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In re Application of WESTINGHOUSE BROADCASTING CO., INC. For Renewal of License of Station KFWB, Los Angeles, Calif.

 

File No. BR-8

 

FEDERAL COMMUNICATIONS COMMISSION

 

16 F.C.C.2d 1041 (1969)

 

RELEASE-NUMBER: FCC 69-267

 

MARCH 19, 1969

 


 

 

ACTION:

 

APPLICATION

 

[*1041] WESTINGHOUSE BROADCASTING CO., INC., 90 Park Avenue, New York, N.Y. 10016

 

GENTLEMEN: This is to inform you that the Commission, upon a finding that the public interest, convenience and necessity would be served thereby, granted your application for renewal of license of station KFWB, Los Angeles, Calif., on March 19, 1969.

 

This grant is subject to the conditions, (a) that if and when there is a definitive decision to effect the proposed merger between the licensee and MCA, Inc., the Commission shall be immediately notified and, (b) that the Commission reserves the right to take such further action (e.g., imposition of further appropriate conditions, setting aside of this renewal action and designation for hearing) as may be appropriate in light of the public interest considerations concerning the said merger.

 

Commissioner Bartley concurred in the result; Commissioners Cox and H. Rex Lee concurred and issued a statement; Commissioner Johnson dissented and issued a statement.

 

BY DIRECTION OF THE COMMISSION, BEN F. WAPLE, Secretary.

 


 

Concurring Statement of Commissioners H. Rex Lee and Kenneth A. Cox

 

We concur in the letter to Westinghouse Broadcasting Company with respect to the renewal of the license of station KFWB despite some questions about the proposed merger between Westinghouse and MCA. However, based upon present information, it would appear unlikely that the proposed merger, in its present form, will be consummated. The condition attached to the renewal thus permits the Commission flexibility to take such action as may be appropriate, in the event we should be informed that the merger will be consummated and in light of any new circumstances pertinent to the merger. This seems to us an orderly and sound way to proceed, rather than the contrary course of present premature action upon a merger which may or may not be consummated and may or may not be in the present proposed form.

 

In addition, Commissioner Cox would have liked to initiate a procedure which, in certain stated circumstances, would require broadcast licensees who propose to acquire substantial other businesses to file full details of such transactions with the Commission promptly so that the agency would be in a position to take any action it felt called for in the public interest, whether by way of considering the matter in subsequent renewal proceedings or through any other steps which might seem required.

 


 

DISSENTING OPINION OF COMMISSIONER NICHOLAS JOHNSON

 

The Commission today renews the license of radio station KFWB, Los Angeles, owned by Westinghouse Broadcasting Co., a subsidiary of the Westinghouse Electric Corp. Westinghouse proposes to merge with MCA, Inc. My disagreement with the majority is directed at fundamental Commission processes, and for that reason some review of this case is required.

 

The Commission's standard for approving renewal applications is that "the public interest, convenience, and necessity" will be served thereby. (47 U.S.C. 309(a) (1964).) The standard is the same for approving the sale of licenses. (47 U.S.C. 310(b) (1964).) Whenever a license is transferred or assigned the Commission must affirmatively find that the public interest will be served before approval is given. [*1042] Thus, significant changes in corporate structure, which involve changes in ownership control of broadcast licenses, must come before the Commission for formal scrutiny and approval.

 

Such is not the case when significant corporate changes occur that do not evoke a complete change in ownership control. Mergers and acquisitions which do not involve a sale of licenses are often simply ignored by the Commission. This may be true even for mergers with great potential significance for the public interest operations of the licensee, or mergers in direct contravention of FCC policies.

 

This anomaly has led to some disturbing and even embarrassing results for the Commission.

