affirmed by the Supreme Court in United States v. Storer Broadcasting Corporation (U. S. —, 76 Sup. Ct. 763).

As I have indicated before, our network rules are presently under intensive survey. I think it should be noted that as one consequence of the adoption of these rules in 1941 the National Broadcasting Co., which had previously owned 2 of the 4 national networks in the AM field, was required to dispose of 1 of its 2 networks. This network became, under independent auspices, the American Broadcasting Co., and as a result the three national networks which exist today in the television field have developed independently of one another.

Nor has our applicaiton of the principles of the antitrust laws been confined to the general rulemaking efforts described above. On the contrary, we have recognized that in individual licensing proceedings, we can and must consider the past antitrust histories of potential applicants in determining whether the grant of a license to such applicants would serve the public interest. In 1950 we held a public proceeding, in which a large number of parties including the Department of Justice participated to explore this question and to determine whether any general Commission policy for handling future cases could be adopted. In the report issued by the Commission on March 29, 1951, it was determined that it would not be possible to adopt any blanket policy for handling such cases, but at the same time clearly stated that antitrust considerations were relevant to the public-interest determination to be made by the Commission, and would be considered on their individual merits whenever a significant issue as to possible antitrust problems appeared to be presented. I have with me a copy of the Commission's report which I should like to have inserted in the record of these proceedings as an annex to my testimony.

In the Mansfield Journal case the Commission applied this general principle to deny a license to an applicant, otherwise qualified, where the evidence indicated that the applicant had used its powers as the proprietor of the sole newspaper in the area to attempt to drive out radio competition by bringing pressure on local advertisers who desired to utilize the medium of radio in addition to the applicant's newspaper. I think it is important to note with respect to this case that the Commission's action, which was affirmed by the courts, took place prior to any action by the Department of Justice, or the court's finding, that the practices involved were in violation of the antitrust laws. Moreover, the subsequent conviction of the Lorain Journal (which was owned by the same group as the Mansfield Journal and engaged in similar practices) for violating the antitrust laws was in large part the result of information supplied to the Department of Justice by this Commission. Similarly, before the Commission consented to the transfer of control of the American Broadcasting Co. to the United Paramount Theatres, Inc., a comprehensive hearing was held to determine the antitrust implications of such an action. In that case the Commission determined that in spite of the past antitrust history of some of the principals of the United Paramount Theatres, the transfer would be in the public interest-primarily because it would strengthen the third competitive network in the radio and television field.

The Commission recognizes, of course, that in this area its jurisdiction overlaps, or in some instances is concurrent with, that of the Department of Justice. And it has consequently been our uniform policy to keep the Department advised on all matters coming to our attention which would appear to be of interest to that Department. Thus, the present antitrust action which the Department has brought against RCA with respect to its patent policies was based in no insignificant degree on information supplied to the Department by this Commission. Similarly, when questions arose as to possible violations of the antitrust laws growing out of the recent transfer of certain radio and television stations between the National Broadcasting Co. and Westinghouse Broadcasting Corp., the Commission kept the Department of Justice fully advised at all stages of its investigation and while the majority of the Commission decided that granting consent to the transfers would be in the public interest, it did so only on the understanding that it was not foreclosing the Department of Justice from taking appropriate action should it determine that such action was warranted. In this respect, I have noted in the trade press of this week, that the Department apparently is proceeding in this matter and has initiated grand jury proceedings in Philadelphia to determine whether a formal antitrust proceeding should be initiated.

I have not attempted in this statement to go into all of the details with respect to the antitrust questions which arise in the course of our licensing activities in the television field, nor of our day-to-day relationships with the Department of

Justice with respect to such matters. I have asked the General Counsel of the Commission, Mr. Warren E. Baker, to discuss these matters in greater detail with the committee at the conclusion of my remarks and Dean Barrow's testimony. But I do wish to make clear that the Commission is fully cognizant of the antitrust implications of its activities and that all evidences of substantial antitrust questions are scrutinized thoroughly before making any grants or taking any other action which might have a bearing upon monopolistic practices in the television field or violations of the antitrust laws.

