In Re Application of MINNEAPOLIS STAR & TRIBUNE CO. (TRANSFEROR) AND WKY TELEVISION SYSTEM, INC. (TRANSFEREE) For Voluntary Transfer of Control Wichita-Hutchinson Co., Inc., Licensee of Station KTVH-TV, Hutchinson, Kans.
Docket No. 18631 File No. BTC-5848
FEDERAL COMMUNICATIONS COMMISSION
19 F.C.C.2d 433 (1969)
RELEASE-NUMBER: FCC 69-907
August 14, 1969 Adopted
MEMORANDUM OPINION AND ORDER
BY THE COMMISSION: CHAIRMAN HYDE DISSENTING AND ISSUING A STATEMENT IN WHICH COMMISSIONER ROBERT E. LEE JOINS; COMMISSIONER WADSWORTH ABSENT; COMMISSIONER JOHNSON ISSUING A SEPARATE STATEMENT; COMMISSIONER H. REX LEE CONCURRING IN THE RESULT.
This proceeding involves the application for transfer of control of the
2. KTVH-TV serves
3. Cowles interests in broadcasting and CATV
reach through the Midwest and
4. Behind the corporate identity of the
purchaser stands the Oklahoma Publishing Co., substantially owned and
completely controlled by the Edward K. Gaylord family. Gaylord holdings constitute a regional
concentration of publishing and broadcasting interests predominantly centered
THE WICHITA-HUTCHINSON MARKET
5. Wichita-Hutchinson, Kans., ranked as the
56th television market in the United States, has a net weekly circulation of
321,900 television [*434] homes.
Of the State's 12 operating commercial television stations, three are located
in this market. n2 KTVH-TV, the CBS affiliate, ranks
third with a net weekly circulation of 242,000 homes. n3
Competitively, its position is measured against
n1 38 Television Factbook, stations volume, 1968-69, p. 263b.
n3 Ibid., p. 277b.
n4 KARD-TV has satellite stations
6. The Gaylord application lists 26 radio stations, purportedly assigned to the Wichita-Hutchinson market and presumedly reflecting media competition in the area. n6
n6 F.C.C. file No. BTC-5848, sec. IV-B, exhibit B.
7. There are only two separately published dominant newspapers in Wichita-Hutchinson. Their distribution is as indicated in chart I:
Hutchinson News (published by John P. Harris, former minority owner in KTVH-TV):
1968 census estimate 43,600
All day 51,412
Saturday morning 51,204
Wichita Eagle and Beacon (published by the Wichita Eagle & Beacon Publishing Co.):
1968 census estimate 314,043
Eagle (morning) 128,597
Beacon (evening) 67,342
Eagle and Beacon (Sunday) 164,153
Hutchinson Record, circulation 850
Wichita Democrat, circulation 1,580
Source: "Ayer Directory of Newspapers and Periodicals," 1968, pp. 408, 420.
8. The combined daily circulation of the
Wichita Eagle and Beacon (jointly published) and the Hutchinson News roughly
corresponds to the net weekly circulation of KTVH-TV. Nevertheless, the figures tend to indicate that the
n7 Letter to the FCC from Gaylord's attorneys, Mar. 3, 1969. F.C.C. file No. BTC-5848.
n8 Ibid. In evaluating competition in the Wichita-Hutchinson market, see,
9. In terms of regional media concentration
encouraged by this transfer to Gaylord, it should be noted that there are two
n9 "38 Television Factbook," stations volume, 1968-69; pp. 277-b. 565-b.
10. Based on FCC engineering standards, neither of the grade B contours of these television stations overlap. (See illustration 1.) But on further review it may appear significant to the issues of concentration that, for advertising and program purposes, the station signals of these two broadcast facilities are in competition.
GAYLORD MEDIA INTERESTS
11. The proposed transferee, WKY Television
System, Inc., is a wholly owned subsidiary of the Oklahoma Publishing Co., a
concern controlled by the Edward K. Gaylord family of
12. The Oklahoma Publishing Co. prints that
State's two largest newspapers, the Daily Oklahoman (morning) and the Oklahoma
City Times (evening). The combined
daily circulation of these newspapers is 292,672. n10
The company also publishes a combined Sunday edition, with a circulation of
270,975. n11 As previously mentioned, the
circulation of these newspapers in
n10 "Ayer Director of Newspapers and Periodicals," 1968, p. 888. The Daily Oklahoman, circulation 176,235; Times, circulation 116,437.
n12 Cf., footnote 7.
13. Oklahoma Publishing Co. prints a monthly
agricultural periodical, The Farmer-Stockman (circulation 426,443), published
in three [*436] separate editions for
n13 Ayer, 1968, p. 887.
n14 Ibid., p. 888.
14. The Katz Agency, Inc., of
n15 "1969 Editor and Publisher Yearbook," p. 355, Katz has recently announced that as of Sept. 1, 1969, it will divest its newspaper representation, Katz Newspapers Sales will become a separate division of Cresmer, Woodward, O'Mara & Ormsbee, New York, a major newspaper representative firm.
n16 "Broadcasting," May 19, 1969, p. 68.
15. In certain competitive areas, the Katz Agency
represents both Gaylord and Cowles. For
n17 Cowles' WESH-TV has a net
weekly circulation of over 50 percent in
16. We believe such overlap becomes competitively perilous when viewed in the balance of proprietary interests held by the Katz family in Gaylord's Oklahoma Publishing Co. Eugene Katz, George R. Katz, other family members, and the estate of Sidney L. Katz possess combined shares exceeding 7-percent ownership in the Oklahoma Publishing Co. Eugene Katz is president of the Katz Agency, Inc. George R. Katz, a director in that agency, holds an interlocking relationship as vice president and director of the Oklahoma Publishing Co. n19
n19 "Poor's Register of Corporations, Directors and Executives," 1969, p. 1282.
