In Re Application of MINNEAPOLIS
STAR & TRIBUNE CO. (TRANSFEROR) AND WKY TELEVISION SYSTEM, INC.
(TRANSFEREE) For Voluntary Transfer of Control Wichita-Hutchinson Co., Inc.,
Licensee of Station KTVH-TV, Hutchinson, Kans.
Docket No. 18631 File No. BTC-5848
FEDERAL COMMUNICATIONS COMMISSION
19 F.C.C.2d 433 (1969)
RELEASE-NUMBER: FCC 69-907
August 14, 1969 Adopted
ACTION:
MEMORANDUM
OPINION AND ORDER
BY THE
COMMISSION: CHAIRMAN HYDE DISSENTING AND ISSUING A STATEMENT IN WHICH COMMISSIONER
ROBERT E. LEE JOINS; COMMISSIONER WADSWORTH ABSENT; COMMISSIONER
JOHNSON ISSUING A SEPARATE STATEMENT; COMMISSIONER H. REX LEE CONCURRING IN
THE RESULT.
[*433] 1.
This proceeding involves the application for transfer of control of the
2. KTVH-TV serves
3. Cowles interests in broadcasting and CATV
reach through the Midwest and
4. Behind the corporate identity of the
purchaser stands the Oklahoma Publishing Co., substantially owned and
completely controlled by the Edward K. Gaylord family. Gaylord holdings constitute a regional
concentration of publishing and broadcasting interests predominantly centered
in the
THE
WICHITA-HUTCHINSON MARKET
5. Wichita-Hutchinson, Kans., ranked as the
56th television market in the United States, has a net weekly circulation of
321,900 television [*434] homes.
n1
Of the State's 12 operating commercial television stations, three are located
in this market. n2 KTVH-TV, the CBS affiliate, ranks
third with a net weekly circulation of 242,000 homes. n3
Competitively, its position is measured against
n1 38 Television Factbook,
stations volume, 1968-69, p. 263b.
n2 Ibid.
n3 Ibid., p. 277b.
n4 KARD-TV has satellite stations
in Great
6. The Gaylord application lists 26 radio
stations, purportedly assigned to the Wichita-Hutchinson market and presumedly
reflecting media competition in the area.
n6
n6 F.C.C. file No. BTC-5848, sec.
IV-B, exhibit B.
7. There are only two separately published
dominant newspapers in Wichita-Hutchinson.
Their distribution is as indicated in chart I:
CHART
Hutchinson
News (published by John P. Harris, former minority owner in KTVH-TV):
1968
census estimate 43,600
Circulation:
All day 51,412
Sunday 52,581
Saturday
morning 51,204
Wichita
Eagle and Beacon (published by the Wichita Eagle & Beacon Publishing Co.):
1968 census
estimate 314,043
Circulation:
Eagle
(morning) 128,597
Beacon
(evening) 67,342
Eagle
and Beacon (Sunday) 164,153
Weekly
papers:
Hutchinson
Record, circulation 850
Wichita
Democrat, circulation 1,580
Source:
"Ayer Directory of Newspapers and Periodicals," 1968, pp. 408, 420.
8. The combined daily circulation of the
Wichita Eagle and Beacon (jointly published) and the Hutchinson News roughly
corresponds to the net weekly circulation of KTVH-TV. Nevertheless, the figures tend to indicate that the
n7 Letter to the FCC from
Gaylord's attorneys, Mar. 3, 1969.
F.C.C. file No. BTC-5848.
n8 Ibid. In evaluating competition in the Wichita-Hutchinson market, see,
also,
9. In terms of regional media concentration
encouraged by this transfer to Gaylord, it should be noted that there are two
counties in
n9 "38 Television
Factbook," stations volume, 1968-69; pp. 277-b. 565-b.
10. Based on FCC engineering standards, neither of
the grade B contours of these television stations overlap. (See illustration 1.) But on further review
it may appear significant to the issues of concentration that, for advertising
and program purposes, the station signals of these two broadcast facilities are
in competition.
GAYLORD
MEDIA INTERESTS
11. The proposed transferee, WKY Television
System, Inc., is a wholly owned subsidiary of the Oklahoma Publishing Co., a
concern controlled by the Edward K. Gaylord family of
12. The Oklahoma Publishing Co. prints that
State's two largest newspapers, the Daily Oklahoman (morning) and the Oklahoma
City Times (evening). The combined
daily circulation of these newspapers is 292,672. n10
The company also publishes a combined Sunday edition, with a circulation of
270,975. n11 As previously mentioned, the
circulation of these newspapers in
n10 "Ayer Director of
Newspapers and Periodicals," 1968, p. 888. The Daily Oklahoman, circulation 176,235; Times, circulation
116,437.
n11 Ibid.
n12 Cf., footnote 7.
13. Oklahoma Publishing Co. prints a monthly
agricultural periodical, The Farmer-Stockman (circulation 426,443), published
in three [*436] separate editions for
n13 Ayer, 1968, p. 887.
n14 Ibid., p. 888.
DUOPOLY
14. The Katz Agency, Inc., of
n15 "1969 Editor and
Publisher Yearbook," p. 355, Katz has recently announced that as of Sept.
1, 1969, it will divest its newspaper representation, Katz Newspapers Sales
will become a separate division of Cresmer, Woodward, O'Mara & Ormsbee, New
York, a major newspaper representative firm.
n16 "Broadcasting," May
19, 1969, p. 68.
15. In certain competitive areas, the Katz Agency
represents both Gaylord and Cowles. For
example, in
n17 Cowles' WESH-TV has a net
weekly circulation of over 50 percent in
16. We believe such overlap becomes
competitively perilous when viewed in the balance of proprietary interests held
by the Katz family in Gaylord's Oklahoma Publishing Co. Eugene Katz, George R.
Katz, other family members, and the estate of Sidney L. Katz possess combined
shares exceeding 7-percent ownership in the Oklahoma Publishing Co. Eugene Katz
is president of the Katz Agency, Inc. George R. Katz, a director in that
agency, holds an interlocking relationship as vice president and director of
the Oklahoma Publishing Co. n19
n19 "Poor's Register of
Corporations, Directors and Executives," 1969, p. 1282.
