In the Matter of APPLICATIONS BY AMERICAN BROADCASTING COS., INC. For Assignment of Licenses of Stations: WABC, WABC-FM, WABC-TV, New York, N.Y.; WLS-FM, WBKB, Chicago, Ill.; KGO, KGO-FM, KGO-TV, San Francisco, Calif.; KABC, KABC-FM, KABC-TV, Los Angeles, Calif.
For Transfer of Control of Stations: WLS, Chicago, Ill.; KQV and KQV-FM, Pittsburgh, Pa.; WXYZ, WXYZ-FM, WXYZ-TV, Detroit, Mich.
For Assignments and Transfer of Ancillary Radio Facilities
Docket No. 16828
FEDERAL COMMUNICATIONS COMMISSION
9 F.C.C.2d 546 (1967); 10 Rad. Reg. 2d (P & F) 289
RELEASE-NUMBER: FCC 67-743
June 22, 1967 Adopted
BY THE COMMISSION: COMMISSIONERS BARTLEY, COX, AND JOHNSON DISSENTING WITH SEPARATE STATEMENT.
[*546] 1. This proceeding involves applications by American Broadcasting Cos., Inc. (ABC), for Commission approval of assignments and transfers of its licenses for broadcasting stations to a new corporation of the same name which will be a subsidiary of International Telephone & Telegraph Corp. (ITT). By a memorandum opinion and order of December 21, 1966 (decision), the Commission approved the transfer, with three Commissioners dissenting. Thereafter, on January 18, 1967, the Antitrust Division of the Department of Justice (Department) filed petitions for reconsideration, for leave to intervene, and for a stay of the Commission's decision. Opposition to the Department's petitions was filed by applicants. On February 1, 1967, the Commission entered an order on petition for reconsideration, which: (1) Permitted the Department to intervene and made it a party; (2) required the Department to specify the issues which it desired to raise and to file copies of its proposed exhibits, identification of its proposed witnesses, and statements of their proposed testimony; (3) required applicants to file such responsive exhibits, identification of witnesses, and proposed testimony as they deemed relevant or material; (4) permitted the Department to make a rebuttal filing; (5) provided that the Commission would thereafter take appropriate action [*547] of the basis of the filings; and (6) stayed the decision of the Commission until action on the petition for reconsideration or other order.
2. In response to the February 1, 1967, order of the Commission, the Department filed a specification of issues and evidentiary material in support of petition for reconsideration by the Department of Justice. This filing specified six issues, identified six proposed witnesses and stated their testimony, and was accompanied by 260 proposed exhibits. A responsive statement was filed by applicants, accompanied by five proposed exhibits. A brief rebuttal was filed by the Department. On March 16, 1967, the Commission entered a further order on petition for rehearing, which reopened the record herein for the purpose of adducing supplementary evidence and designated the matter for hearing upon the issues: (1) To determine the benefits to the public interest from the proposed merger; (2) to determine the detriments to the public interest from the proposed merger; and (3) to determine, in light of the evidence adduced on the above issues and the entire record, whether the public interest will be served by a grant of the applications; made the Commission's Broadcast Bureau a party to the proceeding; specified various other procedures and time limits to be followed; and provided that upon the closing of the supplemented record it should be certified immediately to the Commission for a final decision.
3. Pursuant to the further order on petition for rehearing, two prehearing conferences were held, a hearing was held before the Chief Hearing Examiner of the Commission, and an extensive supplementary record was compiled. The Department called a total of 26 witnesses, two of those named in its specification, and offered some 364 exhibits, including the 260 previously filed with its specification. The Broadcast Bureau called four witnesses and offered 51 exhibits. Applicants called three witnesses and offered 87 exhibits, including the five filed in its response to the Department specification, and one witness appeared and was heard as a public witness. The record of the supplementary hearing comprises more than 3,100 pages of transcript.
4. Following the supplementary hearing the Department filed proposed findings, conclusions, and argument totaling more than 320 pages; the Broadcast Bureau filed proposed findings and conclusions totaling more than 150 pages; the applicants filed proposed findings, conclusions, and argument totaling more than 200 pages; and the American Civil Liberties Union (ACLU) filed a proposed statement as amicus curiae of 21 pages. Following these filings, the Commission, en banc, heard oral argument from the parties for 2 days, compiling a further transcript of more than 440 pages.
5. The extensive proceedings held by the Commission prior to the issuance of its decision are set forth in paragraphs 1 to 14, inclusive, of the decision, and will not be repeated here. The chronology of the proceeding prior to the filing of the Department's petition for reconsideration is set forth in the order on petition for reconsideration of February 1, 1967, and will not be repeated here. The proceedings subsequent to the filing of the Department petition have been set forth above. As the result of all these proceedings, the Commission now has before it a transcript of 4,327 pages, a total of about 550 exhibits, [*548] numerous pleadings and other documents filed in the docket of this proceeding, and hundreds of pages of proposed findings and conclusions and argument. All of these are included in the record of this proceeding. Except for such exhibits and testimony as were specifcally excluded or stricken by the Chief Hearing Examiner for reasons stated on the record, we receive all other exhibits, testimony, documents, and evidence offered or filed in the docket herein with or since the filing of the applications as part of the record herein. We have reviewed all of the rulings of the Chief Hearing Examiner and are satisfied that he made no prejudicial errors. Although the Commission might have ruled differently on particular items of testimony or evidence, the Chief Hearing Examiner permitted a most wide-ranging inquiry into all of the facts underlying this proposed merger, and neither the Department nor the Bureau was precluded from following any significant line of inquiry or offering any material evidence. We have examined the entire record of the supplementary hearing and are satisfied that no material evidence was excluded and that, therefore, no prejudicial errors were committed. Accordingly, the rulings of the Chief Hearing Examiner on all questions of the admission and exclusion of evidence are hereby affirmed.
6. The issue now before the Commission is whether it shall affirm, reverse, modify, or set aside its decision in this proceeding. (47 U.S.C., sec. 405; 47 CFR, sec. 1.106.) There are various rules and principles, deriving from the statutes, the rules, Commission precedent, and judicial authority, relating to the scope and character of the showing that must be made and the weight of evidence required for reconsideration or reversal of a Commission action. However, because of the significance and unique character of this case, we believe that it should not be decided on the basis of technical rules of procedure or burden of proof, but that the Commission should consider all the facts and weigh all the evidence to ascertain as best it can the present situation and the probable future, and should then determine the public interest based on such appraisal. Thus, we have undertaken to decide this case on the merits on the basis of a complete investigation and inquiry into all of the facts and circumstances and have reached conclusions on all of the issues, which conclusions we judge to be based upon a clear preponderance of the evidence.
The Commission decision noted that we deemed it appropriate and necessary to give consideration to the competitive factors involved in the situation before us under the "public-interest" standard, although competition as such was not to be considered as the single or controlling reliance for safeguarding the public interest. (Decision, pars. 19, 20) That is the appropriate principle and we follow it herein. F.C.C. v. RCA Communications, 346 U.S. 86 (1953); Seaboard Air Line RR. v. United States, 382 U.S. 154 (1965), U.S. (1966); Denver & Rio Grande Western RR. v. United States, U.S. (June 5, 1967), 35 LW 4531. The Department agrees that these are the correct principles to guide us, and urges further that: "It is customary for regulatory agencies to look to antitrust experience and the criteria developed in antitrust cases when they consider competitive issues under broad public interest authority." Department brief, page 17, n.5.
[*549] We agree that this states a proper approach and shall seek to apply the criteria drawn from antitrust experience in judging the competitive issues presented here. Thus, while we do not and cannot decide this as an antitrust case, we shall take into account antitrust concepts and criteria in analyzing and weighing the competitive factors involved; and we acknowledge that the participation of the Department, the extensive and thorough investigation that it has made, and the evidence that it has adduced have been helpful in further defining and illuminating the issues relating to competition, as well as other matters relating to the broader public-interest standard.
8. It is elementary antitrust law that there must be a determination of the relevant market as a necessary predicate to any finding as to the substantiality of an effect upon competition. Brown Shoe Co. v. United States, 370 U.S. 294, 342 (1962); United States v. Philadelphia National Bank, 374 U.S. 321 (1963); United States v. Penn-Olin Chemical Co., 378 U.S. 158 (1964); F.T.C. v. Consolidated Foods, 380 U.S. 592 (1965); United States v. Von's Grocery, 384 U.S. 270 (1966); F.T.C. v. Procter & Gamble, U.S. , 18 Led. 2d 303 (1967); statement of Assistant Attorney General Donald F. Turner, 35 L.W. 3300. The parties in the present case agree that the relevant market here is the operation of national television networks. Transcript (herein cited as "Tr.") 3947, 4280. The record and our own analysis support this conclusion, and we so hold.
9. This brings us to the first issue raised by the Department, its contention that ITT is a "potential independent entrant" into the relevant market. There is no contention and there is no evidence that any actual competition in the relevant market is or would be lessened by the proposed merger, and no signficant horizontal or vertical market relationship between the merging companies has been suggested or shown. This aspect was covered in paragraph 21 of the Commission decision and requires no further discussion. The argument of the Department is that the lessening of potential competition must be determined by analysis of market structure and position, and that the applicable tests have been developed in antitrust cases dealing with the problem of potential competition, which are United States v. Penn-Olin Chemical Co., 378 U.S. 158 (1964), United States v. El Paso Natural Gas Co., 376 U.S. 651 (1964), and F.T.C. v. Procter & Gamble Co., 18 Led. 2d 303 (1967). Accordingly, close examination of these cases is warranted.
10. In United States v. Penn-Olin Chemical Co., supra, the Department brought action to enjoin a joint venture by two large chemical companies, Pennsalt and Olin, to manufacture sodium chlorate in the southeastern part of the United States, which was the relevant market. Penn-Olin was the jointly established corporation. The trial court held that competition had not been lessened, because it was not shown that there was a probability of both companies, Pennsalt and Olin, entering the relevant market. The Supreme Court held that it was error to apply as the sole test the probability that both companies would enter the relevant market, and that the trial court should have considered whether one company would have entered the market while the other "remained at the edge of the market, continually threatening to enter." [*550] (378 U.S. 173.) The Supreme Court noted and relied upon evidence that both companies, Pennsalt and Olin, had shown a long-sustained and strong interest in entering the relevant market, that each had business connections with consumers of sodium chlorate in the relevant market, that each had the know-how and capacity to enter the relevant market, that each could enter the relevant market at a reasonable profit, and that each had "compelling reasons" for entering the market. The Court noted that "this array of probability certainly reaches the prima facie stage," but, nevertheless, did not warrant disturbing the finding made by the trial court, and, therefore, the case was remanded to the trial court for further findings on the issues posed by the Supreme Court holding. Upon remand and further consideration, the district court held that the record did not show a "reasonable probability" that either Pennsalt or Olin alone would have entered the relevant market. The Court found that it was possible that Pennsalt alone might have entered the relevant market, saying, "Anything is possible." The Court found on the record that this was unlikely, that the Department, therefore, had failed to establish by a preponderance of the evidence that as a matter of reasonable probability either Pennsalt or Olin would have entered the relevant market individually, and, therefore, it dismissed the complaint. United States v. Penn-Olin Chemical Co., 246 F. Supp. 917 (D.C. Del., 1965).
11. In United States v. El Paso Natural Gas Co., supra, the Department brought suit against El Paso, a natural gas company, for violation of section 7 of the Clayton Act in acquisition of Pacific Northwest, also a natural gas company. After trial and oral argument, the district court announced from the bench, without an opinion, that judgment would be for the defendants, and thereafter the court adopted verbatim the findings of fact and conclusion of law submitted by defendants. On direct appeal, the Supreme Court reversed and directed divestiture of Pacific Northwest by El Paso. The Court stated that the production, transportation, and sale of natural gas within the State of California was the relevant market. The Court held that the sole question presented was whether, on the undisputed facts, the acquisition had sufficient tendency to lessen competition in that market to constitute a violation of the Clayton Act, in view of the circumstances of the case. The Court noted that the test of anticompetitive consequences to be applied in such a case, as enunciated in Brown Shoe Co. v. United States, 370 U.S. 294, is whether the assailed action had the probability of the forbidden result. It said that Congress was not concerned with mere "ephemeral possibilities" and did not require certainty, but that it did seek to prohibit mergers "with a probable anticompetitive effect." The Court summed up the crucial facts of the case as follows:
"Pacific Northwest, though it had no pipeline into California, is shown by this record to have been a substantial factor in the California market at the time it was acquired by El Paso. At that time El Paso was the only actual supplier of out-of-State gas to the vast California market, a market that expands at an estimated annual rate of 200 million cubic feet per day. At that time Pacific Northwest was the only other important interstate pipeline west of the Rocky Mountains." 376 U.S. 658-659.
The Court also set out a number of other important facts, including these: Pacific Northwest had entered into a contract with El Paso to [*551] supply El Paso with 250 million cubic feet of gas per day for the California market, and had advised its stockholders that this deal would protect the market of Pacific Northwest against future competition and would protect El Paso's California market against future competition. After this deal was frustrated by refusal of Federal Power Commission approval, Pacific Northwest actually tried to enter the California market. It reached an agreement with California Edison, the largest industrial user in southern California, to supply natural gas to Edison. El Paso succeeded in frustrating and terminating that agreement, and thereafter it made arrangements to acquire Pacific Northwest. The Court remarked that the natural gas industry is a regulated one with few suppliers and few distributor-customers in a given market. It also noted that subsequent to the acquisition of Pacific Northwest by El Paso two interstate pipelines, previously not as close to the California market as Pacific Northwest, had entered and were then serving that market. In all these circumstances, the Court held that the elimination of the competition of Pacific Northwest, although it was only potential competition in the California market at the time of the acquisition, amounted to probable lessening of competition sufficiently substantial to violate the Clayton Act.
12. In F.T.C. v. Procter & Gamble Co., supra, the Supreme Court sustained an order of the FTC requiring Procter & Gamble Co. to divest itself of Clorox Chemical Co., which it had acquired, on the grounds that the evidence in the record before the Commission was adequate to sustain the Commission finding that the acquisition might substantially lessen competition. Basing its holding on the record before the Commission, the Court mentioned the following points as significant. The acquisition is not usefully described by the conventional labels of "horizontal" or "vertical" or "conglomerate," but may most appropriately be described as a "product extension merger." The relevant market was that of household liquid bleach. At the time of merger, Clorox, the acquiring company, was the leading manufacturer in the relevant market, was the only firm selling nationally in the relevant market, had 48.8 percent of the national sales, and had been steadily increasing its market share during the preceding 5 years. Its nearest rival sold only 15.7 percent of the product in the relevant market, and other indicia showed Clorox had even greater dominance of the relevant market than indicated by its percentage share. Procter, the acquiring company, was active in the general area of soaps, detergents, and cleansers, and was the dominant factor in this market area. In addition, Procter was the Nation's largest advertiser. As such, Procter receives substantial discounts from advertising media, and enjoys substantial advantages in advertising and sales promotion. It can and does feature several products in its promotions and advertising, thus enabling it to give each product advertising a fraction of the cost per product that a one-product firm would incur. Procter's primary product line, packaged detergents, is used complementarily with liquid bleach, the Clorox line, in washing clothes, fabrics, and in general household cleaning. These products are closely related from the consumer's viewpoint, are low-cost, high-turnover items, and are marketed through the same [*552] channels. The Court noted that "Since products of both parties to the merger are sold to the same customers, at the same stores, and by the same merchandising methods, the possibility arises of significant integration at both the marketing and distribution levels." By the acquisition, Procter achieved a dominant position in the relevant market quickly. Retailers might be induced to give preferred shelf space to Clorox since it was a Procter product, and the practical tendency of the merger would be to transform the liquid bleach industry into an arena of big business competition only, with the few small firms falling by the wayside. Further, the merger would seriously diminish potential competition, since prior to the merger Procter was the most likely prospective entrant into the relevant market, and absent the merger would have remained on the periphery. On these, and additional facts, the Court held that the Commission finding of a probability of substantial lessening of competition was warranted and ordered the Commission order affirmed and enforced.
13. The foregoing antitrust merger precepts will be taken into account. We shall also consider discussions of the subject such as Turner, "Conglomerate Mergers," and section 7 of the Clayton Act, 78 Harv. Law Rev. 1313 (May 1965), which point up some relevant criteria (e.g., whether the market is an oligopoly one; whether the merging firm is at the edge of the market and recognized by those in the market as the most likely entrant, or one of a very few likely entrants, with barriers to entry by new companies or other established firms being significantly higher; and whether the barrier to entry by the firm in question is so high that the price it must expect to obtain before it would come in is above the price that would maximize the profit of existing sellers). We recognize, however, that however helpful such discussions are, the critical considerations are the Court's pronouncements and their application to the facts of this case, and, specifically, whether ITT, absent the merger, was a likely entrant into this market.
14. Turning to the facts of this case, the evidence establishes that ITT became interested in acquisition of television broadcasting facilities sometime in the latter part of the year 1963. Numerous studies of the broadcast industry and of individual stations and of group or multiple owners were conducted or received by various officials in the ITT management. These studies included stations and groups of stations that ITT might be interested in acquiring as well as groups and stations which were apparently included only for background information. The studies included financial data on the television broadcasting industry generally and on all three of the television networks. It is fairly clear from the evidence that, as Geneen, the executive head of ITT testified, ITT was interested in making "a sizable entry" into television or none at all (Tr. 1892). Some tentative inquiries or approaches were made to station owners, but no determined negotiations for acquisition of television properties were pursued by ITT until it began negotiating with ABC.
15. The studies prepared for ITT emphasized that the television market was limited both by the necessity of securing FCC permission to enter and also by the economic limitations of network outlets, advertising, and product or programming (e.g., J-196, J-209, J-219, [*553] J-238). A study that was presented to the ITT board at the time it considered the ABC acquisition stated: "The same station scarcity factors that make ABC's coverage disparity relatively permanent insure that the industry is closed to a fourth network. * * * As a practical matter the number of networks is limited to the present three." (Roth Gerard & Co., report in J-238.) The characterization of the economic situation in the television network market as a "two-and-one-half network market" was well known to ITT management (J-219). The responsible officials of ITT testified unequivocally that ITT had no interest at any time in, and no intention of, making an independent entry into the television network market. This was testified to by Geneen (Tr. 1837-1838, 2026-2027); Perry, executive vice president and treasurer of ITT (Tr. 1439); Kenmore, ITT vice president (Tr. 1236), and is supported by other testimony and evidence. There is a complete lack of any evidence that ITT at any time contemplated independent television network entry, and the evidence is clear and convincing that it did not contemplate such action. We conclude on this record that ITT would not, in any event, have attempted independent entry into the television network market.
16. The Department argues that a company which owns and operates a number of television stations in major markets without network affiliations, and which has the economic resources to do so, "would be a likely potential entrant into networking." (Department findings 1.27.) It is known to the Commission, both from its own records and publications of which it takes official notice, that there are substantially more than one hundred so-called "group owners" of television stations, many of which are companies of very substantial resources, some exceeding those of ITT, and which would be, by this test, "likely potential entrants into networking." See "Television Factbook," 1967 edition No. 37, page 109-a et seq.: "Broadcasting," 1967 yearbook issue, page A-159 et seq. Without suggesting any inferences as to their competitive intentions or status, we note that group owners and operators of television stations include such companies as Avco, Capital Cities Broadcasting Co., Chicago Tribune-New York News, Chris-Craft Industries, General Electric Co., Westinghouse Electric Co., Cowles Communications, Hearst, Kaiser, Metromedia, Newhouse, Post-Newsweek, RKO General (General Tire & Rubber Co.), Scripps-Howard, Storer, Time-Life, and others.
17. Applying the standards discussed in paragraphs 9-13, we believe that this merger does not involve any anticompetitive consequences in the relevant market and is not precluded by any of the precedents or principles urged upon us. None of the elements found by the courts in the cases discussed above to indicate a probability of anticompetitive consequences is present in this case. ITT was not at the edge of the relevant market or even among the dozen or more most likely entrants into that market. It did not have any know-how or capacity in the relevant market. It had very limited relations with any of the customers in that market. It had no compelling reason for entering the market. ITT is not dominant in any domestic market, and is not in the domestic broadcasting market at all, either as a manufacturer of transmitting or receiving equipment or otherwise. ABC [*554] is not dominant in its market, but, on the contrary, is by far the weakest of three network competitors. ITT and ABC do not do business in the same manner, in the same markets, or with the same customers. ITT will not become dominant in any market by this merger, and this merger will not give ABC dominance in any market. The merger will not change the nature of competition in the relevant market. Of all of the criteria stated or used in the authorities discussed above, the only one that has any application or relevance to the present situation is that the relevant market is oligopolistic because of the economic limitations of the demand for network advertising, the supply of network product or programming, and the technical limitations of network outlets.
18. Whether or not ITT might have entered the broadcasting field as the owner and operator of another group of television stations is not pertinent to the matter here under discussion. n1 The record is clear and convincing that ITT did not contemplate, lacked the know-how, inclination, and incentive, and would not have undertaken an independent entry into the national television network market absent the present merger (or merger with another network), and, further, that there are many much more likely independent entrants into the television network field. Therefore, under applicable economic and antitrust principles, the merger has no probable anticompetitive effects, involving either actual or potential competition, in the relevant market.
n1 Despite the Department's acknowledgement that the relevant market is the network television broadcast market, it is urged that ITT might also have contributed to the public interest, simply by becoming a group owner. But no showing has been made how the substitution of ITT for some other group owner (such as Capital Cities, Storer, etc.) would result in any significant benefit to the public interest. The matter of benefit, if any, from such substitution of ITT for a present group owner would appear to be wholly speculative on this record.
19. The second issue is whether the merger will have anticompetitive effects in eliminating ITT as an entrant into CATV and related activities competitive with broadcasting, and whether this would be contrary to the public interest. The extent of ITT's involvement in CATV or in an interconnecting CATV network as well as in pay-TV was extensively explored during the course of the supplemental proceeding. The evidence is clear that prior to 1964, Kellogg Credit Corp., an ITT subsidiary primarily engaged in the business of financing sales of ITT equipment to independent telephone operating companies, advanced construction loans for four CATV systems and one microwave common carrier system located in various parts of the country, which loans as of March 1967 totaled $1.5 million. The evidence as also clear that from late 1964 through 1965, Federal Electric Corp. (FEC), an ITT engineering service subsidiary, embarked upon a program of expansion into the CATV business in a finance/service capacity; i.e., it would lend money through Kellogg to CATV systems for construction purposes.
20. In 1965, FEC became interested in obtaining stock interests in the companies whose facilities it constructed. Loan commitments were entered into with six CATV systems, in widely separated locations throughout the United States, totaling as of April 1967 approximately $8 million (Tr. 975, J-335). Although the terms of these [*555] commitments were not identical, they generally provided for FEC's receiving as security for the loan first mortgages on the equipment involved, pledge agreements covering all of the stock of the operating company, stock warrants (or in some cases convertible debentures) for future purchases of the stock in the operating company, or arrangements convering first refusal rights whereby FEC might purchase the balance of the stock of the operating company.
21. While various officials at the operating levels of ITT were optimistic and enthusiastic with respect to the potential of CATV, the record establishes that there was increasing concern by ITT's top executives in regard to ITT's involvement in CATV. On October 27, 1965, Geneen placed Vollbrecht, one of his special assistants, in charge of overseeing CATV with instructions to report back directly to him. On November 1, 1965, Geneen called a general meeting to discuss the many problems which were developing from day to day in the CATV field. This meeting was held on November 2, 1965, was attended by a large group of ITT executives, lasted 3 or 4 hours, and resulted in Geneen's placing a freeze upon FEC's involvement in CATV; i.e., FEC was limited to its existing CATV commitments pending future review. A CATV committee was created with Vollbrecht as one of its members. On January 5, 1966, a recommendation to continue the freeze was made by this committee. Geneen accepted this recommendation and the freeze has never been lifted. FEC phased itself out of CATV activity and turned its unfinished commitments over to a new CATV division established under Vollbrecht's authority. At the present time, ITT is making efforts to dispose of its interests in these systems.
22. It is the position of the Department of Justice that ITT's interest in CATV would have continued but for the ITT-ABC merger, that ITT was interested in the possibility of creating a nationwide CATV network and would have entered into related fields such as pay-TV to the point where ITT would have provided substantial competition to television broadcasting. The Department contends, therefore, that the proposed merger is detrimental to the public interest, since it would eliminate this potential competition.
23. We believe the evidence of record demonstrates that it was the problems which surrounded the CATV industry and not the possibility of a merger with ABC which led ITT, on November 2, 1965, to impose a freeze on new CATV commitments. These problems, enumerated by Chasens, FEC's president, included such matters as the copyright issue, the lease back problem with A.T. & T. in connection with pole rentals, the need for microwave grants subject to FCC regulation, the slow payback of CATV systems, the fact that there were very few exclusive franchises, the possibility of offending customer telephone companies, the lack of attractiveness of FEC's financial package with Kellogg, the effect of satellite transmission on CATV, regulation by State public utility commissions, and the possibility of FCC regulation of all CATV's (Tr. 919-923, J-119).
24. The testimony is clear that, during the November 2 meeting, there was no mention whatsoever of ABC. It was not until November 16, 1965, more than 2 weeks after this meeting, that Geneen and [*556] Goldenson spoke concerning the possibility of resuming the negotiations which had been broken off the previous February (Tr. 1587-1591). The first serious resumption of these negotiations occurred on November 23, 1965 (Tr. 1810-1812).
25. Similarly, it appears that the January 5, 1966, decision of ITT's CATV committee to continue the freeze was not premised on the posibility of a merger with ABC. Vollbrecht's approach to CATV was strictly on its own merits. He never discussed this question with anyone at ABC, never discussed with Geneen the effect of ABC on ITT's operations and plans, and did not know or even attempt to ascertain ABC's position on CATV before the Commission. n2 The evidence indicates that Vollbrecht felt that this was not an activity suitable for ITT, because in his view CATV systems are fundamentally local, nothing can be gained by ownership of several systems, each is small, and each requires a lot of management time (Tr. 994).
n2 Vollbrecht wrote a CATV status report for Geneen in December 1965, stating, among many other things. "We are aware of the need of cooperation with ABC and plan to work out the details of this as soon as our internal planning has been completed. We also plan to request their audit of our decision to go or no go" (J-126, p. 4). Vollbrecht explained that he would so check with any company in the ITT system which would have an interest or potential interest in the area, and was assuming that ABC would become a part of the ITT organization. The reason for the specific check with ABC was because of the latter's expertise in the communications field. Vollbrecht stated, however, that he did not feel a present need to cooperate with ABC, but only felt this would become necessary when and if ABC became a part of the system (Tr. 969-973). This statement is supported by the critical fact that Vollbrecht did not, in fact, check with ABC.
26. Nor do we believe there is any substantial evidence to support the Departments position in regard to the possibility, but for the merger, of ITT's having created a nationwide CATV network which would have been competitive with broadcasting. The Department's contention is based upon a June 1965 "overview" FEC staff memo. But this "think piece" was, of course, discarded by the January 5, 1966, decision, on the basis set forth in the prior discussion. Further, there is not only no evidence in this record that such a network would be technically or economically feasible but, more important, there are very fundamental policy obstacles. Such a network would require Commission authorization and, as apparently visualized by the Department, would run counter to Commission policy as established in our Second Report and Order, 2 FCC 2d 725 et seq., and the rules promulgated pursuant thereto, particularly section 74.1107. The future growth of CATV, along the lines suggested by the Department, is also rendered uncertain by copyright developments (see (Fortnightly Corporation v. United Artists, F. 2d (C.A. 2d)), and may be largely shaped by congressional enactment (see, e.g., H.R. 2512, 90th Cong., 1st sess.). Further, we know that there are hundreds of companies engaged in the CATV business, including a number with resources comparable to those of ITT. This is known to us from our own records, but these facts are also available in standard publications (see "Television Digest," 1967 CATV Log; "Broadcasting," 1967 yearbook issue, p. A-122 et seq.; "Television Magazine," March 1967 issue). The numerous companies now engaged in the business are ready, willing, and able to expand it as fast and as far as they are permitted to do so by Commission regulations and orders and economic demand. In the circumstances, we believe it unrealistic to suppose that [*557] the activities of ITT could have any significant effect in expanding the role of CATV as a competitor to television network broadcasting beyound what it will be without he participation of ITT.
27. We have carefully considered all of the evidence on this issue and conclude therefrom that the proposed merger has not deterred ITT from entering into CATV or into any related activities. Rather, we find that ITT's decisions in this regard appear to have been made independently as business judgments. Even assuming that at some future time, the decision would be reviewed and reversed by ITT (a very substantial contingency), there are the future contingencies of establishment (1) of a new Commission policy in this area (see par. 155, Second Report) and (2) of a new policy in the CATV copyright field, permitting the importation of distant signals into major markets or combined CATV-wire-pay-TV operations in such markets. In short, we have multiple contingencies in this respect, and when this is weighed with the consideration that there are other large firms eager and waiting to enter this area (see above paragraph), we find that the detriment to the public interest is so speculative as to weigh only slightly, at most, in the public-interest determination to be made.
28. The record also fails to demonstrate that ITT had an interest in pay-TV, which, but for the merger, might have led it to enter this field. The major evidence in regard to this matter can be found in the statements and writings of Arthur Levey, president of Skiatron Electronic & Television Corp., which holds a patent upon a pay-TV system. The record indicates that Levey was seeking a financial backer for his corporation which had already lost approximately $1 million and whose operations in California had been stopped as a result of a referendum which outlawed all pay-TV by wire in that State. The testimony of Chasens and Vollbrecht and documentary evidence, such as appendix B to the Roth Gerard report (J-238), demonstrate that ITT was never seriously interested in pay-TV.
29. The third issue raised by the Department is whether the integration of ABC and ITT will retard the development and application of technological innovations which would facilitate new entrants into network broadcasting. The technological developments of such nature particularly mentioned by the Department are applications of satellite communications and the development of cable networks. The Department argues that ITT is a leading communications technology firm, that the large investment ITT will make in present networking techniques by acquiring ABC will remove its incentive to develop new techniques, and that the merger will thus have a tendency to retard technological development in the network market.
30. There is no dispute among the parties, the record clearly shows, and the Commission is aware that ITT is a large company with extensive resources in some fields of communications technology, including satellite communications. ITT engages in extensive research and development both in the United States and abroad in telecommunications and other fields of technology, products, and services. In this country, ITT is one of the principal contractors with and suppliers to Comsat. However, in this country ITT is not engaged in the development, [*558] manufacture, or distribution of any equipment in the field of broadcasting, and ITT has not engaged in or contributed to the development of broadcasting technology here.
31. The Commission is well aware, and standard reference sources of which we take official notice show, that there are literally hundreds of manufacturers of equipment in or related to the broadcast market operating in the United States at the present time. This number includes numerous large companies such as Admiral Corp., Ampex Corp., Bell & Howell, Bendix, Collins Radio, Cornell-Dubilier, Delco Radio Division of General Motors, Eastman Kodak, E.I. du Pont de Nemours, Emerson Television & Radio, General Electric, Kaiser-Cox, LTV (Ling Temco Vought), Lear Siegler, Minnesota Mining & Manufacturing, Motorola, North American Philips, Philco-Ford, RCA, r/aytheon, Sylvania (General Telephone & Electronics), Texas Instruments, Westinghouse, and Zenith, to name only some of the largest, including a number that are larger than ITT. There can, consequently, be no claim that ITT is one of only a few manufacturers in, on the edge of, or capable of contributing to technology in the broadcasting field or related fields. In addition, the record makes clear that the basic technology of satellite and cable communication is well known, and that many companies are quite capable of developing and producing equipment for which there is a market demand.
