In Re Application of E. D. MARTIN AND R. E. MARTIN, JR. (TRANSFERORS), AND FUQUA INDUSTRIES, INC. (TRANSFEREE) For Transfer of Control of Martin Theatres of Georgia, Inc., Licensee of WTVM-TV, Columbus, Ga., and WTVC-TV, Chattanooga, Tenn.
File No. BTC-5729
FEDERAL COMMUNICATIONS COMMISSION
16 F.C.C.2d 478 (1969); 15 Rad. Reg. 2d (P & F) 626
RELEASE-NUMBER: FCC 69-119
February 7, 1969 Adopted
BY THE COMMISSION: COMMISSIONERS BARTLEY AND JOHNSON DISSENTING AND ISSUING STATEMENTS; COMMISSIONER COX DISSENTING; COMMISSIONER H. REX LEE CONCURRING AND ISSUING A STATEMENT.
[*478] 1. The Commission has before it for consideration the above captioned application.
2. The proposed transferee or its principal, J.
B. Fuqua, controls a TV station in
n1 An application to assign
3. Proposed programming for WTVM is -- News 7.3
percent; public affairs, 2.2 percent; all other -- 3.1 percent; and maximum
commercial matter -- 16 minutes. To
determine community needs transferee interviewed 46 community leaders in
4. Proposed programming for WTVC is News -- 5.7 percent; public affairs -- 2.0 percent; all other -- 8.3 percent; and maximum commercial matter, 16 minutes. To determine community needs transferee interviewed 31 businessmen, representatives of charitable organizations, school officials, clergymen, and other community leaders. Transferee concluded there was a need for more local news and plans to increase personnel and equipment, with regular news broadcasts covering such news during the daytime. The transferee stated it would attempt to recruit personnel from minority groups. It also noted that it plans to continue daily children's programs which have children participating from all races and economic levels of the coverage area.
Transferee is financially qualified to acquire and operate the stations. No cash is required for the purchase, and the stations have been running at a profit. The Fuqua consolidated balance sheet shows a healthy financial position.
5. The acquisition of WTVM-TV,
FEDERAL COMMUNICATIONS COMMISSION, BEN F. WAPLE, Secretary.
CONCURRING OPINION OF COMMISSIONER H. REX LEE
I join the majority decisions to approve the transfer of WTVM (TV), Columbus, Ga. and WTVC (TV), Chattanooga, Tenn. to Fuqua Industries, Inc.; of WRTH, Wood River, Ill. to Avco Broadcasting Co.; and KBIG, Avalon, Calif. and KBIG-FM, Los Angeles, Calif. to Bonneville International Corp.
I take such action because the proposed transfers conform to existing Commission laws, regulations and public interest standards. The FCC, through orderly procedure, has established rules and guidelines in the realm of media concentration. But these rules do not go far enough. They do not specifically spell out the line of public interests which broadcasters may serve in the fulfillment of substantial public objectives.
In view of this situation, a hearing is not deemed necessary. The scope of questions addressed to media concentration is narrowly confined by FCC multiple ownership rules. In these cases, this results in neither the public interests nor the interests of fairness in administrative due process being served by an evidentiary hearing. Even in such an examination, the lack of standards makes it difficult for the interested parties, including the public, to present evidence, and [*486] for the Commission to make a sound judgment. The argument is noted that under existing Commission procedures, the hearing process is frequently the equivalent of a denial -- if for no other reason than the amount of time and expense consumed by it. It is hoped these two hardships of the hearing process can be alleviated through the development of new procedural standards which may be applied when needed.
Nevertheless, there is concern in various quarters about the growth of media concentration. The political, social, and economic influence, concentrated in a few broadcast facilities, raises fears -- a dimension of which cannot be dispelled by the Commission's multiple ownership rules.