17. These ties are relevant to the proposed
transfer. Katz Television Sales
represents KAKE-TV in
n20 "Broadcasting
Yearbook," 1969, p. A-27.
GAYLORD
MEDIA INFLUENCE
18. Gaylord broadcast stations rise in
spoon-handle fashion along a northerly tier extending from the Gulf of Mexico
through
19. Within these three States reside 15,717,900
people. In
20. Gaylord's radio outlet, WKY, in
21. Adding to this total coverage, the 33.4
percent of Kansas population served by KTVH-TV in Wichita-Hutchinson, Gaylord
broadcast facilities will have a potential political and media influence
reaching to 6,607,060 people -- almost half the combined population of Texas,
Oklahoma, and Kansas. (See illustration
5.)
COWLES
MEDIA INTERESTS
22. Cowles family ownership involves numerous
media enterprises, held individually and through the Minneapolis Star &
Tribune Co. or Cowles Communications, Inc. (CCI). (See illustration 6.) Common ownership interests also link these
two companies; and a structure of interlocking relationships enlarges the
potential for control. The Minneapolis Star
& Tribune Co. has joint broadcast interests with Ridder Publications, Inc.
Cowles Communications is intimately involved with media operations, especially
newspapers, owned by Perry Publications, Inc. Together, these companies hold
substantial sway over information sources throughout the United States,
including broadcast properties, newspapers, magazines, and book publishing
companies. (See app. A for detailed
elaboration.)
23. The Minneapolis Star & Tribune Co. owns 100
percent of the licensee of KTVH-TV. WCCO AM-FM (cp)-TV is licensed to Mid-west
Radio-Television, Inc., which is owned by the Minneapolis Star & Tribune
Co. (47 percent) and by Midcontinent Radio-Television, Inc. (53 percent). Midcontinent, in turn, is equally owned by
MTC Properties, Inc., an enterprise with financial interests in the Minneapolis
Star & Tribune Co.; and Northwest Publications, Inc., a company controlled
by the prominent publishing family of the late Joseph E. Ridder. The Minneapolis Star & Tribune Co.
publishes the only two daily general circulation newspapers -- The Star
(evening) and [*438] Tribune (morning and Sunday) -- in
Hence,
in the twin cities of Minneapolis-St. Paul, there are no daily general
circulation newspapers published by anyone other than those connected with
WCCO. The Minneapolis Star &
Tribune Co. publishes the Journal (evening and Sunday), the only newspaper in
24. Cowles Communications, Inc. is licensee of
KRNT AM-FM (cp)-TV in
n21 "38 Television
Factbook," services volume, 1968-69, p. 576-a (see app. A, par. 3).
n22 On Apr. 18, 1968, CCI
exchanged all of its voting and nonvoting stock in Universal Cable Vision for
160,000 shares of the capital stock in Television Communications Corp. (see
app. A, par. 4).
n23 "38 Television
Factbook," services volume, 1968-69, p. 575-a. cowles-perry media
interests/
25. CCI, through its wholly-owned Florida
Broadcasting Co., is licensee of WESH-TV,
n24 Ayer, 1968, pp. 198-217. Perry has recently been disposing of his
ownership in these
[*439]
COWLES-RIDDER MEDIA INTERESTS
26. Ridder Publications, Inc., founded by the
late Joseph E. Ridder, holds vast media interests throughout the
COWLES
MEDIA INFLUENCE
27. Cowles broadcasting and publications, based
on advertising and distribution circulation figures, reach approximately
19,800,000 people. In terms of the
political and media prominence of Cowles broadcast facilities, the span of
coverage over populated areas of the
28. The WREC AM-FM-TV stations in
n25 The following figures are
derived from FCC engineering standards and estimated 1968 population figures
taken from Spot Television Rates and Data, Jan. 15, 1969.
29. KRNT, located in
30. The Cowles-Ridder stations, WCCO AM-FM
(cp)-TV, cover substantial areas of population within the four-State area of
[*440]
31. If these population figures
are collated, Cowles media influence in an eight-State area is extended by
broadcasting to approximately 7 million people. When broadcast circulation figures for advertising purposes are
discounted, and population figures based on service contours are substituted,
the reach of Cowles broadcasting and publishing extends to about 27 million
people, or more than 10 percent of the population within the United States.
32. Through common business interests and holdings
in newspaper and broadcast facilities, Cowles, Perry, and Ridder reach into 17
States --
THE
METHOD OF ANALYSIS
33. We have not attempted to penetrate the
intricacies of these business combinations.
It seems obvious that we do not, at the present time, have sufficient
facts to ascertain their full relevance, or ferret out all the implications of
this media concentration.
34. Some of these relations are remote, as for
example, the community of business interests which may tie together Cowles and
Time-Life Broadcasting through Television Communications Corp. and the
Philadelphia Bulletin Co.
35. Others are more immediate and financially
important, as for example, the common proprietary interests tying Gaylord and
the Katz advertising sales agencies, which in turn represent Gaylord and Cowles
broadcast facilities within adjacent or proximate markets; and as for example,
the CATV alliance of RKO General, Scripps-Howard, and Cowles Communications,
Inc. in Memphis, encompassing substantial areas of Tennessee, Mississippi,
Arkansas, and Missouri.
36. The list of these arrangements, whether
formed out of common sense or by conscious choice, may constitute the detail
and description of media control proscribed as inconsistent with the public
interest and our multiple ownership rules.
37. We have not limited this review by setting a
barrier at 1 percent cross-interests which (not being counted under our
reporting rules) are sometimes presumed to shelter minority interests from any
inquiry into their impact on media concentration of control. In many cases, the presence of wholly-owned
subsidiaries may signal material questions of how small percentage interests
are to be defined in terms of Commission reporting requirements vis-a-vis the
issues encompassed by economic and media concentration. Minority interests sifted through the
mathematics of attribution rules often can be reduced to an exceedingly
insignificant proportion of ownership, which nevertheless, may hide an
extremely dramatic influence.