INTEROFFICE MEMORANDUM

To: Chief, Broadcast Bureau.

SEPTEMBER 14, 1955.

From: Messrs. Lester W. Spillane, Chief, Renewal and Transfer Division, and Robert D. J. Leahy, accountant-investigator.

Subject: Report of an inquiry made at National Broadcasting Co. and Westinghouse Broadcasting Co. concerning the exchange of NBC Cleveland facilities for Westinghouse Philadelphia facilities.

Reference: Item 3, AL and TC agenda, July 20, 1955, mimeo No. 21353. Enclosures: Items 1 to 21, as described in appendix A attached hereto. closures not attached but are available for inspection.

INTRODUCTION

En

1. Pursuant to your oral instruction, an inquiry was conducted at the offices of National Broadcasting Co. in New York City, and at Westinghouse Broadcasting Co. in New York City and Washington, D. C., to determine the nature and character of events which resulted in those companies now asking the Commission's consent to exchange their respective AM and TV facilities at Cleveland, Ohio, and Philadelphia, Pa. In the course of this inquiry interviews were had at NBC with Mr. David Sarnoff, chairman of the board of RCA and NBC; Mr. Joseph V. Heffernan, financial vice president; Mr. Charles V. Denny, vice president in charge of owned stations, and spot sales; Mr. James E. Greeley, counsel for NBC, who was present at all interviews with NBC personnel; and at Westinghouse with Mr. E. V. Huggins, vice president of Westinghouse Electric and chairman of the board, Westinghouse Broadcasting Co.; Mr. C. J. Witting, president, Westinghouse Broadcasting Co.; Mr. Joseph Baudino, vice president, Westinghouse Broadcasting Co.; Mr. John Steen, counsel for Westinghouse Broadcasting Co.

2. Examination was made also of files made available by Messrs. Heffernan and Denny, for NBC, and by Messrs. Witting, Baudino, and Steen, for Westinghouse. The files contained little information. The explanation advanced by both companies was that negotiations were orally conducted and no written reports were prepared of the many conferences. At NBC, General Sarnoff was kept informed by oral progress reports. At Westinghouse, Mr. Huggins was similarly advised with 1 or 2 exceptions when a written memorandum was sent him. The file information will be discussed later. It will suffice here to say, however, that the files examined at NBC, which reportedly were the only ones in existence, included matters treating on the subjects of overlap, common ownership of radio and television stations in New York and Philadelphia and in Pittsburgh and Cleveland, and on the term of network affiliation contracts. Apart from this, the remaining material in the files of NBC consisted chiefly of notes of the proposals and counterproposals discussed by NBC and Westinghouse which are hereinafter described, and a copy of the minutes of a meeting of the board of directors of NBC, dated January 7, 1955, which approved the acquisition of Philadelphia. With respect to Westinghouse, the files include interoffice memorandums which in the initial phase of the negotiations refer to bad faith on the part of NBC and discuss such matters as the severing of all relations with NBC, and the possibility of working up a proposal for CBS. These files further reflect that as negotiations progressed, Westinghouse sought to get for its stations an assurance of future affiliations with NBC, and also exchange letters which would declare the intention of both companies and which would stress a firmer basis for stabilizing the continued relationship between NBC and Westinghouse. A letter in the files of Westinghouse from General Sarnoff to Mr. Huggins, following the signing of the agreement, and dated May 13, 1955, hereinafter described, was interpreted by Westinghouse as somewhat of a partial answer to their request for a declaration of intent by NBC.

