In Re Applications of EAST ST. LOUIS BROADCASTING CO., INC.,
EAST ST. LOUIS, ILLINOIS;
METRO-EAST BROADCASTING, INC., EAST ST. LOUIS, ILLINOIS For
Construction Permits
Docket
No. 17256 File No. BP-16579; Docket No. 17257 File No. BP-16682
FEDERAL
COMMUNICATIONS COMMISSION
29 F.C.C.2d 170
RELEASE-NUMBER: FCC 71-449
May 10, 1971 Released
Adopted April 28, 1971
COUNSEL:
APPEARANCES
John H. Midlen, Edward R. Reddy, and
Byron E. Harrison, on behalf of East St. Louis Broadcasting Co., Inc.; Marcus
Cohn and Robert B. Jacobi, on behalf of Metro-East Broadcasting, Inc.; and P.
W. Valicenti, Howard J. Schellenberg, Jr., Margot Polivy and Thomas B.
Fitzpatrick, on behalf of the Chief, Broadcast Bureau, Federal Communications
Commission.
JUDGES:
BY THE COMMISSION: COMMISSIONERS
BURCH, CHAIRMAN; AND JOHNSON CONCURRING AND ISSUING
STATEMENTS; COMMISSIONER BARTLEY ABSENT; COMMISSIONER HOUSER NOT
PARTICIPATING.
OPINION:
[*170] I.
BACKGROUND
1. This proceeding involves
the mutually exclusive applications of East St. Louis Broadcasting Co., Inc.
(East St. Louis) and Metro-East Broadcasting, Inc. (Metro-East), each requesting
a construction permit for a new standard broadcast station at East St. Louis,
Illinois, to operate on 1490 kHz, 250w., 1kw-LS, U. By Order released March 9,
1967 (FCC 67-284), we designated the applications for hearing on the following
issues: (a) to determine whether either applicant will satisfy the coverage
requirements of Rule 73.188 and, if not, whether waiver of such rule is
warranted, and (b) a standard comparative issue. Subsequently, the
Commission's Review Board added issues to determine: (a) whether the East St.
Louis stockholders are financially able to meet their respective commitments,
(b) the basis of East St. Louis's estimated revenues during the first year of
operation, and (c) whether East St. Louis can construct and continue operation
of its proposal in the public interest.
2. On January 6, 1969, Hearing
Examiner Isadore A. Honig released an Initial Decision (FCC 68 D-74, 19 FCC 2d
300), in which he recommended a grant of the East St. Louis application and
denial of the Metro-East application. The Examiner held that waiver
of [*171] rule 73.188 is warranted as to both applicants, and that
East St. Louis is financially qualified. Deciding the case under the
comparative issue, the Examiner concluded that Metro-East is entitled to a
substantial preference in diversification of control of the media of mass
communications, that East St. Louis merits a moderate preference in integration
of ownership with management, and that a substantial demerit should be assessed
against Metro-East because of the unusually poor broadcast record of one of its
stockholders who is proposed as general manager. n1 Holding that the substantial diversification
preference awarded Metro-East is outweighed by the integration preference
occurring to East St. Louis and the assessment of a substantial demerit against
Metro-East, the Examiner concluded that a grant of East St. Louis's application
gave greater assurance of securing the best practicable service to the
public.
n1 Mr. Harmon I. Moseley, the proposed
general manager, is also vice-president, one of five directors, and a 5.59
percent stockholder of Metro-East.
3. Exceptions to the Initial
Decision were filed by Metro-East, which sought reversal of the Examiner's
conclusions under both the financial qualifications issue and the comparative
issue. East St. Louis filed limited exceptions, and urged affirmance of a
grant of its application. Oral argument was heard by a panel of the
Review Board on July 1, 1969, and on August 26, 1969, the Board released its
decision (19 FCC 2d 289) in which it concluded that the Initial Decision should
be reversed and that Metro-east's application should be granted. Except
as supplemented and modified in the body of its decision and in its relings on
the exceptions, the Board found that the Examiner's findings of fact were
thorough and Largely accurate, and it adopted such findings. Briefly
stated, the Review Board found that East St. Louis did not establish its
financial qualifications on the record. However, because it determined
that Metro-East should be preferred under the comparative issue, the Board held
that a remand of the proceeding to inquire further into East St. Louis's
financial qualifications would serve no useful purpose. As to the
comparative aspects of the case, the Board concluded that Metro-East merits a
substantial diversification preference; that the unusually poor past broadcast
record of its proposed general manager negates any integration credit to
Metro-East for his full-time involvement in the station's affairs; that East
St. Louis warrants a slight integration preference; and that Metro-East's
diversification preference outweighs East St. Louis's integration preference,
with the result that Metro-East's application is to be preferred.
