National Association of Theatre Owners v. FCC

Decision Date30 September 1969
Docket NumberNo. 22623.,22623.
Citation420 F.2d 194
PartiesNATIONAL ASSOCIATION OF THEATRE OWNERS and Joint Committee Against Toll TV, Petitioners, v. FEDERAL COMMUNICATIONS COMMISSION and United States of America, Respondents, Zenith Radio Corporation and Teco, Inc., Intervenors.
CourtU.S. Court of Appeals — District of Columbia Circuit

Mr. Marcus Cohn, Washington, D. C., with whom Mr. Martin J. Gaynes, Washington, D. C., was on the brief, for petitioners.

Mr. Daniel R. Ohlbaum, Deputy General Counsel, with whom Mr. Henry Geller, General Counsel, and Miss Katrina Renouf, Counsel, Federal Communications Commission, were on the brief, for respondent Federal Communications Commission. Mr. John H. Conlin, Associate General Counsel, and Mrs. Lenore G. Ehrig, Counsel, Federal Communications Commission, also entered appearances for respondent Federal Communications Commission.

Mr. Howard E. Shapiro, Washington, D. C., was on the brief, for respondent United States of America.

Mr. Harold David Cohen, Washington, D. C., with whom Messrs. W. Theodore Pierson and Vernon C. Kohlhaas, Washington, D. C., were on the brief, for intervenors.

Before TAMM, LEVENTHAL and ROBB, Circuit Judges.

Certiorari Denied February 24, 1970. See 90 S.Ct. 914.

TAMM, Circuit Judge:

Today we are faced with a question of national importance, id est, whether the Federal Communications Commission possesses the requisite power to authorize nationwide over-the-air subscription television1 (commonly referred to as "pay TV") on a permanent basis. For the reasons hereinafter stated, we hold that the Commission can authorize such a service under the authority conferred upon it by the Communications Act of 1934, 48 Stat. 1064, as amended, 47 U.S.C. §§ 301-397 (1964), and that the Commission acted properly in prescribing rules for the development of this new service.

I. PROCEDURAL HISTORY

The history of the Commission's involvement with subscription television (hereinafter STV) is indeed lengthy. Nearly two decades ago, on February 25, 1952, the Zenith Radio Corporation filed a petition with the Federal Communications Commission requesting authority to institute a subscription television service.2 On February 10, 1955, the Commission issued a Notice of Proposed Rulemaking, 20 Fed.Reg. 988, in which it requested comments from interested parties on the question of whether the Commission had the statutory power to authorize such operations. After voluminous responses to this inquiry were filed, the Commission released a Notice of Further Proceedings, 22 Fed.Reg. 3758 (1957), in which it announced that trial demonstrations of STV would be necessary before a final decision could be made. Shortly thereafter, on October 17, 1957, the Commission issued its First Report on subscription television, 23 F.C.C. 532, which concluded that the Commission could authorize pay television, but that trial operations should be conducted first. At this point Congress began to take notice of the problem, and the House Committee on Interstate and Foreign Commerce conducted hearings on the subject. Upon conclusion of these hearings, the Committee passed a resolution requesting the Commission to defer authorization of any STV operations. See 16 P&F Radio Reg. 1539-1540 (1958). The Commission then issued its Second Report3 on pay television which suspended the processing of all STV applications until the expiration of the 85th Congress; this delay was subsequently extended through the 86th Congress.

In 1959 the Commission issued its Third Report on subscription television, 26 F.C.C. 265, 16 P&F Radio Reg. 1540a, in which it reasserted the conditions for trial operations set out in the First Report. In addition, the Third Report stated that as soon as the trial operations provided sufficient data, public hearings would be held to determine whether STV should be authorized on a permanent basis. Pursuant to the Third Report, three applications were filed for trial STV operations; only one such station ever commenced operations, however.4 This station, which was operated by Zenith Radio Corporation and its licensee Teco, Inc.,5 intervenors in this action, began broadcasting over UHF station WHCT in Hartford, Connecticut during 1962. This operation was initially licensed for three years, but the license was subsequently extended for an additional three years in 1965; in 1968 it was again extended for three years, or until such time as the Commission authorized STV on a permanent basis. The Commission's authority to license the trial operation was approved by this court in Connecticut Committee Against Pay TV v. FCC, 112 U.S.App. D.C. 248, 301 F.2d 835, cert. denied, 371 U.S. 816, 83 S.Ct. 28, 9 L.Ed.2d 57 (1962).

