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Report on Chain Broadcasting, U. S. Federal Communications Commission, May, 1941, pages 111-139:

Additional  Views  of
COMMISSIONERS  T.  A.  M.  CRAVEN  AND  NORMAN  S.  CASE
IN  THE  MATTER  OF  CHAIN  BROADCASTING
(COMMISSION  ORDER  No.  37--DOCKET  No.  5060)

 

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TABLE  OF  CONTENTS
PART  I:
        GENERAL
PART  II:
        DISCUSSION  OF  CERTAIN  IMPORTANT  FACTORS
                (A)  Conflicting  Trends
                (B)  Competition
                (C)  Licensing  Policy
                (D)  Economic  Stability
PART  III:
        SUMMARY  OF  SUPPORTING  FACTS
                (A)  General
                (B)  Organization  of  Broadcasting  Facilities
                (C)  The Economics  of  Broadcasting
PART  IV:
        CONCLUSIONS

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ADDITIONAL  VIEWS  OF  COMMISSIONERS  T.  A.  M.  CRAVEN  AND  NORMAN  S.  CASE
I.  GENERAL
    All members of the Commission recognize that improvements in the present broadcast service as well as in the organization thereof are not only possible but also desirable. However, the minority disagrees with the proposals which the majority has adopted as a method of securing improvements. We fear that the proposals of the majority will result inevitably in impaired efficiency of the existing broadcast organization of the country. This system has been developed as a result of practical experience over a period of years. In the main it is operating very well in the public interest. Undoubtedly it provides the public with the best broadcasting service in the world. Naturally, there are faults which may need correction. However, some of the corrective processes suggested by the majority may easily result in faults which are far more basic than the known defects which exist today. Furthermore, it appears that insufficient recognition is given to the practical considerations which are inherent in the American system of broadcasting and which cannot be circumvented. It seems that no weight is given to the fact that broadcasting is dynamic and not static. No consideration seems to be given to the probable effect of new developments. Also inadequate recognition is given to the effect of the natural and economic limitations within which broadcasting must operate. Likewise, inadequate recognition is given to the natural laws which influence basically the manner in which broadcasting renders a social service to the public of America.
    No member of the Commission condones any form of monopoly which concentrates power contrary to the public interest or which constitutes unreasonable restraint of competition. However, the majority appears to suggest that "unlimited" competition is the most important factor in securing improvements in radio broadcasting service and proposes to issue regulations the effect of which will prohibit certain contracts which now exist between chain companies and their affiliates. The intent of these regulations is to ban all arrangements which limit the ability of any broadcast station licensee to engage at any time in any and all forms of competition. While the minority insists upon competition they suggest the principle of "Free competition accompanied by good radio service to the public" rather than competition which affects adversely program service.
    The minority is of the opinion that the most important problem confronting the Commission may be stated briefly as follows:
    Considering the necessity of a balanced radio broadcast service of interest to and in the interest of the public, and recognizing the natural limitations inherent in radio, how can greater equality of opportunity be extended to persons desiring to utilize radio as a media of broadcasting information to the public?
    The solution of the problem requires a broad viewpoint as well as a balanced consideration of at least all of the following factors which among others contribute to broadcast service in the interest of the public:
    1.  The establishment of a "free radio" insofar as is practicable within inherent natural limitations.
    2.  Good programs.
    3.  An equitable distribution of facilities to states and communities.
    4.  Diversification of control of radio stations among many licensees.
    5.  Competition.
    6.  Efficiency of program distribution to the nation as a whole.
    7.  Operation of each station in the public interest rather than for the private interest of the licensee.
    8.  Natural economic laws of supply and demand.
    9.  Principles of sound business.
    A limited approach, or conclusions based upon over-emphasis of one phase of the problem, will result in unsound administration and unfortunate consequences to the radio service to which the public is entitled. More specifically, we fear that the revolutionary change proposed by the majority will result in the destruction of the present excellent national program distribution system and the substitution therefor of some new kind of system, the effects of which the majority does not adequately visualize.
    It is axiomatic that unlimited availability of the few existing radio facilities and efficient national program distribution cannot both be attained at the same time. There is no open market condition in the business of broadcasting as in other businesses. Nature has determined that. To attempt to circumvent these basic economic laws is fraught with peril to an industry which has hitherto achieved a marked degree of success. Regulation in disregard of economic laws may foster a situation in which competition among competently managed networks would be replaced by an unwholesome conglomeration of opportunistic "time brokers" catering to an aggregation of local monopolies in the various towns and cities of the nation. This will result in--
    (1)  Responsibility for carrying sustaining programs of public importance would be so diffused that such service would likely become nobody's business and the difficulty in clearing time on a national network would become an almost insurmountable task.
    (2)  The incentive would be removed for the origination of such sustaining features as the European war broadcasts, the American Farm and Home Hour, the Town Meeting of the Air, Toscanini, etc. If the proposals of the majority are enforced there can be no logical determination of who will pay for such service or how it will be developed.
    These considerations and other far-reaching adjustments that would be involved would plunge the American broadcasting system from the known of good public service to the unknown in which all the consequences cannot be foreseen. It is, therefore, no exaggeration to predict that the decision of the majority instead of resulting in "free competition", would more likely create "anarchy" or a kind of business chaos in which the service to the public would suffer.
    The majority appears to conclude that it is necessary to exert control over certain business policies of radio station licensees in much the same manner as has been proven suitable for public utilities other than radio. However, in arriving at this conclusion there appears to have been no weighing of the advantages and the disadvantages of the present broadcast structure in terms of good program service to the public. Hence, no conclusions based upon evidence in the record have been made of the reasonableness of the present practices of the industry. For 14 years, existing contract arrangements have been enforced both through formal and informal agreements, and broadcasting in America has achieved greater progress than in any country in the world. The record does not disclose that there is unreasonable restraint of competition resulting from certain contracts which the majority proposes to prohibit.
    It is possible that the majority in its desire to regulate one facet of the broadcast problem has overlooked some of the other important considerations and hence may have made impossible the attainment of an ideal objective. For example, in asserting jurisdiction to regulate the business practices of broadcast station licensees the majority may have assumed certain power which is not delegated to it under the law. In broadcasting, Congress evidently intended to apply the constitutional doctrine of a "free press". In so doing, Congress recognized that the advantages of a "free radio" were more important than the advantages of the type of regulation heretofore considered necessary in the public utility field. As evidence of their intent, Congress specified that radio broadcasting should not be classed as a common carrier even though licensed by the Government to operate as a form of monopoly in the public domain. The type of regulation specified by Congress for broadcasting clearly envisioned that the Communications Commission should not regulate the programs, the business practices or business policies of broadcast station licensees. Congress specified a type of regulation designed to maintain its policy of a "free radio". This type of regulation differs from that applied to other private business operations in the public domain.
    Thus, the question of the power of the Commission to regulate the business phases of broadcasting may be approached from the standpoint of public interest. Congress required that radio, like the press, must be free from those restraints of Government which hamper free expression and which control what may be said or who may speak. The most important function of Government should be to facilitate the attainment of a "free radio". Therefore, it may be argued that if the licensing authority interferes with the business practices of persons engaged in broadcasting, there is concentrated in a single Government agency a power which must lead inevitably to undesirable restraints upon a "free radio". Such concentration of power in Government is just as contrary to public interest as the concentration of control of broadcast stations among a limited number of licensees.
    It is obvious that if all the stations in the country were licensed to one person, that person, even though regulated by the Government, would have vast power to control an important media of information. Even though such person had the best of intentions for the welfare of the public, his would be the sole judgment which determined how radio would be utilized to influence public opinion. Such an extreme is unthinkable. On the other hand, if we had innumerable licensees and therefore innumerable competitive judgments, all under the autocratic regulatory supervision of a single Government agency vested with final and unrestrained power of life and death over the economic destinies of each licensee, we likewise would have an intolerable situation, however well-intentioned such Government agency may be. It was for this reason that Congress provided not only for a diversification of control of radio broadcasting among licensees, but also for diversification of jurisdiction among various regulatory agencies of Government. It was not intended by Congress that any licensee merely because he was a radio broadcaster should be exempt from the application of laws directed to business enterprise generally. The Department of Justice and the Federal Trade Commission as well as other Government agencies include broadcasters within their jurisdiction when administering the laws relating to all business enterprise. Congress empowered the Communications Commission to regulate only that phase of radio operation which relates to licensing stations. This embraces a fair and equitable distribution of radio facilities to states, communities and persons in a manner which insures diversification of control among many licensees, as well as a good program service of interest to and in the interest of the public. It likewise includes the regulation of technical aspects of operating stations and certain other phases of radio operation affecting public interest which are not under the jurisdiction of other agencies of Government. The Commission is charged with the responsibility of determining the qualifications of licensees to operate radio broadcast stations, but the Commission does not have responsibility to determine the guilt of licensees for violations of law, the administration of which is not under the direct jurisdiction of the Communications Commission. If licensees of radio stations are found guilty of violation of such other laws, the Commission's responsibility in the premises rests solely as to the qualifications of such licensees to operate stations in the interest of the public. If some form of monopoly exists in radio broadcasting which is contrary to the best interests of the public, it should be remembered that the Commission has licensed all broadcasting stations in the United States after finding time and time again that each of the licensees was operating his station in the public interest. Therefore, if the Commission has erred in the past, it can now correct the mistake by exercising in individual cases the licensing power delegated to it under the Communications Act of 1934.
    The Commission should encourage the organization of independent, highly competitive national networks. However, if there are limitations or barriers to the establishment of additional competitive networks, the Commission need not and should not promulgate rules the effect of which would destroy all existing systems, merely to provide some other private enterprise with an opportunity to capture the revenues of broadcasting. There are better ways to encourage and secure additional competition.

