Federal Communications Commission FCC 96-405 Before the Federal Communications Commission Washington, D.C. 20554 In Re Applications of ) ) TURNER BROADCASTING ) SYSTEM, INC. ) (Transferor) ) ) and ) File No. BTCCT-951020KF ) TIME WARNER, INC. ) (Transferee) ) ) For Consent to the Transfer of ) Control of License of Television ) Station WTBS(TV), Atlanta, Georgia ) MEMORANDUM OPINION AND ORDER Adopted: October 9, 1996 Released: October 9, 1996 By the Commission: Table of Contents Paragraph Introduction 1 License Transfer Review Standards 11 TCI - Time Warner Relationship - Horizontal Ownership Background 14 Discussion 17 Access to Programming Issues Background 20 Discussion 33 Cable-Broadcast Cross-Ownership Rule Background 36 Discussion 39 Conclusion 44 19595 Federal Communications Commission FCC 96-405 INTRODUCTION 1. The Commission has before it for consideration the above-captioned application seeking consent to the transfer of control of the license of television broadcast station WTBS(TV), channel 17, Atlanta, Georgia, from Turner Broadcasting System, Inc. (Turner) to Time Warner, Inc. (Time Warner). This transfer is proposed as part of a merger of the interests of Turner and Time Warner. 2. Comments in response to the application as originally filed were received from the United States Telephone Association (USTA) and the Small Cable Business Association (SCBA). The Consumer Federation of America (CFA) filed comments in response to USTA©s filing.© Turner and Time Warner responded to these pleadings, and the commenters submitted replies. An amended application was subsequently filed,2 reflecting a restructuring of the merger proposal to bring it into conformance with a proposed "Consent Decree" that has receive©! initial approval by fhe Federal Trade Commission (FTC) as part of its review of the merger/ 3. Turner is the ultimate parent company of SuperStation, Inc., the licensee of WTBS(TV), channel 17, Atlanta, Georgia. Turner is a publicly traded media company that operates, directly or through subsidiaries, several cable news4 and entertainment5 networks, ©In addition, several letters relating to the merger transaction were also submitted to the Commission informally by Chuck Harder, President of For The People, a non-profit corporation located in Florida that produces independent programming. The letters express concern about consolidation in the media industry and fears that independent programmers, like his organization, will encounter more difficulty finding outlets to carry their programming. following submission of the amended application, USTA filed a letter seeking to conditionally withdraw its comments, conditioned on the FTC Consent Order being adopted substantially as proposed. CFA filed an opposition to USTA©s letter, contending that it may not be accepted because it has not been submitted in compliance with 47 C.F.R. §73.3588(a), which requires Commission consent and the disclosure of information as to whether any payment or other consideration was exchanged in connection with the dismissal of petitions to deny or informal objections. In light of the conditional nature of the withdrawal and the matters noted by CFA, we find it appropriate to consider the USTA comments as filed. As described below, we find the majority of the concerns raised by both USTA and SCBA have been rendered moot by the cancellation of certain agreements previously to have been entered into in connection with the merger that would have provided for the carriage by Telecommunications Inc. cable systems of Turner Broadcasting programming for a 20-year period. ©In the Matter of Time Warner, Inc., Turner Broadcasting System, Inc., Tele-Communications, Inc. and Liberty Media Corporation, Agreement Containing Consent Order, File No. 961-0004, 61 Fed. Reg. 50301 (released September 12, 1996) ("FTC Consent Order"). The proposed consent decree and associated documents are contained in the amended application. ©Turner©s news division includes four 24-hour all-news networks: Cable News Network (CNN); Headline News; CNN International; and CNNfn. 19596 Federal Communications Commission FCC 96-405 runs a production and distribution operation,6 and owns several other business interests.7 Turner produces, acquires and distributes cable and broadcast programming throughout the world and is a leading supplier of programming for the cable industry in the United States. Turner is owned in part by a number of firms that are involved in the cable television business. Tele-Communications, Inc. (TCI), the nation©s largest operator of cable television systems, through its wholly-owned subsidiary Liberty Media Corporation (Liberty), has approximately a 22% interest. Time Warner has approximately an 18.6% interest.8 4. Time Warner is a diversified international entertainment and video distribution company. It publishes magazines, markets books, music, video and print products, produces and markets recorded music, produces and distributes motion pictures and television programming, owns and operates pay television services, owns and operates cable systems, provides telecommunications services, and operates regional theme parks.9 Time Warner has attributable interests in cable systems serving approximately 16% of all cable subscribers in the United States. 