Appendix — Cowles Broadcasting, Inc. v. Central Florida Enterprises, Inc.

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MAR 13 1979 i

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————

IN THE =

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1978

No €8~1400

—

COWLES BROADCASTING, INC. and

COWLES COMMUNICATIONS, INC.,

Petitioners,

v.

CENTRAL FLORIDA ENTERPRISES, INC.,

Respondent.

APPENDIX TO

PETITION FOR A WRIT OF CERTIORARI

ROBERT A. MARMET

HAROLD K. McComss, JR.

MARMET PROFESSIONAL

CORPORATION

1822 Jefferson Place, N.W.

Washington, D.C. 20036

WILLIAM T. COLEMAN, JR.

DONALD T. BLISS

Davip G. BouTTE

O’MELVENY & MYERS

1800 M Street, N.W.

_ Washington, D.C. 20036

Attorneys for Petitioners.

Sanamememmahaetial

Washington, D.C. + THIEL PRESS + (202) 638-4521

ee a a

(:)

TABLE OF CONTENTS

/

APPENDIX A:

Central Florida Enterprises, Inc. v. Federal Communi-

cations Commission, (“Original Opinion’’), _ U.S.

App. D.C. __, Case No. 76-1742 (Decided, Sep-

NE ES Ee eee

APPENDIX B:

Central Florida Enterprises, Inc., v. Federal Communt-

cations Commission, (““Amendment’’), ___ U.S. App.

Eee

APPENDIX C:

Central Florida Enterprises, Inc., v. Federal Communt-

cations Commission, (“Per Curiam’’), ___ U.S. App.

ee eee

APPENDIX D:

Central Florida Enterprises, Inc. v. Federal Communi-

cations Commission, (Order), U.S. App. D.C.

i CME cu weseescccccccces

APPENDIX E:

Cowles Florida Broadcasting, Inc., F.C.C. 73D-62,

eee OSES eee

APPENDIX F:

Cowles Florida Broadcasting, Inc., F.C.C. 76-642,

60 F.C.C.2d 372, 37 Rad. Reg. 2d (P&F) 1487

Ne cece cece 139a

APPENDIX G:

‘ Cowles Florida Broadcasting, Inc., reconsideration

‘ denied, F.C.C. 77-1, 62 F.C.C. 2d 953 (1977)

OE cea c sce ccc cece cece 289a

| APPENDIX H:

Cowles Broadcasting, Inc., clarification, F.C.C.

. | 77-446, ___F.C.C. 2d ____, 40 Rad. Reg. 2d

| ee 302a

(it)

APPENDIX I: _Page_

Communications Act of 1934, 48 Stat. 1064,

as amended, 47 U.S.C. §307(d) (1976)............

Communications Act of 1934, 48 Stat. 1064,

as amended, 47 U.S.C. §309(a) (1976)............

la

APPENDIX A

Notice: This opinion is subject to formal revision before publication

in the Federal Reporter or U.S. App. D.C. Reports. Users are requested

to notify the Clerk of any formal errors in order that corrections may be

made before the bound volumes go to press.

United States Cmot of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

No. 76-1742

CENTRAL FLORIDA ENTERPRISES, INC., APPELLANT

V.

FEDERAL COMMUNICATION COMMISSION, APPELLEE

COWLES BROADCASTING, INC., INTERVENOR

Appeal from an Order of the

Federal Communications Commission

Argued 6 June 1978

Decided 25 September 1978

Joseph F. Hennessey with whom Lee G. Lovett and

Richard C. Rowlenson were on the brief, for appellant.

Daniel M. Armstrong, Associate General Counsel with

whom Robert R. Bruce, General Counsel and Jack David

Smith, Counsel Federal Communications Commission was

on the brief, for appellee.

Bills of costs must be filed within 14 days after entry of judgment. The

court looks with disfavor upon motions to file bills of costs out of time.

2 2a

Robert A. Marmet with whom Harold K. McCombs,

Jr. was on the brief, for Intervenor, Cowles Broadcast-

ing, Inc.

Before: ROBINSON and WILKEY, Circuit Judges, and

FLANNERY, United States District Judge for

the United States District Court for the Dis-

trict of Columbia

Opinion for the Court filed by Circuit Judge WILKEY.

WILKEY, Circuit Judge: Appellant, Central Florida

Enterprises, Inc. (Central), appeals a decision and ac-

companying orders by the Federal Communications Com-

mission (Commission) denying its application for a con-

struction permit for a new commercial television station

to operate on Channel 2 in Daytona Beach, Florida, and

granting the mutually exclusive application for renewal

of license to Intervenor Cowles Florida Broadcasting, Inc.

(Cowles). Appellant contends that the Commission acted

unreasonably and without substantial record support in

preferring Cowles’ renewal application. We agree, vacate

the Commission’s orders, and remand for further pro-

ceedings.

I. ISSUES IN COMPARATIVE RENEWAL PROCEEDINGS,

PAST AND PRESENT

What is at issue here is the validity of the process by

which the competing applications of Central and Cowles

were compared and the adequacy of the Commission’s

articulated rationale for its choosing to renew Cowles’

license. This may well be a typical comparative renewal

* Sitting by designation pursuant to 28 U.S.C. § 292(a).

1 Cowles Florida Broadcasting, Inc., 60 F.C.C.2d 372 (1976),

reconsideration denied and clarified, 62 F.C.C.2d 953 (1977),

reconsideration denied, 40 RAD. REG. 2d 1627 (1977) (P-H).

The jurisdiction of this court is properly invoked pursuant

to 47 U.S.C. § 402(b) (1970).

3a 8

case, hence the careful scrutiny we give the Commission’s

procedure and rationale herein.

Aside from the specific facts of this case, there is

other evidence indicating the state of administrative

practice in Commission comparative renewal proceedings

is unsatisfactory. Its paradoxical history reveals an

ordinarily tacit presumption that the incumbent licensee

is to be preferred over competing applicants.’ Because

the Federal Communications Act fairly precludes any

preference based on incumbency per se,‘ the practical

* See generally Fidelity Television, Inc. v. FCC, 515 F.2d

684, 705-17 (D.C. Cir.) (Bazelon, C.J.) (voting to grant re-

hearing en banc), cert. denied, 423 U.S. 926 (1975); Citizens

Communications Center v. FCC, 447 F.2d 1201, 1206-10 (D.C.

Cir. 1971), clarification granted, 463 F.2d 822 (1972); Cowles

Florida Broadcasting, Inc., 60 F.C.C.2d 372, 435-42 (1976)

(Commissioner Robinson, dissenting); Geller, The Compara-

tive Renewal Process in Television: Problems and Suggested

Solutions, 61 Va.L.Rev. 471 (1975).

8 See note 17 infra.

*The Communications Act of 1934 included language ex-

pressly referring the decision to renew a license to “the same

considerations and practice which affect the granting of orig-

inal applications,” ch. 652, § 307(d), 48 Stat. 1084 (1934).

Apparently to preclude the inference that an incumbent could

not adduce evidence of its past broadcast record, Congress

in 1952 deleted the language subjecting renewal applicants

to “the same considerations and practice” as original appli-

cants and substituted the present language subjecting all appli-

cations to the standard of “public interest, convenience, and

necessity,” 47 U.S.C. §307(d) (1970). See Citizens Com-

munications Center v. FCC, 447 F.2d at 1206-07 and n.13.

But see Report of the Federal Communications Commission

to the Subcommittee on Communications of the Committee on

Interstate and Foreign Commerce of the House of Repre-

sentatives Re the Comparative Renewal Prucess, Joint Appen-

dix (J.A.) at 172, 182 (1976) [hereinafter cited as Report]

(suggesting that the 1952 amendment may have codified the

Commission’s informal presumption of renewal). The Com-

munications Act contains numerous other passages suggesting

4 4a

bias arises from the Commission’s discretionary weigh-

ing of legally relevant factors.’ Of course, the general

preference, and a fortiori the disposition in any given

instance, may be a lawful exercise of the Commission’s

“substantive discretion.” However, it is the judicial func-

tion to insure that such discretionary choices as are

entailed in these proceedings are rigorously governed by

traditional principles of fairness and administrative

regularity.

Comparative analysis is implicit in any scheme of

allocation and has always been at least formally a con-

sideration in broadcast licensing. The procedural setting

for such a comparative review is the licensing hearing

provided by Section 309(e) of the Communications Act.°

The Supreme Court held in Ashbacker Radio Corp. v.

FCC' that under Section 309(e) where two or more

applications are mutually exclusive there must be a joint

comparative hearing. This court had occasion to elaborate

what is entailed by such a “full hearing” in Greater

Boston Television Corp. v. FCC:

(T]he findings must cover all the substantial differ-

ences between the applicants and the ultimate con-

that the grant of a license creates no preferential rights in the

incumbent, providing, inter alia, that “no .. . license shall

be construed to create any right, beyond the terms, conditions,

and periods of the license,” 47 U.S.C. § 301; that an applicant

waives any claim to a frequency “because of the previous use

of the same,” 47 U.S.C. § 304; that no license granted “shall

be for a longer term than three years,” 47 U.S.C. § 307(d);

and that a license does “not vest in the licensee any right...

in the use of the frequencies . . . beyond the term thereof,”

49 U.S.C. §309(h) (1970). See also FCC v. Sanders Bros.

Radio Station, 309 U.S. 470, 475 (1940).

5 See pp. 22-23 infra.

* 47 U.S.C. § 309(e) (1970).

t 326 U.S. 327, 333 (1945).

K

Ja 5

clusion must be based on a composite consideration

of the findings as to each applicant.®

Although Ashbacker dealt with two original applications,

this court and the Commission have consistently held that

the doctrine governs renewal proceedings as well.®

A less tractable matter has been the question of the

substantive criteria to assure a fair comparison. The

development of those criteria has been committed largely

to the discretion of the Commission, with occasional

anc quite general guidance from the courts, as in

Greater Boston, supra. The standards, evolved gradually

over the course of the Commission’s comparative pro-

ceedings, were reviewed and restated in the 1965 Policy

Statement on Comparative Broadcast Hearings.” Logi-

cally, criteria for comparison should be derived from and

relate to the defined objectives of the comparative hear-

ing. The Commission so proceeded, identifying in the

Policy Statement the primary objectives of the compara-

tive hearing as “the best practicable service to the public”

and the “maximum diffusion of control of the media of

mass commumication.” '' The principal factors relevant

to the “best practicable service” issue were the extent of

participation of owners in station management, program-

ming proposals, past broadcast record, technical capacity,

and character.’* Diversification of ownership of the mass

media was described as being “of primary signifi-

cance.” ** Further, upon an appropriate showing, the

parties could raise any other relevant factors.

° 444 F.2d 841, 851 (D.C. Cir. 1970), cert. denied, 403 U.S.

923 (1971) (footnote omitted).

® See Citizens Communications Center v. FCC, 447 F.2d at

1211.

1 F.C.C.2d 393 (1965) [hereinafter cited as 1965 Policy

Statement].

2 Td. at 395-98.

" Td. at 394.

8 Id. at 395.

6a 6

The applicability of the Commission’s usual compara-

tive criteria to comparative renewal proceedings has been

uncertain. The fact of incumbency without more would

appear legally irrelevant under the statute.* Although

the 1965 Policy Statement pretermitted “the somewhat

different problems raised when an applicant is contesting

with a licensee seeking renewal of license,” ** the Com-

mission subsequently held that the 1965 Policy Statement

“should govern the introduction of evidence in this and

similar proceedings where a renewal application is. con-

tested.” ** The weight given to the 1965 criteria would

still depend on the facts of each case.

Despite the apparent statutory assurance of a free-

wheeling inquiry into the relative merit of challenger

and incumbent licensee, the history of Commission prac-

tice reveals @ strong preference for renewal.’’ Further,

until fairly recently, such choices by the Commission were

routinely affirmed by this court.** This general phenom-

enon has been rationalized into what we have called on

occasion “a renewal expectancy.” ’® The question arises,

material in this case, to what extent such an expectancy

is compatible with the full hearing guaranty of Section

309(e). This was essentially the question we confronted

14 See note 4 supra.

18 1965 Policy Statement, supra note 10, at 393 n.1.

16 Seven (7) League Productions, Inc. (WIII), 1 F.C.C.2d

1597, 1598 (1965).

11 See Citizens Communication Center v. FCC, 447 F.2d at

1207-09; Wabash Valley Broadcasting Corp. (WTHI-TV), 35

F.C.C. 677 (1963); Hearst Radio, Inc. (WBAL), 15 F.C.C.

1149 (1951).

18 See Citizens Communications Center v. FCC, 447 F.2d at

1208 n.23.

1° See id. at 1213 n.85; Greater Boston Television Corp. V.

FCC, 444 F.2d at 854, 858.

7a 7

in Citizens Communication Center v.. FCC. There we

struck down the Commission’s 1970 Policy Statement Con-

cerning Comparative Hearings Involving Regular Renewal

Applicants ** because it foreclosed the fully comparative

inquiry mandated by the statute as construed in Ash-

backer. Under that Policy Statement, if there were a

showing of past “substantial service,” a licensee would

be renewed without consideration of comparative issues.

Citizens thus stands for the proposition that “the Com-

mission may not use renewal expectancies of incumbent

licensees to shortcircuit the comparative hearing.” *

We did note the relevance of the incumbent’s past per-

formance:

We do not dispute, of course, that incumbent licen-

sees should be judged primarily on their records of

past performance. Insubstantial past performance

should preclude renewal of a licensee. . . . At the

same time, superior performance should be a plus

of major significance in renewal proceedings. The

Court recognizes that the public itself will suffer if

incumbent licensees cannot reasonably expect re-

newal when they have rendered superior service.”

Thus expectations are confined to the likelihood that a

showing of superior performance will be sufficient, in

light of the comparative criteria, to carry the day in the

overall public interest inquiry.

© 447 F.2d 1201 (1971).

21 22 F.C.C.2d 424 (1970).

22 Fidelity Television, Inc. v. FCC, 515 F.2d at 705, 709

(Bazelon, C. J.) (voting for rehearing en banc).

28 Citizens Communication Center v. FCC, 447 F.2d at 1213

and n.35.

s Sa

Il. THE COURSE OF THE LITIGATION

Intervenor Cowles has operated its station, WESH-TV,

on Channel 2 in Daytona Beach since it purchased the

station in 1966. On 31 October 1969 Cowles filed its ap-

plication for renewal of license. Central submitted its

competing applicatiori for a construction permit for a new

television station te operate on the same channel on 2

January 1970. The two applications were set for hearing

by Commission order released 10 March 1971, and re-

designated by orders released 20 August 1971 and 24

February 1972.

In addition to inquiry into diversification of media

ownership and “best practicable service,’ which comprise

the customary comparative issues, certain special issues

were designated for hearing. These were (a) whether

contrary to Commission regulation, Cowles had moved

its main studio without prior Commission approval; and

(b) whether alleged mail fraud by five related corpora-

tions supported inferences adverse to Cowles’ character.**

Following extensive findings, the Administrative Law

Judge (ALJ) concluded that renewal of Cowles’ license

would best serve the public interest.** By a 4-3 vote the

Commission affirmed with certain modifications.*®

The facts in this case are essentially undisputed, and

will be recounted only incidentally to our review of the

Commission’s decision.

** Certain other designated issues, dealing with engineering

and financial matters, are not at issue here.

28 Cowles Florida Broadcasting, Inc., F.C.C. 73D-62 (Re

leased 7 Dec. 1973) [hereinafter cited as Initial Decision],

J.A. at 78.

** See note 1 supra.

9a 9

A. The Initial Decision

1. Designated Issues.

a. The Main Studio Move

Commission rules require that “[t]he main studio of a

television broadcast station shall be located in the prin-

cipal community to be served.” ?7 WESH-TV’s city of

assignment is Daytona Beach, and the station had al-

ways had a studio just outside the city at Holly Hill.

In addition, WESH-TV maintained “auxiliary” studios

in Winter Park, just outside Orlando. Since 1960, the

station had been authorized to identify as a Daytona

Beach-Orlando station, although the Commission stressed

that Daytona remained the city of assignment and “prin-

cipal city.” The rule prescribing the location of the

“main” studio, unlike the analogous rules governing radio

stations,”* contains no definition of “main” studio and

there is little clarifying precedent.

Still, the ALJ found “inescapably” that “Cowles treats

its Winter Park [Orlando] facility as its principal place

of business.” * Because there had been an unauthorized

move of the “main studio” contrary to rule, the ALJ gave

Cowles a comparative demerit.*° However, the demerit

was not given much weight in light of what the ALJ

considered to be mitigating factors. First, the ALJ

stressed that there was “little evidence that the move

*7 47 C.F.R. 73.613 (1977).

*® 47 C.F.R. 73-210 (1977) (FM stations); 47 C.F.R. 73.30

(1977) (AM stations).

® Initial Decision J 181, J.A. at 130.

%° Id. {| 203, J.A. at 136.

10 10a

resulted from a deliberate corporate decision to move the

main studic in defiance of the Commission’s rules.”

Rather, a “series of changes” responding to the “com-

mercial lure” of Orlando, resulted in a “de facto move of

the main studio.” * Second, the ALJ concluded that “the

unauthorized move had not resulted in the downgrading

of service to the community of assignment which [the

rule] is designed to prevent.” *

b. Mail Fraud

Cowles is a wholly owned subsidiary of Cowles Com-

munications, Inc., (CCI). During the license period

CCI also published Look Magazine and owned five other

subsidiaries, each in the business of obtaining magazine

subscriptions. The five subsidiaries conducted so-called

“paid during service” (PDS) operations in which sub-

scribers paid installments of the purchase price over the

life of the subscription.