II.  DISCUSSION  OF CERTAIN  IMPORTANT FACTORS
(A)  CONFLICTING  TRENDS
    The current scarcity of channels to accommodate the demands therefor imposes a severe limitation to freedom of action in solving some basic problems. This limitation forces a choice among conflicting trends. Some advocates of changes in the operation or of regulation of broadcasting fail to consider the inevitable results of this natural limitation. Consequently, needless misconceptions arise, as well as suggestions of panaceas which cannot solve the problem in any practical manner. Furthermore, some are prone to accept current conditions in broadcasting as static, in spite of the fact that the technical and performance bases are dynamic. None can prophesy the future of technical progress. Therefore, misconceptions of basic factors are hazardous and may tomorrow constitute artificial barriers to the very improvements which today appear desirable.
    The more important conflicting trends in the dynamic field of broadcasting include:
    (1)  Inhibitions against patterns of centralized operation conflict with efficient program distribution on a national scale. There is a temptation to over-emphasize local interest to the detriment of national interest, and vice versa. The real goal should be efficiency of service from a national standpoint rather than a vague objective which fosters a conglomeration of local units uncoordinated for rendering a truly national service.
    (2)  A broadcasting station is licensed to render a public service as contrasted to a private service, even though it is operated by private enterprise for profit. Licensees naturally emphasize their rights under a license and are under continuous economic pressure to broadcast programs that will win and hold listeners. Persons in Government, on the other hand, assert that licensees do not discharge all the responsibilities which are necessary to operate a station in the interest of the public, particularly with respect to affording opportunity for balanced presentations of debatable social questions.
    There cannot be sufficient facilities, nor is there sufficient time for everyone to use a broadcasting station to express to the public particular social or economic philosophies. It is essential, therefore, that broadcast licensees exercise wise judgment as to the desires of the listening audience and in choosing the speakers who may appear before the microphone.
    It is equally important that Government should not undertake to impose in advance any standards in this field. Such course is fraught with such obvious peril that further discussion is unnecessary.
    The best method of judging whether a licensee has utilized his facilities in the interest of the public is to examine the manner in which the station has operated, and then determine whether the judgments exercised meet a rational test of public interest.
    (3)  The hours of a broadcast day automatically limit the number of persons who can use facilities. Therefore, the greater the number of stations in any community the broader the opportunity for all desiring to use such facilities. However, as the number of stations in a community of any given purchasing power increases, the revenues available are diluted. If there are too many stations the quality of service rendered by each may be affected adversely. At least, some will be forced to render inferior service because of inadequate income. Thus we are faced again with a choice between opposite trends. The present policy of the Commission is to encourage competition regardless of adverse economic effects. This general concept of the law is at variance with the natural laws which force a limited market.
    Unfortunately, efforts to apply a concept of unlimited competition in the teeth of a technical limitation in the availability of channels encourages concentration of facilities in larger communities at the expense of smaller communities. This trend is augmented by the economic tendency to concentrate facilities in large centers of population where there is greater purchasing power to support profitable stations. The desirable social objective to render radio service to all listeners, both rural and urban, at times conflicts with the pressure to make multiple transmission facilities available in all of the metropolitan centers of the nation. These factors unless controlled cause inequitable distribution of facilities to the various States and communities, contrary to the requirements of the Communications Act of 1934. Thus, a policy of unlimited competition is in conflict with the legal mandate to distribute facilities fairly, efficiently and equitably throughout the nation. This dilemma becomes even more difficult to resolve because allocation of facilities to any area is dependent upon voluntary applications. It is obvious that unlimited competition among stations in any community is impractical when the total number of facilities available for the entire nation is limited. Emphasis, therefore, should be placed upon an equitable distribution of facilities to the various communities of the nation, rather than upon an impractical objective of unlimited competition which can never be wholly achieved because of physical facts. Furthermore, if primary emphasis is placed upon the equitable distribution of facilities to the communities of the nation, there need be no concern for any destructive local competition until the radio technique has advanced to the point where many more channels are available. Moreover, if this course is followed, it should facilitate the establishment of additional networks if the economics of the situation justify such a development.