3. Interviews with certain of the above-mentioned persons revealed that, prior to negotiating with Westinghouse, NBC had discussions with the owners of WFIL-TV which is also located in Philadelphia, Pa. Accordingly, the inquiry was extended to that area where Mr. Walter H. Annenberg was interviewed to learn the nature of those discussions and to determine what influence, if any, WFIL-TV may have had on the NBC-Westinghouse transaction. The results of this inquiry are hereinafter set forth as follows:

THE PERIOD OF NEGOTIATIONS

4. The negotiations between the parties commenced when NBC first made its proposal, in the offices of Westinghouse in New York, about September 28, 1954. Thereafter, following a number of conferences, the board of directors of RCA, approved the transaction as to NBC on January 7, 1955. The board of directors of Westinghouse gave their approval to the transaction on January 26, 1955, and the agreement for the exchange was signed May 16, 1955. It is of interest to note that during the period of the negotiations and in December 1954, Westinghouse acquired WDTV, now KDKA (TV), from Du Mont, which is now affiliated also with NBC. The extent to which this affiliation influenced the Philadelphia-Cleveland negotiations may, perhaps, be indicated by stating that the Westinghouse files disclose that on November 5, 1954, Mr. Witting wrote General Sarnoff and transmitted a letter for signature by the latter agreeing to a KDKA (TV) affiliation. In his letter Witting says "about which I will talk to you this morning." Witting advised that he did speak to General Sarnoff and the latter suggested they would talk about Pittsburgh later. The files of Westinghouse further disclose that on November 15, 1954, Mr. Huggins wrote General Sarnoff saying he wished to confirm that Westinghouse will continue in good faith and with expedition to negotiate with "your representatives" with respect to exchange of Philadelphia and Cleveland. On November 17, 1954, Mr. Heffernan of NBC wrote Mr. Huggins agreeing to affiliate Pittsburgh. The acceptance of this affiliation by Westinghouse was signed by Mr. Witting on November 29, 1954, and by Mr. Heffernan for NBC on December 14, 1954. Messrs. Heffernan and Denny stated that the Pittsburgh affiliation was in no way associated with the Philadelphia-Cleveland transaction.

5. In order to permit a full understanding of the events which occurred in this transaction, there is here stated a report on the interviews had by Commis sion representatives with the personnel at NBC and Westinghouse.

NBC'S EXPLANATION AS TO WHY IT DESIRED OWNERSHIP IN PHILADELPHIA 6. Mr. Denny explained that the determination of NBC to enter the Philadelphia market with an NBC owned and operated station resulted from an operating plan which he personally presented and recommended to the management of NBC about February 1954. Denny stated that at that time it appeared to him that the Commission would undoubtedly amend the multiple-ownership rule to a maximum of 5 VHF and 2 UHF stations.' He explained that NBC was then considerably apprehensive over its need to improve (a) its revenue position, and (b) to eliminate the competitive disadvantages which it then suffered. He stated the network was operating at a loss and that on the basis of the circulation (population) of owned stations, other networks had a commercial advantage over NBC. Illustrative of this condition Denny stated that

he pointed out to the NBC management that—

(a) ABC, CBS, and NBC competitively served the markets of New York, Chicago, and Los Angeles and that, on the basis of the 1950 official census population, those cities were the first 3 markets, respectively.

(b) NBC, in addition to the above-named cities, also served Cleveland and Washington. These 2 areas ranking 10 and 11, respectively, in the major markets had a total population of 3,189,000 persons.

(c) ABC, in addition to New York, Chicago, and Los Angeles, also served Detroit and San Francisco. Those 2 areas ranking 5 and 7, respectively, in the major markets had a total population of 5,829,000 persons.

(d) CBS, in addition to New York, Chicago, and Los Angeles, was an applicant in Boston and St. Louis. The latter 2 areas rank 6 and 9, respec

1 Notice of proposed rulemaking in this matter, docket No. 10822, had been issued by the Commission on December 24, 1953. The order increasing the number of stations from 5 to 7 was adopted September 17, 1954, effective October 22, 1954.

tively, in the major markets and have a total population of 4,763,000 persons. (e) Du Mont was serving the ranking markets of New York (1), Los Angeles (3), Pittsburgh (8), and Cleveland (10) which contained a total population of 21,959,000 persons, and Westinghouse was serving the ranking markets of Philadelphia (4), Boston (6), and was seeking to acquire_San Francisco (7),' and Pittsburgh (8), and was also an applicant at Portland (20).

