press, on broadcast news reports, and in other media. With the exception of Hubbard, whose case is discussed separately below, no statements, written submissions, or objections were filed and no appearances were made in opposition to the granting of the applications. [FN1] Since the conclusion of the hearing, the Commission has received comments from a few Senators on the proceedings, and several letters from others expressing their views on this matter. These letters have been made part of the public file associated with the docket in this proceeding and have been treated by the Commission in accordance with controlling principles of administrative and constitutional law as expounded in Pillsbury Co. v. F.T.C., 354 F. 2d 952 (C.A. 5th 1966), and Sangamon Valley Television Corp. v. United States, 269 F. 2d 221, 18 R.R. 2109 (C.A.D.C. 1959).
FN1 On Sept. 15 and 19, 1966, telegrams were received from an individual unknown to the Commission and unidentified requesting postponement of the Sept. 19 hearing for 30 days so that the signer could appear in opposition to the merger. The signer was informed that the request was neither timely nor in accord with Commission requirements but that the signer was at liberty if he wished to make a prompt written submission. None has been received and no facts were alleged warranting further attention.
7. In deciding upon the procedures to be followed in reviewing the applications for our consent to the merger, we found it desirable to go considerably beyond the steps ordinarily pursued in processing even the larger transfer matters. In each instance of departure from perfunctory functory routines, which we briefly note here, we have sought to heighten the effectiveness of the methods customarily employed to assay the effect of station transfer proposals on the public interest.
8. The initial tasks of staff review and analysis of the voluminously documented applications, and the presentation of recommendations to the Commission were specially assigned to an experienced, senior member of the staff of our Broadcast Bureau who, freed from other duties and provided with all needed assistance, was thus facilitated in performing a painstaking and searching study of the proposal.
9. Upon our review of the staff's submissions, which included a separate analysis by senior staff of the Common Carrier Bureau, and, taking into account ITT's and ABC's prompt response to our requests for additional information, we considered and, for the following reasons, rejected the step of initiating a routine hearing. There being no substantial or material question of fact, and no adversary party, there was no occasion for the laborious and time-consuming process of accruing on a hearing record the voluminous matter already available in formal documentation accompanying the applications, in supplemental submissions by the parties, and in published data of which we could, as needed, take official notice.
10. Moreover, since what was needed was not a hearing record of factual data already available to us, but an effective means for critical review of its legal and policy implications, we chose not to have oral proceedings conducted in perfunctory fashion before an examiner, but arranged instead for the Commission en banc to hear interested parties as well as any objectors who might come forward. None did. By this means we provided an opportunity -- unavailable under standard procedures -- for direct, formal, and public confrontation between the Commissioners who are charged with making the judgments reposed by law upon the Commission, and the responsible executives of the parties, as well as their experts and counsel. Procedures routinely followed would have provided us -- after long delay -- only with a written record, in whose development the Commissioners could have had no participation, and oral presentations by counsel with no appearances of the principals.
11. Accordingly, the Commission provided that the documentary submissions should be taken as the factual record. It further provided that any party desiring to offer other or further evidence or facts, or to challenge any facts, might do so by a written statement. (Order and notice of oral hearing before the Commission en banc, August 17, 1966.) This procedure goes considerably beyond the normal Commission procedure in inviting and permitting intervention without requiring any showing of standing or interest.
12. Another departure from routine practice which we adopted was to place upon our staff the responsibility for making an independent determination and public presentation of all the questions of law and policy which they considered were posed by the merger. We thereby sought to afford the maximum opportunity for consideration of every pertinent facet of the pending proposals. The hearing was held and occupied 2 unusually long days. During the hearings the Commissioners personally heard, saw, and cross-examined not only the attorneys for the parties but the principal officers of the corporations. The individual Commissioners had an opportunity to participate in the proceedings, to hear and observe the principals involved, and to have first-hand knowledge of the testimony and representations of the parties in a manner that would have been quite impossible under the procedure for an ordinary evidentiary hearing. As a result, the Commission believes that it has a more complete knowledge and better understanding of the issues involved in this proceeding than would have been possible under any other procedure.
13. Although this procedure has not produced complete agreement among the Commissioners, it has certainly resulted in thorough consideration. The disagreements result from differences of judgments and viewpoints, and no other or further proceedings offer any prospect of resolving any of the issues on which the members of the Commission now differ. It is the judgment of the majority of the Commission that the procedure followed in this case was extraordinarily painstaking and thorough, and the most adequate in the circumstances of this case that our ingenuity could devise.
14. Since this proceeding involves a merger the Commission has considered the possibility of potential antitrust significance, and, accordingly, has established and maintained a continuing liaison with the Antitrust Division of the Department of Justice, pursuant to which the Commission has kept the Antitrust Division advised of all proceedings involving this matter. The Commission was aware of the official statement of the 'Business Review Procedure' by the Antitrust Division, which states that where the opinion of the Antitrust Division is sought for business conduct which 'is subject to approval by a regulatory agency, no review request will be considered until after agency approval has been obtained.' The Antitrust Division made no statement or filing regarding this matter prior to the Commission hearing, made no appearance at the hearing, and offered no comment except that it had the matter under study until November 3, 1966, when it stated in a letter to the Commission that there was a possibility of 'anticompetitive effects' and of 'antitrust questions' involved in the proposed merger. The Commission thereafter urged the Antitrust Division to make a more definitive statement, and finally on December 20, 1966, the Antitrust Division stated in a letter to the Commission that: 'The possibilities of such anticompetitive consequences seem sufficiently speculative that we are not presently contemplating an action under the antitrust laws to enjoin consummation of the merger.' The letter then went on to review various aspects of the proposed merger which the Antitrust Division suggested the Commission consider under the public-interest standard. These included possible technical developments or contributions in the broadcasting field by ITT, ITT interest in some CATVs, the possible development of domestic satellites and their use in broadcasting transmissions, the possibility of difficulty arising out of integration of a network by a large diversified industrial concern, and the possibility that ABC might be able to provide its needed capital from profit. The letter concludes: 'Because of the uncertainties inherent in predicting developments in these rapidly changing areas, we cannot conclude on the basis of the facts presently available to us that the competitive effects are sufficiently determinable to make it appropriate for the Department of Justice to institute suit at this time under section 7 of the Clayton Act. We suggest, however, that these anticompetitive possibilities warrant serious consideration by the Commission * * * in applying the public-interest standard * * *.'
15. We agree with the Antitrust Division that the standard governing its action and the action of the Commission are significantly different. The Antiturst Division is charged with enforcement of the antitrust laws, 15 U.S.C., section 1, et seq., while the Commission is charged with effectuating the policies of the Communications Act, 47 U.S.C., section 151. Under the Communications Act the standard for Commission action is not simply competition but the wider public interest, and the Supreme Court has instructed this Commission that 'encouragement of competition as such has not been considered the single or controlling reliance for safeguarding the public interest' in this field. F.C.C. v. RCA Communications, 346 U.S. 86, 93 (1953).This principle has recently been reaffirmed. Seaboard Air Line RR. v. United States, 15 Led. 2d 223 (1965). Under these precedents, it is reversible error for the Commission to rest its decision solely on competitive considerations. F.C.C. v. RCA Communications, supra; Seaboard Air Line RR. v. United States, supra. We appreciate the effort the Antitrust Division has made to assist the Commission, although we are bound to note that its comments would have been more appropriate and helpful if they had been submitted before or at the time of the hearing in this matter. All of the facts and considerations discussed in the letter from the Antitrust Division are and have been known to the Commission and have been the subject of careful consideration under the principles and standards applicable to our field of specialized jurisdiction, experience, and expertise.
16. As is more fully explicated in the discussion which follows, we have given careful consideration to all of the competitive factors involved here, including those mentioned in the Antitrust Division letter, and have concluded from our analysis of the factual situation, upon the basis of our own 'analysis of the needs of the industry,' and with the help of our 'accumulating insight' derived from the exercise of our functions, F.C.C. v. RCA Communications, supra, at 94, 96, that the merger proposed here would enhance, rather than lessen, competition in the field of communications, and would serve the public interest and the purposes of the Communications Act. The problems involved in the development of CATVs and their relationship to conventional broadcasting facilities have been under long and intensive consideration by the Commission, and we have issued a number of opinions and orders relating to these matters and setting forth the Commission's position in great detail. See dockets Nos. 14895, 152338 15971, First Report and Order (April 22, 1965), 38 FCC 683; memorandum opinion and order (July 7, 1965), 1 FCC 2d 524; Second Report and Order (March 4, 1966), 2 FCC 2d 725. We have specifically considered the issue of cross-ownership of television and CATV facilities. Docket No. 15415, First Report (July 27, 1965), 1 FCC 2d 387. These dockets remain open and we are continuing to receive information and give consideration to the issues involved in this complexus of problems. In any event, we do not find any realistic relevance to this proceeding in the CATV matters mentioned. We have set out herein our views on all relevant issues and the considerations which compel us to the conclusion that the purposes of the Communications Act will best be effectuated by the order which follows.
17. Although the only applications actually pending before the Commission involved the transfer of control of 17 radio and television stations, these are an integral part of an enterprise which includes a national radio and television network. The evidence that has been submitted to the Commission is far greater in both extent and depth than that normally submitted in a transfer proceeding, and the Commission inquiry has gone far beyond the scope normal in transfer proceedings. If this proceeding involved no more than the transfer of control of the 17 broadcasting stations, the record would be more than ample to sustain approval. However, the focus of attention of both the Commission and the applicants has been on the significance of control of the network. We are mindful that this involves jurisdictional problems. Although the Commission is authorized to make special regulations for stations 'engaged in chain broadcasting,' 47 U.S.C., section 303(i), some question remains as to how far the Commission is authorized to inquire into or attempt to control other network activities or corporate affiliations. Cf. National Broadcasting Co. v. United States, 319 U.S. 190 (1943). We note that within recent months a radio network has changed ownership and two other networks have acquired large nonbroadcast interests, all without submission to or action by the Commission, since there were no station licenses being transferred in these transactions. Thus, the instant matter comes before the Commission because of the form and circumstances of the transaction and not because of any statutory authority to regulate networks. However, since all the information sought by the Commission in this proceeding has been furnished without objection by the parties, and in view of our ultimate determination, it is not necessary for us to decide the scope of our jurisdiction in this area. We have considered this matter without regard to any jurisdictional limits and we merely note that we leave the limits of our jurisdiction over networks for future consideration.
18. On June 21, 1965, the Commission issued a public notice establishing an interim policy concerning the acquisition of broadcast stations (FCC 65- 548). In substance this policy declared that any subsequent application for a television station license the grant of which would result in any party having more than 3 television stations, or more than 2 VHF stations, in the top 50 television markets would be designated for hearing in the absence of a compelling showing for the grant. That policy applies to the present applications. It does not, by its terms, bar the approval of transfers falling within its terms, but only requires that such transfers by subject to the searching inquiry of a hearing. The procedure followed in this proceeding was designed to secure all relevant factual data and subject the principals to full interrogation and examination, and we believe that it achieved those goals. Indeed, the hearing held in this proceeding gave the Commission itself, as distinguished from its staff, a more complete opportunity to interrogate the principals and learn the basic facts than would have been the case had there been the more conventional reference to a hearing examiner and preparation of a printed record. Consequently, we believe that the requirement for a hearing which was set forth in the statement of interim policy has been satisfied by the procedure herein. [FN2]
FN2 During the course of the hearing, counsel for ABC questioned whether the hearing of Sept. 19 and 20 satisfied all technical requirements of the type of hearing to which under sec. 309 of the Communications Act applicants for stated types of broadcast authorizations are entitled, under stated conditions, if the Commission does not grant their applications. However, at the conclusion of the hearing all counsel stated that all relevant evidence was in the record, that there was no further evidence to be secured by further proceedings, and that the parties waived any other or further hearings (Tr. 601-607).
19. The basic issue which has pervaded these proceedings and to which most of our attention has been directed is whether the acquisition of one of the three national television networks and one of the four national radio networks by a large diversified industrial company, such as ITT, will increase concentration of control of the mass media or tend to decrease or discourage diversity in broadcasting. The concern of the Commission on this point is similar to, but not identical with, the policy of the national antitrust laws. It is appropriate, and perhaps mandatory, that we taken account of the national antitrust policy. Southern Steamship Co. v. N.L.R.B., 316 U.S. 31 (1942); Mansfield Journal Co. v. F.C.C., 180 F. 2d 28 (1950). However, we cannot rest our conclusion solely on our judgment as to the application of antitrust policy, and must establish what we regard as a satisfactory accommodation between the demands of the antitrust laws and the purposes of the Communications Act. Seaboard Airlines RR. v. United States, 15 Led. 2d 223 (1966); F.C.C. v. RCA Communications, Inc., 346 U.S. 86 (1953).
20. The antitrust laws and policy in effect prohibit those corporate mergers that are likely substantially to lessen competition or tend to create a monopoly (15 U.S.C., sec. 18). Fundamental to any analysis of concentration or competition is a definition of the 'relevant market,' or the geographical area and products involved. Brown Shoe Co. v. United States, 370 U.S. 294 (1962); United States v. Philadelphia National Bank, 374 U.S. 321 (1963); Tampa Electric Co. v. Nashville Coal Co., 365 U.S. 320 (1961). The significance of a merger, or similar transaction, must be judged by appraisal of the effect upon business and the amount of business involved in relation to the market setting in which the effect takes place. There may be several different kinds of relationships between corporations, and their effects may be found in different markets.
21. The record in this proceeding shows no market in which ABC and ITT engage as competitors. Consequently, the proposed merger will eliminate no 'horizontal' competition, and, therefore, is not inconsistent with antitrust policy for that reason. Cf. United States v. Von's Grocery Co., 16 Led. 2d 555 (1966). ABC and ITT have a vertical, or buyer-seller, relationship in two respects. ITT buys some television and radio advertising, and ABC buys some products sold by ITT. The evidence in the record discloses these relationships in detail. The total television advertising purchased by ITT in 1965 was approximately $523,000, and for 1966 is estimated at $1,672,000. Total radio advertising by ITT in both years was approximately $25,000. FCC records disclose that in 1964 total television advertising time sales amounted to $1,549.9 million and in 1965 to $1,673.7 million. Radio advertising time sales in 1964 amounted to $763.7 million and in 1965 to $827.7 million.ABC purchased products and services of the same or similar type to those produced or furnished by ITT in an amount of approximately $606,000 in 1964. These products and services were in such varied markets as air conditioning equipment, auto rentals, electronic equipment, and oversea cablegrams. No single category of such products or services amounted to as much as $150,000 annually. Official data show that the market size for the two such markets with which we are most concerned in this case were over $100 million of annual revenue for oversea record carriers, and over $8.7 billion annual sales for communications equipment. Clearly, the market shares represented by the vertical, or buyer- seller, relationships between ABC and ITT are so small as to be insubstantial by any legal test. Tampa Electric Co. v. Nashville Coal Co., 365 U.S. 320 (1961); United States v. Columbia Steel Co., 334 U.S. 495 (1948). There is no evidence that the merger would afford either company an opportunity to use the economic power of the other to secure any significant purchases by reciprocity, and there is an unqualified representation that neither company engages in such practice and that the policy of ITT is against any such practice. The record is persuasive that there is no substantial probability that the merger will lead to any such abuse of economic power.
22. One of the principal issues that concerned the Commission in this proceeding was whether the large business interests of ITT might be permitted to exert an influence on the broadcasting activities of ABC, and particularly whether there would be any commercial influence on the performance of the journalistic function -- the reporting of news and news commentary -- or on the selection, scheduling, or treatment of public affairs programming. We recognize the large stake our society has in preservation of the freedom of broadcast stations and networks from the intrusion of extraneous private economic interests upon programming decisions. Thorough, fearless and unbiased collection, dissemination, and analysis of news is, we think, crucial to a free society. There is widespread and growing reliance by the public upon broadcast sources of news and news commentary, and upon public affairs programming and other kinds of informative programming. We have, therefore, been attentive to the positive assurances which both ABC and ITT gave us and the public on this score.
The ITT letter of July 25, 1966, stated:
ABC will operate as a substantially autonomous subsidiary. As we have stated in the applications, the broadcasting operations of ABC will be kept separate from other ITT operations, and the operations of ABC as a licensee will be performed unaffected by commercial, communications, or other similar interests of ITT.
Officials of both ITT and ABC were examined at length on this point by several Commissioners. These assurances were reiterated and elaborated with emphasis. It was represented to the Commission that not only would ABC conduct its broadcasting operations without control or influence by the other commercial interests of ITT but also that the news department within ABC is substantially autonomous and is permitted to conduct its journalistic functions free of control or influence by advertisers or the commercial interests of ITT. The assurances and representations on this point were persuasive and we accept them as credible. The autonomy of the news department is also stated to mean that there has been and will be factual and objective reporting of news and discussion of public affairs, neither distorted nor influenced by the personal views of those in ABC outside the news department. In determining that the concerns which have been expressed in this area have been unaccompanied by showings of injury or jeopardy to the public interest such as would warrant withholding our consent to the merger, we neither discount the importance of freedom of the broadcast journalistic function -- it would be hard to single out a more vital element of broadcast service -- nor do we treat the matter as closed. It demands eternal vigilance by all broadcast licensees and will receive our continuing scrutiny for any indication that our reliance upon the assurances and safeguards set out on this record was not warranted. We rely, in reaching our decision, upon the multifold assurances on this record that the freedom of ABC's programming from the intrusion of considerations stemming from ITT's numerous and important nonbroadcast interests will be zealously and effectively protected by every available means. While this freedom has especial importance in the field of broadcast journalism, we rely on its application to the other sectors of ABC programming as well.
23. The principal reason for the proposed merger is the need of ABC for more funds than are available to it without the assistance of ITT. ABC is one of four national radio networks and three national television networks. NBC and CBS are the other two major networks, and each has both a radio and television network. ABC has more radio affiliates than NBC or CBS, although fewer than Mutual. In every other respect, ABC lags behind the other major networks. In relation to NBC and CBS, ABC has fewer television affiliates, a smaller share of the audience for both radio and television, less revenue from both radio and television, less profit, and smaller assets. During the last 3 years the ABC television network has operated at a loss, while the other two major networks have had substantial and increasing profits. Program expenses have been increasing rapidly during recent years, and have increased more rapidly than revenue for ABC. The cost of providing news and public affairs programs has increased more rapidly than the cost of other network programs presented by ABC.
24. ABC is now confronted with the necessity for making large additional capital investments for conversion of network equipment to color broadcasting, for purchasing and furnishing a headquarters building, and for constructing and equipping new studios. These expenditures will total over $140 million. Network programs will cost about $2,650,000 each week. Special features, including documentaries and coverage of extraordinary news events, will cost unpredictably large sums beyond this. Commitments made under existing loan agreements limit further borrowing by ABC to $6 million. ITT, on the other hand, has a current line of bank credit of $140 million and cash on hand of some $30 million. It also has available substantial amounts of authorized and unissued stock and the ability to create substantial long-term debt within the terms of its most restrictive debt instruments.ITT has committed itself, specifically and unequivocally, to provide the financial support to ABC that is needed to enable ABC to become more fully competitive with the other major networks and to fulfill its public-interest responsibilities. In the absence of the financial assistance that it will receive from the proposed merger it appears that ABC will be at a substantial competitive disadvantage and will be handicapped in its efforts to provide the programs and services to the public that it seeks to provide.
25. The principal argument against approval of the proposed merger is that it will be another step toward greater economic concentration, that we should beware of unduly large size in business, and that broadcasting interests should not be permitted to engage in such diverse and substantial business operations as ITT. The argument based on size arises mainly from concern about the overall size and business ranking of ITT. ITT has approximately $1.7 billion in sales, $2 billion in assets, and ranks as this country's 30th largest industrial corporation ('Fortune,' July 15, 1966). However, size is relative and any measurement of concentration must be based upon the share of some specified market. See the notice issued by the Small Business Administration on 'Small Business Size Standards,' 31 F.R. 12024 (Sept. 14, 1966). The merger of ABC and ITT will not increase ITT's share of the industrial market. The parties believe that ITT, with its large financial resources, will help ABC increase its share of the national television revenues. While we believe that the merger will strengthen ABC's competitive effectiveness, there is no visible prospect that it would enable ABC to dominate the market. If the merger can be said to increase economic concentration at all, it is only within the broad framework of the general economy. However, in this setting the size of ITT is not so large as it is in a more narrowly defined market. There are 17 banks that are larger, 15 life insurance companies, 5 merchandising companies, and 4 utilities, as well as the 29 industrials ('Fortune,' July 15, 1966). One of the major networks (NBC) is a subsidiary of RCA, a company that is larger than ITT. There are many broadcasting licensees of the Commission that are large and diversified companies, engaged in the widest varieties of business enterprise, including some industrial companies larger than ITT.
26. In the foregoing circumstances, it does not appear fair or proper to forbid the merger of ABC and ITT because of rather vague fears of potential evils of size. An important aspect of this matter is that approval of this merger will not increase the concentration of broadcast holdings in any way. The structure of broadcasting will be the same after this merger as it was before it, except for the additional strength that will accrue to ABC as a network because of the stronger financial position it will secure through the merger. Insofar as it is possible to predict consequences in such a situation as this, it appears more reasonable to foresee greater competition and benefit to the public, rather than the contrary, as a result of this merger. Television networks exist in a world of economic giants. The largest television advertiser spends almost as much annually on television advertising as the total revenue that ABC derives from its television network in a year. Some of the large television advertisers are larger than ABC or ITT, or both combined. The ABC network is wholly dependent on A.T. & T. for its network connections, and A.T. & T. has an annual net profit that is slightly larger than the annual gross income of ITT. The second largest domestic telephone company, which is small in comparison to A.T. & T., is still larger than ITT. In these circumstances, there seems less danger that ABC will be subject to improper or undesirable economic pressure or influence as part of a diversified corporation that is itself economically large and strong than if it is forced to continue as a relatively smaller and weaker enterprise. In view of the representations and assurances that have been given on the record in connection with this merger, a well as the facts that our examination has disclosed, it appears that this merger will tend to provide assurance of the continued independence and integrity of the network operation of ABC.
27. Our review of the whole record persuades us that the merger of ABC with ITT promises unquestionable public benefits in at least three important areas. First, ITT's larger financial resources will strengthen ABC's capacity to compete effectively with the other two national television networks.
28. Second, the merger promises for the broadcast public even more tangible benefits than the not inconsiderable feature of invigorated competition among the major national television networks: It promises meaningful enhancement of ABC's network and station programming services to the public. With an enlarged financial base -- on which ITT has made unqualified commitment on a scale which assures ABC of at least $50 million more financial support than it could otherwise reliably anticipate during the next several years -- ABC will provide among other things enlarged news and public affairs services, speedier conversion to color, and substantial new facilities for program production.
29. The merger holds out promise of a third major benefit which, while it is not unrelated to the other two, represents a decided public gain; that is, the added support ITT has undertaken to give to the advancement of UHF broadcasting. That support is twofold. First, programming improvements can be expected to increase the capacity of UHF affiliates of the ABC network to attract audiences and advertisers and thus strengthen UHF's competitive potential with VHF stations. This can ease the way toward the fuller use of other UHF channels in the communities concerned. The other benefit to UHF is ITT's declared interest in the advancement of UHF technology.
30. Given the clear promise of these and associated benefits we are not persuaded that protection against certain hazards which have been envisaged demands the withholding of our consent to the merger. This is not because we attach less importance to preservation of the freedom of a major -- or any -- broadcast entity to render vital broadcast services undeterred and uninfluenced by private, nonbroadcast interests under common ownership with the broadcast enterprise. Fully recognizing this as the sine qua non of a reliable and healthy broadcast service, we, nevertheless, find in our experience with numbers of other licensees who encompass, along with broadcast interests, large and diversified nonbroadcast activities no indication of abuse of their public trust through the intrusion of their nonbroadcast concerns upon the objectivity of their news reporting or commentary and no demonstrated detriment in any other programming sectors.
31. Nor do we find in the ABC-ITT union of broadcasting and common carrier activities cause for anticipation that the public interest would thereby suffer. We have been assured that ABC will remain free to advocate before this Commission and other public forums any positions which the ABC management may determine to be beneficial from the standpoint of network and broadcast operations, notwithstanding the existence of opposed views which may be held by other ITT subsidiaries performing common carrier or other nonbroadcast communications functions.
32. In all these circumstances, and taking due account of the fact that the merger promises no restraint of competition in the markets for products ITT manufactures or for the advertising and programming services provided by ABC, we are convinced that the public interest would best be served by permitting the realization of the notable public benefits the merger promises, and, accordingly, find that the public interest will be served by granting our consent to the pertinent assignments of licenses and transfers of control.
33. A number of objections to this merger are urged by dissenting Commissioners. It is argued that (a) ABC is now a healthy and strong network that does not need strengthening; (b) ABC needs affiliates, rather than a stronger financial position in order to be more competitive; (c) the Commission could equalize network strength by more direct, drastic, and effective means than permitting this merger; and (d) it is a dangerous 'public utility concept' for the Commission to act on the principle that it should attempt to equalize network strength and position. It seems to us that all of these arguments are based on a misconception of the basic approach that is proper here. As the Supreme Court instructed us long ago 'the field of broadcasting is one of free competition. The sections dealing with broadcasting demonstrate that Congress has not, in its regulatory scheme, abandoned the principle of free competition, as it has done in the case of railroads * * *.' F.C.C. v. Sanders Brothers, 309 U.S. 470 (1940). This means that we should seek in our regulatory activities to provide the conditions and permit the business activities that will afford free and effective competition which, while it does not require absolute equality among competitors, cannot be achieved by smaller or weaker competitors unless in critical respects their competitive strength is sufficiently comparable to that of the stronger industry members. It is thus not a part of our function to insure or impose economic equality. We must, however, recognize that a network operation which is losing money is suffering a competitive handicap, and that free competition cannot long survive if one such operation is losing money while others are profiting.
34. We are not called upon to impose conditions that will insure a profit for ABC, but neither should we frustrate its efforts to attain a profitable position by forbidding it to enter the same kind of economic relations as its competitor. This is not a 'public utility concept' but an 'equal protection of law' concept. As for taking more direct and drastic action to equalize competitive positions, such as by forcing a change in the affiliation of individual stations, we consider this unwise, unwarranted, and incompatible with our basic mandate of maintaining a competitive system of free enterprise in the field of broadcasting. Such action would come very close to public utility type of regulation. It would involve a far more drastic intrusion into the economic operation of broadcasting than any we have yet undertaken or than we have so far thought authorized or justified. Our present view is that it is far preferable to permit licensees and networks to achieve competitive equality by their own efforts and to avoid handicapping them by unequal limitations than to try to impose equality upon all by direct control and rearrangement of broadcasting affiliations. There is certainly no occasion for adopting such an approach in this situation where we are offered an alternative of much less radical nature.
35. It is true that the proposed merger does not directly meet the need of ABC for better facilities and more affiliates. However, the record establishes that it will strengthen the financial position and technical resources of ABC and thus permit it to expand its staff, particularly in the field of news, to take greater risks and make long range commitments for programs, to offer affiliates and prospective affiliates greater assurances regarding future programming, to change to color transmission of television and improve its technical facilities more rapidly than otherwise, and to encourage the development of UHF outlets. All of these things will certainly tend to attract affiliates and permit ABC to compete more effectively for affiliates. We believe that our statutory mandate requires us to permit this, and that this will result in greater competition among broadcasting networks to the benefit of the public.
36. It has been intimated that the foreign investments and interests of ITT somehow are or may be disqualifying. The record is quite clear and complete on the point that ITT has extensive foreign investments. The Commission is well aware of this, and has considerable detailed information regarding these beyond that which appears in this docket, since ITT, as an American corporation engaged in international record communication (like RCA), has been a licensee of the Commission since the Commission was established. The fact and extent of ITT's foreign interests is an element that should be and has been weighed carefully in our consideration of this matter, and we have examined these foreign business interests in considerable detail. We know from our experience in the regulation of communications that many of our large broadcasting licensees and the two other television networks also have substantial foreign interests, including subsidiary corporations in many countries. We have seen no evidence at any time that any of these foreign interests have influenced any of the programming presented in this country. There is no reason to assume or suspect that any such influence will occur in the case of ITT. Indeed, we have much greater assurance in our judgment of ITT than is ordinarily the case with a new broadcasting applicant. As ITT has been a common carrier licensee of the Commission since the Commission was established, we have observed its operations and kept informed as to its interests and activities continuously. Its record has been exemplary. We also have explicit and emphatic assurances in the present record that the broadcast programming activities of ABC will not be subject to detrimental influences arising from other financial interests of ITT. These assurances are positive, credible, and persuasive. We also note that the Communications Act sets specific standards on this point by limiting the proportion of alien ownership interest which is legally permissible in a broadcast licensee (47 U.S.C., sec. 310). ITT, less than 8 percent of whose stock is alien-owned, and all of whose officers and directors are American citizens, goes much beyond compliance with the statutory standard, which would bar a grant on the ground of alien ownership only if aliens or foreign governments owned over one-fourth of the capital stock of a corporation (ITT, here) owning a licensee corporation, or if any officer or more than one-fourth of the directors of such parent corporation were aliens -- and in such cases only upon an affirmative finding by the Commission that the public interest would be served by denying consent to the acquisition. Nor does the fact that ITT's ownership of foreign subsidiaries is shared to varying degrees with aliens realistically hazard alien influence upon the broadcasting operations of an American subsidiary of the American ITT parent corporation.Nothing of which we are aware in the history of ITT's operations abroad or in the United States suggests that it has ever been or would in the future be neglectful of its loyalties or responsibilities as an American company, or that aliens associated in the ownership and management of oversea ITT companies would by some sinister and unexplained means exert influence upon the interests of the United States broadcast public. It does not seem appropriate in this case for us to go far beyond the statute to establish some very strict but vague rule against 'foreign interests' (which would surely disqualify a number of major broadcast licensees).
