In the Matter of APPLICATIONS
BY AMERICAN BROADCASTING COS., INC. For
assignment of Licenses of Stations WABC, WABC-FM, WABC-TV, New York,
N.Y.: WLS-
FM, WBKB, Chicago, Ill.; KGO, KGO-FM, KGO-TV, San Francisco, Calif.;
KABC,
KABC-FM, KABC-TV, Los Angeles, Calif. For Transfer of Control of
Stations WLS,
Chicago, Ill.; KQV and KQV-FM, Pittsburgh, Pa.; WXYZ, WXYZ-FM, WXYZ-TV,
Detroit, Mich. For Assignments and Transfers of Ancillary Radio
Facilities
Docket No. 16828
MEMORANDUM OPINION AND ORDER
7 F.C.C. 2d 245, 9 Rad. Reg. 2d (P & F) 12 (1966)
RELEASE NUMBER: FCC 66-1186
December 21, 1966 Adopted
BY THE COMMISSION: COMMISSIONERS BARTLEY, COX, AND JOHNSON DISSENTING
AND ISSUING SEPARATE STATEMENTS.
1. This proceeding involves applications by American Broadcasting
Cos., Inc. (ABC), for Commission approval of assignments and transfers of
licenses for 17 broadcasting stations to a new corporation of the same name
which will be a wholly owned subsidiary of International Telephone &
Telegraph Corp. (ITT). The substance of the proposed transaction is that ABC
will be merged into ITT, so that ultimate control will pass from the present
stockholders of ABC to a new group of stockholders which will be composed of
the present ABC stockholders plus the present ITT stockholders.
2. ABC and ITT entered into a merger agreement on February 14,
1966. On March 31, 1966, the applications herein were filed with the
Commission. Public notice of the filing of these applications was given, as
required by statute and regulation. 47 U.S.C. section 311, 47 CFR 1.580. Proxy
statements relating the details of the proposed mergers were mailed to all the
shareholders of ABC and ITT, and the shareholders of both corporations voted
overwhelming approval of the proposed merger.
3. On July 20, 1966, the Commission sent letters to the
presidents of ABC and ITT requesting further information relating to the
proposed future operations of the new licensee company. On July 25, 1966,
replies to these letters were received by the Commission from ABC and ITT. On
August 18, 1966, the Commission issued an order and notice of oral hearing
before the Commission en banc. The Commission there noted that the applications
contain and are accompanied by masses of data and numerous exhibits setting
forth in great detail all of the factual information normally sought by the
Commission in transfer proceedings, together with a large amount of additional
information concerning the corporations involved. The Commission stated that
the great bulk of data supporting the applications is factual and statistical
in nature, and the Commission's review of the data did not indicate any
questions of fact. In light of these considerations, the Commission accepted
the factual representations in the filings herein as authentic and accurate
statements of fact and as evidence of record herein. The order also provided
that in order to preserve the right of any interested party to raise any questions
of fact, any party desiring to offer other or further evidence might file a
written statement of such evidence within 20 days of the date of release of the
order. The order provided that any statement of facts so filed would be
accepted and received as evidence, subject to all proper objections and
arguments as to relevance and materiality, unless an objection was filed
challenging the authenticity or accuracy of such evidentiary statements within
5 days after the filing and service upon the parties of any such statements. A
hearing was ordered before the full Commission to be held on September 19,
1966, and it was provided that any interested party desiring to appear and be
heard should file a statement on or before September 5, 1966, indicating such
intention and designating an attorney or other spokesman.
4. Pursuant to the order of August 18, 1966, ABC and ITT field a
number of statements and exhibits setting forth substantial additional data
concerning those companies and their plans. ABC and ITT filed notices of
intention to appear at the hearing and named attorneys and corporate officials
to attend and speak on behalf of the respective corporations.
5. Hubbard Broadcasting, Inc. (Hubbard), filed a timely petition
to deny the application for assignment of the license of WABC, New York, N.Y.,
one of the stations owned and operated by ABC. Hubbard has no objection to the
transfer of any of the other licenses or properties involved in this
proceeding. Hubbard also filed timely notice of intention to appear at the
hearing on September 19, 1966, and did appear by its attorney, who was heard by
the Commission.
6. The proposed ABC-ITT merger, the submission of the merger
agreement to the shareholders of each corporation, the filing of the
applications with the Commission, the Commission's further inquiries to the
parties, the setting of the matter for hearing before the Commission, and the
hearing before the Commission, all received wide publicity in the general
press, the trade press, on broadcast news reports, and in other media. With the
exception of Hubbard, whose case is discussed separately below, no statements,
written submissions, or objections were filed and no appearances were made in
opposition to the granting of the applications. [FN1] Since the conclusion of
the hearing, the Commission has received comments from a few Senators on the
proceedings, and several letters from others expressing their views on this
matter. These letters have been made part of the public file associated with
the docket in this proceeding and have been treated by the Commission in
accordance with controlling principles of administrative and constitutional law
as expounded in Pillsbury Co. v. F.T.C., 354 F. 2d 952 (C.A. 5th 1966), and
Sangamon Valley Television Corp. v. United States, 269 F. 2d 221, 18 R.R. 2109
(C.A.D.C. 1959).
FN1 On Sept. 15 and 19, 1966, telegrams
were received from an individual unknown to the Commission and unidentified
requesting postponement of the Sept. 19 hearing for 30 days so that the signer
could appear in opposition to the merger. The signer was informed that the
request was neither timely nor in accord with Commission requirements but that
the signer was at liberty if he wished to make a prompt written submission.
None has been received and no facts were alleged warranting further attention.
7. In deciding upon the procedures to be followed in reviewing
the applications for our consent to the merger, we found it desirable to go
considerably beyond the steps ordinarily pursued in processing even the larger
transfer matters. In each instance of departure from perfunctory functory
routines, which we briefly note here, we have sought to heighten the
effectiveness of the methods customarily employed to assay the effect of
station transfer proposals on the public interest.
8. The initial tasks of staff review and analysis of the
voluminously documented applications, and the presentation of recommendations
to the Commission were specially assigned to an experienced, senior member of
the staff of our Broadcast Bureau who, freed from other duties and provided
with all needed assistance, was thus facilitated in performing a painstaking
and searching study of the proposal.
9. Upon our review of the staff's submissions, which included a
separate analysis by senior staff of the Common Carrier Bureau, and, taking
into account ITT's and ABC's prompt response to our requests for additional
information, we considered and, for the following reasons, rejected the step of
initiating a routine hearing. There being no substantial or material question
of fact, and no adversary party, there was no occasion for the laborious and
time-consuming process of accruing on a hearing record the voluminous matter
already available in formal documentation accompanying the applications, in
supplemental submissions by the parties, and in published data of which we
could, as needed, take official notice.
10. Moreover, since what was needed was not a hearing record of
factual data already available to us, but an effective means for critical
review of its legal and policy implications, we chose not to have oral
proceedings conducted in perfunctory fashion before an examiner, but arranged
instead for the Commission en banc to hear interested parties as well as any
objectors who might come forward. None did. By this means we provided an
opportunity -- unavailable under standard procedures -- for direct, formal, and
public confrontation between the Commissioners who are charged with making the
judgments reposed by law upon the Commission, and the responsible executives of
the parties, as well as their experts and counsel. Procedures routinely
followed would have provided us -- after long delay -- only with a written
record, in whose development the Commissioners could have had no participation,
and oral presentations by counsel with no appearances of the principals.
11. Accordingly, the Commission provided that the documentary
submissions should be taken as the factual record. It further provided that any
party desiring to offer other or further evidence or facts, or to challenge any
facts, might do so by a written statement. (Order and notice of oral hearing
before the Commission en banc, August 17, 1966.) This procedure goes
considerably beyond the normal Commission procedure in inviting and permitting
intervention without requiring any showing of standing or interest.
12. Another departure from routine practice which we adopted was
to place upon our staff the responsibility for making an independent
determination and public presentation of all the questions of law and policy
which they considered were posed by the merger. We thereby sought to afford the
maximum opportunity for consideration of every pertinent facet of the pending
proposals. The hearing was held and occupied 2 unusually long days. During the
hearings the Commissioners personally heard, saw, and cross-examined not only
the attorneys for the parties but the principal officers of the corporations.
The individual Commissioners had an opportunity to participate in the
proceedings, to hear and observe the principals involved, and to have
first-hand knowledge of the testimony and representations of the parties in a
manner that would have been quite impossible under the procedure for an
ordinary evidentiary hearing. As a result, the Commission believes that it has
a more complete knowledge and better understanding of the issues involved in
this proceeding than would have been possible under any other procedure.
13. Although this procedure has not produced complete agreement
among the Commissioners, it has certainly resulted in thorough consideration.
The disagreements result from differences of judgments and viewpoints, and no
other or further proceedings offer any prospect of resolving any of the issues
on which the members of the Commission now differ. It is the judgment of the
majority of the Commission that the procedure followed in this case was
extraordinarily painstaking and thorough, and the most adequate in the
circumstances of this case that our ingenuity could devise.