After a few years, complaints arose of improper sales

and collection practices by the PDS companies. When

CCI became aware of the problem, it promulgated a code

of practice for the subsidiaries to cure the abuses. De-

spite these efforts, the practices continued and by the fall

of 1969 the PDS companies were under investigation by

various state and federal agencies. In 1970, after being

informed that the Justice Department intended to investi-

gate the entire PDS industry, CCI initiated negotiations

which resulted in nolo contendre pleas by the five PDS

subsidiaries to fifty counts of mail fraud, and a consent

decree against the five companies, guaranteed by CCI,

enjoining specific sales and collection practices.

* Id. J 182, J.A. at 131.

2 Id. 1 188, J.A. at 131.

lla 11

With respect to Cowles’ parent, CCI, the ALJ reached

conclusions that he characterized as “harsh.” ** He found

that CCI acquired operations which “it must have

realized” would be inclined to massive fraud. CCI’s super-

vision was “spotty” and “ineffectual,” its internal in-

vestigation coming “late in the day” when it recognized

“that various governmental agencies were about to call

it to account.” It was “inconceivable that it could have

. . . been unaware” of such corruption “unless it chose

to be.” *

The ALJ concluded, however, that Cowles was insu-

lated from these “harsh” findings concerning its parent.

Although the ALJ supposed such evidence of fraud would

probably disqualify an original applicant, the findings in

this case were not “decisionally material” in light of

Cowles’ broadcast record which better predicts future

performance. Consequently, it was “unnecessary to at-

tempt to.draw inferences from the nonbroadcast conduct

of CCI and its non-broadcast subsidiaries; and “no con-

clusions adverse to the character qualifications of

[Cowles] should be reached on the basis of that issue.” *

On the two specially designated issues, the main studio

move and the mail fraud inquiry, by the ALJ’s reasoning

Cowles escaped unscathed.

2. Standard Comparative Issues.

a. Diversification of Media Ownership

The ALJ concluded that “the advantage lies with Cen-

tral” under the diversification factor because it had “no

connection of any sort with any other mass media out-

%8 Id. | 185, J.A. at 1382.

* Id. J] 184, J.A. at 181-32.

8° Id. J 186, J.A. at 182.

12 12a

let.” * Cowles’ parent, CCI, owned an AM-FM-TV combi-

nation in Des Moines, Iowa, and another CCI subsidiary

owned AM and FM radio stations in Memphis, Tennessee.

While these interests were “remote” from Daytona Beach,

the ALJ held that they remained a “significant factor in

the ultimate choice.” *’ The ALJ further noted that CCI

owned a substantial stock interest in the New York Times

Company, which publishes the New York Times and has

extensive publishing and broadcast holdings. Gardner

Cowles, Chairman of CCI, was then a director of the New

York Times Company. In addition, certain CCI stock-

holders had substantial mass media interests. The Des

Moines Register and Tribune Company owned 9% of

CCI’s stock and had an 11% stock interest in the Minne-

apolis Star and Tribune Company. But the ALJ concluded

these related mass media interests were of “little deci-

sional significance” because CCI did not control the New

York Times Company, nor did the Des Moines Register

and Tribune Company control CCI. Thus, no ,potential

existed for compelling the media involved to “speak with

a common voice,” and the basic policy underlying the

diversification standard was “not disserved.” *

The ALJ then concluded that although Central’s ad-

vantage was “clear,” it would not be “compelling” unless

Central were shown likely to render public service “at

least as good” as that of Cowles." This was especially

true in the present context where renewal “would not

increase the existing concentration of control.” The ALJ

found that Cowles’ incumbency evinced a prior Commis-

sion determination that its media connections were not

contrary to the public interest. Moreover, the ALJ noted

* Id. | 193, J.A. at 133-34.

* Id.

8 Id. J 194, J.A. at 134.

*° Td. 4 195, J.A. at 134.

13a 13

the Commission’s reluctance to employ comparative re-

newal proceedings to restructure the broadcast industry.

In his view, the benefits from increased diversification

had to be balanced against the public necessity of a

stable broadcast industry. Accordingly, the ALJ con-

cluded that a comparative renewal hearing should oc-

casion an increase in diversification only if the competing

applicant appeared likely to render service at least as

good as that which the public had been receiving.

b. Best Practicable Service

Under the criterion of “best practicable service’ the

ALJ made findings with respect to two matters: (1)

Central’s proposals regarding the participation of owners

in the station management; and (2) the quality of

Cowles’ past service.

(1) Integration of Ownership and Management

The ALJ found Central’s integration proposals to be

“very weak,” and concluded that Central’s owners would

probably not play more than a nominal role in station

affairs.*° He noted full time participation by station own-

ers is of substantial importance under the 1965 criteria.

But here, full time participation was proposed by only

three of Central’s shareholders, collectively owning 10.5%

of Central’s stock. While “not inconsequential,” this own-

ership interest was not sufficient to control corporate

policy. Further, the proposed integration was largely tem-

porary. The important positions of General Manager and

Program Director would be held by Mr. Stead and Mrs.

Goddard, respectively, but Stead would serve only in Cen-

tral’s “formative stages,” and Mrs. Goddard only until

the station were “thoroughly organized and stabilized.”

The ALJ consequently found it unlikely that the benefits

* Id. J 201, J.A. at 136.

14 l4a

of integration would continue throughout the license

period. Moreover, the shareholders’ lack of broadcast ex-

perience, ordinarily unimportant because remediable, be-

came significant in light of the limited tenure contem-

plated. In sum, the ALJ found that full time integration

of management and ownership would be limited to Mr.

Chambers, a 3.5% stockholder who would be supervisor

of Administration. His duties were undefined and nothing

indicated that he would be involved in determining the

nature or content of program service.

The ALJ conceded several of Central stockholders would

participate in management on a part-time basis, pri-

marily as consultants, but noted that little weight at-

tached to such participation under the Policy Statement.

In his view, part-time contributions by those who are “es-

sentially dilletantes” rarely has a material effect on over-

all station operations.

(2) Cowles Past Service

The ALJ found that Cowles’ past performance had

been “thoroughly acceptable.” ** He observed that Cowles

had developed and presented “a substantial number of

programs . . . designed to serve the needs and interests

of its community.” A number of local residents and com-

munity leaders had expressed satisfaction with the sta-

tion’s performance, and there had been no complaints

concerning the station’s operation. Moreover, the ALJ

found “no reason to believe that future performance

would be less satisfactory.” Although the unauthorized

move of the main studio warranted a “comparative de-

merit,” since it was not done in bad faith and had not

lowered the quality of service to Daytona Beach, it would

not support a conclusion that Cowles was unlikely to con-

tinue to provide “proper service.” *

“1 Id. J 202, J.A. at 136.

“ Id. J 203, J.A. at 136.

l5a 15

c. The Public Interest Finding on the Two Stand-

ard Comparative Issues

In the end, the ALJ concluded that Cowles merited a

“distinct preference” under the best practicable service

criterion and that that preference outweighed Central’s

preference under the diversification criterion. The ALJ

reasoned that absent a showing that the degree of indus-

try concentration which had existed when Cowles was

originally licensed had “actually disserved the public in-

terest,” the more compelling objective was obtaining the

best practicable service.

B. The Commission Decision.

The Commission affirmed the decision of the ALJ with

certain modifications. It concluded that the ALJ had cor-

rectly disposed of the main studio issue.** Thus, the Com-

mission rejected both Cowles contention that there had

been no de facto move of the main studio and Central’s

argument that the finding without more should have dis-

qualified Cowles. Further, the Commission generally ap-

proved the ALJ’s treatment of the factors mitigating the

effect of the studio move.

The Commission sustained the ALJ again with respect

to the mail fraud issue, finding he had properly refused

“to impart decisional significance” to the evidence of

wrong-doing. Inasmuch as Cowles was not shown to be

implicated in the PDS practices and there appeared to be

no criminal case against CCI or its personnel, the Com-

*s Id. 205, J.A. at 187. The ALJ gave Cowles a “defi-

nite plus” for the superiority of its facilities at Orlando. Id.

204, J.A. at 137. This was overturned by the Commission,

60 F.C.C.2d at 416, in light of the impropriety of the de facto

move which had enhanced those facilities.

** 60 F.C.C.2d at 398-400.

16 16a

mission declined “to attribute the sins of the PDS’s to

CCI and then visit them on Cowles’ head.” *

Again, by the Commission’s reasoning on the two spe-

cially designated issues, Cowles lost no ground. The Com-

mission then turned to the two standard issues, diversifi-

cation and service.

Reviewing the ALJ’s treatment of the diversification

issue, the Commission affirmed the award of a preference,

finding Central’s advantage “clear.” ** The Commission

agreed that the significance of the preference was re-

duced by the fact that CCI’s other broadcast and news-

paper interests were remote from Daytona Beach and

were not shown to dominate their markets. Moreover, the

Commission reiterated its reluctance to use the diversifi-

cation criterion to restructure the broadcast industry,

observing that “the need for industry stability had its

own decisional bearing here.” In a subsequent order, the

Commission expanded its discussion, finding that the

autonomy which CCI accorded to the local station man-

agement further reduced the significance of Central’s

preference.‘’ Inasmuch as the Commission could find no

*s Td. at 405.

“ Id. at 409.

“7 62 F.C.C.2d at 956. Central argues that the Commission

was without jurisdiction to reconsider sua sponte its earlier

disposition of the comparative issues. Brief of Appellant

at 6. We disagree. Commission rules permit it to set aside

on its own motion any action within 30 days after release of

the order. 47 C.F.R. 1.108 (1977). It is Commission practice

that the filing of a petition for reconsideration tolls the run-

ning of the thirty day period. See Radio Americana, Inc., 44

F.C.C. 2506, 2510-2511 (1961). See also Old Belt Broadcast-

ing Corp. (WSWS), 44 F.C.C. 1826, 1830 n.3 (1959). We be-

lieve it is not unreasonable that where, as here, several peti-

tions are consolidated for hearing and decision, a petition for

reconsideration of any of the ensuing orders tolls the thirty

day period as to all orders in the case. To find otherwise would

17a 17

evidence in the record “that the dangers of concentration

... exist in this case,” the preference was found to be “of

little decisional significance.” *

The ALJ’s conclusions with respect to the best prac-

ticable service issue were modified in light of this court’s

TV-9 decision *’ and the Commission’s finding that in-

sufficient weight had attached to Cowles broadcast record.

The Commission held that the minority group partici-

pation proposed by Central entitled it to a merit under

our 7'V-9 decision. Nonetheless, even when considered in

conjunction with the merit to which Central was admit-

tedly entitled for integration of ownership and manage-

often result in anomaly and unfairness. Thus the sua sponte

reconsiderations were timely in this case. The fact that ap-

peal from the original order had already been brought in this

court does not independently preclude reconsideration. See

Wrather-Alvarez Broadcasting, Inc. v. FCC, 248 F.2d 646,

648-49 (D.C. Cir. 1957).

*® 62 F.C.C.2d at 957.

* TV-9, Inc. V. FCC, 495 F.2d 929 (D.C. Cir.), cert. denied,

419 U.S. 986 (1974). In TV-9 we held it was erroneous for

the Commission to refuse to accord merit to an applicant for

the “ownership and participation” of “its two Black stockhold-

ers.” Id. at 941 (supplemental opinion). See also Garret v.

FCC, 513 F.2d 1056, 1062-63 (D.C. Cir. 1975).

In our supplemental opinion in TV-9, 495 F.2d at 941, we

distinguished our use of “merit” from “preference.” We ex-

plained that the latter term was used “to mean a decision by

the Commission that the qualifications of a particular appli-

cant in a comparative hearing are superior to those of another

applicant with respect to one or more of the issues upon

which the grant of a permit or license turns.” Jd. n.2. “ ‘Merit’

or ‘favorable consideration,’ ” we said, “is a recognition by the

Commission that a particular applicant has demonstrated cer-

tain positive qualities which may but do not necessarily result

in a preference.” “ ‘Merit,’ therefore, is not a ‘preference’ but

a plus-factor weighed along with all other relevant factors in

determining which applicant is to be awarded the prefer-

ence.” Id.

18 18a

ment, the additional merit was not sufficient to outweigh

the facts in Cowles’ favor under the best practicable serv-

ice criterion.

Finally, the Commission revised the ALJ’s characteri-

zation of Cowles’ record as “thoroughly acceptable.” Find-

ing this phrase “too vague to be meaningful,” and not

adequately expressing “the outstanding quality of Cowles’

past performance,” the Commission found that perform-

ance to have been “superior” in the sense in which we

used the word in our Citizens opinion—“justifying a plus

of major significance,” and inferentially, supporting an

expectation of renewal.” In a subsequent order, the Com-

mission clarified its use of the word “superior.” It had

meant that the level of service provided by Cowles was

“sound, favorable and substantially above a level of medi-

ocre service which might just minimally warrant renew-

al.” * It had not intended to suggest that the performance

was exceptional when compared to other stations.

The Commission thus articulated the final and decisive

tally:

The Commission—and the Court—have consistently

recognized that a record of past programming per-

formance is the very best indication of future per-

formance. It is for this reason that we make clear

_ that a substantial performance—i.e. sound, favorable

—is entitled to legitimate renewal expectancies. Un-

der the circumstances here, this consideration is de-

cisive. Central’s preference under the diversification

criterion is of little decisional significance and Cen-

tral is entitled to no preference under the integration

criterion. These factors, even considering Cowles’

slight demerit for the studio move and Central’s

merit for the Black ownership it proposes definitely

%° 60 F.C.C.2d at 421-22.

%1 62 F.C.C.2d at 955.

19a 19

do not outweigh the substantial service Cowles ren-

dered to the public during the last license period.”

II. ANALYSIS

The function of this court in reviewing a Commission

decision is, as we have often recounted, a fairly limited

one. This is particularly the case when the Commission

acts under its broad mandate to license in the public

interest. However, within the constraints upon our re-

view, we must insist on adherence to those principles

which assure the rule of law. Thus we must be satisfied

that the agency has given reasoned consideration to all

the material facts and issues; that its findings of fact

are supported by substantial evidence;* and that if its

notion of the public interest changes, that at least it has

not deviated fronr prior policy without sufficient explana-

tion.** In general, the agency must engage in reasoned

decision-making, articulating with some clarity the rea-

sons for its decisions and the significance of facts par-

ticularly relied on. Admittedly, this is not an easy matter

in comparative renewal proceedings, “but at least so long -

as the government uses the forms of adjudication, and

does not turn, e.g., to bidding, or even chance... , rea-

soned decision-making remains a requirement of our

law.” *

*2 Id. at 958.

‘8 See, e.g., Greater Boston Television Corp. Vv. FCC, 444 F.2d

at 851.

% See, e.g., Fidelity Television, Inc. v. FCC, 515 F.2d at 699.

6 See, e.g., Columbia Broadcasting System, Inc. v. FCC, 454

F.2d 1018, 1026 (D.C. Cir. 1971).

%* Greater Boston Television Corp. V. FCC, 444 F.2d at 852

(footnote omitted).

20 20a

With this preface, we hold that the Commission acted

unreasonably and without substantial record support in

this matter and we remand for further proceedings.

The Commission’s rationale in this case is thoroughly

unsatisfying. The Commission purported to be conducting

a full hearing whose content is governed by the 1965

Policy Statement. It found favorably to Central on each

of diversification, integration, and minority participation,

and adversely to Cowles on the studio move question. Then

simply on the basis of wholly noncomparative assessment

of Cowles’ past performance as “substantial,” the Com-

mission confirmed Cowles’ “renewal expectancy.” Even

were we to agree (and we do not agree) with the Com-

mission’s trivialization of each of Central’s advantages,

we still would be unable to sustain its action here. The

Commission nowhere even vaguely described how it ag-

gregated its findings into the decisive balance; rather, we

are told that the conclusion is based on “administrative

‘feel.’” *' Such intuitional forms of decision-making, com-

pletely opaque to judicial review, fall somewhere on the

distant side of arbitrary.

The Commission’s treatment of the standard compara-

tive issues—diversification of media ownership and best

practicable service—~is the most worrisome aspect of this

case. The Commission plainly disfavors use of the 1965

criteria in comparative renewal proceedings. This in turn

is largely because the Commission dislikes the idea of

comparative renewal proceedings altogether *—or at least

5t 60 F.C.C.2d at 422.

*% Although we would ordinarily be reluctant to reach such

conclusions concerning the Commission’s state of mind, it has

been extraordinarily candid in this matter. See Report, supra

note 4, 7] 60-81, J.A. at 213-24, concluding, inter alia, “that

the comparative renewal process should be abolished.” /d.

7 61, J.A. at 213. See also Cowles Florida Broadcasting, Inc.,

60 F.C.C.2d at 480, 433 (Chairman Wiley dissenting) (“[T]he

2la 21

those that accord no presumptive weight to incumbency

per se.’ As long as the renewal hearings were carried

on in a completely ad hoc manner, it was little noticed

that they were not really comparative. But the restate-

ment of the comparative criteria in 1965 imposed an

orderliness on the inquiry which made it obvious when

applicants were not in fact on an equal footing. This

would never have been a problem if the Commission had

been able to distinguish in its rules between hearings

comparing only new applicants and comparative renewal

hearings. This it was unable to do and the 1965 Policy

Statement has since governed comparative renewal pro-

ceedings more or less by default.°°

1965 standards concerning diversification and integration ad-

vance no public purpose to which agency is truly committed

and, if implemented in a rigorous fashion, could well have a

serious destabilizing effect on the broadcast industry to the

detriment of the. . . public.’’)

*° Some sort of presumption of renewal was implicit in

Commission practice at least until the 1965 Policy Statement.

