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03/06/75 Fidelity Television, Inc., v. Federal Communications


March 6, 1975




Before considering the validity of the Commission's ultimate decision under the applicable standards, it is necessary to consider some procedural and preliminary points pressed upon us by appellant.


Date Reported: Rehearing Denied June 30, 1975 at: 515 F.2d 684 at 703.

Appeal from the Federal Communications Commission


Leventhal and Robb, Circuit Judges, and Davis,* Judge, United States Court of Claims. Opinion for the Court filed by Judge DAVIS.


Nearly ten years ago, intervenor RKO General, Inc. filed an application for a three-year renewal of its license to operate KHJ-TV, Channel 9 in Los Angeles. Thus began a long saga which we may not even end today by affirming the Commission's decision in favor of RKO. *fn1 I

RKO, a wholly-owned subsidiary of General Tire and Rubber Company, has operated KHJ since 1951. Joint Appendix at 52. Under the Federal Communications Commission's license-renewal scheme, see 47 C.F.R. 73.630 (1965), this license came up for three-year renewal with those of other California licensees in 1965, and RKO filed an application for renewal on August 31, 1965. Two months later, on October 25, 1965, appellant Fidelity Television, Inc. filed an application for a construction permit to build a station at Norwalk, California, also to operate on Channel 9 and to blanket the same area. *fn2 As applications for mutually exclusive stations, the requests of RKO and Fidelity were designated for a comparative hearing by the Commission on June 8, 1966. Joint Appendix at 1-2; see Ashbacker Radio Co. v. F.C.C., 326 U.S. 327, 333, 90 L. Ed. 108, 66 S. Ct. 148 (1945). In setting the applications for a comparative hearing, the Commission, as was its practice, limited the questions to be considered to the so-called "standard comparative issues," i.e., which of the proposals would better serve the public interest, and which of the applications should be granted. These standard issues did not include programming and certain other factors. *fn3

The Commission's rules provide, however, that an applicant might petition the Review Board for an enlargement of the issues so that evidence could be presented on, e.g., character or programming. See 47 C.F.R. § 1.229 (1973). Fidelity, on June 27, 1966, filed such a petition, requesting the addition of three issues: which applicant would provide for a more fair, efficient and equitable distribution of television services; the "service philosophy" of each applicant; *fn4 and the significant differences in programming proposed by each applicant. Joint Appendix at 44. The F.C.C.'s Review Board denied Fidelity's petition on October 27, 1966, and the Commission then rejected Fidelity's application for review of the Board's order on December 29, 1966. Ibid. at 161-63. The comparative hearing on the two proposals, on the standard comparative issue only, opened on February 27, 1967, and the record was closed for the first time on June 15, 1967. Ibid. at 45.

This proceeding did not, however, simply run its ordinary course through the hearing examiner *fn5 and the Commission after the hearing opened. On March 6, 1967, the Commission released a decision in Chapman Radio & Television Co., a four-sided comparative proceeding for assignment of a new television station in Homewood, Alabama. 7 F.C.C.2d 213 (1967). One of the competitors had requested the addition of a programming issue, and the Review Board had denied the request. The Commission took the opportunity to clarify the relationship between its general policy and the incorporation of a programing issue, stating that "a proponent of the programing issue should be required to make a prima facie showing that there are significant differences in the programing proposed and should relate his claimed substantial superiority in program planning to his ascertainment of community needs." 7 F.C.C.2d at 215. Chapman was then remanded to the Review Board to consider whether a programing issue should be added under the clarified standard. Ibid.

On March 9, 1967, Fidelity filed a petition with the Commission requesting that it itself add programming and needs-ascertainment *fn6 issues on the basis of Chapman, or that it remand to the Review Board for reconsideration in the light of Chapman. This application was denied on July 12, 1967, on the ground that Fidelity had not offered any new data and the data on which it had originally relied did not amount to the " prima facie showing" required under Chapman. Joint Appendix at 171-75. Fidelity then filed a further petition for clarification with the Review Board, seeking to ascertain that tribunal's position on whether it had in effect applied the Chapman standards initially. This was denied on September 22, 1967. Ibid. at 176-79.