32. As recognized by all those who testified as experts on this subject, the use of satellite and cable techniques for broadcast transmission and dissemination raises broad social, economic, and political problems, some of which are now under consideration in Congress and before the Commission. These issues will be resolved by the decisions made by Congress and the Commission, and not by the entry or lack of entry into the field of any single company.
33. We note also that most of the important work and significant technological advances have been the product of large companies with broadcasting interests, of which RCA has been the foremost. See W. Rupert MacLaurin, "Invention and Innovation in the Radio Industry" ("M.L.T. Studies of Innovation." Macmillan 1949); Tr. 3990 et seq. NBC is, of course, a subsidiary of RCA, and CBS also has a laboratory division which engages in research and development of new technology and products in the field of broadcasting and which produces equipment both for CBS and for sale to other broadcasting stations. ABC is the only one of the three television networks without research, development, and manufacturing facilities in its own field. ABC by itself is not in a position to secure substantial research and development work in the field of television technology, either through establishment of its own research facilities or from some other company for which it is merely a prospective purchaser of equipment. The detailed financial data regarding the ABC television operation which were introduced into the record, examined and analyzed at length, and which are discussed below, make this abundantly clear. As a result, ABC has secured most of its broadcasting equipment from RCA and is dependent upon RCA, or other suppliers, for its equipment and technology.
[*559] 34. Prior to the merger agreement, ITT had not engaged in the manufacture, sale, or distribution of any broadcast transmission or receiving equipment in the United States. The fact that ITT has not entered the broadcast equipment market in this country and that much of the telecommunications market involving telephone equipment is virtually closed to ITT by reason of vertical integration of operating and manufacturing companies indicates that the economic incentives to enter this market do not exist in the absence of the proposed merger.
35. The testimony of ITT officials, the exhibits, and the actions taken by ITT since the merger agreement are persuasive that merger with ABC will provide ITT with an economic incentive to engage in research and development of technology and manufacture of some equipment that will be of use to ABC and will help to keep ABC in the forefront of technological development in the field. For example, the immediate problem of ABC with respect to audience coverage arises in substantial part from the fact that there are a number of markets (18 out of the top 100, plus many more in the smaller markets) in which there are only two VHF stations. As the older and stronger networks, NBC and CBS have a substantial advantage over ABC both in station affiliations and in clearance of programs in markets with two dominant stations. The spectrum allocation is such that it is not possible to assign additional VHF channels to these markets. However, a large number of UHF channels are available and it is anticipated that ultimately there will be three or more television stations -- including both VHF and UHF -- in all major markets. But with present technology and equipment the VHF stations generally have a wider range of reception, are more easily tuned on a home receiver, are more economical to operate, and have other operating advantages. Therefore, the hope of providing three full television network services to all major television markets depends upon the development of UHF technology so that UHF transmission and reception is equal to VHF in all significant respects.
36. This fact has been recognized by both ABC and ITT and both have pledged efforts to improve and develop UHF technology and to utilize UHF station outlets for ABC where that is practical. These statements are not mere pious declarations of good intentions but represent some very specific promises and proposals, which obviously serve the economic interests of the parties. A memorandum by the ITT technical director discussing the problems of UHF lists the following projects as technological tasks which ITT can undertake to help solve the problems of UHF and of ABC coverage:
(a) The substitution of high-power solid state devices for the present transmitting systems;
(b) The design of cheaper and more efficient very wide band receiving antennas which will operate over the whole VHF/UHF spectrum;
(c) The improvement of UHF coverage by the application of technical know-how to transmitter site selection;
(d) The improvement of technology to fill in UHF shadow areas and to provide improved UHF translators;
(e) Automation of transmitting equipment to help reduce UHF transmission costs and thus help to equalize it economically with VHF;
(f) The development of a new type of foam dielectric cable which will reduce the transmission loss over the whole UHF hand down to the levels of the VHF band;
[*560] (g) The development of a complete set of components which will provide television receivers with electronic tuning and give identical performance for all VHF and UHF stations, with pushbutton tuning for all stations.
The memorandum claimed that ITT had completed the design of the varactor diodes, which are the tuning elements in the system, and that it is the only company making varactors with adequate performance over the whole frequency band (J-262). The memorandum also stated that the ITT laboratories would be used to solve many of the other immediate problems of ABC and to provide technical know-how to help lead broadcasting into such possibilities as direct television broadcasting from satellite to home; utilization of modulation techniques, such as pulse code modulation; the development of large screen, three dimensional television; microminiaturization of studio and transmission equipment to allow convenient coverage of all types of dispersed news or national events; and the development of techniques of broadcasting hard copy printouts, such as newspapers, to the home.
37. Based on the past and present state of the market situation in broadcasting and related fields, there is little, if any, likelihood that ITT will develop new technology or products for the American broadcasting market if it is prevented from engaging in this merger, whereas it will have a strong incentive to undertake technological research and development in these fields if it is permitted to merge with ABC. Considering also the technological and financial capability of ITT, which all parties concede, and the specific projects and tasks which it has already initiated or planned in order to meet the technological problems of ABC and to advance the technology of broadcasting in anticipation of this merger, we conclude that the merger will greatly strengthen ABC technologically, will produce increased research and technological development in this field by ITT, and thus will result in significant and important technological advances that the American public might otherwise be denied. We further stress that representations by ITT of technological development in the UHF field are regarded as binding, for the critical period ahead, and we have conditioned our action today to assure their effectuation.
38. From the viewpoint of competition in technology, it seems apparent from the record that the merger will result in the entry of ITT into the market of broadcasting equipment and technology in this country for the first time. Thus the merger will bring additional and increased competition to the technical side of the television broadcast market. It is impossible to determine from this record, and no doubt the parties themselves cannot predict with any assurance, how far ITT will enter the American market for broadcast equipment. However, in the UHF field, that entry must be substantial (see par. 37, supra), and any entry by ITT into this market will bring an additional competitor and an increase in competition. Consequently, with respect to this aspect of the case we conclude that the evidence permits no conclusion other than a benefit to the public interest, however viewed, from the proposed merger.
39. The fourth issue is raised by the Department's contention that the proposed merger is likely to eliminate the independence of ABC in regulatory proceedings and commercial situations. The Department [*561] argues both that the ITT form of organization will prevent ABC independence and that the interests arising out of the relationship will preclude an independent position by ABC.
40. The evidence supports the conclusion that the ITT organization generally operates with centralized controls, particularly in financial matters, over the ITT subsidiaries. An oversimplified description is that ITT subsidiaries operate through their own officials, or line personnel, but are subject to coordination or supervision by ITT staff officials who intervene between them and the top ITT executives. However, the evidence is clear and uncontroverted that the usual relationship between ITT and its other subsidiaries will not be the pattern for the relationship between ABC and ITT. ITT recognizes and emphasizes that its relationship to ABC will be unique, and the officials of both companies have undertaken to establish a relationship based upon contract between the parties and upon explicit representations and assurances to the Commission to insure the independence of ABC after the merger. In the light of these circumstances, the relationship between ITT and its other subsidiaries is not controlling or particularly significant, and it becomes necessary to examine the proposed relationship between ITT and ABC.
41. After the merger, the membership of the ABC board will remain the same with the addition of two ITT officials, Geneen and Perry. The ABC board will then number 16. The ABC executive committee will be expanded to seven by the addition of Geneen and Perry. The present ITT board of 16 will be increased by four, two of whom will be Goldenson, president of ABC, and Siegel, executive vice president of ABC, plus two more ABC directors designated by ABC and approved by ITT who are not employees of ABC. The ITT executive committee of 10 members will be expanded by three to include Goldenson and the two ABC directors designated by ABC. The contract of merger provides that the members of the ABC board, executive committee, and management, as constituted immediately after the merger, will be maintained for a minimum of 3 years, except in the event of refusal or inability of an individual to serve, or unless there is material deterioration in the business or financial position of ABC in relation to the broadcasting and theater industries. It is intended that the arrangements between ABC and ITT will continue indefinitely, although the contractual obligation is for 3 years.
42. After the merger, seven of the 16 members of the ABC board will be directors of both companies and officers of one or the other, and nine members of the ABC board will be "outside" or "independent" directors who are not employees of either company. The Broadcast Bureau suggests that the addition of two of these independent directors of ABC to the ITT board will result in the ABC board having nine members who are affiliated with ITT and, thus, having less than a majority of independent directors. However, we believe that adding two of the ABC independent board members to the ITT board does not compromise the independence of such directors. The independence of these board members derives from the fact that they are not employees of either company, that they are not involved in the day-to-day operations of either company, that they have independent business status [*562] and associations outside either company, and, thus, that their judgment as directors will have a freedom and freshness that may be different than the viewpoint of corporate executives or employees. The fact that two of these independent directors will become familiar with the overall problems of both companies will not impair their independence, and they may have added prestige and influence as members of the ITT board which may serve to enhance the independence of ABC. Moreover, we know as a matter of common knowledge and experience with such organizations that matters of major concern to companies of this kind are not resolved by a bare majority of votes on the board of directors. Generally, as was repeated throughout the testimony, the answer to particular problems is dictated by the facts ascertained by those charged with responsibility for decision. Where the facts do not show a conclusion clearly enough to secure a consensus among the directors, prudence in discharging the fiduciary duties of the directors would suggest the necessity of securing further information before reaching a conclusion.
43. With respect to the consideration of specific problems and matters it was clear from the testimony of both Goldenson and Geneen that they are in complete agreement as to the desirability of full cooperation, an intend and expect to maintain such a relationship that problems will be resolved by investigation, consideration, and agreement. The ABC budget is regularly and automatically considered and approved by the ABC board, and this will continue. Only extraordinary expenditures, such as expansion of ABC into a new field or expenditures of tens of millions of dollars for new facilities, would be referred to the ITT board. In any event, there will be no group executive between ABC and the ITT board, and the president of ABC and other members of the ABC board will have direct access to the ITT board. The testimony of all those involved is clear that ordinary ABC operations will continue to be conducted and directed by the ABC organization as at the present, and that only extraordinary matters will be referred to the ITT board. Commonsense and common knowledge of corporate organization and operations tell us that a board of directors of an organization such as ITT cannot and will not be concerned with matters of detail or with supervision of business operations. Consequently, the form of organization which will be adopted which permits ABC to operate subject only to supervision by the ITT board is some assurance that ABC will continue to operate with a substantial degree of autonomy.
44. The relationship between ABC and ITT and other subsidiaries of ITT with respect to possible areas of conflicting interest was stated in writing in an ITT policy guide issued November 1, 1966 (AR-4). This policy statement may have particular significance, since it was issued after the first Commission hearing and before there was any intimation that the Department might seek to intervene in the Commission proceeding or challenge the proposed merger. Thus, this policy statement does not appear to have been formulated or issued with any view to its evidentiary effect in these or other proceedings. The policy of ITT with respect to ABC activities in this field is stated as follows:
[*563] The network and broadcasting operations of ABC shall be kept separate from other ITT operations and shall be carried out by its duly appointed officers and employees, whose performance will be measured solely on the basis of the results of those operations. The operations of ABC as a broadcast licensee shall be performed unaffected by commercial, communications, or other similar interests of other ITT system companies or groups. Thus, for example, if in the opinion of ABC management, charges proposed for communications services by ITT World Communications, Inc., are subject to protest to the FCC, such protest shall be filed and vigorously maintained until disposed of by the Commission. Similarly, ABC shall independently determine its position on particular satellite or other communications questions and present its views to the FCC as to how the Commission should resolve such issues, and any other interested ITT system company or group shall similarly formulate and present its views to the FCC or to other governmental bodies or agencies considering the question without regard to the interests of ABC as a broadcaster.
As a matter of record in this proceeding, ITT committed itself to advise the Commission in writing in advance before any change is made in the policy statement regarding the relationship between ABC and ITT of which the foregoing is a part (Tr. 3285). The Commission is relying on the policy statement of ITT regarding ABC, issued November 1, 1966, in its consideration of and action upon these applications. In view of all these circumstances the Commission concludes that it may reasonably rely upon this statement as a statement of the independence of ABC in these matters.
45. In any event, even were we to assume, arguendo, that ABC will not operate with the claimed degree of autonomy over the long run (or in the coming years), that consideration does not raise the specter of substantial detriment to the public interest. The top management of ITT is of such character and ability that their participation in ABC's important policy discussions will be a plus, not a minus. And while there would be countering adverse consequences, analysis shows that they are not of a substantial nature. The issue raised by the Department with respect to ABC independence is stated in terms of independence in regulatory proceedings and with respect to commercial bargaining. However, all of the specific matters referred to in the argument concern matters, such as common carrier rates, which are subject to determination by the regulatory action of this Commission. In the Commission decision we noted the possibility of conflict between the broadcasting interests of ABC and the common carrier interests of ITT. The decision pointed out that such conflict related only to international operations, since ITT is not a domestic common carrier, and that the overwhelming proportion of a domestic network's common carrier usage is domestic, not international. On consideration of all the factors involved, the decision concluded that there might be an area of conflicting interest (decision, par. 37). Based upon the supplementary record and proceedings, we agree that there is a possible area of conflict. But any detriment here to the public interest is not of a major nature because of the small area of conflicting interest.
46. The Department now argues also that in some general way ABC may be limited in seeking technology, equipment, and services. The Department asserts that "* * * if large users of communications technology are integrated with technology firms, the result will be a [*564] lessening of competition in important areas of research and development related to broadcasting" (Department brief, p. 52). One answer to this argument is that the experience of the past is clearly to the contrary. The advances in broadcasting and communications technology in this country have been made by firms which were integrated organizations of communications operating firms and research and manufacturing enterprises in communications technology. The Department itself has accepted this view by its course in the telephone field. By consent decrees and other action or inaction indicating acquiescence, both over the years and during the period of pendency of this proceeding, the Department has permitted the telephone research and equipment manufacturing industry to be integrated with the telephone operating companies in this country to a degree that forecloses well over 90 percent of the market to any entry by an "independent" company, such as ITT. This market is vastly larger than the market for broadcasting equipment and technology, yet, as previously pointed out, there is a considerable amount of competition left in the broadcasting equipment field, which will be increased, rather than decreased, by the proposed merger in the circumstances disclosed by this record.
47. No other situation is suggested by the Department, disclosed by the record, or occurs to us in which there is likely to be any conflict between the interests of ABC and ITT in a commercial situation. The record makes clear that all ITT subsidiaries are expected to purchase equipment, supplies, technology, and services where they can do so most economically and efficiently from the viewpoint of their own operations, without regard to other ITT affiliates. The specific independence of ABC in this respect is included in the policy statement referred to above. In all other matters that are of immediate and direct concern to this Commission and the public interest it appears that the interests of ABC and ITT will coincide rather than conflict. It is clearly to the interest of both companies to have a strong, efficient, economically operated, and technologically advanced television network. Neither company can afford to permit ABC to lag behind in utilizing whatever advanced technology may be developed. Indeed, one of the most important aspects of the proposed merger is that it will permit ABC to cope with advancing technology and maintain a competitive position which it might be unable to do otherwise. The assurance of financial strength and stability, and the availability of strong and extensive research and technological capabilities, are likely to strengthen the independence of ABC in commercial situations, as compared with its present position of dependence upon its competitors for technology and equipment.
48. The fifth issue raised by the Department is the contention that the merger is likely to create obstacles to competition in the television advertising market -- presumably the national network television advertising market, since that has been recognized by all parties as the obviously relevant market. The Department argues that the potential effects of the merger in the field of television advertising may be through "the foreclosure of ITT's advertising expenditures and the foreclosure of television advertising placed by ITT's suppliers" [*565] (Department brief, p. 53). This is explained to mean that ITT subsidiaries may be induced to place their advertising with ABC, rather than with some other television network, and that the "merger also gives rise to the opportunity for substantial reciprocal dealing between ABC and the suppliers of ITT." The Department argues that "no coercive reciprocal program need be adopted" by the parties and that a "market structure" which gives rise to an opportunity for reciprocal dealing creates sufficient anticompetitive effects to condemn the merger.
49. The Department relies upon three cases as legal authority for its position on this issue. These are F.T.C. v. Consolidated Foods Corp., 380 U.S. 592 (1965); United States v. Ingersoll-Rand, 320 F. 2d 509 (C.A. 3d 1963); and United States v. General Dynamics, 258 F. Supp. 36 (S.D.N.Y. 1966). Each of these cases contains dicta which can be quoted to support the argument of the Department. However, these dicta are, as in all cases, uttered by the courts in the context of the facts before them in the specific case, and examination of these cases shows that none of them is apposite or even closely similar to the situation before us. In the Consolidated Foods case the Supreme Court held that the evidence sustained a finding by the FTC that the merger of a company engaged in the manufacture and sale of food in the U.S. market with a company manufacturing dehydrated opinion and garlic in this country violated section 7 of the Clayton Act. The Court said that the reciprocity made possible by the merger was one of the anticompetitive practices at which the antitrust laws were aimed. The Court held that the evidence of reciprocal dealing was plainly substantial, that the industry structure was peculiar, that reciprocity was tried over and over again by the merged companies, and that it worked. The Court also warned, "The 'mere possibility' of the prohibited restraint is not enough. * * * Probability of the proscribed evil is required, as we have noted." (380 U.S. 598.) [Emphasis in original.]
50. United States v. Ingersoll-Rand, supra, was an appeal from an interlocutory injunction against consummation of a merger prior to trial on the merits. The court of appeals sustained the interlocutory injunction. It noted that the preliminary showing was that the acquisition if consummated, would give Ingersoll-Rand the broadest line in the relevant market, which was the coal mining machinery and equipment field. Further, Ingersoll-Rand contemplated other acquisitions which would substantially reduce the number of suppliers of coal mining machinery and which would place under its control companies which had accounted for and would account for a very substantial share of the total industry output in three significant lines of commerce. These, and other facts of record, might create a sales advantage to Ingersoll-Rand in making it possible for that company to make "package deals." The court held that this record indicated sufficient probability of a lessening of competition to warrant an interlocutory injunction pending trial. It might be noted that in the present proceeding the Department has had the equivalent of an interlocutory injunction in the stay which the Commission has granted, and that the Commission is now confronted with the necessity of reaching a determination on the merits on a full record.
[*566] 51. United States v. General Dynamics Corp., supra, was a case in which the Department brought a civil antitrust action against a corporation which had merged with another corporation on the ground that the merger had resulted in reciprocity in trading in violation of the antitrust laws. The court held, after trial, that the evidence sustained the charges and directed divestiture. The detailed opinion of the court in that case shows purpose, plan, organization, action, and effective results in securing reciprocal purchasing which are so elaborate and so far removed from anything even hinted at in the present proceeding that there can be no comparison between the cases. In General Dynamics the court found that prior to the merger "there was a meeting of the minds as to the use of reciprocity," and that the opportunities for reciprocity were "the most significant advantage to be derived from the merger" by the acquired corporation. General Dynamics had a "trade relations department," the purpose of which was to increase sales through reciprocity. The court found that defendant intended to use and did use the reciprocity power created by the merger; "that both parties had the intent, at the time of the merger, to employ the anticompetitive device of reciprocity to generate sales"; that substantial amounts of commerce in the relevant market were affected; and that this had the effect of substantially lessening competition.
52. In the present proceeding there was no evidence whatever that a probable consequence of the merger would be foreclosure of the purchase of advertising from other national television networks, either by other ITT subsidiaries favoring ABC or because of reciprocity between ITT and its suppliers. The argument of the Department is based entirely on the "possibility" of such a consequence, which the Supreme Court has specifically stated is not a sufficient basis for such a conclusion. The evidence in the present record strongly tends to show that the proposed merger will not result in the practice of either external or internal reciprocity.
53. The record shows that ITT television advertising is minuscule in relation to the market. Of total television advertising in 1965 amounting to more than $2 billion, ITT purchased $523,000, or about 0.025 percent. In 1966 ITT television advertising increased to approximately $1,725,000 and it was estimated that it would increase to as much as $3 million in 1967. However, the total volume of television advertising is increasing, amounting to approximately $2.5 billion in 1966 ("Broadcasting," Mar. 20, 1967, p. 40B). It is apparent that ITT does not represent a large television advertiser or control a substantial proportion of this business. It is also significant that none of the ITT television advertising is national television network advertising, and, therefore, regardless of amount or substantiality, there is no showing of even the possibility of any effect in the relevant market from the control of this advertising.
54. The evidence with respect to the possibility of the use of reciprocity power on ITT suppliers consists only of a list of ITT's major suppliers within the United States. Of the 12 suppliers of more than $1 million of goods or services to ITT in 1966, only six were substantial purchasers of television network time. These six were General Motors, Ford Motor Co., Chrysler Corp., American Motors, Du Pont, and [*567] Gulf Oil. Each of these companies spent more on television advertising than the amount which ITT purchased from them, and the economic facts do not suggest that ITT would have or be tempted to use any economic power to influence the television advertising of these companies.
55. The record is not only totally devoid of any evidence that either ITT or ABC has ever engaged in reciprocal dealings with suppliers, but shows positively that ITT has an established policy against such practices. ITT system purchasing functions are completely decentralized, with the purchasing manager in each system company responsible for procurement and delivery of goods and services at the most competitive price. Each operating subsidiary's purchasing orders are placed locally and its purchasing records are kept locally. In order to comply with a Department request for a list of major U.S. suppliers, ITT was required to make telephone calls to a number of purchasing locations. So, by the very nature of the ITT method of functioning and organizing its business, it would be difficult to accumulate the information necessary to learn where reciprocity power might be employed, and it would be difficult, at best, for any one subsidiary to exert any leverage by its individual purchases. Moreover, to secure any reciprocity significant in terms of the proposed merger would require a number of ITT subsidiaries to act in concert to foreclose advertising from other television networks. This would be a violation of the antitrust laws. Timken Roller Bearing Co. v. United States, 341 U.S. 593 (1951); Kiefer-Stewart Co. v. Joseph E. Seagram & Sons, Inc., 340 U.S. 211 (1951); United States v. Yellow Cab Co., 332 U.S. 218 (1947); Schenley Industries, Inc. (FTC, Oct. 25, 1965), Trade Reg. Rep., paragraphs 17353, 22251. On a record which contains only evidence to the contrary, we cannot presume that these companies will engage in practices which violate the law. We also note that such action would be subject to prosecution by the Department, and would expose ABC to the sanction of license revocation or denial of renewal.
56. The nature of the supplies and products sold and purchased by ITT also militates against the possibility of the use of reciprocity in the television network market. ITT is engaged largely in the production of industrial products and services, whereas television is a medium oriented to the advertising of consumer goods and services which are subject to mass consumption. The limited number of ITT suppliers that are substantial television advertisers is noted above. The Department argues that ITT is moving into fields of consumer goods and services and that its television advertising is increasing. It asserts that this is evidence of the possibility that the merger may result in some undue or illegal advantage to ABC in television network advertising. As the trial court remarked in the Penn-Olin case, "Anything is possible." However, since the record here shows that ITT has not yet engaged in any television network advertising, such a possibility is so remote that it clearly falls below the level that entitles it to recognition in the kind of reckoning that the courts have approved for judging antitrust cases or that this Commission should follow in determining the public interest.
57. The policy guide issued by ITT on November 1, 1966, specifies in clear and explicit terms the determination of the company to avoid [*568] the practices that have been found objectionable in the cases cited by the Department. On these points, that document (AR-4) states:
No officer, employee, or agent of any ITT system company or group shall take any action or make any attempt to influence in any way whatsoever, or to interfere with, advertising by any other company or person on the ABC network or stations.
Any and all advertising purchased by ITT system companies or groups from the ABC network or stations shall be on a complete arm's-length basis, and on terms no more advantageous or preferential to such associated companies than for any other purchaser of facilities from ABC.
For reasons stated above in paragraph 44, as well as for the various other reasons stated in the foregoing discussion, we believe that this statement fairly presents the policy with respect to advertising that will, in fact, be followed by ABC and ITT in their relationship. In sum, and for the reasons set forth in the above discussion, we find no detriment to the public interest on this issue.
58. A substantial part of the supplementary hearing and proceedings was devoted to exploration of the issue of ABC's need for financial support in order to maintain its television service and improve its competitive position, and of the possible sources of the additional funds that are plainly needed by ABC. The Department claims, in substance, that ABC exaggerates its financial needs and that, in any event, ABC can secure the funds it needs from sources other than ITT. ABC made it plain that it does not claim to be a "failing company" within the meaning of the "failing company doctrine" of antitrust law. See International Shoe Co. v. F.T.C., 280 U.S. 291, 302-303 (1931). ABC does not claim that it cannot borrow or otherwise obtain funds to remain in business. It does claim that without the funds for new facilities and for programming, especially for feature films, it cannot close the gap which exists between it and the other television networks, NBC and CBS, and will be unable to maintain its present competitive position, to the detriment of the public interest. Its counsel at the hearing said that the issue came down to the question, "Is this company, which is one of the three vital networks in the United States, to be put in such a position that it cannot exercise sound business judgment for the benefit of the company because it is in hock up to its ears all the time?" (Tr. 4173).
59. The record conclusively demonstrates that ABC has been at a competitive disadvantage in relation to the other networks, that its television operations have been handicapped by this disadvantage, and that the gap between ABC and the other networks has been increasing. Whereas in 1961 the ABC television network had gross revenue of $161 million, this was $21.8 million less than the average gross revenue of CBS and NBC. (For purposes of disclosure in the record the average of NBC and CBS was taken rather than the individual figures for either network.) By 1966 the revenue gap between ABC and the other two television networks had grown to $80.7 million, which is almost a fourfold increase. The disparity in earnings has been even greater. In 1961 the ABC television network had a pretax profit of $4.7 million compared to a CBS-NBC average profit of $10 million. Beginning in 1963 the ABC television network has lost money each year. By 1966 the loss amounted to $9 million, and the profit gap between ABC and its two television network competitors [*569] had increased from $5.3 million in 1961 to $52.9 million in 1966, a tenfold increase.
60. During the last 4 years the ABC television network has lost a total of $27.6 million, and has shown a loss each year, increasing from $4.6 million loss in 1963 to $9 million loss in 1966. During the last 6 years the ABC radio network has lost a total of more than $20 million, and has shown a loss in every year. During the same period the ABC-owned-and-operated radio stations have shown some profit, but the profit of the radio stations has not been as great as the losses of the radio network. During the 6-year period, the radio operation, including the network and the owned and operated stations, lost a total of $10.9 million. The ABC-owned-and-operated television stations have shown a profit each year which has been sufficient to make the total television operation profitable. However, the television profit has not been increasing. In 1960 the profit from the ABC television operation of both network and stations was $20.5 million. The television profit was less in each subsequent year and decreased to a low of $11.6 million in 1963. After that it increased and reached $20.4 million in 1966 (BB-1). Thus, over the 6-year period from 1960 to 1966, when television costs have been increasing rapidly, the ABC television profit has not increased at all. During the same period the profits of the other two networks have considerably more than doubled. The entire profit from the ABC broadcasting operation has been put back into that operation in an effort to maintain technological and programming quality, and no money has been taken out of the broadcast operation for the payment of dividends, the servicing of loans, or other similar corporate expenses.
61. The reason for the financial need of the broadcast operation of ABC, particularly the television network operation, is the tremendous and increasing cost of television programming and equipment. Television network programs cost about $100,000 an hour to produce. ABC is now spending $135 million annually for the production of television programs. The presentation of feature films and of live variety programs, which is increasing on all networks, is increasing the cost of program production substantially. Further, it is necessary to invest very large amounts long in advance of realizing any return. In order to be competitive it is now necessary in most instances to buy feature films 3 years in advance, which, in effect, means paying for them at least 2 years in advance. It is necessary to have 40 percent of the annual programming cost available at all times to finance producers. Color production is another substantial cost, but up to the present time color programs have not brought in any additional revenue. Therefore, at least in the immediate future, this is not a revenue-producing investment. Nevertheless, it is clearly necessary to enable ABC to remain competitive.
62. Public-service programming, particularly in the entertainment and news fields, is often the most expensive and the least profitable. "Stage 67," which was an ABC venture into cultural programming, represented an effort at improving the quality of television entertainment. "Stage 67" cost nearly $10 million to produce and resulted in a net loss of $4 million. News broadcasts and public-affairs programs [*570] are loss items. In 1966 ABC lost $18 million in the production and presentation of news and public-affairs programs. Preemptions for such programs cost the company another $1 million. The 1967 budget of ABC for television news is $30 million, plus another $3 million for radio news. It is estimated that in 1968 the budget for television news will go to $40 million -- if the money is available. It is clearly in the public interest to insure that the ABC television network is permitted to operate in circumstances that will best allow it to fulfill its public-service obligations by the presentation of news and public-affairs programs and other quality television programming.
63. The problem of maintaining and encouraging television network competition has concerned the Commission for many years. In the early 1950's there were four television networks, and Dumont failed and went out of business in 1955. In 1967 a new venture, the United television network, was established, began operation, and then failed and went out of business. ABC has continuously been at a competitive disadvantage.
64. In January 1960 the Commission initiated proceedings looking toward a means of providing more nearly equal competitive conditions for ABC (docket No. 11340). These proceedings led to further proceedings in which the Commission sought to equalize conditions in "nationwide network competition" in television by adding VHF facilities in a number of the large markets that provided outlets for only two networks. The addition of such VHF facilities were called "drop-ins," and they would have been in derogation of the engineering standards that the Commission had previously established for television. The Commission finally decided that in view of the possibility of developing UHF facilities the derogation of VHF engineering standards was not warranted, and, therefore, it did not make the "drop-in" assignments and left the competitive situation as it was (Report and Order re VHF Drop-ins, 25 R.R. 1687 (May 31, 1963)). The decision was a close one. Three Commissioners joined in the Commission opinion. Then-Chairman Minow concurred in a special opinion in which he said that the fact that ABC is at a competitive disadvantage "has adverse national as well as local effects on the public interest" and urged that the Commission was required to act promptly to secure competitive equality for ABC in some other manner (id., 1696 et seq). Commissioner Cox dissented, arguing strongly that the provision of competitively equal facilities to permit the development of three fully competitive national television networks is of great importance, and that "all the people in the country suffer when the ability of one of the major national program sources to provide competitive programming is impaired because of artificial restrictions on its access to important numbers of television homes." (Id., 1700.) n3
n3 The drop-in problem came before the Commission again on reconsideration following the resignation of Minow and the appointment of Commissioner Loevinger. The position of the other six Commissioners remained unchanged, and Commissioner Loevinger cast the deciding vote against reconsideration on the basis of a special concurring opinion in which he said that he thought the dissent of Commissioner Cox was more persuasive than the original decision, and that he thought he would have voted with Commissioner Cox had he then been on the Commission, but that he voted against reconsideration because of the importance of stability and consistency in the actions of an administrative tribunal, and because he thought that a decision should not be reversed merely because of a change in membership of the agency (Memorandum Opinion and Order re VHF Drop-ins, 1 R.R. 2d 1573, 1580 (Dec. 23, 1963)).