See notes 2 and 17 supra. The 1970 Commission Policy State-

ment Concerning Comparative Hearings Involving Regular

Renewal Applicants, supra note 21, which we struck down in

Citizens Communication Center v. FCC, 447 F.2d 1201 (D.C.

Cir. 1971), expressly adopted a presumption of renewal if

“substantial” past service could be shown. Most proposed legis-

lative reforms would enact some such presumption. See S. 2004,

91st Cong., Ist Sess. (1969) (bill introduced by Senator Pas-

tore and withdrawn when Commission issued its 1970 Policy

Statement, supra); H.R. 18015, § 487(a), 95th Cong., 2d Sess.

(1978) (“In any case in which a television broadcasting sta-

tion submits an application to the Commission for the renewal

of a license, the Commission may not consider any competing

application for such license in determining whether to renew

such license.’’)

“In light of Citizens, it is doubtful whether any such dis-

tinction would be lawful without an amendment to the hear-

ing provisions of the Communications Act, 47 U.S.C. § 8309 (e)

(1970). The Commission abandoned its effort to substitute

22 22a

Since the 1965 Statement admits little room for a pre-

sumption of renewal, the Commission has reconstructed

the criteria in a manner creating a de facto presump-

tion." Whether justified in precedent or logic, the process

simple quantitative standards for its ad hoc inquiry under

the 1965 criteria in comparative renewal hearings. See Formu-

lation of Policies Relating to the Broadcast Renewal Appli-

cant, Stemming from the Comparative Hearing Process, 66

F.C.C.2d 419 (1977), review pending sub nom. National

Black Media Coalition v. FCC, No. 77-1500 (D.C. Cir.) [here-

inafter cited as Formulation of Policies).

* See, e.g., td. at 430:

As illustrated most recently in the Daytona Beach,

Florida case [this case], the renewal applicant must,

therefore, continue to run on its record, and we believe

that that record should be measured by the degree to

which the licensee’s program performance was sound,

favorable, and substantially above a level of mediocre

service which might just minimally warrant renewal.

Where the renewal applicant has served the public inter-

est in such a substantial fashion, it will be entitled to the

“legitimate renewal expectancy” clearly “implicit in the

structure of the [Communications] Act.” Greater Boston

Television Corporation V. F.C.C., supra, 143 U.S.App.D.C.

at 396, 444 F.2d at 854. Thereafter, we will direct our

attention to the comparative factors set forth in the

1965 Policy Statement, supra. While that policy state-

ment will otherwise govern the introduction of evidence

in the comparative renewal proceeding, the weight to be

accorded the legitimate renewal expectancy of the in-

cumbent licensee and the significance of other compara-

tive considerations will depend on the facts of the par-

ticular case.

If the reader is unable to distinguish this modus operandi

from prior instances of a renewal presumption attaching to

some measure of substantial service, note 59 supra, neither

are we.

The Commission elsewhere makes equally erroneous state-

ments of the law, using the language of burden of proof.

See 60 F.C.C.2d at 421 (“Central has long known that if it

wished to displace Cowles it would have to prove, inter alia,

that Cowles’ past performance was below average.”’)

23a 23

has been straightforward and comports at least formally

with the requirement of a “full hearing”: (1) the criteria

of diversification and integration were converted from

structural questions (challengers usually prevailed on the

simple numbers) to functional questions regarding the

consequences of other media ownership and autonomous

management (but challengers could rarely show injury to

the public service) ;* (2) a finding of “substantial,” if

not above average, past performance by the incumbent

would be given decisive weight;* and (3) other compara-

tive or designated issues favoring the challenger would

be noted, but would not be dispositive “even in conjunc-

tion with other factors,” “ unless pertaining to grievous

misconduct by the incumbent.

This usual procedure, we believe, although the Commis-

sion nowhere tells us, is essentially what occurred here.

The development of Commission policy on comparative

renewal hearings has now departed sufficiently from the

established law, statutory and judicial precedent, that the

Commission’s handling of the facts of this case make

embarrassingly clear that the FCC has practically erected

a presumption of renewal that is inconsistent with the

full hearing requirement of § 309(e).

A. The Designated Issues.

1. The Main Studio Move.

The Commission was amply supported in its finding

that Cowles moved its main studio from Daytona Beach

to Orlando, in violation of FCC regulations. The Com-

mission concluded, however, that this violation was miti-

*2 See pp. 26-30, 33-35 infra.

3 See pp. 35-38 infra.

* See pp. 17-18 supra.

24 24a

gated by two factors: (1) the move was not effected in

“deliberate definance” of FCC rules; and (2) Central

made no showing that service to Daytona had suffered

as a result of the de facto move. Consequently, Cowles

was given a “slight demerit” for its violation. Apparently

even this would overstate the Commission’s reaction, for

in its original order it appeared to give the violation no

weight at all.*

Admittedly, the choice of remedies and sanctions for

violations of Commission rules “is a matter wherein the

Commission has broad discretion.” ** Moreover, in exer-

cising that discretion the Commission is free to consider

mitigating factors. But the Commission is not free wholly

to disregard violations of its rules. Moreover, we find

neither of the “mitigating” factors relied on by the Com-

mission in this case to be persuasive.

First, while a showing of harm occasioned by the vio

lation would be relevant to the severity of the sanction

imposed, the failure to show injury hardly excuses a plain

violation. The regulation here involves a presumption

that it is bad to have the main studio located—or slyly

relocated—other than in the principal community. The

** The Commission apparently thought the unlawful studio

move relevant only to the issue of best practicable service, and

having found that the move had not been shown to injure

service, concluded that Cowles’ distinct preference on the

service issue was unimpaired, 60 F.C.C.2d at 422. It is some-

what unclear from the Commission’s restatement of the over-

all balance in its subsequent order whether or not the viola-

tion was a demerit per se, 62 F.C.C.2d at 958, but it is in any

case plain from its earlier discussion of the mitigating fac-

tors, see p. 15 and note 44 supra, that the violation was given

very little weight.

* Lorain Journal Co. v. FCC, 351 F.2d 824, 831 (D.C. Cir.

1965), cert. denied, 383 U.S. 967 (1966). See also Greater

Boston Television Corp. Vv. FCC, 444 F.2d at 861.

~ +» niall

.

ee .

25a 25

rule would be substantially undercut if a party relying

on it were forced in each case to show that the move did

in fact injure the quality of service.

Second, we fail to see how Cowles’ violation is “miti-

gated” by the fact that its conduct may not have been

nefarious. Obviously Cowles moved its principal opera-

tions little by little; and it is well-settled that people are

held to intend the obvious consequences of their acts.

Further, Cowles is chargeable. with knowledge of the

main studio regulation. Thus, we are left with an in-

tentional violation of a Commission rule. Of course, if

Cowles had acted in bad faith, that might aggravate its

violation; but the mere absence of bad faith cannot miti-

gate it.

On remand, the Commission should reconsider what

weight to accord Cowles’ plain violation of an FCC rule.

2. The Mail Fraud Issue.

We have two difficulties with the Commission’s treat-

ment of the PDS matter. First, it appears from the

record that there were at least two persons who were °

principal officers both of Cowles and of each of the five

PDS subsidiaries.” Neither the ALJ nor the Commission

*7 Marvin C. Whatmore is the Treasurer of Cowles and the

President of CCI. See Initial Decision { 116, J.A. at 116. The

record shows that he is also the Senior Vice President and a

Director of Home Reader Service, Inc., J.A. at 708; a Vice

President and Treasurer of Mutual Readers League, Inc.,

J.A. at 744; a Vice President of Home Reference Library,

Inc., J.A. at 784; a Vice President, Treasurer, and a Direc-

tor of Civic Reading Club, Inc., J.A. at 820; and a Vice

President and a Director of Educational Book Club, Inc.,

J.A. at 878.

The record shows that John F. Harding was Secretary of

Cowles, and the Executive Vice President and General Coun-

sel of CCI. See Initial Decision J 116, J.A. at 116. Additionally,

he was a Vice President and the Secretary of Home Reader

26 26a

made findings concerning these common officers. In light

of this uncontradicted evidence it is plain that the Com-

mission’s finding that there was no connection between

Cowles and the PDS companies apart from common own-

ership by CCI is unsupportable. On remand the Commis-

sion will have to reconsider its findings and, if appro-

priate, consider the relevance of wrong-doing by a related

corporation sharing principal officers with the licensee.

Second, while not unmindful of the time already oc-

cupied exploring this matter, we are troubled by appel-

lant’s contentions that the inquiry was curtailed in cer-

tain material respects. Specifically, Central argues (1)

that the ALJ erroneously quashed subpoenas requiring

the testimony of the postal inspectors conducting the mail

fraud inquiry;* and (2) that it was error not to inquire

into proceedings involving similar allegations being con-

ducted by the Federal Trade Commission and various

states.** As we are unable to decide these claims on the

record before us, it will be appropriate on remand for

the Commission to review the pertinent rulings by the

ALJ to determine if any were prejudicial to a full and

fair inquiry.

B. Standard Comparative Issues.

1. Diversification.

The effect of the Commission’s reconstruction of the

diversification criteria is obvious in its belittling of Cen-

Service, Inc., J.A. at 716; a Vice President and Secretary of

Mutual Readers League, Inc., J.A. at 744; a Vice President and

Secretary of Home Reference Library, Inc., J.A. at 784; a Vice

President, Secretary and a Director of Civic Reading Club,

Inc., J.A. at 820, 823; and a Vice President, Secretary and a

Director of Educational Books Club, Inc., J.A. at 873, 876.

“ Brief of Appellant at 22-23.

* Id. at 20-21.

27a 27

tral’s advantage there. Because of its lack of other media

interests, as contrasted with those of Cowles, Central was

found by the ALJ and the Commission to have a “clear

advantage” and was consequently accorded a “clear pref-

erence.” However, the Commission found that the signifi-

cance of the “clear preference” was reduced by several

factors and that, in the end, the preference was “of

little decisional significance.” *°

We fail to see how a “clear preference” on a matter

which the Commission itself has called a “factor of pri-

mary significance” can fairly be of “little decisional

significance.” We should have thought the relevance of

unconcentrated media ownership to the public interest

inquiry was well-settled. We said—and rather plainly

-said—in Citizens that:

the Commission simply cannot make a valid public

interest determination without considering the extent

to which the ownership of the media will be con-

centrated or diversified by the grant of one or

another of the applications before it.”

In light of this the Commission itself has stated “what-

ever policy is developed [in the future] will take into

account diversification as a factor that must be con-

sidered in a comparative renewal hearing.” ™ Nor, as we

have noted, does the Commission in this case purport to

disregard the diversification factor. It merely found the

© 62 F.C.C.2d at 957.

" Citizens Communication Center v. FCC, 447 F.2d at 1218

n.36.

7 Second Report and Order on Multiple Ownership, 50

F.C.C.2d 1046, 1088, amended upon reconsideration, 58 F.C.C.

2d 589 (1975), aff'd sub nom. FCC V. National Citizens Com-

mittee for Broadcasting, 46 U.S.L.W. 4609 (U.S. 12 June

1978).

28 28a

applicants’ clear difference uninteresting as there was no

showing “that the dangers of concentration .. . exist in

this case.” "

Apart from the obvious unfairness of placing this novel

burden on Central without fair notice, the question arises

whether this has not seriously undercut the utility of the

diversification criterion. The brief answer must be that

it has.

There is some support for the relevance of the factors

on which the Commission relied. The 1965 Policy State-

ment did say that related media interests within the

service area were usually more important than more dis-

tant interests.”* It did not nearly say that interests out-

side the service area were unimportant. In fact, the

fairer inference, and the one more consistent with other

Commission policy,” is that related media interests any-

where in the nation are quite material.

"8 62 F.C.C.2d at 957.

™ There the Commission said that the media interests were

to be considered in light of the following schedule:

Other interests in the principal community proposed to

be served will normally be of most significance, followed

by other media interests in the remainder of the proposed

service area and, finally, generally in the United States.

1 F.C.C.2d at 394-95 (1965).

™ See Multiple Ownership of AM, FM, and Television

Broadcast Stations, 18 F.C.C. 288 (1953). These regulations

limited each person to a total of seven AM radio stations,

seven FM radio stations, and five VHF television stations

anywhere in the United States. They were upheld in United

States v. Storer Broadcasting Co., 351 U.S. 192 (1956). Of

course, it is strongly arguable that rule-making is preferable

to ad hoc license renewal proceedings as an occasion for re-

structuring the broadcast industry, see Report, supra note 4,

1 65, J.App. at 214-15, but so long as the Commission purports

to be relying on diversification as a material factor in renewal

hearings, it must do so in a reasonable manner. See p. 30 infra.

29a 29

More troubling still is the Commission’s reliance on the

autonomy which CCI accorded the local management of

Cowles. This, in conjunction with the “remoteness” of

CCI’s other media interests, led the Commission to con-

clude that there had been “no adverse effect upon the

flow of information to those persons in WESH-TV’s serv-

ice area.” Further:

We can find no evidence in the record that the

dangers of concentration, which we have character-

ized as any national or other uniform expression of

political, economic, or social opinion, exist in this

case.”®

The theory that management autonomy may satisfy the

function of diversification was wholly novel when pre-

sented to this court in Fidelity Television, Inc., v. FCC.

There we were faced with a “nothing” applicant “who

offers little more and is likely in fact to provide some-

what less than the incumbent.” " We held that the FCC

had not acted unlawfully in finding that local autonomy

met the objectives of diversification “sufficiently to with-

stand the competition of a ‘nothing’ competitor.” Whether

it would have been more appropriate in Fidelity to con-

cede the challenger’s advantage under diversification but

to conclude that that need not carry the day, is not now

before us.

In any case we are reluctant to expand the relevance

of local autonomy much beyond the facts of Fidelity for

two reasons. First, the prospect of inquiry into the con-

tent of programming as would be entailed in defining

“uniform expression” raises serious First Amendment

"6 62 F.C.C.2d at 957.

™ Fidelity Television, Inc. v. FCC, 515 F.2d at 704.

78 Td. at 705.

30 30a

questions.*’ Indeed, the Commission was sensitive to the

threat of just such intrusions when it declined to employ

quantitative program standards in comparative renewal

hearings.” Second, to require a showing of the “dangers

of concentration” in each case would remove the cus-

tomary presumption on which the structural approach to

increasing ownership diversification has rested. Given the

likely difficulties of proof in such matters, widespread

reliance on the autonomy excuse would effectively repeal

the diversification criterion.

Summarizing, we conclude that inasmuch as the Com-

mission correctly found that Central’s advantage was

“clear,” it was unreasonable then to accord the diversifi-

cation finding “little decisional significance.” On remand,

it will be appropriate for the Commission to reconsider

its conclusions in light of the following: (1) the con-

ceded relevance of diversification of media ownership in

the comparative renewal context; (2) the materiality of

related media interests anywhere in the nation; and (3)

the evident hazards of relying on local management

autonomy as a surrogate for diversification of media

ownership.

2. Best Practicable Service.

Whatever weight the Commission may have given to

Central’s advantages under the integration and minority

participation criteria, it was not enough to “outweigh”

Cowles’ unexceptional record. This puzzling result ap-

pears more bizarre as it is thought about. First we note

there was no direct inquiry into whether Central’s pro-

posed service would be “superior” or even just “sub-

7® See id, at 705, 716 (Bazelon, C.J.) (voting to grant rehear-

ing en banc). See also Alianza Federal de Mercedes v. FCC,

539 F.2d 732, 736 (D.C. Cir. 1976).

* Formulation of Policies, 66 F.C.C.2d at 426, 430.

3la 31

stantial.”” The Commission rejected that question as too

speculative, preferring to rely on those structural char-

acteristics identified in the 1965 statement." These it

supposed were less susceptible of puffery than represen-

tations concerning future programming. That is probably

correct. The fly in the analysis is that the Commission

judges incumbents largely on the basis of their broadcast

record,“ to which there will be nothing comparable on the

side of a challenger in any case. The “comparison” thus

necessarily ends up rather confused. For at the end of

a hearing the Commission is left on the one hand with

a series of comparative findings pertaining to integra-

tion, etc., and on the other hand with a wholly incom-

mensurable and noncomparative finding about the incum-

bent’s past performance. Of course the incumbent’s past

performance is some evidence, and perhaps the best evi-

dence, of what its future performance would be. But

findings on integration and minority participation are

81 See Initial Decision 9] 191-92, J.A. at 133. Thus it is

Commission practice not to designate an issue pertaining to

the challenging applicant’s proposed programming unless the

challenger makes “a prima facie showing that there are sig-

nificant differences” related to its “ascertainment of commu-

nity needs.” Chapman Radio and Television Co., 7 F.C.C.2d

213, 215 (1967). As was pointed out to us in oral argument,

in this case, Central did not request that its programming

proposals be designated for hearing.

82 At the time of the Initial Decision, the renewal applicants’

past broadcast record was the exclusive basis for predicting

its future performance. See Initial Decision { 191, J.A. at 138;

Wadeco, Inc., 41 F.C.C.2d 251 (1973). The Commission

changed its position prior to its decision in this case; although

still according primary weight to the renewal applicant’s past

record, it will also consider other comparative criteria under

the 1965 statement in comparing a renewal applicant and a

new applicant. See Belo Broadcasting Corp., 47 F.C.C.2d 540

(1974). In light of the altered practice, the Commission made

its own findings regarding Cowles’ “integration proposals,”

60 F.C.C.2d at 416.

32 , 32a

evidence as well, and are both the only evidence comparing

the applicants and also the only evidence whatsoever per-

taining to the challenger.