38. The most obvious answer is that our
regulations encourage us to inquire into "actual working control in
whatever manner exercised." 47 C.F.R. 73.35, 73.240, 73.636. We have consistently interpreted this rule
as described in our multiple ownership policy statement of 1953. We there said:
[*441]
It is our conclusion that the principle of diversification and the
realities of the situation require that no distinction be made between a
minority non-controlling interest and a full or controlling one. While the holder of a small interest in many
instances may have slight influence on the operation of the station in
question, it is also true such a person can exert a considerable influence --
to an extent clearly within the objectives and purview of the described
diversification policy. Several factors
should be noted here: (1) there may not be a correlation between the size of
the minority holding and the extent of the influence wielded; (2) it is
impossible to determine on the face of the application what the influence of
the multiple owner will be; indeed it may be difficult or incapable of definite
ascertainment even in a subsequent hearing; and (3) in the cases of the holder
who has interested himself in numerous stations, there is good probability that
because he is so actively engaged in the broadcast field, his influence will
tend to be a positive or substantial one.
Amendment of Rules Relating to Multiple Ownership, 18 F.C.C. 288, 292-3
(1953).
39. The issue of these business combinations and
arrangements is material to this case.
Where the number of competitors is small, "the greater is the
likelihood that parallel policies of mutual advantage, not competition, will
emerge. That tendency (however) may
well be thwarted by the presence of small, but significant competitors."
FACTUAL
ANALYSIS
40. The transferor, Minneapolis Star &
Tribune Co., in giving its reasons for the transfer states, "* * * that
the operation of KTVH in the public interest would benefit from the infusion of
substantial additional capital and that the transferee is in a better position
to accomplish this at the present time." n26 Transfereehs vice president tells
us the corporation "* * * can operate the station in the public
interest," because its "* * * experience and record in other markets
will be brought to bear in Wichita, and the applicant believes this will result
in a benefit to the community." n27
n26 F.C.C file No. BTC-5848, pt.
I, sec. I, p. 2.
n27
41. Cowles representatives give us no sufficient
reason why the public interest will benefit by the "infusion of
substantial additional capital" in KTVH-TV. Gaylord's WKY Television System explains that there is an interest
in the station acquiring color video equipment for local program
origination. n28 But, this explanation for needed
capital seems insufficient. KTVH-TV
reports to potential advertisers that it is in full possession of color
capacity. n29 Furthermore, an equipment purchase
of this type would seem well within the financial capacity of the Cowles
company. It currently enjoys an excess
of $1 million in assets over liabilities.
n30
Consequently, the Commission has no information of decisional relevance
disclosing the licensee's need for additional capital, or the benefit expected
to result from the contribution. In
addition, the transfer application contains no commitment to invest any sum of
new capital.
n28 File No. BTC-5848, sec. IV-B,
exhibit C, par. 2.
n29 Spot TV rates and data, SRDS,
Inc., Jan. 15, 1969, pp. 18, 191.
n30 BTC file, op. cit., sec. I,
exhibit 3.
[*442]
42. Certainly, expanded program
investment might be a reason for the contribution of "substantial
additional capital." But Gaylord agents conclude that they "* * *
should retain the general (program) format of the station's operation * *
*." Such program improvements as are suggested appear to have been
developed within the station's existing resources of staff personnel and
revenues. n31 Thus, no new capital is indicated
or specified in this regard.
n31
43. Furthermore, there is serious question
whether the Gaylord promise to retain the KTVH-TV program format is
credible. In attempting to assess WKY
Television System's past experience and record in other markets, we find on a
comparative basis that Gaylord's WKY-TV in
44. In terms of gross revenue, KTVH-TV is approximately
one-third the size of WKY-TV ($1,599,633 compared to $4,071,510,
respectively). Yet, in program expense,
KTVH-TV devotes 33 percent ($525,782) of its revenue to this effort, in
comparison to only 26 percent ($1,060,250) for WKY-TV. Though WKY-TV expends more dollars than
KTVH-TV, it represents a smaller devotion of resources to public service.
45. Nationally, the total broadcast industry
currently budgets about 30 percent of its total revenue for "conventional
programming." n32 Judged by this standard, WKY-TV program expenses are 4 percent (or
$163,000) below the national norm, and 7 percent (or $285,000) below the level
assumed by KTVH-TV for its own operation.
In terms of size based on revenue, KTVH-TV may be required to make
proportionately greater expenditures.
But in what sense, and under what circumstances, the parties do not
bother to explain.
n32 Subscription Television, 15
F.C.C. 2d 466, 497 (1968).
46. For reasons not readily apparent, there is
considerable disparity between these stations in their percentage of profit
compared to gross revenue. We are not
concerned with this difference as a fact in itself, but only because it may
bear a substantial relationship to programming potential and achievements. The pretax earnings of KTVH-TV stand at 15
percent (or $232,341) of gross revenue as compared to 40 percent (or
$1,627,088) generated by WKY-TV. If
program effort is stated as a function of profits, KTVH-TV's expenses of
$525,782 are twice as great as its net income before tax. The inverse ratio is true of WKY-TV. Its program expense only amounts to about 65
percent of its total profit. Stated as
a dollar expense to income ratio, for every $2.25 KTVH-TV spends for
programming, it earns $1 profit. On the
other hand, WKY-TV earns $1 profit for every 65 cents of program expense. This represents a 154-percent return on
program investment.
47. We have not analyzed these percentages in
terms of consolidated station revenue and expense of broadcast holdings in the WKY
Television System. Nor have we made a
financial comparison of all Cowles broadcast operations. No doubt adjustments may be required within
the structure of Gaylord broadcasting to account for losses in its UHF
television operations. Based on the scant
information before us, it is impossible to determine how much Gaylord's
programming efforts are [*443] depleted
in VHF television by the exigencies of carrying losses and acquiring programs
in the UHF branch of its business. To
some extent, there must be a correlation.