Concurrently, on March 2, 1967, the Department of Justice filed suit in the United States District Court for the Northern District of Ohio against the General Tire and Rubber Company, Aerojet-General Corporation, A. M. Byers Company, and RKO General, Incorporated (the latter three companies were subsidiaries of General Tire). United States v. General Tire & Rubber Co., No. C-67-155 (N.D. Ohio, filed Mar. 2, 1967). This action alleged that the four companies had violated Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2, in that they had, among other things, engaged "in a combination and conspiracy to utilize reciprocity whereby the purchasing power of all of said defendants is used to coerce and persuade certain actual and potential suppliers of the defendants to purchase tires, wrought iron products, advertising time and other products and services from said defendants, in unreasonable restraint of . . . trade and commerce; . . ." Complaint at 6, United States v. General Tire & Rubber Co. (supra).

Responding to this new development, Fidelity filed with the Review Board, on March 8, 1967, a petition to enlarge the issues to be considered at the comparative hearing to include a determination

in light of all the facts and circumstances surrounding the Complaint filed by the United States of America on March 2, 1967, against General Tire and Rubber Company,... whether RKO General, Inc., is qualified to be a licensee of the facility for which it is applying herein, or alternatively, whether such matters bear upon the comparative qualifications of RKO General, Inc.; . . . [Joint Appendix at 164.]

The Board denied the petition on June 20, 1967, saying that Fidelity's allegations of wrongdoing were not specific enough to warrant the addition of a "disqualifying character issue," but that "relevant facts and circumstances forming bases for the civil suit -- particularly as they relate to RKO's broadcast practices -- can be adduced by Fidelity under the standard comparative issue." Joint Appendix at 167-68. The Board also said that any grant to RKO would be conditioned on the Commission's right to reopen the case should the outcome of the antitrust suit be unfavorable to RKO. *fn7 Ibid. at 169.

All requests for additional issues having thus been disposed of, the comparative hearing continued on the standard comparative issue only, with Fidelity providing only a "superficial" inquiry into RKO's trade practices. Joint Appendix at 180. The record was, as noted above, closed for the first time on June 15, 1967, and the hearing examiner issued his proposed findings in September, 1967. Ibid. On February 9, 1968, however, Fidelity petitioned the examiner to reopen the record to receive newly discovered evidence -- depositions taken in the Government's antitrust suit. The hearing examiner reopened the record, but cautioned that "It is not being reopened as a repository for the record in the Ohio anti-trust suit. . . . Petitioner asks that the record be reopened for the purpose of taking evidence on the reciprocal trade practices of RKO. With the caveat that such evidence must be patently germane to RKO's stewardship of KHJ-TV that language is adopted as words limiting the scope of future hearing." Joint Appendix at 181-82. *fn8 The record was closed for good on August 26, 1968, and the initial decision of the hearing examiner came down on August 13, 1969.

The examiner's decision, without an overabundance of enthusiasm, recommended that RKO's application for renewal be denied and Fidelity be granted a construction permit to build a station to take over Channel 9. Joint Appendix at 151, 153. He found that General Tire and RKO had substantially contributed to the development of broadcast technology and had the capacity to run a good station. Ibid. at 137-41. However, he also found that KHJ's past performance in programming and community relations, particularly in the station's concentration on presenting old films and ignoring community criticism of excessive violence in some of the movies, was poor. Ibid. at 143. On the other hand, he gave Fidelity a demerit for an integration-of-ownership-and-management proposal which he felt was created just to win the license and would not be implemented. Ibid. at 150-51. Fidelity, however, was found superior in local ownership, in community-needs-ascertainment, and in providing for diversification of ownership of the mass media. Ibid. at 149. The examiner berated General Tire's anticompetitive practices, but did not give RKO a special character demerit for them. Ibid. at 144-46, 148. Finding "neither applicant is any bargain as a broadcast licensee," the examiner chose to give Fidelity a chance to improve on RKO's performance. Ibid. at 151, 153.

