In the Matter of FORMULATION OF POLICIES RELATING TO THE BROADCAST RENEWAL APPLICANT,
STEMMING FROM THE COMPARATIVE HEARING PROCESS
Docket No. 19154
FEDERAL COMMUNICATIONS COMMISSION
31 F.C.C.2d 443
RELEASE-NUMBER: FCC 71-826
August 20, 1971 Released
Adopted August 4, 1971
BY THE COMMISSION: COMMISSIONERS BARTLEY AND JOHNSON CONCURRING AND ISSUING STATEMENTS; COMMISSIONER HOUSER ABSENT.
[*443] 1. We have just issued an order extending the filing dates in this proceeding (FCC 71-425). This Further Notice deals with substance and is called for in light of the recent decision of the United States Court of Appeals for the District of Columbia Circuit in Citizens Communications Center v. F.C.C., Case No. 24,471, decided June 11, 1971.
2. The essence of that decision is that in a comparative hearing involving a regular renewal applicant, the Communications Act and Ashbacker Radio Corp. v. F.C.C., 326 U.S. 327 (1945), require a single full hearing in which the parties may develop evidence and be adjudged on all relevant criteria. The Court for this reason held invalid the Commission's "Policy Statement Concerning Comparative Hearings Involving Regular Renewal Applicants," 22 FCC 2d 424 (1970), which provided a full comparison of incumbent and challenger only where in an initial stage of the hearing the incumbent could not demonstrate a part record of substantial service without serious deficiencies. Only with a single comparative hearing, the Court ruled, would all matters material to the public interest judgment in the particular case be fully developed.
3. The Court's decision does not obviate the need for this proceeding. On the contrary, it reinforces it. For, the Court stressed that "... incumbent licensees, should be judged primarily on their records of past performance...," and that "[insubstantial] past performance should preclude renewal of a license... [while] [at] the same time, superior performance should be a plus of major significance in renewal proceedings" (Sl. Op. 25). Further, the Court states that it "... recognizes that the public itself will suffer if incumbent licensees cannot reasonably expect renewal when they have rendered superior service" (Sl. Op. 25, fn. 35). It urges the Commission to strive to clarify in rulemaking proceedings what constitutes superior service, and notes "with approval that such rule making proceedings may soon be underway. News Notes, 39 U.S.L. Week 2513 (March 16, 1971)" (Sl. Op. 26, fn. 35). The proceedings referred to are, of course, the instant proceedings in this Docket.
[*444] 4. We believe that while the Court disapproved the procedure set up in the Renewal Policy Statement, and emphasized the need for a more flexible weighing of the good and bad points of both the renewal applicant and the new applicant, it did not intend to overturn the policy that "a plus of major significance" should be awarded to a renewal applicant whose past record warrants it or to undercut the purpose of the present proceeding to seek out and quantify, at least in part, that degree of performance. We therefore continue to propose for the comment of interested persons the percentage guidelines set forth in our prior Notice. It appears to us that they would prima facie indicate the type of service warranting a "plus of major significance" in the comparative hearing. That is the standard at whose recognition we are directing our efforts. We recognize that particular labels can be misleading. Thus, we used the term "substantial service" in the sense of "strong, solid" service -- substantially above the mediocre service which might just minimally warrant renewal (see 22 FCC 2d at p. 425, n. 1). n1 We believe that the Court may have read this use of "substantial" service as meaning minimal service meeting the public interest standard (Sl. Op. 20), and therefore employed the term "superior" service to make clear that it had in mind a contrast with mediocre service -- as it put it (Sl. Op. 26, fn. 35), a "lapse into mediocrity, to seek the protection of the crowd." n2 In short, we believe that it is unnecessary to further refine the label. What rather counts are the guidelines actually adopted to indicate the "plus of major significance" -- the type of service which, if achieved, is of such nature that one can "... reasonably expect renewal" (Sl. Op. 25, fn. 35). Interested parties should therefore address themselves to the appropriateness in this respect of the percentages set forth in the prior Notice.
n1 We there stated:
"We wish to stress that we are not using the term "substantially" in any sense of partial performance in the public interest. On the contrary, as the discussion within makes clear, it is used in the sense of 'solid,' 'strong', etc. (see p. 3, supra) performance as contrasted with a service only minimally meeting the needs and interests of the area. In short, we would distinguish between two types of situations -- one where the licensee has served the public interest but in the least permissiable fashion still sufficient to get a renewal in the absence of competing applications (definied herein as minimal service) and the other where he has done so in an ample, solid fashion (defined herein as substantial service)."
n2 Here again confusion can arise, since the term "superior" is sometimes used comparatively, and it is a quantum of service to the public -- not a comparison -- which is the essence of the matter. That the matter is not of a comparative nature may be shown by assuming that every licensee improved its performance 100%, or 200%, or 300%, in the categories denoted in our prior Notice. Under a comparative approach, only the top would continue to warrant the "plus." Further, while it is critical to the public interest to have "strong" or "solid" or "superior" or "meritorious," service in these categories (whatever the appropriate label may be), it does not serve the public interest artificially to require ever advancing amounts, to the detriment of what the public reasonably wants in light of other interests.