48. We have made this comparison between KTVH-TV
and WKY-TV solely on the basis of their proximity, and the necessity to
establish some standard for judging the public interest in programming a
transferee may be expected to serve on the basis of its past performance. Assuming that a complete financial survey of
Gaylord broadcast operations does not significantly change the percentage of
program expense to revenue and income, as compared to the present and historic
levels of such expense maintained in KTVH-TV, it may be extremely difficult to
ascertain how this proposed transfer can benefit or serve the public interest
in broadcasting.
49. There is also evidence that this transfer
may financially impair KTVH-TV. Though
KTVH-TV (CBS) is third, behind the NBC and ABC affiliates in the
Wichita-Hutchinson market, the station enjoys a healthy financial
position. As of November 30, 1968, the
licensee, Wichita-Hutchinson Co., had total liabilities of $576,011. These were more than adequately covered by
an excess net worth of $1,297,474. n33 But the transfer application before
us suggests that these assets will be jeopardized by Gaylord's purchase of
KTVH-TV.
n33 BTC file, op. cit., sec. I,
exhibit 3.
50. The purchase price is $4.4 million. n34 To cover this sum, the First National Bank &
Trust Co. of Oklahoma City has agreed to lend, on a noncollateral basis, its
legal limit of $3.6 million to Gaylord's WKY Television System, Inc. n35 The transferee's application gives no information as
to the source of payment for the adjusted contract price balance. Presumably, cash and receivables
($3,833,899) of WKY Television System, Inc., are sufficient (and will be used)
for the purpose. A direct cash, capital
investment from this source, perhaps, can be made without serious risk to the
corporation's working capital position.
n36
n34
n35 BTC file, op. cit., amended by
letter of Mr. Charles A. Vose, chairman, First National Bank & Trust Co.,
dated Feb. 28, 1969.
n36
51. On the other hand, the loan with which
Gaylord proposes to burden WKY Television System, Inc., sits oppressively upon
the corporation's capital structure. It
is repayable at the rate of $200,000 per month, exclusive of interest which was
not specified by the bank letter of commitment. n37
At this rate, the corporation's annual cash expenditures (in the first year
after acquisition), are increased by $2.4 million. In 1968, total net income from all WKY Television System
broadcast holdings was only $1,333,073.
n38
Consequently, the KTVH-TV acquisition, on the financial basis proposed,
converts the corporation's profit position into approximately a $1.1 million
deficit, assuming a constant revenue level.
KTVH-TV's contribution of income to the system only alleviates the
deficit by approximately $232,000, stated at its current income rate. KTVH-TV's net worth is thus practically
liquidated by Gaylor's acquisition.
n37
n38
[*444]
52. The capital structure of WKY
Television System, Inc., is also weakened.
At the repayment rate schedule fixed by the Oklahoma City Bank (and
apparently accepted by the Gaylords), $2.4 million of the $3.6 million loan
must be stated as a current liability (payable within 1 year) on the financial
statement of the WKY corporation. In
this position, the relationship of net quick assets to liabilities is degraded
from a healthy 3 to 2 ratio to a 1 to 1 deficit ratio. Not only the capacity of income to generate
internal expansion, but the solvency of the corporation itself is brought into
question under financial arrangements.
On sound accounting and financial principles, both the loan and the
investment may enter the shaky realm of insubstantial deals.
53. The proposal liquidates over $1 million of
net worth in the Wichita-Hutchinson Co., and tends to dissipate slightly over
$2 million in liquid assets of the WKY Television System. The public benefit is difficult to see. The WKY System is already burdened with
losses in its UHF television operations.
Consequently, the financial arrangements designed for the KTVH-TV
purchase enlarge rather than lighten the magnitude of that concern.
54. With these considerations, it is difficult
to determine how Gaylord's ownership of KTVH-TV will result in a benefit to the
Wichita-Hutchinson community. WKY
Television System says the public interest benefit results from its past
experience and record in other markets.
Nothing, however, is related concerning this feature.
55. We find with respect to certain trust
indentures affecting the Oklahoma Publishing Co., WKY Television System, Inc.,
apparently has been in default of compliance with section 1.613 of Commission rules
for a number of years. We shall, of
course, designate a hearing issue to determine the circumstances surrounding
this apparent omission. Our concern in
this regard was prompted by the disclosure that Commission records until
recently could not identify the beneficiaries in whose favor substantially all
assets of the Oklahoma Publishing Co., and WKY Television System are
administered.
56. More significantly, however, is a sense of
the magnitude of these trust arrangements.
We wish to assess the impact of the trust arrangements affecting Cowles
as well as Gaylord's media interests.
It is apparent that they may not serve public interests in broadcasting,
that they may tend to depress the initiation and maintenance of sound
communications policies promoting program diversity. It seems equally clear that where our policy of integration --
combining ownership and management -- is socially essential to broadcast
station operations, a trust instrument bifurcates ownership, and is in
derogation of the integration standard.
The interests of ownership then become matters solely of commercial
benefit, rather than owner-management involvement in community affairs. A serious question arises whether these
arrangements place public interests in broadcasting in thrall to the private
concerns of beneficiaries, centered on swelling investment income and capital
growth.
57. Companion to this danger may be the tendency
of trust arrangements to encourage the siphoning of income from broadcast
programming. Where, for tax reasons, it
becomes beneficially attractive and
[*445] profitable to divert
income from corporate endeavors to trust estates, management decisions, except
where charitably motivated, are not likely to elect increased programming. The inducement for preferring program
expense over the enhancement of trust estates will not be readily apparent
where business income available to principal owners can be divided and
distributed at reduced income tax rates among family and business relations. Without the availability of these devices,
such income, for countervailing tax reasons, might be frozen into business
enterprise objectives more highly conducive to programming efforts. There is a level at which consideration of
one's personal income tax bracket will discourage receipt of more earnings,
whether classified as dividends or otherwise.