4. By Order (FCC 70-526)
released May 26, 1970, we granted East St. Louis's application for review of
the Board's decision to the extent that the parties were permitted to submit
briefs and reply briefs and that oral argument before the Commission en banc was
scheduled for July 9, 1970. n2 A
brief in opposition to the Board's [*172] decision was filed by
East St. Louis, to which Metro-East filed a reply brief. The Commission
en banc heard oral argument on July 9, 1970, in which counsel for East St.
Louis, Metro-East, and the Chief, Broadcast Bureau participated. For the
reasons which follow, we have concluded that the public interest would be
better served by a grant of the East St. Louis application and by a denial of
the Metro-East application. We shall also discuss below the financial
qualifications question as it bears on East St. Louis's application.
n2 Metro-East's motion, filed
October 31, 1969, to strike the Broadcast Bureau's comments on East St. Louis's
application for review will be denied. Metro-East augues that Section
1.115 of the Rules makes no provision for a pleading entitled
"Comments"; and that since the Bureau disagrees with the Review
Board's handling of the financial issue, the Bureau's pleading must be regarded
as an application for review, in which case the pleading is inexcusably
late. East St. Louis and the Bureau opposed the motion to strike.
The Bureau's comments are not governed by Section 1.115 of the rules. The
Bureau does not attack the Board's ultimate conclusion in the case, and,
therefore, until East St. Louis filed its application for review, there was no
reason for the Bureau to submit a pleading for the Commission's consideration.
II. EVALUATION OF COMPARATIVE
CRITERIA
5. In reaching its conclusion
that Metro-East should be preferred on a comparative basis, we believe that the
Review Board committed some basic errors. First, the Board has
misconstrued the Significance of Harmon I. Moseley's participation in the
Metro-East proposal. Although the Board has, in effect, for the purposes
of the comparative evaluation treated Moseley as not a participant in the
Metro-East proposal, n3 the fact remains that once a grant
is made to Metro-East, Moseley indeed will be participating fully in the
station operation as general manager, with Metro-East placing great reliance on
him because he alone of the Metro-East principals has broadcast experience, and
he alone of these principals will be devoting full time to the station
operation. The Board was clearly correct in stating that the unusually
poor broadcast record of a principal should be given "... significance
only in the context of his participation in the applicant's affairs... his
involvement in the policy formulation and operation of the station." We do
not agree, however, with the Board's conclusion that moseley's participation
in, and control over, the affairs of Metro-East's proposed station will not be
significant.
n3 As noted previously herein, the
Board held that the unusually poor past record of Moseley negates any
integration credit to Metro-East for his full-time involvement in the station's
affairs.
6. Grand Broadcasting Co., 36
FCC 925 (1964), stated that in assessing the quality of integration proposals
the Commission looks to the positions which the integrated stockholders will
occupy in order to determine the extent of their policy functions and the
likelihood of their playing sufficiently distinguishable roles in the
management of day-to-day operations to warrant reliance upon their providing
assurance that proposals will be effectuated. Accordingly, the Commission
there stated that particular weight would be given to certain positions in the
order of their importance. The general manager's position was stated to
be of first importance. Against this background, and considering
Moseley's posture in the Metro-East applicant, it is clear that the Board erred
in holding that Moseley's influence over Metro-East's affairs will not be
great. The Board dismissed the significance of Moseley's position as general
manager, stressing the "mechanics of corporate operation". The
niceties of the mechanics of corporate operation, however, do not realistically
pertain to this immediate situation. First, in addition to holding the
important position of general manager, Moseley is a 5.59 percent stockholder as
well as being the vice-president and a director of the [*173]
applicant. As is the situation with all of Metro-East's stockholders, the
other four directors have no experience in operating a broadcast station and the
stockholdings of those four directors fall in the following percentages: 4.0,
4.28, 6.12, and 9.58. The largest single stockholder of Metro-East (Mr.
