In Re Motion of COLUMBIA PICTURES INDUSTRIES, INC., ET AL., FOR DECLATORY ORDER In Re Emergency Petition of MARINO IACOPI, et al., for Relief Against Columbia Broadcasting System, Inc.
FEDERAL COMMUNICATIONS COMMISSION
30 F.C.C.2d 9
RELEASE-NUMBER: FCC 71-598
June 4, 1971 Released
Adopted June 3, 1971
BY THE COMMISSION: COMMISSIONERS BURCH, CHAIRMAN; AND WELLS ABSENT; COMMISSIONER JOHNSON CONCURRING AND ISSUING A STATEMENT.
[*9] 1. This matter arises out of two separate rule making proceedings in which the Commission concluded that it would be contrary to the public interest for the national television networks to continue to engage in certain related business activities. In a Second Report and Order in Docket No. 18397, 23 FCC 2d 816 (1970), we prohibited the cross ownership or control, or cross interests, between the national television networks and CATV systems, essentially because such cross ownership would impose a restraint upon the diversity of television programming that cable television might otherwise provide, and would hinder the development of new cable-oriented networks and thus have a dampening effect on potential programming competition on the national level. Our decision in this regard was buttressed by the predominant position held by the networks in a broadcast industry already characterized by considerable concentration of control. The rule adopted in this proceeding, Section 74.1131, 47 CFR 74.1131, was made effective as of August 10, 1973 for interests existing as of July 1, 1970, and as of August 10, 1970 for interests acquired after July 1, 1970. In Docket No. 12782, by a Report and Order released May 7, 1970, 23 FCC 2d 382, reconsideration denied, 25 FCC 2d 318, we adopted a new Section 73.658(j), 47 CFR 73.658(j), which, inter alia, prohibited the networks after September 1, 1970 from engaging in the domestic syndication of any television programs, or the foreign syndication of programs of which they are not the sole producers. The future reservation of any right to share in revenues or profits in connection with the prohibited syndication was also prohibited. n1 This rule was designed to remove any network incentive to choose for network exhibition those [*10] programs in which they had acquired syndication rights, and to enable independent producers to become more competitive and independent sources of television programming. It was also concluded that the prohibition of domestic syndication by the networks would make for fairer competition, in light of the networks' continuing and close relationship with the affiliates to which they and other syndicators seek to sell programs. We noted also the conflict of interest involved in network syndication sales to non-affiliates competing with their affiliates. The effective date of the syndication rule has presently been stayed pending further order of the Commission.
n1 Section 73.658(j) also prohibits the acquisition by the networks of any interest other than the right to network exhibition in programs produced in whole or in part by others. This provision works with the syndication provisions to free the networks from any conflict of interest in choosing programs for network exhibition, and to diminish network control of the program production and distribution process.
2. In December 1970, the Commission received two petitions alleging that the plan of Columbia Broadcasting System, Inc. (hereafter CBS) to spin off its syndication and CATV operations to a new corporation, Viacom International Inc. (hereafter Viacom), would not achieve compliance with the rules. One petition was filed by a group of companies n2 producing and distributing feature films for television, or distributing television programming to television stations (hereafter Columbia Pictures). The other petition was filed by three minority stockholders (Marino Iacopi, Louis Benedetti and Frank Vardicci, Jr.) of Television Signal Corporation, which owns a CATV system in San Francisco (hereafter Iacopi). Upon consideration of these petitions, CBS's response, and replies by the petitioners, we found that the information before us, while not complete, was strongly indicative of continued common control of CBS and Viacom, and that the question of compliance with the rules should be determined prior to the vesting of interests by the consummation of the spin-off. We therefore asked CBS to provide a complete statement of the details of the proposed transaction, to be accompanied by a supporting brief if it so desired, with leave to the other parties to respond. Our Order also directed that no further action be taken to effectuate the transaction pending our final decision. Memorandum Opinion and Order released December 31, 1970, 26 FCC 2d 901.
n2 Columbia Pictures Industries, Inc., Metro-Goldwyn-Mayer, Inc., Paramount Pictures Corporation, Paramount Television Sales, Inc., United Artists Corporation. United Artists Television, Inc., Universal City Studios, Inc., Universal Film Exchanges, Inc., MCA, Inc., Warner Bros., Inc., and Warner Bros. Distributing Corporation.