At whatever point that level is reached in a taxpayer's judgment,
business revenue surplus will tend to be directed toward deductible and
depreciable expenditures. This decision
will follow from the necessity to produce capital growth out of an expanding
business net worth -- that is, the decision logically results, unless surplus
can be converted to earnings properly excluded from the principal owner's
personal income where taxes are regarded as prohibitive. The trust device, under certain
circumstances, permits this alternative means of capital and income
accretion. At the point where sound
judgment would normally required the devotion of more income to business purposes,
the trust provides a way out. It
potentially eliminates the either/or alternative of more tax or business
effort, and recaptures the possibility of enlarging personal estates with
investments disassociated from occupational endeavor. Both our integration standards and public interests in program
diversity are then defeated.
58. We seek to determine the significance of
these trusts in terms of broadcasting policies established by Congress and this
Commission. We emphasize that our
inquiry is limited to those situations in which trust arrangements appear to
dominate the corporate or capital structure of broadcast enterprises. In another context, we have noted the
dangers inherent in any ability to siphon programming from our free television
system, and the potential of certain types of competition to work in derogation
of an "improved and more varied fare of programming." n39 We would be less than realistic if
we neglected to recognize the competitive tug of trust devices on broadcast
income which might otherwise be channeled in service to the sources of program
diversity.
n39 Subscription Television, 15
F.C.C. 2d 466, 495 (1968).
59. It appears that the facts before us raise
significant questions whether a grant of the transfer application will serve
the public interest. The questions are
sufficiently substantial to justify setting the application for evidentiary
hearing.
60. Accordingly, It is ordered, That, pursuant
to section 309(e) of the Communications Act, the above-captioned transfer
application Is designated for hearing, at a time and place to be specified in a
subsequent order, on the following issues:
(a) To
determine whether a grant of the application would result in an undue
concentration of control of the media of mass communication regionally or in
the Wichita-Hutchinson area.
[*446]
(b) To determine the nature of the licensee's need for additional
capital; whether licensee's present owners can supply that need; how such
requirement necessitates approval of the proposed transfer, and the extent to
which the transferee's plan fulfills that need.
(c) To
determine which of the applicants can be expected better to serve the community
and programming needs of the Wichita-Hutchinson area on the basis of a
comparison of their (i) past broadcast record; n40 (ii) contributions to program
diversity; (iii) fairness in media presentations of controversial issues of
public importance; and (iv) programming dollar expenditures as a percentage of
gross revenue and net income. n41
n40 Transferor's record at
KTVH-TV, transferee's record in the operation of its VHF television stations.
n41 See above, also relating same
to any national norms which may be adduced, the reasons for differences shall
also be adduced, if possible.
(d) To determine
the extent to which sales representative proprietary interests in the Oklahoma
Publishing Co. have or may result in violation of the Commission's multiple
ownership rules and policies.
(e) To
determine what effect the transferee's financing plan will have upon the assets
of the licensee, the assets of the transferee and upon the ability of the
transferee to carry out its programming proposals.
(f) To
determine the uses, purposes, and effect of corporate and family trusts and estates
containing securities in which the Gaylord and Cowles families have legal or
beneficial interests in corporations holding FCC licenses, or the capital stock
of licensee corporations; their tax, income, and capital effects; the historic
correlation, if any, between expense to income ratios applicable to programming
before, during and after the execution of such trust arrangements; and the
impact of such arrangements on Commission integration standards.
(g) To
determine whether and if so, why WKY failed to file trust instruments or their
abstracts involving ownership interests in the Oklahoma Publishing Co., as
required by section 1.612 (47 CFR 1.613).
(h) To
determine, in the light of the evidence adduced pursuant to the foregoing
issues, whether grant of the above-captioned application would be in the public
interest.
61. It is further ordered, That the
Wichita-Hutchinson Co., the Minneapolis Star & Tribune Co., WKY Television
System, Inc., the Oklahoma Publishing Co., and the Katz Agency, Inc., are made
parties to the hearing.
62. It is further ordered, That to avail
themselves of the opportunity to be heard, the above-specified parties,
pursuant to section 1.221 of the Commission's rules and regulations, in person
or by attorney, shall within 20 days of the mailing of this Order, file with
the Commission, in triplicate, a written appearance stating an intent to appear
on the date fixed for the hearing and present evidence on the issues specified
in this Order.
63. It is further ordered, That the transfer
applicants herein shall, pursuant to section 311(a)(2) of the Communications
Act and section 1.594 of the Commission's rules and regulations, give notice of
the [*447] hearing within the time and in the manner prescribed in such
rule, and shall advise the Commission thereof as required by section 1.594 of
the Commission's rules and regulations.
FEDERAL
COMMUNICATIONS COMMISSION, BEN F. WAPLE, Secretary.
SEPARATE STATEMENT OF COMMISSIONER NICHOLAS JOHNSON
Today the
Commission majority initiates an important inquiry into the proposed transfer
of KTVH-TV,
I fully
join in and support the Commission majority's opinion in this proceeding. However, in light of the dissenting opinion
of Chairman Rosel H. Hyde, in which Commissioner Robert E. Lee joins, I would
like to add a few remarks of my own stating what, in my view, the majority's
opinion does and does not do.
[*463]
Chairman Hyde raises a number of points in his dissenting opinion which
merit a response.
Chairman
Hyde first states (par. 2) that the proposed transfer would not violate the
numerical maximums contained in the Commission's multiple ownership rules. Of course, this fails to address the real
point. Rule 47 C.F.R. section 73.636(2)
bars transfers which "would result in a concentration of control
inconsistent with public interest, convenience, or necessity." The rule
instructs the Commission to make such a determination by examining "the facts
of each case with particular reference to * * * the size, extent and location
of area served, the number of people served, and the extent of other
competitive service to the areas in question." It is precisely these and
other factors which will be examined in the forthcoming hearing.
Chairman
Hyde does not see (par. 4) how the proposed transfer can raise any question as
to "undue concentration of control" in the relevant market. A cursory look at figure 1, attached to the
majority opinion, and a reading of paragraphs 18-21 in the majority opinion,
should easily dispel any doubts in this area.