In a comparative inquiry evidence of past performance

is ordinarily relevant only insofar as it predicts whether

future performance will be better or worse than that of

competing applicants.“ The Commission nowhere articu-

lated how Cowles’ unexceptional, if solid, past perform-

ance supported a finding that its future service would

be better than Central’s.* In fact, as we have noted, Cen-

tra! prevailed on each of the questions supposedly pre-

dicting which applicant would better perform—the same

criteria the Commission uses for this purpose in non-

renewal comparative hearings. It is plain then that this

record will not support a finding that Cowles would give

the best practicable service.

In light of this we leave to conjecture what leap of

faith would be required to find that Cowles prevailed in

the overall inquiry. On remand, the Commission will have

to reconsider its manner of deriving a preference under

the best practicable service criterion, and if appropriate,

how such a preference should be balanced against other

factors in the more general public interest inquiry. To

8s Although this proposition is hardly apparent from Com-

mission renewal practice, see, e.g., 62 F.C.C.2d at 958 (“[W]Je

make clear that a substantial performance—i.e. sound, favor-

able—is entitled to legitimate renewal expectancies.”’), we be-

lieve that it fairly states the relevance of past performance.

Admittedly this more limited relevance will remit the Com-

mission to those 1965 comparative criteria which it finds dis-

tasteful in the renewal context. See note 58 supra. Ab-

sent statutory amendment, see note 59 supra, or promulga-

tion of other comparative criteria, e.g., Formulation of Policies,

66 F.C.C.2d at 433, 438 (separate statement of Commissioners

Hooks and Fogarty), we see no lawful alternative.

™“ Fidelity Television, 515 F.2d at 689 n.3. See also 47 C.F.R.

§§ 0.281 (a), 1.561, 1.562, and 1.591 (1977).

33a 33

avoid, if possible, further appeal in this case, we address

ourselves to more specific objections to the disposition of

the best practicable service question.

a. Integration

We confess we were unable to make sense of the Com-

mission’s treatment of the integration issue, though we

will reconstruct its language. The ALJ found that Cen-

tral’s integration proposals were “very weak.” The Com-

mission agreed, although it found Central’s showing

“somewhat stronger than that of Cowles.” The Commis-

sion then noted that the ALJ’s findings should be

amended in light of this court’s intervening TV-9 deci-

sion; it thus gave Central a “merit” for its proposed

black participation. Pre-figuring the outcome, the Com-

mission said that the “merit” and the “slight preference”

(for integration) were insufficient to outweigh the fac-

tors in Cowles’ favor under the best practicable service

criterion. Oddly, four paragraphs later the Commission

rethought the integration matter and decided that

“neither is entitled to a preference”—not even a slight

one—though Central was entitled to a “merit.” * Odder

still, this “merit” (distinct from the TV-9 merit) is

never heard of again.”

More troubling is the manner by which Central’s inte-

gration “preference” became a “merit.” In a way wholly

analogous to the diversification question, the Commission

replaced the customary integration criterion (under

which Cowles faired miserably, being absentee-owned by

CCI) with a functional inquiry into whether manage-

ment autonomy had been an adequate surrogate for

8° 60 F.C.C.2d at 416.

8* Leading the cynical to suggest that the only difference

between a “preference” and a “merit” is that the latter may be

misplaced without embarrassment.

34 34a

owner-management.” Unsurprisingly, the Commission

concluded that on this record it had. This permitted it to

conclude “that the integration proposals of both appli-

cants are substantially similar.” * Mildly put, this finding

is incredible if anything remains of the customary inte-

gration criterion.

This further repeal of the 1965 standards again derives

some support from our opinion in Fidelity.*’ Like the re-

constructed diversification analysis, the notion of func-

tional integration was novel when presented in that case,

and we have already recounted the special circumstances

presented there. It may well have seemed, recalling the

court’s characterization of Fidelity as a “nothing” appli-

cant, that the modifications of the 1965 criteria left the

substance of the comparative hearing unimpaired. On the

facts of this case, the same cannot be said. The Com-

mission’s treatment of the integration criterion, in light

of its treatment of diversification and Cowles’ past per-

formance, has denied Central the substance of its right

to a full hearing, and is ipso facto unreasonable. The

Commission may not, comfortably with the hearing man-

date of § 309(e), practically abandon the 1965 criteria

without providing an alternate scheme affording a thor-

ough and intelligible comparison. On remand, the Com-

mission will have occasion to reconsider its findings on

the integration issue.

*' 60 F.C.C.2d at 415, 416. In finding this ersatz integration

enhanced by local management’s civic interests, the Commis-

sion seems to be running headlong into itself, see Lorain Com-

munity Broadcasting Co., 18 F.C.C.2d 106, 109-10 (Rev. Bd.

1968) ; Report, supra note 4, { 25, J.A. at 189, although to be

sure it has done so before with this court’s pardon. See Fidelity

Television, Inc. v. FCC, 515 F.2d at 701.

** 60 F.C.C.2d at 416.

* Fidelity Television, Inc. v. FCC, 515 F.2d at 700-01.

35a 35

b. Cowles’ Past Performance

For anyone who remained hopeful that Central’s now-

shrunken advantages would carry the day, the treatment

of Cowles’ past performance was plainly the coup de

grace, The Commission recharacterized as “superior” the

record which the ALJ had found “thoroughly acceptable.”

Evidently, the Commission felt that a recitation of the

idiom in Citizens would permit it to recognize Cowles’

“renewal expectancy.” If that were correct, we might

be more inclined to resist the Commission’s characteri-

zation.” However, a finding of “superior” service is not

* Chairman Wiley was similarly skeptical about the “su-

periority” of Cowles’ performance. Dissenting from the Com-

mission’s first order, 60 F.C.C.2d at 480, the Chairman con-

cluded that Cowles’ “thoroughly acceptable” performance was

“insufficient to offset [its] disadvantage under the other com-

parative criteria.” Jd. at 431. Then in light of the Commis-

sion’s subsequent opinion, Chairman Wiley concurred in the

renewal, predicated now on a more modest characterization of

Cowles’ performance:

In its original opinion, the majority adopted the re-

quirement of “superior service” as set forth in dictum in

Citizens Communication Center v. FCC. I dissented to

this determination on the grounds that WESH-TV’s

service, while “thoroughly adequate” so as to justify re-

newal under any rational renewal system, was simply not

“superior.” On reconsideration, the majority now articu-

lates the required standard of service as “solid and favor-

able” (as opposed to superior in terms of exceptional or

of the highest possible level).

As indicated, I did not—and do not now—find Cowles’

service to be superior (in the sense of exceptional). How-

ever, I did—and do now—find that service to be suffi-

ciently substantial (in the sense of solid and favorable) to

Warrant renewal. Accordingly, given the majority’s

clarification of intent, I find myself able to concur in this

matter.

62 F.C.C.2d at 958-59 (emphasis added). Although the Com-

mission majority in its clarification, did not expressly find that

36 36a

an end to the inquiry; it is rather, as we stated in

Citizens, a “plus of major significance” to be factored

into the comparative analysis. In its reconsideration, the

Commission resisted general use of the word “superior”

preferring the word “substantial” to describe records

such as Cowles’. This the Commission felt would not

“convey the impression that . . . past programming was

exceptional when compared to other broadcast stations in

service area or elsewhere.” ™ If by this the Commission

means either (1) that “substantial” service will justify

renewal more or less without regard to comparative

issues;** or (2) that “substantial” performance which

is not above the average is entitled to “a plus of major

significance,” “ it is plainly mistaken. We emphasize that

Cowles’ performance was not superior, it did decline t» find

that it was superior in the sense of being exceptional. 62

F.C.C.2d at 956. It being conceded that Cowles’ record was not

exceptional, we have no quarrel with the Commission’s assess-

ment, which is amply supported. See 60 F.C.C.2d at 421.

™ 62 F.C.C.2d at 956.

* This inference is inescapable in light of the Commission’s

numerous statements in this case, e.g., 60 F.C.C.2d at 421-22;

62 F.C.C.2d at 956, 958; and elsewhere. E.g., Formulation of

Policies, 66 F.C.C.2d at 430.

The Commission is not unwitting of its error. It has re-

cently recalled (not in a renewal proceeding to be sure) that

this court has proscribed just such noncomparative renewal

decisions. See Report, supra note 4, { 79, J.A. at 222.

** As the Commission finds substantial service, without

more, to be dispositive, it has no occasion to make the some-

what less erroneous determination merely to accord its finding

excessive weight. We have previously described the quality of

performance entitled to “a plus of major significance:”

We used the word “superior” in its ordinary dictionary

meaning: “far above the average.” Webster’s New World

Dictionary 1463 (college ed. 1968). And we suggested

specific criteria for use in determining whether an in-

cumbent had performed in a “superior” manner, includ-

37a 37

lawful renewal expectancies are confined to the likelihood

that an incumbent will prevail in a fully comparative in-

quiry. “Superior” or above average past performance 1s,

of course, highly relevant to the comparison, and might be

expected to prevail absent some clear and strong showing

by the challenger under the comparative factor (either

affirmative bearing on the challenger’s projected program

performance, or negative regarding the incumbent’s

media ties or perhaps discovered character deficiencies)

or other designated issues.“ But we do not see how

performance that is merely average, whether “solid” or

not, can warrant renewal or, in fact, be of especial rele-

vance without some finding that the challenger’s per-

formance would likely be no more satisfactory.”

On remand, the Commission will have occasion to re-

consider its characterization of Cowles’ past performance

ing (1) elimination of excessive and loud advertising;

(2) delivery of quality programs; (3) the extent to which

the incumbent has reinvested the profit from his license

to the service of the viewing and listening public; (4)

diversification of ownership of mass media; and (5) inde-

pendence from government influence in promoting First

Amendment objectives.

Citizens Communication Center v. FCC, 463 F.2d 822, 823

(D.C. Cir. 1972), clarifying Citizens Communication Center,

447 F.2d 1201 (D.C. Cir. 1971). Because the Commission did

not purport to find Cowles’ performance superior, see note 90

supra, we have no occasion to review its conformance with

our second Citizens opinion.

% See Citizens Communication Center v. FCC, 447 F.2d at

12138.

*.This case does not raise the question whether, between

equally qualified applicants, the renewal applicant lawfully

may be preferred on the basis of a renewal expectancy. £.g.,

Fidelity Television, Inc. v. FCC, 515 F.2d at 702. We con-

template that such instances of equipoise will be exceedingly

rare if the Commission seriously undertakes a full comparison.

38 38a

and to articulate clearly the manner in which its findings

are integrated into the comparative analysis.

III. CONCLUSION

We remand this case in light of our abiding conviction

that the Commission’s order is unsupported by the record

and the prior law on which it purported to rely. We are

especially troubled by the possibility that settled prin-

ciples of administrative practice may be ignored because

of the Commission’s insecurity or unhappiness with the

substance of the regulatory regime it is charged to en-

force. Nothing would be more demoralizing or unsettling

of expectations than for drifting administrative adjudi-

cations quietly to erode the statutory mandate of the

Commission and judicial precedent.

Orders vacated and case

remanded for proceedings

consistent with this opinion.

oS ee

SS ——— ee —————eEeee ———————

— ————

39a

APPENDIX B

Notice: This opinion is subject to formal revision before publication

in the Federal Reporter or U.S.Anp.D.C. Reports. Users are requested

to notify the Clerk of any formal errors in order that corrections may be

made before the bound volumes go to press.

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

September Term, 1978

No. 76-1742

CENTRAL FLORIDA ENTERPRISES, INC., APPELLANT

V.

FEDERAL COMMUNICATIONS COMMISSION, APPELLEE

COWLES BROADCASTING, INC., INTERVENOR

Before: ROBINSON and WILKEY, Circuit Judges, and

FLANNERY,* Judge, United States District Court for the

District of Columbia.

Filed 12 January 1979

ORDER

Upon consideration of the petition for rehearing filed

herein by appellee Federal Communications Commission,

and of the further memorandum of said appellee filed

herein on December 11, 1978, at the request of the Court,

as supplemented by appellee on December 13, 1978, it is

* Sitting by designation pursuant to 28 U.S.C. § 292(a).

Bills of costs must be filed within 14 days after entry of judgment. The

court looks with disfavor upon motions to file bills of costs out of time.

2 40a

ORDERED, by the Court, sua sponte, that the Opinion

for the Court, filed herein on 25 September 1978, be, and

it hereby is, amended as follows:

(a) On page 7 of the slip opinion, strike the last

four lines of text and substitute in lieu thereof the

following:

Despite the language in Citizens, it is fair to say that

the law governing comparative renewal proceedings re-

mained unclear. Although Ashbacker had said a chal-

lenger could not be denied a hearing and Citizens appar-

ently assured some kind of substantive comparison, the

nature of the inquiry and the pertinence of “renewal

expectancies” was left uncertain.

As an original matter, of course, a “renewal expect-

ancy” could be shorthand for any of several plausible

theories of the publie interest standard contained in sec-

tion 309. For example, expectations could be confined to

the likelihood that an incumbent would prevail under the

customary 1965 criteria without any special regard for

the quality of its past performance one way or the other.

It would hardly be sensible, however, to ignore the past,

for it affords the “best evidence” of what the incumbent’s

future performance will be, and it has never been the

Commission’s practice to do so. Conceding therefore, that

an incumbent's past performance is highly relevant, an

incumbent with a meritorious record would possess

a natural advantage insofar as its actual performance

made its proposals more credible than the “paper prom-

ises” of a challenger. Some such comparative assessment

of likely performances would, in fact, seem inescapable.

It would then follow naturally from discounting the

promises of challengers that incumbents would prevail

more often, thereby assuring more “continuity” in the

industry. The certainty thus afforded a meritorious in-

cumbent through its natural comparative advantage may

in turn induce it to commit enough resources to perpetu-

4la 3

ate its quality of service. An expectation raised by the

probability of prevailing in the overall inquiry is, of

course, fully compatible with the comparison assured by

section 309.

We understand the Commission’s present idea of re-

newal expectancies may be more expansive—that an “ex-

pectancy” may be generated by something less than or

different from more meritorious service. An incumbent is

said entitled to expect renewal if it has “served the public

interest in . . . a substantial manner.” Apparently, a

“substantial” past record would be a factor weighed in

the incumbent’s favor irrespective of which applicant

were predicted to perform better in the future. Such an

entitlement would be provided to promote security directly

and to induce investment which otherwise may not be

made. Whether and in what manner placing such a

thumb on the balance in an otherwise comparative in-

quiry may be reasonable are, we think, open and difficult

questions.

In a number of cases before and after Citizens this

court has had occasion to refer to renewal expectancies

without much inquiry into the notion’s content. Thus,

in dictum in Greater Boston Television Corp. v. FCC, we

observed there were “legitimate renewal expectancies im-

plicit in the structure of the Act.” We said that “such

expectancies are provided in order to promote security of

tenure and to induce efforts and investments, furthering

the public interest.* In 1975, in our Fidelity Television

opinion, confronted with a weak licensee and a weak

contender, both only “minimally acceptable applicants,”

we said “when faced with a fairly and evenly balanced

record, the Commission may on the basis of the renewal

applicant’s past performance, award him the license.” *

24 444 F.2d at 554.

25 515 F.2d at 702.

4 42a

Finally, last term the Supreme Court observed, in the

context of reviewing the FCC’s regulations barring cer-

tain newspaper-broadcast combinations, that industry

stability has consistently been a concern in comparative

renewal procedings. It said:

In the past, the Commission has consistently acted

on the theory that preserving continuity of meritori-

ous service furthers the public interest, both in its

direct consequence of bringing proven broadcast

service to the public, and in its indirect consequence

of rewarding—and avoiding losses to—licensees who

have invested the money and effort necessary to pro-

duce quality performance. Thus, although a broad-

cast license must be renewed every three years, and

the licensee must satisfy the Commission that re-

newal will serve the public interest, both the Com-

mission and the courts have recognized that a li-

censee who has given meritorious service has a

‘legitimate renewal expectanc[y]’ that is ‘implicit in

the structure of the Act’ and should not be destroyed

absent good cause. Greater Boston Television Corp.

v. FCC, —— U.S.App.D.C. ——, 447 F.2d 841, 845

(1970), cert. denied, 403 U.S. 923 (1971) ; see Citi-

zens Communications Center v. FCC, —— U.S. App.

D.C. ——, 447 F.2d. 1201, 1213 and n.35 (1971);

Formulation of Policies Relating to the Broadcast

Renewal Applicant, Stemming From the Compara-

tive Hearing Process, [66 F.C.C.2d at 420].?°

Thus, although not a precise concept, renewal expectan-

cies derived from “meritorious service” (to use the Su-

preme Court’s terminology) are a natural aspect of the

public interest inquiry carried on under section 309(e).

Moreover, “the weighing of policies under the ‘public

7° FCC v. National Citizens Committee for Broadcasting,

46 U.S.L.W. 4609, 4617 (U.S. 12 June 1978) (footnotes

omitted)

43a 5

interest’ standard is a task that Congress has delegated

to the Commission in the first instance.” ”

(b) On page 8 and on the following pages of the

slip opinion, footnotes 24 through 95, inclusive, are

renumbered footnotes 28 through 99, respectively.

(ce) On page 21 of the slip opinion, strike the first

sentence of renumbered footnote 64 (formerly foot-

note 60).

(d) On page 28 of the slip opinion, add to re-

numbered footnote 77 (formerly footnote 73), im-

mediately after the period which follows the number

“957,” the following:

In setting aside the Commission’s disposition of the

diversification issue, we have taken the Commission’s

assumption as our own that the matter is relevant to a

comparative renewal inquiry. See 62 F.C.C.2d at 956-57;

60 F.C.C.2d at 422; note 76 supra; cf. FCC v. National

Citizens Committee for Broadcasting, 46 U.S.L.W. at

4617. We thus confine our objections to the manner in

which the Commission analyzed the concededly relevant

factor, not intending to prescribe the weight which the

Commission generally should accord media concentration

in the context of comparative renewal hearings. See FCC

v. National Citizens Committee for Broadcasting, 46

U.S.L.W. at 4617, 4618.