14. Since this proceeding involves a merger the Commission has
considered the possibility of potential antitrust significance, and,
accordingly, has established and maintained a continuing liaison with the
Antitrust Division of the Department of Justice, pursuant to which the
Commission has kept the Antitrust Division advised of all proceedings involving
this matter. The Commission was aware of the official statement of the
'Business Review Procedure' by the Antitrust Division, which states that where
the opinion of the Antitrust Division is sought for business conduct which 'is
subject to approval by a regulatory agency, no review request will be
considered until after agency approval has been obtained.' The Antitrust
Division made no statement or filing regarding this matter prior to the
Commission hearing, made no appearance at the hearing, and offered no comment
except that it had the matter under study until November 3, 1966, when it
stated in a letter to the Commission that there was a possibility of
'anticompetitive effects' and of 'antitrust questions' involved in the proposed
merger. The Commission thereafter urged the Antitrust Division to make a more
definitive statement, and finally on December 20, 1966, the Antitrust Division
stated in a letter to the Commission that: 'The possibilities of such
anticompetitive consequences seem sufficiently speculative that we are not
presently contemplating an action under the antitrust laws to enjoin
consummation of the merger.' The letter then went on to review various aspects
of the proposed merger which the Antitrust Division suggested the Commission
consider under the public-interest standard. These included possible technical
developments or contributions in the broadcasting field by ITT, ITT interest in
some CATVs, the possible development of domestic satellites and their use in
broadcasting transmissions, the possibility of difficulty arising out of
integration of a network by a large diversified industrial concern, and the
possibility that ABC might be able to provide its needed capital from profit.
The letter concludes: 'Because of the uncertainties inherent in predicting
developments in these rapidly changing areas, we cannot conclude on the basis
of the facts presently available to us that the competitive effects are
sufficiently determinable to make it appropriate for the Department of Justice
to institute suit at this time under section 7 of the Clayton Act. We suggest,
however, that these anticompetitive possibilities warrant serious consideration
by the Commission * * * in applying the public-interest standard * * *.'
15. We agree with the Antitrust Division that the standard
governing its action and the action of the Commission are significantly
different. The Antiturst Division is charged with enforcement of the antitrust
laws, 15 U.S.C., section 1, et seq., while the Commission is charged with
effectuating the policies of the Communications Act, 47 U.S.C., section 151.
Under the Communications Act the standard for Commission action is not simply
competition but the wider public interest, and the Supreme Court has instructed
this Commission that 'encouragement of competition as such has not been
considered the single or controlling reliance for safeguarding the public
interest' in this field. F.C.C. v. RCA Communications, 346 U.S. 86, 93
(1953).This principle has recently been reaffirmed. Seaboard Air Line RR. v.
United States, 15 Led. 2d 223 (1965). Under these precedents, it is reversible
error for the Commission to rest its decision solely on competitive
considerations. F.C.C. v. RCA Communications, supra; Seaboard Air Line RR. v.
United States, supra. We appreciate the effort the Antitrust Division has made
to assist the Commission, although we are bound to note that its comments would
have been more appropriate and helpful if they had been submitted before or at
the time of the hearing in this matter. All of the facts and considerations
discussed in the letter from the Antitrust Division are and have been known to
the Commission and have been the subject of careful consideration under the
principles and standards applicable to our field of specialized jurisdiction,
experience, and expertise.
16. As is more fully explicated in the discussion which follows,
we have given careful consideration to all of the competitive factors involved
here, including those mentioned in the Antitrust Division letter, and have
concluded from our analysis of the factual situation, upon the basis of our own
'analysis of the needs of the industry,' and with the help of our 'accumulating
insight' derived from the exercise of our functions, F.C.C. v. RCA
Communications, supra, at 94, 96, that the merger proposed here would enhance,
rather than lessen, competition in the field of communications, and would serve
the public interest and the purposes of the Communications Act. The problems
involved in the development of CATVs and their relationship to conventional
broadcasting facilities have been under long and intensive consideration by the
Commission, and we have issued a number of opinions and orders relating to
these matters and setting forth the Commission's position in great detail. See
dockets Nos. 14895, 152338 15971, First Report and Order (April 22, 1965), 38
FCC 683; memorandum opinion and order (July 7, 1965), 1 FCC 2d 524; Second
Report and Order (March 4, 1966), 2 FCC 2d 725. We have specifically considered
the issue of cross-ownership of television and CATV facilities. Docket No.
15415, First Report (July 27, 1965), 1 FCC 2d 387. These dockets remain open
and we are continuing to receive information and give consideration to the
issues involved in this complexus of problems. In any event, we do not find any
realistic relevance to this proceeding in the CATV matters mentioned. We have
set out herein our views on all relevant issues and the considerations which
compel us to the conclusion that the purposes of the Communications Act will
best be effectuated by the order which follows.
17. Although the only applications actually pending before the
Commission involved the transfer of control of 17 radio and television
stations, these are an integral part of an enterprise which includes a national
radio and television network. The evidence that has been submitted to the
Commission is far greater in both extent and depth than that normally submitted
in a transfer proceeding, and the Commission inquiry has gone far beyond the
scope normal in transfer proceedings. If this proceeding involved no more than
the transfer of control of the 17 broadcasting stations, the record would be
more than ample to sustain approval. However, the focus of attention of both
the Commission and the applicants has been on the significance of control of
the network. We are mindful that this involves jurisdictional problems.
Although the Commission is authorized to make special regulations for stations
'engaged in chain broadcasting,' 47 U.S.C., section 303(i), some question
remains as to how far the Commission is authorized to inquire into or attempt
to control other network activities or corporate affiliations. Cf. National
Broadcasting Co. v. United States, 319 U.S. 190 (1943). We note that within
recent months a radio network has changed ownership and two other networks have
acquired large nonbroadcast interests, all without submission to or action by
the Commission, since there were no station licenses being transferred in these
transactions. Thus, the instant matter comes before the Commission because of
the form and circumstances of the transaction and not because of any statutory authority
to regulate networks. However, since all the information sought by the
Commission in this proceeding has been furnished without objection by the
parties, and in view of our ultimate determination, it is not necessary for us
to decide the scope of our jurisdiction in this area. We have considered this
matter without regard to any jurisdictional limits and we merely note that we
leave the limits of our jurisdiction over networks for future consideration.
18. On June 21, 1965, the Commission issued a public notice
establishing an interim policy concerning the acquisition of broadcast stations
(FCC 65- 548). In substance this policy declared that any subsequent
application for a television station license the grant of which would result in
any party having more than 3 television stations, or more than 2 VHF stations,
in the top 50 television markets would be designated for hearing in the absence
of a compelling showing for the grant. That policy applies to the present
applications. It does not, by its terms, bar the approval of transfers falling
within its terms, but only requires that such transfers by subject to the
searching inquiry of a hearing. The procedure followed in this proceeding was
designed to secure all relevant factual data and subject the principals to full
interrogation and examination, and we believe that it achieved those goals.
Indeed, the hearing held in this proceeding gave the Commission itself, as
distinguished from its staff, a more complete opportunity to interrogate the
principals and learn the basic facts than would have been the case had there
been the more conventional reference to a hearing examiner and preparation of a
printed record. Consequently, we believe that the requirement for a hearing
which was set forth in the statement of interim policy has been satisfied by
the procedure herein. [FN2]
FN2 During the course of the hearing, counsel for ABC questioned
whether the hearing of Sept. 19 and 20 satisfied all technical requirements of
the type of hearing to which under sec. 309 of the Communications Act
applicants for stated types of broadcast authorizations are entitled, under
stated conditions, if the Commission does not grant their applications.
However, at the conclusion of the hearing all counsel stated that all relevant
evidence was in the record, that there was no further evidence to be secured by
further proceedings, and that the parties waived any other or further hearings
(Tr. 601-607).
19. The basic issue which has pervaded these proceedings and to
which most of our attention has been directed is whether the acquisition of one
of the three national television networks and one of the four national radio
networks by a large diversified industrial company, such as ITT, will increase
concentration of control of the mass media or tend to decrease or discourage
diversity in broadcasting. The concern of the Commission on this point is
similar to, but not identical with, the policy of the national antitrust laws.
It is appropriate, and perhaps mandatory, that we taken account of the national
antitrust policy. Southern Steamship Co. v. N.L.R.B., 316 U.S. 31 (1942);
Mansfield Journal Co. v. F.C.C., 180 F. 2d 28 (1950). However, we cannot rest
our conclusion solely on our judgment as to the application of antitrust
policy, and must establish what we regard as a satisfactory accommodation
between the demands of the antitrust laws and the purposes of the
Communications Act. Seaboard Airlines RR. v. United States, 15 Led. 2d 223
(1966); F.C.C. v. RCA Communications, Inc., 346 U.S. 86 (1953).
20. The antitrust laws and policy in effect prohibit those
corporate mergers that are likely substantially to lessen competition or tend
to create a monopoly (15 U.S.C., sec. 18). Fundamental to any analysis of
concentration or competition is a definition of the 'relevant market,' or the
geographical area and products involved. Brown Shoe Co. v. United States, 370
U.S. 294 (1962); United States v. Philadelphia National Bank, 374 U.S. 321
(1963); Tampa Electric Co. v. Nashville Coal Co., 365 U.S. 320 (1961). The
significance of a merger, or similar transaction, must be judged by appraisal
of the effect upon business and the amount of business involved in relation to
the market setting in which the effect takes place. There may be several
different kinds of relationships between corporations, and their effects may be
found in different markets.