 

The saga of the Gannett Co., Inc., in Rockford, Ill., demonstrates all too well the Commission's carelessness. In 1963, Gannett -- one of the Nation's largest chain newspaper owners -- acquired WREX-TV in Rockford -- one of the most powerful television stations in that section of Illinois. In early 1967, it acquired the daily newspapers in Rockford. In late November 1967, the Commission, acting through its staff under delegated authority, n1 tacitly approved this newspaper-TV merger in Rockford by approving the renewal application for WREX-TV. Then, less than 1 year later, the U.S. Department of Justice Antitrust Division secured as a judgment an uncontested consent decree in which Gannett agreed to divest the television station from the newspapers in Rockford -- a combination the Commission had found to be serving its much more rigorous "public interest" standards a few months earlier. One would look in vain for any sign of regularity or predictability in this sequency of governmental action; and the procedures are reminiscent of the Commission's bumbling relationship with the Antitrust Division during the ABC-ITT case. n2

 

n1 The Commission's delegations to the staff are so vague, and managerial insistence on standards and reports so lax, that the Bureau felt no need to bring this matter to the attention of the Commissioners.

 

n2 ABC-ITT Merger, 7 F.C.C. 2d 245, 278 (1966); 9 F.C.C. 2d 546, 581 (1967). For full chronology, see ABC-ITT Merger, 9 F.C.C. 2d 546 at 639 (1967).

 

Since the Howard Hughes' acquisition of KLAS-TV in Las Vegas (which I had urged raised conglomerate problems at that time, Hughes Tool Co., F.C.C. 68-155 (1968)), the Hughes' organization has since acquired even more properties in that city. And all of this is sanctioned by the Commission without even the sketchiest examination during its renewal process.

 

More recently, the Commission was perfectly willing to renew the NBC licenses in California without giving even cursory examination to the effects of RCA's proposed largest acquisition, the billion-dollar-plus St. Regis Paper Co. See National Broadcasting Co., F.C.C. 69-194 (1969) (some of the issues raised by the St. Regis merger are outlined in the dissenting opinion).

 

The remedy for this state of affairs is readily available. The principle is simple. All structural changes in the business organization of Commission licensees (mergers, acquisitions, new divisions, changes in officers, directors, or principal stockholders) which do not raise questions under the transfer provisions of the act, easily could be -- and I would urge, must be -- evaluated by the Commission at the next renewal of a broadcast license associated with that business entity. Renewal [*1043] applications would reflect these corporate changes, n3 and the Commission's renewal proceedings could be changed accordingly. It is only through the renewal mechanism that the Commission can evaluate broadcast company acquisitions outside of broadcasting: the growing multimedia companies (combines of print and electronic media, etc.), local media monopolies, and regional or other undue concentrations of control over the mass media that grow not by acquisitions of broadcasting properties but through acquisition by broadcasting corporations of other ventures.

 

n3 It would be useful if these ownership patterns could be accurately portrayed in the Commission's ownership files.

 

However, the present Commission files, which do not systematically require this information, are in such disarray, with inconsistent application forms, ownership reports, and lack of file centralization (despite promises to a congressional committee that improvements would be made), that it is really now hopeless to suggest additional data accumulation. The problem is compounded by the Commission's notice of inquiry into conglomerates which remains, to this day, without staff, funds, or dates for the filing of comments.

 

The principle just enunciated is directly relevant to the case now before the Commission. This is the first Westinghouse broadcasting license renewal application to arise since the announcement of the proposed merger between Westinghouse Electric and MCA, Inc. It is the position of the parties that the merger does not violate the antitrust laws and that there will be no transfer of broadcast licenses. The official position of the U.S. Department of Justice regarding this merger has not been publicly stated. The question is what role the FCC should play under these circumstances. It is the position of the majority that the Westinghouse Broadcasting licenses should be renewed automatically with no independent FCC inquiry into the public interest aspects of the merger. I disagree.