17. These ties are relevant to the proposed
transfer. Katz Television Sales
represents KAKE-TV in
n20 "Broadcasting Yearbook," 1969, p. A-27.
GAYLORD MEDIA INFLUENCE
18. Gaylord broadcast stations rise in
spoon-handle fashion along a northerly tier extending from the Gulf of Mexico
19. Within these three States reside 15,717,900
20. Gaylord's radio outlet, WKY, in
21. Adding to this total coverage, the 33.4 percent of Kansas population served by KTVH-TV in Wichita-Hutchinson, Gaylord broadcast facilities will have a potential political and media influence reaching to 6,607,060 people -- almost half the combined population of Texas, Oklahoma, and Kansas. (See illustration 5.)
COWLES MEDIA INTERESTS
22. Cowles family ownership involves numerous media enterprises, held individually and through the Minneapolis Star & Tribune Co. or Cowles Communications, Inc. (CCI). (See illustration 6.) Common ownership interests also link these two companies; and a structure of interlocking relationships enlarges the potential for control. The Minneapolis Star & Tribune Co. has joint broadcast interests with Ridder Publications, Inc. Cowles Communications is intimately involved with media operations, especially newspapers, owned by Perry Publications, Inc. Together, these companies hold substantial sway over information sources throughout the United States, including broadcast properties, newspapers, magazines, and book publishing companies. (See app. A for detailed elaboration.)
23. The Minneapolis Star & Tribune Co. owns 100
percent of the licensee of KTVH-TV. WCCO AM-FM (cp)-TV is licensed to Mid-west
Radio-Television, Inc., which is owned by the Minneapolis Star & Tribune
Co. (47 percent) and by Midcontinent Radio-Television, Inc. (53 percent). Midcontinent, in turn, is equally owned by
MTC Properties, Inc., an enterprise with financial interests in the Minneapolis
Star & Tribune Co.; and Northwest Publications, Inc., a company controlled
by the prominent publishing family of the late Joseph E. Ridder. The Minneapolis Star & Tribune Co.
publishes the only two daily general circulation newspapers -- The Star
(evening) and [*438] Tribune (morning and Sunday) -- in
in the twin cities of Minneapolis-St. Paul, there are no daily general
circulation newspapers published by anyone other than those connected with
WCCO. The Minneapolis Star &
Tribune Co. publishes the Journal (evening and Sunday), the only newspaper in
24. Cowles Communications, Inc. is licensee of
KRNT AM-FM (cp)-TV in
n21 "38 Television Factbook," services volume, 1968-69, p. 576-a (see app. A, par. 3).
n22 On Apr. 18, 1968, CCI exchanged all of its voting and nonvoting stock in Universal Cable Vision for 160,000 shares of the capital stock in Television Communications Corp. (see app. A, par. 4).
n23 "38 Television Factbook," services volume, 1968-69, p. 575-a. cowles-perry media interests/
25. CCI, through its wholly-owned Florida
Broadcasting Co., is licensee of WESH-TV,
n24 Ayer, 1968, pp. 198-217. Perry has recently been disposing of his
ownership in these
[*439] COWLES-RIDDER MEDIA INTERESTS
26. Ridder Publications, Inc., founded by the
late Joseph E. Ridder, holds vast media interests throughout the
COWLES MEDIA INFLUENCE
27. Cowles broadcasting and publications, based
on advertising and distribution circulation figures, reach approximately
19,800,000 people. In terms of the
political and media prominence of Cowles broadcast facilities, the span of
coverage over populated areas of the
28. The WREC AM-FM-TV stations in
n25 The following figures are derived from FCC engineering standards and estimated 1968 population figures taken from Spot Television Rates and Data, Jan. 15, 1969.
29. KRNT, located in
30. The Cowles-Ridder stations, WCCO AM-FM
(cp)-TV, cover substantial areas of population within the four-State area of
[*440] 31. If these population figures are collated, Cowles media influence in an eight-State area is extended by broadcasting to approximately 7 million people. When broadcast circulation figures for advertising purposes are discounted, and population figures based on service contours are substituted, the reach of Cowles broadcasting and publishing extends to about 27 million people, or more than 10 percent of the population within the United States.
32. Through common business interests and holdings
in newspaper and broadcast facilities, Cowles, Perry, and Ridder reach into 17
THE METHOD OF ANALYSIS
33. We have not attempted to penetrate the intricacies of these business combinations. It seems obvious that we do not, at the present time, have sufficient facts to ascertain their full relevance, or ferret out all the implications of this media concentration.
34. Some of these relations are remote, as for example, the community of business interests which may tie together Cowles and Time-Life Broadcasting through Television Communications Corp. and the Philadelphia Bulletin Co.
35. Others are more immediate and financially important, as for example, the common proprietary interests tying Gaylord and the Katz advertising sales agencies, which in turn represent Gaylord and Cowles broadcast facilities within adjacent or proximate markets; and as for example, the CATV alliance of RKO General, Scripps-Howard, and Cowles Communications, Inc. in Memphis, encompassing substantial areas of Tennessee, Mississippi, Arkansas, and Missouri.
36. The list of these arrangements, whether formed out of common sense or by conscious choice, may constitute the detail and description of media control proscribed as inconsistent with the public interest and our multiple ownership rules.
37. We have not limited this review by setting a barrier at 1 percent cross-interests which (not being counted under our reporting rules) are sometimes presumed to shelter minority interests from any inquiry into their impact on media concentration of control. In many cases, the presence of wholly-owned subsidiaries may signal material questions of how small percentage interests are to be defined in terms of Commission reporting requirements vis-a-vis the issues encompassed by economic and media concentration. Minority interests sifted through the mathematics of attribution rules often can be reduced to an exceedingly insignificant proportion of ownership, which nevertheless, may hide an extremely dramatic influence.