21. The record in this proceeding shows no market in which ABC
and ITT engage as competitors. Consequently, the proposed merger will eliminate
no 'horizontal' competition, and, therefore, is not inconsistent with antitrust
policy for that reason. Cf. United States v. Von's Grocery Co., 16 Led. 2d 555
(1966). ABC and ITT have a vertical, or buyer-seller, relationship in two
respects. ITT buys some television and radio advertising, and ABC buys some
products sold by ITT. The evidence in the record discloses these relationships
in detail. The total television advertising purchased by ITT in 1965 was
approximately $523,000, and for 1966 is estimated at $1,672,000. Total radio
advertising by ITT in both years was approximately $25,000. FCC records
disclose that in 1964 total television advertising time sales amounted to
$1,549.9 million and in 1965 to $1,673.7 million. Radio advertising time sales
in 1964 amounted to $763.7 million and in 1965 to $827.7 million.ABC purchased
products and services of the same or similar type to those produced or
furnished by ITT in an amount of approximately $606,000 in 1964. These products
and services were in such varied markets as air conditioning equipment, auto
rentals, electronic equipment, and oversea cablegrams. No single category of
such products or services amounted to as much as $150,000 annually. Official
data show that the market size for the two such markets with which we are most
concerned in this case were over $100 million of annual revenue for oversea
record carriers, and over $8.7 billion annual sales for communications
equipment. Clearly, the market shares represented by the vertical, or buyer-
seller, relationships between ABC and ITT are so small as to be insubstantial
by any legal test. Tampa Electric Co. v. Nashville Coal Co., 365 U.S. 320
(1961); United States v. Columbia Steel Co., 334 U.S. 495 (1948). There is no
evidence that the merger would afford either company an opportunity to use the
economic power of the other to secure any significant purchases by reciprocity,
and there is an unqualified representation that neither company engages in such
practice and that the policy of ITT is against any such practice. The record is
persuasive that there is no substantial probability that the merger will lead
to any such abuse of economic power.
22. One of the principal issues that concerned the Commission in
this proceeding was whether the large business interests of ITT might be
permitted to exert an influence on the broadcasting activities of ABC, and
particularly whether there would be any commercial influence on the performance
of the journalistic function -- the reporting of news and news commentary -- or
on the selection, scheduling, or treatment of public affairs programming. We
recognize the large stake our society has in preservation of the freedom of
broadcast stations and networks from the intrusion of extraneous private
economic interests upon programming decisions. Thorough, fearless and unbiased
collection, dissemination, and analysis of news is, we think, crucial to a free
society. There is widespread and growing reliance by the public upon broadcast
sources of news and news commentary, and upon public affairs programming and
other kinds of informative programming. We have, therefore, been attentive to
the positive assurances which both ABC and ITT gave us and the public on this
score.
The ITT letter of July 25, 1966, stated:
ABC will operate as a substantially autonomous subsidiary. As we
have stated in the applications, the broadcasting operations of ABC will be
kept separate from other ITT operations, and the operations of ABC as a
licensee will be performed unaffected by commercial, communications, or other
similar interests of ITT.
Officials of both ITT and ABC were examined at length on this point by
several Commissioners.
These assurances were reiterated and elaborated with emphasis. It was represented to the
Commission that not only would ABC conduct its broadcasting operations without control or influence by the other
commercial interests
of ITT but also that the news department within ABC is substantially autonomous and is permitted
to conduct its journalistic functions free of control or influence by advertisers or the commercial interests of ITT.
The assurances
and representations on this point were persuasive and we accept them as credible. The autonomy of
the news department is also stated to mean that there has been and will be factual and objective reporting of news and discussion of public affairs,
neither distorted nor influenced by the personal views of those in ABC outside the news department. In determining that
the concerns
which have been expressed in this area have been unaccompanied by showings of injury or
jeopardy to the public interest such as would warrant withholding our consent to
the merger, we neither discount the importance of freedom of the broadcast journalistic function -- it would be hard to
single out a
more vital element of broadcast service -- nor do we treat the matter as closed. It demands eternal
vigilance by all broadcast licensees and will receive our continuing scrutiny for any indication that our reliance
upon the assurances
and safeguards set out on this record was not warranted. We rely, in reaching our decision, upon
the multifold assurances on this record that the freedom of ABC's programming from the intrusion of considerations
stemming from ITT's
numerous and important nonbroadcast interests will be zealously and effectively protected by
every available means. While this freedom has especial importance in the field of
broadcast journalism, we rely on its application to the other sectors of ABC programmming
as well.
23. The principal reason for the proposed merger is the need of
ABC for more funds than are available to it without the assistance of ITT. ABC
is one of four national radio networks and three national television networks.
NBC and CBS are the other two major networks, and each has both a radio and
television network. ABC has more radio affiliates than NBC or CBS, although
fewer than Mutual. In every other respect, ABC lags behind the other major
networks. In relation to NBC and CBS, ABC has fewer television affiliates, a
smaller share of the audience for both radio and television, less revenue from
both radio and television, less profit, and smaller assets. During the last 3
years the ABC television network has operated at a loss, while the other two
major networks have had substantial and increasing profits. Programm expenses
have been increasing rapidly during recent years, and have increased more
rapidly than revenue for ABC. The cost of providing news and public affairs programs
has increased more rapidly than the cost of other network programs presented by
ABC.
24. ABC is now confronted with the necessity for making large
additional capital investments for conversion of network equipment to color
broadcasting, for purchasing and furnishing a headquarters building, and for
constructing and equipping new studios. These expenditures will total over $140
million. Network programs will cost about $2,650,000 each week. Special
features, including documentaries and coverage of extraordinary news events,
will cost unpredictably large sums beyond this. Commitments made under existing
loan agreements limit further borrowing by ABC to $6 million. ITT, on the other
hand, has a current line of bank credit of $140 million and cash on hand of
some $30 million. It also has available substantial amounts of authorized and
unissued stock and the ability to create substantial long-term debt within the
terms of its most restrictive debt instruments.ITT has committed itself,
specifically and unequivocally, to provide the financial support to ABC that is
needed to enable ABC to become more fully competitive with the other major
networks and to fulfill its public-interest responsibilities. In the absence of
the financial assistance that it will receive from the proposed merger it
appears that ABC will be at a substantial competitive disadvantage and will be
handicapped in its efforts to provide the programs and services to the public
that it seeks to provide.
25. The principal argument against approval of the proposed
merger is that it will be another step toward greater economic concentration,
that we should beware of unduly large size in business, and that broadcasting
interests should not be permitted to engage in such diverse and substantial
business operations as ITT. The argument based on size arises mainly from
concern about the overall size and business ranking of ITT. ITT has
approximately $1.7 billion in sales, $2 billion in assets, and ranks as this
country's 30th largest industrial corporation ('Fortune,' July 15, 1966).
However, size is relative and any measurement of concentration must be based
upon the share of some specified market. See the notice issued by the Small
Business Administration on 'Small Business Size Standards,' 31 F.R. 12024
(Sept. 14, 1966). The merger of ABC and ITT will not increase ITT's share of
the industrial market. The parties believe that ITT, with its large financial
resources, will help ABC increase its share of the national television
revenues. While we believe that the merger will strengthen ABC's competitive
effectiveness, there is no visible prospect that it would enable ABC to
dominate the market. If the merger can be said to increase economic
concentration at all, it is only within the broad framework of the general
economy. However, in this setting the size of ITT is not so large as it is in a
more narrowly defined market. There are 17 banks that are larger, 15 life
insurance companies, 5 merchandising companies, and 4 utilities, as well as the
29 industrials ('Fortune,' July 15, 1966). One of the major networks (NBC) is a
subsidiary of RCA, a company that is larger than ITT. There are many
broadcasting licensees of the Commission that are large and diversified
companies, engaged in the widest varieties of business enterprise, including
some industrial companies larger than ITT.
26. In the foregoing circumstances, it does not appear fair or
proper to forbid the merger of ABC and ITT because of rather vague fears of
potential evils of size. An important aspect of this matter is that approval of
this merger will not increase the concentration of broadcast holdings in any
way. The structure of broadcasting will be the same after this merger as it was
before it, except for the additional strength that will accrue to ABC as a
network because of the stronger financial position it will secure through the
merger. Insofar as it is possible to predict consequences in such a situation
as this, it appears more reasonable to foresee greater competition and benefit
to the public, rather than the contrary, as a result of this merger. Television
networks exist in a world of economic giants. The largest television advertiser
spends almost as much annually on television advertising as the total revenue
that ABC derives from its television network in a year. Some of the large
television advertisers are larger than ABC or ITT, or both combined. The ABC
network is wholly dependent on A.T. & T. for its network connections, and
A.T. & T. has an annual net profit that is slightly larger than the annual
gross income of ITT. The second largest domestic telephone company, which is
small in comparison to A.T. & T., is still larger than ITT. In these
circumstances, there seems less danger that ABC will be subject to improper or
undesirable economic pressure or influence as part of a diversified corporation
that is itself economically large and strong than if it is forced to continue
as a relatively smaller and weaker enterprise. In view of the representations
and assurances that have been given on the record in connection with this
merger, a well as the facts that our examination has disclosed, it appears that
this merger will tend to provide assurance of the continued independence and
integrity of the network operation of ABC.