The
chairman finds "appalling" (par. 4) the majority's inquiry into, and
comparison of, the resources dedicated to programming by the owners of KTVH-TV and
WKY-TV. The chairman apparently feels
this would establish "programming norms" which will drag the
Commission into a "quagmire of number games." The point, however, is
that we do not know what conclusions we will reach through this comparative
analysis, and it is for this very reason that a hearing is necessary. As the majority states in paragraph 46,
"[for] reasons not readily apparent" KTVH-TV spends $2.25 on
programming for every dollar it earns, yet WKY-TV spends $0.65 on programming
for every dollar it earns. There may
well be some perfectly valid reason for this apparent discrepancy -- yet it is
not immediately apparent from the materials now available to the
Commission. For this reason, and
because we are charged with determining whether this transfer will promote the
"public interest," we have given the parties the opportunity to
explore this in a hearing. Finally, the
Commission clearly does have the authority to insure an adequate dedication of
resources to programming in the public interest. This matter is no longer in doubt. See Red Lion Broadcasting Co., Inc. v. FC.C., 37 U.S.L.W. 4509,
4517 (U.S., June 9, 1969).
Chairman
Hyde concedes that there may have been a "violation" of section 1.613
of this Commission's trust disclosure rules (par. 4), yet apparently feels it
unnecessary to investigate this matter further in hearing. The chairman also objects to the majority's
inquiry into possible rule violations by the Katz Agency's relationship to the
parties involved, and suggests that this Commission can easily gloss over such
violations by politely asking the parties not to do it again. I cannot agree. We cannot determine the seriousness of these possible rule
violations without further inquiry at hearing.
If, for example, the violations were intentional, then we would be
shirking our duties toward the public if we were to postpone any inquiries to a
later date.
[*464]
The chairman finds "absolutely no basis" for doubt as to
whether Gaylord will retain the present KTVH-TV program format (par. 3). This objection is amply answered by
paragraphs 43-47 in the majority's opinion, and needs no further comment.
The
chairman views (footnote 1) the statistics on the transferor as
"immaterial" to the considerations before us. An examination of issues (b), (c), (e), and
(f) should readily demonstrate the necessity for such comparative data.
Chairman
Hyde suggests (footnote 1) that the transfer should be granted under the
majority's "novel test of weighing 'media influence,'" for the
transferor's influence will be diminished.
Nowhere, however, has the majority indicated that it has any intention
of weighing or comparing the relative concentrations of control presently held
by Cowles and Gaylord, and approving the transfer if that concentration will
thereby be decreased. As issue (a)
clearly states, the hearing will determine whether the transfer would result in
an undue (not a lesser) concentration of control in the relevant areas.
Finally,
the chairman intimates (pars. 2-3) that the majority has prejudged the merits
of this case by reaching conclusions before the hearing process has been
completed. Obviously this is not the
case -- as an examination of the hearing issues and a re-reading of the majority
opinion will reveal. For example, the
majority does not contend that the financial arrangements here involved will
"enter the shaky realm of insubstantial deals" (majority opinion,
par. 52; compare dissenting opinion, par. 2), but that it "may" be
subject to doubt. I simply fail to see
how this may be characterized as a "premature finding" or a
"gratuitous characterization." It is not necessary for me to discuss
the issue of whether a strong dissent to the mere holding of a hearing, an
attempt to get fuller information, presupposes a decision by the dissenter
"reached after and not before the hearing process is completed."
I
believe the majority opinion is a significant step toward the closer scrutiny
of transfer applications by this Commission, and believe that we will thereby
eventually evolve more meaningful standards by which to judge such applications
in the public interest.
[*460] DISSENTING STATEMENT OF CHAIRMAN ROSEL H.
HYDE IN WHICH COMMISSIONER ROBERT E. LEE JOINS
%i
dissent to the order setting this transfer case for hearing. This case involves a transfer of control of
the license of station KTVH,
First
and foremost, it should be made clear that the subject application would not,
if granted, represent a numerical concentration of control in contravention of
our multiple ownership rules. The
transferee would be acquiring its fourth VHF and its sixth television station.
A little
background on the Wichita-Hutchinson market will help to place this matter in
proper perspective.
The
transferee's closest station, WKY, is in
Yet, a
reading of this order which Commissioner H. Rex Lee has charitably
characterized as "disjointed," indicates that the majority has
concluded that Gaylord (the transferee) and Cowles (the transferor) are no in a
position to unduly influence the American people. For example, they have already concluded that the transferee has
"potential political and media influences reaching 6,617,000 people,"
and the transferor's media influence extends to "27 million people, more
than 10 percent of the population within the United States." n1
n1 The
alleged statistics as they apply to the transferor are immaterial for our
consideration of whether the public interest is served by a grant under 310(b) of
the act. The crucial issues in any such
case relate to the transferee. Assuming
the majority's premise, the transfer should be granted because the Cowles
"media influence" will be diminished to the extent it is no longer a
broadcaster in this market. Under the
majority's novel test of weighing "media influence" Cowles will no
longer influence 760,830 Kansans.
Of
course, these impressive eye-catching figures ignore the fact that these same
millions of Americans have access to multiple sources of news and information;
and these outlets provide the American people with a degree of diversity that
assures exposure of varying viewpoints.
To say nothing of our fairness doctrine which requires individual
stations to provide diversity on controversial matters of public importance.
The
order is replete with premature findings, including a gratuitous
characterization of the transferee's loan as perhaps entering "the shaky
realm of insubstantial deals."
It has
always been my understanding of administrative processes that the decision is
reached after and not before the hearing process is completed.
