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Report on Chain Broadcasting, U. S. Federal Communications Commission, May, 1941, pages v-vi, 1-4:
FEDERAL COMMUNICATIONS COMMISSION
REPORT ON CHAIN BROADCASTING
[Pursuant to Commission Order No. 37]
Docket No. 5060
By the Commission (Chairman Fly, Commissioners Walker, Payne, Thompson, and Wakefield; Commissioners Case and Craven dissenting).
A. HISTORY OF PROCEEDINGS
The Federal Communications Commission on March 18, 1938, by Order No. 37,1 authorized an investigation "to determine what special regulations applicable to radio stations engaged in chain or other broadcasting are required in the public interest, convenience, or necessity." On April 6, 1938, a committee of three Commissioners2 was appointed by the Commission to supervise the investigation, to hold hearings in connection therewith, and "to make reports to the Commission with recommendations for action by the Commission."3
The Commission's order authorizing the investigation covered the following matters, among others: The contractual rights and obligations of stations engaged in chain broadcasting under network agreements; the extent of control over programs and advertising contracts exercised in practice by stations engaged in chain broadcasting; duplication of network programs in the same areas; exclusive contracts restricting stations to one chain service and chain services to one station in a given area; the extent to which single chains have exclusive coverage in particular areas; the policies of networks with respect to character of programs, diversification, and accommodation to the requirements of areas served; the number of stations licensed to or affiliated with each network and the amount of station time controlled and used by networks; rights and obligations of stations in relation to advertisers having network contracts; the nature of the service rendered by stations licensed to networks; competitive practices of stations engaged in chain broadcasting; the effect of chain broadcasting upon stations not engaged in chain broadcasting; practices or agreements in restraint of trade or in furtherance of monopoly in connection with chain broadcasting; and the extent and effect of concentration of control of stations locally, regionally, or nationally, through contracts, common ownership, or by other means.
Between November 14, 1938, and May 19, 1939, the committee held hearings pursuant to public notice that the Commission would hear any person or organization desiring to present evidence on the matters included for investigation in Commission Order No. 37. The committee requested the national networks, regional networks, station licensees, and transcription and recording companies to present evidence. It also requested information by questionnaire from licensees of stations and from holders of stock in licensee corporations. In addition, persons and organizations requesting an opportunity to present evidence material to the investigation were given an opportunity to be heard. On June 12, 1940, the committee issued its report 4 based upon the evidence adduced at the hearings and the official records of the Commission.
In November 1940 briefs in this proceeding were filed on behalf of the national networks and other interested parties. On December 2 and 3, 1940, oral arguments before the full Commission were presented by the parties. These arguments were directed to the committee report and to certain draft regulations issued solely for the purpose of giving scope and direction to the oral arguments.5 On January 2, 1941, supplementary briefs were filed on behalf of the three national network organizations in which were discussed the jurisdiction of this Commission with respect to matters covered by the committee report and the draft regulations, and in which attention was given to the actual and feasible limits of competition in the broadcasting field, with particular reference to network broadcasting.
B. SCOPE OF THIS REPORT
While the investigation as prescribed by Order No. 37 was not limited to chain broadcasting,6 network operations were the principal subject of inquiry.7 The great bulk of the testimony at the hearings dealt with network matters, and the committee report deals largely with these matters. The committee's memorandum submitting its report, however, directed our attention to two other problems. The first of these is the ownership of more than one station by a single individual or corporation.8 The Commission has had and still has frequent occasion to deal with this question in its administration of the station licensing provisions of the Communications Act. In the rules recently promulgated for frequency modulation (FM) and for television, we have established rules restricting multiple ownership of stations furnishing these new broadcast services.9 Although the rules covering standard broadcast service do not contain comparable provisions, the Commission is working out a policy in its day-to-day decisions.10
The other non-network matter to which the committee directed our attention is the problem created by the fact that the stock of some corporate licensees is listed on stock exchanges. This problem relates not only to the administration of section 310 (b) of the Communications Act governing the transfer or assignment of radio stations, but also to the enforcement of section 310 (a), prohibiting alien ownership or control of radio stations beyond certain limits. A number of stations are owned or controlled by large corporations whose stock is listed on stock exchanges and is widely held. The Commission is giving careful consideration to the problem in order to insure observance of section 310.
The committee did not make specific recommendations with respect to either of these two matters, but indicated that the Commission should give consideration to them in the light of administrative experience and should suggest to Congress the enactment of amendatory legislation, if later found to be necessary. In this report we do not attempt to solve these difficult questions. They are receiving continuing attention in our administration of the provisions of the Communications Act and may, indeed, warrant further special study.11
Accordingly, this report is devoted largely to the chain broadcasting matters with which the committee report is primarily concerned. The views expressed and the regulations adopted herein are, we believe, fully supported by the evidence adduced at the hearings by the networks and other interested parties. With respect to such matters as the present allocation and ownership of particular broadcasting facilities, we have utilized our current official records. The historical data in the early chapters includes matters of common knowledge or of public record. In a proceeding of this character, there is no reason to exclude such matters or records from consideration.
