FEDERAL COMMUNICATIONS COMMISSION
15 F.C.C.2d 19 (1968)
RELEASE-NUMBER: FCC 68-915
September 5, 1968
The Commission, by the Commissioners Hyde, Chairman; Lee, Wadsworth, Bartley, Cox, and Johnson, with Commissioner Cox dissenting and issuing a statement in which Commissioner Johnson joins, approved the following document:
[*19] MR. LEONARD H. GOLDENSON, President, American Broadcasting Companies, Inc., 1330 Avenue of the Americas, New York, N.Y. 10019
DEAR SIR: Your letter of March 29, 1968 to Commissioners Lee and Cox together with communications from other interested persons relevant thereto have been carefully considered by the Commission.
The Commission continues to be concerned with the problems raised by lack of comparable facilities in various television markets -- particularly the problems of internetwork competition. It does not, however, believe that in the circumstances it would be appropriate to take the actions urged by you. The Commission will continue to keep in close touch with developments in this area.
BY DIRECTION OF THE COMMISSION, BEN F. WAPLE, Secretary.
My file on this matter is nearly two inches thick, including very bulky memoranda from our staff. The problem posed is one which the management of one of our three national television networks considers crucial to its ability to remain competitive. Yet a majority of my colleagues have disposed of this very complex matter, after the briefest of oral discussion, in a letter of just nine lines. They simply state their conclusion -- that "in the circumstances," which are not specified in any way, it would not be appropriate to take the actions urged by ABC -- without giving any rational explanation for this result. I have complained of other instances where similarly inadequate grounds have been given for the results reached, because this makes it impossible for [*20] parties adversely affected or for Commissioners who disagree with the result to come to grips with the majority's action.
Here, for example, I cannot tell, on the basis of the letter or of the oral statements of my colleagues, whether the members of the majority believe (1) that there is no problem because ABC now enjoys equal competitive status, (2) that even though it lacks equally competitive facilities, the recent developments complained of do not pose any serious threat to ABC's competitive position, (3) that even if ABC's position deteriorates, the public interest will not be impaired, (4) that there is a problem, the public interest is endangered, but we lack legal authority to act as ABC has requested, (5) that the public interest may be damaged but that dealing with the problem would require a course of action markedly different from anything we have done before, and that this is just too much trouble, or (6) that unrestrained competition must be preserved, even if it results in loss or deterioration of service to the public. It is therefore very difficult to comment on their action.
Whatever their reasons, I think the result is contrary to the public interest. I wish I had time to develop the matter fully, but I must content myself with a very brief statement of my position.
ABC has always been at a competitive disadvantage in terms of facilities. This has been recognized for years by the Commission and the Congress, and the achievement of three fully competitive commercial networks n1 has been a major objective of congressional and Commission policy. No one has urged that it is any obligation of government to insure that all three networks realize equal profits. But I think there has been agreement that it is an appropriate concern of government to provide the opportunity for equal access to the national audience which is a necessary prerequisite to free and equal network competition. n2
n1 I do not suggest that three national program services provide all the program diversity that may be needed. But faced with the facts that the Dumont Network had ceased operations, largely because of lack of outlets, and that ABC was also lagging in that regard, it was natural for all concerned to concentrate on achieving the goal of three competitive networks. The abortive Overmyer Network came into existence much later, but was not comparable in scope or function to ABC, CBS and NBC.
n2 This is not to say that profits are irrelevant to this problem. To the extent that lack of equal access to the audience results in lower ratings than ABC's programs would otherwise obtain, this makes that network's sales job more difficult and reduces the rates at which its commercial time can be sold, which, in turn, reduces its revenues and profits. This may then compound the problem by reducing ABC's financial resources for its continuing competitive struggle with CBS and NBC. If equality of facilities is ever achieved, then the networks will be free to compete for affiliates, programs, audiences, and advertising revenues on an equal basis. No doubt they will earn varying levels of profit, but that would be no occasion for governmental intervention.