[*461]
Perhaps the most appalling aspect of the majority's approach is the
obvious intent to develop a yardstick for measuring performance in terms of
dollars spent. The Commission
rightfully cannot impose standards for program quality. However, there is a veiled threat by the
majority to circumvent this prohibition in a very mischievous manner by an
unrealistic test of equating dollar expenditures with program quality. To begin with quality cannot be measured in
terms of quantity or dollars. If that
is to be the test of service, stations can easily meet it by pouring large sums
into meaningless program projects while ignoring any attempt to achieve true
community service. Such an approach
will logically lead the Commission into a quagmire of number games where
applicants and the public interest will be measured on a dollar standard. I find it hard to believe that the majority
fully realize the serious implications of involving the Commission not only in
a program-dollar comparison of the parties here, but also in seeking the
establishment of national norms on programming dollar expenditures as a
percentage of gross revenue. I view
this as a very serious and subtle intrusion by the Commission into programming
matters. We do not have authority to
establish programming norms under any banner.
The
majority has charged that with respect "to certain trust indentures
affecting the Oklahoma Publishing Co., WKY Television System, Inc., apparently
has been in default of compliance with section 1.613 of the rules for a number
of years." Section 1.613 of the rules provides in part that "* * *
trust agreements * * * are required to be filed [with the Commission] provided,
however, that trust agreements are not required to be filed unless requested
specifically by the Commission; in lieu of the trust agreement, the licensee *
* * may submit the following information concerning the trust: (1) Name of the
trust; (2) Duration of the trust; (3) Number of shares of stock owned * *
*"
On April
21, 1969, copies of Gaylord trust agreements were filed with the Commission --
not however at the Commission's request.
The cover letter for the filing of these agreements recites in part:
"These trusts are shown as certificate holders in the voting trust holding
11,275 shares of stock of the Oklahoma Publishing Co. (See 323 dated Feb. 27, 1968, for the Oklahoma Publishing
Co.)"
The
February 27, 1968, ownership information on file with the Commission indicates:
(1) That there is a Gaylord, Inex K.; Gaylord, Edward L. voting trust -- of
Oklahoma City, Okla.; (2) That the trustees are citizens of the United States;
(3) That there are 11,275 shares of stock in the trust and that the stock is
common stock of no par value.
Thus the
existence of the trust referred to by the majority was a matter of Commission
knowledge. It is true that all of the
information required by section 1.613 of the rules for the trust was not
provided and that therefore there may have been a technical violation of the
rule, but if so, it was not a conspiracy of silence to conceal some nefarious
trust scheme. In fact, on the basis of
the type of violation that may be involved here, the Commission has often
refused to impose even a small forfeiture.
[*462] Having introduced the subject of the
Gaylord's trust, the majority goes on to state:
More significantly, however, is a sense of the magnitude of
the trust arrangements. We wish to
assess the impact of the trust arrangements affecting Cowles' as well as
Gaylord's media interests * * *. A
serious question arises whether these arrangements place public interests in
broadcasting in thrall to the private concerns of beneficiaries, centered on
swelling investment income and capital growth.
I do not
believe that an assignment hearing is the proper place to explore complicated
policy questions, of the appropriativeness of trust ownership. Further, it is blatantly unfair and
prejudicial to the applicants to suddenly unfurl the overall appropriativeness
of trust arrangements in a hearing case.
If such
an inquiry is warranted, the proper machinery to test the question is the
Commission's rulemaking processes.
The Katz
Agency relationship to both parties has also cast a major roadblock to the
transfer. The majority implies some
rule or policy violation because the Katz Agency represents both Gaylord and
Cowles in some overlapping markets. The
issue I suggest is enlarged out of proportion to its importance. Any potential conflict evolving from the
Katz's relationship to these licensees can easily be rectified by appropriate
conditions in a grant.
Not
being able to find fault with the programming percentages of the transferee or its
efforts to determine community needs and interests, the majority instead
resorts to questioning the integrity of the transferee's representations,
stating in one instance "there is serious question whether the Gaylord
promise to retain the KTVH-TV program format is credible." There is
absolutely no basis for such an allegation.
This order is perhaps without parallel in Commission proceedings. It explores issues unrelated and irrelevant
to transfer proceedings. It is
conclusive as to the very issues it purports to explore and it represents an
abuse of the hearing process to raise and decide broad policy matters.
For
these reasons we dissent to the order.
APPENDIX
A
1. The purpose of this appendix is to provide
further elaboration of the Cowles, Perry, and Ridder media interests. The magnitude of these combinations imposes
on us the duty of inquiry respecting public interest standards which now exist
or may emerge from the character and practices of these enterprises.
2. Gardner Cowles is chairman of the board and
editorial chairman of Cowles Communications, Inc. (CCI). n1 He is the only person of record who owns more than
10 percent of the outstanding voting stock of that corporation. The Gardner Cowles family owns an
indeterminate percentage of CCI stock through various businesses and
trusts. Gardner Cowles is also
president and publisher of the Des Moines Register & Tribune Co., which
owns 9.9 percent of CCI stock. John
Cowles, Sr., is president and John Cowles, Jr., is vice president of the
Minneapolis Star & Tribune Co. That
company lists as holders of 10 percent or more of its voting stock, John Cowles
and John Cowles, Jr., the Des Monies Register & Tribune Co., the Minnesota
Tribune Co., and the trustees of Cowles family trusts. n2
n1 The following is a list of
CCI's subsidiaries as of Dec. 31, 1967.
Cambridge Book Co., Inc.; Civic Reading Club, Inc.; Cowles Broadcasting
Service, Inc.; Civl Service Publishing Corp.; College Publishing Corp.; Cowles
Fla. Bcg., Inc.; Cowles National Organization Service. Ltd.; Cowles Magazines,
S.A.R.L.; Dental Survey Publications, Inc; Educational Book Club. Inc.;
Educational Book Club, Ltd.; The Family Circle, Inc.; Family Circle Overseas
Corp.; Famil Circle Stores, Inc.; Family Circle Verlagsgesellschaft mbH;
Gainesville Sun Publishing Co.; Hacienda San Miguel Corp.; Home Reader Service,
Inc.; Cowles Home Reader Service, Ltd.; Home Reference Library, Inc.; Lakeland
Ledger Publishing Corp.; Lancet Publications, Inc.; Modern Medicine
Publications, Inc.; Professional Publications. Inc.; Modern Medicine of
Australia Pty., Ltd; Modern Medicine of New Zealand, Ltd.; Modern Medicine
(Properties) Pty., Ltd.; Magazines For Industry, Inc.; Books For Industry,
Inc.; The Glass Publishing Co.; The ICF Publishing Co., Inc.; MMI Publications,
Inc.; Mutual Readers League, Inc.; National Organization Service, Inc.;
Southwestern Book Club, Inc.; Star Publishing Corp.; Starpress, Inc.; SUFSUN
Co., Inc.; TRAVELVENTURES, Inc.; Universal Cable Vision, Inc.; Visual Panographics,
Inc. Form 10-K, Dec. 31, 1967, Security Exchange Commission file No.
