James Lawrence Fly, Chairman. (May 2, 1941)
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3 2 r ep cerp.E REPORT ON CHAIN B ROADCASTING FEDERAL C OMMUNICATIONS COMMISSION COMMISSION O RDER No. 37 • DOCKET No. 5060 MAY 1 941 This is a reproduction of a library book that was digitized by Google as part of an ongoing effort to preserve the information in books and make it universally accessible. https://books.google.com REPORT ON CHAIN B ROADCASTING FEDERAL C OMMUNICATIONS COMMISSION COMMISSION O RDER No. 37 • DOCKET No. 5060 MAY 1 941 FEDERAL C OMMUNICATIONS COMMISSION JAMES L AWRENCE FLY, Chairman PAUL A. WALKER NORMAN S. CASE T. A. M. CRAVEN GEORGE HENRY PAYNE FREDERICK L THOMPSON RAY C. WAKEFIELD - For s ale by the Superintendent of Documents, Washington, D. C. *I C TABLEF O CONTENTS Pag« Introduction 1 A. H istory of proceedings 1 B. S cope of this report 2 C. N ature and significance of chain broadcasting 3 I. E arlv History of Network Broadcasting (1923-26) 5 A. ' The A. T. & T. network 5 B. T he RCA network 6 C. S ale of WEAF and the Telephone Company network to RCA 7 D. F ormation of the National Broadcasting Company 8 II. T he Radio Corporation of America and the National Broadcasting Company ( ' A. H istory and activities of RCA 9 1. C ommunications activities of RCA 11 2. R CA's radio manufacturing and selling activities 11 3. R CA's interest in the motion-picture industry 13 4. R CA's phonograph and recording business 14 B. T he National Broadcasting Co 14 1. I ncrease in number of NBC outlets 15 2. S tations owned or controlled by NBC 15 3. I ncrease in business and income of NBC 16 4.BC N artists' bureau and concert service 17 5. T ranscription business of NBC 17 C. S ummary of RCA's scope of operations 18 III. T he Columbia Broadcasting System 21 A. F ormation and earlv historv 21 B. G rowth of CBS network..,' 23 C. M anagement of artists by CBS 24 D. C BS' phonograph and transcription business 25 IV. T he Mutual Broadcasting System 26 A. F ormation of Mutual 26 B. D evelopment of the Mutual network 27 V. R egional Networks 29 VI. S cope and Manner of Operation of the Nation- Wide Networks 30 A. P redominance of NBC and CBS in the broadcasting field 30 1. S tations affiliated with NBC and CBS 30 2. O wnership of stations by NBC and CBS 32 3. P roportion of broadcasting business handled bv NBC and CBS 3 2 4. P ayments to stations affiliated with NBC and CBS 32 5. P roportion of industry income received by NBC and CBS. 33 6. I ncome and investment of NBC and CBS 33 7. D isposition of NBC and CBS profits 33 B. C ontractual arrangements between national networks and affili ates 3 4 1. L ength of affiliation contracts 35 2. P Jxclusivity 35 0. 3 . Time options 36 4. R ejection of network commercial programs 38 5. S ustaining programs 39 ^ 6 . Station compensation 40 7. N etwork control over station rates . 43 C. N BC's two networks — Red and Blue 44 IV Page VII. T he Effect of Network-Affiliate Relations on Competition in the Radiobroadcast I ndustry 46 A. E xclusive affiliation 51 1. L icensee allowed to broadcast programs of only one network. 51 2. N etwork allowed to send programs to only one station 57 B. L ong-term affiliation contracts 59 C. N etwork optional time 62 D. R ejection of network programs 65 E. N etwork ownership and operation of stations 66 F. N BC's Red and Blue networks 70 G. L imitation of competition between network and outlet 73 H. I nterrelations among network practices 75 I. S tatus of network-stations relationships under these regulations. 77 J. A pplication of regulations to regional networks 77 VIII. J urisdiction 80 A. J urisdiction under the commission's licensing power 80 1. T he power to deny applications 80 2. T he power to issue rules and regulations 85 B. J urisdiction under the commission's power to make special regula tions r especting chain broadcasting 85 IX. C onclusion 88 Order C ontaining Regulations 91 Appendices 9 3 A. O rder instituting chain broadcasting investigation. 95 B. M emorandum of submittal and conclusion of chain broadcasting committee r eport 97 C. P rocedure for oral argument on network inquiry report 101 D. R egional networks 103 Additional v iews of Commissioners T. A. M. Craven and Norman S. Case. Ill FEDERAL C OMMUNICATIONS COMMISSION REPORTN O CHAIN BROADCASTING [Pursuant t o Commission Order No. 37] Docket No. 5060 (V) By t he Commission (Chairman Fly, Commissioners Walker, Payne, Thompson, and Wakefield ; Commissioners Case and Craven dissenting) . (VI) INTRODUCTION A. H ISTORY OF PROCEEDINGS The F ederal Communications Commission on March 18, 1938, by Order No. 37,1 authorized an investigation "to determine what special regulations applicable to radio stations engaged in chain or other broadcasting are required in the public interest, convenience, or ne cessity." On April 6, 1938, a committee of three Commissioners 2 was appointed by the Commission to supervise the investigation, to hold hearings in connection therewith, and "to make reports to the Com mission with recommendations for action by the Commission." 