Soon after the release of this initial decision, another RKO station, WNAC-TV, Boston, came up for renewal. Upon the filing of two other mutually exclusive applications for construction permits, the Commission, on December 11, 1969, designated the three applications for a comparative hearing. RKO General, Inc. , FCC 74D-36 at 2 (released June 21, 1974). Included in the hearing order was an "anticompetitive" issue much like that added in the current case after the record was closed. Ibid. at 3. On January 8, 1971, the Commission's Broadcast Bureau filed a petition with the Commission asking that the KHJ record be reopened and consolidated with the WNAC record on the anticompetitive issue since the evidence being presented in the latter case was far more complete than that in the present proceeding. See Joint Appendix at 5. Fidelity opposed the move, and the Commission's ultimate resolution of the problem was to go ahead with a conditional decision in this KHJ case and to make Fidelity a party in the WNAC proceeding. RKO General, Inc., 31 F.C.C.2d 70 (1971). *fn9

The Commission heard oral argument in the KHJ proceeding on October 12, 1971, but as of March 22, 1973, had not yet reached its decision. On that day, Fidelity filed with this court a petition for a writ of mandamus. Fidelity Television, Inc. v. Federal Communications Commission, No. 73-1313 (D.C. Cir., filed Mar. 22, 1973). On June 11, 1973, the court, while refusing to issue the writ, stated that the Commission's decision had been unreasonably delayed and ordered it to report its progress within 30 days. Ibid. The Commission, although it did report on July 6, 1973, had still not issued a decision when, on November 21, 1973, Fidelity renewed its petition here. Ibid. On December 6, 1973, before the court could act, the Commission announced its decision. Joint Appendix at 1. *fn10

By a divided vote, the agency reversed the hearing examiner and granted RKO's renewal application. *fn11 The only expression of majority views was in the opinion joined by Commissioners Robert E. Lee and Reid. The opinion found that KHJ had neither engaged in nor benefited from coercive reciprocity, but had engaged only in mutual patronage reciprocity. However, the Commission concluded, partially on the basis of the widespread nature of the practice, that the injunction entered in the Ohio antitrust suit was sufficient to stop the practice and that RKO should not be denied a license for doing something arguably legal when done. Joint Appendix at 10-11. The opinion also determined that KHJ's past performance in terms of programming and community relations while not "unusually good" or "superior" was not "insubstantial" or "unusually poor." *fn12 Furthermore, RKO had promised in its 1962 renewal application no more than it had provided. Therefore, the opinion stated, since the "record must be deemed to be within the bounds of average performance expected of all licensees, [it] [warrants] neither a preference nor a demerit." Joint Appendix at 16.

Going on to diversification, the opinion found that while RKO superficially looked poor in this category (in that the company was the licensee of AM and FM stations in Los Angeles as well as stations in other states and was a shareholder in several cable television systems), each station was operated independently and, particularly in the case of KHJ, was one of many media outlets in its market. Finding that the dangers of non-diversification, which it characterized as promotion of "any national or other uniform expression of political, economic, or social opinion," did not exist in this case, the opinion concluded that "we are not persuaded that the nature of RKO's interests is such as to have any adverse effect on the flow of information for the audience to be served here." Joint Appendix at 17. The opinion also found that, since a Fidelity stockholder owned an interest in several suburban Los Angeles newspapers, the challenger was not entirely free of diversification problems. Finally, noting ongoing rulemaking proceedings on the application of the diversification criterion to renewal applicants, including a proposed rule requiring divestiture, the opinion concluded that "neither applicant has made a sufficient showing to warrant the award of any preference under the diversification criterion." Ibid.

On the subject of integration, for which the hearing examiner had given Fidelity a demerit, the opinion found the two applicants equal. It said that Fidelity's conduct as an applicant had indicated that "the record here gives little promise that Fidelity will effectively implement its paper integration promises." Joint Appendix at 20. On the other hand, RKO was found to have achieved the purposes of integration -- local control and accountability -- through its policy of station independence, and by requiring active participation in community affairs by station employees. Ibid.

Finding the two applicants thus equal on the standard comparative factors, the opinion based the ultimate outcome on a policy decision that "credit must be given in a comparative renewal proceeding, when the applicants are otherwise equal, for the value to the public in the continuation of the existing service." Ibid. at 22. This was found to have tipped the balance in RKO's favor, and the license was therefore renewed -- conditional with respect to anticompetitive practices on the final outcome of the WNAC proceeding. *fn13 II

First, Fidelity has argued (Brief for Appellant at 37-42) that this court should overturn the Commission's decision or at least disqualify then Chairman Burch on the grounds that "the decision in this case is nothing more than an extension of the Commission's operational bias in favor of incumbent licensees." Brief for Appellant at 42. This bias has, appellant claims, been revealed in prior decisions of the Commission and in Chairman Burch's testimony before Congress. The claim is almost exactly the same as that made and rejected in F.T.C. v. Cement Institute, 333 U.S. 683, 700-02, 92 L. Ed. 1010, 68 S. Ct. 793 (1948), and we find that case controlling.