The FCC's examination of this problem must keep pace with the changing complexion of the broadcast industry. In this period of change, the FCC is in transition between its existing rules and the formulation of new standards. This means that parties to Commission transfer proceedings also find themselves in a difficult position. It is often impossible for them to prior assess whether their transfer proposals will constitute a prohibited media concentration. In fact, there is virtually no way of knowing what is or is not prohibited. These difficulties are magnified because the FCC lacks adequate standards by which to judge the nature of these new developments. This not only creates problems for the Commission, but causes confusion within the broadcasting industry.
Therefore, I am pleased that the Commission is issuing a public notice of inquiry. It is hoped that the inquiry will result in the formulation of more precise standards which will better serve the public interest, as well as afford the broadcasting industry an opportunity to see where it stands.
The Commission should consider the findings which emerge from such an inquiry in processing normal filings. For certainly, if standards are derived by which a more meaningful test of public benefits can be proved, the course of future actions will be carefully distinguished. In sum, I stress that I intend to examine future cases very carefully to determine what public benefits will result.
DISSENTING STATEMENT OF COMMISSIONER ROBERT T. BARTLEY
The showing made in the application is inadequate for me to make an affirmative determination that the transfer can be expected to bring about an improvement in the general structure of broadcasting.
I believe that serious public interest questions arise from the transfer of these two television stations to a conglomerate corporation, publicly owned and traded on the New York Stock Exchange, and a multiple owner, with its president, of seven additional broadcast stations (its president has held and disposed of interests in three other broadcast stations).
Accordingly, I vote for an evidentiary hearing to determine how the transfer would, in fact, serve the public interest, convenience, and necessity.
In the absence of rules prohibiting continuing concentration of the broadcasting structure, the only alternative is through the hearing process where case law can be applied. The mere pendency of an inquiry will not serve to halt the present trend. In the interim, I believe we should institute hearings where concentration is increased.
Commission has before it an assignment and transfer case. The principal stockholders of
n2 As in most of its opinions approving the acquisition of broadcast properties by conglomerates, the majority's opinion leaves a great deal to be desired. Beginning with the understatement of the day, that the Fuqua consolidated balance sheet shows a healthy financial position, the opinion goes on to state:
"The acquisition of WTVM-TV,
I have explored elsewhere today the inadequacy of such analysis. In re application of John Poole Broadcasting Co., Inc., F.C.C. 69-118 (1969).
There are a number of troublesome trends in the media ownership pattern in this country, many of which I have detailed elsewhere: local monopolies, regional concentrations of control, national chain owners, multimedia corporations, and conglomerate corporations' ownership of media. These are the "pure" cases; in reality, more than one of these characteristics may be present in a single instance. So it is with Fuqua.
Fuqua Industries is acquiring two stations simultaneously in the same region of the country; it is already a multiple-station owner; the theater operation raises the problems of multimedia ownership; and it is a significant conglomerate corporation. Some of these characteristics standing alone are sufficient to warrant a hearing; taken together they certainly are.
J. B. Fuqua
already possesses significant political power in the State of
Fuqua has been chairman of the Georgia State Democratic Party. Fuqua's headquarters are in
n3 No license for a television broadcast station shall be granted * * * if the grant * * * would result in a concentration of control of television broadcasting in a manner inconsistent with public interest, convenience, or necessity. In determining whether there is such a concentration of control, consideration will be given to the facts of each case with particular reference to such factors as the size, extent, and location of area served, the number of people served, and the extent of other competitive service to the areas in question. 47 C.F.R. § 73.636 (1968).
no novice at buying and selling broadcast properties. It is presently a substantial multiple owner. Fuqua owns WJBF-TV in
n4 Fuqua explains:
At the end of September 1965, Mr. Fuqua was thus personally in debt in the amount of $4.5 million * * *. Anticipated cash income from Claussen's [Bakery, a subsidiary] thus did not develop and this was not a source from which any of the indebtedness of Fuqua National could be paid * * *.