27. Our review of the whole record persuades us that the merger
of ABC with ITT promises unquestionable public benefits in at least three
important areas. First, ITT's larger financial resources will strengthen ABC's
capacity to compete effectively with the other two national television
networks.
28. Second, the merger promises for the broadcast public even
more tangible benefits than the not inconsiderable feature of invigorated
competition among the major national television networks: It promises
meaningful enhancement of ABC's network and station programming services to the
public. With an enlarged financial base -- on which ITT has made unqualified
commitment on a scale which assures ABC of at least $50 million more financial
support than it could otherwise reliably anticipate during the next several
years -- ABC will provide among other things enlarged news and public affairs
services, speedier conversion to color, and substantial new facilities for programm
production.
29. The merger holds out promise of a third major benefit which,
while it is not unrelated to the other two, represents a decided public gain; that
is, the added support ITT has undertaken to give to the advancement of UHF
broadcasting. That support is twofold. First, programming improvements can be
expected to increase the capacity of UHF affiliates of the ABC network to
attract audiences and advertisers and thus strengthen UHF's competitive
potential with VHF stations. This can ease the way toward the fuller use of
other UHF channels in the communities concerned. The other benefit to UHF is
ITT's declared interest in the advancement of UHF technology.
30. Given the clear promise of these and associated benefits we
are not persuaded that protection against certain hazards which have been
envisaged demands the withholding of our consent to the merger. This is not
because we attach less importance to preservation of the freedom of a major --
or any -- broadcast entity to render vital broadcast services undeterred and
uninfluenced by private, nonbroadcast interests under common ownership with the
broadcast enterprise. Fully recognizing this as the sine qua non of a reliable
and healthy broadcast service, we, nevertheless, find in our experience with
numbers of other licensees who encompass, along with broadcast interests, large
and diversified nonbroadcast activities no indication of abuse of their public
trust through the intrusion of their nonbroadcast concerns upon the objectivity
of their news reporting or commentary and no demonstrated detriment in any
other programmming sectors.
31. Nor do we find in the ABC-ITT union of broadcasting and
common carrier activities cause for anticipation that the public interest would
thereby suffer. We have been assured that ABC will remain free to advocate
before this Commission and other public forums any positions which the ABC
management may determine to be beneficial from the standpoint of network and
broadcast operations, notwithstanding the existence of opposed views which may
be held by other ITT subsidiaries performing common carrier or other
nonbroadcast communications functions.
32. In all these circumstances, and taking due account of the
fact that the merger promises no restraint of competition in the markets for
products ITT manufactures or for the advertising and programmming services
provided by ABC, we are convinced that the public interest would best be served
by permitting the realization of the notable public benefits the merger
promises, and, accordingly, find that the public interest will be served by
granting our consent to the pertinent assignments of licenses and transfers of
control.
33. A number of objections to this merger are urged by dissenting
Commissioners. It is argued that (a) ABC is now a healthy and strong network
that does not need strengthening; (b) ABC needs affiliates, rather than a
stronger financial position in order to be more competitive; (c) the Commission
could equalize network strength by more direct, drastic, and effective means
than permitting this merger; and (d) it is a dangerous 'public utility concept'
for the Commission to act on the principle that it should attempt to equalize
network strength and position. It seems to us that all of these arguments are
based on a misconception of the basic approach that is proper here. As the
Supreme Court instructed us long ago 'the field of broadcasting is one of free
competition. The sections dealing with broadcasting demonstrate that Congress
has not, in its regulatory scheme, abandoned the principle of free competition,
as it has done in the case of railroads * * *.' F.C.C. v. Sanders Brothers, 309
U.S. 470 (1940). This means that we should seek in our regulatory activities to
provide the conditions and permit the business activities that will afford free
and effective competition which, while it does not require absolute equality
among competitors, cannot be achieved by smaller or weaker competitors unless
in critical respects their competitive strength is sufficiently comparable to
that of the stronger industry members. It is thus not a part of our function to
insure or impose economic equality. We must, however, recognize that a network
operation which is losing money is suffering a competitive handicap, and that
free competition cannot long survive if one such operation is losing money
while others are profiting.
34. We are not called upon to impose conditions that will insure
a profit for ABC, but neither should we frustrate its efforts to attain a
profitable position by forbidding it to enter the same kind of economic
relations as its competitor. This is not a 'public utility concept' but an
'equal protection of law' concept. As for taking more direct and drastic action
to equalize competitive positions, such as by forcing a change in the
affiliation of individual stations, we consider this unwise, unwarranted, and
incompatible with our basic mandate of maintaining a competitive system of free
enterprise in the field of broadcasting. Such action would come very close to
public utility type of regulation. It would involve a far more drastic
intrusion into the economic operation of broadcasting than any we have yet
undertaken or than we have so far thought authorized or justified. Our present
view is that it is far preferable to permit licensees and networks to achieve
competitive equality by their own efforts and to avoid handicapping them by
unequal limitations than to try to impose equality upon all by direct control
and rearrangement of broadcasting affiliations. There is certainly no occasion
for adopting such an approach in this situation where we are offered an
alternative of much less radical nature.
35. It is true that the proposed merger does not directly meet
the need of ABC for better facilities and more affiliates. However, the record
establishes that it will strengthen the financial position and technical
resources of ABC and thus permit it to expand its staff, particularly in the
field of news, to take greater risks and make long range commitments for programs,
to offer affiliates and prospective affiliates greater assurances regarding
future programming, to change to color transmission of television and improve
its technical facilities more rapidly than otherwise, and to encourage the
development of UHF outlets. All of these things will certainly tend to attract
affiliates and permit ABC to compete more effectively for affiliates. We
believe that our statutory mandate requires us to permit this, and that this
will result in greater competition among broadcasting networks to the benefit
of the public.
36. It has been intimated that the foreign investments and
interests of ITT somehow are or may be disqualifying. The record is quite clear
and complete on the point that ITT has extensive foreign investments. The
Commission is well aware of this, and has considerable detailed information
regarding these beyond that which appears in this docket, since ITT, as an
American corporation engaged in international record communication (like RCA),
has been a licensee of the Commission since the Commission was established. The
fact and extent of ITT's foreign interests is an element that should be and has
been weighed carefully in our consideration of this matter, and we have
examined these foreign business interests in considerable detail. We know from
our experience in the regulation of communications that many of our large
broadcasting licensees and the two other television networks also have
substantial foreign interests, including subsidiary corporations in many
countries. We have seen no evidence at any time that any of these foreign
interests have influenced any of the programming presented in this country.
There is no reason to assume or suspect that any such influence will occur in
the case of ITT. Indeed, we have much greater assurance in our judgment of ITT
than is ordinarily the case with a new broadcasting applicant. As ITT has been
a common carrier licensee of the Commission since the Commission was
established, we have observed its operations and kept informed as to its
interests and activities continuously. Its record has been exemplary. We also
have explicit and emphatic assurances in the present record that the broadcast programming
activities of ABC will not be subject to detrimental influences arising from
other financial interests of ITT. These assurances are positive, credible, and
persuasive. We also note that the Communications Act sets specific standards on
this point by limiting the proportion of alien ownership interest which is
legally permissible in a broadcast licensee (47 U.S.C., sec. 310). ITT, less
than 8 percent of whose stock is alien-owned, and all of whose officers and
directors are American citizens, goes much beyond compliance with the statutory
standard, which would bar a grant on the ground of alien ownership only if
aliens or foreign governments owned over one-fourth of the capital stock of a
corporation (ITT, here) owning a licensee corporation, or if any officer or
more than one-fourth of the directors of such parent corporation were aliens --
and in such cases only upon an affirmative finding by the Commission that the
public interest would be served by denying consent to the acquisition. Nor does
the fact that ITT's ownership of foreign subsidiaries is shared to varying
degrees with aliens realistically hazard alien influence upon the broadcasting
operations of an American subsidiary of the American ITT parent
corporation.Nothing of which we are aware in the history of ITT's operations
abroad or in the United States suggests that it has ever been or would in the
future be neglectful of its loyalties or responsibilities as an American
company, or that aliens associated in the ownership and management of oversea
ITT companies would by some sinister and unexplained means exert influence upon
the interests of the United States broadcast public. It does not seem
appropriate in this case for us to go far beyond the statute to establish some
very strict but vague rule against 'foreign interests' (which would surely
disqualify a number of major broadcast licensees).
37. An issue that has been suggested is whether there may be a
conflict of interest between the broadcasting interests of ABC and the common carrier
interests of ITT. It should be noted that if there were any such conflict, it
would relate only to international operations, since ITT is not a domestic
common carrier. The overwhelming proportion of a domestic network's common
carrier usage is domestic, and the international part is, at most, relatively
minor. As to this minor part, there may be some conflict of interest between
the desire of the broadcaster for lower rates and the desire of the common
carrier for higher rates. This conflict does not seem to have caused any
difficulties in the case of NBC and RCA, which have a larger volume in both
fields than ABC and ITT.However, we also know that communication, particularly
in the international field, is entering a new era in which satellites, and
possibly other techniques, will be of increasing importance. Satellites and
owned by a separate statutory corporation, the Communications Satellite Corp.