 

A review of the two companies will demonstrate the important implications of this merger for the national economy, and -- what should be of even greater significance to the FCC -- for the full and free functioning of our country's system of mass communications. Westinghouse is the 19th largest industrial corporation in the United States with assets of more than $1.6 billion, and roughly 132,000 employees. Its major sales in 1967 were for electrical generation, transmission and distribution equipment (28 percent); electrical industrial apparatus (34 percent); household appliances (17percent); aerospace and defense equipment (15 percent); and "other" including broadcasting (6 percent). The largest customer of Westinghouse is the U.S. Government, accounting for about 20 percent of Westinghouse sales. It is currently the 27th largest defense contractor, with prime contracts of $251 million -- putting it in a class with other broadcasting and communications companies like RCA, General Tire & Rubber (RKO General), and ITT. Sales to the Government include nuclear ship reactor powerplants, and equipment for the U.S. space program, including work on NERVA (the Nuclear Engine for Rocket Vehicle Applications). It is the manufacturer of the elevators in the FCC building. Westinghouse also produces conventional power generating equipment. Westinghouse is building a new city in Florida called Coral Springs.

Westinghouse is engaged in major research efforts on integrated circuits, electric power, computerized educational materials, super strength metals, sonar systems, computer controlled rapid transit [*1044] systems, and deep sea exploration. The full extent of Westinghouse's present and proposed foreign holdings is not known. But Business Week for February 8, 1969 (p.76) reports that Westinghouse is seeking control of the French electrical system "Societe Jeumont-Schneider" and that it has "plans to buy majority shares in its Belgium, Italian, and Spanish licensees. Its aim is to combine them with Jeumont-Schneider in a Luxembourg-based holding company with $650 million in annual sales."

 

Westinghouse Broadcasting Co. is one of the largest and most powerful multiple station owners in America. It holds major properties in six of the seven largest markets in America. It has properties in two of the largest markets in two of the largest States -- California and Pennsylvania. Its total holdings include:

 

California: KFWB-AM, Los Angeles; KPIX, San Francisco.

New York: WINS-AM, New York City.

Illinois: WIND-AM, Chicago.

Pennsylvania: KYW-TV, KYW-AM, Philadelphia; KDKA-TV, KDKA-AM, KDKA-FM, Pittsburgh.

Massachusetts: WBZ-TV, WBZ-AM, WBZ-FM, Boston.

Maryland: WJZ-TV, Baltimore.

Indiana: WOWO-AM, Fort Wayne.

 

In addition to all these stations Westinghouse also owns a broadcast station representatives subsidiary, and another subsidiary that engages in substantial amounts of nonnetwork television program production and syndication. (For example, its "Mike Douglas" show was carried on 163 stations.)

 

MCA, Inc., is a diversified conglomerate corporation with assets of more than $266 million. MCA's 1967 revenues were about 40 percent from television film exhibition; 27 percent from theatrical film exhibition; 18 percent from phonograph records, music publishing, and related activities; and 15 percent from other activities including real estate development, banking (Columbia Savings & Loan Association of Colorado), magnetic recording equipment and components (Gauss Electro-physics, Inc., and Saki Magnetics), and small consumer products (Spencer Gifts).

 

The activities of MCA in the production and distribution of films are particularly relevant for Commission examination in light of its policies now under review in the television program procurement proceeding (docket No. 12782), and for the Commission's expressed policy of furthering the diversity of sources for television programming. MCA owns Universal Pictures and Revue Productions, owns 1,962 sound theatrical films, 5,657 television films, and is now producing for the networks the following major series: "Dragnet," "Adam 12," "Ironside," "The Outsider," "It Takes a Thief," "The Virginian," and "The Name of the Game." Universal Television is also producing 14, 2-hour feature films for television distribution. In addition, MCA produced 25 theater films in 1967 and expected to produce more in 1968.

 

[*1045] MCA also produces and distributes records under the Decca, Coral, Brunswick, Uni, Revue, and Kapp labels. Decca manufactures and distributes records for other companies. MCA is also engaged in the production of educational films.

 

There are numerous characteristics of this merger, and issues they raise, that are worthy of examination by the FCC.

 

(1) There is a significant combination of assets, further increasing the growing economic concentration of assets in the economy -- a circumstance warned against by congressional committees and regulatory authorities in the field.