Next, Fidelity charges that the Commission's ultimate decision was fatally defective because it was based on a record limited by the Commission's earlier, allegedly improper, decisions to restrict the hearing to the "standard comparative issue." At various points in the proceeding, Fidelity unsuccessfully sought the addition of five issues -- distribution of services (the so-called 307(b) issue), service philosophy, programming, needs ascertainment, and anticompetitive conduct. We consider each of these rulings of the Commission in turn.

Section 307(b) of the Communications Act, 47 U.S.C. § 307(b) (1970), requires the F.C.C. "to provide a fair, efficient, and equitable distribution" of television service to the communities of the United States. Fidelity contends that "the Southland," which it describes as Orange County and the communities to the south and east of Los Angeles, Joint Appendix at 198, is a community without television service but which deserves it under section 307(b). This is not technically a comparative issue, since if Fidelity were right then appellant, meeting the minimum requirements, could receive the license regardless of the merits of RKO's operation of KHJ. See Anthony, supra note 3 at 85-87. However, a "307(b) issue" is, when properly raised, added to the comparative hearing order and considered as part of the comparative hearing. See, e.g., Southern Tier Radio Service, Inc., 19 F.C.C. 496 (1954); St. Louis Telecast, Inc., 22 F.C.C. 625 (1957).

The Commission denied Fidelity's request for addition of a 307(b) issue because Fidelity had failed to make the necessary first showing that "the Southland" was a community, let alone a separate community in need of television service. Joint Appendix at 160. The Commission's decision cannot be overturned. In failing to define the Southland with greater specificity, Fidelity rendered its request facially insufficient under the standards previously announced. In Southern Tier Radio Service, Inc. (supra) § 307(b) was held not to be relevant because the applicant was unable to define with precision "Greater Endicott." 19 F.C.C. at 551. When Fidelity failed even to list the political units which make up "the Southland," the Commission was justified in rejecting the request as facially insufficient. Cf. United States v. Storer Broadcasting Co., 351 U.S. 192, 205, 100 L. Ed. 1081, 76 S. Ct. 763 (1956). The Commission also found that Fidelity had not presented a prima facie showing that Norwalk, the one clearly identified community, was "significantly independent of Los Angeles from the economic and cultural standpoint," noting that Fidelity had based its proposed advertising revenues on the entire Los Angeles market. Joint Appendix at 159-60. There is no sound basis for questioning this factual determination; this court has previously affirmed a finding that a suburb only slightly closer to Los Angeles than Norwalk was not a separate community. Huntington Broadcasting Co. v. F.C.C., 89 U.S. App. D.C. 222, 192 F.2d 33 (1951), aff'g Huntington Broadcast Co., 14 F.C.C. 563 (1950). See also St. Louis Telecast, Inc., 22 F.C.C. 625, 712-14 (1957).

As part of the same petition, Fidelity asked the Commission to add a "service philosophy" issue. That concept, as we have noted, is a term of art used to describe an applicant's intention to direct its programming only or primarily to a part of the area to be covered by a station's signal. The Commission found that Fidelity fits directly into the mold developed in Petersburg Television Corp., 19 F.C.C. 451 (1954) -- that appellant had surveyed only three Los Angeles residents and could therefore be found to have ignored the actual city of license in its planning. 19 F.C.C. at 464-65, 475; see Joint Appendix at 160. The Commission's decision is factually accurate, see Joint Appendix at 199, and based on the Petersburg standard Fidelity could legitimately have been given a demerit for "service philosophy." The decision not to add the issue to the comparative hearing was not only harmless but probably favorable to Fidelity. *fn14

Another additional issue rejected by the F.C.C. was programming. Prior to the 1965 Policy Statement, 1 F.C.C.2d 393 (1965), the proposed programming of the competitors was compared and the ruling on this criterion formed an important part of the ultimate determination of who received the license. See Jaffe, WHDH : The FCC and Broadcasting License Renewals, 82 HARV. L. REV. 1693, 1695 (1969). In the agency's view, this resulted in paper battles with little assurance that the winner would actually produce the programming forecast; the issue was deemed especially unfair when a renewal applicant, who had to run on his record, was pitted against a challenger who could promise any type of programming the Commission favored. Ibid. The 1965 Policy Statement put an end to this practice by requiring that a programming issue be separately designated and by stating that it would be allowed only "to the extent [programming differences] go beyond ordinary differences in judgment and show a superior devotion to public service." 1 F.C.C.2d at 397. The Commission also made clear that percentage differences, even with regard to the highly favored category of local programming, must be based on ascertained community needs in order to justify the addition of a programming issue. Ibid.