Price, n4 holding 14.5%) is not a director,
and while he is the president of the applicant, he would participate only
part-time with the development and presentation of youth programming.
Given the lack of broadcast experience of the other stockholders, recognizing
the importance of the general manager's position, and recalling that Moseley is
the only stockholder who will be integrated full-time into the operation of the
station, the theoretical control over Moseley by the other four directors and
the 94.41 percent vote of the other 23 stockholders is not a persuasive factor
in reducing the influence which Moseley would have over Metro-East. n5 Indeed, nothwith-standing Moseley's ownership of
only 5.59 percent of the stock, the facts show that it is Mosely who would be
in practical control of the day-to-day operation of Metro-East's proposed
station. Therefore, we conclude that Moseley's prominence in the
Metro-East proposal warrants the assessment of a substantial demerit against
Metro-East because of his unusually poor broadcast record.
n4 On June 26, 1970, Metro-East
filed a "Petition for Leave to Amend and Amendment" to reflect the
death on June 10, 1970, if its president, Harold B. Price, Jr., and the
subsequent election of a new president, Mr. Peter Hudyma. Mr. Hudyma has
been a Metro-East stockholder and has previously served as a director.
Motro-East Claims no additional comparative preference based upon his election
as president. On January 8, 1971. Metro-East filed a subsequent
"Petition for Leave to Amend" to reflect the death of Walter E.
Koehler, who owned jointly with his wife Ruth Koehler 2.678 shares of the stock
of Metro-East. The shares will now be held solely by Ruth Koehler.
No objection to the petitions having been received, the petitions are granted
and the amendments are accepted.
n5 The Board made no supportive
findings, for example, that the other directors and the other stockholders
would necessarily combine forces to oppose effectively operational policies
suggested and instituted by Moseley in his official capacity.
7. We reject Metro-East's
contention that Flower City Television Corp., 9 FCC 2d 249, 10 RR 2d 1059
(1967), precludes assessment of a substantial demerit against Metro-East since
the unusually poor past broadcast record is not that of Metro-East
itself. Flower City is inapposite. There an applicant was given a
preference over all other applicants on the past broadcast record criterion
because of the commendable record of performance compiled by its 15%
stockholder at another station not owned or controlled by the applicant.
However, as Metro-East points out, in the ultimate weighing process the
Commission held that that record was not shown to be so outstanding as to
warrant substantial weight since the record was not that of the applicant
itself. Here, however, Moseley's past broadcast record has been found to
be not just poor, but unusually poor. Thus, although this record was not
compiled by Metro-East itself, because Moseley would be the general manager and
in practical control of the day-to-day operation of Metro-East's proposed
station, the nature of that record requires that substantial weight be given to
it.
8. We have also concluded: (1)
that the Review Board erred in its determination that East St. Louis merits
only a slight comparative preference for integration of ownership with
management; and (2) that the Examiner was correct in his award to East St.
Louis of a moderate, rather than a slight, integration preference. East
St. Louis [*174] clearly has a greater percentage of its
stockholders proposed for full-time integration in the operation of its station
than does Metro-East, 34.59 percent to 5.59 percent. n6 This difference, even considering Moseley's proposed
integration as we do, would ordinarily merit a greater preference for East St.
Louis than that accorded by the Review Board. In connection with
Moseley's proposed integration, we believe that the quality of his proposed
full-time participation as general manager is markedly lessened because his
past broadcast record provides little assurance that the objectives underlying
the integration criterion would be achieved.
n6 In its discussion of the
integration factor, the Board, of course, excluded from consideration the
proposed full-time integration of Moseley, a 5.59 percent stockholder.
The Examiner, on the other hand, considered Moseley's proposed integration.