And it is

FURTHER ORDERED, by the Court, that appellee’s

petition for rehearing is denied, for the reasons set forth

in the per curiam panel opinion on rehearing filed herein

this date.

Per Curiam

27 Td, at 4618.

44a

APPENDIX C

Notice: This opinion is subject to formal revision before publication

in the Federal Reporter or U.S.App.D.C. Reports. Users are requested

to notify the Clerk of any formal errors in order that corrections may be

made before the bound volumes go to press.

Yuited States Cianart of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

No, 76-1742

CENTRAL FLORIDA ENTERPRISES, INC., APPELLANT

Vv.

FEDERAL COMMUNICATIONS COMMISSION, APPELLEE

COWLES BROADCASTING, INC., INTERVENOR

On Petition for Rehearing

Filed 12 January 1979

Before: ROBINSON and WILKEY, Circuit Judges, and

FLANNERY,” Judge, United States District Court for the

District of Columbia.

Opinion Per Curiam.

* Sitting by designation pursuant to 28 U.S.C. § 292(a).

Bills of costs must be filed within 14 days after entry of judgment. The

court looks with disfavor upon motions to file bills of costs out of time.

-—-+--—— —-- + on oe

45a 2

The FCC and intervenors in this matter seek a re-

hearing, complaining inter alia that our opinion disre-

gards the “legitimate renewal expectancies implicit in

the structure of the [Communications] Act.” * In light

of the ambiguity of the phrase “renewal expectancies”

and the frequency with which they are asserted to in-

sulate an incumbent from license challenge, we think

some clarification is called for, both generally aiid inso-

far as such an expectation may have been undercut in

this case.

The content of the comparative proceeding at issue was

governed by the Commission’s 1965 Policy Statement; *

however, the weight to be given findings under the vari-

ous criteria was, as in all renewal proceedings, dependent

upon the particular facts of the case.* The Commission

renewed the incumbent’s license after a hearing. It sum-

marized as follows its rationale for doing so:

Our conclusions in this regard do not mean—or

suggest—that a challenger is denied an opportunity

to show that a grant of his application will better

serve the public interest. They do mean thai a chal-

lenger is in a less favorable position, however, be-

cause he asks the Commission to speculate whether

his untested proposal is likely to be superior to that

of an incumbent. The Commission—and the Court—

have consistently recognized that a record of past

programming performance is the very best indica-

tion of future performance. It is for this reason

that we make clear that a substantial performance—

1 FCC Petition for Rehearing at 9 (citing Greater Boston,

444 F.2d at 854).

21965 Policy Statement on Comparative Broadcast Hear-

ings, 1 F.C.C.2d 398 (1965).

* See Central Florida Enterprises, Inc., No. 76-1742 (D.C.

Cir. 25 Sept. 1978), slip op. at 6; Seven (7) League Produc-

tions, Inc., 1 F.C.C.2d 1597, 1598 (1965) ; see also Belo Broad-

casting Corp., 47 F.C.C.2d 540, 548-44 (1974).

3 46a

i.e. sound, favorable—is entitled to legitimate re-

newal expectancies. Under the circumstances here,

this consideration is decisive. Central’s preference

under the diversification criterion is of little deci-

sional significance and Central is entitled to no pref-

erence under the integration criterion. These factors,

even considering Cowles’ slight demerit for the studio

move and Central’s merit for the Black ownership it

proposes definitely do not outweigh the substantial

service Cowles rendered to the public during the last

license period.*

We set aside the renewal. Our principal reason for

doing so was that the Commission’s manner of “balanc-

ing” its findings was wholly unintelligible,’ based, it was

said, on “administrative ‘feel.’”* Admittedly, licensing

in the public interest entails a good many discretionary

choices, but even if some of them rest inescapably on

agency intuition (not a comfortable idea) ,’ we may at

*62 F.C.C.2d at 958 (emphasis original).

* Slip op. at 20.

* 60 F.C.C.2d at 422.

*As Judge Leventhal said, dissenting to an affirmance of

an FCC comparative hearing award in Star Television, Inc.

v. FCC, 416 F.2d 1086, 1089, 1094-95 (D.C. Cir.), cert. denied,

396 U.S. 888 (1969) :

I frankly put to myself this question, Should the courts

continue to adhere to the approach of requiring the

agency to develop a meaningful statement of reasons for

a function like this, of choosing the best qualified among

several competing applicants? Maybe an agency cannot

meaningfully say more than why it screens out those ap-

plicants who fall by the wayside due to ‘demerits’ in some

prominent category, or who are plainly second best for

some reason. Maybe all it can do as to the other applicants

is say: These applicants are all reasonably qualified; we

have no meaningful way of choosing on principle between

them; all we can really do is speculate who will do the

best job in the public interest; and our best possible

47a 4

least insist that they do not contradict whatever rules

for choosing do exist. We think it plain that the Com-

mission violated the rules. In our opinion we observed:

the Commission purported to be conducting a full

hearing whose content is governed by the 1965 Policy

Statement. It found favorably to Central on each of

diversification, integration and minority participa-

tion, and adversely to Cowles on the studio move

question. Then simply on the basis of [a] wholly

noncomparative assessment of Cowles’ past perform-

ance as “substantial,” the Commission confirmed

Cowles’ “renewal expectancy.” *

The dispositive question is, of course, the relevance of the

incumbent’s past performance. We thought it relevant

“only insofar as it predicts whether future performance

will be better or worse than that of competing appli-

cants.” * From much of the Commission’s language (apart

from its holding), it appeared to agree. We understand,

of course, that it does not." If we were correct, the

Commission’s decision cannot stand, for as we noted:

Of course the incumbent’s past performance is some

evidence, and perhaps the best evidence, of what its

hunch is X. I believe Justice Frankfurter has applied to

the concept of administrative expertise the phrase of

Justice Holmes concerning intuition that outruns analysis.

The possibility that an agency may come to the point of

resting on intuition is all the greater when it is recalled

that there are no doctrines of burden of proof such as

are available for decision of court cases when the proof

stands in equipoise.

* Slip op. at 20.

® Slip op. at 32.

10 See, e.g., 62 F.C.C.2d at 958 (“‘[A] challenger is in a less

favorable position, however, because he asks the Commission

to speculate whether his untested proposal is likely to be

superior to that of an incumbent.”) (emphasis origina!)

11 See FCC Petition for Rehearing at 7.

5 48a

future performance would be. But findings on inte-

gration and minority participation are evidence as

well, and are both the only evidence comparing the

applicants and also the only evidence whatsoever per-

taining to the challenger.

. . The Commission nowhere articulated how

Cowles’ unexceptional, if solid, past performance sup-

ported a finding that its future service would be

better than Central’s. In fact, as we have noted,

Central prevailed on each of the questions supposedly

predicting which applicant would better perform—

the same criteria which the Commission uses for this

purpose in non-renewal comparative hearings. It is

plain then that this record will not support a finding

that Cowles would give the best practicable service.”

However, there is the possibility that an incumbent’s

meritorious record had literally untold significance. If it

were given enough weight (entirely apart from predict-

ing the future), as, for example, to assure industry

stability, the incumbent could conceivably prevail even

were the challenger otherwise thought the better appli-

cant. There are probably many policies, more or less in-

ferable from the “public interest” which might be bal-

anced together with the predicted quality of program-

ming.** We understand the Commission, in pressing re-

newal expectancies, to be concerned with the disincentive

effects of uncertainty. It argues in its petition for

rehearing:

Moreover, under the panel’s ruling, substantially-

performing incumbents are deprived of the “renewal

expectancies” which this Court in Greater Boston

viewed as “ordinary”, “legitimate”, and “implicit in

the structure of the Act.” As the Court there ex-

12 Slip op. at 31, 32 (emphasis original).

18 Diffusion of media ownership is in some sense such a

policy.

ee

49a 6

plained, ‘such expectancies are provided in order to

promote security of tenure and to induce efforts and

investments, furthering the public interest, that may

not be devoted by a licensee without reasonable se-

curity.” Pursuant to these expectancies a ‘“‘substan-

tial” or “meritorious” past record is a relevant factor

to be weighed in the incumbent’s favor. In this sense,

a “meritorious” past record deserves appropriate

weight in the overall “public interest” determination,

irrespective of the predictive value of past perform-

ance and, contrary to the panel’s view (slip op. at

37), irrespective of any finding concerning the chal-

lenger’s likely future performance.

This, we admit, appears at least a plausible construction

of the “public interest.”

The trouble is, apart from several unenlightening re-

citals that there are expectations implicit in the Act,

there were few intimations that this was the Commis-

sion’s inchoate rationale. Of course, even had we

guessed, we could not have sustained the Commission by

further speculating about the weight constructively given

4 FCC Petition for Rehearing at 7 (footnotes omitted).

15 See, e.g., 60 F.C.C.2d at 422; 62 F.C.C.2d at 958. The FCC

also suggests in its Petition for Rehearing, at 6, that our

opinion precludes it from taking account of the natural “‘credi-

bility” of even an “average incumbent’s” proposals derived

from the “common sense logic that substantial past perform-

ance is the most dependable indicator of substantial future

performance.” This is incorrect. We said ‘“‘we do not see how

performance that is merely average, whether ‘solid’ or not,

can warrant renewal or, in fact,”be of a special relevance

without some finding that the challenger’s performance would

likely be no more satisfactory.” Slip op. at 37. We plainly

contemplated that the Commission would consider the likeli-

hood of applicants effecting their proposals, as would be only

sensible.

7 50a

the incumbent’s past performance. Nor may we review

a rationale presented for the first time in this court.”

The place for a.new rationale in this case, if one is to be

logically developed, is on remand. Moreover, if through

rule-making or adjudication the Commission decides to

accord weight to such non-comparative values as industry

stability, it will have to do so in a manner that is suscepti-

ble of judicial review. This would seem to require that

the Commission describe with at least rough clarity how

it takes into account past performance, and how that

factor is balanced alongside its findings under the com-

parative criteria. Although mathematical precision is, of

course, impossible, something more than the Commission’s

‘* Thus, conclusory references to the need for industry

stability are hardly a substitute for the statutorily mandated

and particularized balancing.

'* See SEC v. Chenery Corp., 318 U.S. 80, 87-89 (1943),

United States Lines, Inc. v. Federal Maritime Commission,

No. 76-2004 (D.C. Cir. 28 July 1978), slip op. at 26 & n.43.

'’ We recall that the Commission’s license to define the

public interest, although broad, is not unbounded. See NAACP

v. FPC, 425 U.S. 662, 669 (1976) (“the use of the words

‘public interest’ in a regulatory statute is not a broad license

to promote the general public welfare,” instead these words

“take meaning from the purposes of the regulatory legisla-

tion”). Apart from the obvious limitations imposed by its

subject matter jurisdiction, see National Organization for

Women v. FCC, 555 F.2d 1002, 1017 (D.C. Cir. 1977), there

may be subtler constraints “implicit in the structure of the

Act.” The Communications Act is very clear that “no...

license shall be construed to create any right, beyond the

terms, conditions, and periods of the license.” 47 U.S.C. § 301

(1976). The Act’s disfavor of vested license rights reflects

the need, which has long informed the public interest standard

as well, for “diverse and antagonistic sources of information.”

Citizens Communications Center v. FCC, 447 F.2d 1201, 1213

n.36 (1971). The point at which a renewal expectation would

become an impermissible vested property right is a worri-

some question about which we intimate no view.

5la 8

customary recitals, “completely opaque to judicial re-

view,” must be provided. The choice of procedures through

which an intelligible analysis could be composed is, as we

have said, for the Commission.

Since the FCC petition for rehearing displayed a cer-

tain agitated concern that our decision in this case would

destroy legitimate renewal expectancies of licenseez, with

baleful commercial consequences and harm to the general

public, we thought it relevant to inquire of the Commis-

sion as to just how strong those renewal expectancies

have been in the past, based on the action actually taken

by the Commission and reviewing court.

The history of comparative renewal proceedings since

1 January 1961 (the date from which the data was re-

quested) discloses that incumbents rarely have lost, and

then only because they were disqualified on some non-

comparative ground. From 1961 to 1978 the Commission

has conducted seventeen comparative television license

renewal proceedings, seven of which are still pending.”

In only two cases did the incumbent lose its license,” and

in neither of those cases were the comparative criteria

the grounds of decision. In one case the incumbent was

disqualified because of its fraudulent conduct,” and in

19 Letter of Daniel M. Armstrong, Associate General Coun-

sel, Federal Communications Commission, to George A. Fisher,

Clerk, United States Court of Appeals, District of Columbia

Circuit, 11 December 1978.

20 This does not include the much-publicized case of WHDH-

TV, Boston, Massachusetts, which was treated as though it

were a comparative proceeding between “new” applicants.

See Greater Boston Television Corp. v. FCC, 444 F.2d 841

(1970), cert. denied, 403 U.S. 923 (1971).

= Western Communications, Inc. (KORK-TV), Las Vegas,

Nevada, 59 F.C.C.2d 1441 (1976), reconsideration denied, 61

F.C.C.2d 974, aff’d. in part and rev’d and remanded in part

sub nom., Las Vegas Broadcasting Co. v. FCC, Nos. 76-2104

9 52a

the other the incumbent failed to pursue its renewal ap-

plication, so the challenger won by default.”

The story is not much different in radio licensing. No

license has been denied on a comparative basis.*

Plainly, incumbents can “expect” in a statistical sense

that their license will be renewed. We doubt that any

realistic appraisal of the remand in this single case,

calling upon the Commission to perform its duty in accord

with its own expressed standards, could reasonably create

the nervous apprehension among licensees claimed by the

Commission. The only legitimate fear which should move

licensees is the fear of their own substandard perform-

ance, and that would be all to the public good.

and 76-2124 (D.C. Cir., 26 October 1978) (affirming the denial

of renewal but reversing the disqualification of the challen-

ger).

22 Gerico Investment Co., 31 F.C.C. 625 (1961).

* From 1961 to 1978 there were thirty-one comparative

radio renewal proceedings, twelve of which are still pending.

No incumbent radio licensee has been displaced on the basis

of the comparative criteria. Three licensees were disqualified

for misconduct, five other renewal applications were dis-

missed, and the challengers’ applications granted. See letters

of Daniel M. Armstrong, Associate General Counsel, Federal

Communications Commission, to George A. Fisher, Clerk,

United States Court of Appeals, District of Columbia Circuit,

11 and 18 December 1978.

53a

APPENDIX D

Notice: This opinion is subject to formal revision before publication

in the Federal Reporter or U.S.App.D.C. Reports. Users are requested

to notify the Clerk of any formal errors in order that corrections may be

made before the bound volumes go to press.

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

September Term, 1978

No. 76-1742

CENTRAL FLORIDA ENTERPRISES, INC., APPELLANT

Vv.

FEDERAL COMMUNICATIONS COMMISSION, APPELLEE

COWLES BROADCASTING, INC., INTERVENOR

Before: WRIGHT, Chief Judge, BAZELON, MCGOWAN,

TAMM, LEVENTHAL, ROBINSON, MACKINNON, ROBB and

WILKEY, Circuit Judges.

ORDER

Suggestions for rehearing en banc filed by appellee

Federal Communications Commission and by intervenor

Cowles Broadcasting, Inc., having been transmitted to the

full court and no judge having requested a vote on these

suggestions, it is

ORDERED, by the Court, en banc, that the suggestions

filed by appellee and by intervenor are denied.

Per Curiam

Bills of costs must be filed within 14 days after entry of judgment. The

court looks with disfavor upon motions to file bills of costs out of time.

54a

APPENDIX E

Before the

FEDERAL COMMUNICATIONS COMMISSION

Washington, D.C. 20554 FCC 73D-62

12035

In re Applications of:

DOCKET NO. 19168

File No. BRCT-354

COWLES FLORIDA

BROADCASTING, INC.

(WESH-TV)

Daytona Beach, Florida

For renewal of license

DOCKET NO. 19169

File No. BPCT-4158

COWLES FLORIDA .

BROADCASTING, INC.

(WESH-TV)

Daytona Beach, Florida

For modification of

authorized facilities

CENTRAL FLORIDA

ENTERPRISES, INC.

Daytona Beach, Florida

DOCKET NO. 19170

File No. BPCT-4346

me me ee ee ee ee eee

For a construction permit

Appearances

Robert A. Marmet, Gordon R. Malick and Jacob A.

Stein on behalf of Cowles Florida Broadcasting, Inc.;

Joseph F. Hennessey, Lee G. Lovett and Eric T. Esbenson

on behalf of Central Florida Enterprises, Inc.; J. Peter

Luedtke and Edgar F. Czarra, Jr. on behalf of The Asso-

ed

55a

ciation of Maximum Service Telecasters, Inc.; Gene A.

Bechtel on behalf of witness Robert M. Goshorn; Clyde

E. Herring on behalf of witness Lester Suhler; and Charles

W. Kelley, Kathryn S. McGovern, Thomas B. Fitzpatrick

and Theodore Kramer on behalf of Chief, Broadcast

Bureau, Federal Communications Commission.

INITIAL DECISION OF ADMINISTRATIVE

LAW JUDGE

CHESTER F. NAUMOWICZ, JR.