(B)  COMPETITION
    (1)  In order to obtain a common basis of understanding, it is necessary to agree that in the legal sense unlawful monopoly is confined to unreasonable practices which restrain trade or limit competition in violation of the anti-trust statutes. Competent legal authorities hold that unlawful monopoly is the acquisition of something for one's own self, not necessarily the whole of a given commodity or the whole commerce therein, but control at least, of a part thereof sufficient to constitute withholding from the public the right to deal therein in an open market. In broadcasting, however, we cannot start with a premise of an unlimited market. Natural laws limit the availability of radio facilities not only in each community but also in the nation. Therefore, we must frankly recognize in considering the regulatory problem that we are dealing with a phenomenon limited by natural causes. The paramount objective should be "public interest, convenience and necessity" as related in terms of the best radio service to the nation as a whole.
    (2)  Intensive competition exists in broadcasting within the natural restrictions of a limited number of facilities. Not only do major networks compete vigorously with each other for the advertising dollar, but also all stations, including those affiliated with networks, compete with the networks. Furthermore, each individual station in a community or region competes with every other station in that community or region. Moreover, radio as a whole is in stern competition for the advertising dollar with other media.
    In 1938, 350 of the 660 commercial stations in the country were affiliated with one or another of the major networks. During the time utilized for network programs, competition on the part of these stations is limited to that competition occurring among the networks themselves. A station affiliated with a network has optioned certain time to the chain company and thereafter does not engage in competition with the chain company for such of the time as is used for commercial programs. However, the station still competes for "spot" advertising from sponsors who use the networks with which the station is affiliated. The competition of networks is subject to dynamic changes. Stations frequently change their connections with networks and will continue to shift affiliations as occasion demands. Since 1938 the number of network stations has increased.
    (3)  The necessity of efficient network organizations for the distribution of broadcast programs of national interest is axiomatic. Cohesive organizations which are always available for broadcasting intelligence to the entire nation provide the most effective force for national unity and may become absolutely essential in times of national emergency. There should be as many of these national network organizations in full competition with one another within the sphere of our economic system and as is practicable within the physical limitations imposed by nature. In like manner, it is highly desirable to encourage the organization of Regional and State networks. Without such competitive organizations for program distribution the very vitality of radio would disappear. Network competition for listeners has been the greatest progressive factor in the development of American broadcasting. Elimination of network programs is unthinkable. Government policies which might handicap efficient organization for network program distribution undoubtedly would create a public outcry against the depreciation in program service which would be a logical consequence.
    These factors are of practical importance not only to the public, but also to the broadcaster, both when he desires to render service to the public as well as when he desires to sell the service of his station. They are of particular importance to the advertiser who desires to utilize the advantages of radio as a media to increase the volume of business. This practical situation confronting everyone interested in broadcasting should be recognized if the public is to secure good broadcasting service as well as to benefit indirectly from the standpoint of economics in the form of the cheaper costs inherent in volume production and distribution of goods. Therefore, in dealing with the broad question of possible monopoly or restraint of trade in broadcasting, the fact that unlimited availability of facilities and efficient program distribution cannot both be attained must be clearly recognized. We must likewise recognize that in broadcasting there cannot be the "open" market condition of other businesses. Nature has determined this.
    (4)  Certain practices of networks have been the subject of complaint aside from the contract arrangements between the chain companies and their affiliates. These include the operation of talent agencies, concert bureaus and transcription and record companies. It was a natural and logical development that in the early days of network broadcasting the networks should attempt to develop their own sources of talent. The record in this proceeding indicates that network companies utilize many sources of talent and make available to all the artists whose services are under exclusive contract to their management agencies. However, it does appear that there exists some conflict in the networks' position of being both buyer and seller of the services of the talent which they manage. It is believed that this Commission is without jurisdiction to remedy any abuses which may exist. Therefore, it appears proper to advise the network companies that the showing made in these proceedings indicates at least an opportunity to engage in unfair trade practices. Under such circumstances, the networks should be given an opportunity to divest themselves of these activities, or, in the alternative, the entire record should be referred to the Federal Trade Commission for a more thorough investigation upon which it could base findings and appropriate action.
    However, it should be emphasized that network organizations should not be prevented from developing new talent. The record of this proceeding fails to disclose any great public concern about existing practices and it has not been established that the public has been injured because network companies maintain talent agencies. Rather, the complaints come from competing agencies who allege that the management of talent by networks who are also users of talent, results in unfair trade practices. The Federal Trade Commission is the appropriate agency to receive such complaints and make a determination. This Commission cannot pass upon these matters and, as related to broader questions involved in these proceedings, this problem is of relative insignificance. From this record it would appear that the desirable objective is to maintain an "open market" for talent with a minimum of restriction of opportunities for performers. With respect to the manufacture and sale of transcriptions and records by companies operating networks, a similar question may be involved. The complaints of competitors should be directed to the appropriate agency, namely, the Federal Trade Commission.
    (5)  The most important and frequent allegations of monopoly in broadcasting spring from the contractual arrangements between the chain companies and their affiliates. Under the standard form of contract an affiliate agrees to restrict the use of a station to a particular national network and to option a large portion of the time of such affiliate regardless of whether all of such time is used by the chain company. It is claimed by some that the exclusive and the option clauses in certain of the chain contracts have limited the ability of the licensees to fulfill their responsibilities to the public. There are those who assert that the disputed clauses not only constitute a restraint upon free competition but also limit the ability of licensees to fulfill their responsibilities to the public as required by the law. Others contend that the legal effect of the contracts as well as actual practice indicates that licensees have not been prevented from fulfilling their duties under their licenses. We think that the record of these proceedings amply supports the latter view.
    In entering into affiliation contracts licensees have placed certain voluntary restrictions upon themselves. However, the contracts provide that the station may cancel any program which in the judgment of the licensee is contrary to public interest or may substitute local programs of outstanding interest. In an extreme case, a licensee may be confronted with the choice between violation of the terms of his contract or the failure to carry some particular program or event which he knows his listeners want to hear. However, these cases are isolated and rare and do not appear to afford a proper basis to adopt a sweeping policy which might impair the cohesiveness of the national network organizations. In these circumstances the advantages should be weighed against the disadvantages before any attempt is made to disturb these contractual arrangements. It seems clear from this record that the benefits of the type of network organizations which have developed far outweigh any abuses which have been shown.
    If this type of contract is essential to the maintenance of sound network operation--and the great weight of the evidence is to that effect--no attempt should be made to change them.
    It is not necessary or desirable to prohibit options of a station's time. The record does not reveal that the operation of the option clauses have restricted the affiliates in their obligations to their local communities.
    In fact, affiliation connections and time options appear essential because they facilitate better radio service to the public. Also, they appear necessary for effective coordination of program service on a national scale, because without them the situation would be analogous to a railroad in which each station-master along a through route had adequate power to make his own train schedules for through trains.
    There is another aspect of network affiliation contracts which must be considered from the stations' point of view. The affiliated stations through their contractual arrangements with the networks have something which is in the nature of a valuable franchise. Networks, because of the exclusive arrangements with stations, have the incentive to develop good programs and to build up the affiliate stations as an institution in the community. Likewise, the station under its contract publicizes the programs of the network and identifies itself as the exclusive outlet for the particular network. The record shows that this arrangement has resulted in real competition among networks to win the listeners' interest. Such a competitive situation is definitely in the public interest. The result is that the affiliate station operating under an exclusive contract has greater value to advertisers, both local and national. The experience of independent network stations definitely proves that a network contract is a valuable asset, both in terms of public service and in financial return to the station. The record in these proceedings indicates that the overwhelming majority of the affiliate stations recognizes that their existing network contracts constitute a most valuable franchise. The overwhelming majority of these stations does not want these arrangements disturbed. Through their testimony and by counsel, they have stated that they would prefer to maintain an individual bargaining position with the networks without intervention by this Commission into their business arrangements. This is as it should be, and measured in terms of public service--which should be the Commission's only concern--these contracts have met the test.
    (6)  In any consideration of the problems involved in chain broadcasting, one should not overlook the fact that the public should have a wide choice of programs. If all the stations in the country habitually broadcast identical programs, the service rendered would be limited. If the best interests of the public are to be served, no two stations rendering primary service to substantially the same area should habitually broadcast identical programs. Furthermore, more than one station in any community continuously rendering identical program service is a waste of radio facilities. It is not deemed necessary for the Commission to issue a regulation prohibiting duplication of a program in the same primary service area. Economic laws take care of such situations automatically and the practice is not sufficiently prevalent to justify any attempt to adopt a general regulation.
    (7)  Some criticisms of broadcasting are erroneously attributed to the fact that most of the licensees are business men. It is claimed that as such, their judgment as to social philosophies is similar. Thus, as a group they are said to reject social and economic philosophies advocated in recent years by some of our more "advanced thinkers". Therefore, it is claimed that the broadcasting licensees as a group are rendering to the people of the United States the character of broadcasting which tends to favor one social philosophy as contrasted to all others and that as a result the existing broadcasting service is not useful in accomplishing desired social improvements. The indisputed facts are that radio broadcasting has been utilized as an open forum. Furthermore, under the American system, the objective has been to render to the public the radio service the public desires rather than to force upon the public the type of service which individuals think the public should have.
    Experience does not justify the conclusion that the limited number of available frequencies should be apportioned to groups of men or to separate organizations who are proponents of particular social philosophies. In fact, such a course might well destroy the general usefulness of radio. It would result in a trend toward the use of radio for a particularized purpose rather than its use in the public interest generally.
    Under the American system of broadcasting the licensees are required to exercise independent judgment with respect to the operation of their stations. If this judgment is such as to render to the public the service the public desires, there can be no valid criticism. On the other hand, if a licensee does not render to the public the type of service it desires, the qualifications of such a licensee to operate a broadcasting station should be open to question. We think that the Congress directed the Commission to require that no broadcasting station shall be operated for a single private interest. If there is doubt as to what Congress intended, it should be asked to clarify or specifically affirm this policy. Every broadcasting station should be operated solely in the interest of the entire public and no licensee should operate his station in a manner which reflects only one school of thought in controversial political, social, and economic matters of vital interest to the public. We think that, on the whole, broadcasters recognize this policy and adhere to it. It has found expression in the industry's voluntary code and is fulfilled in most important aspects.