9. The Board, however,
concluded that East St. Louis's integration proposal has certain "inherent
deficiencies" and so is entitled to only a slight preference. The
"inherent deficiencies" cited by the Board were that: (1) the total
number of integrated owners represents less than 50 percent of the outstanding
stock of the corporation; (2) the chief executive officer, general manager, and
single largest stockholder will only be available "when needed"; and
(3) several of the owners proposed for full-time integration as well as those
proposed for part-time involvement "are heavily committed to other
business activities, and the... availability of time to honor commitments to
the station has not been shown." (1) and (2), above, are accurate and they
detract somewhat from East St. Louis's integration proposal. We believe,
however, that the record does not support the Board's assertion under (3),
above. On the contrary, we think that the record demonstrates that all of
the full-time participants in East St. Louis's proposed operation will
relinquish any present occupations. Metro-East argues, however, that
Robert DeMond and Edward DeMond (holding approximately 13 percent of the East
St. Louis stock) should not be credited with full-time integration because they
would not be available for full-time employment. n7 However, Robert DeMond testified at the hearing that
he planned to devote "at least 40 hours a week" to his radio station
duties. Edward DeMond testified that he expected to work more than 40
hours per week at his position for East St. Louis. Each of the witnesses
indicated that he would cease all regular full-time employment other than his
employment with East St. Louis, and that outside business interests would make
minimal demands on his time. The Hearing Examiner, who observed the
witnesses' demeanor in giving their testimony and was therefore in a better
position to determine the truth of that testimony than was the Review Board,
accepted these statements and accorded East St. Louis full integration credit
for Robert and Edward DeMond's participation. Thus, one of the basis for
the Board's conclusion that East St. Louis's integration proposal is entitled
to only a slight preference, despite a nearly 30 percent disparity between it
and Metro-East's proposal, must be rejected. In light of this, we
conclude that the Hearing Examiner was correct in awarding East St. Louis a
moderate, rather than a slight, integration preference.
n7 The Examiner concluded that
Robert and Edward DeMond could be credited with full-time integration.
Metro-East excepted to this conclusion before the Review Board, and the Board
granted the exception.
[*175] 10. As the
decisions of the Examiner and the Review Board disclose, none of Metro-East's
stockholders have other broadcast interests, whereas two of East St. Louis's
stockholders, Wendell J. Hansen and Evelyn Whitford, holding in the aggregate
31.7 percent of the East St. Louis stock, are 100 percent owners of broadcast
stations (AM and FM) in Menomonie, Wisconsin, and they are, respectively, 51
percent and 9.37 percent owners of a television facility in Lawrence,
Indiana. Subsequent to the release of the Review Board's decision.
Hansen and Mrs. Whitford acquired 67.59 percent and 7.37 percent interests,
respectively, in the permittee of AM station WHYT, Noblesville, Indiana.
Menomonie, Lawrence, and Noblesville are, respectively, approximately 450, 225,
and 235 airline miles from East St. Louis. While our Policy Statement on
Comparative Broadcast Hearings, 1 FCC 2d 393, 5 RR 2d 1901, states that other
interests in the principal community proposed to be served will normally be of
most significance, followed by other interests in the remainder of the proposed
service area, and, finally generally in the United States, it is also true that
one of the primary objectives of the diversification of control of the media of
mass communications criterion is to encourage maximum diffusion of ownership of
broadcast facilities. In the circumstances here shown, we agree with the
Examiner and the Review Board that Metro-East is entitled to a substantial
preference over East St. Louis on the diversification criterion. We also
agree with the reasoning of the Board, set forth in par. 10 of its decision, that
the distance of Hansen's and Whitford's other facilities from East St. Louis
tends to reduce only slightly the adverse effect on diversification of control
of the media which would flow from a grant of the East St. Louis
application. Metro-East's proposal would, therefore, better achieve the
objective of the diversification criterion in that a maximum diffusion of
ownership of broadcast facilities would occur.
11. In summation of the
comparative evaluation, we conclude that East St. Louis's proposal offers the
best practicable service to the public because of the moderate preference to
which it is entitled in the factor of integration of ownership with
management. The significance of East St. Louis's preference regarding the
best practicable service in enhanced by Metro-East's poor showing in this
connection and because of the substantial demerit which has been assessed
against Metro-East as a result of Moseley's unusually poor past broadcast
record. Although the factors of integration of ownership with management
and past broadcast record are but two of the several indicants of the
Commission's objective of obtaining the best practicable service to the public,
they are, as we have stated, "of substantial importance." Policy
Statement on Comparative Broadcast Hearing, 1 FCC 2d 393, 5 RR 2d 1901. On the
other hand, Metro-East has been awarded a substantial preference over East St.