[*571] 65. The situation has not substantially changed since that time, and ABC has continued to be at a competitive disadvantage in the television network market. In a supplementary paper to the recent report of the Carnegie Commission on Educational Television, the Department's expert witness, Goldin, stated: "Up to now, however, the method of channel assignment has been such that only two national networks could be fully accommodated, with less than complete facilities available to air the programs of the third network." ("Public Television: A Program for Action" (Bantam Books ed., 1967), p. 227; Tr. 3076.)
66. Thus, for many years this Commission has been aware of the competitive disadvantages of ABC, of the adverse effects these have had on the public interest, and has been seeking means of providing a greater degree of competitive equality. Unfortunately, the Commission has found many of the proposals made to help ABC to be impractical because they would involve derogation of technical and engineering standards. However, the Commission cannot escape the necessity growing out of its own past actions and decisions of seeking some means of permitting ABC to attain a greater degree of competitive strength, or equality, without impairing or sacrificing the standards of television transmission and reception which the Commission has established and seeks to maintain.
67. There can be no doubt that the competitive position of ABC today is worse, in some respects, than it has been in the past. The advent of color television and the increasing costs of programming have imposed great financial needs which ABC is less able to meet than its competitors. It is clear that the ABC studios, production facilities, and technical equipment are significantly inferior to those of the two competitive networks. The Department attempts to suggest that the ABC plans for colorization and modernization of its plant and equipment were merely afterthoughts, devised to convince the Commission of the desirability of the merger. We do not agree with this contention but do not find it necessary to decide that matter. The record of the supplementary proceeding establishes beyond any real dispute that ABC faces rising and substantial expenditures for both capital and operating requirements. Some of these are supported by detailed and voluminous itemized schedules. While it is always possible to raise questions about particular items in such lengthy schedules, it would appear that these financial forecasts and their supporting schedules represent responsible business judgments. n4
n4 The evidence indicates that the largest and most significant of these are broadcasting division property and equipment expenditures. These include the committee and pending costs of converting existing facilities to color and developing new complexes in New York and Hollywood. Additionally, there are projected expenditures for new broadcast program right commitments and for motion picture investments. It appears clear to us that these expenditures have been dictated by the industry-wide trend to color, the obsolescence of ABC's present production plant, and the necessity of providing high quality and competitive programming.
68. However, delineation of the exact amount of the required expenditures is not crucial to our decision. It is sufficient to note that they are substantial. Turning to the method of securing the finances for these substantial expenditures, we find that the record is persuasive [*572] that the required expenditures cannot be financed from ABC's cash generation. While ABC is already heavily burdened with senior debt, there is a substantial dispute as to whether ABC, as a practical matter, must rely on the merger for such financing, or whether it could secure significant parts of its requirements by various other methods of financing. There is no question but that the necessary funds could be most readily available through the merger, without any possible drawbacks such as loan limitations or curtailment of operating flexibility. But analysis of the supplemental record does not permit a definitive resolution of this particular facet; i.e., whether or not alternate financing is available as a practical matter and in a way not unduly inhibiting ABC's future operations.
69. In any event, it is, we think, unnecessary and inappropriate that our determination of this issue turn solely on the above facet. For it is clear that ABC, which, as the "third network," lags behind its two competitors, will be significantly aided by having ITT's financial strength back of it, in such matters as its attempts at cultural programming innovation, news and public-affairs expansion, ability to chance more or sooner primary affiliation with UHF stations. Adverse developments in these areas or new technological developments could be a most serious matter to ABC, if it were to shoulder new substantial financial burdens in addition to its already high debt ratio. Such an atmosphere would not appear conducive to risk in the public-interest areas we have described. And, as shown by "Stage 67," there are, and will always be, considerable risks in these important public-service areas. n5 In short, we think it desirable to promote the best possible environment for ABC operation, both to serve the public interest and to compete with CBS and NBC. Merger with ITT, a large diversified company with strong financial resources, does promote that environment, by making available the funds with which to take the risks and make the judgments necessary for the forward progress of ABC's news, public affairs, entertainment, and other similar programming or related endeavors. Thus, Elmer Lower, president of ABC News, stated that greater economic resources would increase, rather than decrease, the independence of the news-gathering organization.
n5 An illustration of both the significance of broadcast news reporting and of the burden it imposes upon the networks has occurred during the Commission consideration of this proceeding. The point is well summarized in a report by Jack Gould, the New York Times television critic, entitled "TV: Spotlight on Crisis," New York Times, June 8, 1967, page 87. Gould says, inter alia: "All regular entertainment programs and commercial announcements were canceled Tuesday night by the three national television networks to carry the debate in the United Nations Security Council on the war in the Middle East. The sustained coverage was a notable public service by the American Broadcasting Co., the Columbia Broadcasting System, and the National Broadcasting Co. * * * The total cost to the networks in the cancellation of an entire evening's schedule ran into the millions of dollars. though some of the revenue may later be recaptured. But the telecast constituted one of television's finest achievements. If a viewer was not aware of the dimensions of the Middle East situation at the end of the evening, it was his own fault, not television's."
70. The point which has been made above that news and public-affairs programs are not profitable and that the ability of a television network to produce and present such programs depends in large part [*573] on its financial prosperity and resources n6 is of particular importance in this proceeding. If, in the judgment of Friendly, NBC is in a more advantageous position than CBS in this respect because of the financial strength of RCA, despite the fact that the CBS television network is highly profitable, it is obvious that ABC is at a tremendous disadvantage. Finally, that the heightening of competition between the networks will serve the public interest needs no exposition. Therefore, based on our knowledge of the industry and the present network situation, we find on the supplemental record that there will be a significant benefit to the public interest in this respect.
n6 This point was made in a book by one of television's most widely known critics, Fred Friendly, recently head of CBS News. Friendly has written: "Another factor influencing news budgets -- and therefore decisions -- is that NBC is owned by the Radio Corp. of America; though the network is a highly profitable part of this giant complex, it represents less than 25 percent of RCA's net earnings. The CBS television operations are estimated to represent as much as 71 percent of the parent company's profits; therefore, $1 million spent in news coverage by CBS may affect profits proportionately more than the same expenditure by NBC affects RCA. Furthermore, RCA, which makes a great deal of money from color television sets and television tubes, prospers from 'loss leader' activities -- that is, money-losing programs which increase the sales of television sets. NBC also carries prestige programs which the RCA corporate family can afford, whereas at CBS the television divisions of the company provide its main profits." Fred W. Friendly, "Due to Circumstances Beyond Our Control * * *" (Random House, 1967), pp. 166-167; Tr. 3302-3304.
71. With the resources and backing of ITT, ABC will in a certain number of markets be able to foresake reliance upon secondary clearances on VHF stations in favor of primary affiliations with UHF stations (Tr. 4131, 4176). We take this representation as a commitment that must be carried out; we will require reports at yearly intervals for at least 3 years following the merger as to ABC's actions to carry out this commitment.
72. In addition, as noted, the merger will provide the additional benefit of technological support to ABC. The record contains ample evidence that ITT has substantial capability in the field of communications technology which it can and has committed itself to use in order to meet ABC's needs. Further, as a result of the merger, ITT has embarked upon a program to aid the development of UHF. The Department has questioned the duration of the program. The short answer is that we again regard ITT's representations in this respect as a commitment that must be fulfilled. We shall require this submission of annual reports for the 3 years following the merger, giving detailed accounts of the nature and extent of ITT's efforts, including the amounts expended and planned to be expended. The type of activities required are those already delineated in great detail by ITT (see par. 36, supra) and those of a similar nature arising in the specified 3-year period. We are at a watershed on the development of UHF broadcasting, and ITT's contribution to the achievement of the goals, upon which Congress and the American public (through the purchase of all-channel sets) have staked so much, will be made at this crucial time.
73. An important issue raised in this proceeding concerns the integrity of the ABC television network news operation. This issue was considered in some detail in the Commission decision, but the Department contends that additional evidence received in the supplemental hearing raises serious doubt about the conclusions previously reached by the Commission. The Department argues that the merger [*574] threatens to impair the integrity and independence of ABC's activities in the news, information, and public-affairs field. The ACLU has tendered a statement as amicus curiae, which we will receive and which we have considered. Essentially, the ACLU reviews the proposed findings of the several parties and relies upon those advanced by the Department to urge the same arguments made by the Department. The ACLU statement admits that there are "differences within the councils of the ACLU itself" on this case, and concedes that there may be advantages to the public interest in increased size of a television network. These advantages are stated by the ACLU to be that there may be resources for putting on the air programs that will exceed in quality and diversity what might otherwise be produced, and that there may be resources with which to resist pressures that would keep off the air what might otherwise be produced. However, on balance the ACLU fears that the dangers envisioned by the Department are more threatening than the advantages urged by the applicants and, therefore, supports the Department position. However, the ACLU candidly faces the consequences of this position and urges further that if the Commission finds that ABC is competitively disadvantaged by its resources in relation to its competitors, then the Commission should proceed to restructure the industry. The Broadcast Bureau expresses its concern about certain incidents, referred to below, but proposes the overall conclusion that:
No evidence was adduced establishing that ITT in the event of a grant would attempt to impose its position upon the journalistic activities of ABC and the record contains numerous assurances by Mr. Geneen of ITT's recognition of the importance of preserving news integrity and of the measures taken to assure ABC's continued independence in the presentation of news and public-affairs programming.
74. The Department's argument concerning news integrity emphasizes what it terms "a series of improper acts" involving certain reporters who were called as witnesses in the supplementary hearing. The testimony concerning these incidents constitutes the principal evidence added to the record in the supplementary proceeding on this issue. The three witnesses were reporters covering this proceeding for the AP, the UPI, and the New York Times. The reporter for the AP testified that while he was writing his story on the February 1 FCC order in this proceeding he got a call from his New York office that ABC had complained that the first paragraph of his story was erroneous. He did not change his story and nothing further occurred. At a later date he was called by two officials of ITT concerning another story on the case. The ITT officials stated that the story was incomplete. Aug, the reporter, told his office that if the transcript of the proceedings showed the facts to be incomplete, the office should add the relevant material to the story. The ITT officials showed the transcript to the personnel in the office and some material was added to the AP story. This was the substance of the testimony of the AP witness.
75. The UPI reporter, Stout, testified that an ITT representative called him to inquire what Stout had learned regarding the Department's intention to appeal any unfavorable Commission ruling, a point [*575] which the record leaves in some confusion but on which the Department appeared to be saying one thing to newspaper reporters and something different to ITT. This line of inquiry was not pursued by the Department. Later Stout had several calls from ITT employees which had no particular significance, and then had lunch with one of them, during which there was an apparently friendly conversation in which the ITT employee complained that there had been a "great amount of inaccurate reporting" of this case but commended Stout for his own reporting. On one other occasion ABC complained about the factual inaccuracy of a story he had written and the story was corrected by others in his organization.
76. The New York Times reporter, Eileen Shanahan Waits, known professionally as Eileen Shanahan, testified she had five or six contacts with employees of applicants but that several of these were "very brief and routine." Two incidents apparently developed into somewhat heated conversations. Gerrity, ITT vice president for public relations, came to see Miss Shanahan personally to deliver a copy of an ITT statement. They discussed various aspects of the reporting of the case, and Miss Shanahan testified that Gerrity's tone was "certainly accusatory and certainly nasty." Finally, Miss Shanahan decided that she had "about enough," so she told Gerrity she had some work to do and he left. Gerrity did not ask Miss Shanahan to change her story about the case. Miss Shanahan did testify, however, that Gerrity asked her if she was aware "that Commissioner Johnson was working with some people in Congress on legislation that would forbid any newspaper from owning any broadcast property" (Tr. 2962). Gerrity, according to Miss Shanahan, felt that this information (which we note is erroneous) should be passed on to her publisher. Miss Shanahan stated that the obvious inference which she drew from this remark was that, since the Times owns radio stations, it would want to consider its economic interests in deciding what to publish in its news medium. We find this one activity of Gerrity to be improper. But we note that it is isolated in nature, and particularly take into account that when Miss Shanahan checked with the financial editor of the Times in New York as to whether "ITT had a reputation for being this way all the time," she received a negative reply (Tr. 2971-2972). On a later occasion an ITT employee telephoned Miss Shanahan about apparently conflicting statements made by the Department concerning its intention to appeal the case if the Commission refused to reopen. Miss Shanahan testified that the ITT employee called her stories unfair, at which she became very angry and shouted at him, then said she would not listen and hung up the phone.
77. With the one exception noted and dealt with above, n7 there is no evidence that either ITT or ABC did any more than ask reporters covering the proceeding to be factually accurate in their reporting. It is clear that there was some difference of viewpoint as to what the significant facts were, and this difference persists among the parties, counsel, reporters, and others concerned with the case. There is no [*576] impropriety in approaching the press to inform or to attempt to correct supposed inaccuracies. All of the reporters testified that this is a common, even daily, occurrence for reporters. The Commission's own Fairness Doctrine is premised on the right to do just this which respect to broadcast reports of news and commentary concerning controversial matters.
n7 The July 11, 1966, memorandum from Geneen to Gerrity concerning the Nielson matter is also cited as an example of ITT's alleged improper pressure. We regard such an inquiry as wholly appropriate, nor do we see anything amiss in raising the possibility of referring such a matter to Congress for inquiry.
78. The Commission decision considered the independence of ABC news and public-affairs functions as one of the principal issues, devoted a substantial part of the opinion to an analysis of the issue in detail, and concluded, from the Commission's experience with similarly situated enterprises in the industry, the past performance of both applicants as longtime licensees of the Commission, the autonomy of ABC News within the ABC organization, the proposed autonomy of ABC within the ITT organization, and the solemn assurances of the principals, that the merger should be approved. The area of broadcast reporting of news and public affairs is a field in which the Commission has experience and special competence and in which the Department has no special qualifications. The Commission decision found "in our experience with numbers of other licensees who encompass, along with broadcast interests, large and diversified nonbroadcast activities no indication of abuse of their public trust through the intrusion of their nonbroadcast concerns upon the objectivity of their news reporting or commentary and no demonstrated detriment in any other programming sectors." (Decision, par. 30.) Moreover, the Commission examined "in considerable detail" and "weighed carefully" ITT's foreign interests as they might affect the merger. The Commission concluded that "We know from our experience in the regulation of communications that many of our large broadcasting licensees and the two other television networks also have substantial foreign interests, including subsidiary corporations in many countries. We have seen no evidence at any time that any of these foreign interests have influenced any of the programming presented in this country. There is no reason to assume or suspect that any such influence will occur in the case of ITT." (Decision, par. 36.) The Commission also found that the merger would provide ABC with greater independence and freedom from possibly improper or undesirable economic influences, and would tend to assure the continued independence and integrity of the network operation of ABC (decision, par. 26).
79. These conclusions are strengthened and reinforced by further consideration in the light of the supplementary record. Despite the most wide-ranging inquiry and examination of this issue no evidence was offered tending to show that ITT would, in the event of the merger, attempt to impose its position on ABC or influence the journalistic functions of ABC. The supplementary record contains considerable evidence and further assurances of the independence of ABC News within the ABC organization and of the recognition by both applicants of the importance of preserving the news integrity of ABC, both because of their obligations as licensees and because of economic self-interest, as well as because of professional and ethical considerations, and the supplementary record establishes the widely recognized independence and integrity of responsible professional journalists as another [*577] potent force to maintain ABC News autonomy and integrity. The testimony of Elmer Lower, president of ABC News, is persuasive that the ABC News organization has a high sense of its own responsibility and integrity and will observe its standards of journalistic integrity regardless of the corporate affiliations or interests of the parent organization.
80. The supplementary record contains numerous reaffirmations of the determination of officials of ABC News, of ABC, and of ITT to maintain the independence and integrity of the ABC News operations free from any interference by either ABC or ITT. These assurances are epitomized in the policy statement of ITT regarding ABC, which has been referred to above (AR-4). The ITT policy statement of November 1, 1966, says, inter alia:
The broadcast licenses which have been granted by the Federal Communications Commission, and which are subject to periodic review and renewal, represent an important public trust as well as one of the most valuable assets of ITT. In this connection, ITT entered into certain contractual obligations and has made assurances to the FCC concerning the way in which ITT intends to carry out its responsibilities as the parent corporation of a broadcasting licensee. It is the policy of ITT to carry out these commitments and assurances in full, in complete good faith, and without equivocation.
No officer, employee, or agent of any ITT system company or group has
any authority to act in any manner inconsistent with the provisions of this
policy statement, nor to authorize, direct, or condone violations of its terms
by any other person. Such activity would constitute one of the greatest
disservices that anyone could do to the company. Consequently, any
officer, employee, or agent who violates this policy, or who orders or
knowingly permits a subordinate to violate this policy, shall be subject to
severe disciplinary action, including discharge.
* * *
The independence of ABC programming from any other ITT commercial or other similar interest shall be inviolate. No officer, employee, or agent of any ITT system company or group shall take any action or make any attempt to influence in any way whatsoever in the news, special events, entertainment, or other programming of the ABC network or stations for the purpose of attempting to further, or to avoid conflict with, the commercial or other interests of an ITT system company or group.
As pointed out above, this policy statement was made in circumstances such that it was not subject to the charge of being drafted for the purposes of this proceeding. Further, ITT has given assurances of record herein that this policy will not be changed without advance written notice to the Commission. We rely upon these assurances and have ample authority to enforce them.
81. Considering these assurances and the authority which the Commission has with respect to its licensees, the organizational arrangements between ITT and ABC, discussed above, by which ABC has a number of directors who are independent of ITT, the independence of the ABC News organization within ABC, the tradition and ethics of journalistic independence and integrity, the competitive necessity of maintaining public confidence in the integrity of broadcast news sources, the check upon news integrity which other competitive news sources provide, and all the other factors mentioned above, we find that there cannot be any reasonable doubt that the integrity and [*578] independence of ABC's activities in the news, information, and publicaffairs field will be maintained after the merger.
82. The Department charges applicants with "lack of candor and completeness" in testimony on the basis of some few inconsistencies in the details of testimony and evidence and their characterization of some of the testimony. n8 There is no doubt that in the course of this very protracted, complex, and difficult investigation and proceeding some errors have been made in the presentation of evidence, and some changes in positions and emphasis have been made by all of the parties. However, errors and inconsistencies of this nature are not unusual in cases of this magnitude and complexity. It would be quite unwarranted to draw any inferences as to candor or character from such relatively minor aspects of the testimony and proceedings. These charges of the Department are more a reflection of the strongly adversary and partisan spirit which prevailed between the parties than a reflection of a fair appraisal of the record. It is noteworthy that the parties were highly adversary throughout the course of their participation in the supplementary proceeding, and this has given us some assurance that all aspects of the matter have been thoroughly explored and that all possibilities of evidence and inference adverse to the proposed merger have been thoroughly investigated. The Department began its investigation by the issuance of Civil Investigative Demands to both ABC and ITT on December 9, 1965. We have examined those demands and have found them comprehensive, wide ranging, and thorough. Subsequently, the Department also issued a series of further demands for documents, and the record shows that there has been substantial compliance with all demands. We are confident that the Department, with its extensive and highly skilled investigatory resources and its experienced and expert ability at economic analysis has put into the record every fact of possible relevance to our consideration and decision of this matter. n9
n8 For example, the Department argues that Goldenson incorrectly represented to the Commission that the ABC loan agreement with Metropolitan Life restricted ABC borrowing to 50 percent of its assets. In fact, the written loan agreement did not contain such a restriction, although it did contain a restriction against further borrowings, with some limited exceptions, without the express permission of Metropolitan Life. The vice president of Metropolitan Life who was in charge of this loan arrangement wrote to the Department and subsequently testified in the supplementary hearing concerning this matter. It is evident from his letter and the testimony that 40 percent of net tangible assets is the normal limit for corporate borrowers, and that this limit was exceeded with ABC only because it is a "specialized borrower," that ABC was approaching 50 percent of net tangible assets, and that ABC was aware of these facts. In the circumstances, we believe that Goldenson could have reasonably believed the correctness of the statement he made and that he cannot properly be found to have set out deliberately to deceive the Commission.
n9 Similarly, we do not regard the Press Wireless matter as reflecting adversely, to any significant extent, on ITT but rather more a question of need for better technical compliance with Commission application form requirements. It is undisputed that Press Wireless was at all times subsequent to September 7, 1965, controlled by officers or officials of the ITT organization, and specifically those of ITT WorldCom.
83. The foregoing discussion constitutes our findings of fact upon the record. We have considered all of the points and arguments raised by the parties, with special attention to the points raised by the Department as the petitioner in this phase of the proceeding. We have not given further consideration to the possibility of restructuring the entire broadcasting industry, as suggested by the ACLU, since we do not believe that this is an appropriate proceeding in which to consider that issue and because there is nothing to be added to the discussion of that issue set forth in our decision, paragraphs 39, 40.
[*579] 84. In the final evaluation, we must balance the detriments and benefits to the public interest. The following is a skeletal presentation of our main conclusions:
1. We have found that the relevant market for purposes of competitive analysis is the national television network market, and that, since ITT was not a potential independent entrant into that market, its merger with ABC will not lessen or tend to lessen competitiion, actual or potential, in that market.
2. We have found that ITT decided to curtail its CATV activities independently of the merger, and that it did not seriously contemplate the possibility of establishing a national CATV grid that might become competitive with the national television networks and that, taking into account the other contingencies in this area (Commission policy and copyright obstacles) and the activities of numerous other companies, any detriment here is most speculative and, therefore, of at most a very slight nature.
3. We have found with respect to technology no detriment but rather that ABC is in need of technological assistance, research, and support that it is unlikely to get without a merger with ITT. Further, ITT is not and has not been in the Americal broadcasting equipment market, but its merger with ABC will induce it to enter that market.
4. We have found that however limited that entry may be, ITT, in view of its representations and under the condition laid down in this opinion, will seek to aid the technological development of UHF broadcasting during the ensuing critical 3-year period.
5. We have found consequently that the proposed merger will in our view strengthen ABC technologically, increase competition in the Americal broadcasting equipment and technology field, and assist UHF development.
6. We have found any detriment to the independence of ABC in regulatory matters to be slight in nature, in view of the small area of conflict; we have also taken into account the explicit representations on this matter.
7. We have found that there is no likelihood that the merged ABC-ITT will employ reciprocity power to create any obstacles to competition in the television advertising market.
8. We have also found that the evidence is clear and convincing that the integrity and independence of the ABC news operation will be maintained as fully after the merger as it has been previously.
9. We have found that ABC has historically been in a competitively weaker position than the other two television networks, and that this competitive disparity continues.
10. We have found that ABC will be significantly aided by having ITT's financial strength back of it, both in its competition with its network rivals and in its efforts to better serve the public interest through entertainment innovations, news and public-affairs expansion, etc.
11. We have found that ITT has given full recognition to its obligations as the parent of ABC and has given reliable assurances that it will give ABC all the technological and financial support needed to permit it more fully to perform its public-interest functions (Tr. 1954-1955, 1996-1997, 2001-2002, etc.).
12. We have found that with the merger ABC, in a number of markets, will be able to forsake reliance on secondary clearances on VHF stations in favor of primary affiliations with UHF stations -- a further contribution to UHF's development during this critical period.
85. An agency does not make judgments of the nature here involved in a mechanical fashion. It is charged with bringing to bear on the problem the specialized insight it has accumulated as a result of years of regulating the industry and of seeking to promote the public interest. We can appreciate the Department's concern in regard to the issues presented and commend its efforts. We have taken into account the Department's own expertise in this area. But we must conclude that, in our judgment, the detriments revealed on this record (e.g., the [*580] possibility of an independent network entry by ITT or of the establishment of a CATV national grid) simply are too speculative or slight to weigh heavily in the balance. On the benefits side, we also recognize that the matter does not suddenly become one of sure, definitive nature. There is necessarily some degree of uncertainty in, for example, how much ITT may contribute to the domestic broadcast technology market. We have endeavored to make that contribution (and the assistance to UHF through primary affiliations) more concrete by the conditions imposed herein. But in the final analysis we are left with the difficult task of judgment as to the future on the benefits side also. We have discharged that task with the background of this agency's long history of attempting to improve ABC's competitive posture vis-a-vis the other two networks and its ability to better serve the public interest in areas such as news, public affairs, and cultural entertainment innovation. It is our firm judgment that this merger, by providing ABC with a stronger financial base, will significantly assist ABC in making the necessary long-range plans and in taking the risks in this area so vitally important to the American public. It will be of benefit to the development of UHF during its most critical period. In sum, then, the benefits to the public interest flowing from the proposed merger clearly outweigh any detriments to the public interest that may be potential consequences, including those that have been so exhaustively explored in the record of the present proceeding and that are discussed in the foregoing opinion.
86. We have not repeated the substantive discussion in the Commission decision, since the evidence in the supplementary record, although in much greater detail than previously before us, does not lead us to change conclusions previously reached, except as herein specified. Accordingly, we affirm our prior decision herein, and supplement and modify it by the addition of the findings and conclusions in this opinion and order. The memorandum opinion and order of the Commission entered herein on December 21, 1966, together with and as modified by this opinion and order, shall constitute the opinion of the Commission. The conditions specified in this opinion are binding on the applicants and, therefore, need not be recited in the ordering clause.
87. By letter dated June 12, 1967, the Department requested that any Commission order approving transfer should provide an effective date 30 days after its issuance, in order to permit the Department "carefully to review such a decision to determine whether it would be appropriate to perfect an appeal." By letter dated June 16, 1967, ABC and ITT represented to us that "they will not consummate the transaction contemplated by the plan and agreement of merger between them dated February 14, 1966, until at least 30 days after publication of the order." We hold ABC and ITT to this representation and, therefore, need take no action on the Department's request.
88. Accordingly, It is ordered, That:
(i) The stay of the Commission's order of December 21, 1966, heretofore entered is dissolved and terminated.
(ii) The petition of the Department of Justice for reconsideration of the Commission's order of December 21, 1966, herein is denied.
[*581] (iii) The order of the Commission, entered herein December 21, 1966, is affirmed.
FEDERAL COMMUNICATIONS COMMISSION, BEN F. WAPLE, Secretary.
I. Summary and Introduction 581
II. The Applicants' Conduct Raises Substantial Question as to the Credibility of Their
Self-Serving Statements 588
A. Candor 589
B. Overbearing Conduct 593
III. The Merger's Effect Will Be To Diminish Competition in Broad- casting 599
A. ITT's Interest in Broadcasting Stations 600
B. ITT's Interest in CATV and Pay-TV 601
C. Competitive Impact of ITT's Independent Entry Into Broadcasting and CATV 603
IV. The Merger Will Tend To Impede Growth of Communications Technology 606
V. The Merger Will Substantially Impede ABC's Independent Position as a User of Common Carrier Communications Services in Proceedings Before the Federal Communications Commission 610
VI. The Merger Will Adversely Affect the Independence and Integrity of ABC's News and Public-Affairs Programming 613
VII. ABC Has No Need for Additional Funds Which Cannot Be Financed Without the Necessity of Merger 619
VIII. The Merger's Effect on the Advertising Market 626
IX. Conclusion: The Lack of Justification for the Merger Is Confirmed by the Majority's Reliance on Discredited Evidence and Bald Assertion 627
Appendix: Chronology and Documents Index 639
I. Summary and Introduction
Last September the Federal Communications Commission chose to listen to the two applicants to this largest merger in the agency's history present the case for ITT and ABC without any present and participating representative of the public interest. On that occasion a member of the present majority, in discussing the issues that might be presented if ABC were disposing of its network and stations in some other way, declared:
"I assume we can make a finding in the public interest for any result that we wanted to reach." (R 195.) n10
n10 We have adopted the following practice for citations. When the record of the hearings and oral arguments is cited, for reference to testimony of a witness, the witness' name will be given as well as the page at which his testimony appears. When the hearing record is cited for a reference other than testimony, the letter "R" will be used with a citation to the page. The record has been numbered consecutively from the Sept. 19 and 20, 1966, "oral hearing" through the April 1967 evidentiary hearing before Chief Examiner Cunningham and the June 1 and 2, 1967, oral argument. The proceeding referred to will usually be obvious from the context.
Exhibits will be cited as they were denominated at the April 1967 evidentiary hearing with an abbreviation of the party offering them (AR for ABC-ITT, J for the Department of Justice, and BB for the Commission Broadcast Bureau) and the exhibit number.
Formal filings will be cited with an abbreviation of the offering party (ABC-ITT, J. BB), the name of the filing (findings, brief, reply), and a page number.
Citations to the majority's decision will be to paragraph (par.) number, and will refer to today's opinion unless the Dec. 21, 1966, opinion (7 F.C.C. 2d 245 (1966)) is expressly identified.
[*582] We think the majority, addressing itself to the merger as proposed, has undertaken to make a public-interest justification for which we cannot find support in the record. Not once, but twice.
It has now gone through the proper rituals. A conventional hearing has been held -- although the hearing examiner was precluded from expressing an opinion on the case, and because of the delays already experienced was required to adhere to an unusually restrictive and demanding hearing schedule. It has incanted the proper phrases about our expertise. What is fundamentally disquieting about the majority's position, however, is its relentless adherence to its earlier decision in the case, no matter how seriously the factual record on its behalf has deteriorated from September to the present time.
The original self-serving declarations of the parties about the public-interest benefits of the merger have been substantially altered by their own subsequent testimony, and overpowered by conflicting contemporaneous documents and the testimony of independent parties. The potentialities of detriment to the public interest from the merger which concerned the three of us in September -- characterized by ITT counsel at that time as mere "suspicions" (R 383) -- have since largely been proved out by actions of the parties themselves, as nearly as predictions of the future can be established.
In September both ITT counsel and the Commission majority took great satisfaction from the fact that, "No religious, charitable, civic, public service, or civil liberties organization in America has wired or written to the Commission protesting this application or asking the Commission to deny it." (R 120; par. 6 of Dec. 21, 1966, majority opinion.) The suggestion is that the absence of protesting parties absolves the Commission of responsibility to evaluate the public interest on its own, or somehow argues in the merger's favor. But the FCC's mission is not to evoke a conditioned response merely because there is only one petitioner ringing the bell. It is to engage in a rational exercise whose objective is the public interest, and is not determined by the limited number of contenders in the ring. It is difficult, if not impossible, for most members of the public we are charged by law with representing to appear before us personally, or send counsel. However, whether one chooses to be persuaded by reason or authority, a rather impressive array of both has now come to the view that this merger will not serve the public interest.
The U.S. Department of Justice has felt strongly enough about both the public interest and the competitive detriments of this merger to take the somewhat unusual steps of petitioning this Commission to reconsider its December 21, 1966, opinion, and then to participate actively and extensively in our hearing with some of the ablest men available to it. In fact, the Attorney General of the United States said publicly that he has personally reviewed the Department's opposition "at some length and with care." (Interview with the Honorable Ramsey Clark, Attorney General of the United States, on CBS's "Face the Nation," Mar. 12, 1967.)
The FCC's own Broadcast Bureau Hearing Division Chief, Thomas B. Fitzpatrick, and his trial staff of three (the only Commission personnel to express a view who actually participated in the hearing and observed the witnesses) responded, when asked during the June 1967 oral argument before the full Commission, that "it is our opinion as trial counsel * * * that the public interest would not be served by this grant." (R 4086.)