(C)  LICENSING  POLICY
    (1)  It can be argued that all forms of unregulated monopoly are inherently contrary to public interest, and that to protect the public it is essential to regulate all monopolies. There can be no logical objection to such a doctrine when it is designed to restrain the exercise of unbridled power by private enterprise operating in the field of the public domain. In broadcasting Congress has provided for such regulation through the control of the issuance of licenses by the Federal Communications Commission. Therefore, any concentration of control in radio broadcasting which is contrary to public interest can be curbed by applying the licensing policy specified by Congress. The present Act implies that competition in broadcasting should be fostered through the application of a licensing policy designed to prevent a single individual from operating a preponderance of stations in a community or in the nation. If the licensing policy should permit one person to operate several stations within a community or to control the operation of too many stations in the nation, it is possible that a single person might be able to prevent the use of radio by persons other than those approved by the licensee. Such a course would be contrary to the spirit not only of the Act but also contrary to the best use of radio under the American system.
    There are several instances of common ownership of several stations in a single community. However, no one has complained officially to the Commission of any abuses arising from such common control and there is no evidence in the files of the Commission or in the record of the hearing which indicates the necessity of promulgating a rule to correct such an imagined "evil". Nevertheless in some of these instances the operation of more than one station in the same community by a single licensee may raise a question of whether such concentration of control is in the public interest. In other cases such a situation may be in the public interest. The simplest and fairest way to solve the matter is for the Commission to adopt a policy, by regulation or otherwise, not to license more than one station in the same community to a single person, unless such person can show that such multiple operation is in the public interest. If such a course of action be adopted, a hearing should be held on the reasonableness of the proposed rule. At the same time the applications for renewal of all existing licenses which are not in conformity with the proposed rule should be set for hearing. If as a result of these hearings, it is found that the continuance of the existing licenses of some of the licensees would not be in the public interest, the Commission should, afford such licensees a reasonable time, say at least two years, in which to dispose of their stations.
    (2)  In connection with the problem of broadcasting control, it has been alleged that chain companies which operate networks utilize a large portion of the radio stations of the nation for the distribution of their programs. This question is raised with added fervor because such chain companies have the exclusive and optional clauses in contracts with their affiliates to assure control of the time of stations. Thus, it has been argued that such a chain company has the power to prevent the use of radio by persons other than those who can successfully negotiate with the chain company for time on a network.
    This question is one of the most difficult and controversial matters confronting the Commission.
    As a remedy for this alleged evil, it has been proposed that program production agencies which engage in the business of providing programs to regularly established networks be prohibited from obtaining a license for the operation of any radio station.
    It is essential that such an administration of the licensing power be analyzed thoroughly before adoption in order that we may be assured that the "cure" is not more vicious than the alleged evil. Every broadcast station licensee is a program production agency. A chain company is merely a program production agency equipped with land lines, and organized for efficient program distribution to the radio stations in the nation. Such efficiency of organization is essential and desirable if the public is to receive the best service. Therefore, there can be no valid objection to such organization, particularly when the service rendered is as acceptable to the public as it has been in the past. If the licensing of stations to such organizations will augment the efficiency of program distribution, there can be no valid objection to granting radio station licenses to such companies. Therefore, it would appear undesirable in the public interest to refuse on the basis of a general policy such companies licenses for any radio broadcasting stations. If a licensing policy is adopted which limits the number of stations licensed to chain companies in such manner as to insure competition and diversification of judgment, public interest would be served quite adequately. It is difficult to see why, in the interest of efficiency and cohesiveness in the distribution of programs on a national scale, there is any valid objection to licensing chain companies to operate at least one radio station in each of the larger metropolitan cities of the nation.
    A more difficult question is raised by the operation of two network systems by a single company. The Commission might make the finding that two stations in a single community which obtain network service from the same source do not perform a proper public service. However, this would require evidence in a particular case in which the type of service rendered by each station was carefully analyzed and a record on these issues specifically developed. There is no evidence in this proceeding on the failure of stations affiliated with the company operating two networks to meet the test of public interest. Nevertheless, the common ownership of dual networks raises questions of unreasonable restraint of competition. Therefore thorough-going inquiry is necessary to determine the legal effect of such dual operation in terms of monopolistic practices or restraint of trade. Such an inquiry is obviously under the exclusive jurisdiction of the Department of Justice which has the duty to prosecute matters pertaining to monopoly and restraint of trade. The Commission can request the Department of Justice to initiate an inquiry to determine the real facts. Or, if the Commission desires a determination of the proper public policy on this question, it could request Congress to make an appropriate declaration. However, before either of these steps is taken it is believed that there is available a more practical and immediate approach. This problem seems to be one which lends itself to an effort by all parties concerned to seek a solution by voluntary agreement.
    In the solution of this problem one should not overlook the fact that operation of dual national networks provides an excellent "safety valve" in the present broadcast organization. There is readily available at all times an efficient nation-wide organization of radio facilities for discussion of important public questions. This "safety valve" should not be abandoned until a satisfactory substitute has been provided. Therefore, before taking any final steps it appears essential that all networks assume an even greater obligation to make their facilities available as a forum for discussion of public questions, as well as for sustaining programs of outstanding interest.
    Undoubtedly there is a strong presumption that four highly competitive independently operated national networks would result in improved service to the public. However, as a corollary to this result it is essential that no single network be assigned an inequitable share of the duty to provide the service which makes radio broadcasting most useful in aiding the development of the political, social and economic welfare of the nation.
    Therefore, precautions must be taken by the industry itself to avoid such inequalities or else the advantages to be gained by the elimination of dual operation of networks will be lost. It is doubtful, as has been stated, that the Commission through its licensing power or its rule-making power has the authority to accomplish the divestiture of one of the dual network systems. However, if it be determined finally that the disadvantages of dual operation of networks outweigh the advantages, and if a satisfactory substitute has been provided, the company which has developed the two networks it now operates should be given every opportunity to voluntarily adjust its operations to the end that the problem of common ownership of dual networks is eliminated. Failing this, the Commission should refer the entire matter to Congress.
    (3)  It has been suggested that any program production agency, particularly chain companies, should be compelled to obtain a Federal license to engage in such a business. There are numerous agencies which organize talent and in a sense produce programs to be utilized by the various radio stations. It is a simple matter to lease wires from a program production center to various broadcast stations distributed throughout a region or the nation. Such wires can be leased for either a short or a long period. Some of these program production agencies may be organized on a large scale while others may be organized on a small scale. In any event, if the Government should adopt the policy of licensing program production agencies, the Government would be confronted at all times with a significant question. This question is inevitably whether the proposed program content will or will not be in the public interest. This is censorship. Furthermore, it would give to the licensing agency of the Government a power never contemplated in the statute or in its administration to date. It would constitute a power of Government to control what was said and who should speak. It would be control of the news obtained by the press and intended for distribution to the public by radio. Such a power concentrated in a licensing agency of the Government is dangerous in a democracy and would inevitably lead to a further curtailment of freedom of expression. This violates the Constitution of the United States. There is no reason why basic principles of democracy should be abandoned merely because radio is a modern instrumentality with inherent limitations in its application to the public service. Thus it is obvious that the advantages alleged to accrue from the licensing of program production agencies are outweighed overwhelmingly by the one disadvantage just discussed.
    In view of the foregoing, the Government should neither prevent program production agencies from obtaining licenses to operate radio broadcast stations, nor should the Government compel program production agencies to secure a Federal radio license to engage in such a business. There is nothing before the Commission to justify such a course.