Louis in the diversification criterion, [*176] which criterion,
together with best practicable service, constitutes a primary objective in the
comparative process. Weighing the significant preference awarded East St.
Louis on the best practicable service criterion with the substantial preference
obtained by MetroEast on the diversification criterion, our conclusion is that
overall the public interest, convenience, and necessity would be best served by
granting East St. Louis's application. In the circumstances shown here,
we believe that East St. Louis will render significantly better service to the
public than would Metro-East given its significantly better showing in
integration of ownership with management, and given the unusually poor
broadcast record of Moseley. Although maximum diffusion of control of
ownership of broadcast facilities is one of the principal objectives in the
licensing scheme, we simply do not believe that this consideration, in the
facts of this case, is sufficient to overcome the clear indication that the
equally important objective of best practicable service would be best advanced
by a grant of East St. Louis's application. In short, we believe that
East St. Louis's superior showing regarding the best practicable service
affords greater assurance that East St. Louis will demonstrate greater
sensitivity to the area's changing needs as well as the flexibility to change
as local needs and interests change.
III. FINANCIAL QUALIFICATIONS
OF EAST ST. LOUIS
12. To construct and operate
its proposed station for a one-year period, East St. Louis has estimated cash
requirements of $140,358. While agreeing with the Examiner's conclusion
that East St. Louis's stockholders are financially able to meet their
commitment (a conclusion unchallenged by Metro-East), the Review Board
disagreed with the Examiner's conclusion that East St. Louis is financially
qualified in an overall sense. Thus, the Board held:
... the record, as it presently
stands, affirmatively shows the applicant [East St. Louis] to have available
$118,662, but does not establish with any degree of precision, the current amount
of funds held on deposit by East St. Louis. Accordingly, there is no
basis in the record for determining whether East St. Louis has sufficient funds
to meet its estimated cash requirements of $140,358.
In reaching
this result, the Board reversed a ruling of the Examiner which foreclosed
Metro-East from inquiring into the amount of funds which East St. Louis had on
deposit as being outside the scope of the financial issues which had been added
to the proceeding by the Board. Although the financial issues added by
the Board were narrowly drawn, and thus some confusion arose as to the scope of
such issues, we believe that the Board was correct in reversing the Examiner's
ruling particularly when the initial phases of cross-examination of East St. Louis's
principals disclosed that some portion of the cash on deposit had been
disbursed and the witness did not know the precise amount on deposit as of the
hearing.
13. We have concluded that, on
a comparative basis, a grant of the East St. Louis application would better
serve the public interest than would a grant of Metro-East's application.
However, we are unable to conclude at this time that East St. Louis is
financially qualified inasmuch as we have the same reservations regarding the
cash on deposit [*177] as did the Review Board. It is
necessary, therefore, that this proceeding be remanded to the Examiner who
presided at this hearing for the limited purpose of determining whether the
current amount of funds held on deposit by East St. Louis is, together with the
established figure of $118,662.00, sufficient to meet its estimated cash
requirements of $140,358.00. Therefore, the Examiner is directed to
issue, as expeditiously as is possible, a supplemental initial decision which
will contain findings and conclusions on the limited inquiry set forth
above. n9
n9 We note that the Board stated in
fn. 5 of its decision that if the proceeding were remanded (i.e., if the Board
had concluded that East St. Louis should prevail under the comparative issue and
that remand was necessary on the financial question) it would sua sponte, also
require further inquiry into the availability to East St. Louis of the proceeds
of the sale of certain "income bonds." We deem it unnecessary to
inquire into this matter further inasmuch as we believe that the Board has
misconstrued the terms of those securities. We should also add that we
see no need, as the Board suggests in fn. 12 of its decision, to include a
"character issue" against East St. Louis (in the remanded proceeding,
which we have ordered) on the basis of possible misrepresentation of material
facts regarding "conflictive residence claims" of certain East St.
Louis principals. We have examined the evidence in this regard, and we
find that it is at best ambiguous. Moreover, we note that Metro-East has
never sought either a specific lack of candor or misrepresentation issue.
14. Accordingly, IT IS
ORDERED, That the record in this proceeding is reopened and the proceeding IS
REMANDED to the Hearing Examiner who presided herein for further hearing as set
forth above.
15. IT IS FURTHER ORDERED,
That the motion to strike, filed October 31, 1969, by Metro-East Broadcasting,
Inc., IS DENIED.