38. The most obvious answer is that our regulations encourage us to inquire into "actual working control in whatever manner exercised." 47 C.F.R. 73.35, 73.240, 73.636. We have consistently interpreted this rule as described in our multiple ownership policy statement of 1953. We there said:
[*441] It is our conclusion that the principle of diversification and the realities of the situation require that no distinction be made between a minority non-controlling interest and a full or controlling one. While the holder of a small interest in many instances may have slight influence on the operation of the station in question, it is also true such a person can exert a considerable influence -- to an extent clearly within the objectives and purview of the described diversification policy. Several factors should be noted here: (1) there may not be a correlation between the size of the minority holding and the extent of the influence wielded; (2) it is impossible to determine on the face of the application what the influence of the multiple owner will be; indeed it may be difficult or incapable of definite ascertainment even in a subsequent hearing; and (3) in the cases of the holder who has interested himself in numerous stations, there is good probability that because he is so actively engaged in the broadcast field, his influence will tend to be a positive or substantial one. Amendment of Rules Relating to Multiple Ownership, 18 F.C.C. 288, 292-3 (1953).
39. The issue of these business combinations and
arrangements is material to this case.
Where the number of competitors is small, "the greater is the
likelihood that parallel policies of mutual advantage, not competition, will
emerge. That tendency (however) may
well be thwarted by the presence of small, but significant competitors."
40. The transferor, Minneapolis Star & Tribune Co., in giving its reasons for the transfer states, "* * * that the operation of KTVH in the public interest would benefit from the infusion of substantial additional capital and that the transferee is in a better position to accomplish this at the present time." n26 Transfereehs vice president tells us the corporation "* * * can operate the station in the public interest," because its "* * * experience and record in other markets will be brought to bear in Wichita, and the applicant believes this will result in a benefit to the community." n27
n26 F.C.C file No. BTC-5848, pt. I, sec. I, p. 2.
41. Cowles representatives give us no sufficient reason why the public interest will benefit by the "infusion of substantial additional capital" in KTVH-TV. Gaylord's WKY Television System explains that there is an interest in the station acquiring color video equipment for local program origination. n28 But, this explanation for needed capital seems insufficient. KTVH-TV reports to potential advertisers that it is in full possession of color capacity. n29 Furthermore, an equipment purchase of this type would seem well within the financial capacity of the Cowles company. It currently enjoys an excess of $1 million in assets over liabilities. n30 Consequently, the Commission has no information of decisional relevance disclosing the licensee's need for additional capital, or the benefit expected to result from the contribution. In addition, the transfer application contains no commitment to invest any sum of new capital.
n28 File No. BTC-5848, sec. IV-B, exhibit C, par. 2.
n29 Spot TV rates and data, SRDS, Inc., Jan. 15, 1969, pp. 18, 191.
n30 BTC file, op. cit., sec. I, exhibit 3.
[*442] 42. Certainly, expanded program investment might be a reason for the contribution of "substantial additional capital." But Gaylord agents conclude that they "* * * should retain the general (program) format of the station's operation * * *." Such program improvements as are suggested appear to have been developed within the station's existing resources of staff personnel and revenues. n31 Thus, no new capital is indicated or specified in this regard.
43. Furthermore, there is serious question
whether the Gaylord promise to retain the KTVH-TV program format is
credible. In attempting to assess WKY
Television System's past experience and record in other markets, we find on a
comparative basis that Gaylord's WKY-TV in
44. In terms of gross revenue, KTVH-TV is approximately one-third the size of WKY-TV ($1,599,633 compared to $4,071,510, respectively). Yet, in program expense, KTVH-TV devotes 33 percent ($525,782) of its revenue to this effort, in comparison to only 26 percent ($1,060,250) for WKY-TV. Though WKY-TV expends more dollars than KTVH-TV, it represents a smaller devotion of resources to public service.
45. Nationally, the total broadcast industry currently budgets about 30 percent of its total revenue for "conventional programming." n32 Judged by this standard, WKY-TV program expenses are 4 percent (or $163,000) below the national norm, and 7 percent (or $285,000) below the level assumed by KTVH-TV for its own operation. In terms of size based on revenue, KTVH-TV may be required to make proportionately greater expenditures. But in what sense, and under what circumstances, the parties do not bother to explain.
n32 Subscription Television, 15 F.C.C. 2d 466, 497 (1968).
46. For reasons not readily apparent, there is considerable disparity between these stations in their percentage of profit compared to gross revenue. We are not concerned with this difference as a fact in itself, but only because it may bear a substantial relationship to programming potential and achievements. The pretax earnings of KTVH-TV stand at 15 percent (or $232,341) of gross revenue as compared to 40 percent (or $1,627,088) generated by WKY-TV. If program effort is stated as a function of profits, KTVH-TV's expenses of $525,782 are twice as great as its net income before tax. The inverse ratio is true of WKY-TV. Its program expense only amounts to about 65 percent of its total profit. Stated as a dollar expense to income ratio, for every $2.25 KTVH-TV spends for programming, it earns $1 profit. On the other hand, WKY-TV earns $1 profit for every 65 cents of program expense. This represents a 154-percent return on program investment.
47. We have not analyzed these percentages in terms of consolidated station revenue and expense of broadcast holdings in the WKY Television System. Nor have we made a financial comparison of all Cowles broadcast operations. No doubt adjustments may be required within the structure of Gaylord broadcasting to account for losses in its UHF television operations. Based on the scant information before us, it is impossible to determine how much Gaylord's programming efforts are [*443] depleted in VHF television by the exigencies of carrying losses and acquiring programs in the UHF branch of its business. To some extent, there must be a correlation.