[*583] The American Civil Liberties Union, the Nation's foremost "civil, public service, civil liberties organization," filed a brief with this Commission protesting the merger.
Gerald H. Gottlieb, antitrust lawyer and staff member of the prestigious Center for the Study of Democratic Institutions in Santa Bardara, Calif., filed a thoughtful brief protesting the merger and requesting participation as amicus curiae (friend of the court).
An impressive array of witnesses -- barred by normal procedures from expressing an opinion on the ultimate issue -- testified at length as to facts and opinions supporting the Department of Justice position. They included: Professor John C. Burton of Columbia University; Charles Charbonnier, vice president, securities, Metropolitan Life Insurance Co.; Dr. Joseph V. Charyk, president and director, Communications Satellite Corp.; Asher H. Ende, deputy chief, Common Carrier Bureau, FCC; Professor Hyman H. Goldin of Boston University (most recently executive secretary to the Carnegie Commission on Educational Television, and formerly the principal economic adviser on broadcast matters at the FCC); John J. Graham, vice president, General Dynamics (formerly vice president, ITT); Professor Albert G. Hill, MIT; Ernest J. Kropp, vice president, Manufacturers Hanover Trust Co.; Professor Harvey J. Levin, Hofstra University; Howard E. Stark, radio and television station broker.
We have even seen the somewhat unusual, if not unprecedented, appearance of a "public witness," advertising executive, author, and management consultant, Sidney W. Dean, appearing in his own behalf in opposition to the merger.
Finally, we three Commissioners of this seven-man Commission have felt so strongly about the undesirable nature of this merger that we have dissented twice, without concealing our genuine and unusual depth of feeling and concern, and with what we believe to be an overwhelmingly thorough documentation of the reasons why this merger cannot meet our statutory public-interest standards. (Commissioner Bartley, joined by Commissioner Cox, dissented three times, the first being to a Commission letter asking the applicants for superficial information rather than setting the applications for evidentiary hearing.)
Moreover, the hearing in the proceeding has been, we believe, legally defective. The seriousness of the matter before us required that such a hearing contain all the safeguards established by statute. Section 309(d)(2) of the Communications Act provides that "if the Commission for any reason is unable to find that grant of the application would be consistent with subsection (a)," it shall set the application for hearing as provided in subsection (e).
Furthermore, section 311(a)(2) of the act requires that "if the application is formally designated for hearing in accordance with section 309, [the applicant] shall give notice of such hearing in such area at least 10 days before commencement of such hearing." No showing is made by the applicant, as required by section 1.594(g), 47 CFR, section 1.594(g) (1967), of our rules, that such notice was given.
One of the purposes of the statutory requirement is to make the proposed transaction known to parties who may want to oppose it and appear at the hearing. The Commission majority made much of the point that no oppositions were originally filed against the merger. This point becomes meaningless in view of the fact that notice of the hearing was not given as provided in the act and our rules. Although the Commission can waive its own rules, it cannot waive the statutory requirement.
In spite of the rather substantial public interest in and concern about this merger -- even without compliance with the statutory notice requirements -- the Commission was still to be subjected in its June [*584] 1967 oral argument to the spectacle of ITT counsel's pressing upon the Commission,
"When we argued in September, I pointed out to you then, and I repeat now * * * no one, but literally no one, has stepped forward and said as a member of the public and representing an institution I want my views known because I am opposed to the merger." (R 4209-4210.)
But there is far more to this case than a parade of authority in opposition to the majority's action, and counsel's persistent and legalistic interpretation of that fact.
The essential structure of this case remains as it was in September. It is governed by section 310(b) of the Communications Act of 1934, in which Congress provided:
No * * * station license * * * shall be transferred * * * except * * * upon finding by the Commission that the public interest, convenience, and necessity will be served thereby.
Although the case is characterized as a "merger," which it is, it comes before the Commission because ABC (the American Broadcasting Cos., Inc.) proposes to transfer the licenses of its 17 radio and television stations to an ITT (International Telephone & Telegraph Corp.) subsidiary. Thus, in order to "approve the merger," the Commission majority has had to find in a technical legal sense that the transfer of the licenses of the 17 ABC-owned stations to ITT will serve the "public interest, convenience, and necessity."
There are those who would argue that all Congress intended was that station transfers, and licensee mergers, should be registered with the Commission and given a stamp of approval, like a restaurant owner stamping the parking lot stubs of his patrons. They would say that the Commission "has no business interfering" in arm's-length transactions by licensees in disposing of their stations so long as they do not violate express statutes or Commission regulations. Indeed, this appears to us to be the only possible rationale for supporting the result reached by the majority. Needless to say, we do not hold this view. Nor does the majority seem to. For why else would it seek, through a strained interpretation of the record, to spell out a "public-interest" finding?
We believe that when Congress said, "No * * * station license * * * shall be transferred * * * except * * * upon finding by the Commission that the public interest, convenience, and necessity will be served thereby," it contemplated that some transfers would not serve the public interest. We believe Congress instructed this Commission to both seek and examine evidence that the public interest will be served by a proposed transfer. We believe the burden of coming forward with such evidence is on the applicants. We believe the burden of proof is theirs as well. We believe without such evidence a proposed merger must be disapproved. And we believe that evidence that the seeds of overall detriment to the public interest lie within a proposed merger precludes a Commission finding that it serves the public interest. Finally, we believe that if one accepts our interpretation of section 310(b) the analysis in our opinion is compelling.
It is useful to an understanding of this case to see the parties and this procedure in historical and economic perspective, and we have [*585] provided a "Chronology and Documents Index" as an appendix to this opinion for that reason. We would also make reference to our earlier opinions in this case, ABC-ITT Merger, 7 F.C.C. 2d 245, 263, 276, 278 (1966), for much of our analysis then is fully as relevant today. But a brief summary statement at this point may be useful.
ITT is a sprawling international conglomerate of 433 separate boards of directors that derives about 60 percent of its income from its significant holdings in at least 40 foreign countries. It is the ninth largest industrial corporation in the world in size of work force. In addition to its sale of electronic equipment to foreign governments, and operation of foreign countries' telephone systems, roughly half of its domestic income comes from U.S. Government defense and space contracts. But it is also in the business of consumer finance, life insurance, investment funds, small loan companies, car rentals (ITT Avis, Inc.), and book publishing. Its president, Harold Geneen, announced a 5-year plan in 1959 to double ITT's sales and earnings and to increase the domestic portion of its income -- principally through acquisitions. ABC is a part, and a most significant part, of ITT's corporate growth. The 5-year plan has more than succeeded, and the trend continues.
ABC was born in 1941 when this Commission ordered RCA to divest itself of one of its two radio networks. It started with but two stations of its own, and substantial competition from CBS and NBC. In 1953 this Commission approved ABC's merger with United Paramount Theatres (Paramount Television Prods., Inc., 17 F.C.C. 264 (1953)). Today ABC owns 399 theaters in 34 States, five VHF television stations, six AM and six FM stations (all in the top 10 broadcasting markets), and, of course, one of the three major television networks and one of the four major radio networks in America. Its 137 primary television network affiliates can reach 93 percent of the 50 million television homes in the United States (more in prime-time evenings through secondary affiliates), and its radio network affiliates can reach 97 percent of the 55 million homes with radio receivers. ABC has interests in, and affiliations with, stations in 25 other nations, known as the "Worldvision Group." ABC Films distributes filmed shows throughout this country and abroad. It is heavily involved in the record business, and subsidiaries publish three farm papers. From net sales of $18.8 million in 1943 the company's revenues climbed to $476.5 million in 1965 -- of which $361.6 million came from broadcasting.
Quite obviously, no corporation sets out to acquire another because the merger is thought to be a way to serve the corporation's public-interest" responsibilities. Corporations merge to serve the personal and private interests of management and their broader corporate responsibilities. That is not to say that a merger conceived and designed to serve private interests cannot also serve the public interest. Not at all. It is only to say that the evaluation of the public interest served by a merger must be undertaken with a no-nonsense awareness of the private-interest realities at stake, and that the burden of meeting a public-interest test is substantial and falls squarely on the shoulders of the applicants.
[*586] ITT's drive for acquisition of domestic companies has already been detailed. ABC's interest in the merger, on the other hand, grew principally out of its desire to insulate management from the pressure of minority shareholders -- principally Norton Simon. In spite of ABC's elimination of cumulative voting rights in 1964, Simon's 9 percent interest had become a substantial threat by the summer of 1965. See, generally, 7 F.C.C. 2d 245, 278 at 292-293 (1966).
Yet it was Geneen, of ITT, who initiated and actively pursued the merger negotiations throughout. Talk became serious in late 1965. The merger agreement was signed in February 1966 and filed with the Commission in March. The Commission asked for, and received, additional filings from the parties in July, and in August ordered a hearing to be held in September. The September 19 and 20 "hearing" before the Commission -- characterized by the majority in its December opinion as occupying "2 unusually long days" (par. 12) -- consisted of presentations by the parties to the merger and questions by some of the Commissioners. No effective participation or cross-examination was requested or provided from the FCC staff or any other party representing the public interest, and the hearing was decidedly not "adversary" in any conventional sense. Additional material was requested from the parties by some Commissioners in October and November, and the Commission's decision issued on December 21, 1966. In our dissents at that time we pointed out, among other things, the incongruity of the Commission majority approving the merger on the grounds of ABC's need for capital in the face of the letter from Assistant Attorney General (Antitrust) Turner of the evening before, revealing that ITT thought it would be able to take $100 million out of ABC over the next 5 years.
The Department of Justice filed a petition for reconsideration in January 1967, and on February 1, 1967, the Commission stayed its December 1966 order approving the merger. Numerous documents were filed by the Department and the applicants in February, and on March 16, the Commission -- with three of the Commissioners in the present majority "abstaining" -- voted to hold an expedited evidentiary hearing before a hearing examiner. The hearing ran from April 10 to 26, and produced 3,275 pages of record and 553 exhibits. Proposed findings of fact and briefs were filed by the parties during May, and oral argument was once again held before the full Commission (with, this time, the full participation of the Broadcast Bureau and the Department of Justice) on June 1 and 2, 1967. Now, roughly 3 weeks later, these opinions are issued.
The issues in the case have changed in some significant respects that are discussed later in our opinion. But they remain, in general, as they were in September.
The applicants allege that ABC is a dangerously weak third in the television networking business, and that ABC has not been able to show sufficient growth to narrow the gap between it and CBS and NBC. If its competitive position is not improved, they allege, ABC's programming will deteriorate further, including cutbacks in its "unremunerative" news and public-affairs programming. They say ABC has [*587] financial needs for additional physical facilities and other purposes that it is unable to meet from current income or borrowing, and that ITT will make available the additional financial resources and technological support necessary to make ABC a "fully competitive" network. In response to the alleged public detriments from the merger, the parties offer assurances that ABC will be completely independent of ITT in its news and public-affairs presentations, and in stating positions before the FCC contrary to those of ITT. They promise that the companies will not engage in reciprocal dealing with third parties or otherwise impede competition in the broadcasting business. And they argue that the merger will not remove ITT as a potential force in the broadcasting or cable television business because its interests in both were minimal and had been substantially curtailed for reasons unrelated to the merger.
After a close and careful examination of all the evidence we have concluded that:
1. In allowing ITT to acquire ABC, the merger will have the effect of eliminating the probably significant competitive influences which ITT could be expected to exert on broadcasting if it did not own ABC.
2. While there might be some incentive to ITT to do research which would advance broadcasting technology as a result of the merger, it is more likely that there will be a significant retardation of truly meaningful communications technological advance.
3. The merger will eliminate ABC as an active opponent of ITT's common carrier positions and, by reducing the independent networks to one, will seriously jeopardize the effectiveness of the Commission's deliberations on common carrier tariffs and other proposals.
4. The joinder of ITT, a prototypic conglomerate, with one of the three major broadcasting entities in this country presents probable danger to the independence of ABC's news and public-affairs programming -- as evidenced particularly by ITT's extraordinary actions with respect to the press during the pendency of this very hearing.
5. There is no real danger that ABC could not carry through its entire planned expansion without the merger, and there is no credible evidence whatsoever that those same future expenditures provided any motive for the merger.
(The Department of Justice has also argued that the merger will have a harmful effect on the advertising market by channeling ITT's advertising execlusively to ABC and by presenting the possibility of reciprocal dealings by ITT. We do not believe that this is significant, because the part of the advertising market which ITT could conceivably foreclose is so small that any anticompetitive effect would be minimal.)
In analyzing this case and preparing our dissenting opinion we have been troubled by the fact that in virtually every instance the applicants' assertions, and the majority's opinion, are premised on nothing more substantial than the parties' own self-serving declarations. In this opinion we endeavor to compare those self-serving statements to the FCC with the parties' earlier testimony, the documentary record of their views at the time of the transactions in question, and the common experience of mankind with these and other parties. One cannot say that there are no statements of the interested parties which support the majority's conclusions. There often are. However, the quest must be to establish whether these statements rest on any meaningful [*588] basis of credibility to sustain the parties' burden of proof. Unfortunately, therefore, it is necessary for us to examine, in addition to other evidence, the conduct and credibility of the parties and their testimony. They, and the majority, give us no option.
Have the parties been candid with this Commission? Have they demonstrated a respect for the responsibility and authority of government -- and the independence of the press? Have they been overbearing and overzealous in the presentation of their case? These are the questions we address in the next section of this opinion -- questions that must be addressed in a case that rests almost entirely upon the majority's acceptance of the self-serving assertions and assurances of the applicants. The answers present, we think, not a pretty picture.
II. The Applicants' Conduct Raises Substantial Question as to the Credibility of Their Self-Serving Statements
Many of the issues in this case turn on the intentions, motives, and plans of officials of the two merging companies at various times over the last 4 years. In many instances the evidence bearing on these intentions, motives, and plans is of two kinds: First, memoranda, minutes, and other internal documents of the companies prepared at meetings or in response to requests at the various times in question; second, the later testimony of the various officials involved at the original September "hearing" and at the supplemental hearing.
For numerous issues the contemporaneous documentary evidence would tend to indicate -- more or less strongly -- one decision, while the September and supplemental testimony indicates the opposite. In those cases the majority has chosen, almost invariably, to believe the testimony and to disregard or ignore, or tuck into footnotes without comment, the documentary evidence to the contrary. Where there is only self-serving testimony it is believed. Where there is no evidence, not even from the applicants, the majority fills in the blanks with its own expertise. In addition, the majority places overriding faith in further representations of ABC and ITT officials of present intentions with regard to future conduct.
Now, it is a standard rule of evidence which accords with the most elementary commonsense that spontaneous and contemporaneous documentary evidence of intention, motive, and understanding is more probative than later retrospective testimony. See, e.g., United States v. United States Gypsum Co., 333 U.S. 364, 396 (1948). This case presents a great deal of concrete evidence of the wisdom of this rule. For in many instances the officials' testimony, especially at the September hearing when no party opposed their merger plans, is so clearly at odds with the other evidence that no credit can be given to it whatsoever. In numerous other cases there is flagrant under- and overstatement by the parties to the merger -- always in the service of their cause. Perhaps this is understandable. The parties come before us as advocates, seeking to impress us with the merit of their case. But the testimony they have given has been so lacking in candor, so careless of the need to inform us in an honest and forthright way, that it is simply incredible that the majority can place such abiding faith in [*589] their every word. Especially is this so with regard to representations of future intention. Quite obviously these statements are made in the same spirit of advocacy as are the distorted interpretations of the past, and they should be taken with the same mound of salt.
But the parties' conduct in pursuit of this merger has not stopped with disingenuousness before this Commission. It has been evidenced by overbearing and presumptuous conduct toward the press, and a desire to distort and pervert the media in their reporting of these proceedings. It has continued with overzealous conduct by counsel, going far beyond the bounds of accepted advocacy. It has seen the calling of so-called expert witnesses whose testimony does -- and must be assumed to have been intended to -- distort rather than clarify the record, and the introduction of slanted and obscuring documentary evidence. Moreover, as we discuss later in section VI, ITT's past pattern of relations with foreign and domestic governments only intensifies our concern.
In the light of this consistent syndrome of the most intense and overbearing advocacy, we would think it imperative that the evidence and testimony of both ABC and ITT be scrutinized most carefully. The majority has chosen rather to scrutinize it only selectively and in the service of finding evidence to support approval of the merger. For that reason we must undertake the scrutiny ourselves. But first let us partially document the cause for our concern.
Examples of the applicants' lack of candor with this Commission are rampant. Here are a few involving limits of ABC's borrowing capability and its long-range premerger plans for expansion, ITT's interest in CATV and broadcasting properties, and ITT's policies toward subsidiary autonomy.
Perhaps the most serious example of this lack of candor was in connection with Goldenson's representations at the September hearing regarding a so-called "50 percent limitation" of ABC's borrowing capacity. Goldenson interrupted Geneen's testimony at the September hearing to say,
"If I may interrupt, in order to try to clear this record if I may, under our Metropolitan loan where we have borrowed $70 million, it provides that we have a limitation of 50 percent of our assets as the outside limit of our borrowing. With the $25 million we have just provided for in borrowing from the bank, we are therefore presently at a 47-percent level, so that gives us a latitude of 3 percent of our $200 million." (Goldenson 567.)
Goldenson's volunteered statement at that time was incorrect. There is no provision in the Metropolitan loan agreement or any other debt instrument of ABC that limits further borrowing to 50 percent of assets. Siegel, who knew that there was no such provision, so informed Goldenson within a day or two after the hearing. (Siegel 2454.) The Commission was never notified of this error until the supplementary hearing, and then only on cross-examination. The Commission's December opinion approving the merger under existing loan agreements limit further borrowing by ABC to $6 million." (Par. 24.) ABC has attempted an explanation of this dereliction, but, considering the [*590] importance of the point at issue and the Commission's reliance upon this representation, the explanation is quite unsatisfactory. Siegel testified that he was warned orally by an officer of Metropolitan Life that ABC's borrowing was approaching 50 percent of assets. He took this to be a "warning that we were getting pretty close to the danger line." (Siegel 2457.) But the Metropolitan officer involved testified that he had no recollection of having given any such warning to ABC. (Charbonnier 1331-1332, 1338.) On the basis of this oral warning, which was neither formal nor standard enough for the insurance company officer now to recall it, Siegel in turn warned Goldenson and Goldenson interrupted another's testimony to inform -- or, rather, to misinform -- the Commission.
The parties, still insisting that there was a 50-percent limitation and refusing to recognize any relevant distinction between a provision in a contract and on oral warning not recalled by the creditor's representative, continue in their recent briefs to overstate and misrepresent their case. ABC and ITT contend that, "The record makes clear that the Metropolitan indeed had given ABC the 50-percent warning. * * * In his April 3, 1967, letter to the Department, Charbonnier confirmed that Metropolitan would not consent to additional senior borrowing by ABC above a 50-percent debt ratio." (ABC-ITT reply brief, p. 33.) Actually what Charbonnier said, referring to his conversation with Siegel, was,
[At] the time I certainly was aware that ABC was approaching a 50-percent debt level and in view of this condition it would have been normal for me to indicate that we would not like to consent to the incurrence of additional senior debt which would result in a debt ratio of 50 percent or more. As I might have indicated on March 28, a 50-percent total debt ratio (i.e., total senior and subordinated debt as related to total net tangible assets) is quite common in both public debt issues as well as in debt issues that are placed directly with institutional lenders. (AR 41, att. 5, p. 2.)
Thus Charbonnier did not confirm that Metropolitan would not consent to additional senior debt. Moreover, he testified quite explicitly that the Metropolitan has never had any occasion to determine the maximum amount it would be prepared to lend ABC (to say nothing of the amount it would be prepared to allow others to lend ABC). (Charbonnier 1328.) Neither Goldenson, nor the Commission in reliance on Goldenson's representations, restricted the limitation to senior debt. And the suggestion that an oral warning is in any case the equivalent of a written contractual provision is unworthy of sophisticated businessmen and lawyers. ABC's clear duty was to inform the Commission of the true state of affairs and not wait to rationalize its dereliction after the truth had been discovered.
On July 20, 1966, the Commission wrote Goldenson, asking for "a statement specifying in further detail the manner in which the financial resources of ITT will enable ABC to improve its program services and thereby better to serve the public interest." In reply Goldenson wrote: "Illustrative of the capital requirements for plant and equipment [emphasis in original] already known and planned by ABC [emphasis added] are * * * approximately $90 million for constructing and equipping new [emphasis in original] studio complexes to be built in New York and Los Angeles, as a part of our long-range plan." [*591] The facts surrounding calculation of that $90 million figure are essentially uncontested. Goldenson relied on Siegel, ABC vice president, for the figure. (Goldenson 1536.) Siegel asked a Mr. Marks, then head of ABC's construction department, to arrive at an estimate, and it was Marks who put together the figure of $90 million. (Siegel 2389.) Siegel's understanding is that Marks arrived at that number by adding together three other estimates: $17 million for Hollywood construction, $40 million for New York construction, and $33 million "for the cost of equipping the new studios and renovating the existing properties in New York." (Siegel 2540.) Each of these three components can be questioned, but the insubstantial nature of the information on which the $40 million estimate for New York construction is based is probably most obvious.
In December of 1964, ABC had authorized $300,000 "for architectural and engineering fees for preparation of designs and plans for * * * alterations and improvements" of its New York properties. (AR 8.) The Austin company was employed to make these plans. The New York Austin plan was presented on June 20, 1966. (AR 36.) It was discussed at a meeting on July 8, 1966, and was rejected by both Goldenson and Siegel because it took two short-range a view. (AR 19, Goldenson 1532, Siegel 2394-2395.) But in January of 1966, based on what was then available of this New York Austin plan, the Diesel Construction Co. submitted an "approximate" estimate of $39,050,000 for the New York construction. (AR 15.) It was this Diesel estimate, based on a then-rejected Austin plan and formulated about 5 months before that Austin plan was in final form, which formed the basis for the $40 million estimate for New York construction. (Barnathan 2107-2108.) Thus, it is quite clear that the estimate in Goldenson's letter was designed to dramatize ABC's need for funds with little concern for the foundation which it had in fact. And the representation by Goldenson that the $90 million represented "capital requirements for plant and equipment already known and planned by ABC" is simply unfounded.
Geneen's testimonial legerdemain was slightly more subtle but no less disingenuous. Thus, he testified in September that ITT had "some very small CATV experimental operations." (Geneen 516.) These "small experimental operations" were described by internal ITT memoranda as a "full-scale CATV effort." (J 119.) An entrepreneur with whom ITT had discussions testified that ITT officials told him at one time the company intended to become the largest CATV firm in this country. (Levey 3150.) Geneen was quite familiar with ITT's activity, as is evidenced by a November 1, 1965, memorandum which he sent to an ITT CATV official. Geneen said, "Per your recent report we have committed, or will have spent by yearend, $10 million in support of new operating franchises. * * * The work done to date by your division I think is outstanding in its ability to move fast and 'nail down' the locations developed." (J 74.) And only 4 days earlier Geneen had sent a memorandum outlining in detail the problems which he felt were posed by ITT's CATV program, testifying both to his very acute and probing mind and to his intimate knowledge of ITT's very extensive and serious interest in CATV. (J 134.) The only possible conclusion [*592] from his September testimony is that he knowingly minimized ITT's premerger interest and potential as a competitive force in CATV in an attempt to strengthen the case for the merger (as not diminishing competition).
At the September hearing Geneen also testified, with regard to ITT's interest in broadcasting stations. He said, "We did hold some coversations from time to time in a general way, with people who purported to think we should get into stations, and that sort of thing, but we never got anywhere with that." (Geneen 592.) This suggests that others thought ITT should get into broadcasting, but that ITT was not seriously interested. However, an ITT document which was presented to the board in support of the ABC merger proposal said: "As you know, for about 2 years we have been intensively researching the broadcasting industry, and closely following all developments that might lead to possible acquisitions, because of our belief that this industry represented one of the most attractive fields for potental ITT entry." (J 238.) Geneen's reaction, from the start of ITT's pursuit of broadcasting stations, has been described as "very favorable." (Graham 2603.) Green himself engaged in negotiations for one television station, and it seems rather clear that he extended an offer for that station. (Graham 2599.) In addition he personally met with a station broker who was examining stations for possible ITT purchase. (Geneen 1805-1806.) Thus, Geneen's September representation that it was others who tried to interest ITT in buying stations, with ITT's interest a passive one, was a knowing and gross understatement of the actual state of affairs.
With regard to the station in the negotiations for which Geneen personally engaged, he again made misleading representations at the supplemental hearing. John Graham, a former ITT vice president and director, testified that he and Geneen visited WTIC in Hartford in August or September of 1963, and that Geneen there made an offer of $35 million for the station. (Graham 2599.) Geneen testified that he did not made an offer and that the WTIC officials were asking $35 million. He contends that he considered this price too high. (Geneen 1818.) Yet Geneen sent a cable to Graham on September 7, 1963, in which, referring to the terms of the securities to be exchanged for WTIC, he said, "the offer is indeed generous. * * * My feeling is we should trade hard at this point having been generous." (J 142.) Either his testimony with regard to who initiated the $35 million offer, or as to his own feelings at the time about the figure, was erroneous.
In his July 1965 letter to the Commission Geneen assured as that "ABC will operate as a substantially autonomous subsidiary." In the September hearing, he employed the same term -- "substantially autonomous" -- to describe the managements in the "ITT management system." (Geneen 165.) And he described "the proposed method of operation of ABC as a substantially autonomous subsidiary" as "harmonious with the present ITT management system." (Geneen 167.) And again, in assuring the Commission that all viewpoints on common carrier matters would be presented to the Commission if a conflict developed within ITT, Geneen said, "the ITT management [*593] system of substantially autonomous subsidiaries will enable and, in fact, require both divisions to present their separate views to the Commission. * * *" (Geneen 172.) The Commission in its December opinion placed great reliance on these assurances of substantial autonomy for ABC. (Par. 22.) It is fair to assume that this reliance was bolstered by the representations that the ITT system already afforded subsidiaries substantial autonomy. At the supplemental hearing, on the other hand, it became clear that ITT was one of the most tightly and centrally run conglomerate companies in the country. (Graham 2609, 2615.) At that second hearing, where it was clear that there would be substantial testimony about the way ITT was actually run, Geneen's choice of wrods in describing ABC's relationship to ITT had changed. It was "a unique setup that we have proposed in the case of ABC" (Geneen 1870; see Geneen 1900, 1907, 1916, 1924.)
These examples could be multiplied further, but the lesson is fairly clear. On one or two occasions such lapses could be attributed to faulty memory. But the misrepresentations and exaggerations follow a consistent pattern: They all tend to strengthen the case for the merger. Under such circumstances the conclusion is inescapable that they are part of a knowing attempt to mislead the Commission. They must, therefore, substantially detract from the majority's reliance on such self-serving statements in struggling to justify the merger.
B. Overbearing Conduct
There are several other incidents revealed by the record which show the disdain in which ITT holds this Commission and other persons and institutions in our society, seen as bothersome obstacles in the way of the merger or other ITT design. Such conduct is relevant to the credibility of ITT's self-serving statements generally, and especially its assurances to this Commission of its regard for the integrity and independence of ABC programming decisions and of its sense of responsibility in making commitments to this Commission as a broadcast licensee.
Within the past 2 years and with the necessary Commission approval, ITT acquired Press Wireless, a specialized international carrier serving the press. Subsequently, and without the necessary Commission approval, ITT transferred the company from one subsidiary to another. Then ITT sought Commission approval of the transfer. Despite numerous contacts with the Commission staff aimed at expediting approval, ITT officials never informed the Commission that the transfer had long since been accomplished. (Samuelson 3346-3348; BB proposed findings 107-116.) thus, having arrogated to itself the right to shift ownership of the regulated carrier without the required Commission consent, ITT then concealed this fact while trying to obtain subsequent ratification of the result.
The most shocking example of the measures which ITT has employed in pursuit of this merger is its treatment and attitude toward the working press reporting these proceedings. Three reporters testified regarding contacts with ITT officials. An AP and a UPI reporter testified to several phone calls to their homes by ITT public relations [*594] men, variously asking them to change their stories and make inquiries for ITT with regard to stories by other reporters, and to use their influence as members of the press to obtain for ITT confidential information from the Department of Justice regarding its intentions. (Aug 2997-3003, Stout 3003-3021.) Such repeated remonstrances and requests, and the willingness to contact the reporters at home, indicate a zealousness which we believe, at least, to be an unusual evidencing of extraordinary sensitivity to press treatment.
Far more serious were the several encounters between ITT officials and New York Times Reporter Mrs. Eileen Shanahan Waits, known professionally as Eileen Shanahan. Miss Shanahan testified that she had been contacted by ITT officials on five or six occasions. Several were brief encounters, and she elaborated only on the four most important conversations. (Shanahan 2957.)
In one short call, an ITT official, whose identity Miss Shanahan could not recall, communicated a company response in one of the developments of the case and said "something to the effect, 'I expect to see that in the paper, high up in your story." (Shanahan 2958.)
On another occasion Edward J. Gerrity, senior ITT vice president in charge of public relations, came to her office with another man whose identity she could not recall. In an indirect way Gerrity asked to look at the story Miss Shanahan was then writing, a request which she considered "an improper thing to ask a reporter," a fact which she felt Gerrity also knew. (Shanahan 2959.) Gerrity asked her if the Times was going to run the text of an FCC order dealing with the case (an order which commented on the lateness of the Department of Justice request for reconsideration). She indicated that it was not a significant enough document, but Gerrity persisted and said, "You mean you did not even recommend the use of text." (Shanahan 2959-2960.) She described Gerrity's tone on this occasion as "accusatory and certainly nasty," and said, "He badgered me again." (Shanahan 2961.) The conversation continued and Gerrity asked whether she had been following the price of ABC and ITT stock. When she indicated that she had not, he asked if she didn't feel she had a "responsibility to the shareholders who might lose money as a result of what" she wrote. (Shanahan 2962.) She replied that "My responsibility was to find out the truth and print it." (Shanahan 2962.)
Gerrity then asked if Miss Shanahan was aware "that Commissioner Nicholas Johnson was working with some people in Congress on legislation that would forbid any newspaper from owning any broadcast property." (Shanahan 2962.) On cross-examination Miss Shanahan recalled that Gerrity had mentioned that Commissioner Johnson had been working with Senator Gaylord Nelson, of Wisconsin, on this legislation. (Shanahan 2976.) (The one of us directly involved hereby flatly denies any such collaboration, as has Senator Nelson, who further made it clear that Commissioner Johnson and he had never met.) Gerrity, according to Miss Shanahan, felt that this false information was something she "ought to pass on the [her] * * * publisher before [she wrote] * * * anything further about [*595] Commissioner Johnson's opinions in anything." (Shanahan 2962.) (Commissioner Johnson dissented to the original approval of the merger.) The obvious implication of this remark, as Miss Shanahan apparently recognized (Shanahan 2962), was that, since the Times owns radio stations, it would want to consider its economic interests in deciding what to publish about broadcasting in its newspaper.
This single incident, one might note, evidences (1) overbearing behavior generally; (2) an insensitivity to the independence of the press; (3) a contempt for the proper functioning of government; (4) either a willingness to engage in deliberate misrepresentations of fact, or incredible naivete in accepting and spreading unsubstantiated rumor; and (5) an attitude completely accepting the propriety, indeed the inevitability, of news reports reflecting the extraneous economic interests of a reporter's friends or employers.