Fidelity requested that the Commission add a programming issue because of its emphasis on local programming and the "marked differences in the percentages which the applicants propose to devote to the various program categories." Joint Appendix at 205. The Commission refused on two grounds -- that the program differences were mere differences in judgment and that Fidelity had not done an adequate needs survey to justify the insertion of the issue on the basis of "superior devotion to public service." Ibid. at 161. If the agency's decision had been based only on the first ground, it might well be questionable. Fidelity offered 22% less entertainment and twice as much educational and news programming as RKO. Ibid. at 205-06. These differences exceed those on which an issue was allowed in WPIX, Inc., 23 F.C.C.2d 245, 256, 259 (1970), and on which the Review Board was requested to reconsider in Chapman Radio & Television Co., 7 F.C.C.2d 213 (1967). *fn15 However, the Commission also found that the needs-ascertainment survey Fidelity made, which was basically limited to the "Southland," did not provide an adequate basis on which to decide whether the appellant's programming differences were really related to the needs of the entire service area (which of course included Los Angeles). Fidelity understood the Commission's position that a programming issue depended on three factors -- differences in programming, adequate needs ascertainment of the area covered by the license, and relation of the needs to the proposed programs. Joint Appendix at 206. In choosing to orient its surveys only to one part of the service area, Fidelity took the risk that if it did not win on the 307 (b) issue, supra -- as it did not -- the Commission could find that it had inadequately surveyed the needs of its area. Knowing this, Fidelity cannot now complain that it lost its bet. *fn16

Fidelity's attempt to have a separate needs-ascertainment issue added requires little discussion. Commission rules provide (and have so provided since 1963) that a motion for enlargement of issues must be filed within 15 days after the notice of issues scheduled for the hearing is published in the Federal Register. 47 C.F.R. § 1.229 (b)(1973). The Federal Register notice in this case was published on June 11, 1966, 31 Fed. Reg. 8253 (1966), so that the time to file a petition to enlarge ran out on Monday, June 27, 1966. The Review Board found that Fidelity had not shown that the petition filed July 24, 1967 could not have been filed in time, Joint Appendix at 178, and Fidelity did not appeal the Board's ruling to the Commission. Fidelity having failed to exhaust its administrative remedies on this issue, the Review Board's determination is not properly before this court. Cf. Pine v. United States, 178 Ct. Cl. 146, 371 F.2d 466, 467-68 (Ct. Cl. 1967).

Finally, we take up Fidelity's request to have an issue relating to RKO's anticompetitive conduct added to the hearing. While the Commission eventually did add such an issue, Joint Appendix at 187, it acted rather late and on a limited basis, and Fidelity argues that therefore it was not able to produce an adequate record on the subject. Appellant's Brief at 19. The background has already been touched on in Part I (supra). Borrowing from the Justice Department's suit against General Tire, Fidelity charged that RKO, through its parent General Tire, had engaged in "reciprocity," the practice of obtaining sales by conditioning purchases on future orders. The challenge was in essence that KHJ, because of its place in the General Tire structure, automatically received advertising without competing with other Los Angeles stations. If proven, the anticompetitive effect on other stations would be obvious. Reciprocity is especially complex in a conglomerate like General Tire because its needs and products are diverse; for example, rubber purchases can be conditioned on advertising sales. Fidelity argues that, for this reason, it was necessary for it to be able to present evidence on reciprocity in the entire General Tire organization, and not simply that which was "patently germane to RKO's stewardship of KHJ-TV," as required by the hearing examiner. Appellant's Brief at 17-20; see Joint Appendix at 182.