In recognition of this obligation, the Commission has done a number of things. It dropped-in third VHF channels in New Orleans, Rochester, Syracuse, Grand Rapids, etc. to permit the development of competitive outlets for ABC, n3 and proposed similar action in seven other markets. Similarly, the Commission deintermixed Fresno, Bakersfield and Elmora -- and was well on the way to doing the same thing in Evansville, until, having proposed such action in seven other markets, it abandoned the whole deintermixture concept in the wake of the all-channel set legislation. Again, this technique was designed [*21] to open up the potential for multiple services -- including a third commercial network outlet by providing for competitively equal facilities.
n3 In several instances it denied requests that these channels be reserved for noncommercial educational use, pointing out that ABC's need for a VHF outlet in order to be competitive was more critically important than the admittedly desirable objective of establishing a VHF educational station.
Following the majority's action in terminating our drop-in proposals, we considered a number of other devices for equalizing network competition. These included market sharing and time sharing, among others. Indeed, Chairman Minow, in casting the decisive vote to kill the drop-ins, appended a concurring statement in which he said all such possible alternatives had to be fully explored. But all our discussions led to nothing, and the Commission finally wrote to ABC, on March 19, 1965, indicating that it was still concerned about the competitive situation but rejecting all the proposals which had been made for alleviating the situation in the major two VHF markets.
After that, things settled down to a sort of stabilized stand-off. ABC still lacked equal competitive outlets, but it had achieved, and seemed likely to maintain, a level of access which apparently assured it of viable status as a national network -- though its lack of equal competitive opportunity hampered its efforts to achieve full parity with CBS and NBC. For example, even when it develops programs which lead in their time periods in those markets having three equal facilities, it still lags in overall ratings because of its problem in gaining access for its programs in one and two VHF markets where it must often content itself with delayed exposure in less desirable time slots. And its perennial third place position, in turn, further compounds its difficulties in building a fully competitive service. This damages not just the interests of ABC and its shareholders. Its disadvantage means that its affiliates normally are unable to charge rates equal to their local competitors who are affiliated with the other two networks. This means that their ability to provide an equally competitive local service is also often impaired. Thus the entire viewing public -- even in markets having three or more equal facilities -- is deprived of service it could reasonably expect to receive if ABC, and its affiliates, enjoyed equal competitive opportunities.
It should be noted, of course, that even this precarious position was attained at a high -- and damaging -- cost. ABC was able to obtain VHF affiliates in some one and two VHF markets by the device of paying such affiliates a much higher percentage of their rates than ABC -- or the other networks -- normally pay. In my judgment this is undesirable. Ideally, the affiliates of a network should enjoy the same compensation rights and other terms and conditions, with any differences in their value to advertisers reflected in increased rates, on a logical and consistent basis. But ABC found it necessary to pay premium compensation in these scarcity markets, thus further increasing its operating costs and reducing its resources in its efforts to achieve competitive parity. And, eventually NBC decided to use similar tactics in Charlotte, Dayton and Toledo, with the results about which ABC is now complaining. In this kind of competition, NBC has all the advantages.
With things in this posture, ABC increased its revenues along with CBS and NBC. It increased its percentage share of total television network revenues from 1956 through 1961, but thereafter its share fell off a bit and stabilized in the range 25.3 to 27.7 percent in the period [*22] 1962 through 1967.
Furthermore, its network operation, as such, lost money in every year beginning with 1963. While its overall operations -- including its owned and operated stations -- remained profitable its percentage share of total network profits has fallen sharply from its peak in 1961, and was less than one-third of that peak rate in 1967. Thus, while its television operations continue to turn a profit, this should not obscure ABC's very real competitive problems. The situation cannot be said to be healthy when one network earns 7 percent of total industry profits and its two competitors share the remaining 93 percent! n4
n4 I do not claim that ABC would necessarily enjoy profit parity with NBC and CBS if it enjoyed equal facilities, nor is exact equality of profits necessary. It may be that part of its problems are due to other considerations -- though in some areas it clearly surpasses its competitors. But it seems clear to me beyond question that the major contributing cause of its profit lag -- and resulting continued competitive disadvantage -- is its inability to achieve equal facilities for equal access to the national audience.
ABC tried to improve its situation by merging with International Telephone and Telegraph. I voted against approval of that merger because I thought it had other aspects which were contrary to the public interest. In any event, I felt -- and still feel -- that its basic problem was lack of equality in station facilities, and I did not see how the merger would help correct this. Assuming that the merger would have yielded substantial additional financing for ABC -- and there was evidence that ITT expected to withdraw money from the network, rather than put it in -- this would have helped only in the short run, because I don't think sheer money would have won enough VHF affiliates to make ABC equally competitive.