37. An issue that has been suggested is whether there may be a conflict of interest between the broadcasting interests of ABC and the common carrier interests of ITT. It should be noted that if there were any such conflict, it would relate only to international operations, since ITT is not a domestic common carrier. The overwhelming proportion of a domestic network's common carrier usage is domestic, and the international part is, at most, relatively minor. As to this minor part, there may be some conflict of interest between the desire of the broadcaster for lower rates and the desire of the common carrier for higher rates. This conflict does not seem to have caused any difficulties in the case of NBC and RCA, which have a larger volume in both fields than ABC and ITT.However, we also know that communication, particularly in the international field, is entering a new era in which satellites, and possibly other techniques, will be of increasing importance. Satellites and owned by a separate statutory corporation, the Communications Satellite Corp. Within the United States, ABC, as well as the other networks, must rely upon A.T. & T. for long distance carriage. Thus, one of the most important elements in the future position of ABC is likely to be its ability to exert what has been called 'countervailing power' in relation to international satellite communications and domestic telephone lines. Its position in this respect would be immeasurably enhanced by a merger with ITT. Furthermore, its ability to cope with the unforeseeable complexity of evolving communications technology will be of paramount importance to it. In this respect, too, it will be greatly strengthened by merger with ITT. These considerations are of such preponderant importance in relation to the very minor possibility of conflict of interest regarding international cable rates that the balance on this issue overwhelmingly favors the merger.
38. The dissenting Commissioners express certain fears of possible abuses arising out of a ABC-ITT merger, and point to the fact that the Commission has established multiple ownership rules, prohibitions against overlap of commonly owned stations, network rules, and other rules based upon a purpose to prevent structural relations that have been thought to involve dangers of abuse. If the transfers involved here were contrary to any of these rules, they should not be approved. However, the Commission has, over the course of time, promulgated these rules to prevent just those structural relations as are thought to present undue dangers of abuses by themselves. The proposed merger does not transgress any such rules, and, consequently, is fully consistent with structural relations in the industry which the Commission has, up to the present time, not only permitted but approved. The fears expressed as to potential abuses arising out of the proposed merger are based only on speculative possibilities. Of course, certainty is not attainable when we are dealing with judgments as to the future, and we can only exercise our best judgment in full awareness of the fallibility of all human prediction. However, we believe that the Commission must act on the basis of reasonable probabilities, not of mere speculative or hypothetical possibilities. We have based our conclusions on the past performance of the parties involved, on express, positive, and binding representations as to future performance, and on our own accumulated experience and observation of other enterprises in similar situations and of the entire economic, social, and technological milieu in which applicants must exist and operate. This appears to us to be the best and soundest basis for judgment in this matter.
39. The basic issue that is presented in arguments against this merger is whether broadcast licensees should be restricted to broadcasting activities or should be permitted to have other business interests. In all fairness it must be conceded that there are arguments to be made on both sides of this issue. However, since the beginning of broadcast licensing the Commission has licensed manufacturers of radio receiving equipment, other manufacturers and industrial enterprises, church groups, labor groups, newspaper publishers, and other enterprises engaged in a vast variety of business activities. Proposals to exclude particular business interests, which have been made from time to time, have met with little sympathy or success in Congress, and have not been adopted by the Commission. It is too late in the day to argue that such outside business interests are disqualifying. In any event, we must apply to same principles to all licensees. Melody Music, Inc. v. F.C.C., 345 F. 2d 730 (C.A.D.C., 1965); Mary Carter Paint Co. v. F.T.C., 333 F. 2d 654 (C.A. 5th, 1964). We cannot in this case adopt standards which when applied in other cases would require us to restructure the industry unless we are prepared to undertake that task. We could not in good conscience forbid ABC to merge with ITT without instituting proceedings to separate NBC from RCA, both of which are bigger than the respective principals in this case. The fact that this proceeding involves applications to transfer licenses rather than to renew licenses is not controlling, since precisely the same legal standards apply to transfers and renewals (47 U.S.C., sec. 307(d)). Consequently, the position contended for in the dissent would require the Commission to refuse to renew the station licenses now held not only by the other networks, but even by the numerous large conglomerate corporations that hold broadcasting licenses. While some may think that such actions are desirable, we are not persuaded that they would be in the public interest.
40. While there may be imperfections in the structure of the American broadcasting industry, it has, on the whole, served the American public well, and we are not convinced that any substantially different structure would perform better or serve the public better. This Commission exercises a continuing supervision over the American broadcasting industry, and seeks to prevent abuses and improve its structure and operation within the limits of the power Congress has conferred on the Commission. As previously mentioned, we will have and exercise such power over the applicants here, as over all other licensees. We think it wiser and more in the public interest to continue to follow this course, which is the course that has been followed by the Commission since its beginning and which Congress has both explicitly and implicitly approved, than to take this case as the starting point for a radical restructuring of the entire broadcasting industry.
41. The Hubbard petition to deny raises no broad questions concerning the merger as a whole, but is based solely on inclusion of WABC in the merger. Hubbard argues that ABC has no license for WABC which is capable of being assigned, since its application for renewal is still pending, and that assignment would deprive Hubbard of a comparative hearing against ABC as it now exists. We do not regard either argument as meritorious. Since there is no question as to the assignor's basic qualifications, this situation is not analogous to those in which the Commission first resolves a challenge to the licensee's qualifications before acting on an application for assignment. Until determination of the future use of the WABC frequency, all that is assignable by ABC is the right to continue operation of WABC pending action upon its license renewal application, but that much is assignable. In re Application of Stevens Broadcasting, Inc., and Fred P. D'Angelo, FCC 64-988, 3 R.R. 2d 840,843, and 844 (1964), aff'd on other grounds sub nom. Parr v. Federal Communications Commission, 120 U.S. App. D.C. 151, 344 F. 2d 539 (1965). Such an assignment will not abridge Hubbard's Ashbacker rights. It is undisputed that Hubbard is entitled to a hearing in which its application for a new station at New York City must be considered comparatively with WABC's renewal. In American Broadcasting-Paramount Theatres, Inc. v. FCC, 120 U.S. App. D.C. 264, 271, 345 F. 2d 954, 961 (1965), the court of appeals upheld our decision to defer comparative hearings on Hubbard's pending application for a new station on 770 kc at New York City, which is mutually exclusive with ABC's pending application for renewal of license of WABC, until we have resolved the antecedent question of the best mode of utilizing 770 kc at New York and at Albuquerque, N. Mex. This question has been the subject of a 20-year-old dispute between the licensee of radio station KOB, Albuquerque (presently Hubbard), and ABC. Hubbard argues that while it does not object to the Commission's consent to the proposed license assignments and transfers of control pertinent to all the other ABC-owned stations, it is entitled to a comparative hearing with ABC as presently constituted. Clearly, however, even if it were practicable -- and this has not been shown -- to sever WABC from the merger, Hubbard could not thereby be afforded a comparison with ABC as presently constituted, since all other properties and activities of ABC would have become merged with ITT. Thus, only by deferral of our consent to the transfer of any of the ABC stations to a new subsidiary of ITT could Hubbard's alleged objective be attained. We find no warrant for deferring our action upon the merger proposal and for consequent deferral of the public benefits we have found it would bring, in order to preserve the status quo of ABC as the licensee.
42. In order to insure the preservation of Hubbard's rights, we wish to make it clear that our approval of the assignment of ABC's present authorization for continued interim operation of WABC, pursuant to 47 U.S.C., section 307(d), and 5 U.S.C., section 1008(b), is without prejudice to any procedural or substantive rights of Hubbard and without determination of or prejudice to any of the issues involved. With that caveat, and finding that no substantial or material question of fact is presented and that the public interest will be served by granting our consent, at this time, to simultaneous license assignments and transfers of control for all of ABC's broadcast stations in order to permit the orderly effectuation of the ITT-ABC merger under arrangements agreed between ITT and ABC and found unobjectionable by us, we shall deny the Hubbard petition to deny.
43. Accordingly, It is ordered, That the pending applications for assignments of license and transfers of control for the broadcast stations whose call letters are listed in the caption, herein, Are granted, and the staff Is instructed to grant the pending applications for our consent to assignments and transfers of the ancillary radio licenses held by ABC and its subsidiaries; Provided that, In the case of WABC, New York, N.Y., our consent herein granted goes only to the assignment of that station's continuing authorization to operate, pursuant to 47 U.S.C., section 307(d), and 5 U.S.C., section 1008(b), during the pendency of its application for license renewal (BR-167) and without prejudice to the rights of Hubbard Broadcasting, Inc., relating to comparative consideration of its pending application for a new station at New York City on 770 kc (BP-13932), which is mutually exclusive with ABC's pending renewal application for station WABC. It is further ordered, That the petition to deny the application of American Broadcasting Cos., Inc., for assignment of license of radio station WABC, New York, N.Y. (BAL-5734), filed May 11, 1966, by Hubbard Broadcasting, Inc., Is denied. The joint motion to correct transcript, filed October 24, 1966, by ABC, ITT, and Chief, Broadcast Bureau, Is granted.
44. It is further ordered, That ITT's responses to requests, dated November 2 and 23, 1966, for the submission of additional information, which ITT filed on November 17 and December 9, 1966, and all the matter filed together with those responses, Be made part of the record of this proceeding.
45. There remain for disposition ITT's requests that the portions of its filings listed in appendix I hereto be designated as not for public inspection, pursuant to section 0.417(a)(5) of the Commission's rules. Those submissions, which consist of stockholder lists and agreements between ITT and foreign governments, contain details which do not add significantly to the remainder of the record, which is public. We find that no useful purpose would be served by public disclosure either of the identity of listed stockholders of ITT or of the agreements, which contain commercial and financial information of a kind customarily treated as confidential. Good cause having, accordingly, been shown, It is further ordered, That the portions of ITT's submissions listed in appendix I hereto Are designated as not for public inspection.
FEDERAL COMMUNICATIONS COMMISSION, BEN F. WAPLE, Secretary.
DISSENTING STATEMENT OF COMMISSIONER ROBERT T. BARTLEY
I vote against granting consent to the proposed merger of American Broadcasting Cos., Inc., into the International Telephone & Telegraph Corp. -- based on the record before us.
A more orderly procedure may have reduced the number of dissenting opinions. As it is, none of the dissenters has had adequate time to consider the drafts of the others so we have not had an opportunity to consolidate our views, eliminate duplications, and present a document which would better inform the public of the dangers we foresee.
The Commission's 'oral hearing' in this matter was an unusual proceeding which did not conform to the hearing requirements of section 309 (d) and (e) of the Communications Act, and, in my opinion, the self-serving record which was developed in the proceeding is defective to support a grant of the applications.
There is adequate time for the development of a proper record in this case. ABC and ITT have provided therefor by the terms of the merger agreement which automatically extend the termination date to December 31, 1967, 'to obtain the required order of the Federal Communications Commission.'
The Commission has rushed into an approval of the merger without more than superficial attention to a study from the U.S. Department of Justice in which it states that the merger may have substantial anticompetitive consequences. The Department's study, in a letter dated December 20, 1966, was received by the Commission after the close of business on the 20th, and the Commission majority acted to approve the merger the next day, December 21, with no further ado as to the anticompetitive consequences pointed out by the Department.
The merger of ABC into ITT poses fundamental questions of highest importance to the maintenance of a responsible and competitive broadcast structure for our country. Network broadcasting -- particularly network television -- is a social, political, and economic instrument of vast and increasing impact on our society. This merger would place a major share of our national broadcast service -- particularly our television service -- under the direct ultimate control of an expanding conglomerate corporation, international in scope, heterogeneous in character, and largely extraterritorial in orientation and operation, with the inherent danger of the broadcast operations becoming a public relations tool of and image builder for the corporate conglomerate and little attention given to the local needs of the public which the broadcast operations are charged with serving. The Commission's failure in its 'oral hearing' to give adequate consideration to the far-reaching effects of the merger on the structure of competitive broadcasting in our country, and the Commission's failure to give adequate consideration to the anticompetitive consequences cited by the Department of Justice, demonstrate an apparent need for Congress to study the matter of licensing broadcast stations to corporate conglomerates and enact legislation definitive of national policy with respect thereto. I urge such congressional action at the earliest practicable time.
The proposed ABC-ITT merger is contrary to the public interest, I believe, because, principally, the ABC-owned stations and the ABC radio and television networks, which are media of mass communications that affect daily the thoughts and lives of the public, would be oriented in and dominated by a gigantic ITT industrial combine with substantial and far-flung interests in foreign countries, in military and other government contracts, and in communication common carrier service. An orientation and domination in which the public-interest responsibilities of the broadcasting subsidiary would be subverted to the private, and oftimes conflicting, interests of the total corporate conglomerate with its inherent responsibilities to investing stockholders.
A brief summary of the makeup of ITT is necessary to put in proper perspective the serious public-interest questions which the merger raises.
ITT is a gigantic corporate conglomerate, an industrial combine with far-flung interests in at least 66 countries. Its consolidated net income of $1.8 billion in 1965 was about 60 percent from foreign operations and 40 percent from domestic systems.
ITT is engaged in domestic and foreign manufacturing, the operation of telecommunication utilities, and financial and other service activities. It is a leading international record carrier. Its foreign manufacturing subsidiaries produce consumer goods as well as electronic and telecommunications equipment for sale to foreign governments and other agencies operating telecommunications systems. ITT claims to be the world's largest manufacturer of telecommunications equipment. Its domestic manufacturing includes telecommunications and electronic equipment related to defense and space activity. Most of this work is done under Government contract. A substantial amount (39 percent) of domestic sales revenues comes from the manufacture of a variety of industrial products, including air conditioning, heating and ventilating equipment, pumps, motors, wire cable, etc. It also engages in a number of finance and other service activities, largely in the United States. It owns the Avis car rental service; several finance subsidiaries; several insurance companies; an investment fund; a small loan company; the recently acquired Howard W. Sams & Co., a diversified publisher and printer of books, textbooks, magazines, and training and reference services; and Airport Parking Co. of America, one of the world's largest parking companies.
Attachment A hereto is a partial listing of ITT's worldwide conglomerate companies.
Moreover, on page 9 of ITT's 1965 annual report, it is stated: 'A largely different company today from what it was yesterday, ITT will also be different in 1969 when it completes its second 5-year growth plan.' The Commission does not know what ITT will be in 1969 except that it will be 'different,' yet the Commission marjority closed its eyes to the future in consenting to an assignment to this unknown 'different' colossus.
In the merged corporation, ABC's broadcasting activities would appear to account for 13 percent of ITT's overall revenues. I feel that in conflicts of interest the 13-percent broadcasting division will be subordinated to the 87-percent nonbroadcasting divisions and, as indicated above, from the point of view of the responsibility of ITT's management to its stockholders, such a result would seem to be an inherent necessity. To expect any other result would seem to me to be unrealistic and contrary to human experience.
One possibility, among many, of conflict between ITT, the broadcast trustee, and ITT, the conglomerate international entrepreneur, is the following: The 87- percent ITT entrepreneur has for its customers many of the governments of the western world -- including the Government of the United States. Whatever may be the stated intention of the present executives of ABC and ITT, it seems apparent to me that the 13-percent ITT as an electronic journalist and cultural agent could not escape or withstand temptations and pressures to favor or protect individuals or governments whom the 87-percent ITT might desire or require as customes. No deliberate intent on the applicant's part to avoid its public responsibility is suggested. Premeditated falsification of news or distortion of fact is not suggested. I am suggesting -- as a dangerous possibility -- selectivity in subject matter and scheduling (in the interest of corporate advantage and harmony) a more subtle yet effective means of opinion manipulation and 'image making.' There appear to be on the face of these applications natural conflicting temptations in the mesh of economic and practical circumstance in which ITT as a broadcast-trustee would find itself. It would seem axiomatic that the greater the variety of interests which might be the natural objects of the licensee's bounty, the greater the potential of conflict of private with the public interests.
I do not believe that the mere fact of a commitment by Geneen, now president of ITT, to operate the broadcasting enterprise free of commercial influences is sufficient to negate the probability that such influences would be a real and present danger to a large segment of our broadcast structure. Even though I do not disbelieve the emphatic statements of present intention to which Goldenson, president of ABC, and Geneen have given voice, carrying them out would seem to me to fly in the face of the probabilities of human nature and the needs of commerce. Also, it must be realized the assignment is to a corporation, not to Geneen and Goldenson. Either or both could, at any time, sell their interests and be out of the corporation. Thus, we must look to the corporation, rather than to Goldenson and Geneen. Moreover, the commitments of Goldenson and Geneen assume less significance and reliability, since it is well known that in television production there are unwritten taboos which are constantly in the minds of writers and producers. Furthermore, there would no longer be net-work and station employees who owned ABC stock but might well own ITT stock. For such reasons as the foregoing, and others, the Commission has established various rules and policies where the probability of damage to the public interest is inferred directly from structural situations closely analogous to that presented here. This is the case with our multiple-ownership rules, our duopoly rule, our prohibition against the operation of two networks by the same person, our prohibition of network spot representation, etc. In such cases, the stated intentions of the applicant, no matter how solemnly made, are immaterial. I believe the same test is applicable here.
The hearing in this proceeding is, I believe, legally defective. The Commission majority ordered it as an 'oral hearing' and constituted it with unique procedures. The seriousness of the matter before us required that such a hearing contain all the safeguards established by statute. Section 309(d)(2) of the Communications Act provides that 'if the Commission for any reason is unable to find that grant of the application would be consistent with subsection (a),' it shall set the application for hearing as provided in subsection (e). Those provisions were not met in this proceeding.
Moreover, section 311(a)(2) of the act requires that 'if the application is formally designated for hearing in accordance with section 309, [the applicant] shall give notice of such hearing in such area at least 10 days before commencement of such hearing.' No showing is made by the applicant, as required by section 1.594(g) of our rules, that such notice was given.
One of the purposes of the statutory requirement is to make the proposed transaction known to parties who may want to oppose it and appear at the hearing. The Commission majority makes much of the point that no oppositions were filed against the merger. This point becomes meaningless in face of the fact that notice of the hearing was not given as provided in the act and our rules. Although the Commission can waive its own rules, it cannot waive the statutory requirement.
The proceeding produced an inadequate record from which to make an informed judgment that the proposed merger would meet the statutory requirement of serving the public interest, convenience, and necessity. The 'oral hearing' had unique procedures by which ABC and ITT made presentations to the Commissioners en banc. The Commission's Broadcast and Common Carrier Bureaus stated overall questions of law and policy. Neither the Broadcast Bureau nor the Common Carrier Bureau was made a party to the proceeding for the usual purposes of presenting witnesses, expert or otherwise, or engaging in cross-examination of the applicants' witnesses. Consequently, the proceeding was an array of witnesses for the applicants only, with self-serving statements unchallenged in the crucible of an adversary case involving cross-examination, except for independent questions by some of the Commissioners.
The majority's decision herein does not even make findings on the
following questions presented by the Broadcast and Common Carrier Bureaus in
their (1) September 14, 1966, advance summary of questions, and (2) statement
at the “oral hearing”:
ADVANCE SUMMARY OF QUESTIONS
MERGER OF SEPARATE COMMUNICATIONS ROLES
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
Examples of matters involving actual or potential opposed interests of the network-broadcaster versus the common carrier:
(a) Possible network versus common carrier ownership of a satellite transmitting from U.S. source to network affiliates in the United States.
(b) The authorized user question.
(c) Rates and practices governing satellite transmission of television programs between the United States and other countries both ways.
(d) Charges and practices governing services such as transmission of Gemini splashdowns.
(e) For the future, looking ahead to predicted television broadcasting from source via satellite direct to home receivers: Is it desirable that the roles of ownership and operation of such satellite facilities be fused with ownership and operation of major program sources, such as national net-works, which determine the composition of programming directed to the public?
Effects upon competition:
(a) Would the merger of ABC with ITT create competitive conditions which would impel CBS toward a similar merger, with further intensification of the resultant concentration of control over mass media?
(b) Would the competitive strengthening which it is claimed the merger would afford ABC heighten the difficulties of establishing another competitive national television network?
(c) Would ITT's ownership of ABC, comprehending national television and radio networks and 17 major broadcast stations, adversely affect competition in the sale of equipment used by networks and stations?
STATEMENT AT THE ORAL HEARING
(a) In view of ITT's declared intention of expanding domestic manufacturing and service activities, would its ownership of major television and radio networks and 17 major-market broadcast stations adversely affect freedom of competition in the solicitation and placement of broadcast advertising?
(b) Would ITT's ownership of ABC, comprehending national television and radio networks and 17 major broadcast stations, adversely affect competition in the sale of equipment used by networks and stations?
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
* * * whether ITT and ABC have sufficiently shown what programming enhancements the merger would assure, their approximate cost, and ITT's rock bottom commitment of enough financial backing to defray that cost.
The previous merger of ABC with Paramount, which involved no less magnitude than the presently proposed merger of ABC-Paramount and ITT, was tested in an evidentiary hearing of several months' duration. The proceeding and the record in this 2-day presentation is grossly inadequate. In the ABC-Paramount merger, the burden of proof was on the applicant. In this merger, the burden of proof seemed to be, improperly, on Commissioners who questioned whether it was in the public interest.
I believe that in the 'oral hearing,' limited as it was, the applicants' attempts to establish ABC autonomy in the ITT corporate conglomerate, their attempt to show lack of ABC viability, and their attempt to indicate a public interest by the merger were demolished.
It now clearly appears that the broadcast operation of ABC will be under the control of the overall management of ITT. The merger agreement between ABC and ITT provides that ABC will be a wholly owned subsidiary of ITT, with some cross representation on the board of each for at least 3 years, and that during the 3 years matters of major importance in the ABC subsidiary are to be submitted to the ITT board becoming effective. Testimony in the 'oral hearing' by Geneen, president of ITT, demonstrated that ITT would decide matters of major importance in the ABC subsidiary and that ABC's autonomy would be merely a housekeeping function of day-to-day operations.
ABC had contended that the merger was necessary to help make the ABC television network more fully competitive with the NBC and CBS television networks. The contention fell in the 'oral hearing' by testimony from which it is clear that ABC is already viable and that the merger would not remedy the lack of VHF affiliate stations which ABC has long claimed to be its television network's obstacle to fully competitive status.
The applicants' attempts to indicate a public-interest benefit from the merger rested on the projection of ABC's becoming more fully competitive with the other television networks -- through better programming, quicker implementation of full color facilities, and a cushion against pressure from ABC's own board to take less risk on new ideas in programming. ABC's better programming projection rested heavily on building its news and public affairs operations. This attempt also fell in the 'oral hearing' by testimony, as indicated above, that becoming fully competitive was realistically a matter of more VHF affiliates, and that better programming does not necessarily result from more money, since ABC's television programming has been fully competitive in markets where it had VHF outlets.
On the matter of quicker implementation of full color facilities ABC did not show that financing therefor was not possible through means other than a merger with ITT.
In the hearing proceeding, Goldenson stated that ABC may need approximately $50 million over a 3-year period for its proposed plans. There is no persuasive showing that ABC, with a working capital of $90 million in 1965, could not secure an additional $50 million over a 3-year period through other avenues; e.g., merger with a corporation which does not pose the problems of ITT, issue additional stock, seek debentures, or even an additional loan. Significantly, ABC has not indicated that, in the absence of the merger with ITT, it will not go forward with its proposed expansion plans.
The basic thrust of ABC's justification for the merger is that it is needed to make ABC fully competitive with NBC and CBS. ABC points out that it loses money on its TV network operation while the other two networks make a substantial profit on theirs. If one network has an unfair competitive advantage over another, the solution is to eliminate that unfair competitive advantage rather than to authorize equalizing unfair competitive advantages. ABC and ITT failed to make a compelling affirmative showing as required under the Commission's interim policy on ownership of TV stations in the top 50 markets. The majority decision states that the interim policy applies to these applications and that the 'oral hearing' held satisfied the requirements of the policy statement.
The testimony presented in this proceeding was irrelevant to the said interim policy statement. That statement applies to television stations. The applicants' testimony was on the alleged merger need, not of ABC's owned TV stations, but of the ABC television network, comprising some 137 affiliates owned by others than ABC.
ABC made no compelling affirmative showing pursuant to the said policy statement in regard to its owned television stations. Indeed, ABC could not make such a showing, in light of the highly favorable position of its owned stations indicated in ABC's 1964 and 1965 annual report. Certainly ABC made no showing that, whether the hearing requirement itself was satisfied procedurally, the merger would implement the diversification of control of broadcast stations in the top 50 markets as espoused in the said interim policy statement.
Section 310(b) of the Communications Act provides that no license shall be assigned except upon a finding by the Commission that the public interest, convenience, and necessity will be served thereby. The burden was on the applicants to establish that the merger would serve the public interest, convenience, and necessity. In my opinion, the applicants have failed to meet their burden.
DEFICIENCIES IN THE MAJORITY'S MEMORANDUM OPINION AND ORDER
The memorandum opinion and order by which the majority grants consent to the proposed merger is deficient in many respects. In paragraphs 7 through 13, the Commission majority lists the departures it made from regular procedures and concludes that they were 'the most adequate in the circumstances of this case that our ingenuity could devise.' I believe that the Commission was without authority to use its ingenuity to devise new procedures but was required to conform to the procedures dictated by statutes; i.e., the Communications Act and the Administrative Procedure Act. The Commission did not comply with requirements therein. Moreover, I cannot agree, for the reasons I set forth on pages 265 and 266 above, that the new procedures were adequate. This merger involves a transfer of 17 owned stations, a national radio network, a national television network, and ABC's other properties such as Paramount pictures, theaters, etc., into the corporate conglomerate of ITT. The merger proposed here involved is one of the greatest magnitude during my 14 1/2 years as a Commissioner. The extent, depth, and scope of the proceeding in this case were far less than in transfer cases of even less magnitude. The transfer involving the merger of ABC and Paramount, the AVCO assignment, the NBC-Westinghouse assignments and swap -- as examples -- each consumed months of evidentiary hearing proceedings and were far greater in extent, scope, and depth. The 'oral hearing' in this case was scheduled for 1 day. It consumed 2 days. It must be recognized that this 'oral hearing' was minuscule compared to that of other transfers of even lesser magnitude.
In paragraph 18, it is stated that the Commission's interim policy on acquisition of TV stations in the top 50 markets 'applies to the present applications,' and that the hearing requirement of the policy 'has been satisfied by the procedure herein.' I have pointed out, above, that the testimony in the 'oral hearing' was irrelevant to transfer of ABC's owned TV stations, but related instead to ABC's TV network with over 137 affiliates.
In paragraph 19, it is stated correctly that we must consider antitrust aspects of the merger in light of the public interest. In paragraph 21, it is contended that there would be no elimination of 'horizontal' competition and the 'vertical' relationship between ABC and ITT is 'insubstantial by almost any test,' and concluded that:
There is no evidence that the merger would afford either company an opportunity to use the economic power of the other to secure any significant purchases by reciprocity, and there is an unqualified representation that neither company engages in such practice and that the policy of ITT is against any such practice. The record is persuasive that there is no substantial probability that the merger will lead to any such abuse of power.
Advertising time on network television is a choice commodity, as has been often asserted by those prominent in the industry and has been the conclusion in a number of studies, the most recent of which was contained in the record of the Subcommittee on Antitrust and Monopoly of the Committee on the Judiciary on September 12, 1966. Obviously, ABC has a large proportion of this essential commodity for sale. ITT, on the other hand, through its subsidiaries, manufactures a great many products for which users and potential users of television advertising time are customers. In these circumstances, there appears to be a reasonable probability of reciprocity becoming involved in the sale of various goods and services by ITT and its subsidiaries and affiliates.
I do not believe that the mere fact of unqualified representation as to neither company engaging in the practice of reciprocity -- and that ITT's policy is against reciprocity -- is sufficient to negate the point that the probability is a real and present danger to the operation of a large segment of our broadcast structure. In this connection, I point out, as I did with respect to reliance upon representations concerning freedom from commercial influence on programming, pages 265 and 266 above, that the Commission has established numerous rules and policies in which the probability of damage to the public interest is inferred directly from structural situations analogous to that presented here. In such cases, the stated intentions of the applicant, no matter how solemnly made, are immaterial. I believe the same test is applicable here. (It has not come to my attention that any company, or groups of companies, has a policy of violating the antitrust laws. May information is that, to the contrary, companies generally have firm, expressed policies against violation of the antitrust laws.)
As Judge Learned Hand stated in the NBC v. U.S. case (November 16, 1942):
[The Commission] was created to make such choices because Congress believed that it would acquire in its special sphere a skill which courts could not match; and it is now hornbook law that the conclusions of such tribunals are not to be disturbed except in the plainest case. That doctrine applies here with especial force just because the findings are necessarily prospective; time alone can decide their success or their failure. The measure of our power is to say whether there was any substantial evidence that the added freedom given to stations will outweigh the reduction in the opportunities which will remain open to the 'networks.' We cannot say that there was no such evidence. To take the regulation which is the head and front of the Commission's offending -- 3.104 -- it indeed does limit the power of a 'network' to furnish large advertisers with the time of all its 'affiliates,' for it must always run the risk that after its last inquiry a station may have 'sold' to another 'network' the time which it proposed to 'buy' of that station. On the other hand, it is certainly possible that the present contracts give the 'networks' so strong a hold upon the industry as to keep down competition which would prove beneficial. Upon such an issue nobody who is not steeped in the details of the business is really entitled to an opinion, and indeed even the opinions of those who are so steeped must be largely speculation. But that does not mean that the industry must be left to itself; the Commission was created precisely to say how far it was best to let things stand, and how far to intervene.
In paragraph 22, it is stated that 'We rely, in reaching our decision, upon the manifold assurances on the record that the freedom of ABC's programming from the intrusion of considerations stemming from ITT's numerous and preponderant nonbroadcast interests will be zealously and effectively protected by every available means.' But this reliance of the majority is also prefaced by a caveat that 'it demands 'eternal vigilance' by all broadcast licensees and will receive our continuing scrutiny for any indication that our reliance upon the assurances and safeguards set out on this record was not warranted.' The majority seems nervous about their reliance, as indicated by their recognition that they will be required to maintain eternal vigilance.
What tools do they have to make the vigilance meaningful? I suggest that the holdings of ITT are so far-flung and complex that intrusion into ABC programming by divisions of ITT's nonbroadcast interests would be immune to detection by me or the other Commissioners. Such policing would be a near impossibility. When such eternal vigilance demands our continuing scrutiny of the particular situation, I believe the better course is to protect the public interest by not allowing it in the first place.
In paragraphs 23 and 24, it is pointed out that the ABC television network operates at a loss, and 'In the absence of the financial assistance that it will receive from the proposed merger it appears ABC will be at a substantial competitive disadvantage and will be handicapped in its efforts to provide the programs and services to the public that it seeks to provide.' It has not been shown on the record that money from ITT will make ABC fully competitive, because ABC's claimed problem is lack of VHF affiliates in major markets. It is not shown that in the absence of ITT money from the merger, ABC will be handicapped, because ABC had planned the proposed services before talk of a merger with ITT and indicated in the ABC 1964 annual report that it was progressing toward accomplishment of those plans. Also, it is not shown that if such money were needed it could not be obtained except through a merger with ITT.