3. We now have before us the CBS response to our December 31 Order together with further pleadings. The basic facts of the proposed spin-off may be stated fairly briefly. CBS proposes to distribute to its stockholders one share of Viacom stock for each seven shares of CBS common stock held. Viacom will conduct its business through two divisions. One of them, Viacom Enterprises, will conduct the program distribution operations formerly conducted by a CBS subsidiary, CBS Enterprises Inc. The other, Viacom Communications, will conduct the cable television (CATV) operations formerly conducted by CBS. The Board of Directors of Viacom will consist of nine directors, of whom six are persons who have not previously been directors, not previously been directors, officers or employees of CBS. n3 The remaining three directors, who are the principal executive officers of Viacom, were formerly employed [*11] by CBS. n4 Each CBS director, officer or division president who would be entitled to receive 100 or more shares of Viacom, and each individual stockholder who would have the right to vote more than one percent of the outstanding common stock of Viacom, will execute a voting trust for his Viacom stock under which the voting trustee will vote his shares in proportion to the votes cast by all Viacom stockholders not parties to the voting trust agreement. CBS has also stated that its principal individual shareholders, William S. Paley, Frank Stanton and Leon Levy, would undertake, if the Commission so orders, to reduce their holdings of Viacom stock to below one percent of all shares outstanding within a reasonable time -- suggested by CBS as being six years from the earliest effective date of the rules. n5
n3 One of these directors has done legal work for CBS subsidiaries being transferred to Viacom. CBS represents that after the spin-off neither he nor his law firm will perform legal work for CBS or any entity controlled by CBS.
n4 This was the situation until March 1, 1971, when Clark B. George, the president and a director of Viacom, resigned from both positions. He has been replaced as president but the vacant directorship has not yet been filled. We will assume for purposes of this decision that it will be filled with someone formerly connected with CBS.
n5 CBS states that it is advising those few institutional investors (other than mutual funds) who will own more than one percent of both CBS and Viacom, and those mutual funds which may own in excess of three percent of both companies, that they must reduce their holdings to comply with the rules. The proposed trust arrangement will also include the stock of William S. Paley & Co., as well as stock issuable with respect to CBS shares previously held by the William S. Paley 1964 Trust. That trust has been revoked and the shares are now owned by William S. Paley. CBS states that seven additional trusts exist which in the aggregate will constitute less than one-third of one percent of Viacom stock, and that the trustees have been advised by counsel that State law would prohibit transfer of that stock to the proposed trust.
4. Viacom will take over the CATV interests now operated by CBS through a number of subsidiaries. It will also operate what formerly constituted the domestic and foreign syndication activities of CBS. As our rules permit, CBS is retaining profit shares in the existing television programs whose syndication rights are being transferred to Viacom, and the Viacom syndication activities with respect to these programs will be performed under an agreement with CBS which provides for the payment to Viacom of its direct distribution costs plus a percentage of gross receipts. For domestic syndication the distribution fee of Viacom will be ten percent of all gross receipts derived from "national sales" (each license for broadcast in a portion of the United States which includes fifty percent or more of the television homes), twenty-five percent of all gross receipts derived from "regional sales" (each license covering eleven or more television stations in a portion of the United States which includes less than fifty percent of the television homes), and forty percent of all gross receipts derived from "local sales" (each license for broadcast over less than eleven television stations in a portion of the United States which includes fifty percent or more of the television homes). CBS will retain possession and control of the original negatives and negative elements of all programs, whether film or tape.
5. The particulars of the transaction recited above differ in significant respects from the transaction originally proposed by CBS. The original proposal contemplated a Viacom Board of Directors made up of eight directors, of whom six had previous CBS connections. The trust arrangement now proposed is also a subsequent development. The original proposal also included an unspecified grant to Viacom of certain rights with respect to future CBS television network produced programs. The present agreement limits Viacom's distribution rights [*12] to specified programs and series as to which CBS now has such rights, and to such syndication rights as CBS may possess in those programs as to which CBS acquires such rights and which are initially broadcast over the CBS television network during the 1970-1971 season or during the 1971-1972 season. Certain other changes have also been made in the syndication contract between CBS and Viacom.