Given the nature of the charges, including the allegation of direct involvement by RKO and not merely General Tire, see Complaint at 7, United States v. General Tire & Rubber Co. (supra) it seems that the Commission could well have granted Fidelity's initial request to enlarge the issues to include anticompetitive conduct. But the error proved harmless. By the time this case reached this court, Fidelity had managed to create a fairly substantial record in this proceeding on the reciprocity practices of RKO, not merely in its operation of KHJ, but throughout the entire broadcast side of its business. Furthermore, Fidelity also participated in the more intensive hearing on General Tire's anticompetitive conduct as part of the WNAC renewal proceeding. See Part I (supra). The renewal of RKO's license for KHJ was expressly made subject to the ultimate determination in the WNAC case. A full record on the anticompetitive issue has thus been compiled, and it will be available for consideration with respect to KHJ after the Commission makes its final decision on the status of RKO's license based on the outcome of the WNAC proceeding. III

It will be helpful to consider separately one other matter before coming directly to the agency's decision on the actual comparison of Fidelity and RKO. Before a comparative hearing can be held, or at least before the winner can receive a license, it is necessary for the Commission to determine that the applicant meets "the citizenship, character, and financial, technical, and other qualifications" the F.C.C. prescribes. See 47 U.S.C. § 308 (b) (1970); Anthony, supra note 3 at 34. In this case, there was serious objection on the character issue only as it related to RKO's alleged anticompetitive conduct. *fn17 The basic nature of the charge and the procedural problems have been discussed in Part II (supra). Here we assess the validity of the Commission's determination, on the basis of the record in this proceeding, *fn18 not to disqualify or grant a demerit to RKO because of the trade relations practices of General Tire. *fn19

The antitrust law on reciprocity is not entirely settled. The practice of explicitly and successfully conditioning orders for supplies on the supplier's purchase of products from the buyer has been held to be a violation of at least Section 5 of the Federal Trade Commission Act since the 1930's. *fn20 Also, the opportunity for such practices which might arise from a merger can result in the merger's constituting a Clayton Act section 7 violation. *fn21 When no merger is involved, and in particular where it is not clear that attempts to induce sales through purchases are successful, the controlling rule is less plain. *fn22

The evidence in this case largely shows, as the agency opinion found, ineffective attempts at reciprocity, particularly with respect to KHJ. *fn23 Joint Appendix at 10-11. At best, there is doubt whether unilateral, unsuccessful attempts at reciprocity constitute an antitrust violation. See Kintner, The Anatomy of Reciprocity, 56 A.B.A.J. 232, 233 (1970). In the General Dynamics case, so far the most expansive on the subject, only successfully completed efforts were considered by the court in determining whether the Sherman Act had been violated, 258 F. Supp. at 66. We do not think that the F.C.C. is required to go further than the courts -- particularly with respect to an earlier period in which the law and the general practice were even less clear than today. See infra. *fn24

There are also instances in the record of successful reciprocity. Most of these have little to do with RKO, and even less with KHJ, whose ratings at times were so poor that, even with the added push of reciprocity, no advertising was received. Joint Appendix at 122-26, 132-35. In addition, as was typical following the coercive reciprocity cases of the 1930s, it appears that the reciprocity shown in this record was considered mutually beneficial by both companies, and that although purchases might in some cases be rerouted in response to reduced sales, General did not attempt to use coercion as an inducement.

Contemporary sources indicate that this type of non-coercive reciprocity was extremely widespread in the early 1960s, but more recent writings suggest that it has largely been abandoned in recent years. See Handler, Emerging Antitrust Issues: Reciprocity, Diversification and Joint Ventures, 49 VA. L. REV. 433, 435 (1963); Hausman, Reciprocal Dealing and the Antitrust Laws, 77 HARV. L. REV. 873, 874 (1964). Compare Kintner, The Anatomy of Reciprocity, 56 A.B.A.J. 232, 233 (1970). The practice was not affirmatively declared illegal until the 1966 General Dynamics case, 258 F. Supp. at 66, and even there the merger context might have accounted for the ruling. *fn25 General Tire has been since 1970 under a consent decree which prevents it from engaging in most sorts of reciprocal trade relations. In these circumstances, and remembering that KHJ was only a small part of what went on and that antitrust considerations are only one segment of the Commission's concern with the character of a broadcast applicant, we find that the F.C.C. did not act arbitrarily, capriciously, or illegally in refusing to give RKO a demerit or not to disqualify it for the reciprocity practices outlined in this record. *fn26 IV