In 1965 Zenith and Teco jointly filed a petition for further rulemaking to establish permanent nationwide STV on the basis of the data derived from their trial operation in Hartford. The Commission then issued, in 1966, a Further Notice of Proposed Rulemaking and Notice of Inquiry, 31 Fed.Reg. 5136, 7 P&F Radio Reg.2d 1501, which, in essence, requested further comments on the feasibility of nationwide STV. Subsequently, in 1967, the FCC's Subscription Television Committee submitted to the Commission a Proposed Fourth Report, 10 P&F Radio Reg.2d 1617 (1967); the FCC, en banc, invited comments and held oral argument on the proposed report.

After the issuance of the Proposed Fourth Report, which concluded that the Federal Communications Commission did have statutory power to authorize permanent nationwide STV, the Communications and Power Subcommittee of the House Interstate and Foreign Commerce Committee conducted hearings on the subject of STV during the week of October 9, 1967. Upon conclusion of these hearings the full Committee recommended that the Commission refrain from taking any action for one year or until the Communications Act of 1934 was amended to authorize subscription television. See 15 F.C.C.2d at 466, 470. On September 3, 1968, the Commission, through Chairman Hyde, sent a letter to Chairman Staggers of the House Committee on Interstate and Foreign Commerce indicating that the Commission could not delay any further in resolving the important question of STV authorization.6 The Commerce Committee responded on September 11, 1968, by adopting a resolution announcing that it was "the sense of the Committee" that the Commission should delay action on STV "until the end of the first session of the 91st Congress" or until "completion of action on legislation if by the end of said first session legislation pertaining to * * * STV is under consideration." The resolution went on to state that "it is the further sense of this committee that to avoid any further delay * * * hearings * * * should be scheduled by the end of May 1969." 15 F.C.C.2d at 471.

Finally, on December 12, 1968, the Commission issued its Fourth Report on subscription television, 15 F.C.C.2d 466, in which it reaffirmed its earlier conclusion that it possessed the power to authorize a permanent nationwide system of STV and established rules governing the operation of that system. The National Association of Theatre Owners and the Joint Committee Against Toll TV, participants in the Commission proceedings, filed a petition for review in this court pursuant to section 402 of the Communications Act, 47 U.S.C. § 402 (1964), alleging statutory and constitutional errors in the Commission's determinations.

II. THE FOURTH REPORT

The Commission's Fourth Report and Order is a lengthy (144 pages) and carefully reasoned document which surveys the potential advantages and disadvantages of subscription television in light of the Hartford experiment and the contentions of various parties interested in pay television. On the basis of its seventeen-year inquiry into STV, the Commission concluded that subscription television would provide a "beneficial supplement" to conventional "free" broadcasts7 in the sense that STV broadcasting "is not duplicative of the programming of free TV and that it is desired or needed by at least a portion of the viewing public." 15 F.C.C.2d at 473 n.20; see also id. at 483-488. In considering the critical question of whether STV would have substantial adverse impact on free television, the Commission placed primary emphasis on the possibility that programs, audiences, and talent would be diverted ("siphoned") from free television to STV. Because the Commission recognized that the public's "tremendous investment * * * in television receivers based on the expectation of free service ought to be protected and the millions of viewers who rely on that service for free entertainment should be permitted to do so," it imposed a number of restrictions on STV operations. In brief, the Commission provided that STV stations could be established only in communities located entirely within the Grade A contours of five or more commercial broadcast stations, and that only one STV station could be located in each such community; that each STV station must broadcast at least twenty-eight hours per week of free programming; and that STV stations must observe detailed restrictions on the kind and quantity of subscription programs broadcast in order to prevent "siphoning." See 15 F.C.C.2d at 494-495, 515-523, 595, 597, 598; see also pt. IVB, infra. Rules were also established governing the technical specifications and modus operandi of STV stations; see 15 F.C.C.2d at 544-548, 595-598. In promulgating these restrictions, the Commission attempted to strike a balance between the danger of allowing STV operations to acquire enough economic power to destroy free broadcasting, and the risk of hedging the new service with so many restrictions that it would "smother" before it ever got started. Thus, the Commission rejected the suggestion, urged by petitioners and others, that direct regulation of the rates charged by STV stations was...

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