5. Parties may also advance other proposals. Thus, the Court raised for consideration the criterion of "whether and to what extent the incumbent has reinvested the profit on his license to the service of the viewing and listening public." (Sl. Op. 26, fn. 35). We had previously considered the possible use of a guideline directed to the relationship between revenues and program expenditures but had tentatively concluded that this matter should be left to exploration as appropriate in the hearing process. Parties may of course address themselves to this and other possible guidelines. The issue is whether in any proposed area a guideline is appropriate or whether the matter is one best left to the full hearing, where its significance can be adjudged in the particular circumstances.
[*445] 6. Thus, the important factor of diversification of control of media of mass communications is one which must be evaluated on the facts of each case. This, we think, is the thrust of the Court's statement that, "Diversification is a factor properly to be weighed and balanced with other important factors, including the renewal applicant's prior record, at a renewal hearing." (Sl. Op. 27, fn. 36). While generally a renewal licensee who had performed in the meritorious manner described above could "reasonably expect renewal" (Sl. Op. 25, fn. 36), the full hearings could adduce facts that change the picture. Thus, where a large multiple owner or newspaper licensee was involved in a hearing, it might win renewal based on defects in its opponent's comparative case, but to gain renewal on its own record, it might have to make a strong public interest showing as to its past broadcast record. It is, we think, impossible to formulate any general standard here since, as the Court has indicated, the matter turns upon the facts of the diversification issue and the renewal applicant's record. Finally, we add our belief that the Court is not seeking to have the ownership patterns of the broadcast industry restructured through the renewal process. This would be chaotic in the extreme and administratively a horror. If overall restructuring is to be considered -- and there are more substantial issues on this score -- it should be in the context of an appropriate rule making, with a reasonable opportunity for all parties to comment fully on the proposed rules; Notice of Proposed Rule Making in FCC Docket No. 18110, 33 Fed. Reg. 5315; 35 Fed. Reg. 5948 (22 FCC 2d 306); cf. Hale & Wharton v. FCC, 425 F. 2d 556, 560 (C.A.D.C., 1970); and, if rules requiring restructuring are subsequently adopted, they should fairly apply to all and should allow reasonable periods for divestment or other appropriate arrangements.
7. The Court indicated serious doubt as to the Commission's procedures in adopting the Policy Statement (Sl. Op. 7, fn. 5). This proceeding affords full opportunity for all interested persons toi set forth their views on the formulation of appropriate policies in this important area. Such views must of course be consistent with the Court's essential holding of the necessity for a full hearing.
8. In view of the foregoing, we shall also revise the time table for comments in this proceeding, with comments due on or before November 1, 1971 and reply comments on or before December 1, 1971.
FEDERAL COMMUNICATIONS COMMISSION, BEN F. WAPLE, Secretary.
CONCURBY: BARTLEY; JOHNSON
CONCURRING STATEMENT OF COMMISSIONER ROBERT T. BARTLEY
I dissented to the Notice of Inquiry with which this proceeding was initiated.
However, since a majority of the Commission approved the proceeding, I have no objection to the inclusion of this Further Notice.
I concur in the issuance of this further notice. My own views of this proceeding and some of the issues raised by it are set out in my opinion concurring in the original notice, 27 F.C.C. 2d 580, 588 (1971), 36 Fed. Reg. 3939 (March 2,1971), 2 Current Service P & F Radio Reg. [*446] 53:429, 435 (1971). I have some disagreement with the particular views outlined by my colleagues in this further notice as well.
A careful reading of the court's opinion in the Citizens case yields several important principles that should be stressed. One is the temporary nature of a license grant and the explicit command in the Communications Act that no property right accrues to the license holder. Slip opinion at 16 n. 23 and accompanying text. This is a very important point that I shall discuss later.
A second is that competing applicants are entitled to a full hearing to choose not a "substantial" performer, or even a "superior" performer, but the "best" performer as the succeeding licensee. Slip opinion at 26, and concurring opinion at 30.
Further the court unanimously suggested specific criteria for use in determining whether an incumbent had performed in a "superior" manner and was therefore entitled to a plus in the overall weighing process of a comparative hearing. These include:
(1) Elimination of excessive and loud advertising
(2) Delivery of quality programs
(3) The extent to which the incumbent has reinvested the profit from his license to the service of the viewing and listening public
(4) Diversification of ownership of mass media
(5) Independence from government influence in promoting First Amendment objectives
Slip opinion at 25 n. 35, 26 n. 36, 28.