0-450. Note: On Apr. 26, 1968, CCI,
through a wholly owned subsidiary Magazines For Industry, Inc., acquired for
stock substantially all of the assets of Bettendorf Publications, Inc.
n2 Public notice announcing the
proposed transfer of KTVH-TV, broadcast over KTVH-TV, Jan. 29, 1969.
3. The three competing television stations in
n3 "38 Television
Factbook," services volume, 1968-69, pp. 574-a, 577-a.
4. TV Communications Corp., in which CCI owns
160,000 shares, operates CATV systems in Fayetteville, Ark.; Athol, Dalton,
Lenox, and Pittsfield, Mass.; Little Falls, Minn.; Claremont, N.H.; Olean,
N.Y.; Coos Bay and Myrtle Point, Oreg.; Bradford, Clearfield, Pottsville, and
Warren, Pa.; Bellows Falls, Vt.; Harrisonburg, Va.; and a franchise in Lee,
Mass. n4
n4 Ibid., p. 575-a.
COWLES-PERRY
MEDIA INTERESTS
5. John H. Perry, Jr., board chairman and
president of Perry Publications, Inc., and a director of CCI, is also one of
three trustees under a trust indenture in which he is named life income
beneficiary and retains testamentary power of appointment over one-half the
corpus of the estate. As of February 1,
1968, this trust reportedly owned 228,500 shares of the common capital stock of
Cowles Communications, Inc. n5
n5 "Cowles Communications, Inc.,
Annual Report," 1967.
6. Of the 35 evening and 20 morning dailies in
n6 "Ayer," 1968, pp.
198-217.
7. The Cowles station in
n7 "38 Television
Factbook," stations volume, 1968-69, p. 154-b.
8. The complexities of Cowles and Perry
involvement have recently been compounded by the sale of many of Perry's
newspapers to other large multimedia companies including CCI, Cox Industries,
Inc., and Gannett Newspapers. A New
York Times article reports the following:
"The sale of 16 daily and 10 weekly newspapers owned or
partly owned in
"The 16 daily newspapers have a combined circulation of
about 265,000. All of the dailies are
being sold to out-of-state interests.
Thirty-six of
"The younger Mr. Perry is interested in developing
techniques for living under water and has a program of research toward this
under way in the Gulf Stream of the
"PRICE NOT DISCLOSED
"Executives of the Perry company declined to release
the sales price of the 16 dailies and the 10 weeklies. The rumored price has been $70-million.
"'That is in the ball park,' said William Atterbury,
treasurer of the chain.
"Gannett Newspapers, which has headquarters in
"Gannett owns three other Florida dailies, Today, which
was started in Brevard County near the Cape Kennedy Space Center in March 1966,
and which had a circulation last year of 45,215; The Cocoa Tribune, with a
circulation of 3,238, and the Titusville Star Advocate, 6,684.
"The James M. Cox newspapers of
"The Cox papers also bought Palm Beach Life, a
magazine, and a 47.5-percent interest in The Daytona Beach Journal and The Daytona
Beach News, which have a combined circulation of 64,727. The remaining 52.5 percent of the
"The Cox Newspapers also own The Miami News.
"Freedom Newspapers of Santa An, Calif., bought five
papers in the Perry chain -- The Fort Pierce News Tribune, with a circulation
of 9,399; The Fort Walton Beach Playground Daily News, with a circulation of
10,761; The Panama City News, 10,067 circulation; The Panama City Herald,
13,593, and The Marianna Jackson County Floridan, 5,421.
"These are the first
"Cowles Communications, Inc., of
"Indian River Newspapers, Inc., also associated with
the Cowles Publishing Company bought The Leesburg Commercial, with a
circulation of 4,940, and The Palatka Daily News, 5,639 circulation.
"The Lake City Reporter, with a circulation of 1,977,
was bought by two newspaper brokers, Taylor Communications, Inc. of
"The Taylor and Matthew combine also bought the 10
Perry weeklies at
"Several of the newspapers purchased also publish on
Sunday." n8
n8 New
York Times, July 11, 1969, p. 36, col. 2.
COWLES-RIDDER MEDIA INTERESTS
9. Ridder Publications, Inc., through Northwest
Publications, Inc., has common ownership interests with the Minneapolis Star
& Tribune Co. in the licensee of WCCO-AM-FM-TV. Besides the two newspapers that Northwest publishes in
10. Northwest is also the licensee of WDSM-AM-TV
in
n9 Commission records contain no
information indicating that these broadcast facilities predate adoption of FCC duopoly
rules.
11. The Cowles-Ridder corporation, Midwest
Radio-Television, Inc., is the sole owner of a CATV system,
n10 "38 Television
Factbook," stations volume, 1968-69, p. 546-a.
12. In addition to this highly concentrated
midwestern regional broadcast market, Northwest Publications is also the
licensee of KSSS in
13. Ridder Publications prints the only two
newspapers in
14. Besides the newspapers already described,
the Ridder family, through various subsidiaries, publishes or has interests in
five newspapers in
n11
n12 Editor and Publisher, Apr. 19,
1969, p. 112.
15. The Ridder newspapers reach 1,143,747 people
daily and have a Sunday circulation of 1,128,647. n13
n13 Ayer, 1968.
APPENDIX
B ***