The third encounter between ITT officials and Miss Shanahan was in February of 1967, after the Department of Justice had filed documentary evidence with the Commission and Miss Shanahan had written a story on those filings. John Horner, ITT's head of public relations in Washington, called Miss Shanahan and immediately accused her of being unfair in her reporting. (Shanahan 2963-2964.) He objected to several parts of her story but particularly to her report that the Department of Justice was expected to go to court if the Commission refused to reopen the case. Horner told Miss Shanahan that the Department of Justice "had issued a statement saying that it would not go to court." (Shanahan 2965.) She had not heard of any such statement, so she asked Horner to read it to her. He did, and the statement turned out to say that "the Department had not decided what it would do if the Commission refused to reopen the hearing." (Shanahan 2965.) Miss Shanahan pointed out to Horner that he had "improperly characterized" the statement. (Shanahan 2965.) Horner insisted that her treatment had been unfair, and she became angry. Her colleagues tell her that she "shouted at him." (Shanahan 2966.) After the conversation with Horner had ended, Miss Shanahan checked with the Information Office at the Department of Justice because she had never heard of the statement which Horner had said the Department had issued. It turned out that the Department had never issued any such statement but that the information had been contained in a private communication to ITT. (Shanahan 2984.)
On another occasion, during the course of the supplemental hearings, Miss Shanahan returned to the hearing room, having missed some of the proceedings. She encountered Horner, who informed her of an incident which had taken place in her absence, and then said twice, "And I expect to see headlines just as big on this one as on what happened the other day" (Shanahan 2967) -- presumably a reference to stories reporting the hearing examiner's comments upon discovering the applicants were violating his order by slipping notes to witnesses supposed to be uninformed of others' testimony. She characterized his tone as "insistent and nasty." (Shanahan 2968.) Miss Shanahan, who has worked for the New York Times as a reporter for 5 years, could recall only one comparable incident in all that time. (Shanahan 2970.)
This conduct -- in which at least three ITT officials, including a [*596] senior vice president, were involved -- demonstrates an abrasive self-righteousness in dealing with the press, a shocking insensitivity to its independence and integrity, a willingness to spread false stories in furtherance of self-interest, contempt for Government officials as well as the press, and an assumption that even as prestigious a news medium as the New York Times would, as a matter of course, want to present the news so as to best serve its own economic interests (as well as the economic interests of other large business corporations). Despite this, ITT offered no rebuttal of any of the testimony of Miss Shanahan.
The record is silent on whether the conduct was ordered, encouraged, or merely condoned by the top management of ITT. The least that can be said is that the officials involved presumably thought they were acting in accord with the wishes or policies of top management, or in the interests of the corporation. There is no evidence of any contrition on the part of the officials involved or of any reprimand having been administered to them. Indeed, although the parties characterize the conduct in their brief as seeming "overzealous to Miss Shanahan" (ABC-ITT findings, p. 104), ITT has failed to this day to concede that it was improper.
ITT officials performed these acts and displayed these attitudes in a period which should have been filled with incentive for the most exemplary behavior because of the company's assurances about ABC's freedom from news management and pressure. Certainly, it is likely that never again will there be such a depth and immediacy of public scrutiny of ITT's posture in this regard. Yet, with full knowledge of this public attention, ITT not only failed to match its assurances about the future with its deeds of the present, but actually conducted itself in a deliberate manner that gives these assurances a distinctly hollow ring. If ITT behaved this way toward media it did not own with the spotlight on it, how much credibility can be given to assurances that ITT would not be led to similar conduct toward its own subsidiary when the pressures, subtle and overt, can be transmitted with a minimum of visibility and accountability? It is not unreasonable, therefore, to believe that ITT would evidence similar disdain for ABC as a press medium, whether arising from such misguided managerial elan or conflicting business goals inherent in its conglomerate and international operations.
There is no direct evidence of Geneen's involvement in Gerrity's or Horner's conduct regarding the Times. But that is no answer. Either their conduct was expressly directed, or they assumed it was what would be expected of them under the circumstances. Obviously, they were not on a frolic of their own and must have assumed they were serving ITT's interests. Even if this behavior were expressly prohibited by company policy (which has not been even suggested by ITT), ITT would then be left with the fact that it cannot guarantee ABC's autonomy. If it cannot control its own senior vice president's conduct it has little hope of controlling lesser officials and employees.
Whatever may have been Gerrity's and Horner's instructions in this instance, however, there is record evidence that, on at least one other occasion, Geneen did expressly call on Gerrity to apply pressure to an organization which was rumored to be taking action inimical to ITT's [*597] interests. On July 11, 1966, Geneen sent a memorandum to Gerrity, in which he said,
"Leonard Goldenson tells me that Art Nielsen's company has approached them re elimination of the 30 market Nielsen ratings.
"As you realize, ABC has the most interest in the continuation of these ratings because they are the one place that they can show program performance on an equal coverage basis since there are 30 markets in which all three networks are fully represented.
"We have reason to believe that probably Columbia Broadcasting is behind such a move.
"In any event, will you call Art Nielsen and sound him out for (a) objections to doing this; and (b) suggest in a gentle way that since ABC is in the underdog position that the elimination of these ratings at this point would have a serious effect on its advertising presentation capability and competitive position and 'we wouldn't blame them at all' if they wanted to react with a congressional inquiry or whatever thoughts you come up with that might make him think twice about doing it.
"Somehow or other, as long as he is getting paid for it, why should be cut it out except for reasons of such pressure." (J 322.) [Emphasis added.]
The wording of this memorandum is ambiguous as to whether the possible reaction with a congressional inquiry is ascribed to Nielsen (against CBS) or ABC (against Nielsen). It makes little difference. In any case the memorandum reflects (1) a premature assumption of managerial involvement in ABC's affairs before the merger was approved, (2) ire at the thought of someone bucking even a hoped-for ITT enterprise, (3) an assumption that congressional investigations can be turned on and off by any business, and (4) that threats of congressional investigations are an accepted way to accomplish things in the business world in which ITT travels. If Geneen was reporting that ABC might consider a congressional inquiry, it would seem to be an example of the acceptance by both companies of the practice of business by intimidation.
The conduct by ITT lawyers during the supplementary hearings, and in preparation therefore, has been no less highhanded. One lawyer telephoned a witness proffered by the Department of Justice, and, in a 2-hour conversation, tried to get him to change three sentences in the testimony which he was proposing to give. (Hill 1704-1715.) On cross-examination, when asked if he felt he had been pressured, his first reaction was: "It depends. I am fairly tough, but 2 hours on a telephone, you know. I don't know. You can interpret that in your own way." (Hill 1721.)
Earlier in the hearing another example had come to light of the disregard by ITT lawyers of the normal processes of litigation. The Chief Hearing Examiner, who was conducting the hearing, ruled on the first day that all subsequent witnesses be excluded from the hearing room while any witness was testifying. Later that same day one of the lawyers for the Department of Justice complained that "Mr. Brittenham (ITT's general counsel) was walking out with notes, and taking them into the conference room and giving them to the witnesses in there, and he so admitted to me when I saw him in the hall just a few moments ago." (R 901.) The Chief Hearing Examiner immediately ruled, "The practice will be discontinued. It is improper." (R 901.)
In addition the ABC lawyers must be held in large part responsible [*598] for the extraordinary testimony of Wilbur L. Ross, Jr., a genearl partner of the Wall Street firm of Faulkner, Dawkins & Sullivan.
ABC offered Ross as an expert witness to comment upon testimony and financing proposals offered by Prof. John Burton, an expert proferred by the Department of Jstice. Professor Burton had incorrectly assumed that ABC's pretax earnings had declined 0.1 percent from 1965 to 1966. In fact, these earnings had increased approximately 10.5 percent in that period. Ross knew throughout his testimony that Burton had been in error. (Ross 3776.) Nonetheless, without any indication that he knew of an error in Burton's assumptions, he testified as if they were true.
Ross indicated that he had studied ABC's past earnings history and,
when asked, "What did you find that to be?", he said, "We find
the following pattern. Between 1961 and 1962 pretax earnings rose 7
percent. 63 over 62, pretax earnings declined 28 percent. 64 over 63, they rose
by 35 percent. 65 over 64, they rose by 30 percent. 66 over 65, they declined
by one-tenth of 1 percent." (Ross 3561.) An ABC exhibit had forecast a
15-percent growth in earnings per year for ABC over the next 4 years. (AR
3.) ABC's earnings had risen in 4 of the past 5 years, but Burton's erroneous
assumption indicated that they had risen in only 3 of those years. When
asked if a lender would contrast ABC's forecast with the history, Ross
testified, "Presumably you would have to explain why the future would be
so markedly different from the past and, of course, it is a very dramatic
difference, whereas in 2 of the past years you have had actual declines in
earnings as opposed to this progression of compound growth in the future."
(Ross 3561.) [Emphasis added.] When comparing ABC with several other group
owners of broadcasting stations, Ross again said "None of the group
companies has any down year in earnings indicated on the whole sheet.
American Broadcasting has two pretax declines out of the 5-year period."
(Ross 3576.) When asked if a lender would take these differences into account,
he said, "Yes, sir, I believe he would." (Ross 3576.) Again, in
testifying about how a lender would view ABC's 15-percent projection, he said,
"It is a difference from the historic pattern * * * which would be 15
percent compounding of growth as opposed to the most recent pattern from '61
through '66 which was interrupted in 2 years and in the third year of which the
rate was below 15 percent." (Ross 3609.) [Emphasis added.]
Despite ABC's counsel's later suggestion that Ross was simply comparing his results with Burton's and using Burton's assumptions, this was never made explicit, and is at odds with the direct and unequivocal nature of Ross' answers. It is also contradicted by his willingness to update other statistical assumptions by Burton with more recent information (Ross 3566, 3571, 3572, 3575.) Ross indicated that he had personally examined ABC annual reports going back to 1958 (Ross 3769), yet he never indicated, until pressed on cross-examination, that his conclusions were based on information he knew to be erroneous. It is impossible to tell which portions of Ross' testimony, except those adverse to the applicants' interests, are worthy of belief, because it cannot be determined how much of it is based on inaccurate information. But more than that, ABC's attorneys must be charged with complicity [*599] in this further example of not only unhelpful but positively misleading information.
In our view, this recurrent conduct on the part of ABC and ITT
officials and attorneys has gone far beyond the bounds of natural prejudice and
advocacy. The examples are far more numerous than we have recited. More
can be found in the proposed findings of both the Department of Justice and the
Broadcast Bureau. We cite this deeply disturbing pattern of behavior
because we believe it makes it impossible to approach the self-serving
testimony of applicants' officials with anything but skepticism. And it
is that testimony which constitutes a major part of the majority's
"justification" for this merger.
With this substantial qualification clearly documented, we now turn to an analysis of the issues in this case.
III. The Merger's Effect Will Be To Diminish Competition in Broadcasting
One of the issues in this case has been ITT's interest in, and potential impact upon, the broadcasting industry without the merger. Will the merger tend to discourage competition in broadcasting? If so, the public interest will not be served. In searching for the answer one necessary inquiry is the extent of ITT's past, and potential future, interest in broadcasting had it not acquired ABC. If, without ABC, ITT would have been an additional competitive influence in the broadcasting industry then the merger does, to that extent, diminish competition.
The record reveals rather clearly that ITT has had a longstanding and active interest in broadcasting and related enterprises.
Had ITT not acquired ABC, it seems likely that it would have acquired a significant group of television stations in major markets. It would then have been in a position either to start a fourth network when the time became ripe, or at least exert countervailing power in bargaining for programs with the existing networks. Without regard to its influence on networking, it would have been a substantial force in broadcasting.
Had ITT not acquired ABC, it likewise seems quite possible that ITT would have pursued its admitted interest in cable television (CATV) to the point where, had the regulatory and economic climate been propitious, it might have created a substantial competitive influence on broadcasting.
ITT might not have pursued both interests, because in certain respects they are mutually inconsistent. But active pursuit of one or the other, which seems quite likely, would have brought refreshing breezes of competition to the tightly oligopolistic broadcasting industry.
Radio and, to an even greater extent, television and networking are businesses characterized by limited possibility for entry. Indeed, this was one aspect of the industry which ITT found most attractive. (J 238, p. 2.) There are physical limitations on the number of usable broadcasting signals which can be transmitted in any given area at one time. In addition, there are many other uses competing for the valuable radio spectrum. This has led to an intricate scheme of Federal [*600] regulation, placing severe limits on the number of broadcasting stations in any geographical area. Thus, while the Los Angeles area has 12 authorized television stations, many populous areas of the country receive only three, two, or even fewer usable signals. As a result, television broadcasting is necessarily oligopolistic.
Although this same physical and governmental restraint does not make networking (defined as the simultaneous interconnection of one or more broadcasting stations) necessarily oligopolistic, the economies of scale in program distribution have conspired with the restraints on numbers of stations to produce only three national television networks and four national radio networks. While the importance of networking to radio has declined greatly since the rise of television, the networks have continued to dominate television program production and distribution. This has meant that three large corporations are responsible for the bulk of the television programming which goes into American homes.
Anything which can be done to relieve this high degree of concentration in both local and national broadcasting is desirable. Both Congress and this Commission have recognized this fact in the encouragement given to UHF television by the all-channel law (requiring that all new television sets be capable of receiving the UHF portion of the spectrum) (47 U.S.C., sec. 303(s) (1964); 47 CFR, sec. 15.65 (1967)). Thus, to the extent that ITT might have become a competitive force in broadcasting and networking we must be particularly wary of allowing its joinder with one of the country's three major broadcasters.
A. ITT's Interest in Broadcasting Stations
As we mentioned, last September Geneen testified that:
"We did hold some conversations from time to time in a general way, with people who purported to think we should get into stations, and that sort of thing, but we never got anywhere with that." (Geneen 592.)
Let us examine for a moment the full impact of these "conversations" with "others" urging a disinterested ITT into the broadcasting business.
John Graham, then an ITT vice president and director, suggested as early as 1963 that ITT acquire the legal limit of five VHF television stations. He was also enthusiastic about radio and UHF television stations. The reaction of Harold Geneen, president of ITT, was "very favorable." (Graham 2603.) Graham testified that he and Geneen visited the Hartford station WTIC in August or September of 1963, and that Geneen there made an offer of $35 million for the station. (Graham 2599; see J 138, 139, 140, 141, 143.) See section II, supra.
At about the same time ITT was actively exploring the possibility of purchasing WJIM in Lansing, Graham testified that "we initially were interested in the station and it looked to us like an excellent property." (Graham 2601.) ITT "discussed with * * * (Gross, the owner of WJIM) the possibility that if he came with ITT, with the station, and we put together a chain of stations, that he might well be interested in being manager." (Graham 2601.)
In 1964 ITT was actively interested in acquiring station WATE, Knoxville, Tenn. (J 175, 176, 177, 178, 179.) The company was busily engaged in researching the entire broadcast industry. (See J 174, 175, 176, 182, 207, 208, 211, 227, 230, 238, 332.)
[*601] At the same time a broadcasting station broker was exploring the possibilities of ITT's acquiring various groups of television stations, Geneen himself had indicated ITT's interest to the broker. (Stark 2635.) With ITT in mind the broker spoke to the owners of three station groups, Storer, Corinthian, and Capital Cities. (Stark 2636-2637.)
In February of 1965, ITT Vice President Robert H. Kenmore sent a memo to Geneen containing "background information on the leading TV broadcasting independent groups, in the event the AB-P (ABC) discussions stall." Kenmore said, "Storer and Taft appear to be the most interesting since each of them already has five VHF stations in the Top 50 markets, yet each seems to have some leverage potential since their stations are currently not No. 1 in the market. * * *" (J 222.)
In short, ITT was actively pursuing the possibility of entry into television broadcasting in ways that went substantially beyond "some conversations from time to time."
Entry by purchase of one or more individual television stations, a group of stations, or application for licenses was not pursued further because "[ITT's] policy has not been to more aggressively in this direction until we would be convinced that none of the three major networks (and their group of owned stations) might be available." (J 238, p. 1.) ITT's lessening of interest in broadcasting was wholly the product of its hope for ABC. Without ABC it seems overwhelmingly clear that ITT would have been, and would be today, actively pursuing its interest in broadcasting.
B. ITT's Interest in CATV and Pay-TV
And what did Geneen have to say about ITT's interests in CATV last September? Just "some very small CATV experimental operations," he insisted. (Geneen 516.) What do the contemporaneous documents disclose? Quite a different picture.
By June of 1965, Federal Electric Corp. (FEC), and ITT subsidiary, was reporting that "A full-scale CATV effort is now underway at FEC." (J 119.) Although ITT's investment took the form of loans, it is clear that its objective was to be in a position to obtain operating control of the CATV companies in which it was investing. (J 74.) FEC's president testified that "we tried to negotiate the greatest equity option we could. We found that since we were doing this type of financing, we could get the opportunity to own a majority of the companies. * * * The target was over 50 percent. * * * I think the lowest was 55 percent. * * *" (Chasen 839.)
The loans, as of June 25, 1965, totaled $4,150,000 to five CATV systems with future rights to control the companies. But ITT-FEC's ambitions were clearly more grandiose.
An ITT CATV status report indicated that "loans could reach $10 million in 1965 and possibly minimum of $10 million more in the first 6 months of 1966." (J 119.) One entrepreneur, with whom ITT negotiated, testified that the ITT officials indicated "that they already spent something like $10 million invested in CATV, that within a year he felt that they would have something like $25 million and that they intended to become the largest in the United States in CATV. * * *" (Levey 3150.) [Emphasis added.] Pretty expansive "small experimental operations," it would seem.
What is more, ITT was discussing and pursuing the "possibility of ownership of 'transmission channels' from one CATV area to another [*602] (with FCC approval) and the possibility of creating a network linking whole areas of local CATV's franchises. * * *" (J 74, p. 3; J 129, p. 3; J 199, p. 23.) In response to inquiries by Geneen, two ITT officials directly concerned with CATV reported early in November 1965:
"FEC has consummate interest in acquiring interconnecting communications carriers and has looked at systems. * * * There is no question, insofar as FEC planning is concerned, about the desirability of acquiring such systems; however, maximum attention at this point in time is being devoted to the acquisition of CATV systems. The development of FEC progress in 1966 and 1967 in the CATV field will undoubtedly include situations involving the possible acquisition of microwave carrier systems. (J 122, p. 4.) [Emphasis added.]
This would have constituted a substantial advance in the art, and
competition for broadcasting: Essentially a nationally interconnected grid of
wired systems that could provide a service like today's conventional
And ITT was also acutely aware of the interrelated possibilities of CATV and subscription television. (J 119, p. 23; J 74, p. 2.) The development of a substantial system of subscription television (pay-TV) has long been recognized as major potential, but unrealized, competition for broadcasting. In 1965 ITT was discussing the possibility of purchasing an interest in a subscription television system. (Levey 3147.) And FEC was designing its systems "to minimize the cost of conversion into pay-TV." (J 119, p. 23.)
It is clear that, at the present time, ITT's interest in CATV, especially in large interconnected systems and pay-TV, has cooled considerably. The question is why? The applicants contend that ITT's evaluation of its CATV position was wholly independent of its interest in ABC. We think the evidence, and commonsense, indicate otherwise.
As of November 1, 1965, Geneen, while still enthusiastic about the CATV and related possibilities, was cautious about the "possible high risks in such a new industry. * * *" (J 74, p. 3.) A policy meeting on CATV was held on November 2, at which a tentative freeze was placed on new CATV activity by ITT. Although the company maintained some interest in its existing and even new CATV opportunities, it is clear that the more ambitious proposals were pursued no further; but the final decision "not go forward * * * at least not at that time" was not made until January of 1966. (Vollbrecht 985.)
The record is unclear on the reasons for ITT's diminishing interest in CATV and related activities. On the one hand, the unanimous testimony of all ITT officials is that the possible merger with ABC played no part whatsoever and was not even mentioned at the November 2 meeting at which the freeze was imposed. But, although detailed records are available of other meetings, no minutes of that significant meeting are extant. (Chasen 930-931; Vollbrecht 998; Geneen 1809-1810.) The parties argue that the merger possibility could not have entered into the freeze decision because discussions with ABC had been suspended at the time and were not resumed until 2 weeks after the November 2 meeting. (ABC-ITT findings, p. 81.) But this is hardly persuasive, because it was Geneen who reinitiated discussions with ABC on November 16, 1965. (Goldenson 1486.) Whether or not he [*603] mentioned it at the November 2 meeting, Geneen may well have considered the merger possibility in arriving at the freeze decision.
Moreover, there is significant evidence that the merger possibility did play a part in the suspension of ITT's more ambitious CATV plans. ABC and ITT entered into a preliminary contract of merger on December 7, 1965. Later the same month, an ITT official prominently involved in ITT's CATV activities sent a memorandum to Geneen with regard to ITT's CATV plans. In it he said:
We have not yet been able to satisfy ourselves on a go or no go
decision. We expect to do this within the next 2 weeks.
* * *
We are aware of the need of cooperation with ABC and plan to work out the details as soon as our internal planning has been completed. We also plan to request their audit of our decision to go or no go. (J 126, pp. 2, 4.)
ITT officials offered two interpretations of this language emphasizing the need of cooperation with, and "audit" by, ABC. One felt in meant ABC would comment on ITT's checklist for evaluating CATV systems, because the "ABC people have an expertise in broadcasting." (Vollbrecht 971.) Another wanted to discuss with ABC which programs to carry on multichanneled systems. (Chasen 892.) Unfortunately, these appear to be not too ingenious afterthoughts. Much more plausible is the hypothesis that ITT wanted to discuss with ABC whether its CATV plans were a wise investment for an owner of a major broadcasting network. This is the only discussion which would amount to an "audit of our decision to go or no go." In short, it is reasonable to conclude from the record that ITT's apparent "no go" decision was attributable, at least in part, to its decision to merge with ABC. The demonstrated willingness of ITT officials to minimize the facts adverse to their cause makes their protestations to the contrary of little probative value. Indeed, in a 1967 summary of ITT's CATV activities, "conflict with broadcasting operations" is cited as one possible reason for not continuing in the CATV business. (J 363, p. 5.)
C. Competitive Impact of ITT's Independent Entry Into Broadcasting and CATV
It is clear that ITT put aside its intense interest in other broadcasting properties when it decided to merge with ABC. And it seems quite possible that ITT's "no go" decision in CATV and related fields was, at least partially, attributable to the merger decision. But the question still remains whether ITT's choice of merger rather than one or both of the other possibilities (broadcasting and CATV) has or will have a detrimental effect on competition in broadcasting and networking.
ITT and ABC argue that there is no evidence that ITT ever contemplated starting a television network on its own. While, this is true it evidences too narrow a focus in assessing the competitive possibilities. Intent can hardly be determinative, for business possibilities go through a constant process of evolution, and the unintended remote possibility of today may be tomorrow's eagerly pursued business venture. This is surely the import of the Supreme Court's recent unanimous decision in Federal Trade Commission v. Procter & Gamble Co., [*604] 35 U.S.L.W. 4329 (Apr. 11, 1967), where potential entry by the acquiring firm was one basis for disallowing a merger despite the absence of management intent to enter the market by internal growth.
ABC and ITT have suggested that there are more probable independent entrants to the network market than ITT. Even were this true, it is not determinative of the merger's impact on competition in broadcasting. But let us examine the network argument.
Goldenson indicated that multiple owners in major markets which already produce programs for syndication were much more likely to start a fourth network than was ITT. As examples Goldenson offered Metromedia, RKO General, and Westinghouse. (Goldenson 1679.) This seems plausible, but, if ITT were to have acquired a number of individual stations, or a group, the possibility of its venturing into networking -- with ITT's vest resources and technological capabilities -- might well have equaled or exceeded that of the other independent groups. ITT's active interest in broadcasting in general, and groups with five VHF's in the top markets in particular (J 222), likely would have placed it in that very situation had it not been for the merger. Thus, If ITT were to acquire any of the group owners which Goldenson deemed to be the most likely network entrants, it would, by that fact, be at the edge of the network market. In truth, the likelihood of a fourth network is remote at this time. But this is due largely to a paucity of stations available for affiliation in major markets. (Goldin 3051-3053.) ABC and ITT admit that the increasing viability of UHF stations will provide the outlets which will make a fourth network feasible. (ABC-ITT findings, p. 70.) Should full UHF development come about in 5 or 10 years -- as now seems quite possible -- ITT would have been one of the few most likely entrants into the network market if it owned a substantial group of independent stations in major markets.
It is a mistake, however, to think that national networking is the only relevant competitive arena. One of the possibilities ITT was considering was acquisition of a string of UHF licenses. (J 207, p. 3.) Well-financed UHF stations may well invigorate television competition in their individual markets, regardless of the possibility of their developing into a national network. Indeed, a chain of VHF stations, controlled by a company with the resources of ITT, might well bring a healthy competitive influence to bear on the networks even if it does not undertake network operation. It is likely that the ownership of a group of stations by Westinghouse, with its resources for syndication, has had an influence in keeping network prices down and quality up. ITT, as a group owner, would exert a similar influence, and this would be competition.
Whether the competitive influence which will be foreclosed by ITT's acquisition of ABC amounts to a violation of section 7 of the Clayton Act, 15 U.S.C., section 18 (1964), is really irrelevant. We are not enforcing the antitrust laws, but rather weighing the potential benefits and the potential harm of this merger. The likely competitive loss from the foreclosure of ITT from acquiring independent stations is substantial and significant.
[*605] Perhaps as significant is ITT's now abandoned CATV
activity. There can be little doubt that the competitive potential for
CATV, and for ITT in CATV, was and is very great. By multiplying the
number of signals brought into the home, CATV provides numerous alternatives to
the broadcasting fare of the existing three networks and any independent
stations available. This again is competition. ABC has certainly
recognized the competitive threat of CATV. It has taken a strong position
before this Commission in opposition to the uncontrolled proliferation of CATV
operations. See ABC petition in
docket 15971 (October 16, 1964).
It is true that this Commission's regulatory scheme is preventing the unrestrained growth of CATV systems. See CATV Second Report and Order, 2 F.C.C. 2d 725 (1966). But the regulatory issues in the area are not finally resolved, and CATV continues to grow apace despite the Commission's regulatory inhibitions. Thus, we stressed in the CATV Second Report and Order, 2 F.C.C. 2d 725, 788-789 (1966), that we are not committed to the status quo -- to protecting existing investment against new technological advances. The whole history of this art has been one of great change, from radio to television to perhaps tomorrow satellite broadcasting or laser communication. It may be that CATV, if allowed full unfettered growth, would prove to be an excellent supplement, bringing additional service and diverse programming to millions of people in built-up areas who can afford it, without detriment to the provision of additional local broadcasting service to the entire Nation. If so, the information obtained in the hearing process will provide that indication, and will be the basis for authorizing such growth. But we cannot make that judgment in the record now before us -- and, instead of the above picture of wire television as an excellent supplement, there is the possibility that the Nation might find itself with a system half wire, half free, which is destructive of the larger goals of additional networks, additional outlets for local expression, and which provides increased service to some in the city at the expense of those in the rural area or those who cannot afford to pay. It is, we think, time to get the facts, and in light of the service presently available there is time to get the facts.
The three of us are not of one mind on what the final resolution of the CATV conundrum should be. But we do feel the Commission should not foreclose future options when the industry is so obviously in a state of flux.
ITT and ABC argue that there is no evidence that CATV competition to broadcasting will be diminished because of the loss of ITT. The parties point to other "substantial firms" in the CATV industry, but they introduced no evidence to show how these firms compared with ITT, and no company to which they can point, except General Electric seems to have resources comparable to ITT. (See ABC-ITT reply brief, p. 58.) There is record testimony that ITT intended to become the Nation's largest CATV owner. (Levey 3150.) Its consideration of an interconnecting grid to link up various areas of the country could have a marked impact on competition in broadcasting and is not shown to have been considered by any other company. And, finally, probably no other company in CATV, not even General Electric, has the experience with cable communication and research which is one of the strengths of ITT.
[*606] Again we note that whether or not the merger constitutes a violation of the Clayton Act is not the issue. ITT may well have abandoned its CATV operations because of the merger, and that abandonment may have serious implications in dampening competitive forces in broadcasting.
IV. The Merger Will Tend To Impede Growith of Communications Technology
Another disputed issue in this case is the impact of the merger on competition in broadcasting and related technologies. The applications contend that ITT's incentives to innovation will be heightened by the merger. We believe ITT's alliance with the status quo in American broadcasting would produce quite the contrary result. Here's why.
How about UHF technology? The record reveals minor incentives which ITT might have as a result of the merger to foster technological advance in UHF broadcasting. It appears, however, that retardation of UHF technology would be more in ITT's long-range interest. And in other areas of broadcasting and communications, it is quite clear that ITT's interest after the merger will be in impending and obstructing rather than advancing new technology.
The pace of technological innovation with implications for broadcasting has been advancing and continues to proceed at an almost revolutionary pace. Cable television and satellite transmission have been the two most mounmental developments of the past decade. The near future can reasonably expect some developments in UHF transmission and reception, ground transmission through further cable developments, new techniques such as lasers, even domestic transmission by satellites, and possibly satellite-to-home broadcasting. Other yet more revolutionary breakthroughs cannot now be specified, but if the recent past is any indication entirely new techniques will continue to develop. The pace and direction of these developments is, however, not yet determined and will be seriously affected by the economic incentives of the various companies involved.
ABC and ITT have made much of the aid which ITT will give to UHF broadcasting. ABC has significantly fewer primary television affiliates than either of the other two national networks -- 137 for ABC and CBS's 192 and NBC's 206. If UHF reception and transmission can be improved, the parties argue, ABC will stand to benefit because, as more and more television sets have UHF capability, more profitable UHF stations with competitive audiences will be available for ABC as potential affiliates. And, indeed, there is some evidence that ITT has intensified its UHF research since the merger was agreed upon. There is plausibility and, we think, a certain validity to this argument. But the great advance of UHF will come about quite naturally as a result of the 1962 all-channel law and FCC implementing regulations. 47 U.S.C., section 303(s) (1964); 47 CFR, section 15.65 (1967). ITT may be able to affect the quality of UHF reception, but it is virtually powerless to affect the quantity of sets receiving UHF. (Better reception might stimulate set sales, but this effect would most likely be very slight.) Most set manufacturers have [*607] incentives similar to any ITT might possess to improve UHF reception, so that ITT's ultimate impact would, in any case, probably be slight.
More than this, however, we think the supplemental hearing has demonstrated the extent to which ABC's interests with respect to UHF are really quite ambivalent. While there can be no doubt that primary affiliations are important to a network, it now appears that ABC has been able to overcome the gap in affiliates to a great extent through popular programming. This fact was not fully apparent to us at the time of the September hearing. Commission rules forbid stations from foreclosing themselves by contract from carrying programs by networks other than that with which they are primarily affiliated. 47 CFR, section 73.134 (1967). Thus, ABC has succeeded in clearing its programs on many more stations than its lineup of primary affiliates would indicate.