C. NATURE AND SIGNIFICANCE OF CHAIN BROADCASTING
Chain broadcasting is defined in section 3(p) of the Communications Act of 1934 as the "simultaneous broadcasting of an identical program by two or more connected stations." It is technically accomplished at present by transmitting the program by wire, usually leased telephone lines, from its point of origination to each of the outlet stations of the chain or network for simultaneous broadcasting. The outlets are in certain highly important cases owned by the networks themselves, but more commonly they are independently owned and are affiliated with the networks by means of a network affiliation contract.
There are at present three organizations operating four network systems of national scope, and a number of organizations operating network systems of a regional character. The largest and oldest national organization is the National Broadcasting Company, Inc.,12 founded in 1926, a subsidiary of the Radio Corporation of America.13 NBC operates two network systems, known as the "Red" and "Blue" networks. Second in size, and established a year after NBC, is the Columbia Broadcasting System, Inc.,14 controlled by William S. Paley and associates. The third nation-wide system is the Mutual Broadcasting System, Inc.,15 which was established in 1934 and which is largely controlled by the Chicago Tribune and R. H. Macy & Co.
The broadcast business handled by the three national network organizations (excluding the nonnetwork business of the stations owned by them) constitutes almost half of the total business of all commercial broadcast stations in the United States. In 1938 16 the network net time sales 17 of NBC, CBS, and Mutual totaled over $46,000,000, as compared with the net time sales of the entire industry in that year, amounting to about $101,000,000.
Network broadcasting has been an important factor in the development of the broadcasting industry. Many improvements which have taken place in engineering, in program quality, and in the broadcasting of special events of national interest to ever increasing audiences have been due, in considerable measure, to the advertising revenues brought to the radio broadcasting industry by the network method of broadcasting to Nation-wide audiences.
If radio broadcasting is to serve its full function in disseminating information, opinion, and entertainment, it must bring to the people of the nation a diversified program service. There must be, on the one hand, programs of local self-expression, whereby matters of local interest and benefit are brought to the communities served by broadcast stations. There must be, on the other hand, access to events of national and regional interest and to programs of a type which cannot be originated by local communities. Neither type of program service should be subordinated to the other.
The growth and development of chain broadcasting found its impetus in the desire to give widespread coverage to programs which otherwise would not be heard beyond the reception area of a single station. Chain broadcasting makes possible a wider reception for expensive entertainment and cultural programs and also for programs of national or regional significance which would otherwise have coverage only in the locality of origin. Furthermore, the access to greatly enlarged audiences made possible by chain broadcasting has been a strong incentive to advertisers to finance the production of expensive programs.
From an economic standpoint, the stations themselves are in a position to benefit greatly from their participation in chain broadcasting; such broadcasting can bring them a larger share of the money expended by advertisers for national or regional coverage. It is apparent that chain broadcasting plays an essential part in the development of the broadcast industry.
But the fact that the chain broadcasting method brings benefits and advantages to both the listening public and to broadcast station licensees does not mean that the prevailing practices and policies of the networks and their outlets are sound in all respects, or that they should not be altered. The Commission's duty under the Communications Act of 1934 is not only to see that the public receives the advantages and benefits of chain broadcasting, but also, so far as its powers enable it, to see that practices which adversely affect the ability of licensees to operate in the public interest are eliminated.
1 Order No. 37 is attached to this report as Appendix A.
2 The then chairman, Mr. McNinch, was made an ex-officio member of the committee. Chairman Fly did not take his place as an ex-officio member.
3 See F. C. C. Release No. 26434, April 6, 1938.
4 Hereinafter referred to as the committee report. The committee's memorandum of submittal and chapter VI of the committee report containing its conclusions and recommendations, are attached hereto as Appendix B.
5 A copy of the release of the Commission containing the draft regulations is attached to this report as Appendix C.
6 The investigation was ordered "to determine what special regulations applicable to radio stations engaged in chain or other broadcasting are required in the public interest, convenience, or necessity * * *."
7 Of the 13 specific matters for investigation listed in the order, all but one (No. 13) relate directly to chain broadcasting.
8 The general question of multiple ownership of radio stations should not be confused with network ownership of stations which is treated at length in chs. VI and VII.
9 See rule 3.230 (multiple ownership of high-frequency stations) and rule 4.226 (multiple ownership of television stations).
10 See, e. g., In the Matter of South Bend Tribune, March 1, 1941, File No. B4-P-900.
11 Similarly, the appearance of network broadcasting in the frequency modulation (FM) field will merit careful study by the Commission. Early in April 1941 a proposed FM chain, The American Network, Inc., was organized at a meeting of some 45 broadcast groups. The board included John Shepard III, of the Yankee Network, Boston, chairman; Walter J. Damm, WTMJ; Herbert L. Petty, WHN; Gordon Gray, WSJS; Harry Stone; WSM; and Jack Latham, manager, a former advertising and cigar company executive. See FM Bulletin, April 9, 1941, pp. 1-2.
12 Hereinafter referred to as NBC.
13 Hereinafter referred to as RCA.
14 Hereinafter referred to as CBS.
15 Hereinafter referred to as Mutual.
16 The most recent financial and other data put in evidence at the committee hearings was, for most part, for the year 1938.
17 The term "network net time sales" means the amount received by the networks from the sale of time for network programs. The word "net" is used to indicate that discounts and agency commissions have been deducted.
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