In paragraph 25, it is argued that we should not be alarmed because of the size of ITT -- that many other businesses are bigger in size. My main concern is not with size but with the ITT conglomerate here involved and the inherent probability of its adversely affecting the public interest of broadcasting.
In paragraph 26, it is stated that 'The structure of broadcasting will be the same after this merger as it was before.' To the contrary, the structure will be changed substantially because the ABC operations, owned stations, radio network, and television network will be meshed into a corporate conglomerate. This substantially lessens diversity of control of our broadcast structure. Presently there is one TV network owned by a corporate conglomerate (NBC-RCA). This merger would make two. As bankers think like bankers, I believe we can expect that corporate conglomerates will think like corporate conglomerates rather than like objective, professional broadcasters. Thus, much less diversity of viewpoint and attitude would result from the merger. This merger presents the Commission with the very basic and fundamental question of whether licenses should be granted to corporations involved in businesses other than broadcasting.
In paragraph 26, it is also concluded that as part of a corporate giant ABC would be less subject to undesirable pressure. If this argument is valid, the next step is to conclude that the objectivity of American broadcasting would be best assured if all networks were under the wing of one giant corporation whose paternalistic power would fend off undesirable economic pressures. If consent to this merger is a trend, we may find all media of mass communications under three beneficent conglomerates.
In paragraphs 27, 28, and 29, the majority points to benefits realized from the merger as (a) stronger competitive stations and (b) better programming by ABC. I have set forth above the reasons in support of my conclusion that neither is dependent upon ITT money. The third benefit found by the majority is 'advancement of UHF broadcasting.' That is not a valid reason, in my opinion, for permitting the transfer of ABC-owned stations, a radio network, and a TV network.
In paragraph 30, it is stated that 'in our experience' there is no indication of intrusion upon the objectivity of broadcast news and programming by the nonbroadcast interests of multiple owners. This is a broad statement which is not supported. Moreover, we do have experience with intrusion of nonbroadcast corporate interests into broadcast operations; e.g., the exertion of pressure by RCA-NBC upon Westinghouse to swap stations in Cleveland and Philadelphia so RCA would have an outlet in Philadelphia, where its laboratories were located. See NBC v. Philco, 2 R.R. 2d 921.
I conclude that the Commission majority's memorandum opinion and order is fatally defective to support a grant of consent to the proposed ABC-ITT merger.
ATTACHMENT A -- THE ITT SYSTEM WORLDWIDE
PRINCIPAL DIVISIONS AND SUBSIDIARIES
MANUFACTURING -- SALES -- SERVICE
Barton Instruments Ltd. (Canada), Calgary, Alberta.
Cannon Electric (Canada) Ltd., Toronto, Ontario.
General Controls Co. (Canada) Ltd., Guelph, Ontario.
ITT Canada Ltd., Montreal, Quebec.
Royal Electric Co. (Quebec) Ltd., Pointe Claire, Quebec.
Wakefield Lighting Ltd. (Canada), London, Ontario.
ITT Standard Electric of Jamaica Ltd., Yallahs.
ITT de Mexico, S.A. de C.V., Mexico City.
Industria de Telecomunication, S.A. de C.V., San Bartolo Naucalpan.
Industrias Ocelco de Mexico, S.A., Monterrey.
Materiales de Telecomunicacion,
McClellan, S.A., Mexico City. Standard Electrica de Mexico, S.A., Mexico City.
Wyatt de Mexico, S.A. de C.V., Tlalnepantla.
ITT Standard Electric of Panama, S.A., Panama City.
ITT Caribbean Manufacturing, Inc., Rio Piedras.
ITT Caribbean Sales and Service, Inc., Rio Piedras.
Documat Inc., Waltham, Mass.
Federal Electric Corp., Paramus, N.J.
Intelex Systems Inc., Paramus, N.J.
International Standard Engineering, Inc., Paramus, N.J.
ITT Technical Services Inc., Paramus, N.J.
International Standard Electric Corp., New York, N.Y.
International Telephone & Telegraph Corp., Sud America, New York, N.Y.
ITT Arkansas Division, Camden, Ark.
ITT Cannon Electric (division), Los Angeles, Calif.
ITT Controls & Instruments Division, Glendale, Calif.
Barton Instrument Corp., Monterey Pak, Calif.
General Controls, Glendale, Calif. Hammel-Dahl, Warwick, R.I.
Henze Valve Service, Hoboken, N.J.
ITT Data Services (division), Paramus, N.J.
ITT Electron Tube Division, Easton, Pa.
ITT Electron Tube Division, Easton, Pa.
ITT Electro-Physics Laboratories Inc., Hyattsville, Md.
ITT Environmental Products Division, Philadelphia, Pa.
Nesbitt, Philadelphia, Pa.
Hayes, Torrance, Calif.
Norman, Columbus, Ohio.
Reznor, Mercer, Pa.
ITT Export Corp., New York, N.Y.
ITT Farnsworth Research Corp., Fort Wayne, Ind.
ITT Federal Laboratories (division), Nutley, N.J.
ITT Federal Support Services, Richland, Wash.
ITT Fluid Handling Division, Morton Grove, Ill.
Bell & Gossett Hydronics, Morton Grove, Ill.
Marlow, Midland Park, N.J.
Stover, Freeport, Ill/.
ITT Gilfillan Inc., Los Angeles, Calif.
ITT Industrial Laboratories Division, Fort Wayne, Ind.
ITT Industrial Products Division, San Fernando, Calif.
ITT Industries, Inc., New York, N.Y.
ITT Jabsco Inc., Costa Mesa, Calif.
ITT Mackay Marine (division), Clark N.J.
ITT Microwave Inc., Mountainview, Calif.
ITT Mobile Telephone, Inc., Burbank, Calif.
ITT Semiconductors (division), West Palm Beach, Fla., and Lawrence, Mass.
ITT Telecommunications (division), New York, N.Y.; Corinth, Miss.; Milan, Tenn.; Raleigh, N.C.
ITT Terryphone Corp., Harrisburg, Pa.
ITT Wakefield Corp., Detroit, Mich.
ITT Wire and Cable Division, Paw-tucket, R.I.
Royal, Pawtucket, R.I.
Surprenant, Clinton, Mass.
Jennings Radio Manufacturing Corp., San Jose, Calif.
Puerto Rico Telephone Co., San Juan.
Virgin Islands Telephone Corp., Charlotte Amalie.
MANUFACTURING -- SALES -- SERVICE
Compania Standard Electric Argentina, S.A.I.C., Buenos Aires.
Standard Electrica, S.A., Rio de Janeiro.
Electronica Industrial S.A., Sao Paulo.
Compania Standard Electric, S.A.C., Santiago.
ITT Standard Electric de Colombia, S.A., Bogota.
International Standard Electric of New York Ltd. (branch), Quito.
International Standard Electric of New York Ltd. (branch), San Salvador.
Standard Telecommunications C.A., Caracas.
Companhia Telefonica Nacional, Curitiba.
Compania de Telefonos de Chile, Santiago.
Compania Peruana de Telefonos Limitada, Lima.
EUROPE, MIDDLE EAST, AFRICA
MANUFACTURING -- SALES -- SERVICE
Societe Algerienne de Constructions Telephoniques, Algiers.
Standard Telephon und Telegraphen Aktiengesellschaft, Czeija, Nissl & Co., Vienna.
Bell Telephone Manufacturing Co., Antwerp.
ITT Europe, Inc. (branch), Brussels.
ITT Standard S.A. (branch), Brussels (offices in several countries).
Standard Electric Aktieselskab, Co-penhagen.
Standard Electric Puhelintcollisuus Oy, Helsinki.
Cannon Electric France S.A., Toulouse and Paris.
Compagnie Generale de Constructions Telephoniques, Paris.
Les Teleimprimeurs, Paris.
Compagnie Generale de Metrologic, Annecy.
International Standard Engineering Inc. (branch), Paris.
Laboratoire Central de Telecommunications, Paris.
Le Materiel Technique Industriel, Paris.
Le Materiel Telephonique, Paris.
Oceanic-Radio, Paris and Chartres.
Societe des Produits Industriels ITT, Paris.
Societe Industrielle de Composants pour l'Electronique, Courbevoic.
Deutsche ITT Industries G.m.b.H., Freiburg.
Standard Electrik Lorenz Aktiengesellschaft, Stuttgart.
Graetz G.m.b.H., Stuttgart, and other subsidiaries.
ITT Hellas A. E., Athens.
Standard Electric Iran AG, Tehran.
Fabbrica Apparecchiature per Comunicazioni Elettriche Standard S.p.A.,
Societa Impianti Elettrici Telefonici Telegrafici c Costruzioni Edili S.p.A., Florence.
ITT Domel Italiana S.p.A., Milan.
Internationale Gas Apparaten N.V., Utrecht.
Nederlandsche Standard Electric Maatschappij N.V., The Hague.
ITT Nigeria Ltd., Lagos.
Standard Telefon og Kabelfabrik A/S, Oslo.
Standard Electrica, S.A.R.L., Lisbon.
REPUBLIC OF SOUTH AFRICA
Standard Telephones & Cables (South Africa) (Proprietary) Ltd.,
Supersonic Africa (Pty) Ltd., Bulawayo.
Compania Internacional de Telecomunicacion y Electronica, S.A., Madrid.
Compania Radio Aerca Martitima Espanola, S.A., Madrid.
Standard Electrica, S.A., Madrid.
ITT Norden AB, Solna.
Standard Radio & Telefon AB, Barkarby.
Intel S.A., Basle, ITT Standard S.A., Basle.
Standard Telephoen et Radio S.A., Zurich.
Muller-Barbieri AG, Wettswil.
Steiner S.A., Berne.
Standard Elektrik ve Telekomunikasyon Ltd., Sirketi, Ankara.
Cannon Electric (Great Britain) Ltd., Basingstoke.
Creed and Company Ltd., Brighton.
ITT Industries Ltd., London.
Maclaren Controls Ltd., Glasgow, and other subsidiaries.
Standard Telephones & Cables Ltd., London.
Standard Telecommunication Laboratories Ltd., London, and other subsidiaries.
Supersonic Radio Zambia Ltd., Livingstone.
FAR EAST AND PACIFIC
MANUFACTURING -- SALES -- SERVICE
Cannon Electric (Australia) Pty. Ltd. (50 percent interest), Melbourne.
Standard Telephones & Cables Pty. Ltd., Sydney.
ITT Australia Pty. Ltd., Brisbane and other cities.
ITT Far East & Pacific, Inc. (branch), Hong Kong.
ITT Far East Ltd., Hong Kong.
Transelectronics, Ltd., Hong Kong.
ITT Far East & Pacific, Inc. (branch), New Delhi.
ITT Far East & Pacific, Inc. (branch), Tokyo.
Standard Telephones & Cables Pty. Ltd. (branch), Upper Hutt, Wellington.
Globe-Mackay Cable & Radio Corp., Manila (unit of ICO group,
ITT Phillippines, Inc., Makati, Rizai.
INTERNATIONAL COMMUNICATIONS OPERATIONS
American Cable & Radio Corp., New York.
All America Cables & Radio, Inc.
Commercial Cable Co., The.
Globe-Mackay Cable & Radio Corp.
ITT All America Communications -- Caribbean, Inc.
ITT Cable & Radio, Inc. -- Puerto Rico.
ITT Communications, Inc. -- Virgin Islands.
ITT World Communications Inc.
Press Wireless, Inc.
Companhia Radio Internacional do Brasil, Rio de Janeiro.
Compania Internacional de Radio, Boliviana, La Paz.
Compania Internacional de Radio, S.A., Buenos Aires.
Compania Internacional de Radio, S.A., Santiago.
Cuban American Telephone & Telegraph Co. (50 percent interest), Havana.
Radio Corp. of Cuba, Havana.
FINANCIAL AND OTHER SERVICES
Alexander Hamilton Life Insurance Co., Denver, Colo.
American Universal Life Insurance Co., St. Louis, Mo.
Hamilton Management Corp., Denver, Colo.
ISE Finance Holdings S.A., Luxembourg.
ITT Avis, Inc., Garden City, N.Y.
ITT Financial Services Inc., New York N.Y.
Great International Life Insurance Co. (50 percent interest), Atlanta, Ga.
International Telephone & Telegraph Credit Corp., New York, N.Y.
ITT Aetna Finance Co., St. Louis, Mo.
Kellogg Credit Corp., New York, N.Y.
INTERESTS (MINORITY AND OTHER) AND ASSOCIATE LICENSEES
Austral Standard Cables Pty. Ltd., Melbourne.
Lignes Telegraphiques et Telephoniques, Paris.
Societa Italiana Reti Telefoniche Interurbane, Milan.
Nippon Electric Co., Ltd., Tokyo.
Sumitomo Electric Industries, Ltd., Osaka.
Marconi Espanola, S.A., Madrid.
THE WORLD OF ITT
NORTH AMERICA [FN1]
FN1 Includes Central America and Caribbean.
10 million square feet.
EUROPE, MIDDLE EAST, AFRICA
23,300,000 square feet.
1,100,000 square feet.
FAR EAST AND PACIFIC
800,000 square feet.
35,200,000 square feet.
Sales representatives in most countries.
DISSENTING STATEMENT OF COMMISSIONER KENNETH A. COX
I dissent to the approval of the transfer-merger transaction here in question.
I concur substantially in the views of Commissioners Bartley and Johnson. I will have a statement at a later date setting forth my views at greater length.
[On February 1, 1967, in connection with the Commission's action granting leave to the Department of Justice to file an additional showing in this proceeding, Commissioner Cox issued a separate statement. In concluding that statement, he said: 'In view of the further developments in this matter, I do not propose to issue the statement 'setting forth my views at greater length' which my dissenting statement attached to the memorandum opinion and order of December 21, 1966, indicated I was planning to write. I do not think it would serve a useful purpose at this point, and I hope that there may be no need further to expound the differences that separated us last December.']
TABLE OF CONTENTS AND OUTLINE
TABULAR OR GRAPHIC MATERIAL SET FORTH AT THIS POINT IS NOT DISPLAYABLE
PREFATORY NOTE TO REVISED EDITION
It is useful to provide a brief history of this case and explanation for the existence of a 'revised opinion.'
ITT and ABC filed their applications for approval of their merger on March 31, 1966. On July 20, 1966, the Commission requested information of the parties which was provided July 25, 1966. On August 18, 1966, the Commission ordered an 'oral hearing' to be held September 19, 1966.
The hearing was held September 19 and 20, 1966. The Commission announced its decision and issued majority and three dissenting opinions on December 21, 1966. Thus, it is unrealistic to say the individual Commissioners had more than approximately 90 days within which to consider the full record. And that time was further limited by two additional significant exchanges: The request for additional information about foreign operations, and the investigation by the Assistant Attorney General (Antitrust), U.S. Department of Justice.
The three dissenting Commissioners requested information regarding ITT's foreign operations on November 2, 1966, which was filed November 17, 1966.Because the answers were not fully responsive Commissioner Cox and I (Commissioner Bartley being out of the city at the time) filed an additional request on November 23, 1966, which was answered December 8, 1966. Although the answers were somewhat evasive, as discussed in this opinion in part I, A, infra, they were not skimpy. The replies totaled some 1,785 pages, and would have taken considerable time to thoroughly examine, evaluate, and follow up. Only 13 days passed from the time the second reply was received until the Commission decision and opinions were first issued.
Even more serious were the implications of the information provided us by the Assistant Attorney General (Antitrust). This correspondence is in letters of Chairman Rosel H. Hyde of June 8, 1966, June 30, 1966, and October 25, 1966, and Assistant Attorney General (Antitrust) Donald F. Turner of June 21, 1966, July 27, 1966, November 3, 1966, and December 20, 1966. The antitrust implications of this case are discussed more fully in the opinion in part II, B, infra, and the Hyde-Turner exchange of correspondence in part I, A, infra. A factually detailed and analytical letter was received by the Commission from Turner on December 20, 1966. The Commission's receipt of this letter after close of business on Tuesday, December 20, 1966, and its resolution of this case the following day is mentioned in part I, A, infra.
As I indicated in my dissenting statement of December 21, 1966, I was not only 'simply stunned and bewildered' at the majority's willingness to issue its opinion that Wednesday afternoon, but was also thereby precluded from releasing anything other than a draft opinion not in final form. I indicated that 'I will undoubtedly need to issue a subsequent revised version of my opinion as I had not originally intended to publish this draft in this form.'
This opinion now represents the promised 'revised version' of the December 21 draft. How has it been changed? The changes represent in largest measure merely the addition of documentary material in footnotes (with some minor additions to text) which I had gathered and intended to include in the next working draft of what was released as the December 21 dissenting opinion. Although I have not hesitated to correct those stylistic errors that have been detected, I have not modified the tone of the original opinion for two reasons. As written, the language portrays with greatest accuracy my feelings and reasoning at the time. It was relevant to the decision on that day, and I suspect it should be left to provide whatever relevance it may to those who reexamine this case years from now. Secondly, the original opinions of the majority and dissenting Commissioners were widely read and reported at the time. Changes now would be somewhat confusing to those comparing the two drafts. Accordingly, as much of the original language as possible has been retained, and as little as possible has been added to the text. Especially has the opinion not been modified to reflect the major events in the case which have occurred since December 21. Those have been, and will be, given appropriate treatment in the subsequent opinions of this Commission. In some instances footnote material is more current than December 21, 1966, but only when it is generally supporting and illustrative, timeless, and does not relate to the details of this case.
I. SUMMARY AND INTRODUCTION
My divergence from the path of the majority in this case is so fundamental that I feel compelled not only to offer a relatively substantial analysis of the merits, but to preface it with a few words of explanation and summary.
The majority opinion contains a thorough statement of the procedural detail of the case (such as when pleadings were filed and hearings held), and I will not repeat it. It is sufficient for my purposes to characterize generally the case before us.
The Communications Act of 1934 vests this Commission with responsibility for evaluating, among other things, all proposed transfers of title to licensed broadcast properties. No broadcasting station license can be transferred, assigned, or disposed of without our permission. Our refusal prohibits the transfer. In passing upon applications for transfer the act provides that we must consider whether 'the public interest, convenience, and necessity will be served thereby.' [FN1] Unless we can make such a finding the application for transfer must be denied.
The present case, characterized as a merger of International Telephone & Telegraph Corp. (ITT) with the American Broadcasting Cos., Inc. (ABC), comes before us because of the transfer provisions of the act. Under the merger agreement ABC will transfer title of its 17 radio and television stations to an ITT subsidiary. Ironically, the properties of greatest public significance, the ABC network and its affiliated stations, are not licensed property of ABC, and thus come within our jurisdiction only by virtue of their relation to the ABC- owned-and-licensed stations. [FN2] In order to approve the merger, the Commission must find that the transfer of the 17 ABC-owned stations to ITT will serve the public interest, convenience, and necessity. [FN3]
A. THE MAJORITY'S PROCEDURAL APPROACH WOULD HAVE BEEN GENERALLY QUESTIONABLE IN ANY CASE, BUT HAS BEEN ESPECIALLY SO IN LIGHT OF THE SIGNIFICANCE OF THIS MERGER
It is deeply relevant to note at the outset that this particular transfer of broadcasting properties is the largest in history, and the largest this Commission is apt to encounter for some time to come. What is the Commission's role and responsibility in such a case? My disagreement with the majority over the answer to that question is far more fundamental than any differences with regard to the merits. For the majority's treatment of this case, in my judgment, makes a mockery of the public responsibility of a regulatory commission that is perhaps unparalleled in the history of American administrative process.
From the time the merger application was first filed, the outcome of this case has been a foregone conclusion. At one point no hearing at all was to be held. [FN4] Then, as a compromise to Commissioner Bartley's insistence on 'a full evidentiary hearing,' the Commission proposed an unprecedented, bobtailed 'oral' hearing. [FN5] It was anticipated the Commission would merely meet informally en banc with the principals of ABC and ITT and hear their side of the case. Only the questioning of the three dissenting Commissioners extended the case to a scant 2 days. The questioning of 3 of the 4 Commissioners in the majority occupied scarcely 11 full pages in the 607-page record. [FN6] The fourth Commissioner's questioning was directed principally toward discrediting an FCC staff member, and assisting ITT counsel's effort to demonstrate the absence of any possible antitrust implications of the merger. [FN7]
The most notable peculiarity of the 'oral hearing' was the total absence of any party whatsoever representing the public. There were no intervenors. [FN8] (Indeed the absence of intervenors is sometimes read by the Commission as evidence that the public interest coincides with the economic interest of the applicant. Needless to say, I do not abide such logic.) [FN9] More shocking, participation by FCC staff was barely evident. One employee of the Broadcast Bureau presented a very brief recitation of some issues that should be of relevance to the Commission. [FN10] Most had already been noted by Commissioner Bartley in his dissent to the 'oral hearing' procedure. [FN11] There was no cross-examination by the staff of a single spokesman for the applicants. There were no witnesses whatsoever presented by the staff. The applicants came with able lawyers, economists, businessmen, and distinguished citizens. [FN12] The Commission had none.
To say that the individual Commissioners attended the hearing to represent the public is to totally miscomprehend the administrative process at this Commission. A Commissioner has but one legal and one engineering assistant. Between them they must pass upon a caseload that last year produced 3,030 pages of printed opinions, attend numerous meetings and hearings, and otherwise attend to the awesome business of Government involvement in this Nation's communications system -- a system which includes, in addition to the American broadcasting industry, such matters as telephones, satellites, microwave, and mobile radio. [FN13] ITT and ABC combine financial resources represented by total revenues well in excess of $2 billion annually. [FN14] It is questionable whether the entire staff of the FCC (with annual budget of $17 million) [FN15] would be adequate to deal with such corporations, even if engaged in nothing else. Clearly a single Commissioner's office is not. For that reason I make no representation that this opinion, and my own role in the hearing, are in any way adequate to serve the substantial public interest involved in this case. [FN16]
After the hearing things only got worse. I disclose no confidences when I say there has been considerable urgency within the Commission associated with the disposition of this case. There have been numerous references in the trade press to the fact that a substantial minority of this Commission has been fully prepared to decide the case without even waiting to hear from the Assistant Attorney General (Antitrust). [FN17]
Assistant Attorney General Donale F. Turner wrote FCC Chairman
Rosel H. Hyde on November 3, 1966, that:
analysis to date now indicates a sufficient possibility of significant anticompetitive effects to indicate that substantial antitrust questions
Only last evening (December 20, 1966) he advised us once again by letter that, we believe the possibilities of adverse effects are significant enough that we should call them to your attention, and that they deserve full and serious consideration by the Commission in making its determination whether, in light of these and other pertinent factors, the acquisition of ABC by ITT would serve 'the public interest, convenience, and necessity.' [FN19]
single-spaced letter thoughtfully presents facts and analyses
substantially at variance with the evidence presented to this
Commission and, if true, leaves the majority's opinion in shreds. [FN20] I am simply stunned and bewildered that the majority of this Commission could receive such a letter after 6 p.m. one evening and resolve a case of this magnitude before 10 a.m. the next morning.
I would think it appropriate to at least read Turner's letter slowly. Having done so, it seems to me essential that this Commission consider the information the Department of Justice apparently has available to it. Obviously, the majority has prevented that possibility. Accordingly, I simply set forth the Assistant Attorney General's letter in full as an appendix to my opinion. [FN21] Matters raised by the Department of Justice were not the only areas where information was clearly lacking. After cursory investigation it became obvious that the record was woefully inadequate with regard to ITT's foreign operations. [FN22] When it was suggested that the Commission might write the applicants for additional information, the present majority actually refused to sign the letter which was sent. [FN23]
Substantial quantities of information were filed in response (although partly evasive of the questions asked). [FN24] Again questions were posed (again over the majority's abstention), [FN25] and again quantities of information were supplied. [FN26] None of us has had adequate opportunity to consider this bulky material -- most recently received on December 8, 1966 -- any more thoroughly than the issues underlying last evening's letter from the Assistant Attorney General.
Why this rush? Surely it is praiseworthy for an agency to attempt to dispose of its workload expeditously, especially an agency that is repeatedly cited as an example of delay and indecision. [FN27] No one would defend processing cases for 5 and 10 years, though examples of such abound at the FCC. [FN28] But on what grounds can one charge delay by such an agency for taking more than 90 days to dispose of the largest case in its history?
And now the majority's opinion is bathed in public light. Reading it one is prompted to ask if those four Commissioners even believe the merits relevant to their decision. I make no brief for the analysis the merits relevant to their decision. I make no brief for the analysis I have attempted to provide in this dissenting opinion. But at least I have attempted to identify issues and bring some rational analysis to bear. The Commission's opinion seems to me to have forsaken any such attempt.
The majority appears to be saying that a merger serves the public interest unless individual Commissioners are willing and able to bear the burden of coming forward with evidence, and proof, that it does not. (Indeed, on occasion during the hearing, the applicants were almost hostile in their suggestion that Commissioners were acting with impropriety in even questioning the public benefits from the merger unless armed with proof that potential evil would become reality.) [FN29] The majority appears to believe that some disservice to the public interest can be tolerated if it is not too severe.
Let me simply note briefly my disagreement with such propositions, for within these differences may lie some basis for logical understanding of the very wide variance between my approach and that of the majority.
Congress has provided that, 'No * * * station license * * * shall be transferred * * * except * * * upon finding by the Commission that the public interest, convenience, and necessity will be served thereby.' [FN30] I believe such language contemplates that some transfers would not serve the public interest. I believe such language presumes that this Commission must seek and examine evidence that the public interest will be served by a given transfer. I believe the burden of coming forward with such evidence is on the applicants. I believe the burden of proof is on the applicants. I believe that without such evidence a proposed merger must be disapproved. I believe credible evidence of probability that the public interest will be disserved by a merger precludes our finding that it serves the public interest.
If these assumptions be accepted, then the dissent which follows flows logically. If they be rejected, much of my opinion falls. In it the following arguments, here summarized, are expounded and documented at greater length.
B. THE MAJORITY'S SUBSTANTIVE ANALYSIS FAILS TO TAKE ACCOUNT OF THE ABSENCE OF EVIDENCE TO SUPPORT THE APPLICANTS' CASE, AND THE SUBSTANTIAL EVIDENCE OF PROBABLE HARM TO THE PUBLIC INTEREST
The merger was conceived in pursuit of personal and corporate interests wholly unrelated to the public interest. [FN31] ABC President Goldenson wished to retain control of a corporation threatened by a dissident minority. The value of his personal stockholdings has increased by about $3 million since the merger was announced. [FN32] ITT President Geneen sought to promote further growth through acquisition, and favored American corporations over foreign because of the present foreign-American balance in ITT's holdings. Prior to its merger with ABC 60 percent of ITT's income was from foreign sources.' [FN33] ABC will be one of ITT's largest subsidiaries. [FN34] Such motivations are, of course, not necessarily inconsistent with serving the public interest in American broadcasting. But this explanation certainly puts the case for 'the public interest' in unique perspective. And presumably no one would contend that these reasons, taken alone, are adequate to sustain the majority's approval of the merger.
The public interest in broadcasting will be significantly harmed by the merger. It will place one of the largest purveyors of news and opinion in America under the control of one of the largest conglomerate corporations in the world, a company that derives 60 percent of its earnings from foreign sources and 40 percent of its domestic income from defense and space contracts. [FN35] The possibility that the integrity of the news judgment of ABC would be affected by the economic interests of ITT is a real threat, without regard to the character of the present management of ITT and ABC and their protestations that no possibility of harm exists. ITT's economic interests are daily affected by what American citizens know and think about what is going on in their country and the world. Moreover, to permit ITT to take over ABC tends to inhibit competitive forces in the broadcasting business. [FN36] It permits self-serving understandings between ITT's subsidiaries and ABC's advertisers. [FN37] It removes ITT as a potential owner of a new network or broadcast properties not associated with a network. It makes it more difficult for a fourth network to come into existence. It tends to remove ABC as a party of protest to the international communication common carrier rates charged by ITT.
These reasons, standing alone, should leave little doubt in anyone's mind that the merger should not receive a blithe imprimatur from this Commission.
But there is another side to this case. The parties' side. What have ITT and ABC argued in support of the 'public interest' served by the merger? Does it make sense?
The principal argument of the applicants, and the majority, is
that the merger will permit ABC to become a stronger, more competitive network.
[FN38] Each proposition advanced in support of this argument, however, simply
fails to withstand analysis. ABC is substantially competitive with the other
two major networks today. To the extent it is not, the evidence supports the
view that the public is benefited by ABC's more innovative programming, not
harmed. Certainly no one offered any evidence that ABC's programming is
inferior to that of CBS and NBC -- quite the contrary. The company is in good
shape financially. Its earnings continue to increase. It has plans for
expansion -- made before proposal of the merger, and perfectly capable of
execution without assistance from ITT. Moreover, ITT has made no specific
commitment of funds to ABC. Indeed, Turner has advised the Commission that,
ITT's estimates indicate that ABC's earnings growth rate over the next 5 years would be 16 percent. More importantly, it was anticipated that after capital expenditures and debt repayment, and assuming ABC continues in third place, it would yield a cash flow approaching $100 million between 1966 and 1970, almost all of which was thought by ITT to be available for reinvestment outside the television business. [FN39]
But most fundamental is that, to the extent ABC is not fully competitive, the reasons lie wholly in the number and competitive position of its affiliated stations. The merger can in no way affect that fact. The growth of UHF television can -- and will.
Thus, even ignoring the substantial public detriment that will be caused by this merger, the Commission is not warranted in approving it in my judgment. The applicants have simply failed in sustaining their burden of proving that at least some public benefit will be derived from their merger.
And so I am brought to the substance of my dissent. But before I begin my analysis of the merits I wish to add one final word. That feelings about this case run high is obvious -- and irrelevant to my evaluation of the issues. I think highly of both Geneen and Goldenson, the presidents of ITT and ABC. Each has rightfully made a reputation for himself as one of the ablest men in American business today. We are fortunate to have them. I think it probable America would be more benefited from their continued individual than from their new-found collective talents. We shall see.