Within the United States, ABC, as well as the other networks, must rely upon
A.T. & T. for long distance carriage. Thus, one of the most important
elements in the future position of ABC is likely to be its ability to exert
what has been called 'countervailing power' in relation to international
satellite communications and domestic telephone lines. Its position in this
respect would be immeasurably enhanced by a merger with ITT. Furthermore, its
ability to cope with the unforeseeable complexity of evolving communications
technology will be of paramount importance to it. In this respect, too, it will
be greatly strengthened by merger with ITT. These considerations are of such
preponderant importance in relation to the very minor possibility of conflict
of interest regarding international cable rates that the balance on this issue
overwhelmingly favors the merger.
38. The dissenting Commissioners express certain fears of
possible abuses arising out of a ABC-ITT merger, and point to the fact that the
Commission has established multiple ownership rules, prohibitions against
overlap of commonly owned stations, network rules, and other rules based upon a
purpose to prevent structural relations that have been thought to involve
dangers of abuse. If the transfers involved here were contrary to any of these
rules, they should not be approved. However, the Commission has, over the
course of time, promulgated these rules to prevent just those structural
relations as are thought to present undue dangers of abuses by themselves. The
proposed merger does not transgress any such rules, and, consequently, is fully
consistent with structural relations in the industry which the Commission has,
up to the present time, not only permitted but approved. The fears expressed as
to potential abuses arising out of the proposed merger are based only on
speculative possibilities. Of course, certainty is not attainable when we are
dealing with judgments as to the future, and we can only exercise our best
judgment in full awareness of the fallibility of all human prediction. However,
we believe that the Commission must act on the basis of reasonable
probabilities, not of mere speculative or hypothetical possibilities. We have
based our conclusions on the past performance of the parties involved, on
express, positive, and binding representations as to future performance, and on
our own accumulated experience and observation of other enterprises in similar
situations and of the entire economic, social, and technological milieu in
which applicants must exist and operate. This appears to us to be the best and
soundest basis for judgment in this matter.
39. The basic issue that is presented in arguments against this
merger is whether broadcast licensees should be restricted to broadcasting
activities or should be permitted to have other business interests. In all
fairness it must be conceded that there are arguments to be made on both sides
of this issue. However, since the beginning of broadcast licensing the
Commission has licensed manufacturers of radio receiving equipment, other
manufacturers and industrial enterprises, church groups, labor groups,
newspaper publishers, and other enterprises engaged in a vast variety of
business activities. Proposals to exclude particular business interests, which
have been made from time to time, have met with little sympathy or success in
Congress, and have not been adopted by the Commission. It is too late in the
day to argue that such outside business interests are disqualifying. In any
event, we must apply to same principles to all licensees. Melody Music, Inc. v.
F.C.C., 345 F. 2d 730 (C.A.D.C., 1965); Mary Carter Paint Co. v. F.T.C., 333 F.
2d 654 (C.A. 5th, 1964). We cannot in this case adopt standards which when
applied in other cases would require us to restructure the industry unless we
are prepared to undertake that task. We could not in good conscience forbid ABC
to merge with ITT without instituting proceedings to separate NBC from RCA,
both of which are bigger than the respective principals in this case. The fact
that this proceeding involves applications to transfer licenses rather than to
renew licenses is not controlling, since precisely the same legal standards
apply to transfers and renewals (47 U.S.C., sec. 307(d)). Consequently, the
position contended for in the dissent would require the Commission to refuse to
renew the station licenses now held not only by the other networks, but even by
the numerous large conglomerate corporations that hold broadcasting licenses.
While some may think that such actions are desirable, we are not persuaded that
they would be in the public interest.
40. While there may be imperfections in the structure of the
American broadcasting industry, it has, on the whole, served the American
public well, and we are not convinced that any substantially different
structure would perform better or serve the public better. This Commission
exercises a continuing supervision over the American broadcasting industry, and
seeks to prevent abuses and improve its structure and operation within the
limits of the power Congress has conferred on the Commission. As previously
mentioned, we will have and exercise such power over the applicants here, as
over all other licensees. We think it wiser and more in the public interest to
continue to follow this course, which is the course that has been followed by
the Commission since its beginning and which Congress has both explicitly and
implicitly approved, than to take this case as the starting point for a radical
restructuring of the entire broadcasting industry.
41. The Hubbard petition to deny raises no broad questions
concerning the merger as a whole, but is based solely on inclusion of WABC in
the merger. Hubbard argues that ABC has no license for WABC which is capable of
being assigned, since its application for renewal is still pending, and that
assignment would deprive Hubbard of a comparative hearing against ABC as it now
exists.We do not regard either argument as meritorious. Since there is no
question as to the assignor's basic qualifications, this situation is not
analogous to those in which the Commission first resolves a challenge to the
licensee's qualifications before acting on an application for assignment. Until
determination of the future use of the WABC frequency, all that is assignable
by ABC is the right to continue operation of WABC pending action upon its
license renewal application, but that much is assignable. In re Application of
Stevens Broadcasting, Inc., and Fred P. D'Angelo, FCC 64-988, 3 R.R. 2d
840,843, and 844 (1964), aff'd on other grounds sub nom. Parr v. Federal
Communications Commission, 120 U.S. App. D.C. 151, 344 F. 2d 539 (1965). Such
an assignment will not abridge Hubbard's Ashbacker rights. It is undisputed
that Hubbard is entitled to a hearing in which its application for a new
station at New York City must be considered comparatively with WABC's renewal.
In American Broadcasting-Paramount Theatres, Inc. v. FCC, 120 U.S. App. D.C.
264, 271, 345 F. 2d 954, 961 (1965), the court of appeals upheld our decision
to defer comparative hearings on Hubbard's pending application for a new
station on 770 kc at New York City, which is mutually exclusive with ABC's
pending application for renewal of license of WABC, until we have resolved the
antecedent question of the best mode of utilizing 770 kc at New York and at
Albuquerque, N. Mex. This question has been the subject of a 20-year-old
dispute between the licensee of radio station KOB, Albuquerque (presently
Hubbard), and ABC. Hubbard argues that while it does not object to the
Commission's consent to the proposed license assignments and transfers of
control pertinent to all the other ABC-owned stations, it is entitled to a
comparative hearing with ABC as presently constituted. Clearly, however, even
if it were practicable -- and this has not been shown -- to sever WABC from the
merger, Hubbard could not thereby be afforded a comparison with ABC as
presently constituted, since all other properties and activities of ABC would
have become merged with ITT. Thus, only by deferral of our consent to the
transfer of any of the ABC stations to a new subsidiary of ITT could Hubbard's
alleged objective be attained. We find no warrant for deferring our action upon
the merger proposal and for consequent deferral of the public benefits we have
found it would bring, in order to preserve the status quo of ABC as the
licensee.
42. In order to insure the preservation of Hubbard's rights, we
wish to make it clear that our approval of the assignment of ABC's present
authorization for continued interim operation of WABC, pursuant to 47 U.S.C.,
section 307(d), and 5 U.S.C., section 1008(b), is without prejudice to any
procedural or substantive rights of Hubbard and without determination of or
prejudice to any of the issues involved. With that caveat, and finding that no
substantial or material question of fact is presented and that the public
interest will be served by granting our consent, at this time, to simultaneous
license assignments and transfers of control for all of ABC's broadcast
stations in order to permit the orderly effectuation of the ITT-ABC merger
under arrangements agreed between ITT and ABC and found unobjectionable by us,
we shall deny the Hubbard petition to deny.
43. Accordingly, It is ordered, That the pending applications for
assignments of license and transfers of control for the broadcast stations
whose call letters are listed in the caption, herein, Are granted, and the
staff Is instructed to grant the pending applications for our consent to
assignments and transfers of the ancillary radio licenses held by ABC and its
subsidiaries; Provided that, In the case of WABC, New York, N.Y., our consent
herein granted goes only to the assignment of that station's continuing
authorization to operate, pursuant to 47 U.S.C., section 307(d), and 5 U.S.C.,
section 1008(b), during the pendency of its application for license renewal
(BR-167) and without prejudice to the rights of Hubbard Broadcasting, Inc.,
relating to comparative consideration of its pending application for a new
station at New York City on 770 kc (BP-13932), which is mutually exclusive with
ABC's pending renewal application for station WABC. It is further ordered, That
the petition to deny the application of American Broadcasting Cos., Inc., for
assignment of license of radio station WABC, New York, N.Y. (BAL-5734), filed
May 11, 1966, by Hubbard Broadcasting, Inc., Is denied. The joint motion to
correct transcript, filed October 24, 1966, by ABC, ITT, and Chief, Broadcast
Bureau, Is granted.
44. It is further ordered, That ITT's responses to requests,
dated November 2 and 23, 1966, for the submission of additional information,
which ITT filed on November 17 and December 9, 1966, and all the matter filed
together with those responses, Be made part of the record of this proceeding.
45. There remain for disposition ITT's requests that the portions
of its filings listed in appendix I hereto be designated as not for public
inspection, pursuant to section 0.417(a)(5) of the Commission's rules. Those
submissions, which consist of stockholder lists and agreements between ITT and
foreign governments, contain details which do not add significantly to the
remainder of the record, which is public. We find that no useful purpose would
be served by public disclosure either of the identity of listed stockholders of
ITT or of the agreements, which contain commercial and financial information of
a kind customarily treated as confidential. Good cause having, accordingly,
been shown, It is further ordered, That the portions of ITT's submissions
listed in appendix I hereto Are designated as not for public inspection.
