445 F. 2d 704 - Ksig Broadcasting Company v. Federal Communications Commission

This appeal is taken from a decision by the Federal Communications Commission (hereinafter 'the Commission') approving the application of Rice Capital Broadcasting Company (hereinafter 'Rice Capital') for a construction permit to establish an AM radio station in Crowley, Louisiana. For the reasons set forth below, we affirm the Commission's action.

Rice Capital filed its application in October, 1960. In December of that year appellant KSIG Broadcasting Company, Inc. (hereinafter 'KSIG') filed with the Commission a motion to deny or designate for hearing Rice Capital's application. KSIG owns the only radio station now operating in Crowley, a town of 15,617, and in Acadia Parish, of which Crowley is the parish seat. Station KSIG broadcasts both during the day and at night.

The applicant and KSIG amended and supplemented the original pleadings on several occasions. Finally, on June 26, 1966, the Commission issued a Memorandum Opinion and Order designating Rice Capital's application for hearing on the following issues:

1. To determine whether there are adequate revenues to support more than one standard broadcast station in the area proposed to be served by the applicant's proposal without net loss or degradation of standard broadcast service to such area.

2. Determine the basis of the applicant's (a) estimated construction costs, and (b) estimated operating expenses for the first year of operation.

3. To determine the basis for the applicant's estimated revenues for the first year of operation.

4. To determine, in light of the evidence adduced pursuant to the two foregoing issues, whether the applicant is financially qualified.

5. To determine, in light of the evidence adduced pursuant to the foregoing issues, whether a grant of the application would serve the public interest, convenience, and necessity.1

(J.A. 6). In accordance with Carroll Broadcasting Co. v. FCC, 103 U.S.App.D.C. 346, 258 F.2d 440 (1958), KSIG was assigned the burden of proving that a second AM radio station in Crowley would cause destruction or degradation of standard broadcast service in the area. On all other issues the applicant was to have the burden of proof and of proceeding with the evidence.

The hearing was held in November and December of 1967, the parties being Rice Capital, KSIG, and the Broadcast Bureau. In his decision the Hearing Examiner found that Rice Capital had demonstrated that it was financially qualified while KSIG had failed to carry its burden of proof on the Carroll issue as to whether the establishment of the proposed station in Crowley would weaken service in the area. Consequently, he proposed approval of Rice Capital's application.

KSIG appealed to the Commission's Review Board, filing numerous exceptions to the Examiner's decision. After hearing oral arguments, the Board released its decision in the case. In its opinion the Board discussed both the Carroll issue and the financial qualifications issue at some length. Moreover, apparently because it felt the Examiner may not have given sufficient consideration to the evidence which KSIG submitted with regard to the financial qualifications issue, the Board considered this issue de novo and set forth its own findings as to Rice Capital's finances. Ultimately, the Board found in favor of Rice Capital on both issues and therefore upheld the Hearing Examiner's decision.

KSIG next filed an application for review with the Commission. The Commission denied this application without opinion, thereby making the decision of the Review Board binding under section 5(d)(3) of the Communications Act of 1934, 47 U.S.C. 155(d)(3) (1964). . this appeal followed.

KSIG has made several arguments on this appeal and we have given them all full consideration. However, the only issues which we feel merit extended discussion are whether the Review Board's conclusions that the establishment of the proposed station would not result in a degradation of standard radio service in the area and that Rice Capital was financially qualified to construct and operate the proposed station were 'supported by underlying findings of fact, in turn predicated upon substantial evidence of record.' Lorain Journal Co. v. FCC, 122 U.S.App.D.C. 127, 129, 351 F.2d 824, 826 (1965).

In order to prevail on the Carroll issue, KSIG must show more than mere competitive injury resulting from the entrance of Rice Capital's station into the market. It must also demonstrate that this injury is so substantial that its station's service to the public will be impaired and, further, that the proposed station will be unable to fill the resulting gap in service coverage. As we said in Carroll:

The public is not concerned with whether it gets service from A or from B or from both combined. The public interest is not disturbed if A is destroyed by B, so long as B renders the required service. The public interest is affected when service is affected.

103 U.S.App.D.C. at 350, 258 F.2d at 444. The burden of proving that service will be affected in these circumstances is obviously a difficult one to meet (Id.), and we feel it is clear that there is substantial evidence in the record to support the Review Board's determination that this burden was not met here.