* * *
This stock note was renewed periodically with the understanding that it would be retired by the end of 1967 since the banks did not wish to carry a nonamortizing note indefinitely. Because of the tight money, market conditions in 1967 and because of the limited cash flow in Fuqua National, it was not practical to refinance the note plus the unpaid balance of the $2.5 million note and there was no alternative other than liquidation of some asset of Fuqua National. It should be pointed out that no part of the stock of Fuqua Industries, Inc., owned by Fuqua National, while listed on the New York Stock Exchange, could be sold without a full SEC registration. Even though the stock had very substantially enhanced in value, this would not have been practical since a sale of stock by the chief executive officer would have had a very bad effect on the market value of all Fuqua Industries shares.
* * *
The KTVE sale was completed the last week in December 1967, and the obligations to the banks were discharged in accordance with prior agreements. Had Mr. Fuqua died at any point during this interval of several years, since the banks held all the stock of Fuqua National and all of the stock of the public company, Fuqua Industries, Inc., the only liquidity in his estate then or in the foreseeable future would be a nominal amount of life insurance. There would have been no way to pay the estate taxes other than a liquidation of some of the assets of Fuqua National and obviously KTVE would have been sold by Mr. Fuqua's executors, since it was the only readily marketable asset owned by Fuqua National. (Emphasis added.)
The Commission's traditional concern in ownership of broadcast properties has been exercise of control. One area substantially ignored has been the influence of credit arrangements. Here banks at one time held all the stock of the licensee, in other situations an equipment manufacturer may be the creditor of up to half or more of the value of an ownership transfer. The Commission ought to reexamine the ownership questions posed by this application and in addition include questions involving joint ventures by competing licensees, influence of creditors, and other contract relationships entered into by licensees. Fuqua owns two stations it simply leases -- a peculiar arrangement under which it is not even the formal Commission licensee.
has also recently disposed of another station with a somewhat checkered
Ownership of motion picture theaters in the same region in which one controls the major VHF television stations does not, of course, constitute a local monopoly in the marketplace of ideas. It is not the same as common ownership of all newspapers, broadcast properties, cable television systems and motion picture theaters in a single community. Motion pictures are, nonetheless, an important medium for the communication of information and ideas, and the ownership of theaters is of relevance to the Commission in this context. Moreover, because of the current reliance of television stations and networks upon motion pictures for television programming (7 nights at the movies), there are significant antitrust issues involved in common ownership of competing outlets for the movie-maker's product.
CONGLOMERATE CONTROL OF MEDIA
Fuqua Industries is, finally, a conglomerate corporation. The problem with conglomerate corporate ownership of the mass media is quite simple. It imposes an added burden, and an unnecessary risk, upon the [*483] integrity of the information presented to the American people. It creates a situation in which the incentives are almost irresistible for the holding company to view the mass media subsidiary as but a part of its advertising, public relations, and public information program for its more predominant and profitable industrial subsidiaries. The risk, of course, is that, whether through overt corporate policy or through unspoken understandings, the media subsidiary will select the information to be presented, and the way in which it's presented, so as to put the economic interests of the corporate family (and its suppliers and customers) in the best possible light. In an age when what the American people don't know can, quite literally, kill them, such risks are matters of serious national consequence.
A conglomerate can exist at any geographical level: a "company town" where the company owns the single television station raises conglomerate problems of the same kind as when a large national conglomerate seeks to acquire a network.
Fuqua is such a conglomerate. It was recently the subject of a special story in The National Observer by Harold H. Brayman, under the title "Assembling a Huge Conglomerate: How Mr. Fuqua Puts Together a Diverse and Profitable Empire." (Jan. 6, 1969, p. 9.) After itemizing Fuqua's present interests the author reports:
Fuqua expects to enter more areas. While the company has established no specific goals it will discuss, Mr. Fuqua's comments indicate he's aiming higher, maybe to 1969 sales of $500 million. The company has merger investigations going with 25 companies now, and tentative agreements pending on several that Mr. Fuqua won't identify.
Mr. Fuqua is quoted as saying, "The theory behind a conglomerate company -- it's a right interesting one -- is that the sum of the parts exceeds the total of each of the parts operating by themselves."
A recent report issued by a Presidential committee takes a somewhat different view:
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.