Several of these criteria deserve discussion but two merit particular treatment. My colleagues seem to minimize the importance of the diversification issue in their analysis in paragraph 6, holding out the hope that diversification issue would be treated solely in rulemaking. Nowhere is there a citation to the most recent renewal case involving diversification of control in ownership: Frontier Broadcasting Co., 21 F.C.C. 2d 570 (1970). In that case a majority of the Commission clearly indicated that diversification issues could be raised in a renewal context, despite the existence of ownership rulemaking in Dkt. No. 18110 The hearing in Frontier resulted from a petition to deny, and while it appears that there will be no "forfeiture" of Frontier's licenses -- divestiture is presently proposed -- the original hearing provided for denial of the license renewal applications. By analogy the problem of "forfeiture" -- the total loss of a license by an incumbent who is unable to offset the comparative demerit effects of multiple mass media ownership -- might be lessened by permitting an incumbent who faces a competing application to "cure" his multiple ownership situation by divesting during the comparative hearing process. At some point early in the proceeding, the incumbent would have to decide whether he was going to go ahead in his present status, or whether he would divest his other properties. It is this problem for the multiple owner that my colleagues apparently find "chaotic in the extreme and administratively a horror." Perhaps a process that would permit divestiture in the comparative hearing process -- as well as in petition to deny hearings, or in rulemaking -- would leave my colleagues less horrified.
The question of "forfeiture" is related to another criterion suggested by the court for evaluating incumbent renewal applicants. The court [*447] suggested that reinvestment of profits "to the service of the listening and viewing public" would "certainly" be one test. I disagree with my colleagues that this is a question to be left "to the hearing process." In my view it goes to the heart of the Commission's discomfiture caused by the court's decision in this case.
It is a commonplace that the Communications Act bars property rights in the license held by the broadcaster as a public trustee. But it is also clear that this "law" has been ignored by the Commission over the years. When a license is transferred for $20 million, 80-90% of the value of the transfer is made up of the opportunity to broadcast -- the property that is the license. The value of the transfer depends on the medallion value of the broadcasting permit. The "forfeiture" that occurs when an incumbent loses to a new competitor is precisely that property value that the Act says shall not be created. The 1952 amendments to the Act simply accentuated this dilemma by insuring a fee market in the buying and selling of licenses, subject only to Commission regulation. 47 U.S.C. 310(b) (1964). An oligopolistic industry (especially in television), profit maximizing behavior, virtually automatic renewal, and a Commission permissive to the buying and selling of licenses have combined to make an industry with very large profits which were then translated into capital gains as licenses were sold. Profits which were very large, as compared with the original investment to secure a license, then appear "normal" to a licensee who has bought his way in by paying the full price for a license where the profit stream expectations have been capitalized. It is against this background of illicit property rights, and requirements for high profits, that the court's suggestion that profits be turned back into service rests. The licensee is trapped between his desire (1) to profit-maximize, either to meet the required return on his investment, or to enhance the value of his present investment, and (2) his need to insure his license against challenge through performance -- performance which will require him to forego some profits. If the Commission permits challengers to be considered on their merits, as the law and the courts now require, then incumbent licensees will have to put more resources into service in order to insure themselves against successful challenge. Since not all this increment in service is consistent with full profit-maximizing behavior, profits and capital values will be reduced. But this is exactly the result the temporary grant of a license to use a public resource was meant to achieve. If granting of licenses was simply to authorize the accumulation of maximum profits by the licensee, it is difficult to see why the grant was temporary, or why comparative hearings were required to choose the applicant who would provide the "best possible" rather than "substantial service." Judge MacKinnon's concurring opinion in the Citizens case, Slip opinion at 30 (emphasis in original).
There are two other threads in the court's opinion that are worth emphasizing. One is its concern over the de facto segregation of broadcast station ownership and the Commission's apparent willingness to foreclose entry to minority groups. Slip opinion at 26 n. 36. A second is the clear feeling of the court that the Commission's standard of "substantial service," as embodied in the 1970 Policy Statement, was no more than the standard a licensee had to meet to show that he [*448] was not absolutely disqualified from renewal under the public interest standard. I believe this is what leads the court to conclude that the Policy Statement was an administrative enactment of S. 2004. Slip opinion at 20. Of course, there are no Commission cases defining what it meant by "substantial." My colleagues now apparently equate "substantial" with "superior" (paragraph 4). It is not clear to me that all broadcast service is either "minimal" or "superior." There is also implicit in the court's opinion a criticism of the "insuperable advantage" for the incumbent which seemed to be the standard of the Wabash and Hearst cases. Slip opinion at 15 n. 19 and 20, and 16.
The importance of the Citizens case and this proceeding cannot yet be determined. The Commission has apparently concluded that it must live with this decision. Enlightened leadership, on the part of the Commission and the industry, would seem to require that these issues be confronted directly. It is the long term interests of the public that the courts, the Commission, and ultimately the broadcast industry must keep clearly in mind. The process of bringing the Commission broadcast renewal process in line with the requirements of the Communications Act has been a difficult experience. The time for false starts and straying from the path of "law and order" is long past. I hope that all who are vitally concerned with these fundamental regulatory questions will give them careful consideration in this proceeding.