16. IT IS FURTHER ORDERED,
That the petitions for leave to amend and amendments, filed June 26, 1970 and
January 8, 1971, by Metro-East Broadcasting, Inc. ARE GRANTED, and the
amendments ARE ACCEPTED.
FEDERAL
COMMUNICATIONS COMMISSION, BEN F. WAPLE, Secretary.
CONCURBY:
BURCH; JOHNSON
CONCUR:
CONCURRING OPINION OF DEAN BURCH
I have long believed that the time
has come -- indeed, is past due -- to re-evaluate our process for choosing
between new applicants. See my speech of January 15, 1970 to the FCC Bar
Association. I think that Judge Leventhal is correct in his observations
in Star Television, Inc. v. F.C.C., 416 F.2d 1086, 1094-95, cert. denied, 396
U.S. 888, where he noted the desirability of some better way to proceed than
the present cumbersome process, whose complexities, in my opinion, would bring
joy to a medieval scholar.
The present process is long, is
expensive, does not lend itself to good prediction of outcome, and is thus
burdensome on applicants and the Commission. Surely there must be a
better and more efficient way to proceed -- one which will truly "best conduce
to the proper dispatch of business and the ends of justice" (Section
4(j)).
Fortunately, we have now the
enhanced possibility of such revision. Our procedure review committee is
now studying the matter. There is, I understand, an exhaustive study nearing
completion by Prof. Robert Anthony of Cornell University. The results of
these studies merit our most careful consideration. For here is one
instance where process and the public interest largely coalesce.
[*178] CONCURRING
OPINION OF COMMISSIONER NICHOLAS JOHNSON
I concur in the Commission's
disposition of this case as correct under the applicable law and precedents of
this Commission. I support the Commission's result in this case.
But I also believe this case illustrates that all is not well with the
Commission's comparative renewal process. The essential slipperiness of
our standards, and the process by which we arrive at the decision remain,
despite all we have done, including the 1965 Policy Statement. 1 F.C.C.
2d 393 (1965). In this case for example, the Hearing Examiner's decision
was reversed by the Review Board. The Review Board is in turn reversed
here and the case is remanded for further testimony. And four years have
already elapsed since this case was designated for hearing.
I have in the past set out my
difficulties with the Commission's comparative hearing process, Farragut
Television Corporation, 8 F.C.C. 2d 279, 285 (1967); Flower City Television
Corporation, 9 F.C.C. 2d 249, 262 (1967). And in this case, while I support the
Commission's result as correct under the circumstances, I am troubled with the
apparent inability of the different decision making levels in the Commission to
make similar evaluations of the same hearing record, and it is not clear at all
to me that the analysis that has been done on this case is necessarily related
to the main question here -- which of the applicants will be better as the
licensee of a station in East St. Louis, or should both applications be denied?
And now the different standards
emanating from the 1970 Policy Statement on Comparative Renewal Hearings, 22
F.C.C. 2d 424 (1970), reconsideration denied 24 F.C.C. 2d 383 (1970), along
with our efforts to develop definitions of substantial performance 27 F.C.C. 2d
580 (1971) are added into the decision marking framework.
More importantly, it is difficult to
detect the relationship between programming performance and the standards the
Commission uses in determining who shall receive a license. I am aware of
all the troubles with the comparative hearing process, the criticisms that were
made of it, and the hope that by eliminating the inquiry into programming
proposals in the comparative hearing process, we would improve the standards
for decision making. But in eliminating most inquiry on programming
proposals, we implicitly concluded that most applicants are about the same when
it comes to programming, or, at least, inquiry in a hearing is unlikely to be
fruitful. But my impression is that the old examination of programming
proposals did result in a "bidding" for the license in terms of
increased program service. The problem is that the Commission never held
the winning applicant to the bid, or else allowed him to change it once the
license was secure.
While I concur in the Commission's
decision here, I would encourage the Commission to examine the possibility of
permitting some limited comparison in hearing of programming proposals, along
the lines of the preferences for programming performance we have recently
proposed. 27 F.C.C. 2d 580 (1971); 27 F.C.C. 2d 697 (1971). Under this
type of limited comparison the Commission might be in a better position to
determine which applicant offers the "best practicable service" of
which "programming is the essence."