Issued November 27, 1973; Released: December 7, 1973

Preliminary Statement

1. By Commission order released March 10, 1971 (re-

designated by orders released August 20, 1971 and Feb-

ruary 24, 1972), the above-captioned applications were

consolidated for hearing on the following issues:

“1. With respect to the application of Central Flori-

da Enterprises, Inc., to determine:

(a) The areas and populations which may be ex-

pected to gain or lose television coverage by the

proposed operation, as compared to the service

now provided by Station WESH-TV, and the

other television broadcast services available to

such areas;

(b) To the extent that there may be a loss area,

what plans are proposed to ameliorate or elimi-

nate actual losses and the efficacy of those plans;

(c) Whether circumstances exist that warrant a

waiver of section 73.610(b) of the Commission’s

rules, and, if so, to determine the necessary con-

ditions to be met to assure that equivalent pro-

‘tection is provided to Station WTHS-TV, channel

*2, Miami, Florida;

(d) Whether the following subscribers to deben-

tures of the applicant have sufficient current and

56a

liquid assets in excess of current liabilities in suf-

ficient amount to enable them to fully meet their

commitments; H. Clinton Dunn, James W.

Clower, O.L. White, Louis P. Samuels, Jos. A.

Guernsey, J. Hyatt Brown, George W. Engram,

William H. Cleveland, Arthur F. Jones, J.C.

Adams, Jr., Fletcher G. Rush, and George P.

Schanck;

(ec) Whether Mr. James R. Stephen has current

and liquid assets in excess of current liabilities in

sufficient amount to enable him to meet his stock

subscription commitment to the applicant;

(f) Whether the applicant will have available stu-

dio and transmitter buildings by lease from 749

Volusia, Inc., and, if so, the terms and condi-

tions of that lease;

(h) What items will be covered by the equipment

supplier’s deferred credit;

(i) Whether the applicant will have available addi-

tional sources of funds to meet its requirements,

and, if so, the terms and conditions under which

those funds will be available;

(j) In light of the evidence adduced under issues

“f”? — “i, what the applicant’s cost of construc-

tion and three-months operating expenses are;

(k) In light of the evidence adduced under issues

“ea aro 66599

)”’, whether the applicant is financially

qualified.

“2. With respect to the applications of Cowles

Florida Broadcasting, Inc., to determine:

(a) The areas and populations which may be

expected to gain or lose television coverage by

operating as proposed in its application for

changes, and other television broadcast services

available to such areas;

<P S

a

57a

(b) To the extent that there may be a loss area,

the efficacy of the applicant’s plans to ameliorate

or eliminate actual losses;

(c) Whether circumstances exist that warrant a

waiver of section 73.610(b) of the Commission’s

rules, and, if so, to determine the necessary con-

ditions to be met to assure that equivalent protec-

tion is provided to Station WTHS-TV, channel

*2, Miami, Florida;

(d) Whether the applicant has moved its main

studio without prior Commission approval;

(e) 'To determine the facts and circumstances (1)

surrounding the criminal information proceeding

relating to purported mail fraud by five wholly-

owned P.D.S. magazine subsidiaries of the appli-

cant’s parent corporation, Cowles Communica-

tions, Inc., (2) surrounding the companion civil

proceeding relating to purported nationwide

fraudulent and deceptive practices by these same

P.D.S. magazine subsidiaries, and (3) relating to

the extent, if any, of the participation and/or

responsibility of Cowles Communications, Inc.,

for the activities of its 5 P.D.S. magazine subsid-

iaries;

(f) In light of the evidence adduced under issues

“d” and ‘“‘e’’, whether the applicant has the req-

uisite qualifications to be a licensee of the Com-

The wording of issue 2(¢) as quoted in the text above is that

to which it was “corrected and/or amended” by order of the Re-

view Board released October 26, 1971. The Board’s order also

made any grant to Cowles in this proceeding without prejudice to

whatever action the Commission might deem appropriate as a re-

sult of certain pending proceedings initiated by the Federal Trade

Commission, and several states involving Cowles’ Communications

P.D.S. subsidiaries.

58a

mission, or whether it should be given a compara:

tive demerit or demerits;

(g) Whether a grant of the application for changes

would constitute a de facto reallocation of Chan-

nel 2 from Daytona Beach to Orlando, Florida;

“3. To determine which of the proposals would bet-

ter serve the public interest.

“4. To determine, in light of the evidence adduced

pursuant to the above issues, which of the applica-

tions, if any, should be granted.”

2. The applicants published notice of the hearing and

notified the Commission thereof pursuant to the govern-

ing statute and rules. Conferences and hearings were held

on various dates between April 20, 1971 and June 15,

1973 with the record being finally closed on the later

date. The filing of proposed and reply findings was con-

cluded on October 5, 1973.

Findings of Fact

Issues 1(a) and 2(a): Areas and Populations

3. Central proposes to locate its transmitter some 12.5

miles southeast of Cowles’ present site and quite close to

the new site proposed by Cowles. The areas and popula-

tion which would be gained and lost relative to the pres-

ent WESH-TV operation are as follows:

Population Area (Sq.Mi.)

Central AMST* Central AMST

GradeA:

Gain --- 70,221 --- 837

Loss --- 6,288 -+- 302

Net Gain --- 63,933 --- 517

Grade B:

Gain 184,133 187,912 1,361 1,186

Loss 13,800 23,136 458 461

Net Gain 170,333 164,776 903 725

: [See following page |

ee eee

ee OI — = ee ee ee -

--

59a

4. In determining the population within the proposed

Grade B loss area Central’s engineer employed two tech- °

niques. Throughout part of the area he conducted an ac-

tual house count, and determined population by applying

the factor of persons per dwelling unit obtained from the

1960 U.S. Census.? Throughout portions of the loss area

which were difficult to reach population was determined

by using the equal distribution of population method

using 1970 census figures. Of his total figures 64% of the

population lost was computed by the house count meth-

od, and 36% by the equal distribution of population

method.

5. Other services available within Central’s gain and

loss areas are as follows:

Number of Population Area (Sq.Mi.)

Existing Services Central AMST* Central AMST

Grade A gain

1 er ere x

2 oe. 98 ie 5

3 “+ 70,053 --- 824

[continued]

2 Engineering studies were offered by both Central and The

Association of Maximum Service Telecasters, and the conclusions

reached involved noticeable, if not decisionally significant, dis-

crepancies. The disagreement, at least insofar as to population

within the loss area, is attributable in part to the mixture of meth-

ods described at paragraph 4, infra, used by Central’s engineer in

counting population. However, the results reached by both engi-

neers are included in the text above primarily to illustrate that the .

measurement of areas and populations within a proposed contour

is not an exact science, but is an art which can lead practitioners of

acknowledged competence to differ.

31970 U.S. census data was not then available. Since there

was little change in the numbers of persons per dwelling between

the 1950 and 1960 census counts he assumed that there would also

be little change between 1960 and 1970, although he acknowl-

edged that an error of 5% might be introduced. However ‘ie rec-

ord is not clear why the possible error must be limited to 5»..

60a

Number of Population Area (Sq.Mi.)

Existing Services Central AMST* Central AMST

Grade A loss

0 “-- 3,777 “> 237

l --- 1,040 ++. 72

2 “+ 1,471 “+ 11

Grade B gain

3 59,009 66,319 429 460

4 or more 125,124 121,593 932 726

Grade B loss

0 90 666 12 17

l 967 2,676 97 101

2 296 545 17 19

3 7,152 13,147 90 110

4 5,295 6,102 242 214

6. Central proposes to continue WESH’s NBC network

affiliation. If that proposal is effectuated it would pro-

vide a first NBC affiliated Grade B signal to 59,116 per-

sons in an area of 518 sq.mi. located 57 to 73 miles south

of the proposed site. One hundred seven persons residing

in 27 sq.mi. located 80 miles west of the proposed site

would lose their only NBC affiliated Grade B service.

7. Cowles’ transmitter is now located some 21 miles

southwest of Daytona Beach and 25 miles north of Or-

lando. It proposes to move 12.7 miles southeast to a lo-

cation 22 miles south of Daytona Beach and 21 miles

2 [See previous page]

6la

northeast of Orlando. The areas and populations which

would be gained and lost are as follows:

Population Area (sq.Mi.)

Cowles AMST* Cowles AMST

Grade A

Gain “s+ 118,132 ++. 943.4

Loss --- 8,424 “-- 254.1

Net Gain --- 109,708 --- 689.3

Grade B

Present 1,107,443 10,856 ---

Proposed 1,295,857 --- 12,042 ---

Gain 200,702 188,941 1,587 1,303.5

Loss 12,288 15,639 401 399.6

Net Gain 188,414 173,302 1,186 903.9

8. The present WESH City Grade contour (74 dbu)

covers 94% of the population of Daytona Beach and 45%

of the population of Orlando. The proposed City Grade

contour would include all of both cities.

9. Other services available within Cowles’ gain and loss

areas are as follows:

Number of Population Area (Sq.Mi.)

Existing Services Cowles AMST Cowles AMST

Grade A Gain

l and 2 “+: 144 “++ 5.1

3 --- 117,988 “+> 938.3

Grade A Loss

0 --- 3,391 “+: 144.8

1 --- 1,529 --- 98.4

2 --- 3,504 --- 10.9

Grade B Gain

2 841 1,411 25 30.6

3 44,274 62,481 578 553.3

4 ormore 155,587 125,049 984 719.6

*Here, as with the Central figures under this issue, AMST’s

computations differ noticeably, if not materially, from the compu-

tations of the applicant.

62a

Populstion Area (sq.Mi.)

Cowles AMST* Cowles AMST

Grade B Loss

0 540 625 11 22.2

l 2,792 3,433 111 128.0

4 628 572 25 24.8

3 3,780 5,936 57 98.1

4 4,548 5,073 197 126.5

10. At present there is a 36° spread in antenna orienta-

tion for residents of Daytona Beach between the WESH

transmitter and the transmitter locations of Orlando VHF

stations WDBO-TV and WFTV. At the new location the

spread would be reduced to 9.5°, thus permitting recep-

tion from all three stations on a single antenna setting.

Since Central’s proposed site is quite close to that of

Cowles, a similar advantage would flow from grant of its

application.

Issue 1(b) and 2(b): Plans to Ameliorate Signal Loss

11. Central proposes to call upon all the homes in the

loss area which have antennas oriented toward Daytona

Beach. An adult member of the household will be ques-

tioned regarding reception on Channel 2. If the response

is that the signal has become less satisfactory, Central will

offer to have a higher gain antenna installed at its own ex-

pense.

12. It is the opinion of Cowles’ consulting engineer

that no actual loss of Cowles’ existing service will occur.

He bases this opinion on the fact that, although certain

areas now within the Grade B contour would no longer

be within such contour, the maximum decrease in signal

strength would be 3 db. He believes that so minor a dim-

inution of signal strength would be undetectable on a

typical television receiver.

—_ ae —— -

63a

13. Nevertheless, Cowles proposes to place notices of

the change in local newspapers and Post Offices. If any-

one in the loss area believes he has suffered an actual loss

of signal Cowles will install a special antenna for such per-

sons with a higher gain on Channel 2. In the event a sub-

stantial number of persons claim to be effected, Cowles

proposes to restore service through translators. Pursuant

to that proposal there is now pending an application by

Cowles for a Channel 64 translator to serve McIntosh,

Florida, a community of 287 persons located within the

loss area.

Issue 1(c) and 2(c): Short Spacing

14. Under rules 73.609 and 73.610 the minimum sep-

aration for co-channel VHF stations in the state of Flor-

ida is 220 miles. Prior to September of 1959 the trans-

mitter sites of WESH and WTHS-TV, Channel 2, Miami,

Florida, were separated by 228 miles. However, on that

date the Commission, with the consent of WESH, per-

mitted WTHS to move its transmitter to a site only 215

miles from that of WESH. Since that time the stations

have been short-spaced by 5 miles.

15. The distance from Central’s proposed site to that

of WTHS-TV is 206.5 miles. Hence, it would be short-

spaced by 13.5 miles, an increase of 8.5 miles in compari-

son with the present WESH site.

16. Central’s reason for selecting its site was to enable

it to provide coverage comparable to that of the stations

which would be its competitors, WFTV and WDBO-TV,

Orlando, Florida. In order to achieve this goal Central

believes it needs antenna height equal to the approxi-

matély 1500 feet from which its competitors operate. So

tall a tower presents aeronautical hazards which limit the

locations at which it can be erected. The only suitable

64a

site, other than the one proposed, is in a swamp area

some 30 miles west of Daytona Beach. However, Central

rejected this site because it is further from the trans-

mitter location of the Orlando stations, and would, there-

fore, make its coverage even less comparable to that of

the Orlando stations than that of present WESH.

17. Central proposes a directional antenna designed to

suppress radiation toward WTHS-TV. Central’s engineer

conducted a study indicating that at least equivalent pro-

tection will be provided on all pertinent radials. His con-

clusions were as follows:

Effective Radiated Power (dbk)

Azimuth (degrees true) Permissible Central

149 17.0 16.5

158 16.7 16.03

170 16.7 16.03

179 17.0 16.71

183 ee : 16.83

185 17.3 17.05

187 17.3 17.27

188 17.4 17.38

18. In addition to its directional antenna Central pro-

poses, with the concurrence of Station WTHS-TV, to in-

stall precise frequency control equipment. It believes this

will result in a further reduction of interference on the

order of 7 to 10 db. Moreover, to make certain that its

transmitter will operate as proposed Central will have its

antenna measured on the pattern range of the antenna

manufacturer. There appropriate match marks will be

applied to the antenna to assist antenna orientation in

the field. After erection, orientation will be confirmed by

a registered surveyor, and sufficient field intensity mea-

surements will be taken to insure that installation was

proper.

SO On PRS NT Sa EME. ee Se

ee a

CRE A i

65a

19. Cowles’ existing transmitter site is 215 miles from

co-channel Station WTHS-TV, Miami, Florida. Hence, as

noted at paragraph 14, supra, the two stations are pres-

ently short spaced by 5 miles.° Its proposed move would

decrease the spacing to 205.29 miles. Thus, short-spacing

would be increased by 9.7 miles to a total of 14.7 miles.

20. Cowles’ reason for seeking to move its site is to re-

establish a competitive position with the Orlando VHF

stations which were permitted to move to their present

location some time ago.

21. In order to provide city-grade service to all of both

Daytona Beach and Orlando Cowles must locate its trans-

mitter within an ellipse containing some 200 square

miles. Within that ellipse there is an area of some 4 square

miles which would meet the 220 mile separation require-

ment of the rule, and another area of approximately 40

square miles wherein the separation would be at least as

great as the present 215 miles. However, considerations

of air hazard preclude locating a tower of sufficient

‘height within these areas.

22. A third area of some 40 square miles within the

ellipse presents no air hazard problems, but the entire

area is less than 215 miles from the WTHS transmitter. It

is within this area that Cowles and Central propose to lo-

cate their transmitters.

23. Cowles proposes a directional antenna designed to

suppress radiation toward WTHS-TV. However, there is

some controversy as to whether its proposal would pro-

51f WTHS had not moved its transmitter site in 1959 there

would now be a distance of 219 miles between WTHS and the

WESH proposed site. WTHS does not now object to WESH’s pro-

posed increase in short spacing presumably as a quid pro quo for

WESH’s lack of objection in 1959.

66a

vide WTHS with equivalent protection, the controversy

stemming from which is meant by the term “equivalent

protection”.

24. Cowles concedes that its antenna pattern would

not provide equivalent protection as defined in Docket

13340, which is based on the assumption that the two

stations are located at least 220 miles apart. If this stan-

dard is applied the following table illustrates the permis-

sible radiation on the pertinent radials as compared to

that proposed by Cowles:

Effective Radiated Power (dbk)

Azimuth (degrees true) Permissible Cowles

149 17.0 17.8

158 16.7 17.2

170 16.7 17.0

179 17.0 17.6

183 17.2 17.9

185 17.3 18.1

187 17.3 18.3

188 17.4 18.4

25. However, Cowles contends that WTHS is not en-

titled to “equivalent protection” based on a 220 mile

separation. It points out that the existing separation is

actually 215 miles, and that this situation exists because

WTHS was permitted to short space its own transmitter.

Hence, Cowles reasons, WTHS is only entitled to “equiva-

lent protection” to the extent that its interfering signal is

no stronger than that which WTHS receives at the exist-

ing 215 mile separation. This degree of protection its pro-

posed antenna pattern would provide, and, in fact,

OA OU SE RO

EE EE RET EET TTT re

— -—-— =~

67a

WESH’s interference to WTHS would be reduced, as fol-

lows:

Population Area (Sq.Mi.)

WTHS Grade B 2,215,981 6,360

Interference from

Present WESH 107,220 (4.8%) 836 (13%)

Interference from

Proposed WESH 4,807 (0.22%) 137 (0.22%)

26. In addition, Cowles proposes to install precision

frequency controls at both its own transmitter and that

of WTHS. Its antenna will be range measured by the man-

ufacturer, and field measurements will be made after in-

stallation to assure that the anticipated protection to

WTHS will actually occur.

27. Finally, Cowles proposes that, in the event the

Commission determines that the equivalent protection

standards of Docket 13340 should be applied, it will

accept a grant conditioned on its amending its proposal

to supply such protection. Ordinarily, such contingent

applications are discouraged and no findings thereon

would be made. However, in this instance it must be

noted that the order of designation provides that “in the

event Central does not establish that waiver of the spac-

ing requirement is warranted, but would otherwise be the

preferred applicant, its application will be granted subject

to the condition that it find a transmitter location that

does not lessen the existing spacing between Stations

WESH-TV and WTHS-TV”’. If one applicant is to be per-

mitted to amend its application after hearing to conform

its spacing proposal relative to WTHS with that of its op-

portent, elementary justice would seem to require that

the opponent be afforded a similar opportunity. Hence,

the findings as to Cowles contingent proposal have been

68a

made, and the matter will be accorded appropriate con-.

sideration in the conclusions.