(D)  ECONOMIC  STABILITY
    (1)  Wide variations of prosperity exist between the various elements of the broadcasting industry. While some of this is caused by natural economic laws, and by differences in markets, the necessary inequality between the various classes of stations as well as differences imposed by nature within each class are also important factors affecting earning capacity.
    (2)  The business of broadcasting is essentially a service business. It has no tangible commodity of a permanent character. It has merely a temporary license to use frequencies which are essential to the operation of its equipment. Not only must each broadcaster maintain the public confidence and interest in the service rendered, but also the licensee must operate on a rigid basis of regulation by the Federal Government. In addition, the industry is confronted with swift change, rapid obsolescence and speedy and new demands upon the enterprise, initiative and capital of its members. There is always present the threat of sweeping changes in the technical base on which the radio stands, as for example, such developments as television and frequency modulation. In time of economic recession in the nation the business of broadcasting is affected immediately by cancellations of contracts for services. Thus, there is a potential risk ever present in the business of broadcasting, and a necessity for adequate financing at all times.
    (3)  These conditions constitute an economic situation which influence directly the broadcaster's capability to render a public service. Naturally, the Commission should be just as much concerned with the economic situation as it is with encouraging progress toward desired social objectives. However, it should recognize that its authority is not absolute and that it is not charged with the responsibility of directing the economic activities of its licensees. There is the positive duty to make certain that Commission policies do not detract from the economic stability of the industry, but there is no justification for the adoption of radical measures which would revolutionize the entire economic foundation without any certain knowledge that real improvements can be obtained.
    An important contribution which the Commission can make to the stability of broadcasting is by an extension of the licensing period. The Commission now has the power to extend the period up to three years and there is no valid reason why this should not be done forthwith. Such a policy would result in an important administrative economy by reducing the great volume of needless and periodic reviews by the Commission staff of a mass of information which is accumulated and filed for no real public purpose. Such an extension of the licensing period would in no way limit the Commission's power to proceed by revocation against licensees who contravene public interest in the operation of their stations, and would create a helpful atmosphere of security.
    Finally, it has been implied that there is something harmful or wicked about the earnings of some broadcasting licensees. Congress did not intend this Commission to penalize profits. Congress does now and will continue to tax the earnings of all broadcasters, as an examination of the financial statements of any of the leading companies in the field will show. If there be undue or unjust enrichment, the Federal tax policy is the remedy; not an extension of regulation.