(f) Denny's presentation to the NBC management then stated that the circulation strength of the 3 networks as above constituted—(b), (c), and (d) showed that ABC served a total population of 29,433,000 persons, CBS 28,501,000, and NBC 26,902,000.

7. Denny's operating plan then assumed that if NBC were serving the first 5 markets they would have a circulation of approximately 30,793,000 persons, but in any event he suggested that NBC's 5 allowable VHF stations should be located only in cities in the first 8 major markets.

8. Denny also pointed out to the NBC management that a population survey of the first 10 markets for the period from 1934 to 1953 reflected, among other things, that Philadelphia had shown a growth of 33.7 percent and had moved from the third to the fourth city in the market; Detroit showed a growth of 51.6 percent, and had moved from the sixth to the fifth city in the market; Boston showed a growth of 27 percent and moved from the fifth to the sixth city in the market; San Francisco showed a growth of 102.3 percent and moved from the ninth to the seventh city in the market; and Pittsburgh with a growth of 14.3 percent had moved from the seventh to the eighth city in the market.

9. Denny's operating plan then concluded that (a) operating costs for a VHF station in a large market were practically no greater than operating costs in a smaller area; (b) economies could be effected by operating AM and TV jointly in the same area; (c) were NBC to dispose of one of its established stations it could obtain a sum that would compensate for the initial cost and development of the station disposed of and at the same time provide funds with which to acquire facilities in a more favorable market; (d) this type of transaction should be used to acquire stations in such markets. Denny then pointed out that the NBC-Cleveland operation, for example, might possibly be sold for approximately $10 million, and that an operation in a more favorable market possibly could be obtained by NBC for much less than that sum.

THE DECISION IS MADE TO PURCHASE WPTZ

10. With the above factors in mind Denny's plan then envisaged that NBC might dispose of its Washington and Cleveland operations and profitably acquire operating units at (1) Philadelphia and (2) possibly Boston, Detroit, or San Francisco. With respect to UHF, Denny stated that of the markets NBC considered, New Britain and Buffalo were selected by him as operating areas. New Britain afforded an excellent operating point which would permit coverage of the Connecticut Valley and Buffalo afforded an excellent opportunity for developing UHF. Denny advised that the operating plan recommended by him was accepted by the management of NBC, and that he and Mr. Heffernan were then designated to carry on such negotiations as might be necessary to achieve these objectives. The date associated with this decision was March 2, 1954. Messrs. Denny and Heffernan both stated that at the time the plan was discussed they knew that General Sarnoff for sometime had had discussions with Walter Annenberg concerning the acquisition of WFIL-TV in Philadelphia, and that while no price was mentioned in any of the discussions Annenberg had indicated to Sarnoff that he was willing to exchange WFIL-TV for capital stock of RCA in lieu of cash. Denny and Heffernan stated, as did General Sarnoff, that NBC gave some consideration to purchasing that station but that it was finally decided to negotiate for WPTZ with Westinghouse instead.

NBC NEGOTIATED WITH WESTINGHOUSE

11. Messrs. Heffernan and Denny stated that they conducted the negotiations for NBC, and that in 1 or 2 discussions Robert Sarnoff joined them. They also stated that E. V. Huggins, vice president of Westinghouse Electric Co., and

In December 1954, Westinghouse acquired WDTV (TV), now KDKA (TV), from Du Mont. In July 1954, Westinghouse acquired KPIX (TV) from Wesley I. Dumm.