48. We have made this comparison between KTVH-TV and WKY-TV solely on the basis of their proximity, and the necessity to establish some standard for judging the public interest in programming a transferee may be expected to serve on the basis of its past performance. Assuming that a complete financial survey of Gaylord broadcast operations does not significantly change the percentage of program expense to revenue and income, as compared to the present and historic levels of such expense maintained in KTVH-TV, it may be extremely difficult to ascertain how this proposed transfer can benefit or serve the public interest in broadcasting.
49. There is also evidence that this transfer may financially impair KTVH-TV. Though KTVH-TV (CBS) is third, behind the NBC and ABC affiliates in the Wichita-Hutchinson market, the station enjoys a healthy financial position. As of November 30, 1968, the licensee, Wichita-Hutchinson Co., had total liabilities of $576,011. These were more than adequately covered by an excess net worth of $1,297,474. n33 But the transfer application before us suggests that these assets will be jeopardized by Gaylord's purchase of KTVH-TV.
n33 BTC file, op. cit., sec. I, exhibit 3.
50. The purchase price is $4.4 million. n34 To cover this sum, the First National Bank & Trust Co. of Oklahoma City has agreed to lend, on a noncollateral basis, its legal limit of $3.6 million to Gaylord's WKY Television System, Inc. n35 The transferee's application gives no information as to the source of payment for the adjusted contract price balance. Presumably, cash and receivables ($3,833,899) of WKY Television System, Inc., are sufficient (and will be used) for the purpose. A direct cash, capital investment from this source, perhaps, can be made without serious risk to the corporation's working capital position. n36
n35 BTC file, op. cit., amended by letter of Mr. Charles A. Vose, chairman, First National Bank & Trust Co., dated Feb. 28, 1969.
51. On the other hand, the loan with which Gaylord proposes to burden WKY Television System, Inc., sits oppressively upon the corporation's capital structure. It is repayable at the rate of $200,000 per month, exclusive of interest which was not specified by the bank letter of commitment. n37 At this rate, the corporation's annual cash expenditures (in the first year after acquisition), are increased by $2.4 million. In 1968, total net income from all WKY Television System broadcast holdings was only $1,333,073. n38 Consequently, the KTVH-TV acquisition, on the financial basis proposed, converts the corporation's profit position into approximately a $1.1 million deficit, assuming a constant revenue level. KTVH-TV's contribution of income to the system only alleviates the deficit by approximately $232,000, stated at its current income rate. KTVH-TV's net worth is thus practically liquidated by Gaylor's acquisition.
[*444] 52. The capital structure of WKY Television System, Inc., is also weakened. At the repayment rate schedule fixed by the Oklahoma City Bank (and apparently accepted by the Gaylords), $2.4 million of the $3.6 million loan must be stated as a current liability (payable within 1 year) on the financial statement of the WKY corporation. In this position, the relationship of net quick assets to liabilities is degraded from a healthy 3 to 2 ratio to a 1 to 1 deficit ratio. Not only the capacity of income to generate internal expansion, but the solvency of the corporation itself is brought into question under financial arrangements. On sound accounting and financial principles, both the loan and the investment may enter the shaky realm of insubstantial deals.
53. The proposal liquidates over $1 million of net worth in the Wichita-Hutchinson Co., and tends to dissipate slightly over $2 million in liquid assets of the WKY Television System. The public benefit is difficult to see. The WKY System is already burdened with losses in its UHF television operations. Consequently, the financial arrangements designed for the KTVH-TV purchase enlarge rather than lighten the magnitude of that concern.
54. With these considerations, it is difficult to determine how Gaylord's ownership of KTVH-TV will result in a benefit to the Wichita-Hutchinson community. WKY Television System says the public interest benefit results from its past experience and record in other markets. Nothing, however, is related concerning this feature.
55. We find with respect to certain trust indentures affecting the Oklahoma Publishing Co., WKY Television System, Inc., apparently has been in default of compliance with section 1.613 of Commission rules for a number of years. We shall, of course, designate a hearing issue to determine the circumstances surrounding this apparent omission. Our concern in this regard was prompted by the disclosure that Commission records until recently could not identify the beneficiaries in whose favor substantially all assets of the Oklahoma Publishing Co., and WKY Television System are administered.
56. More significantly, however, is a sense of the magnitude of these trust arrangements. We wish to assess the impact of the trust arrangements affecting Cowles as well as Gaylord's media interests. It is apparent that they may not serve public interests in broadcasting, that they may tend to depress the initiation and maintenance of sound communications policies promoting program diversity. It seems equally clear that where our policy of integration -- combining ownership and management -- is socially essential to broadcast station operations, a trust instrument bifurcates ownership, and is in derogation of the integration standard. The interests of ownership then become matters solely of commercial benefit, rather than owner-management involvement in community affairs. A serious question arises whether these arrangements place public interests in broadcasting in thrall to the private concerns of beneficiaries, centered on swelling investment income and capital growth.
57. Companion to this danger may be the tendency of trust arrangements to encourage the siphoning of income from broadcast programming. Where, for tax reasons, it becomes beneficially attractive and [*445] profitable to divert income from corporate endeavors to trust estates, management decisions, except where charitably motivated, are not likely to elect increased programming. The inducement for preferring program expense over the enhancement of trust estates will not be readily apparent where business income available to principal owners can be divided and distributed at reduced income tax rates among family and business relations. Without the availability of these devices, such income, for countervailing tax reasons, might be frozen into business enterprise objectives more highly conducive to programming efforts. There is a level at which consideration of one's personal income tax bracket will discourage receipt of more earnings, whether classified as dividends or otherwise. At whatever point that level is reached in a taxpayer's judgment, business revenue surplus will tend to be directed toward deductible and depreciable expenditures. This decision will follow from the necessity to produce capital growth out of an expanding business net worth -- that is, the decision logically results, unless surplus can be converted to earnings properly excluded from the principal owner's personal income where taxes are regarded as prohibitive. The trust device, under certain circumstances, permits this alternative means of capital and income accretion. At the point where sound judgment would normally required the devotion of more income to business purposes, the trust provides a way out. It potentially eliminates the either/or alternative of more tax or business effort, and recaptures the possibility of enlarging personal estates with investments disassociated from occupational endeavor. Both our integration standards and public interests in program diversity are then defeated.
