American Mfrs. Mut. Ins. Co. v. AMERICAN BROADCASTING-PAR. TH.

• Citation: 270 F. Supp. 619
• Decision Date: 31 May 1967
• Docket Number: No. 63 Civ. 1492.,63 Civ. 1492.
• Parties: AMERICAN MANUFACTURERS MUTUAL INSURANCE COMPANY, American Motorists Insurance Company, Federal Mutual Insurance Company and Lumbermens Mutual Casualty Company, Plaintiffs, v. AMERICAN BROADCASTING-PARAMOUNT THEATRES, INC., Defendant.
• Court: U.S. District Court — Southern District of New York

270 F. Supp. 619

AMERICAN MANUFACTURERS MUTUAL INSURANCE COMPANY, American Motorists Insurance Company, Federal Mutual Insurance Company and Lumbermens Mutual Casualty Company, Plaintiffs, v. AMERICAN BROADCASTING-PARAMOUNT THEATRES, INC., Defendant.

No. 63 Civ. 1492.

United States District Court S. D. New York.

May 31, 1967.

Lord, Day & Lord, New York City, John W. Castles III, Muriel Bell, William E. McCurdy, Jr., New York City, of counsel, for plaintiffs.

Hawkins, Delafield & Wood, New York City, Clarence Fried, Robert G. Desmond, New York City, of counsel, for defendant.

OPINION

TENNEY, District Judge.

Plaintiffs, widely known as the Kemper Insurance Companies (hereinafter collectively referred to as "Kemper"), instituted this action against the defendant, American Broadcasting-Paramount Theatres, Inc. (hereinafter referred to as "ABC"): to obtain an adjudication that a contract between Kemper and ABC, dated August 15, 1962, for the sponsorship of the program "Evening Report" over the ABC network is illegal and unenforceable under Section 1 of the Sherman Anti-Trust Act, 26 Stat. 209 (1890), as amended, 15 U.S.C. § 1 (1964); to obtain a permanent injunction staying ABC from prosecuting an action in the New York State Court to recover damages for Kemper's cancellation of the contract (28 U.S.C. § 2283 (1964)); and for an award of treble damages (38 Stat. 731 (1914), 15 U.S.C. § 15 (1964)), and such other relief as may be appropriate.

On June 20, 1963, ABC moved, under Rule 12(b) of the Federal Rules of Civil Procedure, to dismiss Kemper's complaint, and, in the alternative, under Rule 12(f), to strike therefrom the allegations pertaining: to ABC's control over the broadcast time of its affiliates; to ABC's State Court suit; and to Kemper's request for a permanent injunction against said suit.

On August 14, 1963, this Court (per Cooper, J.) denied ABC's motions to dismiss and to strike. American Mfrs. Mut. Ins. Co. v. American Broadcasting-Paramount Theatres, Inc., 221 F.Supp. 848 (S.D.N.Y.1963).¹ Thereafter, on August 26, 1963, ABC answered the complaint. Subsequent to that time, extensive discovery has been pursued by both parties in the form of interrogatories, depositions and documentary evidence submitted herewith.

On September 4, 1964, the case at bar was assigned to me for all purposes by then Chief Judge Ryan pursuant to Rule 2 of the General Rules of this district. No jury demand has been made.

The matter is presently before this Court on a motion by Kemper for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure, on the grounds that the pleadings and papers filed in support of such motion demonstrate that there is no genuine issue as to any material fact, and that plaintiff is entitled to judgment as a matter of law. Defendant ABC, while alleging in opposition to Kemper's motion that there are triable issues of fact, has itself cross-moved for summary judgment.² Certain facts would appear not to be disputed, and will be set forth hereinafter.

In 1962, the year during which the contract at issue was negotiated and consummated, there were approximately 556 TV stations in this country and practically the entire gross income of the TV industry, which totaled one and one-half billion dollars in that year, was derived from the sale to advertisers of the broadcast time of these stations.

There are three major networks in the United States, of which ABC is one, having operated its network for almost fifteen years, and in 1962-63 ABC had approximately 260 stations affiliated with it. In addition to its affiliates, ABC is itself owner and licensee of five TV stations.³ In 1962, ABC's gross income from the sale of TV and radio time and programs, less discounts, rebates and commissions to advertising agencies, totaled $174,523,295.00. In that same year, the three networks (NBC, CBS and ABC), plus their fifteen owned and operated stations, reported total revenues of $754.2 million, accounting for 50.7 per cent of the industry total, and profits of $111.4 million, representing 35.8 per cent of the industry total. In 1962, 73 per cent of the total broadcasting revenues of TV stations in this country were derived from the sale of broadcast time, and the balance from the sale of talent and program materials. Of the sales of broadcast time, 40 per cent were network sales, 41 per cent were national spot sales, and 19 per cent were sales to local advertisers.