FEDERAL COMMUNICATIONS COMMISSION, BEN F. WAPLE, Secretary.
DISSENTING STATEMENT OF COMMISSIONER ROBERT T. BARTLEY
I vote against granting consent to the proposed merger of
American Broadcasting Cos., Inc., into the International Telephone &
Telegraph Corp. -- based on the record before us.
A more orderly procedure may have reduced the number of
dissenting opinions. As it is, none of the dissenters has had adequate time to
consider the drafts of the others so we have not had an opportunity to
consolidate our views, eliminate duplications, and present a document which
would better inform the public of the dangers we foresee.
The Commission's 'oral hearing' in this matter was an unusual
proceeding which did not conform to the hearing requirements of section 309 (d)
and (e) of the Communications Act, and, in my opinion, the self-serving record
which was developed in the proceeding is defective to support a grant of the
applications.
There is adequate time for the development of a proper record in
this case. ABC and ITT have provided therefor by the terms of the merger
agreement which automatically extend the termination date to December 31, 1967,
'to obtain the required order of the Federal Communications Commission.'
The Commission has rushed into an approval of the merger without
more than superficial attention to a study from the U.S. Department of Justice
in which it states that the merger may have substantial anticompetitive
consequences. The Department's study, in a letter dated December 20, 1966, was
received by the Commission after the close of business on the 20th, and the
Commission majority acted to approve the merger the next day, December 21, with
no further ado as to the anticompetitive consequences pointed out by the
Department.
The merger of ABC into ITT poses fundamental questions of highest
importance to the maintenance of a responsible and competitive broadcast
structure for our country. Network broadcasting -- particularly network
television -- is a social, political, and economic instrument of vast and
increasing impact on our society. This merger would place a major share of our
national broadcast service -- particularly our television service -- under the
direct ultimate control of an expanding conglomerate corporation, international
in scope, heterogeneous in character, and largely extraterritorial in
orientation and operation, with the inherent danger of the broadcast operations
becoming a public relations tool of and image builder for the corporate
conglomerate and little attention given to the local needs of the public which
the broadcast operations are charged with serving. The Commission's failure in
its 'oral hearing' to give adequate consideration to the far-reaching effects
of the merger on the structure of competitive broadcasting in our country, and
the Commission's failure to give adequate consideration to the anticompetitive
consequences cited by the Department of Justice, demonstrate an apparent need
for Congress to study the matter of licensing broadcast stations to corporate
conglomerates and enact legislation definitive of national policy with respect
thereto. I urge such congressional action at the earliest practicable time.
The proposed ABC-ITT merger is contrary to the public interest, I
believe, because, principally, the ABC-owned stations and the ABC radio and
television networks, which are media of mass communications that affect daily
the thoughts and lives of the public, would be oriented in and dominated by a
gigantic ITT industrial combine with substantial and far-flung interests in
foreign countries, in military and other government contracts, and in
communication common carrier service. An orientation and domination in which
the public-interest responsibilities of the broadcasting subsidiary would be
subverted to the private, and oftimes conflicting, interests of the total
corporate conglomerate with its inherent responsibilities to investing
stockholders.
A brief summary of the makeup of ITT is necessary to put in
proper perspective the serious public-interest questions which the merger
raises.
ITT is a gigantic corporate conglomerate, an industrial combine
with far-flung interests in at least 66 countries. Its consolidated net income
of $1.8 billion in 1965 was about 60 percent from foreign operations and 40
percent from domestic systems.
ITT is engaged in domestic and foreign manufacturing, the
operation of telecommunication utilities, and financial and other service
activities. It is a leading international record carrier. Its foreign manufacturing
subsidiaries produce consumer goods as well as electronic and
telecommunications equipment for sale to foreign governments and other agencies
operating telecommunications systems. ITT claims to be the world's largest
manufacturer of telecommunications equipment. Its domestic manufacturing
includes telecommunications and electronic equipment related to defense and
space activity. Most of this work is done under Government contract. A
substantial amount (39 percent) of domestic sales revenues comes from the
manufacture of a variety of industrial products, including air conditioning,
heating and ventilating equipment, pumps, motors, wire cable, etc. It also
engages in a number of finance and other service activities, largely in the
United States. It owns the Avis car rental service; several finance
subsidiaries; several insurance companies; an investment fund; a small loan
company; the recently acquired Howard W. Sams & Co., a diversified
publisher and printer of books, textbooks, magazines, and training and
reference services; and Airport Parking Co. of America, one of the world's
largest parking companies.
Attachment A hereto is a partial listing of ITT's worldwide
conglomerate companies.
Moreover, on page 9 of ITT's 1965 annual report, it is stated: 'A
largely different company today from what it was yesterday, ITT will also be
different in 1969 when it completes its second 5-year growth plan.' The
Commission does not know what ITT will be in 1969 except that it will be
'different,' yet the Commission marjority closed its eyes to the future in
consenting to an assignment to this unknown 'different' colossus.
In the merged corporation, ABC's broadcasting activities would
appear to account for 13 percent of ITT's overall revenues. I feel that in conflicts
of interest the 13-percent broadcasting division will be subordinated to the
87-percent nonbroadcasting divisions and, as indicated above, from the point of
view of the responsibility of ITT's management to its stockholders, such a
result would seem to be an inherent necessity. To expect any other result would
seem to me to be unrealistic and contrary to human experience.
One possibility, among many, of conflict between ITT, the
broadcast trustee, and ITT, the conglomerate international entrepreneur, is the
following: The 87- percent ITT entrepreneur has for its customers many of the
governments of the western world -- including the Government of the United
States. Whatever may be the stated intention of the present executives of ABC
and ITT, it seems apparent to me that the 13-percent ITT as an electronic
journalist and cultural agent could not escape or withstand temptations and
pressures to favor or protect individuals or governments whom the 87-percent
ITT might desire or require as customes. No deliberate intent on the
applicant's part to avoid its public responsibility is suggested. Premeditated
falsification of news or distortion of fact is not suggested. I am suggesting
-- as a dangerous possibility -- selectivity in subject matter and scheduling
(in the interest of corporate advantage and harmony) a more subtle yet
effective means of opinion manipulation and 'image making.' There appear to be
on the face of these applications natural conflicting temptations in the mesh
of economic and practical circumstance in which ITT as a broadcast-trustee
would find itself. It would seem axiomatic that the greater the variety of
interests which might be the natural objects of the licensee's bounty, the
greater the potential of conflict of private with the public interests.
I do not believe that the mere fact of a commitment by Geneen,
now president of ITT, to operate the broadcasting enterprise free of commercial
influences is sufficient to negate the probability that such influences would
be a real and present danger to a large segment of our broadcast structure.
Even though I do not disbelieve the emphatic statements of present intention to
which Goldenson, president of ABC, and Geneen have given voice, carrying them
out would seem to me to fly in the face of the probabilities of human nature
and the needs of commerce. Also, it must be realized the assignment is to a
corporation, not to Geneen and Goldenson. Either or both could, at any time,
sell their interests and be out of the corporation. Thus, we must look to the
corporation, rather than to Goldenson and Geneen. Moreover, the commitments of
Goldenson and Geneen assume less significance and reliability, since it is well
known that in television production there are unwritten taboos which are
constantly in the minds of writers and producers. Furthermore, there would no
longer be net-work and station employees who owned ABC stock but might well own
ITT stock. For such reasons as the foregoing, and others, the Commission has
established various rules and policies where the probability of damage to the
public interest is inferred directly from structural situations closely
analogous to that presented here.This is the case with our multiple-ownership
rules, our duopoly rule, our prohibition against the operation of two networks
by the same person, our prohibition of network spot representation, etc. In
such cases, the stated intentions of the applicant, no matter how solemnly
made, are immaterial. I believe the same test is applicable here.
The hearing in this proceeding is, I believe, legally defective.
The Commission majority ordered it as an 'oral hearing' and constituted it with
unique procedures. The seriousness of the matter before us required that such a
hearing contain all the safeguards established by statute. Section 309(d)(2) of
the Communications Act provides that 'if the Commission for any reason is
unable to find that grant of the application would be consistent with
subsection (a),' it shall set the application for hearing as provided in subsection
(e). Those provisions were not met in this proceeding.
Moreover, section 311(a)(2) of the act requires that 'if the
application is formally designated for hearing in accordance with section 309,
[the applicant] shall give notice of such hearing in such area at least 10 days
before commencement of such hearing.' No showing is made by the applicant, as
required by section 1.594(g) of our rules, that such notice was given.
One of the purposes of the statutory requirement is to make the
proposed transaction known to parties who may want to oppose it and appear at
the hearing. The Commission majority makes much of the point that no
oppositions were filed against the merger. This point becomes meaningless in
face of the fact that notice of the hearing was not given as provided in the
act and our rules. Although the Commission can waive its own rules, it cannot
waive the statutory requirement.
The proceeding produced an inadequate record from which to make
an informed judgment that the proposed merger would meet the statutory
requirement of serving the public interest, convenience, and necessity. The
'oral hearing' had unique procedures by which ABC and ITT made presentations to
the Commissioners en banc. The Commission's Broadcast and Common Carrier Bureaus
stated overall questions of law and policy. Neither the Broadcast Bureau nor
the Common Carrier Bureau was made a party to the proceeding for the usual
purposes of presenting witnesses, expert or otherwise, or engaging in
cross-examination of the applicants' witnesses. Consequently, the proceeding
was an array of witnesses for the applicants only, with self-serving statements
unchallenged in the crucible of an adversary case involving cross-examination,
except for independent questions by some of the Commissioners.