58. We seek to determine the significance of these trusts in terms of broadcasting policies established by Congress and this Commission. We emphasize that our inquiry is limited to those situations in which trust arrangements appear to dominate the corporate or capital structure of broadcast enterprises. In another context, we have noted the dangers inherent in any ability to siphon programming from our free television system, and the potential of certain types of competition to work in derogation of an "improved and more varied fare of programming." n39 We would be less than realistic if we neglected to recognize the competitive tug of trust devices on broadcast income which might otherwise be channeled in service to the sources of program diversity.
n39 Subscription Television, 15 F.C.C. 2d 466, 495 (1968).
59. It appears that the facts before us raise significant questions whether a grant of the transfer application will serve the public interest. The questions are sufficiently substantial to justify setting the application for evidentiary hearing.
60. Accordingly, It is ordered, That, pursuant to section 309(e) of the Communications Act, the above-captioned transfer application Is designated for hearing, at a time and place to be specified in a subsequent order, on the following issues:
(a) To determine whether a grant of the application would result in an undue concentration of control of the media of mass communication regionally or in the Wichita-Hutchinson area.
[*446] (b) To determine the nature of the licensee's need for additional capital; whether licensee's present owners can supply that need; how such requirement necessitates approval of the proposed transfer, and the extent to which the transferee's plan fulfills that need.
(c) To determine which of the applicants can be expected better to serve the community and programming needs of the Wichita-Hutchinson area on the basis of a comparison of their (i) past broadcast record; n40 (ii) contributions to program diversity; (iii) fairness in media presentations of controversial issues of public importance; and (iv) programming dollar expenditures as a percentage of gross revenue and net income. n41
n40 Transferor's record at KTVH-TV, transferee's record in the operation of its VHF television stations.
n41 See above, also relating same to any national norms which may be adduced, the reasons for differences shall also be adduced, if possible.
(d) To determine the extent to which sales representative proprietary interests in the Oklahoma Publishing Co. have or may result in violation of the Commission's multiple ownership rules and policies.
(e) To determine what effect the transferee's financing plan will have upon the assets of the licensee, the assets of the transferee and upon the ability of the transferee to carry out its programming proposals.
(f) To determine the uses, purposes, and effect of corporate and family trusts and estates containing securities in which the Gaylord and Cowles families have legal or beneficial interests in corporations holding FCC licenses, or the capital stock of licensee corporations; their tax, income, and capital effects; the historic correlation, if any, between expense to income ratios applicable to programming before, during and after the execution of such trust arrangements; and the impact of such arrangements on Commission integration standards.
(g) To determine whether and if so, why WKY failed to file trust instruments or their abstracts involving ownership interests in the Oklahoma Publishing Co., as required by section 1.612 (47 CFR 1.613).
(h) To determine, in the light of the evidence adduced pursuant to the foregoing issues, whether grant of the above-captioned application would be in the public interest.
61. It is further ordered, That the Wichita-Hutchinson Co., the Minneapolis Star & Tribune Co., WKY Television System, Inc., the Oklahoma Publishing Co., and the Katz Agency, Inc., are made parties to the hearing.
62. It is further ordered, That to avail themselves of the opportunity to be heard, the above-specified parties, pursuant to section 1.221 of the Commission's rules and regulations, in person or by attorney, shall within 20 days of the mailing of this Order, file with the Commission, in triplicate, a written appearance stating an intent to appear on the date fixed for the hearing and present evidence on the issues specified in this Order.
63. It is further ordered, That the transfer applicants herein shall, pursuant to section 311(a)(2) of the Communications Act and section 1.594 of the Commission's rules and regulations, give notice of the [*447] hearing within the time and in the manner prescribed in such rule, and shall advise the Commission thereof as required by section 1.594 of the Commission's rules and regulations.
FEDERAL COMMUNICATIONS COMMISSION, BEN F. WAPLE, Secretary.
Commission majority initiates an important inquiry into the proposed transfer
I fully join in and support the Commission majority's opinion in this proceeding. However, in light of the dissenting opinion of Chairman Rosel H. Hyde, in which Commissioner Robert E. Lee joins, I would like to add a few remarks of my own stating what, in my view, the majority's opinion does and does not do.
[*463] Chairman Hyde raises a number of points in his dissenting opinion which merit a response.
Chairman Hyde first states (par. 2) that the proposed transfer would not violate the numerical maximums contained in the Commission's multiple ownership rules. Of course, this fails to address the real point. Rule 47 C.F.R. section 73.636(2) bars transfers which "would result in a concentration of control inconsistent with public interest, convenience, or necessity." The rule instructs the Commission to make such a determination by examining "the facts of each case with particular reference to * * * 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." It is precisely these and other factors which will be examined in the forthcoming hearing.
Chairman Hyde does not see (par. 4) how the proposed transfer can raise any question as to "undue concentration of control" in the relevant market. A cursory look at figure 1, attached to the majority opinion, and a reading of paragraphs 18-21 in the majority opinion, should easily dispel any doubts in this area.