chairman of the board of Westinghouse Broadcasting Co., was the principal for Westinghouse with whom they dealt and that he had conducted the negotiations for that company. Heffernan and Denny emphasized that, while Huggins was assisted by Mr. C. J. Witting, president of Westinghouse Broadcasting Co. and others, it was with Huggins that final agreement for the exchange was reached. They stressed the fact that since Commission representatives had talked with General Sarnoff they should not fail to talk with Huggins. Heffernan and Denny stated that the discussions commenced sometime in September 1954, and agreement for the exchange, in principle, was reached sometime in December 1954. Thereafter, until the application for the transfer was filed with the Commission in May 1955, such negotiations as were carried on concerned only tax, accounting matters, and problems associated with the final settlement. Heffernan and Denny stated that at various periods during the negotiations they would make oral reports of progress to General Sarnoff but that no written reports of the matter were prepared by them either for management or for their own files. They were uncertain as to the number of discussions had with Westinghouse, but stated a considerable number were had. Heffernan referred to his daybook which disclosed that from September 28, 1954, to May 16, 1955, a total of 23 meetings had been held with Westinghouse, and of that total 14 meetings occurred during the September to December, 1954 period.

12. Heffernan remarked that a great many things were discussed in the various meetings preliminary to the reaching of an agreement with Westinghouse, but, he added, our lawyers tell us that nothing is binding until they approve of the final agreement reached. He stated that in their initial approach to Westinghouse they suggested that Westinghouse exchange its Philadelphia and Boston stations for NBC stations in Washington and Cleveland. Heffernan explained this was a strategy move on NBC's part; that while he did not expect Westinghouse to agree to a 2-station exchange, he did think then that Westinghouse might be willing to exchange 1 station and, in that event, might possibly offer to exchange Boston (WBZ-TV). From NBC's viewpoint, the Boston station was the least profitable to Westinghouse. Heffernan stated that he was, therefore, greatly surprised when Westinghouse, in a counteroffer, stated that they would not discuss a Boston transfer but would discuss an exchange of their Philadelphia station for NBC's Cleveland station. Heffernan stated that this basis of negotiation was reached in one of the initial meetings by NBC with Westinghouse, and that from then on the discussions centered chiefly on a valuation of the respective properties and the cash differential which was to be paid by NBC. Heffernan added that there was never any difference in opinion between the parties as to the fact that the Philadelphia station commanded a larger selling price than did Cleveland. In this respect Heffernan stated that initially NBC offered a cash "boot" of $1,500,000 while Westinghouse asked for a cash "boot" of $4 million. On the subject of affiliation, Heffernan said that in the early part of the negotiations, Westinghouse had endeavored to obtain NBC's assurance that its existing affiliations with Westinghouse stations would be long continued, and that, in addition, NBC would give sympathetic consideration to other markets that Westinghouse might go into and in which it expressed a desire for affiliation. And, Heffernan added, NBC did explore the possibility of longer affiliation contracts. However, he said that, in view of the Commission's rules limiting affiliation contracts to 2 years, NBC concluded that it could not make any commitment whatsoever to Westinghouse. Heffernan also stated that at the time of the negotiations Westinghouse was awaiting the Commission's decision on its application for a VHF station in Portland, Oreg., and that Westinghouse had unsuccessfully bargained in the negotiations for an affiliation in that city in the event it received a grant.

13. With respect to Westinghouse's suggestion that both companies exchange letters of intent which would also include a statement of the board relationship that existed between them, both Heffernan and Denny stated that Westing. house did bargain for such letters but that NBC would not agree to committing itself on this score. They both stressed the fact that the Philadelphia-Cleveland exchange was a transaction separate and distinct and free from any other associations or deals.

14. At this point in the interview the attention of Messrs. Denny and Heffernan was invited to a portion of a letter written by General Sarnoff to Mr. Huggins at Westinghouse under date of May 13, 1955. This letter was in response to one from Huggins to Sarnoff in which Huggins suggested that General Sarnoff and other NBC officials be his luncheon guests following the signing of the agreement