We come now to our final task -- scrutiny of the F.C.C.'s ultimate decision in the light of the standards for comparative renewal hearings developed by the agency in the past. *fn27 In reviewing the F.C.C.'s decision, particularly under the broad mandate given that agency -- that it shall grant a license "if public convenience, interest, or necessity will be served thereby," 47 U.S.C. § 307(a) (1970) -- our function is, as has often been repeated, a limited one. It is necessary only that we satisfy ourselves that the agency acted within the bounds of its statutory and constitutional authority, *fn28 that it has followed its own procedural rules and regulations, *fn29 that its findings of fact are reasonably articulated and based on substantial evidence in the record as a whole, *fn30 that its conclusions do not deviate greatly from past pronouncements without sufficient explanation, *fn31 and that in general it has engaged in reasoned decision-making. *fn32

The two basic features of the present system as the Commission has developed it are that a renewal applicant will be judged on his past record, and that the so-called traditional comparative factors are largely predictors of the kind of service a new applicant would offer and not requirements for being a good licensee. *fn33 It is not our function to approve or disapprove this framework if it falls, as it does, within the agency's authority. As we have said before, *fn34 and as the F.C.C.'s oversight committees in Congress have recently reiterated, *fn35 the comparative hearing process might well come much closer to producing licensees who act in the public interest if standards of "substantial service" in programming and other areas were developed either by the FCC directly or through stricter rules for ascertainment of community needs, and if licensees were required to follow them or run the risk of non-renewal. *fn36 But we reiterate that it is not our judicial job to direct the Commission on how to run the comparative hearing process, beyond assuring that the administrative process respects the rights of the public and of competitors assured under the Communications Act and the Ashbacker doctrine, and that it produces rational decisions based on factors generally known in advance.

We consider first the Commission's finding that RKO's performance was "average" and not "poor" as the hearing examiner had found. *fn37 If the performance was poor, then by the Commission's own standards, RKO would have been almost out of the running. *fn38 While the examiner's decision is an important part of the record before this court, particularly where he is overturned on an inference from facts accepted by the Commission, "it is the agency's function, not the examiner's, to make . . . the ultimate decision, and where there is substantial evidence supporting each result it is the agency's choice that governs." Greater Boston Television Corp. v. F.C.C., 143 U.S. App. D.C. 383, 444 F.2d 841, 853 (1970), cert. denied, 403 U.S. 923, 91 S. Ct. 2233, 29 L. Ed. 2d 701 (1971). The record shows that KHJ's programming during the license period was largely oriented to the showing of feature films, usually interrupted by a substantial number of commercials. Joint Appendix at 72-81. On the other hand, the record also shows that RKO was the first licensee in the country to obtain a substantial film library and to make these movies available to the television audience. Ibid. at 51. While some films engendered substantial criticism for excessive violence, many of the movies "claim excellence" and the large bulk were inoffensive. Ibid. at 60. In addition, RKO did present, at a substantial expenditure of money, some other entertainment programs which enriched the Los Angeles television scene. Ibid. at 60-61. In the non-entertainment category where RKO had not promised much, *fn39 the showing was similarly mixed. News coverage, for example, even for the 1962-65 era of 15-minute national news, was not overabundant, but on the other hand the station did present a certain amount of coverage of Los Angeles City Council hearings. Ibid. at 64-65. On an absolute basis, it might be difficult for all of us, if we were regulators, to characterize KHJ's past performance as "superior," entitling it to "a plus of major significance," *fn40 but as judges we are agreed that we cannot, on the record as a whole, say that the Commission's decision that programming performance was "average" is bereft of the support of substantial evidence.

Having decided that RKO's programming performance was only "average," the Commission had to go on to the other traditional criteria, comparing Fidelity's predicted success in achieving the goals of integration, local ownership, and diversification with RKO's actual performance in those areas.

As we noted above, the examiner, but not the Commission, gave Fidelity a demerit for its integration proposal. The agency's reversal of the hearing examiner on this point was more apparent than real, since both felt that the proposal, while on paper all that the Commission could have wanted, had extremely little chance of being implemented. Joint Appendix at 150-51, 18-20. The examiner's decision was presumably based on his observation of Fidelity's witnesses and on his opportunity to discern the character of Fidelity's owners and their ability to perform. This is precisely the type of examiner's decision which must be given the most weight by the agency, and the Commission's ultimate decision on this point, which in effect agreed with that of the hearing examiner, can stand on the record the hearing examiner created. See Universal Camera Corp. v. N.L.R.B., 340 U.S. 474, 496, 95 L. Ed. 456, 71 S. Ct. 456 (1951).