III.  SUMMARY  OF  SUPPORTING FACTS
(A)  GENERAL
    The Report of the Committee appointed to recommend Proposed Rules Governing Standard Broadcast Stations and Standards of Good Engineering Practice, (Docket 5072-A) outlines the physical aspects of the existing radio broadcast structure. In brief, this report disclosed that there was a concentration of the best radio facilities in the larger metropolitan districts of the nation and that the listeners in the less sparse areas of population obtained radio service principally from the larger stations located in the large centers of population. One of the recommendations of this Committee was as follows:

    In granting applications for improvements of facilities, the Committee recommends that the Commission adhere in general to the following order of priority:
    (1)  Communities having no radio stations and capable of supporting same.
    (2)  Communities having existing stations with inadequate technical facilities to serve properly the population therein.
    (3)  Communities having an adequate number of radio stations and capable of supporting additions without detriment to resultant service.
    (4)  Existing stations at a competitive disadvantage with other stations in the community by reason of inadequate technical facilities.
    In connection with the problem of distribution and improvement of broadcasting facilities the evidence is clear that for the purpose of allocation, each of the 96 metropolitan districts cf the nation should be considered a single community. The economic interdependence of the various incorporated cities, towns, and villages in such a metropolitan district, the overlapping service areas of broadcasting stations located in such districts, and the general scarcity of broadcasting facilities available for distribution to the nation as a whole are compelling factors contributing to the impracticability of attempting to assign separate broadcasting facilities to each of the individual communities within each metropolitan district.
    The Committee, therefore, recommends that when considering the distribution of broadcasting facilities to all communities in the nation, the Commission classify as a single entity each of the 96 metropolitan districts described by the Bureau of Census.

    The Report on Social and Economic Data Pursuant to the Informal Hearing on Broadcasting, Docket 4063, beginning October 5, 1936, submitted by the Engineering Department of the Commission on July 1, 1937, outlined in considerable detail the social and economic factors affecting the operation of the broadcasting structure at that time. The evidence developed since that date, and particularly in Docket 5060, relating to the Investigation of Chain Broadcasting pursuant to Order No. 37, contains no information of an economic character which indicates that the evidence obtained previously is erroneous in any respect.
    The basic pertinent facts as disclosed in the hearing on Chain Broadcasting, Docket 5060, may be summarized in brief as follows:

(B)  ORGANIZATION  OF  BROADCASTING  FACILITIES
    In the United States in 1938 there were 660 radio broadcast stations which operated on a commercial basis. These stations rendered program service to the various communities, States, and rural areas of the nation. 350 of the stations were organized in 4 major networks for program distribution on a national scale. These national networks transmitted to the radio listeners of the country programs originating not only in various parts of the United States but also in the most important centers of the world.
    Three of these networks of stations were vitalized by a central organization known as a chain company which undertook to produce programs and secure advertising revenue for the networks as a whole. Each of these chain companies had a centralized program production organization which coordinated the distribution of programs originating in the various parts of the nation. In addition, each of the chain companies had a sales organization which made contact with advertisers and advertising agencies and arranged for sponsors of the various programs. Some of the programs were produced by sponsors. Other programs, particularly those of the sustaining type, were organized and produced by the chain company, or in the event of news or political broadcasts, were "covered" by the chain company also. Some programs were produced by individual stations of the network and distributed to the entire network. The other major network was organized similarly to the three just mentioned, except that the production of programs was undertaken principally by the stations in the network.
    There were 3 national chain companies, namely, the Columbia Broadcasting System, the National Broadcasting Company, which had 2 national networks, and the Mutual Broadcasting System. Columbia and National had contracts with their affiliates which bound the latter as outlets, and bound them to retain on option a definite amount of time. Until more recently Mutual operated on a voluntary "mutual" basis and permitted its outlets to take programs from other chain companies, as well as providing liberally for "time" to be retained by the affiliates. The other principal difference between Columbia and National on the one hand and Mutual on the other is that Columbia and National are separate corporate entities owning stations and contract with affiliates for exchange of services at an agreed price. Mutual is owned by several station licensees and makes affiliation contracts with other stations. Mutual in its headquarters sales-agency capacity usually takes a commission of 3.5% from members and 15% from affiliates for business it secures for the System. Any station, a part of Mutual, may secure business for the System on a commission basis.
    There were 310 stations which were not affiliated with any national network. Some of these 310 stations were affiliated with regional networks, but in some instances these stations were in such locations as to preclude affiliation with a major national network without duplication of programs in the same area to the public. Also, some of these 310 stations were located in remote sections of the country or in sparsely settled communities where the cost of network program service was greater than the revenues secured from advertisers desiring to use the station as an outlet. Therefore, in 1938 these 310 stations relied solely upon local resources or upon transcriptions or upon regional networks for the production of programs. However, since that date some of them have become affiliated with a national network.
    In addition to the 4 major national networks there were several regional networks in 1938, which were organized to transmit programs originating in any part of a particiular region or particular section of the country, depending upon the number of stations comprising such a network.
    The 660 stations were classified in accordance with the rules of the Federal Communications Commission. This classification is necessary in order that, in so far as is practicable within the requirements of good engineering practice, there may be a fair, efficient, and equitable distribution of facilities to the various states and communities of the nation, and at the same time permitting the rendition of good service to all the listeners wherever located in the nation.
    In 1938 the distribution of the 660 stations by classes and by size of community is indicated in Table 1 A attached hereto. This table shows that there were 31 full time 50 kw clear channel stations, 4 limited time 50 kw clear channel stations, 14 full time clear channel stations having a power less than 50 kw, and 4 stations of the same class having only limited time. There were 8 high power regional stations, all of which had full time. These 61 clear channel and high power regional stations render service over wide areas and are the type of stations relied upon for service to rural listeners.
    There were 296 regional stations utilized primarily for rendering program service to cities and areas immediately adjacent thereto. Of these 296, 195 were full time stations, 68 were limited time or day-stations, and 33 were part time stations which shared their frequency assignment with one or more stations. There were 303 local stations intended to be utilized primarily for rendering service to small and medium sized cities or towns. Of these 303, 227 were full time and 76 were part time stations.
    The distribution of the class of stations to the various size of cities was as follows:
 

City population	Total num- ber of stations	Clear channel	High power regional	Regional	Local
2,000,000 or over 1,000,000 to 2,000,000 500,000 to 1,000,000 250,000 to 500,000 100,000 to 250,000 50,000 to 100,000 25,000 to 50,000 Less than 25,000           Total	83 27 40 85 94 50 89   192 660	17 5 3 13 9 3 2     1 53	0 0 3 0 4 0 0     0 8	47 17 22 52 48 26 30    54 296	19 5 11 20 33 21 57   137 303

    It is significant to note that 329, approximately one half of the total stations in the country were located in the 96 metropolitan districts of the nation. Of the remaining 331 stations, 215 were of the local classification, 110 were of the regional class and 6 were clear channel stations.