The chairman finds "appalling" (par. 4) the majority's inquiry into, and comparison of, the resources dedicated to programming by the owners of KTVH-TV and WKY-TV. The chairman apparently feels this would establish "programming norms" which will drag the Commission into a "quagmire of number games." The point, however, is that we do not know what conclusions we will reach through this comparative analysis, and it is for this very reason that a hearing is necessary. As the majority states in paragraph 46, "[for] reasons not readily apparent" KTVH-TV spends $2.25 on programming for every dollar it earns, yet WKY-TV spends $0.65 on programming for every dollar it earns. There may well be some perfectly valid reason for this apparent discrepancy -- yet it is not immediately apparent from the materials now available to the Commission. For this reason, and because we are charged with determining whether this transfer will promote the "public interest," we have given the parties the opportunity to explore this in a hearing. Finally, the Commission clearly does have the authority to insure an adequate dedication of resources to programming in the public interest. This matter is no longer in doubt. See Red Lion Broadcasting Co., Inc. v. FC.C., 37 U.S.L.W. 4509, 4517 (U.S., June 9, 1969).
Chairman Hyde concedes that there may have been a "violation" of section 1.613 of this Commission's trust disclosure rules (par. 4), yet apparently feels it unnecessary to investigate this matter further in hearing. The chairman also objects to the majority's inquiry into possible rule violations by the Katz Agency's relationship to the parties involved, and suggests that this Commission can easily gloss over such violations by politely asking the parties not to do it again. I cannot agree. We cannot determine the seriousness of these possible rule violations without further inquiry at hearing. If, for example, the violations were intentional, then we would be shirking our duties toward the public if we were to postpone any inquiries to a later date.
[*464] The chairman finds "absolutely no basis" for doubt as to whether Gaylord will retain the present KTVH-TV program format (par. 3). This objection is amply answered by paragraphs 43-47 in the majority's opinion, and needs no further comment.
The chairman views (footnote 1) the statistics on the transferor as "immaterial" to the considerations before us. An examination of issues (b), (c), (e), and (f) should readily demonstrate the necessity for such comparative data.
Chairman Hyde suggests (footnote 1) that the transfer should be granted under the majority's "novel test of weighing 'media influence,'" for the transferor's influence will be diminished. Nowhere, however, has the majority indicated that it has any intention of weighing or comparing the relative concentrations of control presently held by Cowles and Gaylord, and approving the transfer if that concentration will thereby be decreased. As issue (a) clearly states, the hearing will determine whether the transfer would result in an undue (not a lesser) concentration of control in the relevant areas.
Finally, the chairman intimates (pars. 2-3) that the majority has prejudged the merits of this case by reaching conclusions before the hearing process has been completed. Obviously this is not the case -- as an examination of the hearing issues and a re-reading of the majority opinion will reveal. For example, the majority does not contend that the financial arrangements here involved will "enter the shaky realm of insubstantial deals" (majority opinion, par. 52; compare dissenting opinion, par. 2), but that it "may" be subject to doubt. I simply fail to see how this may be characterized as a "premature finding" or a "gratuitous characterization." It is not necessary for me to discuss the issue of whether a strong dissent to the mere holding of a hearing, an attempt to get fuller information, presupposes a decision by the dissenter "reached after and not before the hearing process is completed."
I believe the majority opinion is a significant step toward the closer scrutiny of transfer applications by this Commission, and believe that we will thereby eventually evolve more meaningful standards by which to judge such applications in the public interest.
[*460] DISSENTING STATEMENT OF CHAIRMAN ROSEL H. HYDE IN WHICH COMMISSIONER ROBERT E. LEE JOINS
dissent to the order setting this transfer case for hearing. This case involves a transfer of control of
the license of station KTVH,
First and foremost, it should be made clear that the subject application would not, if granted, represent a numerical concentration of control in contravention of our multiple ownership rules. The transferee would be acquiring its fourth VHF and its sixth television station.
background on the Wichita-Hutchinson market will help to place this matter in
transferee's closest station, WKY, is in
Yet, a reading of this order which Commissioner H. Rex Lee has charitably characterized as "disjointed," indicates that the majority has concluded that Gaylord (the transferee) and Cowles (the transferor) are no in a position to unduly influence the American people. For example, they have already concluded that the transferee has "potential political and media influences reaching 6,617,000 people," and the transferor's media influence extends to "27 million people, more than 10 percent of the population within the United States." n1
n1 The alleged statistics as they apply to the transferor are immaterial for our consideration of whether the public interest is served by a grant under 310(b) of the act. The crucial issues in any such case relate to the transferee. Assuming the majority's premise, the transfer should be granted because the Cowles "media influence" will be diminished to the extent it is no longer a broadcaster in this market. Under the majority's novel test of weighing "media influence" Cowles will no longer influence 760,830 Kansans.
Of course, these impressive eye-catching figures ignore the fact that these same millions of Americans have access to multiple sources of news and information; and these outlets provide the American people with a degree of diversity that assures exposure of varying viewpoints. To say nothing of our fairness doctrine which requires individual stations to provide diversity on controversial matters of public importance.
The order is replete with premature findings, including a gratuitous characterization of the transferee's loan as perhaps entering "the shaky realm of insubstantial deals."
It has always been my understanding of administrative processes that the decision is reached after and not before the hearing process is completed.
[*461] Perhaps the most appalling aspect of the majority's approach is the obvious intent to develop a yardstick for measuring performance in terms of dollars spent. The Commission rightfully cannot impose standards for program quality. However, there is a veiled threat by the majority to circumvent this prohibition in a very mischievous manner by an unrealistic test of equating dollar expenditures with program quality. To begin with quality cannot be measured in terms of quantity or dollars. If that is to be the test of service, stations can easily meet it by pouring large sums into meaningless program projects while ignoring any attempt to achieve true community service. Such an approach will logically lead the Commission into a quagmire of number games where applicants and the public interest will be measured on a dollar standard. I find it hard to believe that the majority fully realize the serious implications of involving the Commission not only in a program-dollar comparison of the parties here, but also in seeking the establishment of national norms on programming dollar expenditures as a percentage of gross revenue. I view this as a very serious and subtle intrusion by the Commission into programming matters. We do not have authority to establish programming norms under any banner.