6. The petitioning parties take the position that the changes in the spin-off transaction made since its inception have not ameliorated the defects in it which they saw at the outset. Columbia Pictures describes the changes as "cosmetic," and urges that CBS has not achieved compliance with the rule barring it from engaging in television program syndication. It points out that the spin-off method of divestiture will leave the ownership of both companies (and, if urges, the control of both) in the same people. It sees no remedy in the reduction of holdings to one percent, terming the one percent figure merely a reporting procedure in the multiple ownership and CATV rules, and insisting that the existence of long standing personal relationships will continue control of Viacom in those who set it up. Columbia Pictures also doubts that sales of the stock of the two corporations on the open market can be relied upon to disperse common ownership interests. Columbia Pictures further sees continued CBS control through a Viacom Board of Directors and officers selected by CBS, unaffected by the presence of a majority of "outside" directors, and heightened by the widespread common ownership of CBS and Viacom stock. The Columbia Pictures basic position is that CBS should have sold its syndication business outright.
7. Columbia Pictures sees further evidence of a lack of independence in Viacom in certain elements of the contract between CBS and Viacom for the assignment to Viacom of syndication rights: the failure to provide for any payment by Viacom in return for these valuable rights; n6 the fact, as it sees it, that payments to Viacom on future programs may vary at the sole discretion of CBS; the existence of certain rights in CBS to discuss the number of "runs" and other terms of Viacom's exercise of its rights; and, finally, the importance to CBS of Viacom's success. n7 In sum, Columbia Pictures urges that the CBS-Viacom arrangement will not change the present "involvement and the leverage enjoyed by CBS in the television program syndication business," and that an evidentiary hearing is needed to resolve the outstanding issues.
n6 Columbia Pictures states that CBS is the largest syndicator of program series.
n7 It is also suggested that since CBS assigned its syndication rights to Viacom on a quit claim basis and without any warranty that CBS had the right of assignment, which Columbia Pictures terms extraordinary, it is likely that CBS in fact has contracts with producers which permit it to assign its syndication rights to any company controlled by it or under common control with it. We asked CBS for comment on this suggestion and they replied that, of the more than 100 CBS-producer contracts involved, only three contain the producer agreed to modify the contract such language. CBS also stated that in one case to permit the assignment to Viacom, and that in the other two cases the contracts also permit a transfer of distribution rights to the programs on condition that the transferee also enter into an agreement identical to the original agreement with CBS, something which we are told Viacom has agreed to do. While we do not have the producer-CBS agreements before us, we cannot view this aspect of the record as supporting the suggestion of Columbia Pictures that CBS must be transferring its distribution rights to a company controlled by it, or as raising an issue on that score.
8. Iacopi also challenges CBS's compliance with the rules. At the outset, however, he points out that CBS is the licensee of a number of television and radio broadcast stations and, indirectly, the licensee of [*13] community antenna relay station WDU-34, for which there was an application for a transfer to Viacom which Iacopi petitioned to deny. n8 Iacopi refers to various aspects of a licensee's responsibility to operate in the public interest, and makes a number of charges to the effect that CBS has wrongfully dealt with the Iacopi petitioners and Television Signal Corporation, the CATV company in which the petitioners are minority stockholders and CBS is majority stockholder, and has attempted to dominate the CATV origination market and prevent the development of a fourth network. n9 Iacopi urges that the community antenna relay station license should not be permitted to be transferred without a full evidentiary hearing on the Iacopi charges, and that in any event the licensing standards of Section 309 of the Communications Act, 47 U.S.C. 309, should be incorporated into this proceeding since the CATV rule involved herein (Section 74.1131) is in effect a licensing regulation. Iacopi urges that substantial character questions are presented as to CBS and CBS personnel moving to Viacom.
n8 The application, filed by Finer Living, Inc., to transfer this license has been withdrawn on March 1, 1971. The petition of Iacopi filed February 22, 1971 to consolidate the Finer Living application with this proceeding is accordingly moot.
n9 These charges appear to be essentially the same as those made in a pending proceeding in the District Court for the Northern District of California, Marino L. Iacopi, et al. v. The Columbia Broadcasting System, et al., No. C-702632 RFP.