II. THE PARTIES SEEK TO MERGE FOR SELF-SERVING ECONOMIC AND PERSONAL REASONS UNRELATED TO SERVING THE PUBLIC INTEREST IN BROADCASTING
International Telephone & Telegraph Corp. is a sprawling international conglomerate of 433 separate boards of directors. [FN40] Its 1965 revenues of $1,782,939,000 make it 30th of the industrial corporations of the United States. Its net income that year was $76,110,000. [FN41] Its 200,000 employees -- over 130 times the size of the entire Federal Communications Commission, Washington and field staff -- make it fifth among U.S. industrial corporations and ninth in the world in size of work force. [FN42] ITT has significant holdings in at least 40 countries [FN43] and derives approximately 60 percent of its revenues from foreign sources. [FN44] It owns and operates the telephone companies in all of Chile, Puerto Rico, and the Virgin Islands, and in Lima, Peru, and the state of Parana, Brazil. [FN45] A great part of its foreign income comes from the sale of electronic and telecommunication equipment to foreign governments. [FN46]
Forty percent of ITT's U.S. revenues derives from Federal Government defense and space contracts. [FN47] But ITT also owns several consumer finance companies, life insurance companies, an investment fund, a small loan company, and numerous electronics research and manufacturing subsidiaries. [FN48] As a leading international common carrier, the company owns 10.5 percent of the shares of the Communications Satellite Corp. [FN49] (making it the second largest shareholder after the American Telephone & Telegraph Co.), and it elects two of the Comsat directors. ITT owns ITT Avis, Inc. (a car rental company), [FN50] and has acquired a sizable book publisher. [FN51]
The American Broadcasting Co., Inc., was literally born of this Commission's concern for 'the fuller use of the radio as a mechanism of free speech.' [FN52] The Radio Corp. of America (RCA) had owned two networks, the Red and the Blue. As a result of the FCC's chain broadcasting rules of 1941, the Blue Network Co., created by the National Broadcasting Co. (NBC) in 1927, was offered for sale. [FN53] It was purchased by Edward J. Noble in 1943 for $8 million, and Noble's 'American Broadcasting Co.' began. [FN54]
The ABC network was immediately confronted with competition from the Columbia Broadcasting System (CBS) and NBC -- its rivals still. It began with but two stations and partial ownership of a third. [FN55] Here is how ABC has summarized its first 8 years (1943-51):
In short, in its first 8 years as an independent network, ABC increased its owned and operated facilities from 2 1/2 AM stations in three cities to 4 1/2 AM stations in five 'key' cities, having in the meantime improved its AM facilities in New York (by a change of transmitter site) and in San Francisco (by a sevenfold increase in power). It had become the licensee of FM and TV stations in those five same markets. It had increased the number of its AM affiliates from 168 to 298, the number of FM affiliates from 0 to 59. During this same period the company made capital outlays totaling $17,500,000. The number of employees had almost quadrupled -- increasing from 715 to 2,531.
From a total of $18,819,988 in 1943, the net sales of the company increased to $53,347,501 for the first 11 months of 1951. [FN56]
Despite this creditable rate of growth, ABC proposed to merge with United Paramount Theatres in 1951, and finally effected the merger in 1953 with the Commission's approval. [FN57]
American Broadcasting Cos., Inc. (ABC), is the result of this 1953 merger between Paramount and the American Broadcasting Co. ABC now owns 399 theaters in 34 States, 5 television stations, 6 AM and 6 FM stations (all in the top 10 broadcasting markets) and, of course, 1 of the 3 major television networks and 1 of the 4 major radio networks in the country. [FN58]
Today with its domestic television network facilities and its 137 primary television affiliates, ABC is capable of beaming an aural and visual message to 93 percent of the 50 million television homes in this country. Its radio network can reach 97 percent of the 55 million homes in the United States with radio receivers. [FN59]
ABC's broadcasting and programming interests are not limited to this country. It has a wholly owned subsidiary which acts as programm purchasing and sales representative for foreign stations. ABC has interests and associations with stations in 25 nations, known as the 'Worldvision Group,' including 11 Latin American countries, Australia, Canada, Japan, Lebanon, the Netherlands, Okinawa, and the Philippines. [FN60] A wholly owned subsidiary of ABC, ABC Films, distributes filmed television programs to stations, networks, and advertisers on a local, regional, or national basis, and abroad. [FN61]
ABC is in the record business, in the United States and abroad, through its wholly owned subsidiary ABC-Paramount Records. After all the subsidiaries are accounted for there are six labels (Command, Grand Award, Impulse!, Music Guild, Westminster, and White-hall), a record distributor, a recording studio, a record pressing plant, and music publishers. [FN62]
Subsidiaries of ABC publish 3 farm papers, each over 100 years old, with combined circulation of 800,000: Prairie Farmer (Chicago), Wallaces Farmer (Des Moines), and Wisconsin Agriculturist (Racine). [FN63]
In 1965 ABC had total revenue of $476,500,000, of which $361,600,000 came from broadcasting. Its total before-tax net income for 1965 was $28,900,000, up from $22,200,000 in 1964. [FN64]
These are capsule descriptions of the breadth of interests encompassed in the two parent companies which come before this Commission seeking approval for their merger. [FN65]
It should not be surprising that the parties reached a decision to merge based on their own private interests. Serving their own interests is by no means inconsistent with their also serving the public interest. But the burden of establishing that what serves their own interest will also serve the public interest is obviously placed on the parties by the Communications Act. [FN66]
There is a history to the merger proposal which goes a long way toward explaining the private interests which the parties are attempting to serve. It provides a valuable perspective with which to view both the proposed merger and the claims made to the Commission by the parties. [FN67]
Since its inception about 45 years ago ITT has been largely a holding company for foreign telephone equipment and operating companies. [FN68] In 1959 Harold Geneen was selected as president by the ITT Board. Geneen immediately launched the company on a policy of growth, principally through acquisition, with the stated goal of doubling sales and earnings within 5 years. That goal was reached, and the policy of growth through acquisition has continued unabated. There can be little doubt that the success of the policy has been due largely to the personal qualities of Geneen. He 'eliminated much of the autonomy of ITT's operating managers, and replaced it with a control system tautly run from New York headquarters.' [FN69]
One of the aims of ITT's acquisition policy has been to redress the imbalance in its income from foreign and domestic earnings. [FN70] Thus, many of the acquisitions since Geneen became president have been U.S. companies. [FN71] The proposed merger with ABC is simply the latest and most ambitious of such purchases.
ABC's merger-mindedness has an even more interesting history. In March 1964 it was reported that Norton Simon, prominent industrialist and art collector, had acquired control of 100,000 shares of ABC stock. [FN72] Simon was reportedly interested in a seat on the ABC Board of Directors, but Goldenson, president of ABC, was opposed to any such ambitions of Simon. [FN73]
By April of 1964 another group had acquired a large block of ABC stock, and the ABC Board was moved to take defensive action.
The board of directors of the American Broadcasting Co. took unusual steps tonight to thwart what it called two 'special groups' trying to gain a voice in the conduct of the network's affairs.
By unanimous vote, the board decided to recommend to the company's stockholders that the corporation's charter be amended to eliminate cumulative voting in the election of directors. [FN74]
At a special meeting on May 19 the shareholders of ABC voted to end cumulative voting in compliance with the Board's recommendation. [FN75]
Despite the defensive action of the corporation, Simon's pursuit of ABC stock continued. By July of 1965 Simon was reported to control 400,000 shares, about 9 percent of the outstanding ABC stock, and the largest single block controlled by any one person. [FN76] There was speculation that a battle for control of the ABC entertainment complex might be in the offing. Wall Street circles familiar with ABC management's thinking asserted flatly that the company was determined not to let Simmon in the corporate door short of his acquisition of 51 percent of the stock. [FN77]
In February of 1966 ITT and ABC entered into a merger agreement. But news of the merger had broken earlier. The New York Times reported in December 1965:
Many trade sources and Wall Street observers interpreted the merger proposal as one way for Leonard H. Goldenson, president of ABC, to avoid a showdown with Simon in their continuing battle for control of ABC. * * *
One reliable source indicated that ABC had made 'overtures' to I.T. & T. sometime in 1964. This would coincide with the reported entry of Simon into the picture. [FN78]
The merger agreement provided for continuation of the ABC management and board, but dissident ABC shareholders found their influence was to be greatly diluted as holders of small proportions of the stock in a much larger company. That ABC's management viewed the merger at least partially as a defense against dissident stockholders became clear during the hearing before the Commission. In answer to whether the stockholdings of Simon accelerated ABC's interest in merger with ITT, Goldenson said, 'Not Simon specifically, but any minority stockholder who would try to take a position to place pressures upon us.' [FN79]
Thus did the expansion-minded conglomerate and the shareholder-shy entertainment complex find their way to this Commission, seeking approval of their proposed merger. This brief history of press comment on the events leading up to the merger becomes all the more interesting in light of the strained case which the parties made in attempting to justify their union as promoting the public interest.
III. THE MERGER SUBSTANTIALLY HARMS THE PUBLIC'S INTEREST IN
IMPARTIAL SOURCES OF INFORMATION, AND IN ECONOMIC COMPETITION
A. ITT'S FOREIGN AND DEFENSE INTERESTS ARE POTENTIALLY IN CONSISTENT
INTEGRITY OF ABC'S NEWS REPORTING
The principal danger which inheres in this merger is not difficult to comprehend. Even the majority recognizes it. [FN80] It is the potential conflict of interest between the business interests which comprise ITT and ABC's broadcasting responsibility to the public, especially in news and public affairs.
The ITT system represents a unique mixture of foreign interests and domestic companies involved in defense and space work. It is probably the outstanding example of an American corporation with inherent structural impediments to the wholesome, independent operation of a radio and television network and 17 broadcasting stations.
Congressional concern with foreign involvement in American broadcasting companies is strongly evidenced in the Communications Act of 1934. Section 310(a) provides:
The station license required hereby shall not be granted to or held by --
(1) Any alien or the representative of any alien;
(2) Any foreign government or the representative thereof;
(3) Any corporation organized under the laws of any foreign government;
(4) Any corporation of which any officer or director is an alien or of which more than one-fifth of the capital stock is owned of record or voted by aliens or their representatives or by a foreign government or representatives thereof or by any corporation organized under the laws of a foreign country;
(5) Any corporation directly or indirectly controlled by any other corporation of which any officer or more than one-fourth of the directors are aliens, or of which more than one-fourth of the capital stock is owned of record or voted after June 1, 1935, by aliens, their representatives, or by a foreign government or representative thereof, or by any corporation organized under the laws of a foreign country, if the Commission finds that the public interest will be served by the refusal or the revocation of such license. [FN81]
In fact, the irony in today's decision fairly seethes when one realizes that the congressional hearings on the 1934 Communications Act reveal that section 310(a) was the product not alone of legitimate generalized concern. It was aimed at one company in particular: International Telephone & Telegraph -- the very company which now seeks to control ABC. [FN82]
Of course, ITT as presently constituted does not technically come within the prohibition of section 310(a). It no longer has the foreign officers and directors that it had in 1934. However, ITT's involvement in foreign countries is very extensive now, just as it was in 1934. The rationale behind the section 310(a) prohibition is fully as applicable to a company that earns 60 percent of its income from foreign subsidiaries managed by aliens, or otherwise deeply involved in foreign affairs, as by a company whose board is partly composed of alien directors. Moreover, although no officers of the parent holding company, ITT, or members of its board, are aliens, a very large percentage of the officers and directors of its foreign subsidiaries are not American citizens. [FN83] This truth comes even closer to the letter, as well as the spirit, of section 310(a) than the foreign earnings. The involvement of these officers and directors in other foreign business ventures is too extensive to begin to document thoroughly. [FN84] But a hint of the involvement of ITT officials in foreign affairs is conveyed by the fact that three of them are members of foreign legislative bodies, two of the British House of Lords and one of the French National Assembly. Another is a former premier of Belgium. And several have positions with ministries of foreign governments or as officials of government-owned industries. [FN85] Three directors of the Chilean telephone subsidiary are appointed by the Chilean Government, and that number will increase progressively until 7 members of the 15-man board are appointed by the government. [FN86]
ITT is bound by contract, once approved by the Chilean Congress, to sell 49 percent of the stock in the telephone subsidiary to the government and other Chilean interests. In fact, the government of Chile retains an option to acquire the entire company if it so desires. One of the stated objectives in the contract is to 'Determine, in the telecommunications filed, joint areas of action and procedures of execution to insure the due coordination of Chitelco's (the ITT subsidiary's) plans with the State's policy and plans on the matter.' [FN87] ITT owns 13 percent of the shares of Indian Telephone Industries, Inc., of which the Indian Government owns more than 75 percent. [FN88] ITT is bound by a 1964 contract with the Indian Government not to transfer any of its Indian telephone stock to 'a resident of India' or 'a resident of any country not then politically acceptable to the government [of India].' [FN89] ITT owns 20 percent of a French telecommunications research company of which the French Government is the majority stockholder, and 5.5 percent of a Swedish company in which the Swedish Government is a 50-percent stockholder. [FN90]
Such examples are provided merely to illustrate the character and depth of ITT's close involvement with the governments of foreign countries. They do not begin to exhaust the matter. Any company which derives 60 percent of its income from foreign sources, and has subsidiaries in more than 40 countries, obviously will develop an almost unlimited number of relationships and responsibilities in those countries.
Certainly ITT is aware, even if a majority of this Commission is not, that such an international corporation must involve itself closely in the affairs of foreign governments. At the last annual stockholders meeting, ITT's president reported,
On all fronts today, ITT is expanding its activities and responsibilities. We now employ over 200,000 persons in more than 50 countries, representing an extensive involvement and responsibility in the economies and societies of the countries in which we operate. [FN91]
ITT is mindful that it is not always treated hospitably by the
countries in which it operates. At the
1962 stockholders' meeting, President Geneen noted
proudly that ITT, has in its time met and surmounted every device employed by governments to encourage their own industries and hamper those of foreigners, including taxes, tariffs, quotas, currency restrictions, subsidies, barter arrangements, guarantees, moratoriums, devaluations -- yes, and nationalizations. [FN92] Nevertheless, the company has often aroused the enmity of foreign governments and peoples. There were riots directed against ITT in Spain in the early 1930's. [FN93] ITT property has been expropriated in eight countries, including Brazil. [FN94] When the Brazilian state of Rio Grande do Sul ordered confiscation of the ITT-owned telephone company in February 1962 the expropriation decree revealed the great bitterness which ITT and its subsidiary had aroused in the state. [FN95]
It is irrelevant to my purpose to suggest that ITT is always, or even ever, at fault when it becomes embroiled in international affairs. Most of the expropriations of its property have been by Communist states, and were part of wholesale confiscations.
The point is simply that a company with interests like those of ITT necessarily will find itself involved in relations and conflicts with foreign governments.
Nor are ITT's problems in this respect a thing of the past. Only 2 weeks ago, there were reports of the almost unanimous opposition of the Peruvian Senate to an increase in telephone rates negotiated by the ITT-owned telephone company and the government of Peru. The report noted:
For many years, the company has been the target of nationalistic elements opposed to foreign ownership of local utilities. This hostility has been increased by public resentment over the company's failure to improve its inadequate service. [FN96]
In pursuing its business operations in these foreign countries, ITT
endeavor to affect the course of political and economic events in
foreign countries. [FN97]
Policies of the U.S. Government are of no loss concern to ITT, because of the effects they may have on ITT's foreign investments. At annual meetings of ITT's stockholders reports often are given on foreign affairs. In 1964, doubtless referring to the aftermath of the Brazilian expropriation, when ITT was able to exact much better terms of compensation than were originally offered, President Geneen told the gathering:
* * * during the year 1963 the security of all our operations in underdeveloped countries was considerably strengthened by better government-to- government understanding on the part of our own Government and the governments of other countries, particularly in Latin America.
Recent events in Brazil have dramatically supported an improving turn of events there, and I draw your attention to the significance of President Johnson's recognition of the new Brazilian Government, in line with what may well be known in the future as the 'Mann Doctrine,' after our Assistant Secretary for Latin American Affairs, who recommended it. * * *
Finally, there is the very important basic policy of the U.S. Government, expressed by Congress in the Hickenlooper amendment to the AID program, which has increasingly aligned the U.S. Government with those countries that show integrity in their handling of invested properties of the U.S. shareholders. [FN98]
That ITT has been very active in advocating self-serving policies to
our Government was quite clear. Geneen said,
I think anybody [who] knows of our activity over the past few months knows that we have been foremost in fighting for what we feel is the principle of private investment all over the world, not just for ITT's asserts. [FN99]
At the 1963 annual meeting, Geneen gave ITT's management a large part of the credit for the Hickenlooper amendment, 'which is the finest possible reassertion of the historic policy of the United States Government to back and to take strong steps to support the rights of its citizens in Latin America and other foreign areas.' [FN100] He said of the 1962 tax bill that ITT 'and its management were probably the most active and effective group in having the proposals amended to assure continued freedom to U.S. foreign competition abroad.' [FN101]
One rather start example of the very great interest which ITT has in U.S. Government foreign policies is provided by a breakdown of assets by countries, which ITT submitted to the dissenting Commissioners. Of ITT's total net assets 5.8 percent consists of 'U.S. dollar AID guaranteed financing for Chilean utilities.' 102 To say the least, ITT has a very great stake in maintaining this guaranteed financing by the Agency for International Development and in encouraging other such guarantees. [FN103]
The conflicts which necessarily arise when a company so heavily involved in foreign affairs owns a radio and television network are innumerable and continuous. Only the future can provide specific examples, but it is not difficult to imagine quite plausible possibilities.
Chile, Peru, Brazil, or India might someday wish to nationalize the telephone companies which ITT now owns in whole or in part. It has happened to ITT in the past and could easily happen again. ABC news and public affairs personnel would have to comment on the nationalization and might wish to editorialize or treat the affair at length. If one admits the possibility that such nationalizations could be put in a favorable light, the potential for conflict with ITT's economic interests is obvious.
Even less confiscatory actions, such as higher taxes, might prompt ITT to encourage retaliatory policies by the United States. ITT had done so in the past by encouraging the Hickenlooper amendment and might do so again. If the ABC news staff felt retaliation unwise, again a conflict would exist.
The number of potential conflicts is endless. One extreme but not implausible additional example might be offered. A dissident rebel movement could develop in a country where ITT had large investments. Brazil is the scene of recurrent antigovernment agitation, [FN104] and ITT is heavily engaged in that country. [FN105] Suppose ABC news wished to produce a documentary picturing the rebellion as justified, and the government of Brazil insisted that the program not be shown? Would anyone in ABC news be inclined or feel free to propose the show in the first place? Would they be able to withstand suggestions from within or without ITT that ABC news' resources might better be used on other assignments? [FN106] The added leverage which the government of Brazil could exert because of ITT's Brazilian holdings would be substantial.
If such a situation seems unlikely, one need only think of the boycotts by Arab countries of companies which do business with Israel. [FN107] In Spain, where ITT has very large holdings, [FN108] the government has been boycotting a motion picture company since 1964 because one of its movies, 'Ride a Pale Horse,' dealt with the Spanish Civil War in a manner displeasing to the government. [FN109]
With all the inherent difficulties in obtaining accurate information from abroad, why risk even the remote possibility that news judgments presented to the American people might be distorted to serve ulterior corporate economic interests? What conceivable justification could there be for Government's participation (through today's action by this Commission) in the creation of a corporation that constantly will be confronted with a conflict between its own best economic interests and the needs of our people, and our Government, for broadcasting journalism of completely unimpeachable integrity from around the world?
Foreign relations provide a dramatic but by no means exclusive source of conflict between ITT's business interests and its duties as a broadcaster.
ABC might want to run a documentary favoring the use of domestic satellites for broadcasting. (Indeed, it happens to have been ABC that first proposed such a use, leading to the FCC hearing that produced the now famous Ford Foundation proposal for financing educational television with the money saved by broadcasting via satellite.) [FN110] ITT might have opposed this proposal because of its interest in the Communications Satellite Corp.
ABC might want to criticize the high level of defense spending, or the large sums being expended in the space effort, or even present programs which discuss conflicting views. [FN111] Because of ITT's interest in both defense and space work, such positions would jeopardize ITT's economic interests.
ABC might editorially favor truth-in-lending legislation, while ITT finance subsidiaries [FN112] would presumably be opposed.
In these and countless other ways ITT, as the owner of ABC, constantly will be faced with the conflict between its profit-maximizing goals -- indeed, obligations to shareholders -- which characterize all business corporations, and the duty to serve the public with free and unprejudiced news and public affairs programming. [FN113] The issue is both whether anything damaging to ITT's interests is ever broadcast, as well as how it is presented.
History is not without examples of an obvious truth: Broadcast properties, like all other enterprises, sometimes will be used to serve ulterior ends when the opportunity arises. There are many examples -- the following two are but illustrative: (1) Officials of the Trujillo regime in the Dominican Republic were reported to have paid $750,000 to officers of the Mutual Radio Network in 1959 to gain favorable propaganda disguised as news. [FN114] (2) Philco alleged to this Commission that RCA was using NBC stations to serve its broader corporate interests. In particular, (a) NBC stations said 'a service of RCA' during station breaks; (b) NBC stations covered RCA activities as news when other stations did not; (c) color programs on NBC advised the public that RCA is the pioneer and developer of compatible color; (d) the 'Today' show emphasized its origination in RCA exhibition hall; and (e) NBC stations incorporated RC and RCA into their call letters. [FN115]
Of course, there are many threats to news integrity beyond the kind of conglomerate takeover proposed by ITT. ABC has other, potentially conflicting, business interests of its own. [FN116] The influence of advertisers on program content has been often documented. [FN117] The 'social control' of newsmen's independence has been studied. [FN118] The sociological pressures on management have been the subject of substantial theorizing. [FN119] The bias, or 'credibility quotient,' of the individual reporter is an important determinant of news accuracy. [FN120] No, I would not suggest for a moment that conglomerate ownership is the only distorting lens between the space-time events of the real world and the reports that reach our citizenry. The entire process is worthy of diagnosis and treatment. But the evils of conglomerate ownership, like preventable disease, are unnecessary. The other factors are more difficult, perhaps impossible, to control. In any event, it is the issue of conglomerate control that is before us now.
The best we can do is to try to provide as much insulation as possible for the industry's programming from extraneous economic considerations. The worst we can do is to encourage mergers like this, which expose businessmen to the daily temptation to subvert the high purpose and indispensable role of the broadcast media in a free society.
ITT officials repeatedly have assured us that there would be no interference with the ABC programming decisions. I do not doubt the present sincerity of these men. Yet, I would find not only the promises, but even their possible fulfillment, inadequate to serve the public interest. At the very least it must be obvious that these assurances are given by men -- and we are turning these broadcast properties over to corporations. The presidents of the two companies who appear before us to offer their personal assurances may be out of office tomorrow. Indeed, as we have seen, it is only because of the merger that Goldenson's position is not very precarious right now. [FN121] In any case, these officials are mortal and they will surely be gone someday when this Nation will still depend on ABC for a staggering proportion of its news and information.
As a safeguard against subversion of the broadcasting service, ITT has provided that ABC will remain autonomous for at least 3 years and that the ABC news and public affairs staff will remain independent. I might ask what happens after the 3 years. But suppose assurances had been provided that no ITT official could ever intentionally order distortion or alteration of programming to serve ITT's ends. Even such assurances would miss the mark. Subtle pressures on ABC officials to serve ITT interests cannot be eliminated by the most scrupulous adherence to formal independence for ABC and its editorial staff. ABC personnel will, on their own initiative, consider ITT's interests in making programming decisions. Institutional loyalties develop. These are often reinforced by the acquisition of stock in the employing company -- now ITT stock, not ABC. And most important, it will be impossible to erase from the minds of those who make the broadcasting decisions at ABC that their jobs and advancement are dependent on ITT. [FN122]
If ITT is like most major corporations, it spends vast sums to influence its image and its economic relations -- through advertising, public relations, and Washington representation. [FN123] I am afraid I must concede that the assurances we have been provided -- that ITT will be totally oblivious to the image created for it by its own mass media subsidiary, ABC -- simply strain my credibility beyond the breaking point. Are we to accept, on the parties' own self-serving assurances, that although ITT may continue to exert pressure as an advertiser on the programming of CBS and NBC, it will exert none as an owner on the programming of ABC? Whether it be the product of realism or cynicism I simply must part company with what I believe to be the majority's naive and unreasoning faith in the parties' 'express, positive, and binding representations as to future performance.' [FN124]
It seems elementary to me that the only real way to find adequate safeguards for the public's interest in programming integrity is to give attention to the structure of the industry, not to assurances, albeit sincere, of interested parties who may be gone tomorrow. Concern with institutional safeguards is evidenced throughout our society. The Administrative Procedure Act, which governs proceedings before virtually all administrative agencies, including this Commission, is but one example. The original determination of a disputed question of fact or policy is usually made by a hearing examiner assigned to an agency. It is vital that the examiner's decision be an independent one, uninfluenced by the members of the agency which may have to pass in review upon that decision. ACCORDINGLY, SECTION 11 OF THE APA provides:
Examiners shall be removable by the agency in which they are employed only for good cause established and determined by the Civil Service Commission (hereinafter called the Commission) after opportunity for hearing upon the record thereof. Examiners shall receive compensation prescribed by the Commission independently of agency recommendations and in accordance with the Classification Act of 1923. * * * [FN125]
In other words both the salary and tenure of hearing examiners is
determined by an entirely different agency from the one which will review the
the examiners. This is obviously a recognition of the fact that true independence of decision-making can only be achieved by institutional independence and cannot rest on 'assurances' by or to this or any other Commission. The only master which independent agencies must serve is the statute under which they operate. How much more important is this institutional independence in the case of business corporations, where loyalty is at best divided between public service and the shareholders -- with power in the latter to remove officers who do not return sufficient profits.
Rather than providing real safeguards, the majority points to unreal ones: 'eternal vigilance * * * continuing scrutiny for any indication that our reliance upon the assurances and safeguards set out on this record was not warranted.' [FN126] How many times must it be pointed out that the kinds of decisions which this merger will encourage are not susceptible to scrutiny even by the most vigilant agency. And the Federal Communications Commission has a well-earned reputation of being less tha a thoroughly vigilant agency. [FN127] One recent incident involved the renewal of station licenses held by General Electric and Westinghouse. Officials of the two companies had been convicted of criminal violation of the antitrust laws. Section 313 of the Communications Act makes the antitrust laws specifically applicable to broadcast licensees and allows a court to revoke licenses even of civil violators. [FN128] And yet the FCC renewed GE's and Westinghouse's licenses without even holding a hearing. [FN129]
If the majority could point to any significant action which this Commission has taken in the past to assure the integrity of the news I might have greater faith in its 'continuing scrutiny.' In fact the examples are rare and trivial. There is neither monitoring nor preservation of the broadcasting product. Thus, the raw data does not even exist from which to determine how licensees treated subjects which affected their other business interests should some future 'eternal vigilance' require such information. [FN130] Moreover, too close a scrutiny could be mistaken for censorship or intimidation, which our laws and Constitution forbid. [FN131] No, the only practical way to combat untoward use of broadcasting facilities by conglomerate corporate ownership is in providing the proper structure for the industry in the first place. When the majority rejects that truth it thereby effectively abdicates responsibility for this most 'vital element of broadcast service.' [FN132]
B. THE MERGER DOES NOT BENEFIT ECONOMIC COMPETITION AND MAY SERVE AS A SIGNIFICANT DETERRENT
Our antitrust laws, made explicitly applicable to broadcasting by the Communications Act, [FN133] are premised on the notion that improved products and services will result from giving full sway to the forces of free and open competition. Of course, the Commission's evaluation of the public-interest implications of a merger must go far beyond conventional antitrust law concepts. Yet no one can question that the effect on competition in broadcasting and networking should be relevant to this Commission in determining whether to approve a transfer of broadcast properties.
Obviously, it cannot serve the public interest for this Commission to approve the merger if the two companies will thereby violate the antitrust laws. But our concern is not negative; it is not enough that the merger would not violate the antitrust laws. The standard is, or should be, affirmative. Will the merger promote competition, or otherwise serve the public interest? It is not our task to sue to dissolve merged companies that do not serve the public interest. That is the responsibility of the Department of Justice. Our job is to authorize the merger of none but those companies that will promote the public interest.
The proposed merger has been pictured both by the parties and by the majority as necessary to enhanced competition among the three networks. Little attention has been given to the detriment which might be worked by the merger on competition in the network market -- the existing three-network market, and possible future markets with more competitors.
It is my view that the supposed benefits to competition are unreal or unfounded hopes, and that inhibition rather than enhancement of competition is likely to result from the merger. Indeed, in my opinion, the merger may well violate section 7 of the Clayton Act. [FN134]
1. Refinement of Concepts
Although we blithely talk of competition, a certain refinement of concepts is necessary to any meaningful discussion of the impact which this merger may have. Competition might be defined as the struggle for business in the marketplace between economic units providing reasonably interchangeable products or services. As such, this definition tells us little about what we are seeking when we foster competition. Economic warfare might possibly be waged with physical rather than economic weapons. That clearly would be undesirable. Restrictive agreements could be employed. The Sherman Act specifically disallows these. [FN135]
When we seek to foster competition what we desire is the employment of competitive means which attract the consumer from one competitor to another because the consumer prefers some aspect of the product or service. Our aim, then, is not competition as such, but the improved products and services and lower prices which are presumed to result from a competitive market.
Obviously not all competitive means can be characterized as either 'wholesome' or 'restrictive and coercive.' Advertising, at least at some point, may attract the consumer by neither improving what he receives nor lowering its price, but it is not yet thought to be restrictive, coercive, or unfair. [FN136] But for purposes of analyzing the ITT-ABC merger the fairly elementary scheme which I have outlined will suffice.
Competition among broadcasting stations and networks presents some rather unique features. For example, the various markets in which television stations compete are necessarily oligopolistic. Broadcasting signal interference places a physical limitation on the number of stations which can broadcast in any given area. As a consequence, the market of national networks is likewise oligopolistic.
Wholesome competition is, of course, most likely to thrive where there are a large number of competitors. If there is only one unregulated firm in a market -- a monopoly -- the benefits of competition will almost surely never materialize. For a monopoly, profit maximization in a given market will probably dictate higher prices and lower quality than would result from competition. [FN137] When there is only one firm in the market, naturally it will decide to maximize profits. That, simply stated, is why monopoly does not provide the benefits which competition does.
Oligopoly can, theoretically, provide the benefits of competition -- but it is not likely to. When a few firms dominate a market it is relatively easy for one firm to predict the behavior of the others. Implicit understandings are facilitated and decisions can be made which more easily approximate those reached by a monopolist. Such decisions are what all firms strive for, because they truly maximize profits. It is only when the behavior of competitors is unpredictable that a firm must engage in true price and quality competition.
The television network market is confusing because we usually think of the viewer as the consumer and the program as the product. That is certainly the perspective of the regulator whose duty it is to see that the interest of the public -- i.e., the viewer -- is served. But in an economic sense this is at best a shadow analysis. Whether or not, as McLuhan tells us, the medium is the message, [FN138] the true consumer is the advertiser, and the true product the viewer. The advertiser pays for the viewers which the network can deliver. The program is but the vehicle for delivering viewers -- potential purchasers of the advertiser's wares.