On RKO's behalf, the Commission found that, through the company's policy which "requires the management of its stations to involve themselves in a wide range of community and civic organizations and to use the information gained from such contacts to help determine the direction and programming of the station," RKO's management had acquired the kind of interest in local affairs which made the station responsive to the community -- the ultimate goal of the integration and local ownership criteria. Joint Appendix at 20. The examiner's decision shows that KHJ's supervising personnel were long-time residents, including natives, of the Los Angeles area, and were active in a wide variety of civic associations both locally and nationally. Joint Appendix at 55-56. The record also shows more formal efforts to ascertain community needs, as well as the results of these efforts in KHJ's programming. Ibid. at 57-58. *fn41 While we cannot say that RKO's local interest performance was any better than Fidelity's could be predicted to be on the basis of the challenger's integration proposal, we also cannot properly overrule the Commission's finding that it was no worse. Ibid. at 20-21.

With respect to diversification, it was apparent on this record that Fidelity had far fewer media interests than did RKO *fn42 and that if diversification in its quantitative form were the basis of comparison, Fidelity should have been preferred on this point. Joint Appendix at 149. However, in a renewal hearing, or in a standard comparative hearing where one applicant is the licensee of other stations, the Commission has on occasion considered whether the licensee has in the past met the goals of diversification by operating his stations autonomously and independently. See McClatchy Broadcasting Co., 19 F.C.C. 343, 380-81 (1954). But cf. Chronicle Broadcasting Co., 18 F.C.C. 2d 120, 123 n. 9 (1969). In addition, the number of other outlets for diverse views in the market is an important consideration in weighing the need for a new organization to receive the license. See Greater Boston Television Corp. v. F.C.C., 143 U.S. App. D.C. 383, 444 F.2d 841, 859-60 (1970), cert. denied, 403 U.S. 923, 91 S. Ct. 2233, 29 L. Ed. 2d 701 (1971); City of Camden, 18 F.C.C.2d 412, 422 n. 22 (1969). Here, both the Commission and the examiner found that KHJ was operated independently of control from the national office of RKO or General Tire, except in broad policy areas. Joint Appendix at 17, 57. While the examiner's report shows some headquarters supervision, particularly in making sure that local stations live up to their promises to the F.C.C., ibid. at 52-53, there is nowhere near enough evidence in the record for us to require the Commission to come to any other conclusion on station autonomy. There is also substantial evidence to support the Commission's findings that there is sufficient opportunity to present diverse views through the area's 126 radio stations, 12 commercial television stations *fn43 and 350 newspapers, including two general circulation dailies. Though the Commission has vacillated over the years in its general approach to diversification, its determination in this case was not in direct conflict with any rule or any policy as enunciated in prior decisions, and we cannot say that the approach here was an unreasonable or unlawful application of the existing diversification principles to this renewal case.

On the whole it is fair to say that the Commission found that the ultimate effect of its analysis of the record was that Fidelity and RKO were essentially equally poor contenders - or, at the best, both were minimally acceptable applicants. While the agency was under no obligation to give the license to either competitor, we cannot say that it committed legal error when, in its attitude as of the times pertinent in this case, it took the view that "minimal service is to be preferred to no service at all." Compare Broadcast License Renewal Act, H. REP. NO. 93-961, 93d Cong., 2d Sess. 17 (1974). There is no need here to expand on "renewal expectancies." We are not faced with a situation where a superior applicant is denied a license because to give it to him would work a "forfeiture" of his opponent's investment. We merely confirm what we intimated in the Greater Boston Television Corporation case -- that, 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. 444 F.2d at 854, 859.

It is worth emphasizing the special posture of this particular case. It is based on a record built under standards which have since been upgraded or modified or reconsidered by the Commission. New community ascertainment criteria have been issued and there is now a requirement for something of a continuing dialog between a station and its audience. The agency has also undertaken its rule-making process on cross-ownership. The development, through rule-making, of standards of "substantial performance" also seems imminent and should prove helpful. We hold here only that under the former criteria the Commission, when faced with a poor challenger who offers little more and is likely in fact to provide somewhat less than the incumbent, did not commit reversible error by awarding the license to the incumbent. *fn44

Affirmed. *fn45




* Sitting by designation pursuant to 28 U.S.C. § 293(a)(1970).

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