(C)  THE  ECONOMICS  OF  BROADCASTING.
    Broadcasting stations are supported primarily by advertisers desiring to utilize these media as a means of promoting the sale of commodities or services to the public.
    Each broadcaster, whether the licensee of a large station or of a small one, each network and each program production agency, receives compensation in proportion to the value of the services rendered by each such organization. This value is affected directly by the degree to which the broadcast licensee, the network, or the program production agency satisfies the public. In other words, the greater the public interest in the radio service being rendered, the greater the value of radio to all concerned. Thus, the closer radio broadcasting service attains the objective of satisfying the public, the greater the reward to the members, both large and small, of the industry. This is as it should be. Any attempt to circumvent this basic economic law, by Government fiat or otherwise, is certain to result in economic instability with its inevitable adverse effects upon sound American business enterprise as well as upon good program service to the public.
    Advertisers are interested in "circulation" within a market. The "circulation" obtained by any radio station is dependent upon the number of listeners in the area covered by the station. The number of listeners depends upon the character of the program service rendered by the station, the licensed power of the station, its hours of operation and the number of competitive stations in the same market area.
    Good markets are of primary interest to an advertiser because in an area where the purchasing power is large, the advertiser may reasonably expect a fair return on the monies expended for advertising provided of course the public becomes interested in the product being distributed. On the other hand, if the purchasing power of the public in any given market is insufficient to justify the cost of advertising, the manufacturer or the wholesaler or the retailer may not desire to expend advertising funds in such a poor market.
    Thus the revenue and income of the broadcast industry as well as units thereof are affected by--
              (1)  character of program service,
              (2)  type of facility,
              (3)  type of market in which a station is located,
              (4)  competition from other stations in the same market; and by
              (5)  management.
    To date, stations which are located away from the centers of talent have been successful in stimulating public interest in the program content broadcast from their stations by being affiliated with a network. This affiliation enables a station to broadcast programs produced in the best talent centers and by the best talent in every section of the country and permits the dissemination of news of important events, not only in this country but also abroad. A station which is not affiliated with a network and not located favorably with respect to talent and market is handicapped in producing a program service which can sustain public interest.
    Generally speaking, those stations which operated at a profit in 1938 were in a favorable position with relation to the factors just enumerated. On the other hand, those stations which operated at a loss had one of the following factors unfavorable to them:
              (1)  Circulation.
              (2)  Intense competition
              (3)  Management.
    In many instances the lack of favorable circumstances in the foregoing three factors was augmented by lack of network affiliation, inadequate facilities as to power and hours of operation, or by extraordinary expenses or utilization of "profits in the form of salaries.
    This outline of the economics of broadcasting is based upon an accumulation of data which has been condensed in the Tables attached hereto. Inasmuch as these Tables represent a compilation of data secured from a series of far more complex Tables, it is difficult to brief further the data without sacrificing adequate representation of all the factors which must be considered. It is, therefore, recommended that the Tables which are attached hereto be studied in order that full appreciation may be had of the significance of all the economic factors involved and in order that independent conclusions may be reached.
    The locations of the different classes of stations operating at a profit or loss in the different types of markets are indicated in Table I B attached hereto. It should be noted that the poorer the class of station the greater chance of losing in any market. Also, the poorer the market the greater the chance of operating at a loss. The greatest percentage of losers were the local stations. While there were a greater number of local stations than any other single class, the chances of operating at a loss were greater in local stations than in any other class. Likewise, the chances of operating at a loss were greater when a station was licensed only for part time. Generally speaking, network stations had greater revenues than stations not affiliated with any major network, and consequently the chances of losing were less for network stations. These factors are illustrated by the following Table, which shows the percentage of losers by classes of stations.
 

Percent of stations of each class oper- ating at loss in 1938	Classes of stations
7.5 12 26 42.6 45.4 45.3 48.7 36.5 26.5 47.5	Clear channel and high power regional, unlimited time. Clear channel, part time. Regional, unlimited time. Regional, day and unlimited time. Regional, part time. Local, unlimited time. Local, part time. All stations. Network stations. Nonnetwork stations.

    In general, the broadcast revenues of the various stations decreased as the value of the market in which the station was located decreased. Revenue of stations having good facilities was greater than those with less favorable facilities.
    These facts are illustrated by the curves given in Tables II, III, IV and IV-B.
    The average revenue and income under the various conditions for 660 stations in 1938 is illustrated in Tables V, V-B, VI and VII. These show that 420 stations operated at a profit and 240 stations operated at a loss in 1938. Of these 660 stations, 350 were affiliated with one of the major networks and 310 were not affiliated with any major network. Of the 350 network stations, 92 operated at a loss. Of the 310 non-network stations, 148 operated at a loss. Most of the stations affiliated with networks operating at a loss were located either in a poor market or in a good market in which there was intense competition. Some of the other stations operating at a loss had poor facilities, such as only part time or low power. Eighty-two of the stations operating at a loss were located in cities of less than 25,000 population, 54 in cities from 25,000 to 100,000, 57 in cities from 100,000 to 500,000 and 47 in cities of over 500,000 population.
    The distribution of broadcast revenue and income to the various classes of stations and to the chain companies is indicated in Tables VIII, IX, X, and XI. The distribution of the dollar revenue and income is indicated in Tables XII and XIII.
    From these tables it is obvious that the vast volume of revenue went to the chain companies and the 350 stations on the networks. Three hundred and ten stations not affiliated with any network had 12.7 per cent of the total volume of revenue. The three major chain companies and the stations licensed to them had 40.1 per cent of the total revenue, distributed as follows: 16.5 per cent to Columbia, 23.1 per cent to National and 0.1 per cent to Mutual. The stations affiliated with but not licensed to the chain companies obtained 46.7 per cent of the revenue. Four regional networks obtained 0.5 per cent of the revenue.
    The ratio of net income to net time sales in 1938 for selected typical stations in various classes of markets and for the chain companies, is given herewith.
 