2. The Merger Will Not Enhance Competition
The real and shadow markets were hopelessly confused by the parties during the hearing and continue to be confused by the majority in its opinion. Suppose wholesome competition were to be enhanced by the merger. Presumably either lower prices or an improved product for the advertisers would result.
There is some price competition in the television network market at the present time. The prime competitor in this respect is ABC. There is evidence that ABC charges advertisers a 29-percent lower class A hourly rate than do the other two networks. [FN139] The reason ABC charges less, of course, is that its programs reach fewer homes. [FN140] But advertisers currently have a choice between reaching fewer homes at a lower price or more homes at a higher price. If ABC were able to reach more viewers as a result of the majority's approval of this merger, the prospects are that its behavior would more nearly approximate that of the other two networks. Because the market is almost as extreme an oligopoly as one can imagine, it is highly unlikely that the price to the advertisers will decline after the merger. It is rather more likely that what little price competition as does presently exist will disappear.
The other possible benefit from enhanced competition is an improved product for the consumer, that is, the advertiser. An improved product in this case is limited almost entirely to more viewers. [FN141] Advertisers now have the larger audiences available to them on the other networks. The merger thus could not provide them with something not now available in the market. But prime time television is a scarce commodity, so presumably there would be a demand for the larger number of viewers enhanced competition supposedly would bring. Still, because the market is oligopolistic it is not likely that there would be any real gain to advertisers. If ABC were able to deliver more viewers, it would probably do so at a higher price with no salutary price cut resulting from the so-called competition.
What will result from the merger? What was really meant at the hearing by the talk of enhanced competition? In this case competition, roughly translated, simply means higher profits for ABC. But 'where economies resulting from a merger create a degree of market power which seems likely to result in the economies being translated into higher profits rather than lower prices, they cannot be viewed as benefiting competition.' [FN142] Thus, even if one accepts the apparent view of the majority that the public interest in broadcasting is advanced by better service to advertisers, it is not at all clear that advertisers will be better served.
The shadow market -- supplying programs to viewers -- was repeatedly confused with the genuine market in which competition can be discussed in meaningful terms. The usual economic analysis does not apply to this shadow market, because the marginal cost to the viewer of any given show is virtually zero. The viewer expresses only a 'yes' or 'no,' rather than a quantitative measure of his desire for the product. And a 'yes' costs no money. This distortion of the viewing market probably lies at the heart of the problem of program quality. Those viewers who might be willing to pay for quality programming have no more voice in the marketplace than the viewers who are relatively indifferent to quality.
In examining this market, there are at least two ways of defining the public interest. One might strive simply to please the most people, with no concern either for aesthetic quality or for the intensity of viewer's feelings. The market is suited to this determination, and we might strive only to make the market attain that goal more completely. Alternatively, we could strive for a goal of better programming, if we could define a decent standard by which to measure programm quality. The majority does not differentiate between these two goals. The merger, I am afraid, is in fact irrelevant to the attainment of either goal.
If ABC were truly unable to obtain the type of programming which most people enjoy, we might conclude that the merger would aid ABC in finding such programs and hence serve the first of our possible goals. But the record is clear that ABC suffers no handicap whatsoever in this respect. ABC officials testified that ABC pays as much for programming of all kinds as do the other networks. [FN143] There is no substantial evidence that the type of programs which ABC schedules are appreciably different from those of the other networks. And, finally, in those markets where ABC has equal facilities, its programming is just as popular as that of the other networks. [FN144]
There is some indication that what was intended by 'making ABC more competitive' was improving its programming in some undefined way. Again, however, there is simply no evidence, and no reason to believe, that a merger could accomplish this.
ABC already has a reputation as the innovator among the three networks. ABC's President Goldenson provided one man's explanation of the reasons why at the hearing:
We have tried to take more chances in order to do better than they (CBS and NBC) do. I think we probably have to take more chances, and I think we always have. I think in the industry we have been known as the experimenter in trying new things. We have had to try new things in order to get higher ratings in the 80 markets where we do compete, and I think we have tried harder. * * * That doesn't mean CBS and NABC don't try. They are trying all of the time, but I think we have to do even more. [FN145]
Indeed Goldenson cited ABC's current 'Stage 67' as an example of such innovation, and described it as 'one of the most ambitious projects ever undertaken by any network. * * *' [FN146]
This is the only evidence indicating any ways in which ABC's programming differs significantly from that of the other networks. Insofar as it is true it defeats the argument of the parties. It is very difficult to predict the consequences of alternative industry structuring. But it is a reasonably good guess that if ABC were to become structurally more like the other two networks, its programming behavior would even more nearly approximate theirs -- if the claimed differences do exist today. It, therefore, follows from the only record evidence before us that the benefits seen to flow from the merger by the parties and majority (a stronger ABC) will tend to reduce the quantity of innovation and quality programming otherwise available to the public.
Thus, whether one's goal be more programming popular with the public, or a higher quality of programming, there is not the least reason to believe that the proposed merger will bring about that result.
3. The Merger May Seriously Impair Competition
A much more significant question, and one to which the majority pays almost no attention, is the potential effect of the merger on future entry into the network business. Dr. Saulnier, the economist who testified at the hearing on behalf of ITT, said:
I think competition is enhanced here where you have a movement toward a parity among the parties. Parity among parties competing in the market may mean parity among a relatively large number of small units or it may mean parity of size among a smaller number of larger units. [FN147]
Dr. Saulnier's argument is echoed in the opinion of the majority:
We should seek in our regulatory activities to provide the conditions and permit the business activities that will afford free and effective competition which, while it does not require absolute equality among competitors, cannot be achieved by smaller or weaker competitors unless in critical respects their competitive strength is sufficiently comparable to that of the stronger industry members. [FN148]
These arguments are advanced as reasons for helping ABC reach competitive parity with the other two networks. As we have just seen, the reasoning is inappropriate to an analysis of the network market. ABC's competitive strength is fully comparable to that of the other networks in all respects except affiliates -- and the merger will have virtually no effect on the number or strength of ABC's affiliates.
Rather than enhancing competition among the present three networks, the merger will have a serious deterrent effect on possible new entrants into the network market. If the erroneous arguments of Dr. Saulnier and the majority be accepted, deterrence to new entry is a foregoing conclusion. ABC is now almost, though not quite, as large a broadcaster as NBC and CBS, no matter what criteria of measurement are employed. But any new network or programm syndicator would be dwarfed by ABC as it now exists. If ABC's broadcasting leverage were to become greater yet, the disparity with that of any newcomer would also be greater, and in that measure the parity, which Dr. Saulnier praised, would be lost.
The irony of the situation s that the reasoning of Dr. Saulnier and the majority, though starkly inadequate to sustain the illusory benefits which they see, does rather nicely explain the probable effect of the merger in deterring competition. It is relevant to recall that once upon a time there was a fourth television network, the Dumont Network. 'We do not know for certain the reasons for Dumont's demise. We can, however, pinpoint the year: 1953 -- shortly after the last time this Commission split over the benefits to competition from a television network's merger in approving the merger of Paramount with ABC. [FN149]
Lately there have been indications of interest from potential competitors in the network markets. Advertisers have, in effect, syndicated their own programs, thus assuming some of the functions of a network. [FN150] A fourth national network plans to begin operation on a relatively modest scale. [FN151] And educational television, coming out of its infancy, seems to be manifesting signs of a spurt in growth that may soon present America with an educational network in fact as well as name. [FN152]
The proposed commercial networks must find sponsors. ITT at present does little advertising in the United States, but it is increasing its advertising budgets, [FN153] and does have a wide range of consumer products which it markets in foreign countries. [FN154] It is quite possible that ITT may wish to market consumer products in the United States in the near future. [FN155] With such a marketing campaign would come increased advertising; it would be very difficult for new networks to command this advertising if ITT were affiliated with ABC. [FN156]
A still more serious problem for new networks in their quest for sponsors will be the possibility of ABC's attracting advertisers through reciprocal dealing by ITT's other divisions. That is, potential suppliers of ITT's divisions might consider advertising placed with ABC an especially good means to 'get the message' to ITT. We do not have the information from which to calculate the potential for reciprocal dealing by ITT. But one of ITT's subsidiaries alone, Avis Rent-a-Car, could have a serious impact on advertising available to a fourth network if ITT wished to engage in reciprocity. Besides being a large purchaser of automobiles, Avis is probably a very attractive purchaser from the manufacturers' standpoint because of the extensive free exposure it gives to automobiles. In the 3d quarter for 1966, the Ford Motor Co. dealers were the 18th largest television advertiser, General Motors dealers were the 28th, Chrysler dealers were 51st, the Ford Motor Co. was the 67th, General Motors was the 76th, and American Motors dealers were the 84th. [FN157] Should Avis by reciprocal dealing be able to foreclose a fourth network from dealing with one or more of these, the impact on that fourth network would be very serious. Since the largest rent-a-car service, Hertz, has recently merged with RCA, the owner of another network, the effect on new networks' automobile advertising is potentially disastrous.
It is true that, to quote from the majority's opinion, 'there is an unqualified representation that neither company engages in * * * [reciprocity] and that the policy of ITT is against any such practice.' [FN158] Are these assurances adequate? Here is what a Federal district court said recently: 'It might be questioned whether it is realistic to expect a corporation possessing a competitive advantage not to attempt to reap the potential benefits. * * * The question of whether reciprocity will be used seems self-answering.' [FN159] In any case, analysis of the impact of a merger must deal with possibilities rather than accomplished facts. If enforcement of the antitrust laws awaited the admission of businessmen that they were not going to comply, the laws would have been a dead letter long ago.
One of the hopes for future entrants into the network market is the potential decreased cost of transmission brought about by advances in technology. Real possibilities in this area are presented by recent developments in satellites and by current experiments in laser transmission. Improved low-cost UHF technology may ease the path for new entrants. ITT is one of the leading electronics firms in the world. It is the second largest stockholder in Comsat, and one of the leading firms in satellite ground station technology. It has done a considerable amount of work in UHF technology. One of the other leading firms in this area, RCA, also owns a network, and ABC's president noted that RCA would not be likely to help ABC with its technical problems. [FN160] While separate from ABC, there is a clear incentive for ITT to find ways of decreasing costs of television technology for sale to all networks. If ITT is merged with ABC the economic incentives become more ambivalent. ABC wishes to lower its costs, but if costs become so low that entry into networking is encouraged ABC's position as the third network is endangered. Owning the ABC network and stations, it is unlikely ITT will develop new technology which threatens the present systems of networking and broadcast transmission.
A similar problem is imposed by the merging of one of the four international common carriers with a network using the carriers' services. This Commission must pass on the tariffs which the carriers submit. One carrier, RCA, is now combined with a network, NBC, and the record indicates that NBC objects less often to RCA tariffs than do the other networks. [FN161] Once ITT and ABC merge, ABC's incentive to press for lower carrier charges likewise will be eliminated or diminished -- especially if the smaller charges would lower barriers to entry to the network market. On other issues, such as whether Comsat should sell service directly to the networks or should serve only as a 'carriers' carrier,' the interests of a separate ITT and ABC might very well diverge, and again the interests of a fledgling fourth network would be the real loser from ABC's merger into silent acquiescence. Again no harm, and perhaps a great deal of good, can come by keeping ABC and ITT separate.
Furthermore, the merger removes ITT as a potential competitor for the three existing networks. ITT, were it not permitted to enter the broadcasting industry by merging a presently viable network out of its independent existence, is an economic power that might very well have created a new force in American broadcasting. Now that possibility is forever lost. The record is clear that ITT talked to owners of individual stations about the possibility of buying broadcast properties, and talked with another network than ABC. [FN162] It firmed up the agreement with ABC. [FN163] While this is not strong evidence that ITT might have gone into networking on its own, at the very least it suggests the desirability of obtaining more information on ITT's plans in this regard. [FN164]
Especially significant is ITT's manifested interest in cable television (CATV) systems. The company has invested approximately $7 million in CATV, 3.5 percent of the total capital presently invested in the CATV industry. [FN165] That ITT had ambitious plans in the CATV area which it did not reveal to this Commission is made plain by Turner's letter of December 20, 1966. He says of ITT,
Commencing in 1965 it (ITT) invested almost $7 million in construction and ownership of CATV systems. Among the possibilities contemplated were expansion of this investment, pay-TV operations, and creation of a network linking whole areas of local CATVs' franchises. ITT's interest in these possibilities and efforts in this filed apparently ceased after it agreed on merger with ABC -- a sequence which indicates a possible cause-and-effect relationship. [FN166]
The contention in the majority's opinion that this information with
ITT's interest in CATV along with other revelations 'are and have been
the Commission and have been the subject of careful consideration' [FN167] is simply false. The only evidence of record available to this Commission
regarding ITT's interest in CATV is the dollar figure of the current investment. [FN168] And this figure was presented to show how minimal was ITT's
investment -- Geneen spoke of 'some very small CATV experimental operations.' [FN169] Nothing was said about the then-abandoned contemplation of increased investment and a possible grid to link local systems into regional or national networks. The potential for CATV as both a transmitter and originator of network-type programs is very great. The exact extent depends largely on action which Congress and this Commission will take in the next year or so. It is
clear, however, that this merger has reduced the incentive to ITT to provide CATV service which will compete with the major networks.
The cumulative effect of all these deterrents to further competition in television networking is very substantial. Whether or not it rises to the level of a violation of section 7 of the Clayton Act should not be determinative when the public interest is evaluated in this forum. The very least that can be said is that such deterrents to competition do rather effectively refute the majority's conclusion that the merger will serve competition.
The majority appears to have been concerned less with increasing competition in networking than in finding a rationale for justifying the merger. This is made quite clear by a glaring inconsistency in the majority opinion. In explaining why the revelations of the Antitrust Division can be ignored, language is cited holding that 'encouragement of competition as such has not been considered the single or controlling reliance for safeguarding the public interest.' [FN170] But in justifying the merger, the majority professes its conviction that 'the merger proposed here would enhance, rather than lessen, competition. * * *' [FN171] The majority can have it one way or another but not both. If stifling of competition can be ignored, enhancement of competition cannot at the same time be the merger's justification.
IV. ITT AND ABC FAILED TO DEMONSTRATE THAT THERE ARE ANY REASONS TO RECOMMEND THE MERGER
There is total agreement that ABC is the weakest of the three major networks. It makes the least money and attracts the smallest audience. There is also little doubt that ITT has financial resources to devote to ABC if ABC should at some time need extra capital, and if ITT should choose to oblige.
There is, however, serious doubt (1) as to whether the public is in any way disadvantaged by the current financial condition of ABC, (2) as to whether ABC cannot obtain any capital it may need without merging with ITT, and (3) as to whether ITT will, in fact, makes any additional capital available to ABC. On these, as on most other issues, the majority opinion is singularly unconvincing.
ABC'S COMPETITIVE DISADVANTAGE ARISES ALMOST
SOLELY FROM ITS LACK OF EQUAL ACCESS TO AFFILIATES -- A MATTER BEYOND ITT'S POWER TO AFFECT
The television network market clearly has the greatest social impact of any market within broadcasting. For that reason I will use it as the principal example for purposes of analysis.
The part of the electromagnetic spectrum available for very high frequency (VHF) television broadcasting is severely limited. If sufficiently separated physically, so that interference is no problem, more than one station can, of course, broadcast on any given channel. But the demand of VHF stations, at least in the larger markets, is much greater than the supply. As a consequence, although some markets have three, or even six, VHF channels, many markets have two and sometimes only one. In two-station markets the stations usually affiliate with NBC and CBS for reasons which are mainly historical and psychological. These two networks were in existence first, present popular programming, make greater profits than ABC, and seldom do significantly less well than ABC in the national ratings. For similar reasons, in the three- or four-station markets, NBC and CBS usually attract the affiliates with superior facilities. All parties, in effect, agree that the traditional affiliations of VHF stations will not be altered significantly by the proposed merger. [FN172]
ABC's competitive disadvantage, at least for the past 6 years, has been directly related to its lack of equal access to affiliates and has had nothing to do with inferior programming, lack of color programs, or anything else which the expenditure of greater funds could cure. [FN173] In recent years ABC has done remarkably well by all available standards for measuring audience popularity. It is true that the standard ratings systems usually have shown ABC last for the past 6 years. [FN174] But because ABC, by reason of its disadvantage in primary affiliates, beams a picture to fewer television sets than the other networks, ABC ratings equal to, or slightly less than, those of the other networks mean that ABC actually reaches a greater percentage of its potential audience than the other networks.
Verification of the fact that ABC is actually as popular as the other networks is easily available but has been ignored by the majority. Nielsen Competitive Market Ratings provide ratings for 30 markets in which ABC's affiliates are technically equal to those of the other 2 major networks. In these markets, the only ones where ABC has a fair chance to compete, ABC was last in only 5 months out of 19 selected since November 1960. ABC ranked first in 7 of the 19 months and the average of its monthly rank was as high as CBS and higher than NBC. [FN175] This competitive margin has not been great enough to attract affiliates away from NBC, but its very existence exposes as foolish the notion that ABC's overall competitive disadvantage is attributable to anything other than a lack of affiliates with competitive facilities.
Testimony of ABC officials that ABC pays as much as the other networks for programs of all sorts, including news and public affairs, merely confirms that ABC's need is for affiliates, not for more expensive programs with which to supply them. [FN176]
There is little or nothing that an ITT could contribute to improving ABC's affiliate position. About the strongest statement in the hearing record as to the relationship of the merger to the number and quality of ABC's affiliates is Goldenson's:
If the affiliates know that through a long-rang basis you are going to be consistent in your planning, so that you are going to build solidly over a period of 5 years, the affiliates will have one outlook as compared with an organization that might be volatile based on ratings at nighttime, and, therefore, they will be certainly more independent in associating with ABC than they otherwise would. [FN177]
'More independence' of affiliates scarcely suggests significant change. Goldenson
himself acknowledged that even when CBS and NBC have occasionally
outdistanced one another it did not 'lead to any substantial shifting to affiliation,' and in a candid moment admitted that CBS and NBC 'have built
these loyalties that I don't think we can shake to any great extent.' [FN178]
In fact, all parties had grave doubts that this merger could help ABC improve in affiliates. The most that ITT President Geneen could be brought to say was that, 'perhaps you will gain affiliates.' [FN179] And even that Vague hope was quickly shattered with the concession that, 'I don't know how we will get all of our viewer coverage and this is something that we are going to have to work on. * * *' [FN180] When Commissioner Cox noted that the basis of ABC's competitive problem 'is one of access to equal and competitive facilities,' Geneen repeated, 'That is correct, Commissioner, and I would add only one thing: There isn't any short-time answer to the solution to that.' [FN181] The exchange continued:
Commissioner Cox. In other words, that means I take it, that even if your assurance of added support * * * is achieved short-range, you don't expect that, in and of itself, to make ABC a fully competitive third network?
MR. GENEEN, No. [FN182]
Commissioner Lee picked up the matter of ABC's competitive position in all-VHF markets when questioning ABC counsel McKenna:
Commissioner LEE. One of the problems that ABC * * * has is the 17 markets in the top 100 [markets] where you have two VHF facilities. * * * How is this merger going to cure that?
Mr. McKENNA. I don't know that the merger is going to cure that. [FN183]
Nor, of course, will the merger affect in any way the power or coverage of the present ABC affiliates.
The record evidence that ABC can acquire more affiliates as a result of the merger is at best weak, and I think nonexistent. It is very unlikely that the merger could solve ABC's problem in a two-VHF station market. It will not increase the market reached by the present affiliates of ABC. What will improve ABC's affiliate position -- short of major surgery by the Commission or Congress? Commissioner Cox and McKenna explored this issue.
Commissioner Cox. * * * Isn't the long-range development of UHF stations, whether they are to be affiliated with ABC or the other networks, * * * going to depend upon the impact of the all-channel law, which will bring eventually a system in which all sets are capable of receiving those signals?
Mr. McKENNA. I think that is probably the major factor, Commissioner Cox. [FN184]
In short, ABC's most realistic hope for additional affiliates is additional United States television stations. As the VHF frequencies are full, additional stations will have to be in the UHF band. UHF stations will develop only as there are receivers available to pick up their signal. Since the passage of the All-Channel Receivers Act [FN185] and the FCC's implementation, all television set manufacturers are required to include a UHF receiving capability in their sets. As old VHF-only sets are replaced, more and more American homes are being equipped with sets capable of receiving UHF stations. The switch to color has accelerated this replacement, as all new color sets are also UHF sets. As UHF sets spread across the country, more economically viable UHF stations will come into operation in markets that are now one, two or three VHF station markets. Such new UHF stations are potential affiliates for ABC-or other new networks -- and potential competition for CBS and NBC. Obviously, (1) the merger can do nothing to affect this trend, and (2) because of it ABC stands to reap increasing competitive advantage in the years to come without the merger.
Whether or not the Commission or Congress should concern itself with helping ABC -- and other latecomers to the network business -- achieve affiliate equality with CBS and NBC is really a separate, if meritorious, issue. All that is before us now is whether the record of this hearing can sustain a finding that ITT has within its power the ability to make ABC's affiliates equal to those of CBS and NBC if it desired to do so. Commissioner Cox rather neatly summarized the record on this point in an exchange with Goldenson: 'I don't see how getting money from ITT is going to solve that.' [FN186] Neither do I.
Of course, it is in no sense clear that the public interest requires, or would be served by, precise equality of affiliate outlets for each network. There is at least some evidence in this record to the contrary, because ABC as it presently exists claims to be more innovative than the other networks. [FN187] The Commission majority, however, has concluded that the merger is warranted because the public interest requires a 'competitively' stronger ABC -- even though all concede that ABC can be meaningfully strengthened only by giving it more equal affiliates. [FN188] If the public interest does require greater equality of affiliates between the networks, there are far better ways to achieve that goal than by encouraging this merger, with its attendant detrimental impact on the public interest.
If the Commission is truly and responsibly concerned with making ABC stronger financially, it has it within its power to do just that. Why not get to the heart of the problem? The Commission has even considered some responsive remedies in the past.
We could reconsider the proposal that the amount of programming a station can take from a given network be limited. [FN189] This would not make the affiliates equal, but would achieve the same effect by giving each network equal opportunity for exposure over the same outlets. The suggestion was made 13 years ago by Commissioner Hennock when ABC was merging with Paramount in order to achieve 'competitive equality.' [FN190] It is no less possible today.
The Commission could consider the suggestions regarding FCC regulation of network affiliation practices. [FN191] These recommendations would not solve ABC's problem, but would at least give the FCC more information with which to work toward a solution.
The whole frustrating history of 'deintermixture' and 'drop-ins' and the original promotion of UHF could be reviewed. There were at least veiled references to these earlier proceedings, and their impact on ABC, during the hearing. [FN192] The Commission had the opportunity to establish more three- station markets, and to establish more all-VHF markets. Such a course would have substantially eliminated the problem the majority today believes will be resolved by yet another ABC merger. It is not too late to reconsider this form of remedy if the Commission honestly believes the problem is sufficiently serious to warrant meaningful solution.
Finally, and perhaps most effective, the Commission could simply promulgate rules designed to create equality of affiliates. We could limit the number of affiliates available to any one network, and the number of viewers in all its affiliates' markets. We could limit the number of VHF affiliates. We could take affirmative action to reallocate affiliates from one network to another, to strike a more equal balance of VHF-UHF competition in all markets. These solutions would have the added advantage of serving as precedent and incentive for the fourth, and someday fifth, networks. They could be modified as conditions warranted.
In short, even if the majority were correct in holding that the public interest requires a more competitive ABC, and even if the merger would enable ABC to improve its affiliate position, the Commission has within its power solutions for the ABC affiliate problem that are (a) dramatically more effective, and (b) far less harmful to the public interest than this proposed merger with ITT.
B. ABC IS FULLY CAPABLE OF FINANCING ALL ITS CAPITAL NEEDS WITHOUT A MERGER
Much was made throughout the hearing of the unsupported generalization that the merger would somehow enable ABC to undertake plans for expansion. ABC does have very ambitious plans for building new studio complexes, for converting to color transmission, and for innovative programming. But there is no substantial evidence that any of these plans are dependent upon the merger. There is no doubt that ITT is financially stronger than ABC. It is also stronger than CBS, the leading network by most standard measurements. But ITT's financial strength, which the majority is able to detail, is quite irrelevant. For there is no showing that ABC is not already financially strong enough to fulfill all future plans.
ABC has had plans for all-color news and an expanded half-hour evening news show by January 1967, a late-night all-color Joey Bishop show, daytime color programming, and a series on the African continent in April 1967, with shows on other continents to follow. [FN193]
Color conversion has been a major undertaking for some time. Goldenson 'told [the ABC] * * * Board about 9 months ago or a year ago * * * [that ABC] would have to spend between $10 million and $15 million to convert to color. * * *' [FN194]
But color conversion is not the only investment ABC has long contemplated. ABC President Goldenson testified the network had already expanded its news budget from $3 1/2 million to $26 million annually, planned on $30 million in 1967, and $40 million in 1968. Sports coverage, which had already reached $20 million for 1966, was budgeted for $24 million in 1967, and $38 million in 1968. The costs of entertainment shows are now running about $140 million annually, and ABC is anticipating an increase of about 10 percent annually. [FN195]
Now why is ABC making such expansionist plans? Is it to stay competitive, or to better serve the public interest? Partially, one would hope. But it is also, as we might suspect, good business. And that is what these exchanges between Commissioner Cox and Goldenson would seem to indicate regarding entertainment, sports, news, color conversion, and new studios.
Mr. GOLDENSON. * * * there is an increase each year also in programming of about 10 percent. This has been brought about increasingly so, because of color in entertainment. * * * I am assuming that conditions will continue to improve and, therefore, we can realize it back. [FN196]
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
Mr. GOLDENSON. In connection with the sports side, I think that we, through sponsorship, will be able to realize that money back.n197
Commissioner Cox. Do you anticipate that this expanded and improved news and public affairs program service, while it will probably still continue to be net loss operation, will recover for you a higher percentage of those costs than you are now getting?
Mr. GOLDENSON. In time we think that will be true; yes.
Commissioner Cox. In other words, you think while it will also serve the public, this is a step in the best interest of ABC and its stockholders?
Mr. GOLDENSON. Yes, as well as the public.
Commissioner Cox. And it is a good business investment?
Mr. GOLDENSON. Yes.
Commissioner Cox. Do you think the color changes are good business investments?
Mr. GOLDENSON. We do.
Commissioner Cox. Do you think the project studio complexes will be good income-producing investments?
Mr. GOLDENSON. Right. We couldn't serve the public unless we did all of these things. [FN198]
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
Mr. GOLDENSON. * * * I think you only have at the present time roughly 12 percent of your TV homes with color. * * * So you are not able to recover your full color costs as yet. Ultimately, I would think by 1968 you will. [FN199]
A close analysis of ABC's financial condition reveals what one would expect of a company contemplating such expansion plans as good business investments before the proposed merger: ABC is fully able to finance all foreseeable expenditures. [FN200]
The record with regard to the amount of ABC's contemplated expenditures is replete with what most generously can be described as ambiguities. At one point in the hearing, in response to a request for an estimate of financing requirements for the next 18 months or 2 years, the president of ABC said that 'I would think that another $90 million would be necessary.' [FN201] At another point, however, he said that 'Over the course of the next 3 years * * * we will probably be called upon to spend approximately $70 million.' [FN202] There is a rather substantial disparity in these two estimates which might lead one to believe them guesses or fabrications. But let us pursue the financial plans further. After admitting that ABC could borrow $6 million more, and that revenues could finance part of the $70 million requirement, the ABC president said, 'I think that we very well might need $50 million [from ITT].' [FN203]
Presumably this $50 million figure was derived from an estimate that ABC could only take $14 million from earnings over the next 3 years, to add to the $6 million it could borrow, to finance its planned expenditures of $70 million. This estimate, however, is entirely unrealistic.
ABC earned $15.6 million in 1965, paying dividends of $7 million and placing the surplus of $8.6 million in retained earnings. This brought ABC's retained earnings as of the end of 1965 to $62 million. [FN204] For the first 9 months of 1966, ABC's operating revenue has increased 12 percent. [FN205] This is consistent with the trend over the past 5 years, during which the operating revenue has gone from $9.9 million in 1961 to $15.7 million in 1965. [FN206] Should the increase hold for the final quarter of 1966, the operating revenue for this year would be over $17 million. It seems incredible, in view of this trend, to think that operating revenue will not increase still further in future years. But let us assume that it does not.
If ABC were to continue to pay the same $7 million dividend for the next 3 years -- not an unreasonable restraint for a company undergoing rapid expansion of facilities -- it would have a surplus of $40 million for the 4-year period, 1966-69. This very conservative figure contrasts rather sharply with the $14 million estimated by the ABC president.
ABC is limited by current debt instruments to borrowing 50 percent of its assets. Again, there are ambiguities in the record as to how much ABC can borrow. ABC recently negotiated a loan of $25 million. At the time of the hearing it had received $12.5 million. It expected to receive the remainder before the end of the year. [FN207] This would increase ABC's debt to $92.5 million, but the record is quite unclear as to how much more could be borrowed. The president of ABC said that the company could only borrow $6 million more. But he also said that the value of assets, only 50 percent of which could be borrowed, was $200 million. [FN208] It was not clear whether the $12.5 million to be borrowed in 1966 was included in the $200 million. Even assuming that it was, current indebtedness of $92.5 million would allow additional borrowing of $7.5 million before 50 percent of $200 million would be reached.
Even if ABC were now within $6 million of its debt ceiling, the conclusion that it can only borrow that much more money to finance its expansion is ridiculous, yet that is the very conclusion which the parties tried to give and the majority seems to accept. That $6 million itself, once borrowed, would presumably become assets and thus allow additional borrowing of $3 million and then $1.5 million more and so on. And the very conservative estimate of $40 million in surplus to be accumulated from 1966 through 1969 will become assets and thus allow additional borrowing of $20 million plus $10 million and so on. [FN209]
It should be clear that, giving ABC the benefot of the doubt on every point, there is no basis whatsoever for concluding that the company could not finance its current needs for $70 million or even $90 million over the next 3 years entirely from earnings and additional borrowing. Should earnings increase at the same rate over the next 3 years that they have over the last 5 years, ABC could almost finance all its needs from retained earnings alone. [FN210]
Additionally, of course, ABC could finance its plans by issuing additional common stock. When asked about this possibility at the hearing, the ABC president replied that it would be 'highly undesirable * * * from our standpoint * * * [because] it would be a dilution of our stock.' [FN211] It is difficult to see why such a stock issue would be any more a dilution of the stock than is the merger with ITT. In both cases the stockholders end up with a smaller portion of a larger company. It is, however, not difficult to decipher Goldenson's reasons for not favoring a large stock issue. Such a move would make stock available to the dissent stockholders who have been challenging ABC's management. [FN212]
C. ITT'S FINANCIAL COMMITMENTS TO ABC ARE ILLUSORY
With the true state of ABC's financial needs thus exposed, it becomes clear why ITT has assiduously avoided any but the most general and conditional financial commitments to ABC.