The merger fell through when ITT withdrew because of delay in resolution of the appeal from a favorable Commission ruling. ABC was thus right back where it had been -- except that the status quo which had existed for several years began to come unstuck. ABC gave up VHF exposure in Louisville and Jacksonville, shifting to full affiliation with UHF stations in those markets. This clearly benefits the struggling UHF stations there by giving them a full network schedule, with strong shows as well as weaker ones. This greatly improves their competitive posture as compared to their former situation where they got the tail end of the three networks' schedules. In the long run I think this will benefit ABC -- when the all-channel law is fully effective and a high-powered UHF station will enjoy circulation quite comparable to its VHF competitors. But for the short run ABC suffered a loss in circulation because it shifted its most popular programs from one of the two VHF stations where, even though often presented in less desirable time periods, they nonetheless had garnered larger audiences than they can hope to achieve on the UHF stations for some time. And this means, of course, reduced ratings, with all that connotes in this ratings-ridden industry. ABC's loss is, of course, offset by gains for NBC and CBS. It would have been commendable -- and, in the long run, in their own selfinterest -- if the latter two networks had taken comparable steps in other two VHF markets where ABC has achieved a costly preferred position and where UHF stations are available for affiliation. But they have not done so. They are apparently not interested in promoting UHF in these markets -- and, thereby, [*23] nationwide -- or in strengthening our overall network structure and service. They have elected to stick with the preponderant VHF stations and to let ABC carry the burden of increasing UHF affiliation in these unequal markets.
Through resort to its only successful method of winning VHF affiliates, namely, upping the local station's share of the revenues, ABC picked up an additional VHF station in Augusta, Ga. Then in rapid succession it lost -- or has been informed it will lose -- preferred VHF positions in Charlotte, Dayton and Toledo, and is threatened with further erosion in New Haven and other markets. I do not think this development has been accidental. All the shifts in affiliation are to NBC, and the latter has clearly embarked on a conscious course of action designed to improve its competitive position vis a vis CBS by aggravating ABC's already significant disadvantage in facilities. It is claimed, of course, that this is just good, hard competition, and that the Government should not interfere with arrangements agreed upon between networks and local stations -- especially when, as here, a facade of service to the public interest is thrown over the whole transaction. But this is not a result of fair competition among equally advantaged networks. This is a significant new effort by one of the two dominant networks to distort further an already undesirable unbalance in network structure. Despite the public interest phrases used, the objective is increased profits for NBC and for the stations shifting affiliation. But this is a business deeply affected by the public interest, and I think that paramount interest is being submerged and impaired by tactics designed only to promote private profit. I am not opposed to profit for broadcasters, but none of the companies here involved are suffering in any way. They are all highly profitable, and I do not equate further increase in their profit levels with the public interest.
When ABC expressed concern over these developments, Commissioner Lee and I proposed that the Commission issue a notice of inquiry and proposed rulemaking with respect to this problem. This was designed to treat the 19 markets among the top 100 which have less than three equal facilities as a special case, and to achieve approximately equal access to the homes in these markets for all three networks. While a number of alternatives were mentioned, I was particularly interested in some kind of market sharing approach. This would have meant that all three networks would have full affiliations with UHF stations in some of these markets. It would have required changes in affiliation from NBC or CBS to ABC in some instances. Understandably, this is not attractive to the two dominant networks or to those of their VHF affiliates who would be affected. I do not claim this is an ideal way to achieve the desired equality in facilities, nor that it would be without problems. But I am satisfied that it is legally within our powers and that it would achieve the desired results. It would not have been a permanent arrangement, but would have been strictly an interim measure until UHF stations attain their full circulation potential through the all-channel legislation. I would have been willing to accept any reasonable alternative which would have moved, at this late date, toward adjustment of the inbalance in network facilities. But as in the past all we received -- was criticism. No one -- [*24] inside or outside the Commission -- offered a better plan. Despite the fact that our proposal pointed, for the time being, in a direction different from that which we have taken in the past in dealing with network-affiliate relations, I am satisfied that this proposal, after balancing all relevant considerations, was clearly in the public interest. In order that interested parties can have a clear understanding of what was at issue, I am attaching a copy of the proposal to this opinion as appendix A. This is exactly in the form in which Commissioner Lee and I originally suggested it, but I was prepared to accept any suggested changes which would have promoted the objective of equal competitive opportunity in these markets. In particular, I came to agree that the reference to competing applications for the VHF stations in these markets was unnecessary and perhaps unduly punitive. But this, with some modification, is what I think we should have done to promote the public's interest in equal competition and improved network service. My good friend, Commissioner Lee, decided, in the final event, to vote with the majority, leaving only Commissioner Johnson and I supporting the proposal.