 

(2) The merger has significant conglomerate aspects -- a subject now under study by the FCC, the FTC, the Justice Department, the House Ways and Means Committee, the House Banking and Currency Committee, and the House Judiciary Committee. The President's Committee on Price Stability recently issued a report that concluded:

 

The maintenance of vigorous competition is essential to the effective operation of preservation of our free enterprise system. We have shown earlier that competition policy has a direct bearing on our goals of rapid economic growth, price stability, and full employment. It also reflects important social values, particularly those associated with a system of decentralized financial and political power. For these reasons, where competition fails to place adequate constraints on private discretionary power, we must employ corrective measures to invigorate competition or apply more direct forms of social control to private decisionmaking.

* * *

The recent surge of conglomerate mergers has increased sharply the share of financial resources and, potentially, the economic power held by a relatively few large industrial firms. Further merger-achieved centralization of economic power and decisionmaking may seriously impair the proper functioning of our competitive, free enterprise economy, as well as threaten the social and political values associated with a decentralized economic system * * *.

Studies by the staff of the Cabinet Committee on Price Stability, pp. 83-5 (1969).

 

(3) A significant owner and producer of television films and series shows is joining a major television broadcaster who also engages in television film production for independent, nonnetwork distribution. A significant proportion of MCA's business is with networks (for example, MCA supplied 39 of the 57 (68 percent) movies presented by NBC between September 1967 and September 1968). Will Westinghouse-MCA have an incentive to concentrate on production for networks, and cut back (or not expand) independent production? What will be the effect of this merger on other actual or potential nonnetwork program competitors? What will be the vertical integration effects of the merger of a major program supplier with a major television broadcaster?

 

(4) What are the possibilities that the larger corporate interests of Westinghouse in the resolution of controversial issues such as thermal pollution, household product safety and warranty, savings and loan regulation, nuclear electric power, disarmament, and space expenditures will affect the content of MCA-Westinghouse productions?

 

(5) What are the effects of linking numerous record companies to a major radio broadcaster?

 

(6) How will the merger between Westinghouse and MCA affect the positions taken by the companies before the FCC on the numerous policy issues where they might formerly have urged divergent views?

 

These are but a few of the important issues which the Commission must evaluate if it is to perform its regulatory responsibilities. It is simply irresponsible to suggest that the Commission's review function under its "public interest" standard can be delegated to the U.S. Department [*1046] of Justice and its much more limited concerns under the antitrust laws. The former Chief of the Antitrust Division, Professor Turner, made the point most succinctly:

 

* * * It has been my assumption that the Federal Communications Commission's responsibilities with regard to amalgamation of media subject to their jurisdiction do not begin and end with the question as to whether there is an antitrust violation. It seems to me quite appropriate for the Commission at least to consider -- with regard to a particular acquisition of a license by somebody already owning another license or by somebody who already owns newspapers in the town -- given the Commission's functions and public interest considerations that they are charged with protecting, whether even though a particular acquisition does not rise to the level of an antitrust violation it should be stopped in the public interest for other reasons.

 

If, for example, you have an acquisition which simply could not be attacked under section 7 because there is not substantial elimination of competition involved, it seems to me that the Commission certainly has the power, and it would be appropriate for it to say, "Well, there is nothing much good that can be said for this, and it does remove one other independent voice in the community, and therefore, it is not in the public interest to permit it."

 

So, to sum up, it seems to me that the antitrust laws do not define the outermost limits of what the Commission should take into account in deciding whether to approve or disapprove media mergers of this kind.

 

Hearings before the Senate Judiciary Subcommittee on Antitrust and Monopoly pursuant to S. Res. 233 on S. 1312, The Failing Newspaper Act, 90th Cong. second sess. p. 3123 (1968). This is such a case.

 

But there are other problems with the merger. First, despite the protestations by Westinghouse and MCA, the combination in all probability violates the 1962 consent decree final judgment, United States v. MCA, Inc., entered Oct. 18, 1962 in United States District Court for the Southern District of California (Central Division) (Civil No. 62-942-WM). n4 This judgment provides that for 7 years MCA shall not enter into a merger or acquisition of a major television production or distribution company, or any major theatrical motion picture company. Westinghouse now denies that it is a major television production or distribution company -- which ought to come as something of a surprise to a Commission that has been assured the contrary for so many years. The consent decree gives examples of companies with which acquisition or merger would be barred, and Westinghouse is clearly comparable.