The majority's decision herein does not even make findings on the
following questions presented by the Broadcast and Common Carrier Bureaus in
their (1) September 14, 1966, advance summary of questions, and (2) statement
at the “oral hearing”:
ADVANCE SUMMARY OF QUESTIONS
MERGER OF SEPARATE COMMUNICATIONS ROLES
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
* * * *
Examples of matters involving actual or potential opposed
interests of the network-broadcaster versus the common carrier:
(a) Possible network versus common carrier ownership of a
satellite transmitting from U.S. source to network affiliates in the United
States.
(b) The authorized user question.
(c) Rates and practices governing satellite transmission of
television programs between the United States and other countries both ways.
(d) Charges and practices governing services such as transmission
of Gemini splashdowns.
(e) For the future, looking ahead to predicted television
broadcasting from source via satellite direct to home receivers: Is it
desirable that the roles of ownership and operation of such satellite
facilities be fused with ownership and operation of major programm sources, such
as national net-works, which determine the composition of programmming directed
to the public?
Effects upon competition:
(a) Would the merger of ABC with ITT create competitive
conditions which would impel CBS toward a similar merger, with further intensification
of the resultant concentration of control over mass media?
(b) Would the competitive strengthening which it is claimed the
merger would afford ABC heighten the difficulties of establishing another
competitive national television network?
(c) Would ITT's ownership of ABC, comprehending national
television and radio networks and 17 major broadcast stations, adversely affect
competition in the sale of equipment used by networks and stations?
STATEMENT AT THE ORAL HEARING
(a) In view of ITT's declared intention of expanding domestic
manufacturing and service activities, would its ownership of major television
and radio networks and 17 major-market broadcast stations adversely affect
freedom of competition in the solicitation and placement of broadcast
advertising?
(b) Would ITT's ownership of ABC, comprehending national
television and radio networks and 17 major broadcast stations, adversely affect
competition in the sale of equipment used by networks and stations?
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
* * * *
* * * whether ITT and ABC have sufficiently shown what programming
enhancements the merger would assure, their approximate cost, and ITT's rock
bottom commitment of enough financial backing to defray that cost.
The previous merger of ABC with Paramount, which involved no less
magnitude than the presently proposed merger of ABC-Paramount and ITT, was
tested in an evidentiary hearing of several months' duration. The proceeding
and the record in this 2-day presentation is grossly inadequate. In the
ABC-Paramount merger, the burden of proof was on the applicant. In this merger,
the burden of proof seemed to be, improperly, on Commissioners who questioned
whether it was in the public interest.
I believe that in the 'oral hearing,' limited as it was, the
applicants' attempts to establish ABC autonomy in the ITT corporate
conglomerate, their attempt to show lack of ABC viability, and their attempt to
indicate a public interest by the merger were demolished.
It now clearly appears that the broadcast operation of ABC will
be under the control of the overall management of ITT. The merger agreement
between ABC and ITT provides that ABC will be a wholly owned subsidiary of ITT,
with some cross representation on the board of each for at least 3 years, and
that during the 3 years matters of major importance in the ABC subsidiary are
to be submitted to the ITT board becoming effective. Testimony in the 'oral
hearing' by Geneen, president of ITT, demonstrated that ITT would decide
matters of major importance in the ABC subsidiary and that ABC's autonomy would
be merely a housekeeping function of day-to-day operations.
ABC had contended that the merger was necessary to help make the
ABC television network more fully competitive with the NBC and CBS television
networks. The contention fell in the 'oral hearing' by testimony from which it
is clear that ABC is already viable and that the merger would not remedy the
lack of VHF affiliate stations which ABC has long claimed to be its television
network's obstacle to fully competitive status.
The applicants' attempts to indicate a public-interest benefit
from the merger rested on the projection of ABC's becoming more fully
competitive with the other television networks -- through better programming,
quicker implementation of full color facilities, and a cushion against pressure
from ABC's own board to take less risk on new ideas in programming. ABC's
better programming projection rested heavily on building its news and public
affairs operations. This attempt also fell in the 'oral hearing' by testimony,
as indicated above, that becoming fully competitive was realistically a matter
of more VHF affiliates, and that better programming does not necessarily result
from more money, since ABC's television programming has been fully competitive
in markets where it had VHF outlets.
On the matter of quicker implementation of full color facilities
ABC did not show that financing therefor was not possible through means other
than a merger with ITT.
In the hearing proceeding, Goldenson stated that ABC may need
approximately $50 million over a 3-year period for its proposed plans.
There is no persuasive showing that ABC, with a working capital of $90 million
in 1965, could not secure an additional $50 million over a 3-year period
through other avenues; e.g., merger with a corporation which does not pose the
problems of ITT, issue additional stock, seek debentures, or even an additional
loan. Significantly, ABC has not indicated that, in the absence of the merger
with ITT, it will not go forward with its proposed expansion plans.
The basic thrust of ABC's justification for the merger is that it
is needed to make ABC fully competitive with NBC and CBS. ABC points out that
it loses money on its TV network operation while the other two networks make a
substantial profit on theirs. If one network has an unfair competitive
advantage over another, the solution is to eliminate that unfair competitive
advantage rather than to authorize equalizing unfair competitive advantages.
ABC and ITT failed to make a compelling affirmative showing as required under
the Commission's interim policy on ownership of TV stations in the top 50
markets. The majority decision states that the interim policy applies to these
applications and that the 'oral hearing' held satisfied the requirements of the
policy statement.
The testimony presented in this proceeding was irrelevant to the
said interim policy statement. That statement applies to television stations.
The applicants' testimony was on the alleged merger need, not of ABC's owned TV
stations, but of the ABC television network, comprising some 137 affiliates
owned by others than ABC.
ABC made no compelling affirmative showing pursuant to the said
policy statement in regard to its owned television stations. Indeed, ABC could
not make such a showing, in light of the highly favorable position of its owned
stations indicated in ABC's 1964 and 1965 annual report. Certainly ABC made no
showing that, whether the hearing requirement itself was satisfied
procedurally, the merger would implement the diversification of control of
broadcast stations in the top 50 markets as espoused in the said interim policy
statement.
Section 310(b) of the Communications Act provides that no license
shall be assigned except upon a finding by the Commission that the public
interest, convenience, and necessity will be served thereby. The burden was on
the applicants to establish that the merger would serve the public interest,
convenience, and necessity. In my opinion, the applicants have failed to meet
their burden.
DEFICIENCIES IN THE MAJORITY'S MEMORANDUM OPINION AND ORDER
The memorandum opinion and order by which the majority grants
consent to the proposed merger is deficient in many respects.In paragraphs 7
through 13, the Commission majority lists the departures it made from regular
procedures and concludes that they were 'the most adequate in the circumstances
of this case that our ingenuity could devise.' I believe that the Commission
was without authority to use its ingenuity to devise new procedures but was
required to conform to the procedures dictated by statutes; i.e., the
Communications Act and the Administrative Procedure Act. The Commission did not
comply with requirements therein. Moreover, I cannot agree, for the reasons I
set forth on pages 265 and 266 above, that the new procedures were adequate.
This merger involves a transfer of 17 owned stations, a national radio network,
a national television network, and ABC's other properties such as Paramount
pictures, theaters, etc., into the corporate conglomerate of ITT. The merger
proposed here involved is one of the greatest magnitude during my 14 1/2 years
as a Commissioner. The extent, depth, and scope of the proceeding in this case
were far less than in transfer cases of even less magnitude. The transfer
involving the merger of ABC and Paramount, the AVCO assignment, the
NBC-Westinghouse assignments and swap -- as examples -- each consumed months of
evidentiary hearing proceedings and were far greater in extent, scope, and
depth. The 'oral hearing' in this case was scheduled for 1 day. It consumed 2
days. It must be recognized that this 'oral hearing' was minuscule compared to
that of other transfers of even lesser magnitude.
In paragraph 18, it is stated that the Commission's interim
policy on acquisition of TV stations in the top 50 markets 'applies to the
present applications,' and that the hearing requirement of the policy 'has been
satisfied by the procedure herein.' I have pointed out, above, that the
testimony in the 'oral hearing' was irrelevant to transfer of ABC's owned TV
stations, but related instead to ABC's TV network with over 137 affiliates.
In paragraph 19, it is stated correctly that we must consider
antitrust aspects of the merger in light of the public interest. In paragraph
21, it is contended that there would be no elimination of 'horizontal'
competition and the 'vertical' relationship between ABC and ITT is
'insubstantial by almost any test,' and concluded that:
There is no evidence that the merger would afford either company
an opportunity to use the economic power of the other to secure any significant
purchases by reciprocity, and there is an unqualified representation that
neither company engages in such practice and that the policy of ITT is against
any such practice. The record is persuasive that there is no substantial
probability that the merger will lead to any such abuse of power.