The majority has charged that with respect "to certain trust indentures affecting the Oklahoma Publishing Co., WKY Television System, Inc., apparently has been in default of compliance with section 1.613 of the rules for a number of years." Section 1.613 of the rules provides in part that "* * * trust agreements * * * are required to be filed [with the Commission] provided, however, that trust agreements are not required to be filed unless requested specifically by the Commission; in lieu of the trust agreement, the licensee * * * may submit the following information concerning the trust: (1) Name of the trust; (2) Duration of the trust; (3) Number of shares of stock owned * * *"
On April 21, 1969, copies of Gaylord trust agreements were filed with the Commission -- not however at the Commission's request. The cover letter for the filing of these agreements recites in part: "These trusts are shown as certificate holders in the voting trust holding 11,275 shares of stock of the Oklahoma Publishing Co. (See 323 dated Feb. 27, 1968, for the Oklahoma Publishing Co.)"
The February 27, 1968, ownership information on file with the Commission indicates: (1) That there is a Gaylord, Inex K.; Gaylord, Edward L. voting trust -- of Oklahoma City, Okla.; (2) That the trustees are citizens of the United States; (3) That there are 11,275 shares of stock in the trust and that the stock is common stock of no par value.
Thus the existence of the trust referred to by the majority was a matter of Commission knowledge. It is true that all of the information required by section 1.613 of the rules for the trust was not provided and that therefore there may have been a technical violation of the rule, but if so, it was not a conspiracy of silence to conceal some nefarious trust scheme. In fact, on the basis of the type of violation that may be involved here, the Commission has often refused to impose even a small forfeiture.
[*462] Having introduced the subject of the Gaylord's trust, the majority goes on to state:
More significantly, however, is a sense of the magnitude of the trust arrangements. We wish to assess the impact of the trust arrangements affecting Cowles' as well as Gaylord's media interests * * *. A serious question arises whether these arrangements place public interests in broadcasting in thrall to the private concerns of beneficiaries, centered on swelling investment income and capital growth.
I do not believe that an assignment hearing is the proper place to explore complicated policy questions, of the appropriativeness of trust ownership. Further, it is blatantly unfair and prejudicial to the applicants to suddenly unfurl the overall appropriativeness of trust arrangements in a hearing case.
If such an inquiry is warranted, the proper machinery to test the question is the Commission's rulemaking processes.
The Katz Agency relationship to both parties has also cast a major roadblock to the transfer. The majority implies some rule or policy violation because the Katz Agency represents both Gaylord and Cowles in some overlapping markets. The issue I suggest is enlarged out of proportion to its importance. Any potential conflict evolving from the Katz's relationship to these licensees can easily be rectified by appropriate conditions in a grant.
Not being able to find fault with the programming percentages of the transferee or its efforts to determine community needs and interests, the majority instead resorts to questioning the integrity of the transferee's representations, stating in one instance "there is serious question whether the Gaylord promise to retain the KTVH-TV program format is credible." There is absolutely no basis for such an allegation. This order is perhaps without parallel in Commission proceedings. It explores issues unrelated and irrelevant to transfer proceedings. It is conclusive as to the very issues it purports to explore and it represents an abuse of the hearing process to raise and decide broad policy matters.
For these reasons we dissent to the order.
1. The purpose of this appendix is to provide further elaboration of the Cowles, Perry, and Ridder media interests. The magnitude of these combinations imposes on us the duty of inquiry respecting public interest standards which now exist or may emerge from the character and practices of these enterprises.
2. Gardner Cowles is chairman of the board and editorial chairman of Cowles Communications, Inc. (CCI). n1 He is the only person of record who owns more than 10 percent of the outstanding voting stock of that corporation. The Gardner Cowles family owns an indeterminate percentage of CCI stock through various businesses and trusts. Gardner Cowles is also president and publisher of the Des Moines Register & Tribune Co., which owns 9.9 percent of CCI stock. John Cowles, Sr., is president and John Cowles, Jr., is vice president of the Minneapolis Star & Tribune Co. That company lists as holders of 10 percent or more of its voting stock, John Cowles and John Cowles, Jr., the Des Monies Register & Tribune Co., the Minnesota Tribune Co., and the trustees of Cowles family trusts. n2
n1 The following is a list of CCI's subsidiaries as of Dec. 31, 1967. Cambridge Book Co., Inc.; Civic Reading Club, Inc.; Cowles Broadcasting Service, Inc.; Civl Service Publishing Corp.; College Publishing Corp.; Cowles Fla. Bcg., Inc.; Cowles National Organization Service. Ltd.; Cowles Magazines, S.A.R.L.; Dental Survey Publications, Inc; Educational Book Club. Inc.; Educational Book Club, Ltd.; The Family Circle, Inc.; Family Circle Overseas Corp.; Famil Circle Stores, Inc.; Family Circle Verlagsgesellschaft mbH; Gainesville Sun Publishing Co.; Hacienda San Miguel Corp.; Home Reader Service, Inc.; Cowles Home Reader Service, Ltd.; Home Reference Library, Inc.; Lakeland Ledger Publishing Corp.; Lancet Publications, Inc.; Modern Medicine Publications, Inc.; Professional Publications. Inc.; Modern Medicine of Australia Pty., Ltd; Modern Medicine of New Zealand, Ltd.; Modern Medicine (Properties) Pty., Ltd.; Magazines For Industry, Inc.; Books For Industry, Inc.; The Glass Publishing Co.; The ICF Publishing Co., Inc.; MMI Publications, Inc.; Mutual Readers League, Inc.; National Organization Service, Inc.; Southwestern Book Club, Inc.; Star Publishing Corp.; Starpress, Inc.; SUFSUN Co., Inc.; TRAVELVENTURES, Inc.; Universal Cable Vision, Inc.; Visual Panographics, Inc. Form 10-K, Dec. 31, 1967, Security Exchange Commission file No. 0-450. Note: On Apr. 26, 1968, CCI, through a wholly owned subsidiary Magazines For Industry, Inc., acquired for stock substantially all of the assets of Bettendorf Publications, Inc.
