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