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In Re Application of COLGREENE BROADCASTING CO., INC. (TRANSFEROR) AND VALJON, INC. (TRANSFEREE) For Transfer of Control of: (a) KPOI Broadcasting Co., Inc., Licensee of stations KPOI-AM-FM, Honolulu, Hawaii; (b) Radio Associates, Inc.,

Licensee of Station KMEN, San Bernardino, Calif.


Files Nos. BTC-5992, BTC-5993




20 F.C.C.2d 1051 (1969)


RELEASE-NUMBER: FCC 69-1409 40607


December 23, 1969 Adopted





[*1051]  1.  We have before us the above applications wherein the transferee seeks to acquire control of the licenses of a full-time AM and FM in Honolulu, Hawaii.  As such, they are subject to the interim policy of docket No. 18110.  However, the transferee is willing to accept a grant of the Honolulu application subject to the outcome of the rulemaking proceeding.


2.  The transferee is legally, technically, financially, and otherwise qualified to be the owner of the licensee of the above stations.  Grant of these applications subject to the outcome of docket No. 18110 will not alter any present degree of concentration of control of mass media of communications in the Honolulu area.  A grant of these applications subject to the outcome of docket No. 18110 will serve the public interest, convenience, and necessity.


3.  It is therefore ordered, That the above-captioned applications for transfer of control of the licensee corporations of stations KPOI-AM-FM and KMEN from Colgreene Broadcasting Co., Inc., to Valjon, Inc., Are granted and that the grant of the KPOI-AM-FM application is made subject to the condition that if acquisition of these stations becomes inconsistent with the rule as finally adopted in docket No. 18110, the transferee will divest itself of either the AM or the FM upon notification by the Commission.





 [*1052]  Northwestern National Life Insurance Co.


[In re Application of Colgreene Broadcasting Co., Inc., and Valjon, Inc., for Transfer of Control of KPOI Broadcasting Co., Inc., and Radio Associates, Inc.]





The case before the Commission involves a seemingly innocuous transfer of radio stations KPOI-AM-FM, Honolulu, Hawaii, and KMEN, San Bernardino, Calif., from Colgreene Broadcasting Co., Inc., to Valjon, Inc.  The transaction involves a waiver of our interim policy on the one-to-a-market rulemaking and is a transfer from one nonresident multiple owner to another.  But it is not uncommon for such a transaction to be approved by this Commission.  We have today granted similar waivers, and I have written often of our lack of concern over concentration of control of this country's media.  See, e.g., WIBF Broadcasting Co. (Taft), 17 F.C.C. 2d 876, 833 (1969); Martin Theatres of Georgia, Inc. (Fuqua), 16 F.C.C. 2d 478, 480 (1969); KSL, Inc., 16 F.C.C. 2d 340 346 (1969).


But this case has something more.  Northwestern National Life Insurance Co., owns 9.09 percent of the stock of Valjon, Inc.  It is therefore in a position to exert considerable control over the affairs of the company.  The Commission opinion fails to develop Northwestern's interest in other major broadcast properties.  They include the following:


Northwestern holds a $600,000 senior note of Metromedia, Inc., due on August 1, 1984, and formerly held a $400,000 subordinated convertible note in the same company.  Metromedia, Inc. is one of the major holders of broadcast properties in the country, with radio and television stations in New York City, Los Angeles, Washington, D.C. Kansas City, San Francisco, Baltimore, Cleveland, Philadelphia, and Oakland.  It currently has an application pending before the FCC to acquire another television station in Chicago.  With additional interests in advertising, printing, and record companies, it is a true "media conglomerate."


Northwestern holds $700,000 worth of subordinated notes of Storer Broadcasting Company, convertible into 13,725 shares of that company's stock.  Storer Broadcasting is the owner of broadcast properties in Detroit, Cleveland, Toledo, Milwaukee, Atlanta, Boston, Philadelphia, Miami, New York, and Los Angeles.


Northwestern holds a promissory note of Northland Television, Inc., licensee of WAEO-TV, Rhinelander, Wisconsin, with warrants to purchase 10,000 shares of Northland's stock.


Northwestern holds a $500,000 promissory note of Community Television Service, Inc. (with a present balance of $466,667), which is guaranteed by Midcontinent Broadcasting Co., with broadcast outlets in several midwestern cities, and KSOO-TV, owner of a television station in Sioux Falls, South Dakota.


All told, Northwestern National Life Insurance Co., is in a position to exercise influence in the operation of over 40 radio and television stations in the United States, serving many of the major population centers.  The FCC rules prohibit the granting of a broadcast license when "the grant of such license would result in a concentration of control of * * * broadcasting in a manner inconsistent with public interest, convenience, or necessity." (47 CFR sections 73.35 (AM), 73.240 (FM), 73.636 (TV) (1969).) There has been a divergence of views over the years as to the interpretation of this phrase, "concentration  [*1053]  of control," as applied to the cases that come before this Commission.


But in one aspect of the rules there is less ambiguity.  The rules provide that there is concentration of control when "any party or any of its stockholders, officers, or directors * * * have a direct or indirect interest in, or [are] stockholders, officers, or directors" of more than 7 AM, 7 FM, or 7 TV stations.  Id.  [Emphasis supplied.] There is no provision that the interest held must be a stock interest to fall within the rules.  Any "direct or indirect interest" is proscribed.  To make this point even clearer, the notes interpreting the rules provide that "control" shall not be "limited to majority stock ownership, but includes actual working control in whatever manner exercised."


I realize, of course, that other interpretative notes, and most FCC rulings, have applied these sections only to stock interests of a certain size.  By such a strict interpretation of these rules, the Commission majority finds that their specific provisions are not violated by Northwestern's interest in this case.  But it is obvious to me that the holdings of Northwestern, even if not strictly creating a concentration of control, contravene the spirit of the rules.


In modern corporate practice, with its corps of professional managers, large lenders have substantial control over the affairs of the borrowing company.  Depending on the relative sizes of the debt and equity holdings, the holder of debt may actually have greater control than any of the shareholders.  For example, it is quite common for the large lenders -- whether banks, insurance companies, or other financial institutions -- to place one of their officers on the board of directors of the borrowing company. 


Being in the business of supplying capital, they are more aware of what is going on in the company and more likely to act quickly when their investment is affected.  They have the staff resources necessary to manage their investments.  The shareholders -- even large shareholders -- are generally principally engaged in another business.  Even if they are on the board of directors, they may be less informed of the affairs of the corporation and less likely to exert control to protect their investment.  Large lenders are usually consulted on all major matters affecting the company, and often the covenants of the loan agreement require their approval on financial decisions.


Given the present litany of corporate practice and policymaking, it is absurd for this Commission to confine its concern over concentration of control to shareholders.  We should not be blind to who is exerting the control in the real corporate world.  We should undertake rulemaking to clear up this loophole and bring our rules into line with reality.  In no event should the transaction before us be so cavalierly approved.


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