Despite the fact that ABC's 137 primary affiliates reach 93.4 percent of the national television audience, in prime time ABC's programs are, in fact, carried on approximately 176 stations reaching 96.8 percent of the audience. In prime time CBS and NBC are not able continuously to command time on their 200 or so primary affiliates. CBS averages about 186 stations and NBC about 189, and they reach 98 and 97.8 percent of the prime-time audience, respectively. (Sonkin 3381.) ABC's success in obtaining prime-time exposure despite its affiliate deficiency is further demonstrated by the fact that ABC receives approximately 31 percent of prime-time network revenues while obtaining only 27 percent of total network revenues. (See J 273.)
Thus, it is in the early morning and late night, when NBC dominates network television, and the daytime hours, when CBS holds sway, that ABC's overall performance falls behind. The clear import of these figures is that if ABC could improve its programming in the non-prime-time hours, its affiliate deficiency would be a surmountable obstacle. This is not to say that affiliates are of no importance. Other things being equal, a station will probably not change affiliations and will prefer to carry the programs of its primary network. But it is reasonable to say that ABC can advance and advance markedly -- as it has done in prime time -- without a significant increase in the number of affiliates available.
The other side of the UHF coin is that the great increase in the number of stations which a viable UHF system will bring may well provide significant competition to the existing networks, and ABC as the weakest network would be the most vulnerable. (Goldin 3053.) ABC and ITT recognize the threat from UHF, for they have stressed to the Commission that "by enhancing the viability of UHF broadcasting the merger will help to open the way to a fourth television network whether such a network takes the form of the present three networks or develops as some kind of specialized service." (ABC-ITT findings, p. 70.) Since ABC can narrow the gap between itself and its rivals by beefing up its non-prime-time programming schedule, ITT might be courting economic disaster by giving all-out support to UHF. In fact, the basic document presented to the ITT board in support [*608] of the proposed merger stressed the "limited access to new competitors" as part of the "unique attraction of the television broadcasting business." (J 238, p. 2.)
In short, since ITT is largely powerless to affect the UHF advance one way or another, and since its economic incentives with regard to UHF are ambivalent at best, there is no real reason to think that UHF will be aided by the merger.
In other areas of technological advance the evidence is quite unambiguous that the merger will act as an inhibiting force on ITT. ABC has clearly expressed itself in opposition to the proliferation of cable television. Likewise the perfection of satellite-to-home broadcasting, with the consequent bypassing of local television stations, would seriously disrupt the present system in which ABC and the other networks have a very great investment. ABC's most valuable properties are its owned and operated stations -- which might very well be rendered obsolete by satellite-to-home broadcasting. (See Geneen 1857-1858.)
Equally clear is the fact that ITT is one of the companies best situated to make advances in these areas of technology if unencumbered by a $400 million investment in the status quo. Bogdan R. Stack, of the Stanford Research Institute, testified that "the ITT corporation [is] in a unique position of having proven competence and capability to design, engineer, and install communications systems for use in practically any country in the world." (J 337, p. 3.) [Emphasis added.] Dr. Joseph V. Charyk, president of Comsat, testified that ITT is one of the four "most important [companies] in producing the communications equipment used in satellites" (J 339, p. 1), and that "ITT ranks among the top five companies in the field of satellite communications considering its capabilities in research and development, manufacture, and operation of telephone and telegraph systems." (J 339, pp. 1-2; and see J 337.)
Professor Hill, of the Massachusetts Institute of Technology, testified
that "the industry presently involved in television broadcasting and set
receiver manufacturing does not have a real incentive to change its present
technological structure, except for minor improvements in sets, unless this
change benefits the industry." (J 334, p. 1.) Professor Hill's conclusion
is worth quoting in full. He said:
"Turning to the ITT-ABC merger, and the issue of combinations between technology firms and large broadcasting interests, there is little basis for the suggestion, which is apparently advanced in this case, that the merger will contribute in a significant or major way to technological advances in the field of TV broadcasting. This does not rule out advances in components and techniques. The merger would result in another large communications-broadcasting firm, and there is no evidence that the new organization would have incentives different from its competitors." (J 334, p. 2.)
Likewise, Dr. Charyk testified that whether technologically feasible innovations "will be actually introduced and the timespan in which they will be introduced will depend on a variety of factors, including competition, economic cost and profitability, incentives to innovate, and resistance to change engendered by the present structure of telecommunications and broadcasting." (J 339, p. 3.)
The merging parties' basic answer to this impressive array of expert testimony is that "any company based on technology must compete [*609] and in order to survive it must improve its products and its operations even where this makes existing products and operations obsolete." (ABC-ITT findings, p. 89.) This argument either misconstrues the thrust of the economic disincentives which will be presented or is simply a further example of the applicants' disingenuousness in economic analysis. Of course, even a monopoly such as A.T. & T. (the American Telephone & Telegraph Co.) will, at times, make technological advances. (Hill 1752.) But the fact remains that in concentrated industries, such as broadcasting and telecommunications, where ITT's technological qualifications and capabilities are matched by only a few firms, occasions will undoubtedly arise when ITT's interest is clearly to retard innovation and advance because of its investment in ABC. Absent that investment, the incentive might be to proceed.
If record evidence is necessary to illustrate this rather clear fact of economic life, it can be found in Goldenson's testimony at the September hearing: "I am not so sure we would have such a receptive ear if we went to RCA to help us in markets where we would be in competition with RCA, * * *." (Goldenson 277.) Likewise the testimony is uncontradicted that the criterion employed by ITT in evaluating proposed research and development is the "overall company benefit." (Cookson 2873.) Thus, the only reasonable conclusion is that ITT, as a result of merger with ABC, would experience definite disincentives to technological advance in increasing the numbers of channels of access into the home for information and entertainment. Because ITT is one of a very few companies likely to make significant contributions to such advance in the future if not merged with ABC, approval of the merger will deprive the economy and the public of possibly significant technological developments.
The record is also clear that other companies with communications technological resources and abilities would be inhibited from vigorous research and pursuit of developments as a result of the merger. A statement was submitted for the supplemental hearing by Paul Visher, assistant manager of the Space Systems Division of the Hughes Aircraft Co. (J 338.) Hughes, along with ITT, according to Comsat President Charyk, is among the four most important companies in producing satellite equipment. (J 339, p. 1.) It was Hughes which developed a synchronous communications satellite system and, before the merger proposal, convinced ABC, as a large potential user of such a system, to sponsor a proposal for a synchronous domestic satellite before the FCC. Visher, quite understandably, concluded that, "If ABC had been connected with ITT, Hughes would not have felt it was either wise or potentially fruitful to approach ABC with such a proposal." (J 338, p. 2.) And the equally obvious lesson which Visher drew was "the general importance of keeping communications users separate from technology firms in order to assure a market for existing technology firms and thus encourage them to do communications research." (J 338, p. 1.)
No rebuttal of Visher's statement was offered by ABC or ITT, and their only contention now is that, "This lone industry witness contrasts with the 'several hundred' corporations working in areas relating to broadcast-technology innovations." (ABC-ITT findings, p. 93.) Of [*610] course, it was neither necessary nor practical to parade representatives of all broadcast-technology firms to testify to the same inhibitions; surely Visher's testimony shifted the burden of going forward to the applicants. But in any case the record is clear that Visher was a representative of one of the leading firms, not just one of several hundred, and Visher's firm had recently focused very carefully on the issues of cooperating with a network in the introduction of important new technology. Accordingly, we find ourselves necessarily agreeing with Visher that independent firms will be inhibited in their research and development if the merger is approved.
V. The Merger Will Substantially Impede ABC's Independent Position as a User of Common Carrier Communications Services in Proceedings Before the Federal Communications Commission
All three networks are large users of common carrier services. This includes both domestic service, where A.T. & T. is the principal supplier, and international service, where "Comsat estimates that during the years 1967-71 an average of 10 percent of all Intelsat circuits will be allocated to TV. * * *" (J 343, p. 19.)
The international carriers, including subsidiaries of ITT and RCA, have
a strong interest in the manner and cost at which Intelsat services are made
available to the private users for at least three reasons. They are
stockholders of Comsat, the dominant force in Intelsat. They own varying
but large portions of the earth stations whose facilities are necessary for
Intelsat service. And, most important, in the usual case, only the
international carriers have access to Comsat and through it Intelsat, so that
the private users must contract with the carriers in order to obtain the
international satellite service.
A history of the positions which the various integrated and unintegrated carriers and networks have taken before the Commission on recent common carrier proposals is pregnant with lessons on the likely effect of the merger. The record reveals that NBC, the RCA-owned network, fails to object to proposals in which RCA, the common carrier, has a strong interest. Likewise, the carrier refrains from objecting when NBC is a forceful advocate. The independent networks, ABC and CBS, arrive at independent positions. Is it not reasonable to assume that this merger will likely result in an ABC-ITT pattern similar to that now exhibited by NBC-RCA?
As might to expected the "carriers have unanimously opposed direct noncarrier access to Comsat and sought instead to safeguard their own status as sole 'authorized users.'" (J 343, p. 22.) This includes divisions of both ITT and RCA. Most of the large noncarrier users, including ABC, sought direct access to Comsat. The most notable exception was NBC, wholly owned subsidiary of RCA, which filed no comments. (Stipulation No. 1.) Likewise, when the Commission authorized direct television network leasing of circuits in the Early Bird satellite, and the international carriers petitioned for reconsideration, ABC and CBS opposed but NBC did not. (J 343, p. 30; stipulation No. 2.)
Although communications satellites are not yet in general use for
domestic transmissions, there are no remaining serious technological
[*611] barriers to be overcome at this time. Indeed, ABC sponsored
the first proposal for a private domestic satellite system. Perhaps the
principal regulatory issue in the area of domestic satellites is whether Comsat
should be the authorized owner and operator of any such system. The
networks, especially ABC and CBS, have opposed such exclusive rights for
Comsat. The position of the international carriers is, however, more
ambivalent. They do not operate domestically and, hence, the implications
of this development are not of direct concern to those carriers. Though
they are excluded from domestic traffic, as large stockholders of Comsat they
will obtain indirect revenue from a Comsat monopoly. And the precedent of
private operation of domestic satellites might undermine Comsat's and the
carriers' international position. On the other hand, ITT and RCA, of the
companies controlling major international carriers, are also in the business of
supplying hardware for satellite systems. A proliferation of domestic
systems would provide additional demand for this hardware.
From this complex of economic incentives most international carriers, including ITT, have determined to oppose the networks' espousal of private domestic systems -- at least for the near future -- except for RCA, whose common carrier subsidiary did not enter the domestic proceeding. (Stipulation No. 4.)
It is difficult to escape the conclusion from this examination of recent issues in the common carrier field that the divergence of the positions of the NBC-RCA complex from those of the other networks, and carriers, is attributable to the intracorporate balancing of interests within RCA. (See Levin 2897.) And we think it quite reasonable to assume, and we find, that, after merger with ABC, ITT will engage in the same kind of internal balancing, with the consequent loss to the Commission of yet another voice on issues where network and carrier interests diverge. In some areas the loss of this voice, while unfortunate, might be tolerated because numerous comparable entities remain. On the authorized user question, ABC was one of 19 private users opposing exclusive carrier access. (J 343, p. 29.) But networks -- of which we have but three -- are rather specialized users of communications facilities with separate interests. For example, it was only the networks which were originally granted direct access to Early Bird circuits. In such instances loss of ABC's independent views will be quite significant, because the independent networks, now only two, will be reduced to one. To say that independent presentations are insignificant because ultimate decisions must be made by the Commission is extremely shortsighted. As is well illustrated by this very case, independent advocacy can develop very significant ideas and pertinent evidence.
But the most serious loss from silencing ABC will be its championing of new and different proposals. ABC's proposal for a domestic satellite system -- which led to the famous Ford Foundation proposal for funding educational television -- was a particularly dramatic example. Would it have come to fruition had ABC been joined with ITT? We doubt it, and Visher is in full accord. In these cases, of course, the existence of the Commission fills no part of the gap left by elimination of an independent voice.
[*612] Because the applicants persist in the assertion that ABC will not be inhibited from taking independent positions, we are compelled to give the matter our further attention.
While Commission consideration of this case was pending, ITT issued a policy guide, governing relations between itself and ABC. (AR 4.) That guide states:
ABC shall independently determine its position on particular satellite or other communications questions and present its views to the FCC as to how the Commission should resolve such issues, and any other interested ITT system company or group shall similarly formulate and present its views to the FCC or to other governmental bodies or agencies considering the question without regard to the interests of ABC as a broadcaster.
Setting aside for a moment the question of credibility of any self-serving policy statements issued for the purpose of pleasing this Commission, it should be noted that such a policy would establish a radically different relationship between ABC and the various ITT companies than currently exists within the ITT "family."
A former ITT executive testified that he left the company because "in ITT the [central] staff does indeed have a considerably heavier bearing on the operations than they do in most companies that I have worked for." (Graham 2615.) In "most companies," he explained, "staff is primarily a service to line officers and it doesn't assume quite the same equality of relationship." (Graham 2609.) Another difference between ITT and most large companies, he continued, "is that the divisional comptrollers report back to New York to the comptroller in New York on a line basis, which keeps a pretty firm financial control at the central headquarters." (Graham 2609.) This testimony is thoroughly corroborated by that of other ITT officials and the documentary evidence in the case. For instance, although Federal Electric Corp. had been handling all of ITT's CATV activities, late in 1965 Geneen placed Jack Vollbrecht in charge of CATV, "to keep his eye on it for me." FEC President Chasen was to be advised accordingly. (J 134, p. 3.) And Chasen agreed that "FEC may not make any CATV plans or proposals in a territory served by an independent [telephone company] without the understanding and concurrence of N.A. Telcom (an ITT group) * * * [which in turn] may not participate in any CATV work without understanding and concurrence of FEC, and that conflicts between [N.A. Telcom] and FEC would have to be resolved by ITT headquarters." (Chasen 904; and see J 79.)
Indeed, while insisting that ABC would be an "autonomous" subsidiary of ITT, Geneen uses a somewhat different definition of that word than is normally employed:
"Autonomy is a delegation of authority generally within an agreed sphere of operating policy, and it works on a basis of continuous information and review, which means it is constantly updated as to policies. * * * Autonomy is a controlled operation but with a framework which makes sense as I tried to describe it, in day-to-day operations, operating decisions, short-and long-range planning, agreement on overall policies, the need and duty to be informed both ways * * * the ultimate responsibility in the ITT board, the delegation of authority within agreed policies, plans, and so forth, and the constant interplay of information which means that it will work or, if it did not work, it would immediately be subject to minor correction, or whatever adjustments or understanding would be." (Geneen 552-554.)
[*613] With such an understanding of "autonomy" governing the relations between ABC and ITT, one would hardly expect independent operation by ABC. And, indeed, even before the merger has been consummated, ITT executives had to be warned "that there has been an unusual number of contacts between personnel of ITT, including our subsidiaries and divisions, and ABC. These have been not in the regular course of business but on the basis that 'ABC is now a member of the family.'" (J 321.) This premature and zealous conduct rather neatly illustrates the extreme difficulty and, we think, impossibility of trying to insulate certain areas of ABC decisionmaking from ITT influence after the company has been taken into the "Family." In September, Geneen assured us that ABC would be autonomous because all ITT subsidiaries are autonomous. Now, when it has become apparent that the ITT system is highly centralized, we are told that ABC's relationship to the ITT parent will be unique. Obviously, ITT can characterize the past or future any way it wishes. But if we wish to insure a certain type of relationship we just as obviously had better look for more solid evidence than self-serving characterizations adopted and discarded at will.
Furthermore, even with the policy guide to assure them of their autonomy, ABC personnel cannot help but realize that the decisions they reach will have a business impact on the parent company and that "the boss" will be more pleased by some decisions than others. For example, after ITT acquired Avis Rent-a-Car, FEC President Chasen undertook, without any direction from central headquarters, to rent Avis cars when they are available. (Chasen 909-910.) And, if Chasen was correct that there was no central directive, other ITT officials just as surely sensed the way to further the overall ITT interest. For Avis' share of ITT automobile rentals jumped from 29 percent in preacquisition 1964 to 82 percent in 1966, the first full year of ITT ownership of Avis. (AR 87.)
Thus, even if one gives credit to the policy guide, it is fanciful to think that ABC will be able to reach decisions unaffected by its merger with ITT.
VI. The Merger Will Adversely Affect the Independence and Integrity of ABC's New and Public-Affairs Programming
ABC news and public affairs is probably one of the three most important electronic journalistic mediums in the country, and will likely continue to increase in importance in the near future. Recent surveys have indicated that television is the primary source of news for a majority of the American people. Any threat to the integrity of this news organization must be a matter of the most serious concern to this Commission and the American people. In the light of the extensive evidence adduced at the supplemental hearing on this issue -- and the extraordinary spectacle of the applicants' conduct during the hearing -- we must conclude that there is a very significant danger that ITT's other interests will be allowed to intrude on the journalistic functioning of ABC and subvert the proper use of this electronic outlet for independent information, news, opinion, and public-affairs programming.
[*614] ITT is a prototypic conglomerate with subsidiaries engaged in telecommunications services, sales of telecommunications equipment, sales of consumer goods, the insurance business, renting cars, book publishing, Government defense and space contracts, and a host of other diverse economic activities. But in one respect ITT is different from the usual American conglomerate. In origin and in predominant complexion ITT is a foreign-based company. In fact, the company's foreign involvement was so extensive in 1934 that section 310(a) (47 U.S.C., sec. 310(a) (1964)), prohibiting foreign control of radio stations, was included in the Communications Act of that year because of concern specifically about ITT. See "Hearings on S. 2910 Before the Senate Committee on Interstate Commerce," 73d Congress, 2d session, 118-135, 160-173 (1934); "Hearings on H.R. 8301 Before the House Committee on Interstate and Foreign Commerce," 73d Congress, 2d session, 20-28, 206-232 (1934). Although the dominant stockholdings of the company have always been American, the revenues of ITT have continually been derived mostly from foreign sources. And, despite a recent drive to enlarge the domestic revenue sources, almost 60 percent of the total ITT revenues continue to come from abroad.
ITT's continuing concern with political and economic developments in
foreign countries as a result of its far-flung economic interests is now fully
documented in the record. See extracts from ITT Board of Directors and
Executive Committee minutes from January 1, 1963, to March 8, 1967, in the
record as AR 83. These clearly show ITT's recurrent concern with internal
affairs in far-flung countries of the world, including rate problems, tax
problems, problems with nationalization and reimbursement, to say nothing of
ordinary commercial dealing. For example, at a meeting of August 14,1963,
a review was made by the president of the current status of the [tax claim by the Japanese Government]. * * * It was indicated that the corporation foresaw little hope of success if the matter were to be decided by the Japanese courts. A discussion was held of the possible means of getting political help in resolving this case. (AR 83.)
On July 8, 1964, it was reported that a representative of Secretary of the Treasury Dillon had returned from Tokyo, where he had discussions concerning ITT's problems. (AR 83.)
A revealing example of the high levels at which such international
commercial negotiations can take place is documented in the so-called
"Deep Freeze" documents. (J 261.) "Deep Freeze" was an ITT
proposal to lay an extensive network of cables for defense and commercial purposes
from Canada to Britain via Greenland and Iceland during the period
1954-56. The hearing examiner, after receiving the documents and
testimony about the project, later ruled them inadmissible, because the events
with which they dealt were so remote in time as to have no probative value with
regard to ITT's conduct today. (R 2810.) We think this ruling was in error,
because it misconstrued the principal purpose for which the evidence was
proffered. Although the remoteness in time diminishes the relevance of
this evidence in evaluating the likely conduct of today's chief executive
officers of ITT, the evidence is still quite relevant to show the very high
Government levels at which such commercial dealings of international
corporations [*615] can proceed. This is fortified by the
corroboration available in the board minutes showing that representatives of
Secretary Dillon interested themselves in ITT's problems in Japan.
"Deep Freeze" encountered opposition from Government agencies in Britain and Canada which objected to foreign commercial control of this vast cable network. On June 20, 1954, Ellery Stone, then president of the Commercial Cable Co., an ITT affiliate, and still and ITT vice president and director, sent a letter to Sir Thomas Spencer, then chairman of the board of Standard Telephone & Cables Ltd., another ITT subsidiary, and still a director of that company. That letter shows the high foreign political connections upon which ITT hoped to capitalize. Stone said,
"I know Sir Roger Makins, your Ambassador here, very well and also Sir Harold Caccia, who is now in the Foreign Office. Caccia was my British political adviser in Italy for 1 year. Also, Harold MacMillan, who is being mentioned over here as successor to Mr. Eden if and when Sir Winston retires. I served with Gen. John Harding in Italy when we were both under Alex, and Admiral McGriger, First Sea Lord, served under me in Italy, so I am hoping at least to be received by these gentlemen should we run into serious trouble due to RCA opposition." (J 261(b).) As it turned out Stone was successful in personally putting ITT's case before his old friends. On November 5, 1954, he sent a cable to Forest Henderson, then executive vice president of American Cable & Radio Corp., yet another ITT subsidiary. Stone said,
"Had meeting with MacMillan Minister of Defense Tuesday, 20 minutes of which were devoted to briefing him on Deep Freeze. * * * Half way thru our meeting he dictated memo to permanent Secretary of his Ministry, advising of his relationship with me during war, my present position, the cost and route of Deep Freeze and the JCS (U.S. Joint Chiefs of Staff) support saying that he understood our application had been pending for some time before HMG (Her Majesty's Government) and was of interest to BPO (British Post Office) CandW (identity not stipulated but presumably a Canadian Government agency) and his Ministry. He suggested that he be informed soonest where the matter stood.
"I informed Mr. MacMillan that I had heard that becos [sic] of possible divergence of opinion between BPO and CandW, BPO might refer to PM (Prime Minister) and I asked for an opportunity to be heard at highest level if there should be possibility of a negative or restrictive decision. * * * I really feel much good was accomplished becos [sic] of MacMillan's strong postion in Government." (J 261(i).)
And on November 11, 1954, MacMillan wrote Stone, saying, "I assure you that we are going into the whole matter with the hope of reaching a decision as soon as possible." (J 261(k).)
Similar high level negotiations were going on in Canada with such secrecy that ITT was determined not even to allow the U.S. State Department to find out about them. On November 26, 1954, Forest Henderson sent a cable to Ellery Stone. Henderson said,
"Have just had phone conversation with Martin Montreal (E.J. Martin, now and then representative of the Commercial Cable Co. for Canada). He had just finished talking with our counsel (Gordon MacClaren, ITT special legal counsel in Canada) who had received call from [Lester] Pearson Minister of External Affairs Thursday p.m. who requests we keep following information completely confidential * * * he told our counsel that NATO was now involved and that various countries within NATO were going to consider it. * * * Martin called Bryce (Canadian Cabinet Secretary) * * * after receiving this information and explained situation to him outlining [*616] Pearson's conversations to our counsel and pointing out fact that we had been promised a reply soon on our application by Canadian Government. Bryce replied that he was going to consult immediately with the various ministries involved and would give Martin a report today Friday which Martin is going to relay to me. This report from Bryce will also be strictly confidential but it will help us to know the lay of the land and guide us in making further plans and decisions. We feel that it is high time for our State Department to step into this picture with a strong message to the PM's of all countries involved requesting immediate attention to our project and favorable action on same * * * because of following sentences and strictly confidential nature of above information we do not propose to divulge same to State Department. It is of greatest importance that above information coming from highest government source not be mentioned to anyone, including military person. It is pointed out that should the above become known the consequences would be disastrous." (J 261(m).)
In direct violation of express FCC regulations, 47 CFR, section 43.52 (1967), these negotiations, and the numerous others detailed in the various parts of J 261, were never reported to the FCC. (Ende 2669-2670.)
Although several of the individuals involved in "Deep Freeze" are still associated with ITT, we do not rely on these events as evidence of the likely conduct of the present top management of the company. They do, however, illustrate the type of negotiations in which an international company such as ITT may get involved.
Moreover, ITT still has a policy of involving those with present and past high political connections in its various business operations. The officers and directors of its foreign subsidiaries include two members of the British House of Lords and one of the French National Assembly. Another is a former premier of Belgium. And several have positions with ministries of foreign governments as officials of government-owned industries. See reply No. 1 accompanying letter from Harold S. Geneen to Commissioners Robert T. Bartley, Kenneth A. Cox, and Nicholas Johnson, November 7, 1966. This may or may not be an excellent way to run ITT's business, but it does involve that company very closely in affairs in foreign countries and in the way our country views those affairs. A distinguished director of ITT, and one who has held high Government posts in this country, testified in September that ITT tries to work closely in maintaining good relations with countries in which it has operations. (McCone 146.) In short, there is every reasons to think that the 1945 analysis of FCC Chairman Paul Porter is applicable today. Porter said,
I may analogize the present situation in the communications field to that in ocean transportation in the past. There was a time when the master of a vessel was in effect the diplomatic representative of his country in contact with the governments in the foreign ports where he touched. That situation is not altogether ulike our present situation in which the managements of the international communications companies are in a position to shape our international communications policy through their ability to negotiate and make arrangements with the representatives of foreign governments. Indeed, managements of communications companies may at times be in the position of serving interests other than our own national interests. At the International Communications Conference held at Warsaw in 1936, at which the United States was represented by its Government officials, a number of persons connected with out U.S. carriers were present and actively participated in the conference as members of delegations of certain Latin-American countries. Such situations and circumstances whereby our carriers [*617] may, because of the necessity of protecting their local interests at foreign points, engage in political activity within the foreign country, raise serious considerations which I think this committee should take into account. A glance at a chart which I have submitted (F.C.C. exhibit No. IX(1)) will show the extensiveness of the interests of the ITT in foreign countries. Its large financial stake in business ventures in foreign countries is indicative of the potential conflict of its interest as an operator of U.S. communications with its interest in the protection of foreign holdings. "Hearings Before a Subcommittee of the Senate Committee on Interstate Commerce" (79th Cong., 1st sess., 173-174 (1945)). What was of concern in 1945 is no less so today.
Nor are ITT's political relations limited to foreign countries. It would be inappropriate for us to detail ITT's well-known domestic political activities at length. One example, drawn from the record, should be adequate. In the "CATV-Status Report" presented to Geneen by Vollbrecht on December 30, 1966 (J 126), ITT's CATV operations are discussed under two major headings. The first deals with political considerations, the next is headed, by contrast, "Operation of CATV Systems as a Business Enterprise." [Emphasis added.] The political section of this memorandum is revealing for what it shows of ITT's capacity for dealing in a businesslike way with the cost of obtaining what is described as "a political plus." It is simply charged to "public relations." Here's the analysis:
In Mr. Gerrity's absence I was able to obtain the following from Mr. Perkins of the public relations department:
1. We want to accommodate the Louisiana group on the Baton Rouge franchise if we can do so without losing money. While we want to come out as profitable [sic] as possible, our real objective here is to build a political plus -- not drive a hard bargain -- [i.e.,] we don't want the Louisiana group to go forward with someone else.
2. Hence, we are committed politically to going forward with the Louisiana group if they are the successful bidders for the Baton Rouge franchise. In handling this proposal, we should insist on the following disciplines [sic., divisions?] between FEC and public relations:
1. FEC is responsible for negotiating a deal that meets our agreed minimum requirements for a profitable operation for FEC.
2. If FEC is unable to negotiate such a deal, they must keep negotiations open for public relations department. Public relations is responsible for the cost of any deal that produces less than the minimum profit standard for FEC. (J 126, p. 2.)
This is scarcely the analysis of the politically unconcerned.
Why are ITT's international relations relevant to ABC's public affairs independence? For essentially two reasons. A company whose daily activities require it to manipulate governments at the highest levels is likely to be left with little more respect for the role of a free and independent press in a democratic society than for the role of conscientious government officials fulfilling the broadest public interest of their nation's citizenry. Secondly, the pressures and temptations to pervert the proper role of the press increase in quantity and complexity with a company's foreign entanglements. It goes without saying that any public official, or large corporation's officer, is necessarily closely concerned with the appearance of some news stories, the absence of others, and the slant of all affecting his personal interests. That's what public relations firms, and press secretaries, are all about. It simply cannot be disputed that any one of America's three major [*618] networks' news and public-affairs coverage is a matter of considerable significance throughout the world. To do the reporting job independently is difficult enough for the most conscientious of newsmen. We simply cannot find that the public interest of the American citizenry is served by turning over a major network to an international enterprise whose fortunes are tied to its political relations with the foreign officials whose actions it will be called upon to interpret to the world.
Of course, the applicants provide us self-serving assertions that ABC will remain independent. Of course, they have not brought us any evidence of past abuse. But if this Commission is ever to consider the integrity of the news reporting services that feed an informed people in a free society, it must make judgments based on commonsense and probabilities. If it relies upon parties to proposed mergers to bring evidence to the Commission of the threat to an independent news service it will be a long time waiting. Indeed, it is only by the sheerest coincidence that the applicants have provided us in this case with specific and dramatic evidence of their approach to news media. We find their behavior and attitude shocking and persuasive, but we believe the case against the merger in this respect can -- and in a general sense must -- be said to be fully sustained without it.
In the course of this very proceeding with which we now deal, several ITT officials exhibited a thorough disdain for the unfettered functioning of a free press in this country. Obviously, the company has a great economic interest in the outcome of this proceeding and is interested in the way the press treats the news which develops with regard to the merger proposal. Like most large corporations, ITT has public relations officials whose legitimate function is to keep the press informed as events unfold. But during the hearing in this matter, three reporters covering these proceedings were called to testify and the picture which emerged of ITT's attitude toward the press goes far beyond that of legitimate public-relations activity. Most important were the recurrent and thoroughly reprehensible contacts with New York Times Reporter Eileen Shanahan, detailed in section II, supra.
The sole reliance of ABC and ITT in arguing that ABC news and public affairs will be uninfluenced by other ITT business interests is the autonomy which will be granted to ABC within the ITT organization, and the autonomy which ABC News is represented to have now within ABC itself. The same policy statement discussed in section V, supra, is relied upon to guarantee these two levels of autonomy. But, as noted there, ITT has already experienced difficulty in keeping ABC insulated. The conduct of the public-relations officials, if we can assume that it was unsanctioned by top management, indicates further the difficulties in controlling all the activities of such a far-flung business organization. Perhaps the policy statement and a determined commitment by ITT can control its public-relations people and the more zealous ITT business officials, but the evidence in this proceeding raises serious doubts.
Furthermore, the autonomy of ABC News is, given the fallibilities of human nature, less than a solid pillar with which to support news and public-affairs integrity. But for the brazen activities of ITT in this very proceeding it would never have occurred to us to suggest that the [*619] most probable threat to the integrity of ABC News would come from overt actions or written policy statements. Now that is clearly possible. But, even now, we believe the most substantial threat comes from a far more subtle, almokst unconscious, process. ABC newsmen and their supervisors will know that ITT is the boss, and that ITT has sensitive business relations in various foreign countries and at the highest levels of our Government, and that reporting on any number of industries and economic developments will touch the interests of ITT. The mere awareness of these interests will make it impossible for those news officials, no matter how conscientious, to report news and develop documentaries objectively, in the way that they would do if ABC remained unaffiliated with ITT. Some of the newsmen will advance within the news organization, or be fired, or become officers of ABC -- perhaps even of ITT -- or not, and no newsman will be able to erase from his mind that his chances of doing so may be affected by his treatment of issues on which ITT is sensitive.