This excerpt from a letter from ITT's Geneen to ABC's Goldenson in March 1966 sums up ITT's commitment:
You can be assured that I will do my best to see that the financial resources of ITT, subject, of course, to approval in specific instances by the ITT Board of Directors, are made available to ABC if needed. [FN213]
My point in showing that ITT does not want to, and has not, made any financial commitment to ABC is not to argue that ITT management is somehow immoral or unreasonable or incapable of serving the public interest. Not at all. It is only for purposes of evaluating the applicants' showing that the merger will serve the public interest by making ABC financially stronger.
Had there been a real commitment it would have been relatively easy for applicants to make such a showing. Goldenson could have testified as to his 5- year projected estimates of revenue and expenditure and resulting budgets. He could then have testified as to his desires to provide public service programming beyond the reach of his budget -- say, five additional public affairs specials during the 1967-68 season. He could have testified as to the net loss from such programming. Whereupon, ITT could have testified as to its commitment to pay for such programming wholly out of its own resources. Not, 'I will do my best.' Not, 'subject to approval by the board.' Not, 'if needed.' ITT could have provided a flat bankable commitment of funds to a specific public-interest purpose that would not have been possible for ABC but for the merger. Such a course of testimony would have at least provided 'some evidence' of public benefit from the merger. As it is there is no evidence, and this is because ABC can meet all its needs by financing easily within its range.
The parties, in their own testimony, and in answer to Commissioners' questions, had numerous opportunities to clear up the matter of whether ITT did, in fact, have a specific commitment of funds of ABC for specific purposes. They failed to avail themselves of this opportunity.
Geneen referred to the 'general commitment' of the ITT Board on numerous occasions. Here is a sample of one of his stronger statements:
* * * the board has already committed itself in principle, in a general commitment, and I think that I can speak for the board in saying that they consider that a complete commitment. [FN214]
It was, then, quite natural to question the only ITT Board member present as to the board's understanding of its specific commitment to ABC. Commissioner Cox. Have you (the ITT Board) been able to evaluate the soundness of these proposals (by ABC for proposed expenditures) in broad outline?
Mr. McCONE. (John A. McCone, member of the board, ITT). No, we have not.
Commissioner Cox. Or orders of magnitude of the sums mentioned by ABC as involved in these expenditures?
Mr. McCONE. No, sir.
Commissioner Cox. Therefore, it has not been possible for the Directors of ITT at this point to reach a judgment which would serve as the basis of any representation to the Commission that it would, in fact, authorize such expenditures?
Mr. McCONE. I could not at this time tell you, sirs, the various projects that Mr. Goldenson referred to have been studied in detail by ITT Directors. [FN215]
The understanding of the ITT Board was shared by ABC's Goldenson. At one point Goldenson had to be asked six times what was 'ITT's specific commitment to ABC of financial assistance' [FN216] before providing anything other than the most evasive general answer. For the sixth time the question was repeated:
My question is, and I repeat it again, do you have a specific commitment from ITT, a specific commitment for a specific amount of money for a specific purpose? I think the answer is no.
At last Goldenson conceded, 'The answer is no for a specific amount, yes.' [FN217]
At the 11th hour of the hearing Geneen was still uttering the generalization 'Our real commitment is to establish and support them as being a viable, completely competitive network in programming facilities.' [FN218]
Not only did ITT fail to show how the public interest would be served if ITT funds were made available to ABC, it demonstrated rather conclusively that it did not want to make any commitment of funds to ABC, and would rather persistently resist efforts of Commissioners to elicit such a commitment.
The difficulty of finding a meaningful commitment in the record is actually highlighted in those very passages that are said by the majority to constitute a '$50-million commitment' by ITT to ABC.
Mr. GOLDENSON. Anything that we cannot realize through the form of loans or earnings up to $120 million that we outlined in a letter to Mr. Geneen, and he in turn cleared with his board, would be available in back-stopping us.
Commissioner JOHNSON. You indicated you planned to spend about $70 million during the next 3 years.
Mr. GOLDENSON. Yes.
Commissioner JOHNSON. Now is it the case that only $6 million of that could be acquired by you with out the assistance of ITT?
Mr. GOLDENSON. We are up to the full borrowing power, except for an additional $6 million.
Commissioner JOHNSON. Now, do you feel, therefore, that you have a commitment at this point from Mr. Geneen for, let us say, $64 million over the course of the next 3 years that would not otherwise have been available to you?
Mr. GOLDENSON. If we require it.
Commissioner JOHNSON. Do you think you will require it?
Mr. GOLDENSON. I don't think that we will require that much, no. We will be able to flush out a certain amount of money through our own earning power, over and above the dividend we are required to pay.
Commissioner JOHNSON. Do you think you would need $25 million?
Mr. GOLDENSON. I think that we very well might need $50 million.
Commissioner JOHNSON. Do you feel you have a commitment from Mr. Geneen for $50 million?
Mr. GOLDENSON. Yes, I do.
Commissioner JOHNSON. Mr. Geneen, do you feel that you have made a commitment to Mr. Goldenson of $50 million over the next 3 years?
Mr. GENEEN. I certainly do, and I think we have made a commitment in the sense that if he needs it and wants it -- I don't think the $120 million is the limit.' [FN219]
This is but a portion of a substantial discussion, principally with Geneen. [FN220] And no matter how the question is approached, inevitably one is confronted with the realization that it will be ITT, of course, that will make the judgment as to what ABC's 'needs,' even 'wants,' may be. Moreover, ITT knows well what we have just demonstrated: Absent a catastrophe, ABC will needs no funds from ITT.
This was what the record contained when we received Turner's final letter. That letter revealed ITT's own estimate of ABC's need for funds in the next several years. Having received it, it is beyond my comprehension how the majority could have written the opinion which it has. Turner writes:
ITT's estimates indicate that ABC's earnings growth rate over the next 5 years would be 16 percent. More importantly, it was anticipated that after capital expenditures and debt repayment, and assuming ABC continues in third place, it would yield a cash flow approaching $100 million between 1966 and 1970, to be available for reinvestment outside the television business.' [FN221]
ABC does not need capital. ITT does not intend to give it any. Indeed, like NBC's early support of RCA, [FN222] it appears that ITT is banking on the odds that ABC can be counted upon to provide ITT with some $100 million over the next 5 years -- perhaps for further expansion-through-acquisition by ITT.
V. CONCLUSION: THE MERGER FINDS NO JUSTIFICATION IN THE OPINION OF THE MAJORITY
In conclusion: I dissent.
I believe the procedural and administrative process by which the Commission has resolved this case to be inadequate to the magnitude of the issues involved. I believe its inadequate and hasty handling of the case has -- unnecessarily, and to some extent unjustifiably -- created an appearance that has called into question the integrity of the Commission's process. I believe these procedures have also adversely affected, in fact, the substance of the Commission's evaluation of this case.
We have just passed upon the largest transfer of broadcast properties in the history of the industry. We have done it without adequate information, without adequate articulation of the relevant public-interest standards, without subjecting the allegations and reasoning of the applicants to the scrutiny of adversary process. Under these circumstances it is not surprising to me that the opinion of the majority leaves much to be desired.
As a final summary and conclusion I wish to examine that opinion. Its analysis is necessary to my opinion anyway, and it provides aw useful vehicle for reviewing the substantive and procedural chuckholes in the road we have just traveled together.
This case involves the largest transfer of broadcast properties in the history of the world. It is probably the most important this Commission will confront in the foreseeable future. If my estimate is at all accurate, then the majority opinion is indeed a remarkable document. For the opinion stands as little more than an unconvincing rationalization for the quite inadequate procedures used in this case, which, to date, have unearthed facts clearly insufficient to justify the proposed merger.
I will start with a review of the procedures and then pass to the primary deficiencies from which the majority's opinion suffers.
1. The Hearing
The Commission's usual procedure, when an application for transfer is received, is to decide, on the basis of a staff review of the issues involved, whether to approve the transfer or set the application for a full evidentiary hearing in which all relevant issues can be thoroughly explored. An application cannot normally be denied without full hearing. Hearings are rare and denials rarer. Often the scheduling of a hearing will cause the application to be withdrawn.
The hearing is usually concerned with such things as the transferee's financial and technical qualifications, or whether the station being transferred will have overlapping contours with one already owned by the transferee. Seldom is the character of the transferee called in question. One notable exception was the transfer of the earlier ABC's properties to the merged ABC-Paramount in 1953. On that occasion, because of possible antitrust violations by Paramount, a number of character issues were set for hearing.
But whether the issue be financial, technical, or character, the virtue of an evidentiary hearing is that the Commission's staff has a chance to cross- examine all witnesses supporting the transfer and to offer evidence in rebuttal of the case made for transfer.
It is the most elementary assumption of our legal system that either side of many controversies can be made to seem reasonable and accurate if only the proponents of that side are allowed to present arguments and evidence. Only when both sides of controversy are given full opportunity to present a case before an impartial tribunal do we have a degree of faith in the eventual resolution. This is what is called an adversary proceeding; upon it our legal system has staked a great deal.
The procedures employed in this case disregarded the virtues of an adversary proceeding in all but the most insignificant ways. For all practical purposes we had only one side of the present controversy presented.
Instead of setting this case for an evidentiary hearing before a hearing examiner it was decided to allow the principals to the proposed transfer to present their case to the Commission sitting en banc. To this procedure I have not the slightest objection. It has all the advantages the majority cites and perhaps more. The manner in which it was carried out was, however, sorely deficient.
The Commission's hearing order contained this remarkable statement:
The Commission's Broadcast Bureau and Common Carrier Bureau will participate in the oral hearing. The Commission anticipates that both Bureaus will in matters under their respective jurisdiction, raise all pertinent questions of law and policy so that we may have a complete record before us. [FN223]
In perfect accordance with the Commission's instructions, one member of the Broadcast Bureau appeared at the hearing and, in testimony occupying but 29 of the 607 pages of the hearing record, raised the issues with which the Commission should be concerned. [FN224] These issues, I am afraid, were apparent to all and had been fully raised in Commissioner Bartley's dissent to the original hearing order. [FN225]
What was needed was a thorough exploration of the factual underpinnings of both sides of the case. We did have the most complete presentation of the factual support of one side -- but only one. There were presentations by presidents of both ABC and ITT. A second officer of ABC spoke briefly. Extensive presentations were made by a lawyer for ABC and another for ITT. Still another lawyer for ITT spoke on the antitrust aspects of the case. A director of ITT presented evidence and opinion. And an economist hired by ITT testified on the economic implications of the merger. There was no cross- examination and no opportunity for cross-examination of any of these witnesses by the sole testifying member of the Commission's staff or by any other staff member. No expert was called to rebut any of the evidence presented by the parties to the merger. There was no opportunity for such presentation. The only test to which the proponents' case was put was examination by the three Commissioners who evidenced some concern with the merger and its potential effect upon the nature of broadcasting in this country.
Commissioners and their staffs have a full-time job keeping up with the voluminous workload with which the Commission is regularly called upon to deal. Each Commissioner is entitled to one legal and one engineering assistant. To expect more than a surface exploration of the vital issues in this proposed merger to have resulted from placing the burden of investigation and analysis on the Commissioners and their staffs is to mock the gravity of the issues involved.
Nothing more than what has happened could have been expected. Entire areas of relevant concern were barely touched in the hearing, and the resolution of very serious issues is now rested on vague and largely irrelevant assurances of interested parties. It may be that 'it is the judgment of the majority of the Commission that the procedure followed in this case was extraordinarily painstaking and thorough and the most adequate in the circumstances of this case that our ingenuity could devise.' [FN226] I cannot speak for the majority's ingenuity. It does seem to me, however, that the simple expedients of issuing instructions to the Commission's staff to thoroughly investigate all potential adverse effects of the merger, cross-examine and present rebuttal evidence would have been more thorough and worthy of being called adequate.
2. Posthearing procedures
The course of events since the hearing demonstrates both the inadequacy of the record developed at the hearing and the lack of genuine concern which the majority evidences for a thorough exploration of the issues. Subsequent to the hearing, research by the offices of the Commissioners now dissenting revealed that the hearings on the passage of the 1934 Communications Act demonstrated very serious congressional concern with the possibility of foreign influence on American broadcasting stations. The very company here seeking to control ABC, International Telephone & Telegraph, was the primary object of this congressional concern. [FN227] An examination of the record in this case revealed a woeful dearth of facts with regard to ITT's foreign operations. The three Commissioners who now dissent therefore proposed to send additional queries to ITT with regard to its foreign involvement. Because the hearing was over, the answers could not, of course, be subjected to cross-examination or even rebuttal, but at least the answers would provide some additional information. The majority which now approves the merger would have no part even in asking for the additional information. Therefore, in probably unprecedented action, queries were sent to ITT over the signatures of only three of the seven Commissioners. [FN228]
An even more egregious example of the stampeding procedures used to push this merger to consummation is provided by the manner in which it was approved. Hours before the final vote, we received a letter from the Antitrust Division which revealed that the Division was aware of a great deal of relevant information which this Commission did not have. It was our clear duty to ask the parties to provide all information which had been supplied to the Department of Justice and to carefully consider that information. Approval of the merger obviously foreclosed that possibility.
B. SUBSTANTIVE CONSIDERATIONS
1. The Antitrust Laws
Section 7 of the Clayton Act prohibits mergers where the effect may be to substantially lessen competition or tend to create a monopoly.
The majority deals quite persuasively with the two section 7 problems which do not exist. The two parties do not compete directly, so no anticompetitive effects of a 'horizontal' nature (present competitors in the same line of business) will result. Likewise, the present 'vertical' relationships (buyer- seller) are of such relative insignificance in terms of the markets involved that there will be no substantial anticompetitive effect there either. [FN229]
The majority does not even mention the possible deterrent effect which this merger might have on others who would wish to start a network or simulate services which networks provide. As I have said, this deterrent effect is potentially so substantial that it may even cause the merger to violate section 7. [FN230] In any case it is worthy of some attention. The majority gives it none. Likewise, the potential for ITT's entry into networking over the air or via CATV is ignored by the majority, as is the potential impact of ITT as a leader in communications technology.
2. ABC's Ability To Compete With the Other Major Networks
I have set out at great length the reasons for believing that ABC's competitive position cannot be improved by this merger. [FN231] It can meet its capital requirements without the merger, and only more and better affiliates can truly affect its competitive stance. The majority apparently disagrees with one or both of these propositions. What bothers me more than its disagreement is the absence of any credible evidence or analysis to support its disagreement.
The majority opinion states that:
In the absence of the financial assistance that it will receive from the proposed merger it appears that ABC will be at a substantial competitive disadvantage and will be handicapped in its efforts to provide the programs and services to the public that it seeks to provide. [FN232]
Such a conclusion simply has no support in the record whatsoever except for bald and general assertions by interested parties. ITT, according to Department of Justice information, does not reach such a conclusion. [FN233] Why must the majority?
It is not strange that ITT made no firm commitment of money to ABC. The best the record can support is that ITT will supply $50 million to ABC over the next 3 years if ABC needs that money -- stated more bluntly, if ITT chooses to conclude the ABC should have some of ITT's resources. Of course ABC could go bankrupt tomorrow, or do something so foolish as to require additional capital. But ITT knows what all but this Commission's majority can see so well. Any improvement in ABC's overall competitive performance is dependent on the general acceptibility of UHF. Changes in program expenditures will be irrelevant and have not been planned. All contemplated expenditures can be financed by ABC alone. ITT is betting that ABC will improve its competitive position because of UHF development. ITT chose to merge in anticipation of profits, and the opportunity they provide for further acquisitions -- not out of a desire to compete with the Ford Foundation in funding noncommercial broadcasting.
It is shocking to find in the majority opinion the attempt to picture ABC as a struggling company: 'free competition cannot long survive if one such operation is losing money while others are profiting.' [FN234] As I have pointed out, ABC is thriving, with net profits of $15,700,000 in 1965 -- 7.1 percent of total revenues and 100 percent of the depreciated value of its tangible property. It is only because the broadcasting division of the parent is internally divided into separate accounting units for the network and the several broadcasting facilities that it is possible to demonstrate a loss in any part of the company. [FN235] The statement that 'Program expenses have * * * during recent years * * * increased more rapidly than revenue for ABC' [FN236] is highly misleading. It is partially true only of the network considered separately from the stations and other parts of the corporate structure. Even then it is true only for the past 3 years, not for 1965 alone, the last 12 months for which figures are available.
The majority's statements that 'Commitments made under existing loan agreements limit further borrowing by ABC to $6 million,' while understandable in view of the ambiguous and misleading representations by company officials during the hearing, as we have seen, is inaccurate. [FN237] Existing loan agreements limit borrowing to 50 percent of the gross value of assets. Current borrowing is $6 million short of half of the value of present assets. All additional permanent assets, acquired through expenditure of profits, would raise the borrowing limit. [FN238] The superficiality of the hearing is well illustrated by the fact that we have no precise figure of the borrowing which ABC could reasonably be expected to undertake without approaching the contractual limits on its debt instruments. Considering that a large part of any profits earned will undoubtedly be devoted to permanent assets, the figure of $6 million is clearly too low. In addition, of course, issuance of stock by ABC presumably could be used to finance foreseeable expenditures.
In short, there is no credible evidence either that ABC has changed its expansion plans because of the merger or that ABC will not be able to do everything it has previously planned without the merger. The majority has built its supposed justification for the merger of little more than straw -- straw, I might add, which the parties themselves have discarded.
B. DANGER OF EFFECTS ON PROGRAMMING ADVERSE TO THE PUBLIC INTEREST
The majority's opinion is perhaps most inadequate in its failure to address the potential dangers inherent in this merger. The subject is introduced with a hopeful recitation:
Thorough, fearless and unbiased collection, dissemination, and analysis of news is, we think, crucial to a free society. There is widespread and growing reliance of the public upon broadcast sources of news and news commentary nd upon public affairs programming and other kinds of informative programming. [FN239]
But this is the only attention given in the opinion to this interest
'crucial to a
free society.' The possibility that ITT's foreign interests, defense,
space, or other business interests might influence ABC programming is discounted on the basis of ITT officials' self-serving assurances that ABC's editorial staff will be accorded full independence. I can only repeat once more that such assurances are logically irrelevant to the real problems involved in this merger: The subtle pressures to avoid jeopardizing the interests of a parent conglomerate which necessarily are felt by the employees of a broadcasting
subsidiary of that parent.
Admittedly many of our prominent licensees are large conglomerates. A few are even larger than ITT. But these control but one, or a few, radio or TV stations. Here we are concerned with control of a radio and a TV network, as well as 17 licensed broadcast properties. Westinghouse Electric Corp. is a large conglomerate and holds a large number of station licenses. But there can be no comparison between the impact of programming by Westinghouse and that by the ABC network. Furthermore, of all the large American corporations there are few whose particular business interests are so clearly of the type which should not be joined with major broadcasting facilities as are those of ITT -- a company whose income is derived in largest measure either from foreign subsidiaries or from domestic space and defense contracts. Scarcely a day goes by during which ITT's economic interests are not affected by some big news event at home or abroad.
Despite the majority's protestations that the issues in this case have long ago been resolved there is only one example of a licensee whose business interests and broadcast properties present a situation in any way comparable to that which we create by this merger. That is the case of RCA's ownership of NBC. That ownership, however, antedated this Commission's existence and occurred by internal expansion, not merger. It certainly cannot be cited as excuse for allowing a second network to come under the control of a similar company. To say that, since RCA owns NBC, ITT must be allowed to acquire ABC, is to say that things are so bad there is no point in doing anything now to stop them from getting worse. I, for one, can see great virtue in having only one-third rather than two-thirds of the major networks owned by conglomerate electronics corporations heavily engaged in domestic defense and space work and in foreign countries. Perhaps we should consider requiring RCA to divest itself of NBC, but nothing could be more absurd than the majority's suggestion that 'We could not in good conscience forbid ABC to merge with ITT without instituting proceedings to separate NBC from RCA.' [FN240] Rules of law with only prospective effect are common. This Commission itself recently proposed a rule, with members of the current majority in concurrence, which would forbid future acquisition of more than three large television stations by any owner but would not force divestiture by any of the several current owners thus situated. [FN241]
And so we come to the end of what has been for me an eventful introduction into the issues of broadcast ownership in America. If the merger is to come about I can only hope that the concerns I feel will prove groundless. But whether they do or not, I have no question that the exercise has been worth while. Many have participated in this case. Many more have and will reflect upon it. The experience cannot help but produce a greater awareness on the part of all Americans of their responsibility for the integrity of the public's media in a society of free men.
FN1 Sec. 310(b) of the Communications Act provides in full: 'No construction permit or station license, or any rights thereunder, shall be transferred, assigned, or disposed of in any manner, voluntarily or involuntarily, directly or indirectly, or by transfer of control of any corporation holding such permit or license, to any person except upon application to the Commission and upon finding by the Commission that the public interest, convenience, and necessity will be served thereby. Any such application shall be disposed of as if the proposed transferee or assignee were making application under sec. 308 of this title for the permit or license in question; but in acting thereon the Commission may not consider whether the public interest, convenience, and necessity might be served by the transfer, assignment, or disposal of the permit or license to a person other than the proposed transferee or assignee.' 47 U.S.C., sec. 310(b) (1964).
FN2 The majority has suggested, without deciding, that concern with the ownership of the ABC network is beyond the Commission's jurisdiction. There is a certain surface plausibility to this contention.The Commission licenses only stations. Title to one network (Mutual Broadcasting System radio network) has changed hands recently without the approval of the FCC. But examination of the Communications Act, its legislative history, and the long administrative practice under the act serve to dispel any doubts about the Commission's jurisdiction.
Although the scheme of the Communications Act places programming responsibility on the individual licensee, it was recognized very early that the actual programming increasingly would be done by networks. Thus, the Communications Act, 47 U.S.C., See, 303(i) (1964), and the Radio Act before it, 44 Stat. 1164 (1927), gave the Commission 'authority to make special regulations applicable to radio stations engaged in chain broadcasting.'
These words can be read either narrowly or expansively, either to give the Commission limited power to control the technology of networking or to permit regulation of all network practices with an impact on station performance. The wording is an awkward tool for authorizing regulation of networks, because networks do not necessarily own stations and the section speaks of regulation of stations. But Senator Dill one of the sponsors of the original Radio Act who was concerned about network control of stations, saw the chain broadcasting provisions as a comprehensive response to the problem (68 Cong. Rec. 2881 (1927). Recent Congresses have considered granting the Commission clearer power to regulate networks. But they have always recognized that many network policies can and should be regulated by couching the regulation in terms of allowable practices of stations. See, e.g., H.R. Rept. No. 281, 88th Cong., 1st sess., 105-07 (1963).
Indeed the Commission has utilized just such a form to promulgate far-reaching rules concerning network practices. See FCC, Report on Chain Broadcasting (1941). Network option time and affiliation practices have been regulated in this way. See 47 C.F.R., sec. 73.131-34 (1966). And, significantly in the present context, this vehicle was used to force RCA to divest itself of one of its two networks, thus giving birth to the present ABC network. As sec. 73.137 of the Commission's rules now provide, 'No license shall be issued to a standard broadcast station affiliated with a network organization which maintains more than one network. * * *' 47 C.F.R., sec. 73.137 (1966). See Radio Corp. of America, 10 F.C.C. 212 (1943), for the Commission's approval of the transfer. This provision is a clear precedent for Commission concern with the ownership of networks and for the use of its control of licenses to implement its concern.
These chain broadcasting rules were challenged in the Supreme Court. In upholding the rules, the Court said, 'True enough, the act does not explicitly say that the Commission shall have the power to deal with network practices found inimical to the public interest. But Congress was acting in a field of regulation which was both new and dynamic * * * [and] the act gave the Commission not niggardly but expansive powers.' National Broadcasting Co. v. United States, 319 U.S. 190, 218-19 (1943).
All relevant authorities give an expansive interpretation to the Commission's indirect authority to regulate network practices in the public interest. In no event can serious attention be given to the claim that Commission concern with network ownership cannot be given substantial weight in passing on the property of related transfers of station licenses. Even the parties conceded that the Commission could concern itself with the fact that a network was being transferred. ITT's counsel, while insisting that 'as a legal matter you are considering only the licensees,' concluded that 'it would be terribly unrealistic if consideration was not given to the fact that this particular licensee is also a network.' Record. 401.
FN3 Commission consideration of the merger has dealt primarily with the ABC network and its total corporate organization. Almost nothing has been said about the effects on the individual communities involved. New York, Chicago, Los Angeles, San Francisco, and Detroit will each now have an AM-FM-television complex owned by ITT. In Pittsburgh ITT will own an AM-FM station. The ownership of broadcasting properties in these largest markets is dominated by conglomerates. Of necessity our limited resources have focused on the national significance of network relationships, but surely the effects of this merger deserve as careful consideration in each of these cities -- cities with combined 1960 census population of 32 million.
The Commission has also given quite inadequate attention to the application in this case of our proposed policy of restricting a single owner to 3 television stations in the top 50 markets. FCC 64-1171, 3 R.R. 2d 909 (1964). Pending final consideration of this proposed policy, the Commission has instituted an interim policy, whereby transfers or acquisitions in violation of the proposed policy will require a full hearing to determine whether they are in the public interest. 5 R.R. 2d 271 (1965); 5 R.R. 2d 1609 (1965). The Commission merely concludes that 'the requirement for a hearing which was set forth in the statement of interim policy has been satisfied by the procedure herein.' See majority opinion, supra. Needless to say, I feel the Commission's procedures are as deficient in satisfying the hearing requirement for our interim policy as they are in considering the transfer more generally. In fairness to the Commission, however, it should be noted that this is not the first instance in which it has shown utter disregard for its own interim policy. See WXHR-AM-FM- TV, Rept. No. 6193, FCC, Oct. 21, 1966 (dissenting opinion of Commissioner Johnson).
Furthermore, it is a gross anomaly that the Commission devotes much more time to comparative consideration of applications for single stations than it has to this transfer of 17 stations along with a network. For example, a currently pending hearing involving nine applicants for a television channel in Syracuse, N.Y., has been going on for over 5 years. Syracuse Television, Inc., FCC dockets Nos. 14368-446. Of course, the standards of comparative hearings are not applicable in transfer cases. If there is any justification for the Commission's thorough investigation of such matters, however, the underlying rationale would seem at least relevant in choosing procedures for evaluating a case of the magnitude of that now before us. See, e.g., Policy Statement on Comparative Broadcast Hearings, 5 R.R. 2d 1901 (1965).
FN4 On July 20, 1966, the Commission sent letters to both Geneen and Goldenson, requesting additional information on the uses which ABC would make of ITT funds and on the relationship between the ABC and ITT Boards of Directors after the merger. No hearing was mentioned at all in those letters. This was before I was participating in the Commission's business, but Commissioners Bartley and Cox dissented to the sending of the letters and insisted on the need for a hearing. Rept. No. 6084, FCC July 21, 1966.
FN5 American Broadcasting Cos., 4 FCC 2d 709 (1966). In his dissent Commissioner Bartley said, 'The order and notice of oral hearing is, in my opinion, inadequate and ineffective, since it will elicit opinion rather than evidence tested in the crucible of a formal hearing where the applicant must meet the burden of proof on specified issues, which is necessary to a resolution of the serious social, economic, commercial concentration, and other public-interest questions here obtaining.' 4 FCC 2d at 711-12.
FN6 See Record, 126-28, 204-06, 211-15, 217, 258-59, 294, 496, 577, 597-98, 600, 603-04.
FN7 Typical of the remarks directed toward the staff member are: 'My point is that it seems to me that this is meaningless rhetoric unless it is tied down to some specific concepts, what the antitrust lawyers call relevant market but the statutes call a line of commerce, and the economists have other names. But simply to talk about concentration in a broad airy sense as something that kind of exists in the super ambient atmosphere is meaningless. * * *
* * * * * * * * * * * * * * * * * * * * *
* * * * * * * * * * * * * * * * * * *
'Couldn't we stick to one point? I am trying to find out what you mean. I am not trying to decide the case. You were talking about the concentration of control of mass media, is that correct? * * *
* * * * * * * * * * * * * * * * * * * * *
* * * * * * * * * * * * * * * * * * *
'Do you have anything in mind when you are talking about concentration of control, in the economy at large? Is this just something that is a vague fear, that has been generated in the viscera of some of those who have discussed it on the staff, or does this refer to any facts that you have ascertained from any identifiable source that you can mention to us?
* * * * * * * * * * * * * * * * * * * * *
* * * * * * * * * * * * * * * * * * *
'* * * Are you familiar, or is anybody to your knowledge, that has had anything to do with formulating this issue for us, the issue of concentration of control, familiar with any of the literature on the subject?' (Record, 186-87, 188, 190, 192. And see generally Record, 182-201.)
Virtually the entire dissertation of ITT's antitrust lawyer, on the other hand, was presented by affirmative responses to leading questions by the same Commissioner which often ended with 'is that right,' 'is that correct,' and 'don't they.' For example, 'Hasn't the court consistently said that such relative figures are de minimus and are not to be given consideration in merger cases? * * * Now, is there any case or any antitrust case that has been heard or to your knowledge has been reported or instituted that has alleged that such a [conglomerate] relationship is improper, illegal, or contrary to general public policy? * * * In other words, an order prohibiting this merger on the grounds that have been suggested in some of the discussion would go beyond any reported case, any legal principle, or any principle argued or contended for by any writer of standing in this field. Is that correct?' (Record. 445, 446-47, 448. And see generally Record, 432-48.)
FN8 Hubbard Broadcasting, Inc., did file a petition to deny the transfer of one of the 17 station licenses. Hubbard is the licensee of KOB which operates in Albuquerque, N. Mex., on the same frequency as does WABC in New York. KOB has challenged WABC's right to renewal of its license in this latest chapter of a 20-year dispute over the proper use of that frequency. WABC's application for renewal, which KOB challenges, was filed in 1959. The license term, it might be noted, is for 3 years, and thus would only have run to 1962. The dispatch with which this merger has been handled is in marked contrast to the repeated delays to which KOB has been subjected. The Hubbard petition, however, raises none of the broader questions with which I am principally concerned.