Issue 1(d): Ability of Central Principals to Meet Deben-

ture Commitments.

28. H. Clinton Dunn is committed to purchase $21,000

of Central’s debentures. The First Atlantic National Bank

of Daytona Beach has committed a loan to Mr. Dunn in

the sum of $25,000, at call, to permit him to meet this

obligation in the event Central receives a grant. Interest

will be at the bank’s then prime rate, and no security will

be required.

29. Tames W. Closer is committed to purchase $10,500

of Cei.tral’s debentures. The Westside Atlantic Bank of

Daytoi.a Beach has committed a loan to Mr. Clower in

the sum of $10,500, at call, to permit him to meet this

obligation in the event Central receives a grant. Interest

will be at the bank’s then prime rate, and no security will

be required.

30. O.L. White is committed to purchase $21,000 of

Central’s debentures. The First National Bank of Mait-

land, Maitland, Florida has committed a loan to Mr.

White in the sum of $25,000, at call, to permit him to

meet this obligation in the event Central receives a grant.

The bank’s interest on this type of loan is currently 7%.

No security will be required.

31. Louis P. Samuels is committed to purchase $21,000

of Central’s debentures. The Westside Atlantic Bank of

Daytona Beach has committed a loan to Mr. Samuels in

the sum of $21,000, at call, to permit him to meet this

obligation in the event Central receives a grant. Interest

will be at the bank’s then prime rate, and no security will

be required.

rr

69a

32. Joseph A. Guernsey is committed to purchase

$21,000 of Central’s debentures. The Commercial Bank

of Winter Park, Florida, has committed a loan to Mr.

Guernsey in the sum of $21,000 to permit him to meet

this obligation. The loan will become available at such

time as Central may have received a construction permit.

The loan commitment is presently available through

March 8, 1974. However, in the event it should expire

before the termination of this hearing, the record shows

that as of August, 1972 Mr. Guernsey had approximately

$300,000 in current liquid assets in excess of all liabili-

ties from which to meet his obligation to Central.

33. J. Hyatt Brown is committed to purchase $21,000

of Central’s debentures. The Commercial Bank of Day-

tona Beach has committed a loan to Mr. Brown in the

sum of $22,000, at call, to permit him to meet this obli-

gation in the event Central receives a grant. Interest will

be 1%% above the then New York prime rate, and no

security will be required.

34. George W. Engram is committed to purchase

$10,500 of Central’s debentures. The Florida Bank and

Trust Company of Daytona Beach has committed a loan

to Mr. Engram in the sum of $10,500 in order that he

may meet his commitment. The loan will be secured by a

mortgage on certain real property which Mr. Engram has

set aside in order tltat it will be available at such time as

the security may be needed.

35. William H. Cleveland has assigned his interest in

Central to W. Warren Cole including the obligation to

purchase $21,000 of Central’s debentures. Mr. Cole has

current liquid assets in excess of $100,000, and his liabili-

ties total less than $7,000.

70a

36. Arthur F. Jones is committed to purchase $21,000

of Central’s debentures. As of December, 1971 he owned

publicly traded securities valued at approximately

$250,000, and his total liabilities were less than $11,000.

37. J.C. Adams, Jr. is committed to purchase $21,000

of Central’s debentures. The Westside Atlantic Bank of

Daytona Beach has committed a loan to Mr. Adams in

the sum of $21,000, at call, to permit him to meet this

obligation in the event Central receives a grant. Interest

will be at the bank’s then prime rate, and no security

will be required.

38. Fletcher G. Rush is committed to purchase $21,000

of Central’s debentures. The Commercial Bank of Winter

Park, Florida has committed a loan to Mr. Rush in the

sum of $21,000 to permit him to meet this obligation.

However, the bank’s commitment expires on March 2,

1974. Mr. Rush’s unaudited financial statement of No-

vember, 1971 indicates that he has current liquid assets

of more than $300,000 in excess of current liabilities, but

over $450,000 of these assets are in the form of unnamed

securities.

39. George P. Schanck is committed to purchase

$21,000 of Central’s debentures. The Citizens National

Bank of Orlando, Florida has committed a loan to Mr.

Schanck in the sum of $21,000, at call, to permit him to

meet this obligation. Interest will be at the bank’s then

prime rate, and no security will be required.

40. Although the Order of Designation does not in-

quire as to Thomas W. Staed at Issue 1(d), he is men-

tioned at paragraph 11 of the Order as not having demon-

strated that his liquid assets exceed his current liabilities

by the amount of his $21,000 commitment to purchase

Central’s debentures. Hence, evidence as to his capability

was adduced, and findings will be made.

7la

41. The First Atlantic National Bank of Daytona Beach

has committed a loan of $21,000 to Mr. Staed to permit

him to meet his obligation in the event Central receives a

grant. Interest will be at the bank’s then prime rate, and

no security will be required.

Issue 1(e): Financial Qualifications of James R. Stephen

42. James R. Stephen has subscribed to $125,000 worth

of Central’s stock and $10,500 of debentures. The Com-

mercial Bank of Daytona Beach has agreed to lend him

$150,000 to meet his commitment. The bank has agreed

to refinance a mortgage it now holds on certain of Mr.

Stephen’s property as full security for the loan. The loan

would be for 15 years at 6%% interest, payable at $3,100

per month. The property is presently under a 15-year

lease that returns $4,000 per month to Mr. Stephen.

Issue 1(f): Availability of Bank Loan to Central

43. The issue as designated inquires whether Central

will have available a $100,000 loan from the Commercial

Bank of Daytona Beach. Subsequently, the application

was amended to specify a loan in the sum of $800,000

from the Empire Bank, Springfield, Missouri. The Empire

Bank has agreed to make this sum available at such time

as Central may have received a grant. The bank’s commit-

ment contemplates a three-year loan at 8%. The loan

would be unsecured by Central. However, the bank may

require that all of the shareholders pledge their stock in

Central, and that guarantees to a total of $150,000 be

given.

44. Each of Central’s shareholders has agreed to pledge

his stock if required. Mr. Jack Ross and Mr. James Stephen

have each agreed to guarantee $75,000 on the loan, and

the Empire Bank finds their guarantees to satisfy the

72a

$150,000 contingent surety. The bank’s commitment is

subject to the usual caveat that changed conditions at

the time the loan is to be taken down may modify the

agreement. The bank proposes to sell participation in so

much of the loan as may exceed $500,000. However, the

bank’s President is of the opinion that such a participa-

tion agreement is common, and that the bank can prop-

erly expect to honor its commitment. The bank would

not require any principal payment during the three-year

term, although interest will be payable monthly.

Issue 1(g): Availability of Studio and Transmitter Build-

ings .

45. 749 Volusia, Inc. is a real estate holding and devel-

opment corporation owned in equal shares by its presi-

dent, James R. Stephen, and its secretary-treasurer, Rich-

ard F. Livingston. The corporation has agreed to build a

studio and lease it to Central.

46. Central has an option running to April 30, 1976 to

purchase a 5 acre site in a business park being developed

in the western portion of Daytona Beach. The option

does not specify the precise 5 acres to be acquired by

Central nor the exact price to be paid, although it is

specified that the 5 acres will front on a named street

and that the price will not exceed $12,000 per acre. At

such time as Central may receive a grant it would exercise

the option and reconvey the property to 749 Volusia at

its own purchase price.

47. 749 Volusia would then build on the site a studio

building containing approximately 30,000 square feet of

space. The building would cost between $750,000 and

$1,000,000. It would be leased to Central for not less

than 10 years at a rate of 742% “over the best financing

available for construction of the studios at the time of

73a

making arrangements for the mortgage, computed on a

basis of total costs of construction of studios and land

acquisition’”’.® Central will also pay all taxes and costs for

operating and maintaining the property.

48. By a separate agreement the parties have arranged

that 749 Volusia will also build and lease to Central the

building at the transmitter site. The cost would approxi-

mate $50,000, and the terms of the lease would be the

same as those covering the studio building.

49. 749 Volusia has made arrangements with the Bar-

nett Bank at Ormond Beach for a mortgage to construct

the proposed studio building. The bank will loan up to

65% of the total cost of the land and building, said total

cost not to exceed $1,000,000. The interest rate would

be prime plus 2%% with amortization to be in even

monthly payments for a period not to exceed 10 years.

The note would be endorsed by Messrs. Stephen and

Livingston and their wives.

50. Assuming the top estimate of $1,000,000 in con-

struction cost, and a bank loan of $650,000, 749 Volusia

will need an additional $350,000 in order to build Cen-

tral’s studios. As of May, 1972 the corporation had ap-

proximately $20,000 of current liquid assets in excess of

current liabilities. However, both Mr. Stephen and Mr.

Livingston have committed themselves to personally pro-

vide the excess funds needed, and each man has demon-

strated his ability to meet his commitment.

6 Although the quoted language is not free of ambiguity, the

parties apparently intended that Central will service the mortgage

loan to be obtained by 749 Volusia and also make annual pay-

ments of 742% of that sum by which 749 Volusia’s capital invest-

ment exceeds the mortgage placed on the property.

74a

51. As of November, 1972 Mr. Livingston’s balance

sheet showed more than $1,000,000 of current liquid

assets in excess of liabilities. Mr. Stephen has a line of

credit from the Commercial Bank of Daytona Beach in

the total sum of $950,000. Some $550,000 of that line

of credit is currently in use or committed, leaving ap-

proximately $400,000 available for aloan to 749 Volusia,

Inc.

Issue 1(h): Equipment Credit

52. By letter of August 21, 1971 RCA wrote to Cen-

tral offering the following credit terms on approximately

$1,900,000 worth of equipment:

“25% of the total price prior to shipment;

75% deferred balance to be payable in 48 succes-

sive equal monthly installments beginning 12

months after shipment of equipment valued at

50% of the total price has been shipped to you.

Interest will accrue from the date of shipment

and will be at our then current rate. For your in-

ar our current rate is 6% add-on (finance

rate).””

The 12-month moratorium on payment applies to both

principal and interest.

53. Central’s consulting engineer estimates that

$1,863,000 worth of equipment will be needed as fol-

lows:

(1) Transmitting equipment (including

25-kilowatt transmitter, with

spare tubes); antenna (six-bay);

1,400 foot tower (erected); r f

load; and auxiliary and test

equipment — $683,000

(2) Studio equipment, including live

cameras (three color chains); color

os

-—-<- oe ee

— —

75a

camera island; film editing equip-

ment; terminal equipment; video

tape (two studio plus one portable);

lighting, audio and test equipment — $789,00

(3) Microwave equipment (dual STL

link) — $ 36,000

(4) Remote pickup van (with two color

cameras; switching; audio; micro-

wave; lighting; power supply; and

air conditioning — $300,000

(5) Miscellaneous equipment, including

film and still cameras; remote radio

equipment; and auxiliary gen-

erator — $ 55,000

Issue 1(i): Additional Funds Available to Central

54. Central proposes no funds other than discussed

heretofore.

Issue 1(j): Central’s Total Costs

55. Central will need $465,750 down payment on its

equipment. Its consulting engineer estimates that instal-

lation costs will be $216,400. This figure is 20% of equip-

ment cost exclusive of tower, the installation of which is

included in its own cost estimate. He bases his estimate,

which he regards as conservative, on 20 years of experi-

ence involving the construction of 15 to 20 television

stations, as well as on his study of pertinent technical

publications.

‘56. Central’s consulting engineer also estimates that

Central will need some $80,000 worth of office furnish-

ings and equipment. Central has made arrangements to

lease that value of office equipment for $1,800 a month,

plus tax. The lease would require the last two months

rental in advance. Central has also arranged to lease the 5

76a

automobiles it would need for $750 per month, plus tax

and insurance.

57. Central’s broadcast consultant has estimated that

the applicant’s legal and engineering fees would approxi-

mate $185,000. He based this estimate on consultations

with the attorneys and engineers involved.’ He estimated

miscellaneous costs, including grant fee and start-up costs,

at $212,000. He also estimated Central’s 3-month oper-

ating costs to be $360,000. Finally, he estimated that

Central’s various lease expenses heretofore discussed

would run to $65,382 through the first three months of

operation. His ultimate estimate is that total construction

and 3-mcenth operating costs would be $1,504,532. How-

ever, as noted at footnote 7, supra, Central has since in-

creased its estimate for professional fees by $115,000.

Thus, its present estimated cash requirement is

$1,619,532.

Issue 1(k): Central’s Ultimate Financial Qualifications

58. Central shows the following sums to be available to

meet its need for $1,619,532 in construction and three-

month operating costs. It has $240,000 cash on hand as

noted at paragraph 10 of the Order of Designation. Mr. E.

William Crotty has shown an ability to purchase $125,000

in stock as noted at paragraph 12 of the Order of Desig-

nation. At paragraph 42, supra, Mr. James R. Stephen

has been found able to purchase $125,000 of Central’s

stock. At paragraphs 28-42, supra, various individuals

have been found able to purchase an aggregate of

$420,000 of Central’s debentures. Since the release of

the Order of Designation Mr. Jack Ross has acquired an

7 Central subsequently amended its application to specify

$300,000 in professional fees.

~~ ---=- es

77a

interest in Central and has agreed to purchase $30,000 of

its debentures. Mr. Ross is shown to have a net worth in

excess of $2,000,000, with over $100,000 cash on hand

to meet his commitment. At paragraphs 43-44, supra, an

$800,000 bank loan has been found to be available. Fi-

nally, the record shows that as of September, 1972,

something over $20,000 interest had been earned by cer-

tificates of deposit held by Central. Thus, Central shows

the availability of a total sum of $1,760,000.

Issue 2(d): Main Studio

59. Since Cowles contends that its pattern of studio

usage stems in large part from historic and technical con-

siderations, findings as to the history of the development

of the WESH facilities are appropriate.

60. Since 1957, when WESH-TV was owned by Telrad,

Inc., the station has been the NBC affiliate in the Orlando-

Daytona Beach market. The network service has been and

is fed to WESH off a heavy backbone microwave route of

Southern Bell which, insofar as here pertinent, runs be-

tween repeater stations at DeLeon Springs, some 20 miles

west of Daytona Beach, and Orlando, which is approxi-

mately 45 miles southwest of Daytona Beach. Between

1957 and 1960 the network service was microwaved by

Southern Bell from DeLeon Springs via light duty equip-

ment to WESH’s Holly Hill studios which are located just

outside of Daytona Beach. From there WESH employed

its Own microwave system to transmit the signal to its

Orange Park transmitter site some 21 miles to the south-

west of Daytona Beach.

61. However, the routes from DeLeon Springs to Holly

Hill and from Holly Hill to Orange Park pass over large

areas of swampland. Microwave passage over large bodies

of standing water is subject to fresnel bending which

78a

causes deep microwave fades. Consequently, fading was

common. There were disputes between WESH and South-

ern Bell as to whether the fading was occurring on the

Southern Bell or the WESH portions of the route, but in

any event, the service was unsatisfactory.

62. Hence, in June of 1960 Telrad modified its pickup

to receive the NBC service from Southern Bell’s Orlando

repeater rather than from DeLeon Springs. In the mean-

time, in May of 1960 the Commission had waived the sta-

tion identification rules to permit WESH to identify it-

self as a Daytona Beach-Orlando station.8 Telrad had

then built auxiliary studios at Winter Park just outside of

Orlando. It was to these new studios that the network

service was microwaved from Southern Bell’s Orlando re-

peater, and from there over a WESH microwave to

Orange Park. This system eliminated the over-swamp

microwave hops from DeLeon Springs to Holly Hill and

from Holly Hill to Orange Park.

63. This was the system which Cowles took over when

it acquired WESH-TV from Telrad in May of 1966, and it

is the system, somewhat modified, which is still in use. It

is the system which Cowles contends has dictated many

of the developments hereinafter described.?

8The Commission emphasized that it was not modifying

WESH’s license to change the city of assignment, or relieving it of

its obligation to serve Daytona Beach as its principal city.

9in 1964 Southern Bell installed heavy duty microwave from

DeLeon Springs to Davtona Beach. Hence, the route used by Tel-

rad prior to 1960 would be less unsatisfactory today than it was

when it was in use. However, in order to receive service comparable

to that rendered at Orlando it would be necessary for Southern

Bell to install a television operating center at Daytona Beach, and

the service would still not be as flexible because the telephone

company has a capacity at Orlando, which it would not have at

Daytona Beach, to switch to spare channels in times of need. More-

over, microwave fade could still be anticipated on the over-swamp

path of the WESH system from Holly Hill to Orange Park.

’

es a

79a

64. The physical plant which Cowles acquired when it

purchased WESH included land approximately 400 feet

square with a building containing some 4,600 square feet

of studios and offices at Holly Hill. At Winter Park the

land was some 170 feet by 140 feet containing some

7,200 square feet of studio and office space. There was

also an adjoining residence on the Winter Park property

containing some 1,000 square feet of floor space.

65. However, since Cowles has operated WESH it has

made substantial improvements in the station’s technical

capability. In 1969 the station was converted from black

and white to color. This involved substantial changes at

both the Holly Hill and Winter Park studios. The refur-

bishment of the Winter Park studios was undertaken

first, apparently for the primary reason that the bulk of

local commercial production is done on behalf of adver-

tisers based in Orlando and WESH wanted to have local

commercial color capacity as soon as possible. The Holly

Hill studio was converted immediately thereafter.”