Organization or class of station Ratio of net income to net time sales (per cent) Approximate 1930 population of Metropolitan District in which station is located Columbia Broadcasting System National Broadcasting Company Mutual Broadcasting System 50-kilowatt clear channel station           Do. 1-kilowatt regional with network affiliation           Do.           Do.           Do. 1-kilowatt regional with no network affiliation           Do.           Do.           Do. Local station with network affiliation           Do.           Do.           Do.           Do.           Do.           Do.           Do.           Do.           Do. 21.2 15.2 --- 23.9 32.3 13.8 11.5 .2 5.8 1.2 6.5 15.9 3.4 3.3 3.4 15.3 7.8 10.8 10.4 5.0 18 32.4 21.7 (1)                (1)                (2)                161,000 2,100,000 379,000 181,000 495,000 2,850,000 2,300,000 2,300,000 2,850,000 10,900,000 119,000 155,000 19,000 118,000 425,000 52,000 820,000 332,000 399,000 1,900,000

1 Nation-wide network.     2 Operating losses made up by members.

 

Organization or class of station	Ratio of net income to net time sales (per cent)	Approximate 1931 population of Metropolitan District in which station is located
Local station with no network affiliation           Do.           Do.           Do.           Do.           Do.           Do.           Do.           Do.           Do.	0.04 2.7 19.1 19.7 .9 3.2 10.4 8.3 10.4 7.9	608,000 16,000 860 1,290,000 371,000 949,000 2,850,000 21,400 4,365,000 14,300

    The amount of net income and the percentages for the chain companies and the groups of stations are as follows:
 

Organization or class of station Net income Ratio of net income to net time sales (per cent) Columbia Broadcasting System  National Broadcasting Company  2 clear channel stations  4 regional stations affiliated with networks  4 regional stations not affiliated with networks  10 local stations affiliated with networks  10 local stations not affiliated with networks   $3,541,739  3,434,301  505,162  35,780  68,632  106,625  46,449 1 21.2 1 15.2  28.8  7.4  6.9  14.0  7.5

1 The relationship to total revenue, which includes net time sales and incidental revenues, is 19.2 per cent and 13.3 per cent, respectively.

IV.  CONCLUSIONS
    There are certain factors which should provide the basis for consideration of the many complex problems in the field of radio broadcasting. However, as has been stated elsewhere in this report, no abrupt changes should be attempted without positive indication that such changes will result in improved service to the public. The record in this instant investigation does not justify sweeping proposals to change the developments resulting from practical experience.
    It must be considered that since 1927, the American system of broadcasting has developed under a Congressional formula which, until recently, has been administered in its broad policy aspects with fair consistency by the Commission and, on the whole, uniformly interpreted by the Courts.
    It must be admitted that imperfections exist. No human institution is free from error. It is significant, however, that this record fails to disclose important abuses. Moreover, no information is available to the Commission which justifies an invasion of the business practices of the licensees of this Commission.
    It is true that some of the pioneers in broadcasting have achieved conspicuous financial success. Likewise others who have made contributions to the industry and the public have been well rewarded. This fact alone affords no proper basis for a radical extension of the regulatory scheme.
    The record shows that in broadcasting there exists vigorous competition in the areas that count. It is the duty of the Commission to preserve and encourage such competition. However, we should not embark upon novel or untried courses of regulation based upon mere speculation as to how American businessmen should manage their affairs. Rather we should consider that the consequences of our acts might injure or retard further improvement in the existing system and the service which it now performs.
    Competition accompanied by good radio service to the public should continue to be fostered by the Commission. However, the blind adherence to the slogan "free competition," regardless of all practical factors, is unsound and will result in a conglomeration of uncoordinated radio stations rendering an inferior service to the public.
    On the whole, radio broadcasting has an excellent record of public service. This includes both networks and the independent stations. Possibly with a few isolated exceptions, radio has been scrupulously fair in dealing with questions of political, social and economic importance. It has been progressive and enterprising in the entertainment field. The public has been and should continue to be its most important and only censor.
    Radio is so constituted that it is sensitive to public criticism and responds promptly to changing public tastes. For this Commission or any agency of Government to attempt to substitute its judgment for that of the public involves an arrogant presumption which should be avoided at all costs. That such a policy is not contemplated by anyone on the Commission seems quite clear. However, it can be argued with logic that invasion of this economic field by the licensing authority in the absence of clear legal mandate, would constitute an inevitable prelude to the second step of assuming the role of arbiter of public tastes.
    Circumstances may require the Federal government to exercise broad powers in many fields of our economic life; but it is imperative that broadcasting be maintained as a free American institution. To adopt some pattern of government regulation as applied in other fields is to ignore the real nature of broadcasting. Borrowed techniques just don't fit. Broadcasting must be kept free from unnecessary Government restraints. Nowhere has this concept been given better expression than in a recent statement of the President of the United States wherein he said:
    Your Government has no wish to interfere or hinder the continued development of the American system of broadcasting. Radio was born and developed in the real American way and its future must continue on that basis.
    Our views in this matter may be summarized as follows:
    1.  The Commission is without jurisdiction to promulgate regulations which undertake to control indirectly the business arrangements of broadcasting licensees.
    2.  The record shows vigorous competition among networks and independent stations within the limitations of facilities imposed by nature and thus no finding of illegal monopoly can be made by this Commission, even if it can be assumed that this Commission had the legal authority to make such determination.
    3.  The Commission through its licensing powers has ample authority to deal with any abuses that may arise, or which may now exist. Thus with the possible exception of clarification of the procedural and appellate provisions of the Communications Act of 1934, no legislative changes seem necessary.
    4.  There is no support in the record of these proceedings or otherwise in the possession of the Commission which would require new regulations which would attempt to control the relations between networks and affiliates.
    5.  Broadcasting service is essentially a national service. It must be recognized that listeners prefer good programs originating from any source where there is superior talent and which may have greater entertainment value than would otherwise be available from a purely local source.
    6.  There is an important function to be served by the smaller local stations. The Commission should continuously strive to improve the technical efficiency of such stations and, within the limits of the Act, afford encouragement to broader economic opportunities for such stations. This should not be attempted by the destruction or impairment of existing services. There is room for both.
    7.  There is the strong presumption that four competing national networks independently operated might afford opportunity for improved service, although there is nothing in this record to establish that stations affiliated with the company operating two networks have not rendered a good public service. It is, therefore, recommended that informal discussions begin forthwith between the Commission and the representatives of the company operating two networks with a view of obtaining a voluntary segregation.
    8.  Network companies maintain concert and artist management bureaus as an incident to their operations. The Commission has no jurisdiction in this field. However, the companies should be notified that the Commission intends to request an inquiry by either the Federal Trade Commission or the Department of Justice, or both, in the event the companies do not divest themselves of these activities within a reasonable time.
    9.  There is no reason why the Commission should not forthwith extend the terms of broadcast licenses to the full statutory limit of three years. This would create an atmosphere of greater stability in the industry and would in no way detract from the Commission's power to proceed by revocation against licensees who contravene the standard of public interest.
    Finally, it seems appropriate to emphasize that our government is concerned with many important and crucial problems. This is no time to embark upon a new and untried course for which no urgent need can be established. It seems to us that the kind of democratic freedom which we are preparing to defend requires those in government to manifest restraint and tolerance. There is no evidence to justify an attempt at unnecessary controls of the broadcasting industry under even normal circumstances. In this atmosphere of world tension, our own national unity would be disserved by a new experiment at "reform" of an established system of mass communication upon which so many of our people rely for information and diversion.

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