9. With respect to the compliance of the spin-off with the requirements of Section 74.1131, Iacopi contends that the test of compliance is the existence of control exercised in any manner, and that CBS management will continue to control Viacom. Iacopi states that Messrs. Paley and Stanton now control CBS and that they will be able to control Viacom, even if their Viacom stock is in the proposed trust, because CBS, with its great size and "an investment portfolio of over $50,000,000" can influence the market (including investment and brokerage houses which are said to own some forty percent of CBS stock) and control Viacom's lines of credit and financing, Iacopi also contends that certain information is lacking, i.e., as to proxy arrangements by CBS officers and directors, loans by CBS and arranged by CBS to its CATV subsidiaries and Viacom, interlocking directorates between Viacom subsidiaries and CBS personnel, and stock held in "street" names by CBS personnel. Iacopi contends that a full evidentiary hearing is required to explore these issues and to resolve the question of the ties of all Viacom directors to CBS. n10 In [*14] addition, Iacopi believes that a hearing should be held to assess the anti-competitive effects of the spin-off which it sees arising out of "the putting together of both the proscribed syndication and cable functions." It sees horizontal integration in the combination of the two types of operation. Finally, Iacopi alleges that CBS demonstrated a lack of candor in indicating surprise at petitioners' December 1970 filings (when CBS had been warned that Iacopi might seek relief at the Commission); in telling the Commission that all allegations of wrong-doing have been denied by CBS; in allegations concerning the ownership of Nor Cal Cablevision and other matters made to the Commission in a letter of February 2, 1971 advising that Nor Cal Television proposed to bid for a CATV franchise at Beale Air Force Base in California; and in failing to advise the Commission fully on details of the spin-off.
n10 Iacopi states that CBS has acquired Tele-Bue Systems, Inc. (a CATV holding company) for its stock and that he is advised that Homer Bergren, who owned substantially all of the stock of Tele-Vue, continued on as an officer and director of one or more CBS subsidiaries, and will be a substantial stockholder in CBS and Viacom. However, we are advised by CBS that Homer Bergren has resigned as president of Tele-Vue (remaining only as a consultant), and that he will not be an officer, director or employee of CBS. A less than one percent stock interest in CBS held by Bergren is not an impediment to Viacom's independence. It is also stated that Nor Cal Cablevision, Inc., a proposed Viacom subsidiary, includes Homer Bergren and other CBS personnel (James Leahy and Richard Forsling) in its management. Iacopi demands a full scrutiny of all Viacom subsidiaries, pointing out that Nor Cal is twenty percent owned by Com West, Inc., itself formed by Tele-Vue's management. Nor Cal, a CATV company, is owned forty percent by Tele-Vue, forty percent by McClatchy Broadcasting, and twenty percent by Com West, Inc., which also is a CATV company. Com West was formed by Tele-Vue, and is managed by current or past Tele-Vue management. CBS is the owner of Tele-Vue (to be transferred to Viacom) but has no interest in Com West. It therefore has a forty percent interest in Nor Cal, to be assigned to Viacom. We do not see that participation in Nor Cal by Messrs. Bergren, Leahy or Forsling (who will move to Viacom) is inconsistent with the necessary separation of Viacom from CBS, assuming, as Iacopi suggests, that Nor Cal should be treated as a Viacom subsidiary. Nor do we believe that there is any question of CBS attempting to deceive us concerning the ownership of Nor Cal.
10. The Urban Law Institute has filed comments in which it urges that while the form of trust proposed for the Viacom stock held by CBS officers and major stockholders will be helpful, the crucial factors where proxies are used is management recommendations, and that the proposed board of directors of Viacom is not satisfactory. It points to the facts that three directors who are the major officers of Viacom are (one is now in doubt) former CBS employees, and that two directors represent "major consumer oriented industries" n11 which are said to prefer network dominance. The Urban Law Institute believes that the Viacom board and officers will still be too close to CBS. CBS, it urges, could readily sell its profitable CATV and syndication businesses. This party also urges that CBS has attempted to give up as little control as possible over Viacom.
n11 These are the president of Pan American World Airways, Inc. and the executive vice president of New York Life Insurance Company.
