In Re Application of WKKO, INC., COCOA, FLA. For Renewal of License and Transfer of Control
BR-2785 and BTC-6210
FEDERAL COMMUNICATIONS COMMISSION
24 F.C.C.2d 889
RELEASE-NUMBER: FCC 70-739
JULY 8, 1970
†[*889]† WKKO, INC., Radio Station WKKO, P.O. Box 1308, Cocoa, Fla.
GENTLEMEN: The Commission has had under consideration your application (BR-2785) for renewal of the license for WKKO; an application (BTC-6210) for transfer of control of WKKO, Inc., to Cocoa One, Inc.; and information concerning certain commercial practices of WKKO.
Review of an auditor's report furnished by you to the Commission discloses that in the period July 1, 1966, through December 31, 1968, WKKO over-billed advertisers on the station in the amount of $41,805.69.† Also according to that audit, during the same period advertisers were under-billed $23,425.35.† There was, therefore, a net over-billing of $18,381.24.† You have stated that the over and under billings were unintentional and apparently resulted from your failure to bill station advertisers on the basis of commercial advertising actually broadcast as shown in the station's program logs; rather, bills were rendered on the basis of the station's advertising contracts.† According to representations made to the Commission by your principals, the billing procedures which gave rise to these discrepancies were not recognized as deficient until approximately [**2]† September 1968 when an auditor for Jim Rathmann Chevrolet-Cadillac, Inc., one of your advertisers, examined the WKKO station records.† Subsequent to that examination, Rathmann filed a lawsuit against WKKO for damages resulting from the station's failure to comply with the terms of its advertising contract.
The Commission has also reviewed selected program logs for WKKO during the period June through August 1968.† It was noted that spot commercials were entered on the program log on some dates without regard to limitations on the quantity of commercial content in your programming as represented by you to the Commission in the application for renewal of license for WKKO filed in 1966.† Many of those commercial announcements were subsequently stricken off the log so that the number of commercial announcements actually broadcast was within those limitations.† It does not appear that adequate provision was made for re-scheduling the stricken commercial announcements in† [*890]† other time periods, nor were the affected advertisers advised of the deletion of their commercial announcements.† It was also noted that the number of deletions of commercial announcements from the program log was markedly [**3]† fewer on dates and in time periods when commercial traffic on WKKO was comparatively light.† This suggests that the over billing in question was, to some extent at least, the result of station practice of accepting advertising for specific time periods without reference to the limitations on commercial quantity expressed in your 1966 renewal application.
In addition, examination of pre-trial depositions taken in connection with the above-mentioned lawsuit indicates that station time on WKKO was "traded-out" for property devoted to the personal use of station employees.† The value of such property does not appear to have been shown in the station's financial reports to the Commission, in violation of Section 1.611 of the Commission's Rules.
The foregoing matters raise questions as to whether your application for renewal of license should be designated for hearing.† This is indeed a close case.† On the one hand, many advertisers were overbilled substantial amounts, and a former salesman has stated that he told the then manager of the station about this practice, without result.† On the other, the licensee also underbilled many advertisers, lending support to its claim that both over [**4]† and underbilling were unintentional.† Two of the persons closely involved in the billing practices are no longer living.† We believe that, on balance, grant of the renewal is indicated.
There is an outstanding contract for transfer of control of WKKO, Inc., to a corporation whose principals are not affiliated with the current principals of WKKO, Inc.† We would, of course, expect prompt consummation of the sale.
Accordingly, we are granting both the application for renewal of the license for WKKO and the application for transfer of control of WKKO, Inc., to Cocoa One, Inc.
Commissioner Bartley absent; Commissioner Cox concurring in the result; Commissioner Johnson dissenting and issuing a statement; Commissioner H. Rex Lee dissenting.
BY DIRECTION OF THE COMMISSION, BEN F. WAPLE, Secretary.
DISSENTING OPINION OF COMMISSIONER NICHOLAS JOHNSON
Not content just to ignore statutory programming standards which compel operation in "the public interest," this Commission is even prepared to ignore ethical and professional standards essential to "the industry interest."
Today, without a hearing, the majority dismisses charges against a licensee -- which have been admitted† [**5]† -- that involved fraud of over $41,000 on advertisers.† No industry can operate without some standards of ethical conduct; in an industry, such as broadcasting, where the billing scheme is based upon trust by advertisers, such standards are even more important.† Because this Commission has earlier only found fraud up to $6,000 to be consistent with the public interest, it† [*891]† seemed to me worthwhile to say a word about today's groundbreaking advance.