10 TCI has attributable interests in cable systems serving approximately 26% of ail cable subscribers in the United States.©© 5. In order to effectuate the merger, pursuant to the Amended and Restated ©Turner©s entertainment division includes four 24-hour domestic cable networks: Turner Superstation; Turner Network Television (TNT); The Cartoon Network; and Turner Classic Movies (TCM). Turner©s international networks include: TNT Latin America and The Cartoon Network Latin America; and TNT and The Cartoon Network in Europe and Asia. &Tumer©s production and distribution operations include three companies involved principally in motion picture production: Castle Rock Entertainment; New Line Cinema; and Turner Pictures. Turner©s production arm also includes: Turner Original Productions; Hanna-Barbera Cartoons Inc.; Turner Entertainment Co.; Turner International; Turner Program Services; and Turner Home Entertainment. ©Other Turner businesses include: Major League Baseball©s Atlanta Braves; the National Basketball Association©s Atlanta Hawks; Turner Sports; SportSouth (a regional cable network); CNN Interactive; CNN Airport Network; World Championship Wrestling; CNN Center; and interests in libraries of old motion pictures. 8Comcast Cable Communications and Continental Cablevision have ownership interests of less than 5% each. See Annual Assessment of the Status of Competition in the Market for the Delivery of Video Programming, 11 FCC Red 2060, 2789-99, Appendix H, Table 1 (1995) ("Second Annual Competition Report"). ©The assets in which Time Wamer has an interest include: Time Warner Cable, the Warner Studio, theme parks, DC Comics, Wamer Brothers retail stores, television production, the WB broadcast network, and interests in cable programming networks. Those cable network interests include: HBO, Cinemax, Comedy Central, E! Entertainment and Court TV. Time Warner owns and operates a publishing division and the Warner Music Group, a set of popular record labels. 10These percentages are based on 1995 data. See Second Annual Competition Report, 11 FCC Red at 2789-99, Appendix G, p. 3, Table 2. "Id. 19597 Federal Communications Commission FCC 96-405 Agreement and Plan of Merger and the amendments thereto, between Time Warner and Turner, a new holding company, with two subsidiaries, will be formed. Time Warner and Turner will each merge into separate subsidiaries of the holding company. Following consummation of the merger, the holding company, which will be renamed Time Warner, Inc., will emerge as a publicly-traded, Delaware corporation, and will wholly control Turner. Subject to, inter alia, the approval of Turner and Time Warner shareholders, each common and preferred shareholder of Turner will exchange its shares for common stock in the newly formed holding company. Each Time Warner share will be converted into the right to receive one share of an identical class of the capital stock of the newly-formed holding company. 6. The original transfer application attempted to address two problems of compliance with the Commission©s rules. First, Section 76.503(a), the Commission©s horizontal ownership rule, generally prohibits a person or entity from reaching more than 30% of all homes passed nationwide. 12 The applicable attribution rules recognize voting equity or partnership inte-^sts of 5% or more in a cable company for purposes of the horizontal ownership rules. 13 7. In its original application, Time Warner indicated that TCI, through its Liberty subsidiary, would receive shares of Time Warner voting stock in exchange for its shares in Turner. These shares would have constituted approximately 10% of the outstanding voting stock of Time Warner and, without more, would have resulted in a violation of the horizontal ownership rule since the combined interests of Time Warner and TCI would have far exceeded the 30% homes passed horizontal ownership limit. However, Time Warner proposed that TCI©s post-merger shares in Time Warner not be subject to either Liberty or TCI having voting power. Rather the shares would either be held in trust with the trustee (Gerald M. Levin, the Chairman and Chief Executive Officer of Time Warner) having the exclusive right to vote the stock or, in the alternative, the shares would