We have seen that modern technological requirements generally do not dictate high market concentration and huge enterprises that prevent effective competition. On the contrary, in many industries the opportunities for competition appear to be greater today than in decades past. Although technological requirements generally do not pose a threat to competition, other developments do, particularly the massive industrial restructuring resulting from the current conglomerate merger movement. It is imperative that Federal programs strive to reinforce and nurture vigorous competition.
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 [*484] competitive, free enterprise economy, as well as threaten the social and political values associated with a decentralized economic system * * *. n5
n5 Studies by the staff of the cabinet committee on price stability, pp. 83-5 (1969). The Commission's own inquiry into conglomerate broadcast holdings also suggests some agency uncertainty as to ultimate evaluation of mergers such as approved here. I have discussed the legal significance of that uncertainty for this case in my dissenting opinion in another conglomerate acquisition approved today, In re application of John Poole Broadcasting Co., Inc., F.C.C. 69-118 (1969).
The case before us today involves a conglomerate corporation adding to its holdings by acquiring two television stations. The conglomerate seeks Commission approval. I object to the Commission's grant.
In Fuqua's own words, "Fuqua Industries, Inc., is a multimarket manufacturing and service company with operations principally in the areas of broadcasting, power lawnmowers, land clearing and tillage implements, mobile homes, and motor freight." A chart prepared for a prospectus issued in connection with Fuqua's acquisition of Interstate Motor Freight System offers indication of the relative importance of the various enterprises. It highlights what a small proportion of the parent's income is represented by broadcasting. n6 Fuqua has disposed of its construction products and warehousing enterprises. It has also acquired additional companies, mobile homes manufacturers and makers of metal tanks since the chart was completed. The National Observer article indicates Fuqua's growth, and future hopes -- from a profitless $14 million in sales in 1965 to $200 million in sales and $8 million in profits in 1968. For the future, 1969 sales of $500 million, merger investigations with 25 companies, and a foreign investment program.
n6 See the following tables:
Net sales Net income
Broadcasting 3 2
Photographic processing 6 9
Grain storage equipment 6 13
Power lawnmowers 8 19
Metal buildings 12 7
Land clearing and tillage 5 10
Motor freight 51 35
Construction products 8 4
Warehousing 1 1
As a result of this merger and one proposed with Pacemaker Corp. the relative shares would have been as follows for 1967:
Net sales Net income
Broadcasting 4 7
Photographic processing 5 8
Grain storage equipment 4 10
Power lawnmowers 6 16
Metal buildings 9 6
Land clearing and tillage 4 8
Motor freight 38 29
Motion picture theaters 10 9
Power boats 13 3
Construction products 6 3
Warehousing 1 1
[*485] These statistics offer some interesting insights. While the two TV stations to be acquired add only 1 percent to net sales they add 5 percent to net income. (Exhibit 3 of the application indicates that the television properties represent less than 10 percent of the combined assets (book value) and less than 13 percent of gross revenues and contribute less than one-third of the net income to the combined income of the three [Martin] companies.) But in any case broadcasting is to be a small part of the operations of this company. The Commission has steadfastly refused to consider the impact of conglomerate ownership of broadcast properties. But ownership of stations by a company to whom the stations are only 4 percent of sales is a far cry from the concept of local community ownership and management. Does this change in structure of ownership, in this case and throughout the Nation, offer no questions or issues to be explored before the Commission abets the surge of conglomerate mergers? Is there no concern about performance of broadcasters owned by conglomerates, in quality of local service, in willingness to put public interest above profit, in courage to treat controversial issues, or in scrupulous objectivity in decisions about program content, especially in the news and public affairs area? The paltry promises of improved service achievable supposedly only by this merger pale before consideration of these more important issues. If these were the first stations Fuqua was to acquire (and no movie theaters were included), these issues would still be relevant. But, as we have seen, there are additional complexities in the case.
I would hope the need for a hearing in this case would be abundantly clear to anyone who would consider the facts and issues I have attempted to sketch in this brief statement. I regret that it is not.