66. Additional technical improvements of possible rel-

evance to this issue include:

(a) Converted from black and white film facilities

at Holly Hill studios by purchase and installa-

tion of GE #PE 240 color film chain including

Eastman #275 film projectors and RCA Carou-

sel Slide Projector.

The Holly Hill studio was shut down during renovation

whereas the Winter Park studio was not. However, this point lacks

significance. The Winter Park studio has two production centers,

one.a network production room, but either able to handle both

network and local production. Thus, one could be used while the

other was being remodeled. Holly Hill, on the other hand, has only

one production center and could not remain in operation during

renovation.

80a

(b) Doubled color film facilities at Winter Park stu-

dio by adding second GE #PE 240 film chain,

two Eastman film projectors and RCA Carousel

slide projectors.

(c) Installed new vertical interval video switching

equipment at both the Holly Hill and Winter

Park studios.

(d) Installed new sync generators and processing

amplifiers equipment at both studios and trans-

mitter site.

(e) Installed 50 new monochrome and color video

monitors and wave form monitors at all loca-

tions.

(f) Installed four color video tape machines.

(g) Installed three new microwave studio transmit-

ter links: Holly Hill to Orange City; Winter Park

to Orange City; and Orange City to Winter Park.

(h) Constructed and equipped color film processing

laboratories at both studios.

(i) Installed remote facilities to accommodate live

weather reports between the U.S. Weather Bu-

reau station at Volusia County regional airport

and the Holly Hill studio.

(j) Expanded, remodeled and refurbished office and

studio facilities in Holly Hill and Winter Park.

(k) Added outside studio at Holly Hill.

(1) Contracted an addition to Holly Hill studio

building, 20 feet by 73 feet, to increase outside

dimensions of structure to 90 feet by 73 feet.

(m) Constructed a shipping and receiving work area

in a house located on the Winter Park studio

property.

ee

8la

67. As of October 1969 Cowles valued its buildings,

furniture and equipment at $1,937,000. Of that sum 59%

was attributed to the Winter Park studio, 15% was attrib-

uted to Holly Hill, and the balance was attributed to the

transmitter site.

68. When Cowles purchased WESH 23 full-time and

one part-time employees were working out of Holly Hill

and 35 full-time and 5 part-time employees were assigned

to Winter Park. By February 1, 1970 Holly Hill employ-

ment was down to 19 and Winter Park jobs were up to

62, eight of them part-time. The higher executives of the

station are split up between the two cities as follows: at

Winter Park are the General Manager, the News Director,

the Sports Director, the Chief Meteorologist, the Opera-

tions Manager, a Production Manager, the Chief Engineer,

and the General Sales Manager; at Holly Hill are the Sta-

tion Manager, the Director of News and Public Affairs,

the Daytona Beach News Director, the Sports Director,

the Comptroller and Business Manager, a Production

Manager, and the Daytona Beach Sales Representative.

69. Cowles attributes the greater employment at the

Winter Park ‘‘auxiliary” studios than at the Holly Hill

“main” studio to two factors. First, is the necessity for

extra employees at the network reception point, both in

connection with actual network operations and in con-

nection with local productions integrated into network

programs. Second, is the fact that some 80% of the sta-

tion’s local advertising revenues are generated in the Or-

lando area.!!

70. Ever since Cowles acquired WESH there has been

a top level consciousness of the significance of Orlando

11 Ojando is approximately twice the size of Daytona Beach,

and serves as the economic hub of central Florida.

82a

to the station’s fortunes. At the time Cowles took over

Thomas S. Gilchrist was, and remained, General Manager.

His offices were in Daytona Beach. In July of 1967

Cowles’ then President, Robert Tincher, suggested that

Gilchrist relocate his offices in Orlando, since Tincher re-

garded Orlando as the more important part of the sta-

tion’s service area. Tincher’s view was shared by Charles

B. Brakefield who succeeded him in May of 1968, and

Gilchrist eventually did move his office to Orlando.

71. Although the recollections of Gilchrist and Brake-

field differ as to what followed, in September of 1968

Brakefield asked for Gilchrist’s resignation. At least part

of his reason was because Gilchrist had failed to suffi-

ciently involve himself and the station in the community

affairs of Orlando. At the present the highest ranking

CFB executive on the scene, John M. Haberlan, President

and General Manager, maintains his office in Winter Park.

72. The record does not contain a complete break-

down of local programming by point of origin for the en-

tire last license period.!* However, all programs for the

at paragraph 124 of its Proposed Findings of Fact Cowles

asserts that between 1967 and 1970, 72% of its local programming

was produced at Holly Hill, citing its exhibit No. 15A in support of

that claim. In a Petition for Leave to Supplement Findings of Fact

filed on September 14, 1973 [granted by Order released October 2,

1973] Cowles acknowledged that “Exhibit 15A does not alone

support the findings in Paragraph 124”, but argued that the finding

was supported by 11 other exhibits and certain testimony. On Oc-

tober 3, 1973 Cowles filed a pleading titled Reply to Opposition to

Petition for Leave to Supplement Findings of Fact which purports

to explain how the cited exhibits and testimony, read in conjunc-

tion, establish with reasonable precision the percentages of local

programming originated in both or either of its studios throughout

the last license period. However, examination of the cited portions

of the record reveals that much of the evidence consists of mere

estimates or approximations and does not even purport to be com-

plete. Hence, the finding in the text above that the record does not

contain a breakdown of local programming by point of origin for

the entire license period.

- - - - ---<--

83a

first four weeks of January 1970 were analyzed. During

that period a total of 3,787 minutes of local program-

ming were broadcast. The great bulk of the programming,

2,348 minutes, consisted of news shows presented live

with portions originating in Holly Hill and other portions

originating in Winter Park. There is no breakdown of

these 2,348 minutes by point of origin. Of the remaining

1,439 minutes 807 were presented from Winter Park and

632 originated in Holly Hill.

73. Of the 807 minutes originating in Orlando 195

minutes involved two 5-minute local news segments with-

in the morning network program “Today”. Cowles sug-

gests that it was necessary that these originate at the net-

work reception point because of the coordination re-

quired between the newscaster and the director — switches

on the shifts back and forth between network and local

portions of the program. However, Cowles does not ex-

plain why the switching on this program should present

greater problems than the switching on the news program

which involve the use of both studios and which make up

the majority of the station’s local programming. It is

found that the actual reason why the local news seg-

ments on the “Today” show are broadcast from Winter

Park rather than Holly Hill is because at that hour of the

morning the “auxiliary” studio is manned whereas the

“main’’ studio is not.

74. The record also contains evidence as to the place

of production of several local program series. ‘‘Topic”’ is

.a weekly half. hour public affairs program which was

broadcast 141 times during the last license period. One

hundred twenty-six (89%) of the programs were pro-

84a

duced at Holly Hill, and fifteen (11%) were produced at

Winter Park.!%

75. On Camera Two” is a live 3-5 minute program

broadcast within the early edition of WESH’s evening

news show. During the last license period it was broad-

cast 47 times, twenty-nine (62%) of the programs being

produced at Winter Park, and eighteen (38%) at Holly

Hill.

76. ‘*2-Day, 2-Night, 2-Morrow” was a program sched-

uled for the last 5 minutes of the 12:30-12:55 p.m. news-

cast. Between February 24, 1969 and January 30, 1970

the program was broadcast 148 times. Eighty (53%) pro-

grams were produced at Winter Park while sixty-nine

(47%) originated at Holly Hill.

77. The program “Focus 2” was produced 444 times

between February 1, 1967 and October 18, 1968. Ap-

proximately'* 363 (82%) were produced at Holly Hill,

and 81 (18%) were produced at Winter Park.

78. During the last license period editorials were pro-

duced at both studios. They were produced at Holly Hill

B Topic” and other programs were reduced to video tape

when produced, and actually broadcast at some later time. The rec-

ord contains statistics showing from which studio these video tapes

were sent to the transmitter. However, no findings will be formu-

lated on such statistics. The Commission’s main studio rules are

designed to insure a station’s continuing concentration on the af-

fairs of its city of license. This purpose may be served by insuring

that local programs are locally produced. However, once the pro-

gram has been recorded, it is irrelevant where the technician who

presses the button that sends the recording to the transmitter is

sitting.

MStation records did not specify the place of production for

this program. However, station employees were able to make what

they considered reasonably accurate determinations as to the place

of production of individual programs based upon secondary rec-

ords and personal recollection.

85a

between February 1 and December 13, 1967; between

December 15 and 18, 1967; on January 3, 1968; between

January 8 and February 29, 1968; and between July 1,

1969 and January 31, 1970. They were produced at Win-

ter Park on December 14, 1967; between December 19,

1967 and January 2, 1968; on January 4 and 5, 1968;

and between March 1, 1968 and June 30, 1969.

79. Between February 2, 1967 and January 24, 1970

WESH broadcast 84 local specials. Twenty-three (27%)

were produced at Holly Hill, fifty (60%) were produced

at Winter Park; and eleven (13%) were produced at both

studios.

80. “Opinion”, a five-minute segment of weekend

newscasts during which citizens express their opinions on

matters of interest, was broadcast 455 times between

February 4, 1967 and January 31, 1970. Two hundred

ninety three (64%) of these programs were produced at

Holly Hill, and one hundred sixty two (36%) were pro-

duced at Winter Park.

81. Cowles maintains a Policy Manual which estab-

lishes standards calculated to insure that Daytona Beach

is not neglected by the station’s local programming. How-

ever, the document was not printed until June of 1970.

Hence, it does not constitute evidence responsive to an is-

sue as to the location of the main studio during the last

license period.

82. The record does not indicate that there have been

any complaints from local residents that the station’s

studio location or local programming are unresponsive to

the needs of Daytona Beach. Indeed, a number of resi-

dents of the area expressed the opinion that the station’s

programming met the needs of Daytona Beach, Orlando

and the surrounding area, and that the studios were so lo-

86a

cated as to be convenient for the widely dispersed popu-

lation the station serves.

Issue 2(e): Mail Fraud

83. Since Station WESH was purchased by the Cowles

interests in 1966 its licensee has been Cowles Florida

Broadcasting, Inc., a wholly owned subsidiary of Cowles

Communications, Inc. (CCI). The parent company had

since 1936 been in the magazine publishing business. Be-

tween 1955 and 1962 CCI had acquired five other sub-

sidiary corporations, each in the business of obtaining

magazine subscriptions. Although the business practices

of these five CCI subsidiaries varied at the time of acqui-

sition, by the 1967-9 period each had become a paid-

during-service (PDS) operation.

84. The relationship between CCI and its PDS subsidi-

aries was very close. Many of the same individuals served

as officers and/or directors of the parent and its sub-

sidiaries; CCI guaranteed large loans made by the subsidi-

aries for the conduct of their business; each subsidiary

was housed in buildings owned or leased by CCI; finan-

cial reports and tax returns were consolidated; and the

revenues of the PDS subsidiaries were freely transferred

to the parent.

85. By 1967 a pattern had been established for the op-

eration of all of the PDS subsidiaries. One individual,

who was an officer of CCI, served as president of all five

subsidiaries. However, each corporation was separately

staffed. Each had a chief operational officer, a director

of franchise operations and personnel to carry on the

business of the company.

86. Each company carried on business in basically the

same way. Each contracted with “franchise dealers” who

were, at least in form, independent contractors. However,

87a

the work of the franchise dealers was overseen by a divi-

sion of the PDS corporation which had the duty of insur-

ing that the dealers lived up to their contracts and that

corporate policies were carried out.

87. It was the franchise dealers and their employees

who made actual contact with the public. Their job was

to sell subscriptions to various magazines, hopefully sev-

eral to a customer. The payment for these subscriptions

was not in cash, but was made in installments over the

life of the subscriptions. The compensation to the fran-

chise dealer was basically in the form of commissions

based on sales, and he in turn compensated his employees

in the same fashion.

88. The magazines were sold at full subscription price,

and if premiums were given the cost thereof was included

in the contract. It was the stated policy of each PDS com-

pany that every customer should be aware of this, and it

was the stated duty of the franchise director of each com-

pany to see that the franchise dealers were carrying out

this policy.

89. However, although the PDS method of selling was

successful for several years, by the mid-1960’s complaints

as to improper sales and collection practices began to

rise. Mr. Lester Suhler, the CCI director who served as

President of each of the PDS subsidiaries, attributed the

rise to the entrance into the business of less experienced

franchise dealers.

90. By 1968 Mr. Gardner Cowles, Chairman of CCI,

became aware of the problems which were growing with

the PDS subsidiaries. He discussed the matter with CCI’s

Exetutive Committee, and it was agreed that whatever

was necessary would be done to halt the improper prac-

tices within the Cowles subsidiaries and their franchise

88a

dealers. It was made clear that compliance was expected

the newly enacted Central Registry Code. That code,

which became effective in January, 1968, was an attempt

by the PDS industry to police itself. It provided, in per-

tinent part, as follows:

“Subscription sales agencies will not authorize, con-

done, or otherwise support, any subscription solici-

tors and other agency representatives will not au-

thorize, practice, engage in, or otherwise participate,

in the following sales and collection practices:

“A. Statements by a subscription solicitor or a sub-

scription sales agency or any of its other representa-

tives, such as branch managers and franchise owners,

indicating that such persons, or the agency are in

any business other than the sale of periodicals and

other books or publications through use of the PDS

plan, or that such persons or the agency represent

the publisher of a magazine periodical or any of its

affiliates or divisions. (Subscription sales agencies,

branch managers, franchise owners and solicitors

at all times should correctly identify themselves dur-

ing any and all sales presentations and collection ef-

forts as subscription sales representatives.)

““B. Representations whose principal implication or

import is to the effect that the consumer will receive

‘something for nothing,’ or that a periodical, book,

or other item offered is ‘free’ (or words of similar

import) when such is not a fact, and that payments

are for other periodicals, books or other items in the

contract, or in any way representing that the cost of

the contract is to defray or pay for the postage and

handling charges in sending the periodicals, books,

or other items to the consumer.

“C. Stating or representing that the solicitor is con-

ducting a ‘quiz’ or ‘survey’ when there is no intent

89a

to award a prize for the correct answer or to use the

survey information for research or other purposes,

or implying that such is the fact. (However, this

Code provision does not prohibit inquiries or ques-

tions of the potential customer to determine reading

habits or preferences for magazine periodicals, etc.,

provided no prize is offered in connection with such

inquiries, and no representation is made that a sur-

vey is being taken.)

“PD. Stating directly or indirectly that periodicals

will be delivered otherwise than by mail when such

is not a fact, for example, representing that a ‘route’

is being made up for ‘neighborhood delivery like

your newspaper,’ when such is not a fact.

“E. Representations concerning the average weekly

cost of periodicals, unless in connection therewith it

is represented that the cost is payable in accordance

with a monthly payment plan to be explained by

the closer and provided the consumer is advised pri-

or to the execution of the subscription contract of

the exact amount of the periodic payment, and the

frequency and duration of such payment.

“F. Representing that the consumer may cancel the

subscription contract unless such is the fact, and un-

less the cancellation provision is fully explained to

the subscriber.

“G. Utilizing visually or through sales talk a personal

sympathy appeal, showing illness, disease, handicap,

or other personal status, past, present, or future, of

the solicitor.

“H. Stating or representing that the contract term or

any other matter covered in the contract is actually

different from that set forth in the cor act.

“I. Stating or representing in any way that the cost

of periodicals purchased through use of the PDS

90a

plan is less than the cost of purchasing the same

periodicals for the same period of time from a pub-

lisher, unless such is the fact; or stating or represent-

ing in any way that the monthly cost of periodicals

purchased from one subscription sales agency or

solicitor is less than the monthly cost of such peri-

odicals from other subscription sales agencies or

solicitors, unless such is the fact.

“J. Securing the consumer’s signature on the con-

tract by stating or in any way representing it is:

1. ‘Just a guarantee.’

2. ‘Just acceptance or acknowledgement of a free

subscription.’

3. Any other means which conceals the fact that

the consumer is signing a contract.

“K. Using collection techniques by making represen-

tations that state or imply any of the following:

1. Wages will be summarily garnished.

2. That letters are from government or court

agencies.

3. Using documents simulating legal process.

4. Threatening legal action when it is against the

agency’s policy.

5. Demanding improper ‘late charges’.

6. Posing as credit bureaus or legitimate collec-

tion agencies.”

91. However, it appears that in practice the actual

supervision of the franchise dealers was and remained

spotty. CCI’s own subsequent investigation, an investiga-

tion conducted by the Post Office Department, and evi-

dence received on this record all indicate that emphasis

was often on encouraging sales and collection volume

rather than on preventing unsavory sales and collection

practices.

ne en

ae were

9la

92. By July of 1969 CCI became aware that its PDS

subsidiaries were being investigated by the Post Office

Department, and their practices were being criticized on

the floor of the Congress. A task force was set up to by-

pass the PDS management, to investigate directly the

activities of the franchise dealers, and to report directly

to the CCI Executive Committee. All of the franchise

dealers were visited, and those found to be in repeated

violation of standards were terminated. As a result by

late 1969 the size of the PDS operation had been sub-

stantially reduced.

93. Several former franchise dealers testified on this

record. Collectively, they present a picture of little cor-

porate supervision of those who produced well, and ex-

tensive supervision of those whose sales or collections

lagged. Each was required to sign contracts or pledges of

honest practices, but each was encouraged or coerced by

the PDS corporation to engage in activities which can

most charitably be described as misleading.

94. For example, every form contract which was sup-

plied to the franchise dealers by the PDS companies to be

executed by the magazine subscribers stated somewhere

therein words to the effect that nothing to be delivered

was free. However, the same PDS companies supplied

their franchise dealers with recommended sales pitches or

speils which sugg

This text is long and has been trimmed here. Open the source document for the complete record.