To prove that Rice Capital's station would deprive its station of revenues, KSIG attempted to show that the revenue sources available to the new station were limited. It began by arguing that the only area which the Board should consider in resolving the Carroll issue was Acadia Parish, from which KSIG derives most of its revenues.2 It contended that businesses located outside Acadia Parish would favor their local radio stations with their advertising and that it would therefore be unrealistic to suppose that Rice Capital's station would obtain significant revenues from these businesses. The Review Board found the evidence which KSIG adduced in support of this contention quite inadequate, however. KSIG merely showed that its station and five other Louisiana radio stations derive less that 15 per cent of their broadcast revenues from businesses outside their parishes.3 The Board thought the evidence regarding the revenues of the five 'outside' stations was of little significance because KSIG had not shown 'the nature and extent of these stations' respective service areas, the populations enclosed therein, (or) the competitive media within these areas.' (J.A. 71.) More importantly, the Board did not feel that the limited revenues which Station KSIG obtained from businesses located outside Acadia Parish could be taken as a standard as to what the new station might accomplish. (J.A. 72.) KSIG apparently had not made extensive efforts to sell advertising to businesses located outside Acadia Parish but within its interference-free broadcast contour. (Id.) Moreover, a map submitted into evidence by KSIG indicated that the new station's service contour would cover a large area not presently covered by Station KSIG (J.A. 215),4 and the Review Board therefore concluded that it would be able to sell advertising in this area whereas Station KSIG would not be able to do In summary, then, the Review Board found that KSIG had failed to show that the new station could not earn worthwhile revenues from areas outside Acadia Parish. (J.A. 72.)

KSIG next presented evidence with regard to potential revenue sources in Crowley and Acadia Parish. In arguing that the area could not properly support two standard radio stations, KSIG relied heavily on the general economic situation therein. In this regard it noted that the U.S. Departments of Labor and Commerce had classified Acadia Parish as an area of 'persistent unemployment' during the years 1965-67. Retail sales in the area and Station KSIG's advertising sales had, however, increased steadily during the relevant period, and the Review Board concluded, in view of these facts, that the area's unemployment problems were not sufficient in themselves to establish that 'additional broadcast revenues will not be forthcoming upon the advent of the proposed station.'5 (J.A. 73.)

KSIG also presented arguments as to potential advertising sources in Acadia Parish. It contended that only 440 of the 875 businesses theoretically available to support radio stations in Crowley6 could be considered potential 'regular advertisers.' In arriving at this figure, it categorized the available businesses by function and excluded whole categories if less than 5 per cent of the businesses therein advertised regularly over any media. Of the remaining 440 businesses, 194 advertised regularly on Station KSIG, and KSIG argued that the new station would have to rely to a very large extent on these same 194 businesses for its revenues. According to KSIG, the other 246 businesses could not be considered solid radio advertisers because its station had persistently tried to sell them advertising and had failed. The Review Board thought these calculations were based on illogical assumptions and conclusions. For example, it felt that substantial advertising revenues might be obtained from categories of businesses even though less than 5 per cent of the businesses in these categories would fall within KSIG's definition of 'regular advertisers.'7 (J.A. 74-75 n. 31.) The Board also thought Station KSIG's failure to sell advertising in any appreciable amount to 246 potential 'regular advertisers' was insufficient in itself to show that the new station could not secure these businesses as advertisers. (J.A. 75.) In this regard the Board noted that KSIG had not shown whether these businesses advertised on stations other than Station KSIG (Id.) Finding these and other defects in KSIG's presentation, the Review Board refused to accept its conclusion that the new station would have to rely on businesses which advertised regularly on Station KSIG for a large portion of its revenues; the Board thought several other revenue sources were available.

Finally, KSIG presented estimates of the amount of revenue from its station's advertisers which would be lost to the new station. It thought Station KSIG would lose six advertisers outright because of social, business, and family relationships existing between these advertisers and Rice Capital, and it contended that from 50 per cent to 75 per cent of Station KSIG's remaining major advertisers would divert some of their advertising budget to the new station. The latter estimate was based only on a few conversations Station KSIG's general manager had had with certain unidentified advertisers, and the Review Board refused to accept this estimate because it was not supported by 'evidence concerning the intent of its major accounts with respect to division of portions of their advertising support to the new station and, if so, the approximate amount of such diversion.'8 (J.A. 77.) The Board did agree that the advertisers who had ties with Rice Capital's principals would withdraw most of their advertising from KSIG, but it found that these losses would not affect the station's programming because they had already been more than offset by economy measures instituted in anticipation of Rice Capital's entrance into the market. (Id.) The Board also noted the Hearing Examiner's finding that Station KSIG could absorb additional revenue losses of some magnitude without having to curtail its public service programming. (J.A. 70.)

On the basis of the findings discussed above, the Review Board concluded that KSIG had failed to carry its burden of proof on the Carroll issue. We feel there is substantial evidence in the record to support the Board's findings. We also feel that these findings are sufficient to sustain the Board's decision. In view of the inadequacies in KSIG's evidence regarding the new station's potential revenue sources and its own station's expected advertising losses, we do not believe the Review Board was required to make further findings on such issues as the extent of Station KSIG's public interest programming and the extent to which the new station would be able to replace any of this programming which might be discontinued.9 The Board concluded that any loss of revenues by Station KSIG which could reasonably be anticipated from the evidence presented would be more than offset by economy measures which the station could adopt and that there was thus no showing that its public interest programming would be curtailed as a result of Rice Capital's entrance into the Crowley market. This conclusion is supported by the evidence and determinative of the Carroll issue.