n2 Public notice announcing the proposed transfer of KTVH-TV, broadcast over KTVH-TV, Jan. 29, 1969.
3. The three competing television stations in
n3 "38 Television Factbook," services volume, 1968-69, pp. 574-a, 577-a.
4. TV Communications Corp., in which CCI owns 160,000 shares, operates CATV systems in Fayetteville, Ark.; Athol, Dalton, Lenox, and Pittsfield, Mass.; Little Falls, Minn.; Claremont, N.H.; Olean, N.Y.; Coos Bay and Myrtle Point, Oreg.; Bradford, Clearfield, Pottsville, and Warren, Pa.; Bellows Falls, Vt.; Harrisonburg, Va.; and a franchise in Lee, Mass. n4
n4 Ibid., p. 575-a.
COWLES-PERRY MEDIA INTERESTS
5. John H. Perry, Jr., board chairman and president of Perry Publications, Inc., and a director of CCI, is also one of three trustees under a trust indenture in which he is named life income beneficiary and retains testamentary power of appointment over one-half the corpus of the estate. As of February 1, 1968, this trust reportedly owned 228,500 shares of the common capital stock of Cowles Communications, Inc. n5
n5 "Cowles Communications, Inc., Annual Report," 1967.
6. Of the 35 evening and 20 morning dailies in
n6 "Ayer," 1968, pp. 198-217.
7. The Cowles station in
n7 "38 Television Factbook," stations volume, 1968-69, p. 154-b.
8. The complexities of Cowles and Perry involvement have recently been compounded by the sale of many of Perry's newspapers to other large multimedia companies including CCI, Cox Industries, Inc., and Gannett Newspapers. A New York Times article reports the following:
"The sale of 16 daily and 10 weekly newspapers owned or
partly owned in
"The 16 daily newspapers have a combined circulation of
about 265,000. All of the dailies are
being sold to out-of-state interests.
"The younger Mr. Perry is interested in developing
techniques for living under water and has a program of research toward this
under way in the Gulf Stream of the
"PRICE NOT DISCLOSED
"Executives of the Perry company declined to release the sales price of the 16 dailies and the 10 weeklies. The rumored price has been $70-million.
"'That is in the ball park,' said William Atterbury, treasurer of the chain.
"Gannett Newspapers, which has headquarters in
"Gannett owns three other Florida dailies, Today, which was started in Brevard County near the Cape Kennedy Space Center in March 1966, and which had a circulation last year of 45,215; The Cocoa Tribune, with a circulation of 3,238, and the Titusville Star Advocate, 6,684.
"The James M. Cox newspapers of
"The Cox papers also bought Palm Beach Life, a
magazine, and a 47.5-percent interest in The Daytona Beach Journal and The Daytona
Beach News, which have a combined circulation of 64,727. The remaining 52.5 percent of the
"The Cox Newspapers also own The Miami News.
"Freedom Newspapers of Santa An, Calif., bought five papers in the Perry chain -- The Fort Pierce News Tribune, with a circulation of 9,399; The Fort Walton Beach Playground Daily News, with a circulation of 10,761; The Panama City News, 10,067 circulation; The Panama City Herald, 13,593, and The Marianna Jackson County Floridan, 5,421.
"These are the first
"Cowles Communications, Inc., of
"Indian River Newspapers, Inc., also associated with the Cowles Publishing Company bought The Leesburg Commercial, with a circulation of 4,940, and The Palatka Daily News, 5,639 circulation.
"The Lake City Reporter, with a circulation of 1,977,
was bought by two newspaper brokers, Taylor Communications, Inc. of
"The Taylor and Matthew combine also bought the 10
Perry weeklies at
"Several of the newspapers purchased also publish on Sunday." n8
n8 New York Times, July 11, 1969, p. 36, col. 2.
COWLES-RIDDER MEDIA INTERESTS
9. Ridder Publications, Inc., through Northwest
Publications, Inc., has common ownership interests with the Minneapolis Star
& Tribune Co. in the licensee of WCCO-AM-FM-TV. Besides the two newspapers that Northwest publishes in
10. Northwest is also the licensee of WDSM-AM-TV
n9 Commission records contain no information indicating that these broadcast facilities predate adoption of FCC duopoly rules.
11. The Cowles-Ridder corporation, Midwest
Radio-Television, Inc., is the sole owner of a CATV system,
n10 "38 Television Factbook," stations volume, 1968-69, p. 546-a.
12. In addition to this highly concentrated
midwestern regional broadcast market, Northwest Publications is also the
licensee of KSSS in
13. Ridder Publications prints the only two
14. Besides the newspapers already described,
the Ridder family, through various subsidiaries, publishes or has interests in
five newspapers in
n12 Editor and Publisher, Apr. 19, 1969, p. 112.
15. The Ridder newspapers reach 1,143,747 people daily and have a Sunday circulation of 1,128,647. n13
n13 Ayer, 1968.
APPENDIX B ***