11. We believe, as we did at the time of our December 31, 1970 decision herein, that the only matter necessary and appropriate for decision in this proceeding is the compliance with our syndication and CATV rules of the proposed Viacom spin-off. We note in this connection that CBS has dismissed the application for a transfer of the community antenna radio service authorization against which Iacopi filed a petition to deny, and that CBS has announced the intention to turn in this authorization at the time of the spin-off. However, the authorization is presently outstanding, and CBS is of course the licensee of radio and television broadcast stations, so that the dismissal of the transfer application does not in itself resolve the question of the relevance of the issues sought to be raised by Iacopi concerning the alleged character deficiencies of CBS and individual CBS personnel who are moving to Viacom. But we do not agree with Iacopi that this proceeding has the attributes of a licensing proceeding, or that the public interest would be served by treating it as a licensing proceeding. The divestiture of the CBS syndication and CATV operations is necessary under our rules without regard to the past conduct of CBS in other respects, and we see no point in holding up that divestiture or making it more complicated by undertaking a full licensing hearing on the allegations made by Iacopi with respect to CBS. [*15] In addition, insofar as Viacom and its personnel are concerned, we also note that we have not asserted the full panoply of licensing jurisdiction, including appropriate character qualification, over CATV systems. Finally, it is appropriate to take into account the fact that the Iacopi allegations concerning past CBS dealings with Television Signal Corporation appear to constitute essentially the same matters already being adjudicated in a United States District Court. For these reasons, we shall limit our decision in this proceeding to the divestiture question. n12
n12 We also believe that it would not be good procedure to re-open this matter to determine whether a CATV and syndication operations should be under common control. Whatever the merits of that question, and whatever our jurisdiction to determine it, it has a broad applicability going well beyond the particular situation involved here, and it would needlessly delay this proceeding to attempt to resolve that new issue before ruling on the proposed Viacom spin-off.
12. We further find that a full adjudicatory hearing is unnecessary to resolve the issues before us. Since, as we noted above, we are not performing the basically adjudicatory task of determining the existence of past misconduct, but rather are considering the structural changes necessary to insure complete divestiture by CBS of its syndication and CATV activities, this proceeding possesses most of the characteristics of rule making rather than adjudication. Nor have we found substantial factual matters which might demand adjudicatory resolution. n13 On the merits, we are persuaded that the spin-off procedure is permissible as a means of achieving compliance, provided that subsidiary aspects of the spin-off are properly conditioned. While there is much to be said for a direct sale of the CBS CATV and syndication activities, we do not find that such a sale is mandatory. Our objective is a divestiture of control, and if that can be achieved without a direct sale we see no need to require a direct sale. In our opinion, a spin-off the relevant CBS operations to a new corporation whose stock will initially be held by existing CBS stockholders is satisfactory, provided that the conditions later set forth in this opinion are complied with. It is true that immediately after the spin-off the same persons who own CBS will own Viacom. However, there has already been heavy trading in both companies since the Viacom stock began to be traded and, while it is not possible to determine on this record how much of the stock was sold to existing CBS stockholders, we consider the reasonable forecast to be that the stockholdings will gradually disperse, so that the commonality of interest between CBS and Viacom will attenuate well beyond the point where the directors and officers of each corporation have a duty to serve the best interests of their company without regard to the interests of the other company.
n13 We note here that while we found the original CBS plans to raise serious questions, and while we also were not satisfied that CBS adequately kept us informed of its plans, these matters do not rise to the seriousness of substantial questions of candor or character.