3 The C ommission's order authorizing the investigation covered the following matters, among others : The contractual rights and obliga tions of stations engaged in chain broadcasting under network agree ments; the extent of control over programs and advertising contracts exercised in practice by stations engaged in chain broadcasting; dupli cation of network programs in the same areas; exclusive contracts restricting stations to one chain service and chain services to one station in a given area; the extent to which single chains have ex clusive coverage in particular areas; the policies of networks with respect to character of programs, diversification, and accommodation to the requirements of areas served ; the number of stations licensed to or affiliated with each network and the amount of station time con trolled and used by networks; rights and obligations of stations in relation to advertisers having network contracts; the nature of the service rendered by stations licensed to networks; competitive prac tices of stations engaged in chain broadcasting; the effect of chain broadcasting upon stations not engaged in chain broadcasting; prac tices or agreements in restraint of trade or in furtherance of monopoly in connection with chain broadcasting; and the extent and effect of concentration of control of stations locally, regionally, or nationally, through contracts, common ownership, or by other means. Between N ovember 14, 1938, and May 19, 1939, the committee held hearings pursuant to public notice that the Commission would hear any person or organization desiring to present evidence on the matters included for investigation in Commission Order No. 37. The com mittee requested the national networks, regional networks, station licensees, and transcription and recording companies to present evi dence. It also requested information by questionnaire from licensees of stations and from holders of stock in licensee corporations. In addition, persons and organizations requesting an opportunity to present evidence material to the investigation were given an oppor tunity to be heard. On June 12, 1940, the committee issued its report 4 1 O rder No. 37 is attached to this report as Appendix A. 2 T he then chairman, Mr. McNinch, was made an ex.officio member of the committee. C mirman Fly did not take his place as an ex-officio member. )3 S ee F. C. C. Release No. 26434, April 6, 1938. 4 Hereinafter referred to as the committee report. The committee's memorandum of sub mittal and chapter VI of the committee report containing its conclusions and recommenda- tijons, are attached hereto as Appendix B. 313425—41 ( 1) 2 based u pon the evidence adduced at the hearings and the official records of the Commission. In N ovember 1940 briefs in this proceeding were filed on behalf of the national networks and other interested parties. On December 2 and 3, 1940, oral arguments before the full Commission were pre sented by the parties. These arguments were directed to the com mittee report and to certain draft regulations issued solely for the purpose of giving scope and direction to the oral arguments.5 On January 2, 1941, supplementary briefs were filed on behalf of the three national network organizations in which were discussed the jurisdiction of this Commission with respect to matters covered by the committee report and the draft regulations, and in which atten tion was given to the actual and feasible limits of competition in the broadcasting field, with particular reference to network broadcasting. B. S COPE OF THIS REPORT While t he investigation as prescribed by Order No. 37 was not limited to chain broadcasting,0 network operations were the princi pal subject of inquiry.7 The great bulk of the testimony at the hear ings dealt with network matters, and the committee report deals largely with these matters. The committee's memorandum submitting its report, however, directed our attention to two other problems. The f irst of these is the ownership of more than one station by a single individual or corporation.8 The Commission has had and still has frequent occasion to deal with this question in its administration of the station licensing provisions of the Communications Act. In the rules recently promulgated for frequency modulation (FM) and for television, we have established rules restricting multiple ownership of stations furnishing these new broadcast services.0 Although the rules covering standard broadcast service do not contain comparable provisions, the Commission is working out a policy in its day-to-day decisions.10 The o ther nonnetwork matter to which the committee directed our attention is the problem created by the fact that the stock of some corporate licensees is listed on stock exchanges.