Programs are produced by the TV stations, by independent producers, or by a network. Where the program is not a network program, the station is free to sell the broadcast time on that program directly to advertisers, such direct sales being made in either the national, regional, or local markets.⁴ In the national and regional markets, each station is represented by an agency in the principal TV centers of the country, specifically, New York and Chicago. These agencies are known as national spot representatives, and sales of broadcast time made directly by a TV station to national or regional advertisers are known as "national spot sales". Whenever an advertiser buys on the national spot market, he buys time on such stations as he desires to deal with, for the advertiser is dealing directly with the individual station through its national spot representative.⁵ Sales to local advertisers made directly by a TV station are known as sales on the "local market" and in 1962 totaled $242.5 million.

As stated above, networks also produce programs which are made available to the TV stations. In April of 1961, ABC announced its intention to produce a new nightly news program entitled "Evening Report", which it offered for clearance (acceptance) on a five-nights-a-week basis only. Prior to the fall of 1961, "Evening Report" was broadcast without any network sponsor.

By August of 1961 there was a "going lineup" of 95 stations which had cleared the program for broadcast beginning in September 1961, of which stations approximately 90 per cent were primary affiliates having their major network alliance with ABC, the balance or secondary affiliates being for the most part stations which had a primary affiliation with another network.⁶ The primary affiliates of ABC cleared the "Evening Report" program series in accordance with the terms of ABC's standard form of affiliation agreement, under which such primary stations were given first call on ABC network programming in their areas, and, accordingly, were first offered the ABC programs or program series for clearance. Under the affiliation agreements, certain time was "optioned" to ABC by the affiliates. "Evening Report", however was not broadcast during the option time hours set forth in the agreements and thus each affiliate had the right to accept or reject the program. Upon the affiliates' clearing the program, the entire commercial time connected with that program became subject to ABC's use and control. When the program or program series with a network sponsor was first offered to an affiliate for clearance, the station could not accept the program and reject the sponsor provided by ABC. Also, if at the time of the initial clearance of a program series, ABC had secured sponsorship for only a part of the commercial time, the primary affiliate would nevertheless have had to accept the entire program series, including the unsponsored portion for which the station received no payment. The station was to carry the entire program series in accordance with the affiliation agreement, including portions unsold to a network sponsor, subject to release by ABC to the affiliate of all or part of the unsold time. The affiliates could not make any commercial use of this time by direct sale to advertisers unless the network permitted it by releasing the time to them. In 1962, ABC did release such unsold portions of program series to the affiliates for direct sale by them, but only with the proviso that such time was subject to recapture by the network upon three weeks' notice. This release of the commercial time which the network had been unable to sell allowed the station to sell that time directly to local advertisers or on the national "spot market" without compensation to the network.

Thus, the clearance of a program or program series by an affiliate meant that it had to carry the entire program or series, including portions where there was no network sponsor. And although the affiliate was not compensated by the network for the commercial time for which there was no network sponsor, the affiliate could not sell that time directly to advertisers unless it were released by the network. Finally, even when released, any sales would have to be subject to the network's right to recapture the time and oust the advertiser to whom the station had made its direct sale.

The affiliates which had cleared the "Evening Report" series were compensated by those segments of the series actually sponsored by a network advertiser. The method of compensating ABC's primary affiliates for the use of this time was based on a formula whereby ABC first fixed a network hourly station rate for each affiliate, which was the rate set forth in ABC's published rate card. Each month an average unit hourly rate was computed by dividing the total dollar value of all network programs carried during that period at such rate, by the number of unit hours carried. This average hourly rate was then multiplied by the number of unit hours in excess of 22, so as to afford ABC 22 unit free hours of time, and the affiliates were paid as compensation 30 per cent of this total figure. The effect of this arrangement was that the rate of compensation to an affiliate increased as the number of hours of network programming per month in excess of 22 unit hours increased. With respect to its secondary affiliates, no 22 hours of "free time" was supplied to ABC, and, instead, those stations received a straight 30 per cent of the total amount...