FN9 Neither, of course, do the courts. The Supreme Court has said, 'The Communications Act is not designed primarily as a new code for the adjustment of conflicting private rights through adjudication.Rather it expresses a desire on the part of Congress to maintain, through appropriate administrative control, a grip on the dynamic aspects of radio transmission.' FCC v. Pottsville Broadcasting Co., 309 U.S. 134, 138 (1940). In a recent case involving the Federal Power Commission, another administrative body charged with being representative of the public interest, it was held that, 'The Commission has an affirmative duty to inquire into and consider all relevant facts.' Scenic Hudson Preservation Conference v. FPC, 354 F. 2d 608, 620 (2d Cir. 1965), cert. denied, 384 U.S. 941 (1966). The Court quoted with approval the words of dissenting Commissioner Ross: 'A regulatory Commission can insure continuing confidence in its decisions only when it has used its staff and its own expertise in a manner not possible for the uninformed and poorly financed public' (ibid.). See Michigan Consol. Gas. Co. v. FPC, 283 F. 2d 204 (D.C. Cir. 1960), cert, denied, 364 U.S. 913 (1960); Isbrandtsen Co. v. United States, 96 F. Supp. 883 (S.D.N.Y. 1951); aff'd by an equally divided court, 342 U.S. 950 (1952); Reich, 'Law of the Planned Society,' 75 Yale L.J. 1227 (1966).
As the experienced and reflective former Securities and Exchange Commission Chairman William L. Cary has noted: 'Occasionally an agency such as the Federal Power Commission in a proceeding involving gas rates has the views of a consumer lobby, such as the State or city government of the area where the gas will be sold. But it other instances, such as the grant of television licensee, there is really no well-defined spokesman for the public except the agency itself.' (Cary, 'Politics and the Regulatory Agencies,' 4 (1967).)
FN10 Record 9-19. A representative of the Common Carrier Bureau was also present and responded briefly to questions of Commissioners. Record 182-84. And see note 7, supra. In addition the staff had earlier prepared a 24-page memorandum analyzing the pleadings in the case and the issues presented.
FN11 American Broadcasting Cos., 4 FCC 2d 709, 712-13 (1966).
FN12 Testifying for the merging companies were James A. McKenna, Jr., Broadcasting counsel for ABC; Paul E. Sonkin, ABC-TV network director of research; Leonard H. Goldenson, president of ABC; Marcus Cohn, broadcasting counsel for ITT; John A. McCone, former Director of the Central Intelligence Agency and a member of the board of directors of ITT; Taggart Whipple, antitrust counsel for ITT; Harold S. Geneen, president and chairman of the board of ITT; and Dr. Raymond Saulnier, former chairman of the President's Council of Economic Advisers. In addition, the following were listed as appearing for ITT: Raymond L. Brittenham, Sr., senior vice president; Howard J. Aibel, vice president; Hart Perry, executive vice president; Ted Westfall, executive vice president and director; and Herbert C. Knortz, senior vice president. For ABC there were appearances by Simon B. Siegel, executive vice president and director; Thomas W. Moore, vice president, director, and president of the TV network; Everett H. Erlick, vice president, general counsel, and director; Vernon L. Wilkinson, attorney; Herbert A. Bergson, attorney; Ted Shaker, vice president; and John A. Macon, director. Among the other people in the room representing ABC was James C. Hagerty, former press secretary to President Eisenhower and currently vice president of ABC.
FN13 For a discussion of the similar workload problems of a comparable regulatory agency see Aitchison, 'The Rules and Practices and Work of the Interstate Commerce Commission.' 9 I.C.C. Pract. J. 28 (1941).
FN14 See 1965 ITT Ann. Rept. 23; 1965 ABC Ann. Rept. 1.
FN15 1967 Budget of the U.S. Government 333.
FN16 To put the burden on individual Commissioners of cross-examining witnesses assures not only that the job will be done less thoroughly than if the professional staff were to give the task full-time attention. It also subverts the Commissioner's traditional role of adjudicator. It requires him to perform as client and lawyer during the hearing, and as judge thereafter. After the experience of this case it is my view that although the conflict need not disqualify a Commissioner from participating in the subsequent decision, it is a clearly undesirable practice.
FN17 See e.g., 'Television Digest,' Nov. 7, 1966: 'Preponderant view at FCC -- though not UNANIMOUS -- IS THAT IT WOULD BE PLAIN DUMB TO GO AHEAD AND APPROVE MERGER BEFORE SEEING Justice's comments.'
FN18 Letter from Donald F. Turner to Rosel H. Hyde, Nov. 3, 1966.
FN19 Letter from Donald F. Turner to Rosel H. Hyde, Dec. 20, 1966.
The opinion of the Antitrust Division is usually sought by the FCC in cases which might affect the competitive nature of broadcasting. This liaison is natural enough, because, as the majority's opinion implicitly recognizes, the competitive structure of the broadcasting industry is of vital concern to both the Commission and the Division.
The majority's precipitate action is incomprehensible in light of our past experience at coordination with the Antitrust Division. The House Committee on the Judiciary commented in 1957: 'The Committee's study of the ABC-Paramount merger case of 1951-53 and the NBC-Westinghouse exchange case of 1955 reveal instances of wholly inadequate liaison between these two Federal agencies. * * * For after the Commission had approved the (NBC) exchange, the Division (Antitrust) commendably continued its investigations, instituted grand jury proceedings, and filed an antitrust suit against the participants.' Antitrust Subcommittee of the House Committee on the Judiciary, report pursuant to H. Res. 107 on the Television Broadcasting Industry, 144 (1957).
Turner's letter of Dec. 20 is provided as an appendix to this opinion. While not at present prepared to bring suit, he warns the Commission of facts bearing on the effect this merger will have on competition in broadcasting. Even if Turner's present reluctance to bring suit reflects a conclusion that the merger does not violate the antitrust laws, the competitive dangers of which he warns would still be relevant to this Commission in its more generalized weighing of the advantages and disadvantages of the merger.
FN23 For example, the majority's major argument in favor of this merger is that the financial resources of ITT will be available to help make ABC a stronger network. As I demonstrate in part IV, infra, ABC's need for funds has not been demonstrated in the record of this case. But even if my analysis could somehow be found wanting, the Assistant Attorney General now suggests that (1) not only does ABC have no need for funds, but that (2) ITT 'anticipated that after capital expenditures and debt repayment, and assuming ABC continues in third place, it would yield a cash flow approaching $100 million between 1966 and 1970, almost all of which was thought by ITT to be available for reinvestment outside the television business.' Letter from Donald F. Turner to Rosel H. Hyde, Dec. 20, 1966. Without regard to the possible merit of the majority's decision, one would think such substantial rebuttal of its premises would be cause for some reflection and revision of its language, if not the outcome. The majority might have at least asked to see, and critically reviewed, whatever evidence Turner was relying upon for this starting assertion.
FN21 See appendix A, infra.
FN22 See, Record, 146-48, 465-68, 482-500, 592-94, 600. In contrast, the Senate hearings on the entire 1934 Communications Act devoted 30 single-spaced printed pages out of a total of 218 to testimony concerning the foreign operations of this very company, International Telephone & Telegraph. 'Hearings on S. 2910 Before the Senate Committee on Interstate Commerce,' 73d Cong., 2d sess., 118- 35, 160-73 (1934).
FN23 Letter from Commissioners Robert T. Bartley, Kenneth A. Cox, and Nicholas Johnson to Harold S. Geneen, Nov. 2, 1966.
FN24 See letter from Harold S. Geneen to Commissioners Robert T. Bartley, Kenneth A. Cox, and Nicholas Johnson, Nov. 17, 1966, and accompanying materials.
One example of the evasiveness was the response to the second request contained in the Commissioners' letter: 'A list of any joint ventures, and significant agreements (including licensing) between ITT or its affiliates and any foreign company, foreign government, or other public body.' In partial response, Geneen's letter said, 'The ITT System manufacturing companies have entered into various patent and technical information licensing and cross-licensing agreements with foreign corporations in the ordinary course of business. Many of these agreements are royalty free, or provide for royalties of relatively nominal amounts. None of these licensing agreements is considered to involve royalty payments of more than $1 million per year, and consequently they are not regarded as financially significant agreements in relation to ITT's total income.' This was the only information with regard to licensing agreements which was filed.
FN25 See letter from Commissioners Kenneth A. Cox and Nicholas Johnson to Harold S. Geneen, Nov. 23, 1966. (Commissioner Bartley was out of the city of official business, and, accordingly, was not present to participate in the issuance of the letter.)
FN26 See letter from Harold S. Geneen to Commissioners Kenneth A. Cox and Nicholas Johnson, Dec. 8, 1966, and accompanying materials. Several of the answers accompanying this second letter veritably cry out for cross- examination. For instance, in response to a request for information about the governmental liaison carried on by ITT in foreign countries, it was reported that, 'No amounts have been budgeted or expended by ITT or its subsidiaries for 'governmental liaison' or 'entertainment of governmental officials' other than the travel expenses, ordinary expenses of business, meals, and similar minor miscellaneous expenses of the ITT's sales and administrative personnel. * * *' See reply No. 5, id.
FN27 See, e.g., Landis, 'Report on Regulatory Agencies to the President-Eect,' 5-9, 53-54 (1960); William K. Jones, 'Licensing of Major Broadcast Facilities by the Federal Communications Commission,' 180-86 (Administrative Conference of the United States, Committee on Licenses and Authorizations, 1962); 2 Booz- Allen and Hamilton, 'Organization and Management Survey of the FCC,' 428-29 (1962); Minow, 'Equal Time,' 290 (ch. 17, 'Problem: The Bureaucracy') (Laurent, ed., 1964); letter from FCC Chairman Newton N. Minow to President John F. Kennedy, May 31, 1963, reprinted in id., 279; see also Hector, 'Problems of the CAB and the Independent Regulatory Commissions,' 69 Yale L.J. 931 (1960).
FN28 A particularly ironic example is involved in this very case. Hubbard Broadcasting has been seeking clarification of the rights of its Albuquerque station, KOB, with regard to 770 kc, the frequency on which WABC in New York operates. For 20 years it has persisted. It still does not receive satisfaction in the majority's opinion. See Record, 19-23, the majority's discussion of the problem, and see not 8, supra.
FN29 Here, for example, is one statement of ITT counsel, Cohn: 'I don't think it is fair for the Commission to put the proof of the negative on ITT. It is difficult, if not impossible, to prove the negative. The simple fact remains that there is no evidence in this record, outside of what you describe as your suspicions, and you used the word 'suspicion,' that a public harm may arise because of these potential detriments to which you allude.
'The record requires something other than mere suspicion that these things could happen in the future. * * * [It] is incumbent on someone to come through with positive evidence that those results could, in fact, and would, in fact, arise.' (Record, 380-81.)
FN30 See note 1, supra.
FN31 The personal and corporate interests served by the merger are discussed generally in part II, infra.
FN32 Goldenson holds 97,061 shares of ABC stock. Before the ABC-ITT talks came to public attention ABC stock was selling at 54 (Dec. 1, 1965). The day after this Commission's approval on Dec. 21, 1966, the same stock was selling for 86 3/8 . The paper gain to Goldenson was $3,142,835. Broadcasting, Dec. 26, 1966.
FN33 Record, 147.
FN34 Record, 176, 544.
FN35 Record, 147-48. At one point, however, it was indicated that about 55 percent of ITT's domestic income derives from defense and space contracts.Record 123.
FN36 The impact of the merger on competition is discussed generally in part III, B, 3, infra.
FN37 This is the danger familiar in antitrust law, of reciprocal dealings. See part III, B, 3, infra. For instance, a major tire company might agree, formally or informally, to purchase advertising from ABC in return for tire purchases by Avis Rent-a-Car, an ITT subsidiary.
FN38 The matter of ABC's present competitiveness and alleged need for outside financial support is discussed in part IV, infra.
FN39 Letter from Donald F. Turner to Chairman Rosel H. Hyde, Dec. 20, 1966.
FN40 1965 Annual Meeting of Stockholders 13. But see Record, 500, where the figure 380 was cited.
FN41 Fortune, July 15, 1966, p. 232.
FN42 1965 ITT Ann. Rept. 3.
FN43 Id. at 34-35.
FN44 Record, 123.
FN45 1965 ITT Ann. Rept. 34-35.
FN46 See reply No. 3 accompanying letter from Harold S. Geneen to Commissioners Kenneth A. Cox and Nicholas Johnson, Dec. 8, 1966.
FN47 Record, 148. But see note 35, supra.
FN48 1965 ITT Ann. Rept., 34-35.
FN49 III Proxy Statement, 23 (1966).
FN50 1965 ITT Ann. Rept., 35.
FN51 New York Times, Nov. 1, 1966, p. 57, col. 3. The publisher, Howard W. Sams Co., Inc., owns the Bobbs Merrill Co., Inc., Theodore Audel & Co., Editors & Engineers, Ltd., and Review & Research Service of America. Same and its subsidiaries published 183 titles in 1965, mainly in the fields of history, law, science, and electronics.1966-67 Literary Market Place, 89-90.
FN52 Radio Corp. of America, 10 FCC 212, 213 (1943). The Commission continued, 'The mechanism of free speech can operate freely only when the controls of public access to the means for the dissemination of news and issues are in as many responsible ownerships as possible and each exercises its own independent judgment.' Ibid.
FN53 Id. at 212. See FCC, Report on Chain Broadcasting (1941).
FN54 See 'ABC -- Past, Present, and Proposed,' at 2, filed by the parties on Mar. 31, 1966, as exhibit No. 1-3, attachment H.
FN55 Id. at 3. The stations were WJZ in New York (now WABC), KGO in San Francisco, and WENR in Chicago (now WLS).
FN56 Id. at 7.
FN57 Paramount Television Prods., Inc., 17 FCC 264 (1953).
FN58 ITT Proxy Statement, 24-27 (1966). See also ABC 1965 Ann. Rept.
FN59 Record, 70, 71, 73, 92.
FN60 ITT Proxy Statement, 25 (1966); Tyler, 'Television Around the World,' in Television, Oct. 1966, p. 32.
FN61 ITT Proxy Statement, 27 (1966).
FN64 1965 ABC Ann. Rept., 1; Record, 96.
FN65 The Commission must pass on the merger because it involves the transfer of 17 radio and television broadcasting licenses. Under the Communications Act of 1934, the Commission is to approve transfers only if it determines that 'the public interest, convenience, and necessity will be served thereby.' 47 U.S.C. 310(b) (1964). See notes 1 and 3, supra.
FN67 Corporate power, John Kenneth Galbraith has observed, '[Has] passed from the owners of the corporation to the managers, and to the scientists and technicians. They now exercise full and autonomous power and, not surprisingly, they exercise it in their own interest. And this interest differs from that of the owners. For the managers and technicians security of return is more important than the level of total earnings. This is because those in charge do not get the profits -- or anyhow not much of the profits. But they -- the scientists and technicians -- do get the promotions, enlarged opportunities, higher salaries, and prestige which go with growth of the firm.' Galbraith, 'The Fourth Reith Lecture,' The Listener, Dec. 8, 1966, pp. 841, 853. For the musings of a beguilingly astute columnist on the current merger trend, see Buchwald, 'Everyone is Merging,' Washington Post, June 2, 1966, p. A21.
FN68 Fortune, July 1, 1966, p. 82.
FN70 1965 ITT Annual Meeting of Shareholders, 9.
FN71 Some examples are Aetna Finance Co., Hamilton Management Corp., and Avis, Inc. See Fortune, July 11, 1966, pp. 81-82.
FN72 New York Times, Mar. 14, 1964, p. 51, col. 4.
FN73 'A report from Wall Street was vague: 'This could be a battle for control of ABC. Things are moving very quickly. May could give the answer." Ibid.
FN74 Id., Apr. 7, 1964, p. 43, col. 1.
FN75 Id., May 20, 1964, p. 59, col. 4.
Cumulative voting is a procedure whereby minority shareholders can elect minority representation to a board of directors by 'cumulating' all their votes for all directors into a winning vote for one or more. If forced to vote for each director's position the minority obviously is outvoted by the majority each time and has no representation. Typical of legal analysts' attitude toward cumulative voting is the following: 'An amendment abolishing cumulative voting deprives the minority of a substantial protection, and can hardly be justified by the majority's desire to be unhampered by minority representation. Where there is cumulative voting, representation on the board enables the minority to protect its interests and contribute its views on corporate policy, thereby establishing greater harmony between ownership and management. The majority shareholders are not injured, since they continue to control, while gaining increased protection in the event that they become the minority. It could be argued that minority representation decreases the board's efficiency, but the representation of minority views may result in more careful formulation of corporate policy.' 69 Harv. L. Rev., 538, 549 (1956). See Fletcher, 'Corporations,' sec. 2048 (1952). One distinguished commentator insists that in those States which allow cumulative voting, the majority shareholders should not 'have the power to withdraw the privilege by amendment of the charter or otherwise.' Ballentine, 'Corporations,' sec. 177, at 406 (1946).
FN76 New York Times, July 19, 1965, p. 1, col. 5.
FN78 Id., Dec. 2, 1965, p. 60, col. 1.
For an interesting analysis of the proposed merger with emphasis on its history see Kroeger, 'Merger Machine in High Gear,' Television, July 1966, p. 21.
FN79 Record, 579. Compare note 75, supra, regarding 'pressures' from minority shareholders to be heard by the management of their corporation.
FN80 The Commission's opinion states, 'One of the principal issues that concerned the Commission in this proceeding was whether the large business interests of ITT might be permitted to exert an influence on the broadcasting activities of ABC, and particularly whether there would be any commercial influence on the performance of the journalistic function -- the reporting of news and news commentary -- or on the selection, scheduling, or treatment of public affairs programming.'
FN81 47 U.S.C. 310(a) (1964).
FN82 See 'Hearings on S. 2910 Before the Senate Committee on Interstate Commerce,' 73d Cong., 2d sess., 118-35, 160-73 (1934); 'Hearings on H.R. 8301 Before the House Committee on Interstate and Foreign Commerce,' 73d Cong., 2d sess., 20-28, 206-32 (1934).
FN83 See reply No. 1, accompanying letter from Harold S. Geneen to Commissioners Robert T. Bartley, Kenneth A. Cox, and Nicholas Johnson, Nov. 17, 1966.
FN86 See reply No. 1 accompanying letter from Harold S. Geneen to Commissioners Kenneth A. Cox and Nicholas Johnson, Dec. 8, 1966. ITT requested, in accordance with sec. 0.417(a)(5) of the Commission's rules, 47 C.F.R., s/ec. 0.417(a)(5) (1966), that this material be denominated 'not available for public inspection.' The Commission has agreed to keep this material confidential, and hence it is not part of the public record in this case.
FN88 See reply No. 2, id. This material is part of the public record.
FN89 See reply No. 3, id. This material is not part of the public record. See note 86, supra.
FN90 See reply No. 2 accompanying letter from Harold S. Geneen to Commissioners Kenneth A. Cox and Nicholas Johnson, Dec. 8, 1966.
FN91 1966 ITT Annual Meeting of Shareholders, 17. [Emphasis Added.]
FN92 1962 ITT Annual Meeting of Shareholders.
FN93 'Hearings on H.R. 8301 Before the House Committee on Interstate and Foreign Commerce,' 73d Cong., 2d sess., 52 (1934).
FN94 See reply No. 10, accompanying letter from Harold S. Geneen to Commissioners Kenneth A. Cox and Nicholas Johnson, Dec. 8, 1966.
FN96 The Washington Post, Dec. 14, 1966, p. 34. Even more recently a Spanish subsidiary of ITT was struck by its workers, and the subsidiary was reported to have effected a lockout. The Washington Post, Jan. 27, 1967, p. 23, col. 1; id., Feb. 10, 1967, p. 18, col. 4.
FN97 This general problem, and its particular applicability to ITT, was pointed out by FCC Chairman Paul Porter in testimony before the Senate Interstate Commerce Committee in 1945. Porter said: 'I may analogize the present situation in the communications field to that in ocean transportation in the past. There was a time when the master of a vessel was in effect the diplomatic representative of his country in contact with the governments in the foreign ports where he touched. That situation is not altogether unlike our present situation in which the managements of the international communications companies are in a position to shape our international communications policy through their ability to negotiate and make arrangements with the representatives of foreign governments. Indeed, managements of communications companies may at times be in the position of serving interests other than our own national interests. At the International Communications Conference held at Warsaw in 1936, at which the United States was represented by its Government officials, a number of persons connected with our U.S. carriers were present and actively participated in the conference as members of delegations of certain Latin-American countries. Such situations and circumstances whereby our carriers may, because of the necessity of protecting their local interests at foreign points, engage in political activity within the foreign country raise serious considerations which I think this committee should take into account. A glance at a chart which I have submitted (F.C.C. exhibit No. IX(1)) will show the extensiveness of the interests of the ITT in foreign countries. Its large financial stake in business ventures in foreign countries is indicative of the potential conflict of its interest as an operator of U.S. communications with its interest in the protection of foreign holdings.' 'Hearings Before a Subcommittee of the Senate Committee on Interstate Commerce,' 79th Cong., 1st sess., 173-74 (1945).
FN98 1964 ITT Annual Meeting of Shareholders, 10-11.
FN99 1962 ITT Annual Meeting of Stockholders.
FN100 1963 ITT Annual Meeting of Shareholders, 7.
FN101 Id. at 6-7.
FN102 See reply No. 9, accompanying letter from Harold S. Geneen to Commissioners Kenneth A. Cox and Nicholas Johnson, Dec. 8, 1966.
FN103 In 1961, opposing President Kennedy's proposals for increased taxes on oversea subsidiaries Geneen said, 'We certainly cannot handle our foreign companies now in a manner that would break the spirit of these understandings of long duration and that would tend to indicate to such countries that the United States is going to exert a sovereign rights [sic] to dictate to these national companies regardless of the interest of the host country.' 'Hearings on the President's 1961 Tax Recommendations Before the House Committee on Ways and Means,' 87th Cong., 1st sess., 2942 (1961).
And again: 'We own 51 percent of our subsidiary in Italy. Now, you tell me how much local pressure I am going to receive from, you might say, the minority group in that company as to relinquishing control for no other reason that a discriminatory sort of tax which would be applied to them, as well as us, for the median of 2 percent of stock.' 'Hearings on H.R. 10650 Before the Senate Committee on Finance,' 87th Cong., 2d sess., 2426 (1962).
FN104 See, e.g., New York Times, Sept. 18, 1966, p. 26, col. 1; id., Mar. 7, 1965, p. 31, col. 1.
FN105 1965 ITT Ann. Rept., 34.
FN106 I should make it clear that the general reporters of my acquaintance in the broadcast and print media possess a fierce pride in their own personal independence. They are able. I neither could nor would impugn their ability or integrity. But it is often management, rather than reporters, which makes judgments as to the stories to be covered, how they are to be played, and whether or not they should be killed. Many reporters have had personal experience with a story that was killed by an editor for reasons unrelated to its merit news value, and timeliness. For one example, see Bagdikian, 'case History: Wilmington's 'Independent' Newspaper,' Columbia Journalism Review, summer, 1964, p. 13: In evaluating one of the major issues in this case -- the possibility of economic and other extraneous pressures distorting an independent expression of information and opinion by reporters for mass media - one is struck with the absence of many hard, honest, documented 'case studies' of the sociology of pressure on the news gathering and dissemination process. Speculation, charges, selected incidents, and 'common knowledge' abound. (See e.g., illustrative incidents cited in note 115, infra.) One highly valuable, delightfully written, and usefully detailed 'case study' of the decisionmaking process in the network television news business is Friendly, 'Due to Circumstances Beyond Our Control' (1967).
Recently an ABC news team was reported to have been detained by Spanish police after they tried to film student activities there. They did not have the special permit to use a newsreel camera, a permit required in Spain (New York Times, Feb. 7, 1967, p. 11, col. 1).This incident, combined with those detailed in footnote 96, supra, clearly indicate the threat to the independence of ABC where ITT's interests are concerned.
FN107 See New York Times, Nov. 21, 1966, p. 1, col. 7.
FN108 1965 ITT Ann. Rept., 35.
FN109 The Washington Post, Dec. 20, 1966, p. D9; Broadcasting, Dec. 12, 1966, p. 63. Spain has also excluded an American newspaper which carried stories displeasing to it (New York Times, Apr. 27, 1963, p. 2, col. 8).
One might ask if America has ever been more aware than today of the extent to which its interests, indeed the lives of its sons, can become deeply involved in the affairs of a tiny mountainous country halfway around the world? Who knows where may it be tomorrow? Today, when foreign policy decisions can be made on the basis of reports received at electronic speed, it is more essential than ever that all America be accurately and fully informed at such a time by mass media whose integrity and singleness of purpose are above suspicion.
FN110 See legal brief and comments of Ford Foundation: Establishment of Domestic Noncommon Carrier Communications-Satellite Facilities by Nongovernmental Entities, docket No. 16495, FCC, Mar. 2, 1966.
FN111 Without going into the merits of the issues involved, I would simply note that there is a substantial body of respectable opinion in this country which views with alarm an increasing influence in our society of the military and of industrial concerns which depend to a great extent on military and defense spending. In his farewell address to the Nation, President Eisenhower issued an urgent warning:
'In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists and will persist.
'We must never let the weight of this combination endanger our liberties or democratic processes. We should take nothing for granted. Only an alert and knowledgeable citizenry can compel the proper meshing of the huge industrial and military machinery of defense with our peaceful methods and goals, so that security and liberty may prosper together.' 107 Cong. Rec., 2210 (1961). Only days before the majority approved this merger, Senator Clark of Pennsylvania issued a similar warning. The Washington Post Dec. 19, 1966, p. B8. See Cook, 'The Warfare State' (1963); Mills, 'The Power Elite,' 198-224 (1956); Ekirch, 'The Civilian and the Military' (1956); Coffin, 'The Armed Society,' 23-24, 197, 226-37 (1964); Cater, 'The Fourth Branch of Government,' 165-67 (1959); cf. Buchwald, 'Live and in Color,' The World Journal Tribune, Oct. 6, 1966, p. 13, and 'Countdown,' reprinted in 'Son of the Great Society,' 139 (1966). But cf., Buchwald, 'Red Alert,' reprinted in 'Son of the Great Society,' 166 (1966).
FN112 ITT's finance subsidiaries include International Telephone & Telegraph Credit Corp., ITT Aetna Finance Co., and Kellogg Credit Corp. See 1965 ITT Ann. Rept., 35.
FN113 At the annual meeting of stockholders in 1965. ITT's president said, 'Now let me say simply what we here at ITT believe management's job to be. In that great book recently written by Alfred P. Sloan, Jr., on his early days at General Motors -- there was a critical time in its affairs, as he relates it, when he felt it was necessary to make clear that the real job of the company was to make money -- not just automobiles. This was a great statement of corporate philosophy. And, in turn, I believe that when any management forgets this simple truth, it is not good for its shareholders.' 1965 Annual Meeting of Shareholders, 11.
Senator Warren G. Magnuson warned the FCC in 1956: 'Although this [broadcasting] is a growth industry which naturally attracts capital, we who are responsible to the public in this field must bear in mind that very often ' he who pays the fiddler calls the tune.' * * * Broadcasting stations should not be simply house organs grinding out the tune of big business interests which own them -- and there is some evidence that this is a real danger today. The Commission should be on guard against the intrusion of big business and absentee ownership -- such as film producers, aviation carriers, magazine publishers, insurance companies, or other large investors interested in the tax advantages offered by the broadcast industry -- to dominate the field of station ownership * * * they [radio frequencies] should not be permitted to fall into the control of those who are only interested in the profits which can be derived from broadcasting, or in using them for the self-aggrandizement of large corporate owners.' S. Rept. No. 2769, 84th Cong., 2d sess., iv (1956).
A former Chairman of this Commission, James Lawrence Fly, once posed and attempted an answer to two fundamental questions: '[What] is freedom of speech? What do the people of a democracy require?' Fly, 'Freedom of Speech and the Press,' in 'Safeguarding Civil Liberty Today,' 59, 63 (1945). His answers bear directly on the issues now before us. 'A few objectives are relatively obvious,' he wrote, and then went on the list seven: '(1) Free access to all pertinent news sources; (2) ways and means for the ready and adequate collection and distribution of news; (3) full presentation of fact and opinion; (4) presentation of opposing points of view and argument; (5) the absence of bias, prejudice, suppression, or distortion; (6) the absence of bottlenecks, overconcentration of control, or domination by a few special interests, especially where the pipelines to the marketplace of thought are limited in number; (7) the presence of diversity in the control of news sources and of mechanisms for news distribution to the public' (Ibid.). Each is involved in this case. See also Cater, 'The Fourth Branch of Government' (1959); Cater. 'Power in Washington.' 199-235 (1964); Lippmann, 'Public Opinion' (1922); Commission on Freedom of the Press, 'A Free and Responsible Press' (1947); President's Commission on National Goals, 'Goals for Americans,' 3, 5, 72-73, 77 (1960). One of the most recent and useful anthologies on these issues is Berelson & Janowitz, 'Reader in Public Opinion and Communication' (2d ed., 1966).
FN114 105 Cong. Rec., A7954 (1959); see Skornia, 'Television and Society,' 47 (1964); Cater, 'Power in Washington,' 210-12 (1964).
FN115 See Philco Corp. v. Federal Communications Comm'n, 293 F. 2d 864 (D.C. Cir. 1961). Goldenson acknowledged an awareness of this type of potential problem with ITT (Record 308) and concluded they would be undesirable practices (Record 307).
Further examples abound of unhealthy use of the media which are relevant in this context. A strong suspicion has been raised, for instance, that a CBS sports announcer was fired because his reporting of the New York Yankee baseball games was uncomplimentary to that team. (He had, for example, allowed the cameras to report the fact that the stands were near empty.) The Yankees, of course, are owned by CBS. Columbia Journalism Review, fall 1966, p. 3; see New York Times, Oct. 9, 1966, p. D21. Without regard to the veracity of the report, it is relevant that the noted television producer, Mark Goodson, has alleged that one of the fruits of RCA's acquisition of Random House was the attempt to force its president, Bennett Cerf, to forgo his role as a regular panelist on a popular CBS program. 'What's My Line?' Goodson said: '[Recently] -- as you know, RCA is merging with Random House -- and great pressure has been put on Bennett Cerf by RCA to get off. And now you'd say, ' How silly for RCA to really be concerned that Bennett Cert would be on 'What's My Line?' But do you know really why? Because David Sarnoff's wife watches 'What's My Line?' every week and this is very irritating to the General, you see." (Transcript of the radio program, 'WCBS Radio Looks at Television,' Feb. 28, 1966).