Congress created the Federal Communications Commission to serve "the public interest." As a by-product of this regulation, the industry was to be served by the government's prevention of ruinous, signal interference.† Therefore, an important duty of this Commission -- although secondary to its duty to uphold the public interest -- is to foster industry structure and practices that serve the best interests of constructive commerce.† Presumably, the public will also benefit from a strong, ethical industry able to operate at a profit while serving its audiences.† I have often written of my concern with the FCC's failure to serve the public.† This case shows that it cannot even be counted on to serve the best interests of the regulated industries.† [**6]† This is not the first time these Commission failings have become apparent.† See Star Stations of Indiana, Inc. [WIFE], 19 F.C.C. 2d 991 (1969) ($6,000 fraud).
This station, WKKO, is licensed to serve the community of Cocoa, Florida.† In 1961, the Commission became concerned over its commercialization practices and refused to renew its license for the normal renewal period.† Instead the station was given a short-term renewal as a sanction.† The present staff investigation reveals that the station's unethical practices began at about that time.† The station began to schedule enough advertising to fill 20 minutes per hour, but to meet its promises to the Commission it would delete enough commercials to leave only 18 minutes per hour.† Often, the deleted commercials were not deleted from the advertiser's bill.† In fact, during the period July 1, 1966, through December 31, 1968, the licensee concedes that it over-billed advertisers in the amount of $41,806.59!† (As its unusual business practices resulted in its also under-billing other advertisers $23,425.35, the net gain to the station was only $18,381.24.)
The licensee maintains that these practices were unintentional and unknown† [**7]† to management.† The facts are inconclusive on the degree of licensee involvement in the fraud; normally hearings are used to determine facts.† Not so in this case.† But even if it is assumed that the licensee was ignorant of the fraud, the licensee was negligent in failing adequately to supervise its employees and in failing to abide by established station practices.† The majority of this Commission recently imposed a sanction on a small, community-service station for violating its own internal procedures.† Jack Straw Memorial Foundation [KRAB], 21 F.C.C. 2d 833 (1970). I think their failure to do less here can only be explained by the type of programming produced by the stations.† The word is going out loud and clear: Stick to the old movies and "top-40" records.† (KRAB's principal offense was simply controversy and involvement with its community.)
Our investigation in this case showed that substantially more than half of the over-billing was done to national advertisers (soft drink companies, beer companies, and others not located in the community).† It is more than coincidence that these are the very companies that are likely to be least a aware of advertisements not run.† I can [**8]† think of little as destructive of the present scheme of advertiser-supported broadcasting as the destruction of advertiser faith in the system that is bound† [*892]† to result from cases like this one and WIFE.† If the system dies the death predicted by some, it will not be the result of government intervention or "anti-establishment radicals," as some industry sources feel.† The destruction of the present broadcasting system will be the result of cancerous rot from within: unrestrained greed perpetrated by corporations and sanctioned by the U.S. Government.
The misconduct of the licensee came to light when it was sued by a local advertiser for fraudulent billing.† Judgment was rendered against the licensee for $1,160.† At that trial, several employees testified of the practices used by the licensee.† The evidence they gave is more than enough to dictate further action by this Commission.† For example, there was evidence that management knowingly ordered fraud over the protests of employees!† The trial also produced information that the licensee had "traded-out" advertisements for goods and services from advertisers.† The value of these "free" goods were not reported to the Commission as [**9]† revenue.
How does the Commission respond to this great mass of information indicating fraud on advertisers and deception on the Commission?† It concluded that the public interest dictates that the licensee should be allowed to sell the station and retire from broadcasting.† Think of the precedent this case sets: Anytime a broadcaster finds himself in trouble with the Commission he need only sell his broadcast property, take his capital gains, and leave the industry.† All past transgressions are forgiven, if only the property is sold.† That is not the way I think the FCC should operate; it is certainly not the type of system contemplated by Congress in creating this Commission.† Broadcast stations are licensed to be operated in the public interest.† If that sacred trust is violated, the license should be withdrawn.† To allow a profitable "bail out" on the part of a fraudulent broadcaster is to make a mockery of these statutory standards.
A hearing looking toward denial of license renewal is required.† The public is entitled to have the facts of this case come to light, broadcast advertisers are entitled to have this agency enforce their rights, and the broadcasting industry is† [**10]† entitled to have unethical operators purged from their ranks.† Anything less violates the statutes governing this Commissionís actions and destroys the principles which it was established to serve.
I regret the necessity to write an opinion of this length to explain, once again, why I believe fraud to be inconsistent with the public interest.† But if one does not occasionally take the time to restate the truth of the self evident, it is possible to lose one's sensibilities in this weird Orwellian wonderland known as the United States Federal Communications Commission.