13. However, in view of the fact that Viacom has been created by the present CBS management, it is not adequate to await possible voluntary disposal of the Viacom stock held by the officers, directors, Broadcast Group division presidents, and large stockholders (those with one percent or more of CBS common stock) n14 of CBS. We recognize that CBS has advised us that these people have now put their Viacom shares in a trust under which the trustee will be required to [*16] vote their stock as non-trust stock in Viacom may be voted. This procedure would certainly go far to avoid the possibility of direct control of Viacom by these individuals. But, in view of the purpose of our rules, we must take necessary precautions to insure that major CBS stockholders and employees do not have such an equity interest in Viacom as will raise essentially the same problems we found inherent in the existing situation. It will not do to accept a situation in which CBS, no longer permitted to acquire syndication or profit shares in network programs, would have an inducement to see that these interests are granted to Viacom. Nor should we permit the possibility that CBS affiliates will have an inducement to buy syndicated programs from Viacom because of the continuing equity interest in Viacom of major CBS people. Therefore, we find that the spin-off will fully comply with our rules only if all CBS officers and directors, Broadcast Group division presidents, and any individual stockholder with one percent or more of CBS common stock, n15 dispose of that stock within a reasonable time, to persons other than close relatives or any organization in which they have any substantial interest. We believe that what is required is total divestiture of these holdings, including any stock which these individuals have the power to vote as trustees (but not including the stock held in trust the sale of which is forbidden by State law), as well as the stock of William S. Paley & Co. We have been advised by CBS that the trust arrangements proposed by it have been consummated; the stock put in such trusts should so remain until removed for sale under the terms of this opinion. We take this action rather than permitting reduction of the individual holdings to below one percent because the individuals affected are not ordinary stockholders whose holdings under one percent could safely be disregarded. They are properly to be treated as the controlling group in both companies, and individual holdings of less than one percent would remain cumulatively significant. We also believe that the sale of this stock should be accomplished within two years from the release of this opinion. We recognize that the major provisions of the applicable rules are not yet in effect, but, as we pointed out in our earlier opinion, the CATV rule is now in effect insofar as the acquisition of additional CATV interests by Viacom is concerned. We see no reason why a two year period should be unduly burdensome or take on any of the attributes of a forced sale.
n14 We do not agree with Columbia Pictures' contention that the one percent cut-off point contained in our rules is merely a "reporting procedure." It is a substantive standard.
n15 Mutual funds and other institutional investors must comply with limitations appropriate to them.
14. We find that the present constitution of the board of directors of Viacom and its officers is satisfactory. There is a clear majority of directors with no interest in CBS, and no past history of CBS employment. All of the directors should have every incentive, as well as a clear fiduciary duty, to serve only the best interests of Viacom, whether this is in the best interests of CBS or not. Thus, we would not expect Viacom to have any reason to hold back its CATV development because of possible adverse impact upon CBS. This expectation similarly applies to those officers and directors of Viacom with previous CBS affiliation as well as to those lacking any such affiliation.
[*17] 15. We also find unpersuasive the contentions made by Columbia Pictures concerning the terms of the transfer of syndication rights from CBS to Viacom. Thus, in view of the characteristics of a spin-off, we see no reason to find it strange that Viacom is not reimbursing CBS for these rights. We also conclude that the payments to CBS are not left to the sole discretion of CBS, n16 and that the provisions of the CBS-Viacom agreement attesting to the importance to CBS of Viacom's successful sale of the programs involved is not a particularly adverse factor. Iacopi's further comments are also found to be lacking in merit. n17 The major Iacopi contentions are discussed herein; all have been considered.
n16 We accept as a representation of fact CBS's explanation in its letter of April 2, 1971 that distribution fees referred to in the CBS-Viacom agreement but not specified are those set forth in CBS-independent producer contracts, and thus not subject to the unilateral discretion of CBS.
n17 Thus, we do not believe that Iacopi has presented a substantial indication that CBS has a $50,000,000 fund through which it can influence Viacom's lines of credit and financing. With respect to the Iacopi suggestion concerning proxies, CBS has represented that no CBS officer or director will hold or control proxies for any Viacom stock. CBS has also stated that the trust will include stock held in street names, and our divestiture requirement clearly includes such stock. With respect to the Viacom suggestion that CBS may control Viacom as a major creditor. CBS has advised us that at the time of the spin-off neither Viacom nor any of its subsidiaries will be obligated to CBS on any loan (an outstanding debt of Tele-Vue to CBS will be cancelled).
16. We therefore conclude that the proposed Viacom spin-off may be permitted to be effectuated, subject to the condition subsequent stated above with respect to certain holders of CBS common stock, and that the spin-off subject to this condition will be in compliance with Sections 73.658 and 74.1131 of our Rules and Regulations.
17. Accordingly, IT IS ORDERED, That the Order adopted herein on December 31, 1970, staying to further action to effectuate the distribution by Columbia Broadcasting System, Inc. to its stockholders of stock in Viacom International Inc., IS DISSOLVED effectuate upon the receipt by the Commission of statements by the persons referred to in paragraph 13, infra, of their acceptance of the terms of this ruling.