On several occasions, broadcast editorials have opposed interests such as pay- TV, which posed an economic threat to the station itself. The Commission has at times found a station's treatment of issues affecting its own interests in violation of the 'fairness doctrine.' See, e.g., The Spartan Radiocasting Co., 33 FCC 765 (1962). A political candidate who also owned several stations is reported to have used those stations as an aggressive tool in his own campaign. Columbia Journalism Review, summer, 1964, p. 2.Howard K. Smith is reported to have said, 'if as many people listen to me on ABC as used to edit my copy at CBS, we'll have a large audience to build on.' See id., summer, 1962, p. 51. And Eric Sevareid is reported to have said of putting on a news program, 'The ultimate sensation is the feeling of being bitten to death by ducks.' Time, Oct. 14, 1966, p. 58.
Examples of subversion of the proper function of newspapers are even more common. A railroad-owned newspaper did not cover railroad wrecks. Id., summer, 1963, p. 46. A newspaper heavily in debt to the Teamsters Union has given exceedingly favorable coverage to Jimmy Hoffa. Id., spring, 1966, pp. 8-14. Claims of journalistic independence must be viewed with a great deal of skepticism in the face of recurrent interference by management in the reportorial and editorial functions both in newspapers and in broadcasting. The constant interference of the DuPont interests in the editorial policies of the DuPont-owned Wilmington daily newspapers finally led to the departure of the executive editor. See id., summer, 1964, 13-17. Likewise Anaconda Copper used to interfere with its newspapers' treatment of certain political candidates before Anaconda divested itself of its newspaper interests. Id., summer, 1963, p. 46. See also Liebling, 'The Press' (1964).
Foreign attempts and success in influencing the press, in addition to the Dominican Republic episode, are reported id., fall, 1963, pp. 29-35. For a description of the role of the press in the entry of the United States into the Spanish-American War, see the section on 'yellow journalism' in Emery, 'The Press and America,' 427-46 (1962).It has been reported that 'William Randolph Hearst * * * claimed that it cost him $3 million to bring about American intervention in Cuba.' Hicks, 'The American Nation,' 309 (2d ed. 1949). For an analysis of the problems created by ownership of more than one type of media by a single entity see Levin, 'Broadcast Regulation and Joint Ownership of Media' (1962).
FN116 For instance, ABC is in the record, publishing, and theater business and owns amusement centers. And the 'business' of broadcasting can influence the 'programming' of broadcasting. Perhaps the rigged quiz show and 'payola' scandals were not first exposed on radio or television because the broadcasters themselves would had been the ones most hurt. (Goldenson could think of no instance where a network had taken a documentary position opposed to the economic interests of the network's owners. Record, 249). See Ferry & Ashmore, 'Mass Communications,' 9-38 (1966), for a discussion of the influence and distortions of the media of mass communications. While we might wish to minimize the economically based impediments to information and opinion integrity that inhere in the big business of broadcasting, we can accept them as inevitable, and very limited in subject matter area, and look to the Columbia Journalism Review and print media as a check on abuse. The exponential multiplication of such pressures that come from a conglomerate corporation's control of a network are not inevitable -- this Commission could have avoided those problems by failing to find this merger serves the public interest.
FN117 See, e.g., Opotowsky, 'TV, the Big Picture,' 69-80 (1962); H.R. Rept. No, 281, 88th Cong., 1st sess., 106 (1963). ITT's counsel acknowledged at the hearing that influence of advertisers is 'a real problem, and applies not only to the local stations throughout the United States but to the networks as well.' Record, 248. And ABC's president, while denying that ABC could ever be influenced by advertisers, felt it was undesirable to have individuals on ABC's board of directors who were associated with products advertised on ABC. Record, 264.
Advertisers can inject political as well as strictly economic considerations into broadcasting decisions. One example of this was Kemper Insurance Co.'s breach of contract in withdrawing sponsorship of news programs after ABC aired a documentary on Richard Nixon in which Alger Hiss appeared. ABC-Pt. v. American Mfrs. Mutual Ins. Co., 42 Misc. 2d 939, 249 N.Y.S. 2d (1963). See Record, 246-47.
Similar and sometimes more subtle pressure is brought on others of the mass media. It is, of course, more than coincidental that history textbooks in the North and South give very different pictures of the Civil War. See the Washington Post, Dec. 3, 1966, p. 12.It was recently reported that certain textbooks which frankly depicted the treatment of minorities in this country were encountering strong opposition from those who would expunge all references not complimentary to the United States. The Washington Post, Dec. 11, 1966.
The lesson I would derive from these examples was perhaps best summarized by Edward P. Morgan while musing about a recent advertising campaign for the telecast of a big football game: 'What if some wealthy scoundrel decided to back some unprincipled demagogue for president and bankrolled an equivalent saturation campaign on TV? * * * We have not, of course, arrived at the point of succumbing to some sinister -- or beneficial -- Big Brotherliness via broadcast brainwashing so this is a fine time to examine the problem while we still have thinking room.' Washington Evening Star, Jan. 20, 1967, p. D11.
FN118 Breed, 'Social Control in the News Room,' in Schramm, 'Mass Communications,' 178-94 (1960).
FN119 See Whyte, 'The Organization Man,' 46-59 (1949); Riesman, 'The Lonely Crowd' (1953). Indeed this theme is pursued in the popular arts. See Burrows, Weinstock & Gilbert, 'How To Succeed in Business Without Really Trying' (1962), made into a musical comedy with lyrics and music by Frank Loesser, and now popular as a movie.
FN120 Bagdikian, 'The Way It Was and the Way I Call Them,' Columbia Journalism Review, fall, 1966, pp. 5-10. See the Washington Evening Star, Jan. 3, 1967, p. A8, Col. 3. Robert Kintner has written 'But every reporter knows that when you write the first word, you make an editorial judgment.' Kintner, 'Broadcasting and the News,' 13 (1965). See also Bauer, 'The Communicator and the Audience'; Pool and Shulman, 'Newsmen's Fantasies, Audiences, and Newswriting'; White, 'The Gatekeeper': A Case Study in the Selection of News'; Gieber, 'News Is What Newspapermen Make It'; and Breed, 'Mass Communication and Sociocultural Integration,' all reprinted as part III, 'The Commnicator and His Audience,' in Dexter and White (eds.), 'People, Society, and Mass Communications' (1964).
The influence of language on perception and reporting by journalists and others is a subject of interest to general semantists. See, e.g., Schwartz, 'General Semantics and the Reporter's Job'; Utley, 'Can a Radio Commentator Talk Sense'; Johnson, 'You Can't Write Writing'; and Macrorie, 'The Process of News Reporting.' reprinted in Hayakawa (ed.), 'The Use and Misuse of Language,' 79, 91, 101, 112 (1962). See also Hayakawa, 'Language in Thought and Action,' 38- 50 (2d ed. 1963); Johnson, 'People in Quandaries,' 91-168 (1946); Johnson, 'Your Most Enchanted Listener,' 59-71 (1956).
FN121 See part II, supra.
FN122 See, e.g., note 118, supra.
FN123 ITT has five registered lobbyists in Washington. This number, more than General Motors, Standard Oil of New Jersey, Ford Motors, or the Pennsylvania RR., places ITT very high on the list of business corporations. See Deakin, 'The Lobbyists,' 122 (1966). 'Lobbying is big business for business in the United States.' Id., at 105. For a description of the relationship to broadcasting of one massive propaganda effort by a trade association (National Electric Light Association), see Barnouw, 'A Tower in Babel,' 263 (1966).
FN124 Majority opinion, supra.
FN125 5 U.S.C.. sec. 1010 (1964). Prophylactic rules aimed at preventing relationships which have the potential for conflicting interest are a common statutory device. For example, the Bank Holding Company Act forbids bank holding companies from owning nonbanking businesses. 12 U.S.C., sec. 1843 (1964). Our own Communications Act is one of many forbidding Commissioners and employees from holding financial interests in regulated and related companies. 47 U.S.C., sec. 154 (1964).
FN126 Majority opinion, supra.
FN127 See, e.g., Landis, 'Report on Regulatory Agencies to the President Elect,' 53-54 (1960); William K. Jones, 'Licensing of Major Broadcast Facilities by the Federal Communications Comm'n,' 217-222a (Administrative Conference of the United States, Committee on Licenses and Authorizations, 1962); Friendly, 'The Federal Administrative Agencies,' 53-73 (1962); Schwartz, 'The Professor and the Commission,' 148-164 (1959).
FN128 47 U.S.C., sec. 313 (1964).
FN129 Westinghouse Broadcasting Co., 22 R.R. 1023 (1962); General Electric Co., FCC 64-641, 52735.
FN130 Even the current and commendable efforts to the Library of Congress, National Academy of Television Arts and Sciences, New York Museum of Modern Art, and others -- designed to serve entirely different purposes -- do not begin to approach such dimensions. The Federal Trade Commission, alone among Government agencies, at least has a procedure for watching television -- even if only the thankless task of monitoring commercials.
FN131 U.S. Constitution, first amendment; 47 U.S.C., sec. 326 (1964).
FN132 Majority opinion, supra. Substantial question exists as to whether a regulatory body could ever detect the corporate abuses I suggest are possible. But the majority has chosen to ignore even the most elemental reporting requirements. ITT Counsel Cohn noted during the hearing: 'Obviously, if you think it [a reporting requirement] is important and the rest of the Commissioners think it would be important, it would be part of the opinion itself.' Record, 581. In light of the hint in Turner's letter that ITT really expects ABC to help it finance future acquisitions such reports would seem mandatory if this Commission is even to appear to discharge its responsibility.
Such reports would be intended to verify the faith placed by the majority in the financial and other 'commitments' of ITT. The reports could include evidence of (1) otherwise unavailable new programming and capital investment, made possible by ITT's financial resources; (2) new technology made available to ABC; (3) new research by ITT which would not have been done without the merger; (4) changes in corporate accounting practices which might conceal transfer of corporate funds from ABC to ITT; (5) changes in managerial structure or personnel; (6) contribution of ABC earnings to ITT's corporate performance; and (7) evidence of instances in which ABC's programming, editorials, or corporate positions have been established in ways contrary to the overall interests of ITT. It is worthy of note that when ITT received Commission approval to purchase Press Wireless, several conditions were attached to the approval, in part stemming from concern over the relationship of Press Wireless to the dissemination of foreign news. ITT World Communications, Inc., 1 FCC 2d 213, 216, 222 (1965).
FN133 'All laws of the United States relating to unlawful restraints and monopolies and to combinations, contracts, or agreements in restraint of trade are hereby declared to be applicable * * * to interstate or foreign radio communications.' 47 U.S.C., sec. 313 (1964).
FN134 'No corporations engaged in commerce shall acquire, directly or indirectly, the whole or any part of the stock or other share capital and no corporation subject to the jurisdiction of the Federal Trade Commission shall acquire the whole or any part of the assets of another corporation engaged also in commerce, where in any lines of commerce in any section of the country, the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly.' 15 U.S.C., sec. 18 (1964).
FN135 'Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal.' 15 U.S.C., sec. 1 (1964).
FN136 But see address by Donald F. Turner, Federal Bar Association Briefing Conference on Federal Control of Advertising and Promotion, June 2, 1966; address by Donald F. Turner, Advertising-Government Relations Conference, Feb. 8, 1967. For an analysis of recent network practices with regard to advertising rates, see Blake & Blum, 'Television Rate Practices: A Case Study in the Failure of Social Control of Price Discrimination,' 74 Yale L.J. 1339 (1965).
FN137 Bach, 'Economics,' 458-60 (1960).
FN138 McLuhan, 'Understanding Media: The Extensions of Man,' 7 (1965). And, most recently, 'The Medium Is the Massage' [sic] (1967).
FN139 'ABC -- Past, Present and Proposed,' at 17, filed by the parties on Mar. 31, 1966, as exhibit No. 1-3, attachment H.
FN140 See part IV, B, infra.
FN141 Conceivably, the product might be improved by delivering more attentive viewers, viewers with greater disposable incomes, or viewers of higher socioeducational level. But because most television advertisers seek a mass audience of potential purchasers for family, low-priced, repeat-purchase, universally consumed, packaged consumer products, the total audience delivered by the network is almost surely the best measure of the product
FN142 Address by Robert A. Hammond, National Industrial Conference Board, Conference on Antitrust in an Expanding Economy, Mar. 4, 1965.
FN143 Record, 266.
FN144 Record, 206. See part IV, A, infra.
FN145 Record, 253-54.
FN146 Record, 99.
FN147 Record, 337.
FN148 Majority opinion, supra.
FN149 Paramount Television Prods; Inc., 17 FCC 264 (1953).
FN150 See 'Broadcasting,' Oct. 17, 1966, p. 36.
FN151 The Overmyer Network, named after its creator, Daniel H. Overmyer, is expected to broadcast 8 hours a day and hopes to have 100 affiliates by the time it begins operation in September of 1967. Wall Street Journal, July 13, 1966, p. 4, col. 2.
FN152 See, e.g., Carnegie Comm'n on Educ. Television, 'Public Television, a Program for Action' (1967); Legal Brief and Comments of Ford Foundation. Establishment of Domestic Noncommon Carrier Communications-Satellite Facilities by Nongovernmental Entities, docket No. 16495, FCC, Mar. 2, 1966; President's Message on Health and Education, 113 Cong. Rec., S2677, S2679 (daily ed. Feb. 2, 1967).
FN153 In 1965 ITT spent $523,135 on United States television advertising. It estimated 1966 expenditures for this item at $1,671,881. Exhibit 3, submitted by ITT on Sept. 7, 1966.
FN154 For example, ITT makes radios, television sets, phonographs, air conditioners, refrigerators, and freezers. See exhibit 1, submitted by ITT on Sept. 7, 1966.
FN155 The president of ITT admitted in the hearing to a concern that the average American had not heard of ITT and a hope that the affiliation with ABC would help bring popular recognition to ITT. Record, 542. This is perhaps some indication that ITT has plans to expand its consumer market in the United States, for popular recognition in America is hardly necessary for sale of electrical equipment abroad.
FN156 None of RCA's television advertising currently appears on any network other than RCA-owned NBC. Sponsor, Sept. 19, 1966, p. 22. This may be an indication of the amount of ITT advertising that could be expected to appear on others' networks.
FN157 Broadcasting, Dec. 12, 1966, pp. 38, 40.
FN158 Majority opinion, supra.
FN159 United States v. General Dynamics Corp., 258 F. Supp. 36 (S.D.N.Y., 1966).
FN160 Record, 277.
FN161 Record, 182-84.
FN162 ITT's president testified, 'We did hold some conversations from time to time in a general way, with people who purported to think we should get into stations, and that sort of thing, but we never got anywhere with that.' (Record, 592.) Compare with this the assessment of the Assistant Attorney General (Antitrust). who had access to ITT internal documents which this Commission did not examine: 'Our investigation indicates that ITT, which characterizes itself as one of the world's leading suppliers of electronics and telecommunications products and services, has been seriously interested in entering the domestic broadcasting business. It considered the possibility of acquiring one or another of the national networks, various television station groups, and individual stations. ITT's entry into broadcasting by station ownership, an alternative to the ABC acquisition, would have given it a base for subsequent independent entry into the network business.' (Letter from Donald F. Turner to Chairman Rosel H. Hyde, Dec. 20, 1966.)
FN163 Record, 549.
FN164 See note 162, supra.
FN165 Record, 121.
FN166 Letter from Donald F. Turner to Chairman Rosel H. Hyde, Dec. 20, 1966.
FN167 Majority opinion, supra.
FN168 Record, 121-22.
FN169 Record, 516.
FN170 Federal Communications Comm's v. RCA Communications, 346 U.S. 86, 93 (1953). Majority opinion, supra.
FN171 Majority opinion, supra.
FN172 See discussion, infra.
FN173 The impact of lack of equal access to affiliates is discussed infra. That ABC's programming is in no sense inferior to that of CBS and NBS is documented supra. And, there is uncontradicted testimony that both ABC and CBS 'have prior orders in for [color equipment]. * * * As fast as they will deliver it, we will convert.' Record, 212.
FN174 See, e.g., Broadcasting, Jan. 30, 1967, p. 60.
FN175 See Nieslen Competitive Market Ratings for November 1960; February, April, November, 1961; February, April, November, 1962; February, April, November, 1963; February, April, November, 1964, submitted by ABC to the Federal Communications Commission, as exhibit A accompanying letter from Mortimer Weinbach to Chairman E. William Henry, May 12, 1964. See also Nielsen Competitive Market Ratings for November 1964; February, April, November, 1965; February, April, September, 1966. See also testimony of counsel for ABC. Record, 206.
FN176 Record, 2669 With regard to news shown, the president of ABC said, 'Today I think competitively we have as good a news team as CBS and NBC; it will take a little longer to establish them because of the habit factor, but eventually they will be competitive.' Record, 236.
FN177 Record, 226.
FN178 Record, 273.
FN179 Record, 510.
FN181 Record, 536-37.
FN182 Record, 537.
FN183 Record, 205.
FN184 Record, 209.
FN185 In 1962 Congress amended the Communications Act to give the Commission 'authority to require that apparentus designed to receive television pictures broadcast simultaneously with sound be capable of adequately receiving all frequencies allocated by the Commission to television broadcasting. * * *' 47 U.S.C., sec. 303(s) (1964).The Commission utilized this authority to require such reception capability in new television sets. 47 C.F.R., sec. 15.65 (1966). All-channel sets are capable of receiving that part of the UHF spectrum allocated to television (the UHF stations), and thereby increase channel capacity five or six times. It has been estimated that it will take 8 to 10 years for enough set replacement to occur to make UHF receiving capability virtually universal.
FN186 Record, 252.
FN187 See text at note 145, supra.
FN188 The president of ABC said 'My statement to the Commission * * * is now, if you give us equal facilities in the marketplace, we will deliver you a competitive network.' Record, 229.
FN189 See Notice of Proposed Rulemaking, docket No. 9807, FCC, Oct. 5, 1950.
FN190 Paramount Television Prods., Inc., 17 FCC 264, 378-79 (1953).
FN191 Network Study Staff to the FCC Network Study Committee, 'Report on Network Broadcasting,' 207-78, 638-41, 657-58 (1957) (reprinted as H.R. Rept. No. 1297, 85th Cong., 2d sess. (1957)).
FN192 See, e.g., Record, 279.
FN193 Record, 212, 225.
FN194 Record, 212.
FN195 Record, 112, 113, 214-15, 265.
FN196 Record, 574.
FN197 Record, 572.
FN198 Record, 256-57.
FN199 Record, 272.
FN200 In fact ABC increased its quarterly dividend in the third quarter of 1965 from 35 cents to 40 cents a share. 1965 ABC Annual Rept., 2. See discussion, infra.
FN201 Record, 213.
FN202 Record, 567.
FN203 Record, 570.
FN204 1965 ABC Annual Rept., 26.
FN205 Broadcasting, OCT. 24, 1966, P. 80.
FN206 ABC -- Past, Present and Proposed,' app. at ii, filed by the parties on Mar. 31, 1966, as exhibit No. 1-3, attachment H. ABC's performance for 1966 showed an increase of 13.5 percent (from $15.7 million to $17.9 million) in operating earnings and an increase of 16 percent (from $15.6 million to $18 million) in total earnings. Broadcasting, Mar. 6, 1967, p. 68.
FN207 Record, 213.
FN208 Record, 567.
FN209 If borrowing is limited to 50 percent of the value of net assets, then this analysis is faulty. In that case all increases in debt would offset the consequent increases in gross assets, so that net assets would remain constant. But a lending institution might rationally decide to limit borrowing of its creditors to 50 percent of gross assets or of net assets. This simply further emphasizes the deficiency of the record in this case, for we have no idea of the definition of 'assets' which limits ABC's further borrowing.
FN210 The average rate of increase over the past 5 years has been 12.6 percent.At that rate earnings would be $17.5 million in 1966, $19.7 million in 1967, $22.2 million in 1968, and $25 million in 1969. After dividends of $7 million per year, this would leave a total of $56 million out of the profits of the company which would be used for the contemplated $70 million in expenditures. See also note 200, supra.
FN211 Record, 569.
FN212 See part II, supra.
FN213 Letter from Harold S. Geneen to Leonard H. Goldenson, Mar. 28, 1966. [Emphasis added.]
FN214 Record, 571. See also Record, 559, 561, 562; letter from Harold S. Geneen to Leonard H. Goldenson, Mar. 28, 1966; letter from Harold S. Geneen to Ben F. Waple, Secretary, FCC, July 25, 1966.
FN215 Record, 144. [Emphasis added.]
FN216 Record, 298; and see Record, 297-301.
FN217 Record, 300; see also Record, 280-81.
FN218 Record, 566; see also Record, 280-81.
FN219 Record, 568-70. [Emphasis added.]
FN220 Record, 557-75.
FN221 Letter from Donald F. Turner to Chairman Rosel H. Hyde, Dec. 20, 1966.
FN222 The company (RCA) was 10 years old (in 1930) and still a mere sales agency for GE and Westinghouse * * * when the roof fell in. Sarnoff needed money to keep RCA in business and NBC had to pull its weight in the boat and more. Its profits from 1931 on helped the parent company. * * * The depression alone would have driven Sarnoff to unleash the advertisers, but the CBS performance (sales increased from $5 million in 1929 to $19 million in 1934) made it imperative for NBC to make the best possible showing on the balance sheet. And that way lay the 'wasteland.' (Dreher, 'How the Wasteland Began: The Early Days of Radio,' the Atlantic Monthly, Feb. 1967, pp. 53, 58.)
FN223 American Broadcasting Cos., 4 FCC id 709, 711 (1966).
FN224 Record, 9-19, 184-202.
FN225 American Broadcasting Cos., 4 FCC 2d 709, 711 (1966).
FN226 Majority opinion, supra.
FN227 'Hearings on S. 2910 Before the Senate Committee on Interstate Commerce,' 73d Cong., 2d sess., 118-35, 160-73. See note 22, supra.
FN228 Letter from Commissioners Robert T. Bartley, Kenneth A. Cox, and Nicholas Johnson to Harold S. Geneen, Nov. 2, 1966.
FN229 Future sales of advertising by ABC to ITT might be more substantial, but the majority ignors this possibility.
FN230 See part III, A, supra.
FN231 See part IV, supra.
FN232 Majority opinion, supra.
FN233 See letter from Donald F. Turner to Rosel H. Hyde, Dec. 20, 1966.
FN234 Majority opinion, supra.
FN235 Record, 96.
FN236 Majority opinion, supra.
FN237 See note 209, supra.
FN238 See part IV, B, supra.
FN239 Majority opinion, supra.
FN241 FCC 64-1171, 3 R.R. 2d 909 (1964).
Portions of ITT's submissions designated not available for public inspection in accordance with section 0.417(a)(5) of the Commission's rules:
(1) Listing of the 10 largest owners of ITT stock in each foreign country and all foreign owners of 100 shares or more of ITT stock (submitted with item No. 8 attached to ITT's letter of November 17, 1966).
(2) Memorandum of agreement between the Government of Chile and ITT, dated February 6, 1965 (submitted with ITT's answer to question No. 1, filed December 9, 1966).
(3) Illustrative examples of major agreements between ITT and foreign governments and entities and copies of all ITT's foreign licensing agreements producing revenues of more than $100,000 per year (submitted with ITT's answer to question No. 3, filed December 9, 1966).
DEPARTMENT OF JUSTICE, WASHINGTON, ASSISTANT ATTORNEY GENERAL, ANTITRUST DIVISION, December 20, 1966.
Hon. ROSEL H. HYDE, Chairman, Federal Communications Commission,
DEAR MR. CHAIRMAN: As I informed you in my letter of November 3, we have been conducting an intensive study of the possible effects of the proposed acquisition by International Telephone & Telegraph Corp. (ITT) of American Broadcasting Cos., Inc. (ABC). A also stated that our analysis as of that date suggested 'a sufficient possibility of significant anticompetitive effects to indicate that substantial antitrust questions are presented.' It was, therefore, necessary for us to continue our investigation and review of this extremely complex matter before coming to any final determination.
On the basis of the information currently available to us, we have reached the following conclusions:
(1) There are several anticompetitive consequences that may possibly flow from an ITT-ABC merger, effects which might conceivably be substantial.
(2) The possibilities of such anticompetitive consequences seems sufficiently speculative that we are not presently contemplating an action under the antitrust laws to enjoin consummation of the merger.
(3) On the other hand, we believe the possibilities of adverse effects are significant enough that we should call them to your attention, and that they deserve full and serious consideration by the Commission in making its determination whether, in light of these and other pertinent factors, the acquisition of ABC by ITT would serve 'the public interest, convenience, and necessity.'
Let me briefly summarize the aspects of this merger which concern us and would also be of concern to the Commission.
In reviewing the proposed merger, we concluded that it is in the broadcasting industry and related fields that significant competitive effects may be discernible. The concentration of control in three networks over access to the principal stations and their audiences places a high premium on possible developments which would dilute network power. Accordingly, we have inquired into potential effects of this merger in diminishing independent activities by ITT in broadcasting, in CATV and other fields competitive with broadcasting, and in the development and application of communications technology and equipment which open the broadcasting field to others.
Our investigation indicates that ITT, which characterizes itself as one of the world's leading suppliers of electronics and telecommunications products and services, has been seriously interested in entering the domestic broadcasting business. It considered the possibility of acquiring one or another of the national networks, various television station groups, and individual stations. ITT's entry into broadcasting by station ownership, an alternative to the ABC acquisition, would have given it a base for subsequent independent entry into the network business. While other group-station owners have not attempted network operation, most lack ITT's resources. Hence the possibility of such an entry by ITT cannot be dismissed.
ITT's interest in broadcasting is also shown by its interest in the CATV business. Commencing in 1965 it invested almost $7 million in construction and ownership of CATV systems. Among the possibilities contemplated were expansion of this investment, pay-TV operations, and creation of a network linking whole areas of local CATVs franchises. ITT's interest in these possibilities and efforts in this field apparently ceased after it agreed on merger with ABC -- a sequence which indicates a possible cause-and-effect relationship.
The importance of ITT's independent entry into broadcasting, via standard or CATV networking, of course, depends upon the number of other potential entrants likely to come in on a comparable scale -- a subject as to which presently available information is sketchy.
A broader problem may arise from the integration of a large important communications technology and equipment firm with an existing network. It appears probable that the development and application of new technology in communications will tend to dilute the power of the existing networks and reduce barriers to entry in the broadcasting field. For example, CATV is now recognized as competitive or potentially competitive with the existing system of TV broadcasting. CATV systems can reduce the disparity in signal quality between VHF and UHF, and can dilute the power of the local stations and the networks by bringing in additional channels and by originating their own programming. Predictions have been made of a national microwave-coaxial cable network which would deliver broadcast entertainment and many other services (facsimile reproduction, data, banking, and shopping services) to the home. The result of this development -- which corresponds to the possibility of an interconnected grid of CATV systems contemplated by ITT -- would be to bypass the barrier of the existing limitations on local stations and to eliminate the present network power arising from such barriers. Similarly, another technological development, satellite transmission of programs, will make available more and cheaper channels. One of the ultimate possibilities envisaged is direct satellite transmission to the home listener which woul bypass local stations, thereby eliminating that limitation on entry into network broadcasting. ITT's commitment to a heavy investment in an existing network may blunt its efforts in developing the technology for competitive broadcasting methods.
Communications technology is now in a highly dynamic state and it is not possible to predict with confidence the future means of broadcasting transmission and reception and their impact upon the broadcasting industry. It may be that innovation in communications technology will not be threatened because of adequate competition in the latter field. But one of the networks, NBC, is already integrated with a leading supplier of technology and equipment. Approval of the present merger may lead to a similar transaction involving CBS. Other firms in the communications field have investments in broadcast stations. It is probable that heavy commitments of communications firms in the existing structure of broadcasting give them an interest in retarding the pace of the development and application of technology which would lead to more competition in broadcasting.
There are other potential competitive effects of this merger which give rise to some concern. Networks unintegrated with common carriers or equipment manufacturers ARE MORE LIKELY TO BARGAIN DOWN THE PRICE OF TRANSMISSION SERVICES AND EQUIPMENT. While they do this in order to increase their own revenues or reduce costs, the effect may be to lower barriers to entry for other potential networks -- a recent example was ITT's coverage of the Gemini 'splashdowns' from its mobile ground station on naval vessels, which was the subject of a complaint by the networks before the FCC.
Moreover, it is possible that the acquisition of a network by a large diversified industrial concern may adversely affect the sources of revenue and the viability of new networks because of the placement of the firm's own advertising and because of the possibility of reciprocal dealings and leverage on other advertisers. ITT is now a substantial purchaser from important advertisers, and the intended expansion of its domestic business activities will increase the scale of such purchases. Conversely, the availability of advertising time on its own network to an enterprise like ITT, increasingly involved in consumer goods and services, may give it an advantage over its competitors in those fields by enabling it to take advantage of unsold advertising time.
Our investigation has also led us to examine claims made that the acquisition is needed to assist ABC in its competition with the other two major networks. We have found little to support these claims. While ABC has been the weakest network in coverage and revenues, the company has steadily narrowed the gap and its overall broadcasting operations have been profitable. Additional capital is desired by ABC for certain projected expansions, but it has not explored other sources of financing and did not initiate the proposed merger with ITT. ITT's estimates indicate that ABC's earnings growth rate over the next 5 years would be 16 percent. More importantly, it was anticipated that after capital expenditures and debt repayment, and assuming ABC continues in third place, it would yield a cash flow approaching $100 million between 1966 and 1970, almost all of which was thought by ITT to be available for reinvestment outside the television business.
As this brief review indicates, the ITT-ABC acquisition raises possibilities of significant competitive problems. So far as we are aware the Commission has not had before it information with respect to ITT's consideration of entry into the CATV business, its estimate of ABC's prospects, and the future impact upon broadcasting of potential technological developments. Because of the uncertainties inherent in predicting developments in these rapidly changing areas, we cannot conclude on the basis of the facts presently available to us that the competitive effects are sufficiently determinable to make it appropriate for the Department of Justice to institute suit at this time under section 7 of the Clayton Act. We suggest, however, that these anticompetitive possibilities warrant serious consideration by the Commission in its pending proceeding, since, in applying the public-interest standard of the Communications Act, the Commission is obliged to consider the competitive aspects along with other public-interest issues.
We regret that the complexity of this problem has obliged us to delay until now this submission of our views.
DONALD F. TURNER, Assistant Attorney General, Antitrust Division.
CHRONOLOGY AND DOCUMENTS INDEX
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