As I said at the outset, I think this result is contrary to the public interest. However, I do not think the exercise has been in vain. I think that some, at least, of my colleagues of the majority are deeply concerned about the threatened worsening of the network competitive picture which is posed by these recent developments. They apparently do not share my sense of urgency over developments to date, and they obviously have greater difficulties with the proposed remedy than I do. But I hope and believe that if they find themselves faced with further deterioration in the competitive balance among the networks, they will act promptly, by any means available -- possibly the one I have proposed -- to preserve and promote the opportunity for access to the American audience which is critically essential to healthy and beneficial competition among the networks.
In the Matter of TELEVISION STATION NETWORK AFFLIATION AS IT AFFECTS A FULLY COMPETITIVE TELEVISION BROADCAST SERVICE
BY THE COMMISSION: PROPOSAL SUBMITTED BY COMMISSIONERS LEE AND COX BUT NOT ADOPTED BY THE COMMISSION.
1. Notice is hereby given of inquiry and proposed rulemaking in the above-entitled matter.
2. Of the 100 largest communities in the United States there are 19 which have only two VHF stations, so that a fully competitive television broadcast service must rely upon the development of UHF service. At the present time nine of these areas have no UHF station in operation, seven have one UHF station, two have two UHF stations, and one has three UHF stations. We note also that a number of these communities have pending applications for UHF operation. The Commission has been informed that in several of these communities affiliation changes have either already taken place or are proposed which would deprive the ABC network of substantial program clearances on a VHF station in favor of the NBC network. We have been advised that station WSOC-TV, Charlotte, which had previously accepted a majority of ABC's prime time schedule, became a primary affiliate of NBC in 1967 and terminated its clearance of ABC programs. We have also been informed that station WSPD-TV, Toledo, has advised ABC that the station will become a primary NBC affiliate at the expiration of its present ABC affiliation agreement. It appears that ABC has also been told that station WLWD, Dayton, will become a primary affiliate of NBC in September 1968. The same shift in affiliation is feared by ABC in other major markets.
3. The Commission has long been interested in preserving and enlarging full competition among network organizations. It has considered the existence of strongly competitive networks to be essential in order to maximize service to the public in an industry where networks play such a large role. This policy has of course received judicial recognition as well. See American Broadcasting-Paramount Theatres, Inc. v. Federal Communications Commission, 345 F. 2d 954 (C.A.D.C., 1965), cert. den. 383 U.S. 906; Joint Council on Educational Broadcasting v. Federal Communications Commission, 305 F. 2d 755 (C.A.D.C., 1962). The ABC network has also historically been in a more difficult competitive position than CBS or NBC, largely due to the existence of longstanding radio affiliations which gave CBS and NBC an early advantage in obtaining television affiliations. This remains a problem today.
4. At the same time, it has become clear that we must rely upon UHF stations for the development of a truly nationwide television broadcast service, since the available VHF channels are insufficient for that purpose. To this end Congress passed the all-channel receiver legislation, which requires that television receivers shipped in interstate commerce or imported into this country be capable of receiving all frequencies allocated by the Commission to television broadcasting. Section 303(s) of the Communications Act, 47 U.S.C. 303(s). This legislation has had a significant effect and UHF development has proceeded apace. Nevertheless, this is still a very critical period for the sound establishment of UHF service, particularly in the highly competitive environment of the larger cities.
