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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 Augusta, Ga., an AM station in Flint, Mich., an AM and TV station in Evansville, Ind., an AM and FM station in Sacramento, Calif., and a TV station in Fargo, N. Dak. n1

 

n1 An application to assign KTHI-TV, Fargo, N. Dak., to Spokane Television, Inc., was granted Jan. 22, 1969. The Commission has not yet been notified of its consummation.

 

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 Columbus and in small surrounding cities and towns in Alabama and Georgia. Those interviewed include educators, elected officials, businessmen, law enforcement officers, farm leaders, ministers and youth workers, and leaders of racially integrated groups. Some of those interviewed from towns outside metropolitan Columbus felt there was a need for improved coverage of local news. Transferee plans to expand local news coverage in the outlying communities with the addition of manpower and equipment, and it plans to cover at more regular intervals the various sessions of the Georgia and Alabama legislatures. It plans to give increased coverage to news of the Vietnam war and other military oriented news due to the large number of military, their wives and children, and retired Army personnel in the area around Fort Benning. The transferee states that efforts will be made to secure persons from minority groups and to train them as necessary and notes that the station has been in contact tact [*479] with local Negro leaders for aid in securing Negro personnel for the station.

 

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, Columbus, Ga., and WTVC-TV, Chattanooga, Tenn., presents no question of regional or national concentration of control. Of the existing Fuqua stations, only WJBF-TV, Augusta, Ga., is in the South, the others being in the Midwest and West. Columbus and Chattanooga are 190 and 220 miles respectively from Augusta, and Chattanooga is in a different State from the other two. A grant of the application is consistent with the Commission's multiple ownership rules and the policies established thereunder over the past several years. The applicant is qualified in all other respects and we find, therefore, that a grant of the above-entitled application would serve the public interest, convenience, and necessity. Accordingly, the above-entitled application is granted.

 

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.

 


 

[*480] DISSENTING OPINION OF COMMISSIONER NICHOLAS JOHNSON

 

The Commission has before it an assignment and transfer case. The principal stockholders of Martin Theatres of Georgia, Inc., Martin Theatres of Alabama, Inc., and Martin Theatres of Columbus, Inc. -- E. D. Martin and Roy E. Martin, Jr. -- want to transfer all their stock to Fuqua Industries, Inc., in exchange for $2.5 million worth of convertible preferred and $16.75 million worth of common stock in Fuqua. Martin Theatres owns WTVM-TV (ABC and NBC, channel 9, Columbus, Ga.) and WTVC-TV (ABC, channel 9, Chattanooga, Tenn. -- with coverage in Alabama, Georgia, North Carolina, and Tennessee). Thus, the Commission must make a formal, legal finding that the acquisition of these two stations by Fuqua Industries (controlled by Chairman of the Board J. B. Fuqua) will serve the public interest under the terms of section 310(b) of the Communications Act. The majority is prepared to make such a finding, and has approved the transfer. n2 I am unable to do so without a further inquiry in the form of a hearing by this Commission.

 

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, Columbus, Ga., and WTVC-TV, Chattanooga, Tenn., presents no question of regional or national concentration of control. Of the existing Fuqua stations, only WJBF-TV, Augusta, Ga., is in the South, the others being in the Midwest and West. Columbus and Chattanooga are 190 and 220 miles respectively from Augusta, and Chattanooga is in a different State from the other two. A grant of the application is consistent with the Commission's multiple ownership rules and the policies established thereunder over the past several years."

 

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.

 

REGIONAL CONCENTRATION

 

J. B. Fuqua already possesses significant political power in the State of Georgia. The acquisition of two more VHF, network-affiliated television stations serving that State will only intensify his position.

 

J. B. Fuqua has been chairman of the Georgia State Democratic Party. Fuqua's headquarters are in Atlanta. Many of the theaters to be acquired are in Georgia. Fuqua also has industrial plants in the State. And Fuqua's longest-held broadcast property, WJBF-TV, is located in Augusta, Ga. One of the VHF stations to be acquired is in Columbus, Ga. The other serves Georgia from just across the State line in Chattanooga, Tenn. Fuqua will thus own two of the 11 VHF [*481] stations in Georgia and complete his triangle of coverage over the State with the Chattanooga station. Indeed, there is some question as to how many more television stations he could acquire in the State without violating our duopoly rules (prohibiting overlapping signals). These rules do, in fact, take note of the regional concentration problem, even though it is ignored by the majority in this case. n3

 

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).

 

MULTIPLE-STATION OWNERSHIP

 

Fuqua is no novice at buying and selling broadcast properties. It is presently a substantial multiple owner. Fuqua owns WJBF-TV in Augusta, Ga.; WTAC (AM) in Flint, Mich.; WROZ (AM) and WTVW-TV in Evansville, Ind.; and KXOA-AM-FM in Sacramento, Calif. Fuqua also owns but leases with an option to purchase KCND-TV, Pembina, N. Dak. (licensed to and operated by McClendon Corp.), and WFIA (AM), Louisville, Ky. (licensed to and operated by Sonderling Broadcasting). Of the stations Fuqua owns and operates, all but the TV in Augusta and AM in Evansville were acquired in a merger with the financially precarious Polaris Corp. Moreover, two of Fuqua's recent broadcast sales bear further examination.

 

Fuqua acquired KTVE-TV, Eldorado, Ark. in 1963. The Commission approved its sale in 1967. The sale was occasioned by the need for liquidity to meet certain financial obligations incurred as a result of the progress of the Fuqua conglomerate mergers. n4 KTVE-TV was treated [*482] as an asset to be liquidated after 4 years ownership so that a conglomerate structure would not falter. Such action by a licensee may not be illegal -- but it certainly stands in sharp contrast to the attitudes toward broadcasting of the long term local owner whose only interest is service and profit through the operation of his single, local broadcast outlet.

 

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.

 

Fuqua has also recently disposed of another station with a somewhat checkered history. KTHI-TV, Fargo, N. Dak., was acquired by Fuqua in 1966 when it merged with Polaris. The Commission recently waived its rule -- which prohibits transfer of a broadcast property held less than 3 years -- to permit this transfer by Fuqua, despite strong indications that no compelling reason existed for the waiver and that a hearing should have been held on the waiver request. Fuqua acquired KTHI-TV because Polaris could not dispose of it before the merger -- could not dispose of it to someone Fuqua would approve. Prior to the Commission's approval of the transfer of control from Polaris, Fuqua vetoed sale of KTHI-TV by Polaris to two other possible transferees. Spokane Television (the new owner of KTHI-TV) could presumably have entered into a lease-with-purchase option arrangement with Fuqua until the 3-year rule was no longer operative. In any case, both the KTHI-TV and the KTVE-TV situations, as well as Fuqua's absentee leasee broadcast properties, demonstrate the conglomerate's inclination to treat broadcast stations as but one more asset to move on the chessboard of corporate finance. Again the contrast between originally professed intentions and present reality is apparent.

 

MULTIMEDIA

 

Martin Theatres, as the name implies, owns approximately 140 movie theaters, located principally in Georgia and Tennessee (with a few in Alabama, Florida, and South Carolina).

 

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:

 

1967

[Percent]

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:

 

1967

[Percent]

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.

 

I dissent.

 


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