Advertising time on network television is a choice commodity, as
has been often asserted by those prominent in the industry and has been the
conclusion in a number of studies, the most recent of which was contained in
the record of the Subcommittee on Antitrust and Monopoly of the Committee on
the Judiciary on September 12, 1966. Obviously, ABC has a large proportion of
this essential commodity for sale. ITT, on the other hand, through its
subsidiaries, manufactures a great many products for which users and potential
users of television advertising time are customers. In these circumstances,
there appears to be a reasonable probability of reciprocity becoming involved
in the sale of various goods and services by ITT and its subsidiaries and
affiliates.
I do not believe that the mere fact of unqualified representation
as to neither company engaging in the practice of reciprocity -- and that ITT's
policy is against reciprocity -- is sufficient to negate the point that the
probability is a real and present danger to the operation of a large segment of
our broadcast structure. In this connection, I point out, as I did with respect
to reliance upon representations concerning freedom from commercial influence
on programming, pages 265 and 266 above, that the Commission has established
numerous rules and policies in which the probability of damage to the public
interest is inferred directly from structural situations analogous to that
presented here. In such cases, the stated intentions of the applicant, no
matter how solemnly made, are immaterial. I believe the same test is applicable
here. (It has not come to my attention that any company, or groups of
companies, has a policy of violating the antitrust laws. May information is
that, to the contrary, companies generally have firm, expressed policies
against violation of the antitrust laws.)
As Judge Learned Hand stated in the NBC v. U.S. case (November
16, 1942):
[The Commission] was created to make such choices because
Congress believed that it would acquire in its special sphere a skill which
courts could not match; and it is now hornbook law that the conclusions of such
tribunals are not to be disturbed except in the plainest case. That doctrine
applies here with especial force just because the findings are necessarily
prospective; time alone can decide their success or their failure. The measure
of our power is to say whether there was any substantial evidence that the
added freedom given to stations will outweigh the reduction in the
opportunities which will remain open to the 'networks.' We cannot say that
there was no such evidence. To take the regulation which is the head and front
of the Commission's offending -- 3.104 -- it indeed does limit the power of a
'network' to furnish large advertisers with the time of all its 'affiliates,'
for it must always run the risk that after its last inquiry a station may have
'sold' to another 'network' the time which it proposed to 'buy' of that
station. On the other hand, it is certainly possible that the present contracts
give the 'networks' so strong a hold upon the industry as to keep down
competition which would prove beneficial. Upon such an issue nobody who is not
steeped in the details of the business is really entitled to an opinion, and
indeed even the opinions of those who are so steeped must be largely
speculation. But that does not mean that the industry must be left to itself;
the Commission was created precisely to say how far it was best to let things
stand, and how far to intervene.
In paragraph 22, it is stated that 'We rely, in reaching our
decision, upon the manifold assurances on the record that the freedom of ABC's programming
from the intrusion of considerations stemming from ITT's numerous and
preponderant nonbroadcast interests will be zealously and effectively protected
by every available means.' But this reliance of the majority is also prefaced
by a caveat that 'it demands 'eternal vigilance' by all broadcast licensees and
will receive our continuing scrutiny for any indication that our reliance upon
the assurances and safeguards set out on this record was not warranted.' The
majority seems nervous about their reliance, as indicated by their recognition
that they will be required to maintain eternal vigilance.
What tools do they have to make the vigilance meaningful? I
suggest that the holdings of ITT are so far-flung and complex that intrusion
into ABC programming by divisions of ITT's nonbroadcast interests would be
immune to detection by me or the other Commissioners. Such policing would be a near
impossibility. When such eternal vigilance demands our continuing scrutiny of
the particular situation, I believe the better course is to protect the public
interest by not allowing it in the first place.
In paragraphs 23 and 24, it is pointed out that the ABC
television network operates at a loss, and 'In the absence of the financial
assistance that it will receive from the proposed merger it appears ABC will be
at a substantial competitive disadvantage and will be handicapped in its
efforts to provide the programs and services to the public that it seeks to
provide.' It has not been shown on the record that money from ITT will make ABC
fully competitive, because ABC's claimed problem is lack of VHF affiliates in
major markets. It is not shown that in the absence of ITT money from the
merger, ABC will be handicapped, because ABC had planned the proposed services
before talk of a merger with ITT and indicated in the ABC 1964 annual report
that it was progressing toward accomplishment of those plans. Also, it is not
shown that if such money were needed it could not be obtained except through a
merger with ITT.
In paragraph 25, it is argued that we should not be alarmed
because of the size of ITT -- that many other businesses are bigger in size. My
main concern is not with size but with the ITT conglomerate here involved and
the inherent probability of its adversely affecting the public interest of
broadcasting.
In paragraph 26, it is stated that 'The structure of broadcasting
will be the same after this merger as it was before.' To the contrary, the
structure will be changed substantially because the ABC operations, owned
stations, radio network, and television network will be meshed into a corporate
conglomerate. This substantially lessens diversity of control of our broadcast
structure. Presently there is one TV network owned by a corporate conglomerate
(NBC-RCA). This merger would make two. As bankers think like bankers, I believe
we can expect that corporate conglomerates will think like corporate conglomerates
rather than like objective, professional broadcasters. Thus, much less
diversity of viewpoint and attitude would result from the merger. This merger
presents the Commission with the very basic and fundamental question of whether
licenses should be granted to corporations involved in businesses other than
broadcasting.
In paragraph 26, it is also concluded that as part of a corporate
giant ABC would be less subject to undesirable pressure. If this argument is
valid, the next step is to conclude that the objectivity of American
broadcasting would be best assured if all networks were under the wing of one
giant corporation whose paternalistic power would fend off undesirable economic
pressures. If consent to this merger is a trend, we may find all media of mass
communications under three beneficent conglomerates.
In paragraphs 27, 28, and 29, the majority points to benefits
realized from the merger as (a) stronger competitive stations and (b) better programming
by ABC. I have set forth above the reasons in support of my conclusion that
neither is dependent upon ITT money. The third benefit found by the majority is
'advancement of UHF broadcasting.' That is not a valid reason, in my opinion,
for permitting the transfer of ABC-owned stations, a radio network, and a TV
network.
In paragraph 30, it is stated that 'in our experience' there is
no indication of intrusion upon the objectivity of broadcast news and programming
by the nonbroadcast interests of multiple owners. This is a broad statement
which is not supported. Moreover, we do have experience with intrusion of
nonbroadcast corporate interests into broadcast operations; e.g., the exertion
of pressure by RCA-NBC upon Westinghouse to swap stations in Cleveland and
Philadelphia so RCA would have an outlet in Philadelphia, where its
laboratories were located. See NBC v. Philco, 2 R.R. 2d 921.
I conclude that the Commission majority's memorandum opinion and
order is fatally defective to support a grant of consent to the proposed
ABC-ITT merger.
ATTACHMENT A -- THE ITT SYSTEM WORLDWIDE
PRINCIPAL DIVISIONS AND SUBSIDIARIES
NORTH AMERICA
MANUFACTURING -- SALES -- SERVICE
CANADA
Barton Instruments Ltd. (Canada), Calgary, Alberta.
Cannon Electric (Canada) Ltd., Toronto, Ontario.
General Controls Co. (Canada) Ltd., Guelph, Ontario.
ITT Canada Ltd., Montreal, Quebec.
Royal Electric Co. (Quebec) Ltd., Pointe Claire, Quebec.
Wakefield Lighting Ltd. (Canada), London, Ontario.
JAMAICA
ITT Standard Electric of Jamaica Ltd., Yallahs.
MEXICO
ITT de Mexico, S.A. de C.V., Mexico City.
Industria de Telecomunication, S.A. de C.V., San Bartolo
Naucalpan.
Industrias Ocelco de Mexico, S.A., Monterrey.
Materiales de Telecomunicacion,
McClellan, S.A., Mexico City. Standard Electrica de Mexico, S.A.,
Mexico City.
Wyatt de Mexico, S.A. de C.V., Tlalnepantla.
PANAMA
ITT Standard Electric of Panama, S.A., Panama City.
PUERTO RICO
ITT Caribbean Manufacturing, Inc., Rio Piedras.
ITT Caribbean Sales and Service, Inc., Rio Piedras.
UNITED STATES
Documat Inc., Waltham, Mass.
Federal Electric Corp., Paramus, N.J.
Intelex Systems Inc., Paramus, N.J.
International Standard Engineering, Inc., Paramus, N.J.
ITT Technical Services Inc., Paramus, N.J.
International Standard Electric Corp., New York, N.Y.
International Telephone & Telegraph Corp., Sud America, New
York, N.Y.
ITT Arkansas Division, Camden, Ark.
ITT Cannon Electric (division), Los Angeles, Calif.
ITT Controls & Instruments Division, Glendale, Calif.
Barton Instrument Corp., Monterey Pak, Calif.
General Controls, Glendale, Calif. Hammel-Dahl, Warwick, R.I.
Henze Valve Service, Hoboken, N.J.
ITT Data Services (division), Paramus, N.J.
ITT Electron Tube Division, Easton, Pa.
ITT Electron Tube Division, Easton, Pa.
ITT Electro-Physics Laboratories Inc., Hyattsville, Md.
ITT Environmental Products Division, Philadelphia, Pa.
Nesbitt, Philadelphia, Pa.
Hayes, Torrance, Calif.
Norman, Columbus, Ohio.
Reznor, Mercer, Pa.
ITT Export Corp., New York, N.Y.
ITT Farnsw