Section 308(b) of the Communications Act of 1934, 47 U.S.C. 308(b) (1964), requires Rice Capital to present evidence demonstrating that it is financially qualified to construct and operate a radio station in Crowley. The test which the Commission has formulated to determine whether Rice Capital possesses the requisite finances was set forth in the order designating this case for hearing. There the Commission said:

An applicant (is) financially qualified if it can show that it has sufficient funds to complete construction and to meet all fixed charges and operating expenses during the first year of operation either by proof that adequate funds are available and committed to the proposed station for this purpose without income or by a convincing evidentiary showing that the available and committed funds will be supplemented by sufficient * * * revenues to enable the applicant to discharge its financial obligations during the first year. Ultravision Broadcasting Co., et al., 1 FCC 2d 544, 5 RR 2d 343 (1965).

(J.A. 3.)

Applying this test, the Review Board found the applicant to be financially qualified. It determined that Rice Capital would need $98,653.29 to construct its proposed station and operate it for one year. (J.A. 66.) The company's principals planned to contribute $20,000 toward the construction of the station and they had obtained a $65,000 line of credit. (Id.) This left a deficit of $13,653.29. On the basis of a survey of local advertisers made by Rice Capital, the Review Board felt that the Company could rely on a minimum of $21,105.00 in first-year advertising revenues. (J.A. 68 n. 20.) It therefore concluded that Rice Capital would have at least $7,400 more than it needed to cover its construction costs and first year operating expenses. (J.A. 69.)

In contending that this conclusion is incorrect, KSIG raises several points. First, it argues that Rice Capital's evidence with regard to the salaries it would have to pay to attract employees was based on inadequate knowledge of radio broadcasting in the Crowley area. KSIG feels that its salary estimates, which were made by the general manager of its station, are clearly more accurate than Rice Capital's and therefore should have been adopted by the Review Board. Rice Capital's salary estimates were made by Mr. Keim, one of its principals who was, at the time of the hearing, the general manager of a radio station in Coos Bay, Oregon. He had previously been an employee of Station KSIG for over seven years, leaving the station and Crowley in 1960. At the hearing Mr. Keim testified that he had kept abreast of the general wage level for radio station employees in the Crowley area by means of telephone calls and letters to friends in the business who still lived there. (J.A. 233-235.) Because of his continuing contacts with broadcast operations in the Crowley area, the Review Board considered Mr. Keim a knowledgeable witness and accepted his salary estimates. In view of the fact that the Review Board, as an arm of the Commission, is uniquely qualified to pass on such technical questions as the competence of expert witnesses in the field of radio broadcasting (See, e.g., Northeast Broadcasting, Inc. v. FCC,130 U.S.App.D.C. 278, 286-287, 400 F.2d 749, 757-758 (1968)), we cannot say that this was error.

KSIG also attacks the Review Board's finding that Rice Capital can record programs in its studio control room during broadcast operations and thus will not have to rent and equip a recording studio. In support of its argument on this issue, KSIG presented the results of a survey of Louisiana radio stations which indicated that all stations responding to its questionnaire had some form of recording or production studio. The Review Board rejected this evidence, however, because it did not indicate 'whether any of the responding stations were first-year operations, or whether the recording or production facilities were furnished subsequent to their first year of operation * * *' (J.A. 53 n. 8.) Although admitting that Rice Capital's proposal * * * (was) somewhat less than ideal' (Id.), the Board thought it was feasible. Considering the Board's expertise, we have no reason to disagree.

Appellant's next contention is that the Review Board erred in failing to consider as items of expense certain rental payments which Rice Capital is required to make for its proposed transmitter site. Since May 29, 1967, Rice Capital has been making payments of $56 per month for this site. The Review Board did include in Rice Capital's costs all payments maturing prior to the close of the hearing, but it felt it would be 'unduly stringent' to include payments accruing thereafter. (J.A. 58.) We can understand the Review Board's reluctance to attempt to estimate the amount of rent which would accrue prior to the date Rice Capital commences construction. Rice Capital could reasonably have been expected to defer construction until all appeals concerning its application had been decided, as it apparently has, and this made it virtually impossible for the Board to predict when construction would begin. Moreover, if the Board did attempt to estimate the appeals which would be taken and the rental payments which would accrue while these appeals were being consummated, it would be setting a precedent whereby the appeal process could be used to deplete an applicant's resources and bring his financial qualifications into question. In the future the Commission should perhaps give some thought to developing a method, fair to both parties, of determining which currently accruing costs should be included in an applicant's statement of expenses. Here it is sufficient for us to note that KSIG can expect to have a reserve of at least $7,400 and that rental payments for the transmitter site maturing since the close of the hearing will by no means exhaust this reserve.

KSIG's other contentions, which relate to such matters as telephone and electrical expenses and insurance payments, do not involve substantial amounts. Even if we were to find in favor of KSIG on this issues, there would be more than enough money in Rice Capital's anticipated reserve, even after deducting rental payments for the transmitter site, to cover the additional expenses. Thus, we conclude that there is substantial evidence to support the Board's conclusion that the proposed radio station was financially qualified.

Affirmed.