BY DIRECTION OF THE COMMISSION, BEN F. WAPLE, Secretary.
CONCURRING OPINION OF COMMISSIONER NICHOLAS JOHNSON
On December 31, 1970, the Commission issued a temporary stay of the proposed spin-off by Columbia Broadcasting System, Inc. (CBS) of its community antenna television (CATV) and television program divisions to Viacom International, Inc. (Viacom). We found that --
[the] information before us, which includes public statements by CBS and the Viacom registration statement filed with the Securities and Exchange Commission, is strongly indicative of continued common control of CBS and Viacom. Columbia Broadcasting System, Inc., 26 F.C.C. 2d 901, 903, FCC 70-1350 (1970). (Emphasis added).
Section 74.1131(a) of our Rules prohibits common ownership of television networks and CATV systems effective August 10, 1973, as to interests in existence on or before July 1, 1970, and on August 10, 1970, as to subsequently acquired interests. Thus, as our prior opinion noted:
Section 74.1131(a) is now in effect insofar as it prohibits additional acquisitions of interests in CATV systems by the television networks. This means that a [*18] ruling would be called for as soon as Viacom sought to increase its holdings which might be well in advance of the August 10, 1973 date when the networks are required to divest their CATV interests acquired prior to July 1, 1970. 26 F.C.C. 2d, at 903-04. (Emphasis added).
The language of our rule seems to me, as our prior opinion assumed, to require complete divestiture. The common ownership which § 74.1131(a) bars is defined in terms of one system which "directly or indirectly owns, operates, controls, or has an interest in" another. Note 1 to the rule defines "control" as follows: "The word 'control' as used herein is not limited to majority stock ownership, but includes actual working control in whatever manner exercised." (Emphasis added).
I cannot believe that the "spin-off" which we approve today will not give sufficient "actual working control" to CBS over Viacom to distort the workings of the marketplace and restrain trade. Specifically, (1) all of Viacom's nine directors were selected by CBS. (2) Three members of the board of directors are to be the three major officers of Viacom, and all three are former employees of CBS, a relationship which the Urban Law Institute, an O.E.O. funded legal services office, has described as follows: "long association with the network, existing friendships, business contacts, carefully nurtured corporate loyalties, and possibly future careers are all linked up with CBS." (3) Of the six remaining directors, at least one, W. Burleigh Patee, is a lawyer who has represented CBS and its subsidiaries in legal matters in the past. (4) None of the six remaining directors is experienced in the CATV and syndication fields, giving even more power to the former CBS management team, all of whom have been previously employed in the syndication or CATV divisions of CBS. (5) Viacom will operate, in effect, as a distribution agent for CBS, selling the programs to which CBS has the syndication rights, collecting on the sales, and remitting to CBS the proceeds of the sale less sales fee or commission. This seems clearly to violate our television network syndication rules which we adopted in order to prevent the power and leverage of the networks over the production and distribution of television programs from further stifling competition -- as well as creativity -- in the television industry. We therefore determined to limit the television networks' power over the program process by prohibiting them from having any interest whatsoever, direct or indirect, in the television program snydication business. See Network Television Broadcasting, 23 F.C.C.2d 382 (1970); Network Television Broadcasting, 26 F.C.C.2d 28 (1970); § § 73.658(j)(1)(i) and 73.658(j)(1)(ii) [currently suspended pending outcome of appeal]. Clearly, our action today undermines this principle. (6) Finally, although we are requiring certain CBS personnel to dispose of their Viacom stock, influential members of the CBS corporate hierarchy will retain an equity interest in Viacom. Thus, although we require division presidents of the CBS "Broadcast Group" to sell their Viacom stock, division presidents of three other CBS corporate "Groups" can retain their holdings. This includes, inter alia, the president of CBS Electronic Viedo Recording Division as well as the heads of such major companies as Holt, Rinehart and Winston, Inc., Creative Playthings, CBS Records Division (the biggest domestic [*19] producer of recorded music, according to the CBS 1970 Annual Report) and the New York Yankees, Inc.
In short, I find this "spin-off" to violate blatantly the letter and spirit of our Rules. I am concurring for technical questions only (relating to parliamentary procedure which required my vote to ameliorate this abomination a slight amount).
I concur most unhappily.