Thus, the threat is not so much that documentaries or news stories adversely affecting the interests of ITT will be filmed and then killed, or slanted -- although that is also a problem. It is that the questionable story idea, or news coverage, will never even be proposed -- whether for reasons of fear, insecurity, cynicism, realism, or unconscious avoidance. There is also the possibility that news and public-affairs (or even entertainment) material would be ordered, or proposed, that serve as little more than public relations pieces for ITT or its economic and political interests. But, once again, while this is a real threat, the more probable abuse is that when a legitimate and favorable item of questionable newsworthiness comes along the scales will be tipped in favor of its exposure. Nor will it serve American journalism if the newsmen overcompensate and give unwarranted stress to developments embarrassing to ITT. For whatever the response, the American people will be exposed to programming from ABC that will forever be -- or should be -- subject to the suspicion that it has been developed with the interests of ITT in mind, however those interests may be perceived or felt. The risks which this suggests are of a kind that should be taken only with the greatest caution and only with a showing of extraordinarily compelling countervailing benefits.
VII. ABC Has No Need for Additional Funds Which Cannot Be Financed Without the Necessity of Merger
The primary justification for the merger which the parties have consistently advanced is the financial support which ITT will lend to ABC. ITT's aims are not eleemosynary, but, it is contended, in order to obtain a position of reasonable profitability in the long run ABC must make great expenditures for colorization and modernization of its facilities over the next 4 years. We had general estimates of the magnitude of these expenditures at the September hearing, but, as a result of this supplemental hearing, we have obtained more precise estimates and a detailed examination of the expenditures involved. The most significant and controversial of these proposed expenditures is the $113,470,000 listed for new studio and technical complexes to be [*620] erected in New York and Hollywood. An examination of the evolution of the ABC estimates will help place them in perspective.
A merger with ITT was first proposed to ABC by a third party in December of 1964. It seems likely that this feeler was instigated by ITT, because ITT took the initiative in making contact with ABC in January of 1965. In February ITT made a specific offer to ABC but ABC President Goldenson rejected it. A lull in the negotiations prevailed until November 16, 1965, when Geneen, of ITT, again initiated conversations. Serious negotiations ensued and agreement was reached. On December 7, 1965, the boards of directors of both companies approved the merger and a preliminary contract was signed between the parties. And on February 14, 1966, and agreement of merger was signed with a provision that either party could walk away from the transaction within 60 days if certain assumptions, primarily financial, proved unfounded.
The first fact to be noted is that at no time during any of these negotiations was ITT given any dollar estimates by ABC for colorization and construction costs. The opinion of ITT's top management, expressed in a document submitted to the ITT board for its consideration in connection with the merger, was that "ABC's 5-year cash throwoff through 1970 will approach $100 million, almost all of which will be available for reinvestment outside the television business." (J 238, p. 3.) ABC now seems to feel that if allowed to merge with ITT and make all contemplated expenditures it will become more competitive with the other two networks. But ITT made no such assumption in reaching the $100 million figure, for the same document emphasizes that "we have not programmed any improvement in coverage in our projections of revenues and income through 1970." (J 238.)
Even more revealing is the fact that the minutes of the ABC meeting of
December 7, at which the merger was approved, contain no mention whatsoever of
the financial aid ITT will bring in ABC expansion plans. The entire discussion
of benefits expected from the merger is as follows:
Mr. Siegel (of ABC) went on to state that among the principal advantages which might be foreseen from a merger with ITT were the fact that ITT's accounting department is fully automated and that the benefits of such automation would be available to ABC, whereas the installation of automation by ABC, which he deemed essential, would cost many millions of dollars; that ITT's experience in engineering would be of great benefit to ABC; that ITT is firmly established abroad and he feels that this would enhance ABC's growth in foreign television; that if ABC were part of a larger complex, the wide fluctuations in earnings typical in the broadcasting business should be reduced and that he believed that ABC's image in the eyes of sponsors would be enhanced if it were part of a larger and stronger complex. (J 5, p. 5.)
Thus, despite testimony at the supplemental hearing that ABC was generally aware in 1965 of the great costs involved in colorization and modernization, and despite testimony that ITT was informed -- again in a general way -- of the great expense anticipated, the contemporaneous documents indicate that neither company viewed ITT as a source of funds for ABC. ITT expected the flow of money to be in the other direction, and ABC did not mention financial needs at all.
[*621] In the middle of April 1966 ABC submitted several very large exhibits to the Commission in support of the merger. One exhibit deals, in part, with the great expenses facing ABC. ABC said,
Among the major expenditures which ABC immediately faces, if it is merely to retain the competitive position it has achieved are the following: (a) Color conversion costs * * *; (b) increased entertainment program costs * * *; (c) feature film production costs * * *; (d) increased news, special events, and public-affairs costs * * *; (e) increasing sports costs * * *; (f) the cost of program innovations * * *. The above six examples are only illustrative of the many greatly increased expenditures that are required merely to keep pace with television as it has developed to date.
Thus, as late as March of 1966, in listing illustrative examples of increased expenditures, there is no mention whatsoever of the most significant expenditures which are now proposed -- those for new technical and studio complexes.
In July of 1966 the Commission wrote Goldenson, requesting a specification "in further detail [of] the manner in which the financial resources of ITT will enable ABC to improve its program services and thereby better to serve the public interest." In reply, we received the first mention of the expenditures which now constitute more than one-third of ABC's stated cash needs for the next 4 years. Goldenson wrote, "Illustrative of the capital requirements for plant and equipment [emphasis in original] already known and planned by ABC [emphasis added] are $34 million (in addition to $10 million already spent through 1965) for conversion to color; $17 million (in addition to $6.5 million already spent) to purchase and furnish ABC's new office headquarters building in New York City; and approximately $90 million for constructing and equipping new [emphasis in original] studio complexes to be built in New York and Los Angeles, as a part of our long-range plan."
The $90 million figure is the first mention we received of ABC's plans for new studio complexes. And it was from Goldkenson's July letter to the Commission that ITT first got any "hard" figures on proposed expenditures by ABC. (Geneen 2008.)
The facts surrounding calculation of that $90 million figure are essentially uncontested. Goldenson relied on Siegel, ABC executive vice president, for the figure. (Goldenson 1536.) Siegel asked a Mr. Marks, then head of ABC's construction department, to arrive at an estimate, and it was Marks who put together the figure of $90 million. (Siegel 2389.) Siegel's understanding is that Marks arrived at that number by adding together three other estimates: $17 million for Hollywood construction, $40 million for New York construction, and $33 million "for the cost of equipping the new studios and renovating the existing properties in New York." (Siegel 2540.) Let us examine the history of these plans.
In December of 1964, ABC appropriated $300,000 "for architectural and engineering fees for preparation of designs and plans for proposed expansion and updating" of its television cjenter in Hollywood, and $300,000 "for architectural and engineering fees for preparation of designs and plans for * * * alterations and improvements" of its New York properties. (AR 8.) The Austin Co. was employed to make these plans. The Hollywood plan was submitted in May of 1965 and [*622] was estimated to cost slightly over $12 million. (AR 12; AR 39.) This plan contained no new technical facilities for Hollywood. Although no documents are available to verify this, Siegel testified that discussions made it clear that improved technical facilities would be necessary, and it was on this basis that the estimate was raised to $17 million by July of 1966. (Siegel 2391-2394.) The Austin Co.'s plan for New York was presented on June 20, 1966. (AR 39.) It was discussed at a meeting on July 8, 1966, and was rejected by both Goldenson and Siegel because it took too short range a view. (AR 19; Goldenson 1532; Siegel 2394-2395.) But in January of 1966, based on what was then available of this New York Austin plan, the Diesel Construction Co. submitted an "approximate" estimate of $39,050,000 for the New York construction. (AR 15.) In August 1966, after ITT had appointed Benham to aid ABC in its planning, an internal ITT memorandum revealed that "there is some internal disagreement at ABC regarding the present so-called master plan of expansion. This might be an area where our firm guidance can be of value to the future of ABC." (J 256.) [Emphasis added.] But it was the January Diesel estimate, based on a rejected Austin plan and formulated about 5 months before that Austin plan was in final form, which formed the basis for the $40 million estimate for New York construction.
The record is virtually silent as to the basis for the $33 million figure for equipping and renovating New York properties. Siegel testified that this was "mostly construction work on existing properties." (Siegel 2540.) But there is no further testimony nor documentary support for this estimate, despite the fact that all relevant ABC documents were requested. The Department of Justice challenged this figure (J findings, p. 127), and ABC and ITT have made no attempt to justify it.
The point is not that $90 million is an exaggeration of the eventual cost of the facilities presently contemplated in New York and Hollywood. Indeed, since the New York Austin plan was rejected for taking too short range a view, it might be argued, as ABC and ITT have, that $90 million was an underestimate of the eventual costs involved. But note that, as late as July 1966 and in specific response to a Commission request, ABC had no firm idea of its need for facilities or the period of time in which it would expect to build and pay for them, or the deadline for completion or even beginning of construction. Since the Austin plan had been rejected, no plan for New York construction was then in being. The point, therefore, is that the representation by Goldenson that the $90 million represented capital requirements "already known and planned by ABC" was simply unfounded.
The present plans which ABC now puts before us were developed in coordination with ITT and were still not in final form in January of this year, 1967. The estimates which we now have were completed on February 8, 1967, after the Department of Justice had petitioned the Commission to reconsider its decision.
One document (AR 3) purports to show the estimated cash flow for ABC from 1966 through 1970. It estimates that in those 5 years ABC will have cash sources of $208,850,000 and cash needs of $372,722,000. After considering borrowing already contemplated and cash currently [*623] on hand, the document concludes that ABC will require $75,111,000 over the 5 years, with a peak shortage in 1969 of $85,801,000.
Several aspects of this cash flow estimate and related documents require particular attention and, we think, effectively dispose of the argument that the merger will bring some particular financial benefit to ABC that it cannot manage easily on its own and which is necessary to make ABC an effective competitor. In particular:
The financial estimates were not constructed with the usual motivations of prudent businessmen. The total cost was computed with an eye toward the necessity of impressing this Commission with the magnitude of necessary expenditures, rather than a realistic approach to ABC's actual needs.
The cash flow estimates err markedly on the side of exaggerating ABC's
projected cash deficit and hence represent an unrealistically high prediction
of ABC's cash needs even if its need for facilities and the target date of 1970
ABC's difficulties in borrowing have been grossly exaggerated. Even if all its assumptions of need for facilities, desirable completion date, and cash flow estimates based on these are accepted, there is no substantial doubt that ABC could obtain any necessary financing.
These conclusions flow quite naturally when one examines the various
components of ABC's cash flow exhibit.
An ABC official admitted that an $890,000 item should have been omitted from the total for plant development in Hollywood. (Barnathan 2125.) Since that figure would carry over into the cash flow projections, it would appear that cash uses are exaggerated by that amount.
In 1966 ABC realized $2,500,000 in capital gains from the sale of some of its theaters. In 1967 it contemplates realizing $2 million from already completed transactions. But the estimates for 1968, 1969, and 1970 from this source are only $150,000 each. The explanation offered is that "Since such transactions are not predictable, the amount shown represents the cash expected from previously completed transactions." But Siegel admitted that ABC contemplated further "capital dispositions." (Siegel 2421.) It seems more reasonable to use the 1966 figure as a prediction for the other years. On this basis ABC would have an additional $7,550,000 to add to its cash resources over the 5-year period.
ABC included no amount in cash sources for the price of common stock sold under options for the years 1967-70, despite the fact that it realized $900,000 from this source in 1966. The explanation offered is that "if the merger is consummated, ABC will not receive the proceeds, and if the merger is not consummated, it is likely that the amount to be received on options exercised would not be significant." The first alternative is obviously irrelevant, and no reason is given for the second conclusion. In fact, there are more options exercisable at the end of 1967 than there were in 1966 (57,189 shares as opposed to 52,718), and there is a large number already exercisable in 1968 (50,696). (J 270, p. 19.) It would seem more likely that an amount at least approximating that realized in 1966 would be available in each year from 1967 to 1970. If that were so, ABC would have an additional $3,600,000 available over the 4-year period.
As one use of cash, ABC plans to spend an as yet uncommitted $10,500,000 from 1968 to 1970 to purchase new theaters. While the company is undergoing a vast expansion of capital spending in other areas, it would seem reasonable to expect it to seriously curtail this program of theater purchases. While this would mean some loss of revenue, it seems likely that ABC could, in this way, cut its net capital deficit almost $10 million over those 3 years.
It thus appears that, on these four items alone, ABC could reduce its alleged cash deficit for the period by more than $20 million.
If Congess passes certain tax legislation it is considering Siegel testified that ABC would save approximately $12 million in taxes, thus [*624] reducing its cash needs by that amount. Part of this would be offset if the suggested 6 percent tax surcharge were also passed, but this would reduce these savings by less than $1 million. (In 1966 ABC paid Federal income tax of $14,850,000.) If ABC does go ahead with the building of its new New York and Hollywood studio complexes, Siegel testified that ABC would have a substantial amount of equipment and properties to sell, although he could not predict "what we will get for it." (Siegel 2421.) It would thus seem that there is probable additional income which would reduce ABC's projected cash deficit even further.
Several specific items of expenditure included in the AR 3 calculations are of either questionable necessity or of dubious validity.
The figures include estimates to colorize two studios in New York which the ABC official in charge repeatedly testified there is no present intention or programming need to colorize. (Barnathan 2097, 2230, 2245-2247, 2254.) If that colorization is not necessary, ABC will save $4,818,000.
ABC estimated $5,460,000 for replacement of 42 video tape recorders. ABC does not yet know if RCA will be able to supply modification kits for the existing recorders at a price of $1,008,000. If RCA can supply these kits, that would mean an additional saving of $4,452,000 for ABC.
If all these uncertainties were to be resolved in favor of ABC, it thus appears that its cash shortages, accepting all its other estimates, would be reduced by more than $40 million, even if ABC undertook its entire expansion program in the contemplated time.
In addition, it is perfectly clear that the ABC estimates were not constructed from the vantage point of a company in a tight cash position. The Department of Justice has compared ABC's estimates of November 1966 (AR 25) with those of February 1967 for a technical center in New York and Hollywood and for colorization in New York. In those few months ABC estimates for these items increased from $21,095,000 to $28,190,000, or more than 30 percent. The explanation offered at the supplemental hearing for the various components of these increases were wide ranging. For one item, "the construction department did not put it in their figures." Another was "an oversight." (Barnathan 2171.)
Other items have increased or changed radically only since January 1967. For instance, in January transmission and switching equipment for coverage of the Olympics and the conventions was estimated at $700,000. (J 257.) In February this had become $760,000. (AR 3, att. B.) That Hollywood technical center whose projected cost had elevated from $5,345,000 in November 1966 to $6,775,000 in February had been estimated at $5,841,000 in January.
In short, the estimated costs have escalated so substantially between January and February of 1967 that one is led to the conclusion that the Department of Justice petition for reconsideration on January 18, 1967, may have played a large role in ABC's accounting. And the final figures which ABC has submitted must be taken to represent absolute maximum projections rather than taken at face value, as the majority seems prepared to do. The actual expenditures which ABC will face if it goes ahead with all anticipated projects may fairly be estimated at considerably less than the ABC figures indicate.
[*625] An underlying assumption of AR 3 requires some additional attention. In order to arrive at cash sources ABC estimated a growth in net earnings from operations over the 5-year period of 15 percent a year. Siegel testified that he was not at all confident that the company could sustain this rate of growth. (Siegel 2419.) Indeed earnings of the company did not proceed at any such rate of growth from 1961 to 1964 when they went from $9.9 million to $1 million. But in 1965 they increased by 43 percent, to $15.7 million, and last year increased another 14 percent to $17.9 million. And ITT's projection at the time of the merger was "an earnings growth of some 16 percent a year expected for ABC" over the period 1966-70. (J 238, p. 2.) This was evidently based on a Roth Gerard report prepared for ITT (J 238) which projected a 1970 net income for ABC of $36 million. This compares with the $31 million ABC has estimated in its cash flow projections based on its 15 percent estimate.
But, even if ABC falls somewhat short of its predicted growth rate, given all the other contingencies whose probable resolution will work in ABC's favor, and considering that their projected expenditures must be taken to err greatly on the high side, it is virtually certain that its cash position will be considerably more a favorable through 1970 than appears from AR3.
Finally, it must be noted that there is no evidence whatsoever that ABC had set a 1970 target date for completion of its capital improvements until it became necessary to justify the merger to the Commission in September 1966. As late as July of 1966, Goldenson, in his letter to the Commission, spoke generally of "long-range plans," with no specific date for completion mentioned.
There is no evidence, except affirmations by ABC officials, of a programming need severe enough to justify the rapid construction schedule contemplated. The only conceivable need would be the race to color programs. But the evidence is quite clear that ABC will have its entire schedule in color by autumn of this year, 1967. (Goldenson 1521-1522.) While some of their facilities could stand improvement, no reason is shown why a slower rate of construction would not be adequate.
The Broadcast Bureau states the obvious: If ABC defers its projected studio complexes for 1, 2, or more years, its projected cash deficits will be considerably reduced. (BB findings 283.) ABC and ITT answer that "the sooner the projects [are] completed * * * the sooner [ABC] will have the studio space and operating flexibility that it must have in order to be fully competitive with NBC and CBS." But the only evidence to support this statement are further statements -- all self-serving -- by ABC officials.
Both the Department of Justice and ABC produced expert witnesses to testify on ABC's ability to borrow the necessary funds to carry through the projects in AR3. John Burton, professor of finance at Columbia University, testified for the Department, and Wilbur Ross, of the investment firm of Faulkner, Dwkins & Sullivan, for ABC. Professor Burton believed that ABC could raise the money required for those projects in the money market through debt or equity financing. (Burton 3102-3103.) He offered five specific plans for accomplishing [*626] this in various ways. (J 350.) Ross, while criticizing each of Burton's five plans, had prepared a plan himself by which he felt ABC could finance its planned expenditures without a merger, assuming that all the variables in AR 3 were correct and accepted by the relevant financial institutions. (Ross 3605.) When asked if lending institutions would accept his plan today and loan money to ABC on it, he replied, "yes * * * if I can convince the people that the 15-percent growth will occur, yes, it is bankable." (Ross 3608.) Even if there is question as to the reliability of the 15-percent projection for growth in earnings, there are much more substantial contingencies which will more likely be resolved in ABC's favor. Certainly, lending institutions would take these into account also. Therefore, it can only be concluded from the testimony of ABC's own witness that ABC is fully capable of financing all projected expenditures without the proposed merger. It is also noteworthy that ITT estimated at the end of 1964 that ABC would have borrowing power of $267 million in 1969. (J 231.) While this may have been optimatic, it is $170 million more than ABC's current long-term liabilities which, in turn, is more than double the maximum cash deficit which ABC estimated in AR 3.
VIII. The Merger's Effect on the Advertising Market
The Department of Justice urges that the merger will have a detrimental effect on the advertising market because it will present the danger of foreclosing ITT's own advertising from other companies, and it will provide the opportunity for reciprocal dealing by ITT which might foreclose the advertising of some of its major supplies from other broadcasters.
The first argument is rather insubstantial. ITT's 1966 television advertising amounted to $1.7 million, and it estimates its 1967 expenditures for this purpose at $2,999,510. (R. 3851.) This compares with total U.S. television advertising of more than $2.5 billion. Even if ITT increases its expenditures in this area enormously, it will be in no position, by withholding its own advertising, to foreclose a significant part of the television advertising market from other broadcasters if it acquires ABC.
For its reciprocity argument the Department points to such major suppliers of ITT which also advertise on television as Ford Motor Co., General Motors, Chrysler, General Electric, Du Point, Gulf Oil, American Airlines, and United Airlines. But all of these companies combined had only about 4 percent of the total television advertising in 1965. The Department points to a case where actual intent and apparent ability to foreclose 5 percent of a market in a highly concentrated industry was sufficient to render a merger illegal. United States v. General Dynamics Corp., 258 F.Supp. 36, 64-65 (1966). But in this case it is unlikely that ITT could command all or most of the advertising of even one of the companies mentioned. First of all, ITT's purchases are only tiny fractions of the total sales of each of those companies, though the record is silent on the exact percentages. Second, the value of the television advertising of each of the companies exceeds that of ITT's purchases from it. Furthermore, there are many other very sizable companies in the broadcasting business which [*627] could be expected to have comparable shares of the total purchases from those companies. And any future entrant into networking would likewise probably be a sizable corporation which could offset much of the leverage ITT could exert.
In sum, while we do not completely reject the Department's concern, we do not now believe that an ITT-owned ABC would inject anticompetitive pressure of a sufficient degree on the television advertising market to have a substantial effect on our decision.
IX. Conclusion: The Lack of Justification for the Merger Is Confirmed by the Majority's Reliance on Discredited Evidence and Bald Assertion
The opinion of the majority is truly an extraordinary document.
Citations to the hearing record in the case, and the evidence adduced, are few and difficult to find. When they do appear they are almost exclusively the product of selective culling from the testimony of officials and employees of the merging companies. The majority provides no citation or discussion whatsoever of any of the testimony of the expert witnesses offered by the Department of Justice, save two. For example, not even a modest attempt is made to deal with the testimony of Prof. Albert Hill, of the Massachusetts Institute of Technology; Dr. Joseph Vincent Charyk, president and director of Comsat; Asher H. Ende, of the Common Carrier Bureau of this very Commission; Bogdan R. Stack, of the Stanford Research Institute; Paul Visher, of Hughes Aircraft; or Prof. Harvey J. Levin, of Hofstra University. Only the smallest portion of the testimony of the one expert witness in broadcast economics, Dr. Hyman H. Goldin, is even mentioned. The bulk of his testimony, bearing on the detriments to be expected from the merger and illusory nature of the stated justification, is given no mention. And the Department's final expert, Prof. John Burton, of Columbia University, is dismissed without the slightest attention to the product of his extensive labors. The Commission states,
We are confident that the [Justice] Department, with its extensive and highly skilled investigatory resources and its experienced and expert ability at economic analysis, has put into the record every fact of possible relevance to our consideration and decision of this matter (par. 82).
This gratuitous statement must have been intended jocularly, for the Commission has vitually ignored the relevant evidence which the Department of Justice has presented.
The justification for the merger now lies, as it did last December, is unsupported conclusions of the majority often at odds with the record in this case. Where record support for the conclusions does exist it can be found almost exclusively in the testimony of the witnesses who have a direct economic interest in the outcome of this case -- officers and officials of ABC and ITT. At times this testimony is flatly contradicted by far more credible evidence. At other times, although uncontradicted, it stands in stark contrast to human experience and commonsense. On only the rarest occasions are the applicants' self-serving statements corroborated by substantial and probative evidence. Yet almost never are they rejected by the majority.
[*628] The extensive analysis which we have attempted of the public-interest elements of this merger stands, we feel, as ample rebuttal to the conclusory opinion of the majority. We believe that any fair reading of the record by an impartial tribunal would sustain the reasoning and the conclusions we have reached. But some of what the majority says is so palpably unsupported or at odds with the array of testimony and documents before us, and at times so internally inconsistent, that we cannot let it stand without explicit challenge. Moreover, our review of the majority's opinion in this section serves as a useful way to summarize and conclude our presentation.
Here are a few samples of the majority's "analysis" and supporting "evidence," which we have drawn from its own opinion.
(1) The majority says, "no determined negotiations for acquisition of television properties were pursued by ITT until it began negotiating with ABC." (Par. 14.) The facts are that there is direct testimony by a disinterested witness that Harold Geneen, president and chairman of the board of ITT, offered $35 million for Hartford station WTIC in 1963 in a meeting WTIC officials in Hartford. (Graham 2599.) It is true that Geneen denied this, but the contemporaneous documents indicate that he did make such an offer. See section II, supra.
(2) The majority contends that, "[It] appears that the January 5, 1966, decision of ITT's CATV committee to continue the [ITT CATV] freeze was not premised on the possibility of a merger with ABC." (Par. 25.) In a footnote an attempt is made to explain away the very substantial evidence that the merger played a definite part in that decision. A CATV status report written for Geneen by his assistant, Vollbrecht, showed awareness of the necessity to ask ABC to "audit * * * our decision to go or no go in [CATV]," (J 126, p. 4.) The majority accepts Vollbrecht's testimony that he had no intention of consulting with ABC until after the merger had been consummated. But this abiding faith in Vollbrecht's assertion is only possible when one fails to look at the entire document from which the majority quotes selectively. Earlier in the same document, Vollbrecht had said, "We have not yet been able to satisfy ourselves on a go or no go decision. We expect to do this within the next 2 weeks." (J 126, p. 2.) On December 26, the date of the memorandum, it was clear that ABC and ITT would not even conclude their merger agreement for almost 4 weeks. Therefore, if Vollbrecht's testimony is to be believed, he could not consult with ABC within 2 weeks, and the language which the majority quotes makes no sense.
(3) The majority concludes that, "ITT was never seriously interested in pay-TV." (Par. 8.) To arrive at this curious conclusion credit is given to the testimony of two ITT officials -- and none to that of a third party who contradicts them. And the majority also conveniently ignores the documentary evidence indicating that ITT felt that, "The opportunities for ITT * * * [include] pay-TV itself." (J 119, p. 23.)
(4) The majority parades a list of "technological tasks which ITT can undertake to help solve the problems of UHF and of ABC coverage." (Par. 36.) But it fails to point out that this list was compiled by the ITT technical director on September 16, 1966 (J 262), 3 days [*629] before the first hearing in this matter and was thus -- we think one can reasonably assume -- an attempt to come up with some justification of the merger. The Commission has made no attempt to independently evaluate the feasibility or the likelihood of success of any of these projects. The probative value of that same memorandum is put in more realistic perspective, we believe, when it is realized, as the majority candidly says, that ITT also argues it can aid satellite-to-home broadcasting. No doubt ITT could aid satellite-to-home broadcasting, just as it could aid UHF if it wished, but it never will if it acquires ABC, because, as Geneen admitted (Geneen 1857-1858), the consequent bypassing of ABC's owned and operated stations would mean economic disaster for ITT.
(5) The majority states, "The record makes clear that all ITT subsidiaries are expected to purchase equipment, supplies, technology, and services where they can do so most economically and efficiently from the viewpoint of their own operations, without regard to other ITT affiliates." (Par. 47.) As incredible as this may seem, it is indeed what ABC and ITT officials testified. But it is also directly and positively contradicted by the record. FEC President Chasen testified that he tries to rent Avis cars when on a business trip. "If an Avis car is not available, we will then go to some budget-type of rental." (Chasen 910.) And the record makes clear that Avis' percentage of ITT's rentals jumped from a preacquisition 29 percent to a postacquisition 82 percent. (AR 87.) Either budget rentals are more economical and efficient or they are not. If they are, ITT officials should try them first if ITT's "expectation," and the majority's finding, are in fact company policy. If budget cars are not cheaper then they should not be the second choice after Avis, when, as we officially notice, there is another major nonbudget rent-a-car company. In either case, the majority's statement is at direct odds with all the record evidence -- except, once again, for the obviously incorrect and self-serving testimony of interested officials.
(6) The majority contends that, "The advances in broadcasting and communications technology in this country have been made by firms which were integrated organizations of communications operating firms and research and manufacturing enterprises in communications technology." (Par. 46.) This is an interesting reading of history, but it is unsubstantiated, at odds with the facts, and fails to consider the expert testimony of Professor Hill, who indicated that such integrated firms have little incentive to make major advances. In fact, the two most significant recent developments in broadcasting, satellites and cable television, were developed and pursued by nonbroadcasting entities. And the earlier history of broadcasting supplies at least one example -- FM broadcasting -- where it is charged that the major integrated broadcaster-manufacturer, RCA, suppressed rather than advanced the art. See, e.g., Head, "Broadcasting in America," 148 (1956).
(7) The Commission says, "The record of the supplementary proceeding establishes beyond any real dispute that ABC faces rising and substantial expenditure for both capital and operating requirements. Some of these are supported by detailed and voluminous itemized [*630] schedules. While it is always possible to raise questions about particular items in such lengthy schedules, it would appear that these financial forecasts and their supporting schedules represent responsible business judgments." (Par. 67.) In fact, the record is rather clear that these financial forecasts represent business judgments only in the sense that convincing this Commission of the merger's justification is the pursuit of business. The schedules, the estimates, and the 1970 completion date for capital expansion were almost all prepared for presentation to this Commission rather than for any independent business reason. There are only two firm estimates for ABC capital expenditures which were prepared before the merger agreement. These are $12 million for Hollywood construction (AR 12; AR 39) and the since-rejected plan for New York construction, estimated to cost $39,050,000. (AR 15.) Neither of these had been scheduled for any completion or even starting date before the merger negotiations. Using the assumptions of AR 3, ABC will realize almost three times the total of these two figures over the period 1966-70 from net earnings and depreciation of broadcast properties after deduction of dividends. Furthermore, it is not only possible to "raise questions about particular items in * * * lengthy schedules" but the total amount represented by the questionable items in AR 3, without questioning the need or estimate for any asserted building or facility, is almost half of the projected cash deficit. See section VII, supra.
(8) The Commission relies now, as it did in December, on "the past performance of both applicants as longtime licensees of the Commission" (par. 78) to somehow guarantee examplary future conduct. But, as we have seen, ITT has, on at least two occasions in the past, committed gross and intentional violations of Commission rules. See sections II and VI, supra. Reliance upon "past performance" is a weak guarantee of future performance. Given ITT's past history of violations of Commission rules -- which the Commission majority seems prepared to ignore -- it is not only weak, but, if anything, a guarantee of dereliction and abuse, not exemplary conduct.
Such uncritical and unsupported statements from the majority's opinion could be multiplied further. But we believe these eight examples are sufficient to make the point.
Scarcely less disturbing, however, is the analysis by fiat and misreading of the background of this case in which the majority engages.
The majority outlines the procedural steps in this case and an effort is made to indicate a thorougness in this proceeding. (Pars. 1-5.) A brief background is necessary.
After reviewing the extensive filings in the applications before us, the majority ordered a so-called "oral hearing" scheduled for 2 hours and 50 minutes on September 19, 1966. Because of questioning by the minority Commissioners, the "oral hearing" was extended to 2 days. It consisted of self-serving statements by the applicants, with no adversary parties involved. The Commission's Broadcast and Common Carrier Bureaus were limited to a presentation of questions involved and were not permitted to argue the merits or cross-examine or test the statements of the applicants. (In its December opinion the majority took pride in the work done by its senior staff. (Pars. 8, 9.) In this [*631] latest opinion, where the senior staff participating was allowed to reach a conclusion and did conclude that this merger would not serve the public interest, a similar tribute is missing.) It is to noted that the Commission made no investigation, as has the Department of Justice, into to the companies' records with respect to the proposed merger, but relied solely upon the applications and filings of ABC and ITT.
In a letter dated and filed with the Commission December 20, 1966, the Department of Justice stated that its independent investigation of the proposed merger, and study thereof, indicated serious anticompetitive consequences and advised the Commission to give full consideration thereto before acting on the merger request. The next day, December 21, 1966, the Commission majority voted to consent to the merger, without further consideration.