5. The Commission would be concerned with any action at this time by either CBS or NBC to effect changes in primary affiliation by VHF stations now primarily affiliated with ABC in those communities in the top 100 markets where there are only two VHF stations. Such changes would not only appear adversely to affect the area of network competition, but might also have an adverse effect upon the development of fully competitive UHF stations in these communities. The problems seem to be related to each other. A weakening of ABC's competitive capacity at the same time that UHF stations are required in increasing numbers to engage in primary affiliations with ABC would appear to be inconsistent with the Commission's objectives in the two areas concerned, network competition and the development of UHF service. It is desirable that a UHF station in each of these markets have a full primary affiliation with one of the networks, so that it will have the benefit of an integrated program service including some of the most popular programs, and can promote its service in such a way as to develop a really favorable identification with a single network. It would seem that this would also simplify business relations, communications, etc. between the networks and their respective affiliates. But it would be unfair to expect ABC to provide this primary affiliation in most of these communities. Such a development would weaken, rather than strengthen, its competitive posture, and might impair its ability to provide high quality service in those markets where it does have an affiliate with an equally competitive facility. It is noted that the licenses of stations WSPD-TV and WLWD were renewed in September 1967, at which time it was represented that a majority of their network programs would be taken from ABC.
6. The purpose of this notice is to bring the problem to the attention of all interested persons, to secure the relevant facts and, if action by the Commission is warranted, to request suggestions as to the form that action should take. Several possibilities may be considered. Thus, the Commission could limit the amount of programing taken from any one network by a VHF station in the cities involved. Such a rule would prevent undue domination by any network until such time as the UHF stations there become competitively equal in terms of their access to the audience, so that the free forces of competition can play their proper role. A second alternative might be a rule which would limit or regulate affiliation in these markets in such a way that each network would have reasonably equal access to the aggregate homes in these communities through apportionment of the available VHF and UHF facilities. Or, instead of such an over-all approach, the Commission could consider the particular situation in each city where affiliation changes are being made, or proposed, either in terms of the significance of such a change where a licensee has proposed an ABC primary affiliation or, more generally, by making clear that competitive applications for VHF channels proposing an ABC affiliation would be given careful consideration. It should be made clear that all of these alternatives have the purpose of serving the long range public interest by preserving the competitive situation while UHF is developing, n1 and are not designed to give favored treatment to ABC for its own sake. The Commission has long sought to promote fair and equal network competition in order to maximize service to the public. It considered some of these possibilities in 1964-65, but decided to do nothing about them at that time. See Public Notice of March 24, 1965 (mimeo No. 65559). In the period since then, while ABC did not gain the equal access it had sought, at least conditions seemed to have stabilized. But now these existing competitive patterns -- unsatisfactory as they are -- seem to be changing for the worse. The Commission is therefore renewing its consideration of these matters. It regards the situation as serious, and would be greatly concerned if changes which would lead to further deterioration in the network competitive picture were to take place pending its study of the problem.
n1 We stress that any action taken would be of an interim or temporary nature and would end with the improvement in conditions for UHF competition (e.g., an upper 90 percent UHF-equipped set saturation figure).
7. This proceeding bears the double caption, Notice of Inquiry and Proposed Rulemaking. We would hope that upon the basis of the additional information obtained, we would determine the most appropriate course, and that if that course takes the form of a rule, we would issue a further and more detailed notice. However, the public interest may require prompt action. For that reason, we have set forth "a description of the subjects and issues involved" (5 U.S.C. 553(b)(3)), and expressly put the intended parties on notice that we may take final action in this proceeding on the basis of the comments, and including counterproposals, received.
8. Authority for this proceeding is contained in sections 4(1), 303, 307, and 403 of the Communications Act, 47 U.S.C. 154(i), 303, 307, and 406.
9. Pursuant to applicable procedures set out in section 1.415 of the Commission's rules, interested parties may file comments on or before 1968, and reply comments on or before 1968. All submissions by parties to this proceeding or by persons acting in behalf of such parties must be in written comments, reply comments, or other appropriate pleadings. It is not our intention to limit the responses of interested persons to the specified alternatives. Any relevant material may be submitted, either factual data or suggestions as to proposed courses of action. Pending this proceeding, any VHF television station in one of the markets involved which proposes a change, with a statement of the effect the change would be likely to have upon the public interest, giving particular attention to the considerations discussed in this notice.
10. In accordance with the provisions of section 1.419 of the rules, an original and 14 copies of all written comments, replies, pleadings, briefs, or other documents shall be furnished the Commission.