 

n4 Defendant MCA is hereby enjoined and restrained from:

* * *

(2) Making, at any time during the period of 7 years from the date of this judgment, future acquisitions of or mergers with any major television production or distribution company or any major theatrical motion picture production or distribution company or any major phonograph record production or distribution company (other than of or with Decca and/or Universal and/or their respective subsidiaries), unless MCA either obtains and files herein the written consent of the Department of Justice thereto, or, after reasonable notice to the Department of Justice, establishes to the satisfaction of the court that any such acquisition or merger will not unduly restrain or substantially lessen competition in the television, theatrical motion picture, or phonograph record industries in the United States.

 

A "major television production or distribution company," for the purposes of this subparagraph (2) shall mean Four Star Television, Screen Gems, Inc., Walt Disney Productions, Seven Arts Associated Corp. or Desilu Productions, Inc. (including as part of such companies their respective subsidiaries and affiliates), or companies of comparable size to the foregoing as presently constituted. United States v. MCA, Inc., final judgment entered Oct. 18, 1962, (U.S.D.C. S.D. Calif., Cent. Div., Civil No. 62-942-WM).

 

[*1047] Secondly, there may in fact be a transfer of control of the Westinghouse broadcast licenses. MCA will be acquired by an exchange of one share of MCA stock for 0.677 shares of Westinghouse preferred stock. These shares are directly convertible on a one-for-one basis for Westinghouse common stock. There are about 7.8 million shares of MCA stock, but it is not a widely held corporation -- the two leading stockholders together hold 2.99 million shares of MCA or about 38.4 percent. Converted into Westinghouse common, this would give these two MCA stockholders about 1.970 million Westinghouse shares or about 4.5 percent of the Westinghouse outstanding common stock. This is an extremely significant holding in a widely held corporation such as Westinghouse. The combined holdings of the Westinghouse Electric board of directors are 70,156 shares -- adding those of the officers and directors of Westinghouse Broadcasting Co. makes the total about 155,000 shares. Thus, two MCA stockholders will have over 28 times the control of the entire Westinghouse Electric board of directors, and 12.7 times the total owned by all the directors and officers of the Westinghouse Electric and Westinghouse Broadcasting! Without further investigation this Commission simply cannot conclude that the MCA shareholders won't be in a position to exercise negative, if not total, control over Westinghouse.

 

It is incredible that the Commission would continue to renew Westinghouse licenses without reviewing its acquisition of MCA. There is nothing to be served by adding to the growing series of application grants made subject to some sort of vague and unredeemed promise for future action. The Commission should get on with the serious business before it and begin to reevaluate its own permissive sanction of the growing concentration of control of broadcasting in this country. n5

 

n5 Since the preparation of this opinion, the renewal action for the Westinghouse station in San Francisco, KPIX-TV, has been brought to the Commission by the staff. That renewal raises all the questions regarding the pending merger with MCA, Inc. that I have detailed here. In addition, however, the KPIX-TV renewal is also the subject of a petition to deny filed by John Banzhaf and ASH alleging noncompliance with the Commission's cigarette fairness doctrine ruling. I express no opinion here as to the merits of those allegations. They may, however, raise questions regarding Westinghouse's compliance with that ruling that would be of relevance in the case now before us.

 

Even later have I now been informed the majority believes that "based upon present information, it would appear unlikely that the proposed merger, in its present form, will be consummated." I simply do not understand what is going on here. Until the Commission hears to the contrary from the parties most directly involved there is a proposed merger pending before us that has direct bearings on the public interest considerations attendant this renewal. Until those considerations are evaluated I do not believe we properly can make the requisite public interest finding to grant renewal, regardless of how artful may be our "conditions."


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