Commission consent to the merger rested upon a finding that "The
principal reason for the proposed merger is the need of ABC for more funds than
are available to it without the assistance of ITT." (Par. 23.) In the
April hearing, ordered on the petition by the Department of Justice, some five
hundred exhibits and four thousand pages of transcript produced a record from
which both the Commission's Broadcast Bureau (a full party to the further
hearing) and the Department of Justice have concluded that, contrary to the
Commission majority's previous holding, ABC could finance its alleged needs by
means other than merging with ITT. Thus, the scanty record on which the
Commission majority rested its first decision did not, as the Commission
majority indicated, contain all the undisputed evidential facts adequate for a
sound and reasoned decision.
The Commission majority states that "because of the significance and unique character of this case, we believe that it should not be decided on the basis of technical rules of procedure or burden of proof. * * *" (Par. 6.) We believe that the case must be decided pursuant to the statutory provision, which we cannot waive, and that the burden of proof on the specified issues is, and must be, on the applicants.
The majority first seems to acknowledge that we need not find a violation of the antitrust laws in order to conclude that this merger would have detrimental impact on competition. But no sooner is this conceded than an extensive comparison of this case with conventional antitrust cases is undertaken -- presumably to show that there is no violation. This is then taken as conclusive proof that there are no competitive detriments.
Antitrust cases are instructive because they provide examples of economic and legal analysis. But the Clayton Act's principal antimerger provision requires a finding of a substantial lessening of competition. 15 U.S.C., section 18 (1964). And the Supreme Court has indicated that a violation can only be supported if there is a "reasonable probability" of the substantial lessening, not a mere possibility. Brown Show v. United States, 370 U.S. 294, 319-323 (1962). We do not agree with the majority's antitrust analysis and conclusion that there is no reasonable probability of a substantial lessening of competition. [*632] And we would simply note that we cannot acquiesce in the implication that these same standards must be met before a dampening effect on competition will be relevant as one factor in the FCC's analysis of the much broader public-interest considerations in a merger of an international electronics-Common-Carrier conglomerate and a major American broadcasting network. The mere possibility of lessening competition must be relevant in our determinations, for that would be a detriment to the public interest, which, however small, requires some offsetting benefit if the merger is to be sustained.
The majority refers to an article by Harvard Law Professor Donald F. Turner analyzing conglomerate mergers. Turner, "Conglomerate Mergers and Section 7 of the Clayton Act," 78 Harv. L. Rev. 1313 (1965). If this reference is anything more than a cute and ineffective effort to suggest embarrassing inconsistency between the views of Professor Turner and Assistant Attorney General (Antitrust) Turner, it is not readily apparent. In any event it will not hold water. First, it should be noted that Turner, as the present Chief of the Antitrust Division, has participated in the conclusion of the U.S. Department of Justice and the Attorney General that this merger does involve anticompetitive consequences, and is otherwise detrimental to the public interest, whether under the analysis he employed in his article or some other. Second, neither he, the Department, nor we are, or should be, influenced by that law review article any more, or any less, than by the research of any other thoughtful academic. If, however, one wishes to play the majority's game we think a perfectly logical extension of Professor Turner's reasoning demonstrates that Assistant Attorney General (Antitrust) Turner's present conclusion is correct.
Would ITT, as an owner of a group of stations, have been a likely entrant into the networking business? The network market is a very tight oligopoly -- virtually without rival in this county. ITT, although not currently at the edge of the market, had premerger plans which very likely would have put it at market's edge in only a few years. The majority's citation of over "one hundred so-called 'group owners'" (par. 16) widely misses the mark, for very few of these have five VHF stations in major markets and the resources of ITT. ITT's serious interest in such major groups has been clear, and the majority concedes that "ITT was interested in making 'a sizable entry into television or none at all." (Par. 14.) If ITT's acquisition of a substantial group within 5 years were certain, so that it would then be comparable to Westinghouse, Metromedia, and RKO, this would surely satisfy the substance of Turner's requirement that the company in question be at the edge of an oligopolistic market. For this reason the majority's insistence that "whether or not ITT might have entered the broadcasting field as the owner and operator of another group of television stations * * * is not pertinent on the record" (par. 18) is really quite bizarre. It is highly pertinent, indeed central, to an understanding of the competitive impact of this merger. Finally, though the barriers to network entry are at present quite high, it is likely they will be reduced markedly in the next 5 to 10 years. This, too, should comply in substance with Turner's requirements. We do not need to, and do not, firmly conclude that this merger constitutes a [*633] violation of the Clayton Act. But the situation with which we are presented is close enough to that enunciated by Professor Turner that, if one accepts the analysis in his article, the anticompetitive effects of the merger must be taken into account by the FCC. ITT's lack of intention to enter networking by way of station ownership, of which it and the majority makes so much (par. 15), is what is "not pertinent on the record." (The majority's conclusion that "The merger will not change the scale or kind of competition in the relevant market" (par. 17) is really rather humorous in view of its reliance on stimulation of competition as the justification for the merger.)
We have already discussed the substantial evidence that ITT's decision not to pursue its CATV activities was attributable to the merger decision. But the majority also insists, in an imaginative contribution of expertise during its discussion of the possibility of a large interconnecting network of CATV, that "there is * * * no evidence in this record that such a network would be technically or economically feasible." (Par. 26.) The fact is that ITT was seriously considering such a network. If it is not technically or economically feasible, surely the burden was on ITT to demonstrate this face, or at least raise the possibility. The majority's statement is the first such suggestion of which we are aware in this case. The majority further suggests (par. 26) that there are numerous other companies in the CATV business in a position comparable to that of ITT -- as if saying it would make it so. It does not. ITT's CATV plans were quite grandiose. It has very few peers in the technology of cable transmission. The parties have introduced no evidence that any other firm has given comparable active consideration to nationwide interconnection of cable systems.
The majority's discussion of the merger's effect on broadcast and related technology is replete with recitations of undiscriminating extrarecord facts. For example, the listing of a large number of companies involved in the manufacture of broadcast equipment (par. 31) completely misses the point. Only one or two approach ITT's experience in cable transmission. And only a very few have ITT's capabilities in satellite technology. It is in these and related areas that future technological breakthroughs will most likely come, so the long list, while interesting, is really irrelevant to the central argument.
The majority concludes that "most of the important work and significant technological advances [in broadcasting] have been the product of large companies with broadcasting interests." (Par. 33.) But this is contradicted by the very list "of manufacturers of equipment in or related to the broadcast market" which the majority had previously produced (par. 31), and which includes a large number of companies not integrated with broadcasters. To this list could be added a number of others, including Blonder-Tongue, Gates Radio, Lenkurt, and Visual Electronics. The case which the majority has made for invigoration of the domestic broadcasting equipment market is thus very tenuous. And there is uncontradicted expert testimony in the record that integrated technology-and-broadcasting companies have little incentive to make meaningful technological advances. (J 334.) The majority chooses not even to mention this evidence.
[*634] In attempting to show that ABC will operate autonomously within ITT, the majority admits that ITT is a highly centralized company. But then it adds that "the evidence is clear and uncontroverted that the usual relationship between ITT and its other subsidiaries will not be the pattern for the relationship between ABC and ITT." (Par. 40.) But the evidence is not that "clear and uncontroverted." In September Geneen explained to us that ABC's relationship to the ITT complex would be "harmonious" with the existing ITT system. See section II, supra. The "clear and uncontroverted evidence" to which the majority anonymously refers consists of nothing more than further, and inconsistent, assurances of Geneen, this time that ABC's relationship to ITT will be "unique." Such statements, if they prove anything, only demonstrate the folly of relying on self-serving declarations for assurances of future conduct -- even for assurances of future self-serving declarations.
Now the majority seems to feel that ABC's autonomy is no longer important (par. 45). This new note sounded by the majority is not only at odds with the parties' continued stress on ABC's autonomy, but with the majority's own faith in the magic of autonomy last December (par. 22). Moreover, we think we have, in sections II and VI, supra, adequately dealt with the majority's gratuitous suggestion that "top management of ITT is of such character and ability that their [sic] participation in ABC's important policy discussions will be a plus, not a minus." (Par. 45.)
The majority's attempt to show that the merger is necessary to insure the continuation of ABC's news, public affairs, and other quality programming (par. 69) is constructed of whole cloth. While it is true in an accounting sense that the ABC network loses money, there is persuasive and unrebutted testimony that a radio-television network and its owned and operated stations must be viewed as an economic unit. (Goldin 3034-3036.) The highly profitable ABC-owned stations sustain their high levels of income precisely because of their affiliations with the ABC network. This entire unit can easily sustain the present and higher levels of public-service programming with no threat to that profitability.
The motives which induce stations and networks to broadcast public-service programming are quite complex. Indirect pressure from this Commission and the Congress, appeal to an influential segment of the population, the embarrassment of profits totally disproportionate to investment in a company with awesome public-service responsibilities, a desire to match the programming performance of competitors, and a sense of public duty and professional and personal pride are all significant factors. The majority somehow feels that an ABC less profitable than the other networks will not be able to sustain a high level of these loss items. But ABC has been less profitable than its competitors since its inception. Its profits have been rising rapidly in recent years, and all sophisticated prognosticators, including ITT, expect this trend to continue. (See J 268; Goldin 3029-3032.) There is no record evidence that ABC has recently sustained a level of public-service programming inferior to the other two networks. In the absence of such a showing, the burden of which obviously rested on the parties, [*635] there can be no serious contention that the level of ABC's public-service programming will fall in the future in some mathematical proportion to its continued rise in profits. Of course, this is a matter almost entirely within ABC's power to control, and it can always play "I told you so" by expanding its public-affairs programming after the merger (or curtailing it if the merger were disapproved). But we believe it is clear that, whatever ABC does in fact, its economic and other motivations for public-service programming will not be favorably altered by this merger.
After the belabored body of its opinion, the majority summarizes its
findings with regard to detriments and benefits in a revealing 12 paragraphs
(par. 84). All but one of the majority's purported conclusions (the
exception being that dealing with the television advertising market) we find to
be unsupported by, or at odds with, the record evidence in this case.
We have examined at great length the evidence of ITT's potential competition in the television network market and have found that, given developments which are quite likely within 5 or 10 years, ITT would have been (but for this merger) one of the few most likely entrants into the market at a time when barriers to entry will have been reduced markedly. Moreover, the majority's narrow focus on "networks" badly misconstrues the competitive situation. Nonnetwork syndicators, which ITT might well have become by purchasing a presently nonsyndicating major group, exert a real and present competitive influence on networks. Furthermore, there are individual station markets where competition is quite important. If ITT had pursued its interest in obtaining licenses for UHF stations it could have invigorated competition in those markets immediately and still have been in a position to enter networking in 5 or 10 years.
The majority ignores the evidence that ITT forsook CATV because of its interest in ABC. It finds the obstacles to a CATV network so great that it refuses seriously to consider the competitive possibilities. We think it is much more reasonable to conclude that the competitive reality of CATV is great, the competitive potential much greater, and that the regulatory issues are in such a state of flux that this is no time to ignore the potential of CATV. The record establishes rather clearly that ITT would have become a very potent force in CATV, at least if it had decided not to pursue its interest in conventional broadcasting.
The majority finds that ITT will aid ABC technologically. This is based on generalized assertions of the parties to the merger. It finds no other record support. There was no reference in the hearings to a specific technical problem which ABC has been unable to solve because of its lack of a technical division. Nor was any evidence presented that CBS and NBC have gained any advantage from their technical divisions. On the contrary, ABC's steady advance to a position of prime-time competitiveness with the other two networks indicates that it has encountered no significant technological obstacles. And the majority's recitation of a long list of firms engaged in broadcasting technology (par. 31), plus the additional list we have provided, would seem to indicate that there are sufficient firms to solve any significant problems which ABC might present.
[*636] With its skepticism about competitive possibilities in other areas, it is really remarkable that the majority insists that ITT will invigorate competition in the broadcast equipment market. Such a contention is belied by the large number of firms in this industry which the majority itself recites (par. 31).
Now admitting that the results may be "limited," the majority still places faith in the aid that ITT will give to UHF. In order to insure even this limited benefit, the majority has had to condition its approval on annual reports by ITT of its work in this area. This, of course, is a charade. The reports will be received and go unchallenged and will be irrelevant to any decisions with regard to the companies. ABC and ITT know this. But more than this, the majority cannot fabricate a benefit from this merger by making up one itself and then conditioning the merger's approval on its realization. Such a benefit is clearly not derived from the merger, but rather from Commission regulation, which it might well undertake by rulemaking without the merger. The evidence, as we have seen, is highly ambivalent with regard to ITT's incentives in UHF, once it owns ABC. Instead of realistically analyzing this evidence and concluding, as it would have to, that no benefit has been shown, the Commission lays down conditions and thereby escapes its duty. This is, in some respects, one of the most dramatic instances of the majority's grasping for straws -- straws which it has first had to toss into the air itself.
The Commission finds the detriment to the independence of ABC in regulatory matters to be "slight in nature." While we do not claim that it is vital to the future of the Republic, we take heart in the majority's willingness to at least recognize it as a detriment and will only urge that we believe our analysis demonstrates that the detriment can more truly be described as "significant" than "slight."
The majority finds "clear and convincing" the evidence that the independence and integrity of ABC News will be maintained. It has admitted that one official of ITT acted improperly, but then has failed to mention substantial quantities of probative evidence: The conduct of other ITT public-relations officials, which, if not as outrageous as that of the one official, is consistent with it and should be taken to indicate something about the company or its ability to control its officials; the absence of any indication that ITT agrees with the majority that the one official's conduct was improper; the disdain which ITT has evidenced for the processes of this Commission in this very proceeding and in more than one instance in the past; the intimate involvement of ITT with Government officials in this country and abroad; the highly centralized control in the ITT system; and the common knowledge of mankind that subordinates will often act to please superiors regardless of the merits of the conduct.
The majority feels that the merger will induce ABC to affiliate with more UHF stations. Yet ITT has no clear incentive to encourage more viable UHF, and the majority's reliance on reporting conditions cannot create this incentive. But even if ABC were to affiliate with one or two UHF stations a year earlier than it otherwise would, the effect on UHF would be so evanescent that it is unworthy of consideration in this proceeding. In 4 or 5 years the UHF set penetration will be so [*637] great that the influence of a few extra 1967 network affiliations will be de minimis.
It is difficult to grapple with the majority's contention that somehow ITT's financial strength will aid ABC, because it is difficult to be sure what is meant. The majority may mean that loss items such as news and public affairs will be undertaken more readily by larger organizations where the ultimate effect on the income statement is less pronounced. While we can understand this argument in theory, there is no record evidence to support it with regard to NBC news and public-affairs programming as compared with that of ABC and CBS. And evidence in the record suggests that ITT is a highly profit-oriented and aggressive business. Surely if the parties wished to rely on such an argument, it was incumbent upon them to present probative evidence. And the majority must point to more evidence than extrarecord writings of one commentator not subjected to cross-examination to sustain its thesis.
On the other hand, the majority may just be referring in a more general way to the old contention that ABC needs ITT money, in order to make the expenditures necessary for good network programming. But the majority has now forsaken this contention, after its principal reliance on it in December, in the face of overwhelmingly convincing record evidence to the contrary. No one denies that ITT has greater financial resources than ABC. The question must be if this will aid ABC in some discernible way. The answer on this record must be "no."
The majority says that it is acting in the light of "this agency's
history of attempting to improve ABC's competitive posture vis-a-vis the other
two networks." (Par. 86.) We think the public record discloses that of our
number especially Commissioner Cox joined fully in that attempt. In fact,
he has urged a number of courses designed to further that effort, both before
and since becoming a member of the Commission, in which those members of the
majority who were here at the time did not see fit to join. Those
suggestions dealt with matters of allocations policy (the drop-ins and deintermixture)
and of policy with regard to network affiliation (market sharing) which were
designed to strike at the root cause of ABC's problem which was, then as now,
the lack of equally competitive facilities in certain major markets.
Those of the majority who did not choose to deal with fundamental causes are
now zealous to achieve the desired result through large infusions of
money. (And see Commissioner Johnson's earlier discussion of what he felt
to be these still available and "dramatically more effective" ways
for a "truly and responsibly concerned Commission" to promote ABC
competitiveness. 7 F.C.C. 2d 278, 316-318.) We are sure that if money
could have solved the problem, ABC's able management would have long since
raised the necessary funds through borrowing or the issuance of additional
stock. We are afraid that the majority, like the applicants, resorts to
ABC's claimed need for large sums which, it asserts, it cannot obtain through
any means short of this merger simply to explain and justify results reached on
other grounds. (We believe the majority has softened its stance on this
point (par. 68), but still seeks, somehow, to use it, since it continues to
emphasize ITT's financial support. It seems to be saying that ABC
[*638] may not need the merger to finance its plans, but that it
would be easier to do it in this way. This is completely at odds with the
contentions of the applicants (though they, too, have tried to downplay the
claim of financial need because it has blown up in their faces) and with the
position of the majority in its decision of last December.)
Since we still desire competitive equality for ABC, we are setting down certain conclusions we have reached on this record which are sharply at odds with those of the majority:
1. We do not believe that ABC had in December 1965 -- or that it has now -- any need for funds for purposes which would truly advance its competitive posture and which it could not have raised absent this merger.
2. We do not believe that ABC has ever suffered any technological disadvantage by virtue of its lack of its own research facilities. The majority's requirement of annual reports of expenditures by ITT in lending technological support to ABC will establish that money has been spent, but not that it achieved an improved competitive posture for ABC or that the latter could not have obtained the same benefits from others -- perhaps at less expense.
3. We do not believe that ABC's competitive position will be enhanced
by its surrendering secondary clearances on VHF stations for primary
affiliation with UHF stations, which the majority seems to require -- though we
do not believe the applicants made any such commitment. In fact, at least
the short-range result will be to reduce ABC's present audience
levels which are so critical to its competitive posture.
4. We do not believe that ABC's interests will be served by an across-the-board improvement in UHF technology -- though the public interest would be served thereby. However, we think this is academic because ITT cannot promise such technological advances, nor can the Commission require them -- any more than King Canute could command the sea.
5. We do not believe that ABC's competitive position will be improved by the "cultural programming innovation" which the majority seems to expect (par. 69) -- though, again, the public interest would be advanced. Such programs, however desirable, are not the tools for achieving competitive equality. The news and public-affairs expansion which the majority also expects are ingredients of a successful network, but these were already committed before the merger and do not depend upon it.
In other words, we believe that the talk of achieving competitive equality as a result of the merger is a smokescreen, and that the expectations of consequent improved service for the public are sheer speculation. We do not mean to say that ABC cannot become more competitive or that it cannot serve the public better -- we think it was on the way toward both objectives before it agreed to merge with ITT, and that it would continue to improve in both regards without the merger.
This is the second time this case has been before the Commission. When the Commission first decided in favor of the merger, the three of us each had strong reservations, bolstered by evidence, that serious detriments to the public interest inhered in union of ABC and ITT. It was most apparent, furthermore, that the justification for the merger was tenuous, and obviously had been constructed with a view to convincing the Commission. The parties, it appeared, had their own private reasons for merging, quite unrelated to the public interest. What was certain was that the procedures the Commission had followed had explored none of these issues in depth.
With public attention and the interest of the Department of Justice
came sufficient pressure to force a reluctant Commission to order a further
hearing -- with three of the present majority "abstaining" from
[*639] voting. Now the record of that hearing is open to public
inspection. Our fears of detriment are clearly confirmed by that record;
our understanding of the process of fabrication of "justification"
for the merger is deepened. For some unfathomable reason the majority has
chosen largely to ignore that record and reaffirm the conclusion which it seems
irrevocably to have reached in December.
If the majority's approval of the merger is allowed to stand, we hope that it is correct in its appraisal of the matter, and that we are wrong, because the issues posed here are of critical importance to this Nation. But if the results are more favorable than we anticipate, this will not represent the natural flow of events to be rationally predicted on the basis of the record made here. On this record it seems clear to us that the expectable detriments from this merger outweigh the hoped-for benefits. We, therefore, do not believe that the majority's grant of approval for the merger is in the public interest. We dissent, more in sorrow than in anger, for it is the public interest in a strong, competitive, and free broadcasting and common carrier service which is the real loser from this action.
APPENDIX CHRONOLOGY AND DOCUMENTS INDEX
Dec. 3, 1965 The impending merger of ABC and ITT is reported in the New York Times.
Feb. 14, 1966 ABC and ITT enter into the merger agreement.
Mar. 31, 1966 The applications for assignment of license and transfer of control are filed with the Commission by ABC. These applications included: Detailed applications for each of the stations; an exchange of letters between Geneen and Goldenson (Mar. 18, 1966, and Mar. 28, 1966) detailing the understandings between the two companies as to the relationship of the parent and subsidiary; ABC organization charts; ABC program standards and policy statements; a description of ABC-owned radio and TV stations and their organizational relationship in the company; a narrative history and analysis, "ABC -- Past, Present, and Future"; financial data on the relative positions of CBS, RCA, ITT, ABC, and ITT-ABC; proxy statements of ABC and ITT (both dated Mar. 25, 1966); ITT's and ABC's 1965 annual reports; a listing of ABC's tangible property used in broadcasting; ITT-ABC statement of incorporation and bylaws; proposed boards of directors for the new ABC and ITT as well as the other business interests of those directors; interlocking broadcast interests of certai stockholders and the proposed remedies.
Apr. 14, 1966 The ABC applications are accepted for filing by the Commission.
May 11, 1966 A petition to deny the applications is filed by Hubbard
Broadcasting, Inc., alleging that since its AM station
(KOB, Albuquerque, N. Mex.) is embroiled in a dispute with ABC's WABC (New York), and WABC's license has not been renewed, WABC has nothing to transfer, and to effect any transfer would prejudice Hubbard's rights in the proceeding.
May 20, 1966 ABC opposes Hubbard Broadcasting's petition to deny.
June 2, 1966 Hubbard replies to ABC's opposition.
June 8, 1966 Letter from FCC Chairman Rosel H. Hyde to Assistant Attorney General (Antitrust) Donald F. Turner asking to be kept informed of the Division' studies and conclusions.
June 21, 1966 Letter from Donald F. Turner to Chairman Rosel H. Hyde
acknowledging that the Division was examining the
June 30, 1966 Letter from Rosel H. Hyde to Donald F. Turner saying the Commission planned to take up the merger very shortly and asking when the Division's views would be available.
July 20, 1966 By a 4-2 vote letters are sent to Harold S. Geneen
(president, ITT) and Leonard Goldenson (president, ABC) asking for further
information on the financial resources ITT plans to provide ABC, and the
question of auton-
omous operation of ABC as an ITT subsidiary.
July 25, 1966 Geneen and Goldenson reply to the Commission on the above questions.
July 27, 1966 Letter from Donald F. Turner to Rosel H. Hyde saying tha the Division's views will not be available for some time, but that the complexity and importance of the issues preclude hasty conclusions.
Aug. 18, 1966 The Commission orders an oral, en banc hearing.
Sept. 5, 1966 The Commission announces the order of appearances and amount of time to be used at the oral hearing.
Sept. 7, 1966 ABC and ITT file further evidence in the proceeding including: ABC station facilities; competition faced in markets with owned stations; audience and financial comparison of network affiliates in TV and radio; ITT products and services; purchases from ABC; U.S. TV advertising; media advertising; executive turnover; and an analysis of other present and potential corporate dealings between ABC and ITT.
Sept. 19-20, 1966 Commission holds oral hearing on the proposed merger. Transcript record of hearing is prepared.
Oct. 6, 1966 Letter from Robert Bennett (legal assistant to Commissioner Johnson) to Marcus Cohn (counsel for ITT) requesting copies of Geneen's recent speeches and statements.
Oct. 10, 1966 Cohn's reply, including 12 speeches and statements of Geneen.
Oct. 25, 1966 Letter from Rosel H. Hyde to Donald F. Turner saying the Commission would probably make a decision soon and reminding him of the Commission's continuing liaison and interest in receiving any Division views on the merger.
Nov. 2, 1966 Letter from Commissioners Bartley, Cox, and Johnson to Geneen asking for further information on ITT's foreign interests including: A list of subsidiaries, directors, stockholders; joint ventures and agreements; contracts; a list of confiscations; foreign shareholders in ITT with largest interests; employees whose duties include liaison with foreign governments; and any significant litigation involving foreign interests.
Nov. 3, 1966 Letter from Donald F. Turner to Rosel H. Hyde saying that the Division's intense study is not complete, but that substantial antitrust questions are present.
Nov. 17, 1966 Geneen replies to the letter of Nov. 2 from three Commissioners, including the requested material, of which the listing of foreign stockholders is denominated confidential.
Nov. 23, 1966 Letter from Commissioners Cos and Johnson to Geneen asking for further information on ITT's foreign operations including: Its Chilean contracts; foreign subsidiaries with ITT minority interests; foreign licensing, sales, and franchise agreements; government liaison and testimony to government bodies; its Cuban subsidiaries; ITT statements on expropriation and foreign investment; a country-by-country breakdown of assets and investments; the government's reasons for exproprating ITT property; a narrative on how ITT would deal with a conflict between ITT's foreign interests and ABC's independence of news presentations.
Dec. 8, 1966 Geneen replies to the letter of Nov. 23, including material on the Chilean contracts, and licensing, sales, and franchising agreements which were denominated confidential.
Dec. 19, 1966 Assistant Attorney General
(Criminal) Fred M. Vinson replies to the FCC General Commsel's letter of the same date stating that neither the Department nor grand jury had found evidence to support prosecution of the allegations that ITT officials had violated the Corrupt Practices Act.
Dec. 20, 1966 Letter from Donald F. Turner to Rosel H. Hyde analyzing the public interest and antitrust issues of the merger.
Dec. 21, 1966 Marcus Cohn (ITT counsel) files rebuttal letter to Dec. 20 letter of Turner.
Dec. 21, 1966 The Commission by a 4-3 vote (Bartley, Cox, and Johnson dissenting with separate statements) grants the applications.
Jan. 18, 1967 Department of Justice (Antitrust Division) (DOJ) files an application for stay of the merger and petition for reconsideration and leave to intervene, stating that the Commission had failed to give adequate consideration to important merger issues, that its procedures were inadequate, and that the proceeding should be reopened.
Jan. 26, 1967 ABC and ITT file an opposition to the DOJ petition,
stating that the DOJ petition is untimely, that the DOJ
shows no good cause for being untimely, that the petition makes no specific and particular allegations, that a full and complete record has been established, that the Commission fully considered all relevant issues including those antitrust matters raised, that ABC's need for financial help is genuine, and that the merger does not threaten objectivity of ABC's news and public-affairs reporting.
Jan. 30, 1967 DOJ replies to the ABC and ITT opposition.
Feb. 1, 1967 By a 5-2 vote (Bartley and Wadsworth dissenting; Cox, Loevinger, and Johnson concurring) the FCC stays the effect of its Dec. 21, 1966, order, and orders further proceedings.
Feb. 2, 1967 The American Civil Liberties Union (ACLU) petitions for reconsideration and leave to intervene.
Feb. 3, 1967 Gerald H. Gottlieb files petition as proposed amicus curiae.
Feb. 14, 1967 ABC and ITT file opposition to the ACLU petition.
Feb. 15, 1967 The DOJ files a specification of issues and evidentiary material along with 260 documents dealing with the merger negotiations, ITT's interest in CATV and other broadcast properties, and the evaluation by ITT and ABC of the merger.
Feb. 17, 1967 ABC files a $25 million agreement made with ITT.
Feb. 20, 1967 ACLU tenders submission of testimony by Sidney Dean.
Feb. 21, 1967 ABC and ITT file letter opposing Gottlieb's participation.
Feb. 23, 1967 ABC and ITT file a statement in response to the DOJ specification, concluding that reopening of the case is not warranted. Five documents related to the case are also filed.
Feb. 23, 1967 ABC and ITT file a motion to strike the Feb. 20 ACLU submission.
Feb. 28, 1967 DOJ files a rebuttal statement.
Mar. 10, 1967 Gerald H. Gottlieb files letter retendering petition for participation as amicus curiae.
Mar. 16, 1967 By a 4-0 vote (Lee, Loevinger, and Wadsworth abstaining) the Commission orders an expedited hearing to begin on Mar. 27, before a hearing examiner with immediate certification of the record to the Commission; denial of the ACLU petition but with invitation to file statement as amicus curiae and denial of the Gottlieb petition.
Mar. 22, 1967 The DOJ applies for a continuance of the hearing for 2 weeks.
Mar. 22, 1967 The FCC Broadcast Bureau supports the DOJ request for continuance.
Mar. 22, 1967 ABC and ITT oppose the request for continuance.
Mar. 22, 1967 The Commission by a 5-0 vote (Loevinger and Wadsworth absent) grants the request for continuance.
Mar. 23, 1967 First prehearing conference before Chief Hearing Examiner James D. Cunningham.
Apr. 6, 1967 Second prehearing conference held.
Apr. 10-26, 1967 Hearings held.
Apr. 27, 1967 Record certified to the Commission by the examiner; 3,882 pages of record, 356 DOJ exhibits, 51 Broadcast Bureau exhibits, and 146 ABC and ITT exhibits; all dealing with all aspects of the case discussed in the opinion.
Apr. 28, 1967 The Commission on its own motion (7-0) modified its order establishing deadlines for findings of fact, reply findings, and conclusions of law. Oral argument set for June 1, 1967.
May 4, 1967 The ACLU requests a delay in the deadline for filing its amicus curiae brief.
May 5, 1967 The Commission by a 4-0 vote (Lee, Cox, and Wadsworth absent) denied the ACLU motion, but on its own motion granted a partial extension of time to file its brief along with a statement showing why its participation would serve a useful purpose.
May 9, 1967 The DOJ files a petition asking for an extension of time for the filing of findings of fact, reply findings, and oral argument.
May 9, 1967 ABC and ITT file oppositions to the DOJ petition.
May 10, 1967 The Commission by a 5-0 vote (Wadsworth and Johnson absent) grants in part the extension of time.
May 22, 1967 DOJ, Broadcast Bureau, ABC, and ITT file findings of fact.
May 24, 1967 The Commission by a 6-0 vote (Wadsworth absent) grants extension of time for ACLU to tender its amicus curiae brief.
May 26, 1967 ACLU files its brief opposing the merger, and calling for a study of the present structure of broadcasting.
May 29, 1967 The Commission by a 4-0 vote (Bartley, Wadsworth, and Johnson absent) announces the order of appearances and amount of time for oral argument.
June 1-2, 1967 Oral argument is heard in the case before the Commission, en banc, with DOJ, Broadcast Bureau, ABC, and ITT participating. Transcript now totals 4,237 pages. The case is taken under advisement by the Commission.
June 12, 1967 Letter from Donald F. Turner to Ben F. Waple (Secretary, FCC) asking that in the event that the applications are approved by the Commission, a 30-day period before consummation be provided in order to allow the Department of Justice to consider an appeal.
June 16, 1967 Letter from James A. McKenna and Marcus Cohn (ABC and ITT
counsels) to Ben
F. Waple, stating that no provision would be needed since the parties now agree not to merge for 30 days.
June 22, 1967 Commission by a 4-3 vote (Cox, Bartley, and Johnson dissenting in a joint opinion) affirms its Dec. 21, 1966, opinion, dissolves the stay of the merger, and denies the DOJ petition for reconsideration.