United States v. Nat. Broadcasting Co., Inc.

• Decision Date: 26 January 1978
• Docket Number: Civ. No. 74-3601-RJK.
• Court: U.S. District Court — Central District of California
• Parties: UNITED STATES of America, Plaintiff, v. NATIONAL BROADCASTING COMPANY, INC., Defendant.

449 F. Supp. 1127

UNITED STATES of America, Plaintiff, v. NATIONAL BROADCASTING COMPANY, INC., Defendant.

Civ. No. 74-3601-RJK.

United States District Court, C. D. California.

January 26, 1978.

Bernard M. Hollander, Bernard J. O'Reilly, Kevin R. Sullivan, Barry J. Kaplan, George W. Selby, Washington, D. C., Polly L. Frenkel, Dept. of Justice Antitrust Div., Los Angeles, Cal., for plaintiff.

Schnader, Harrison, Segal & Lewis, Bernard G. Segal, Harvey Levin, Jerome J. Shestack, Peter S. Greenberg, Philadelphia, Pa., Gibson, Dunn & Crutcher, Samuel O. Pruitt, Jr., Don J. Belcher, John J. Hanson, J. Edd Stepp, Jr., Los Angeles, Cal., for defendant.

MEMORANDUM OF DECISION RE CONSENT DECREE

KELLEHER, District Judge.

I. Introduction

The government's complaint against National Broadcasting Company ("NBC"), alleging violations of the Sherman Act, was filed on December 10, 1974. NBC answered the complaint on December 30, 1974, and the action thereafter proceeded through various stages of discovery and pretrial motions. On November 17, 1976, presumably upon the completion of extensive negotiations, the government and NBC submitted to the Court a proposed final judgment by consent which, upon approval by the Court, resolves all claims between the parties and concludes the litigation.

Because this is a civil antitrust lawsuit brought by the United States, the terms and conditions of the Antitrust Procedures and Penalties Act ("APPA") apply. See 15 U.S.C. § 16 (1977 Supp.). APPA provides that the government must publish any proposed consent judgment and receive public comments thereto and that before the Court may approve such a judgment, it must determine that such judgment is in the public interest. The Act authorizes, but does not require, the Court to adopt certain procedures to aid in its determination of the public interest question.

The proposed consent judgment and the competitive impact statement ("CIS") were published in the Federal Register on November 24, 1976; additionally, summaries of the judgment were published in local newspapers in the District of Columbia and Los Angeles, California. Thereafter the Court and the government received numerous comments on the judgment, and in due course the government responded to these comments, publishing all relevant documents in the Federal Register on May 16, 1977. Based on the comments received, certain changes were made in the proposed judgment, and on May 4, 1977, NBC and the government submitted to the Court an amended proposed final judgment. Now that the requirements of the APPA concerning publication and consideration of public comments have been satisfied, the matter is ripe for a judicial determination of whether the proposed judgment is in the public interest.

II. Background and Complaint

This litigation was commenced by the government in April of 1972 when it filed separate but similar complaints against ABC, CBS and NBC. Upon a motion by defendants to dismiss the actions on the ground that there had been noncompliance by the plaintiff with certain orders of Court, the Court, on November 13, 1974, dismissed the original actions without prejudice. Thereafter, on December 10, 1974, the government filed new complaints, again alleging the same violations of the Sherman Act as contained in the original complaint. These new complaints survived a repeated defense motion to dismiss on grounds of unconstitutional prosecutorial purpose and the case proceeded through discovery in pretrial proceedings. The Court also denied three other significant motions made on behalf of the defendants: (1) a motion for summary judgment on the Sherman Act claims; (2) a motion to dismiss on the ground of exclusive jurisdiction in the Federal Communications Commission; and (3) a motion to dismiss without prejudice or to stay on the ground of primary jurisdiction in the Federal Communications Commission.

The complaint alleges violations of §§ 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1 and 2 (1970), in connection with NBC's practices and activities in producing, procuring, and distributing prime-time television programs. In general, the complaint challenges the control exerted by NBC over the production, acquisition and exhibition of television programs shown during the prime-time hours. To comprehend the allegations of the complaint, it is necessary to understand, at least on a rudimentary basis, the manner in which NBC procures and exhibits its prime-time television programming.

Of approximately 700 television stations in the United States which broadcast commercial television programs, about 200 stations have affiliation agreements with NBC. During prime-time evening hours, these stations depend upon NBC for virtually all of their television programs. In addition to the affiliated stations, NBC owns and operates stations in five of the nation's leading television markets — New York, Los Angeles, Chicago, Washington, and Cleveland. The government contends that with the power derived from its control over the owned and affiliated stations, NBC has monopolized the trade in commerce of production of prime-time television programming shown on the NBC network, has attempted to monopolize such market, and has entered into combinations and agreements in restraint of trade, particularly as it contracts for the purchase of programs produced by independent producers.

Most of the programs shown on the NBC network have been produced either by NBC itself or by independent producers who sell rights, including the right of exhibition, to NBC. One of the practices challenged by the government in this action is NBC's custom of purchasing from independent program producers various rights in addition to the right of exhibition. The value of a television program is not exhausted by its first network showing. After the completion of its run on network television, a program may be distributed to individual television stations for non-network broadcast. It also may be distributed to foreign television stations for broadcast while appearing at the same time over a domestic television network. This distribution to individual stations for non-network broadcasting is known as syndication. The government contends that for a substantial number of programs produced by independent producers, NBC acquires the syndication rights and thereby derives a substantial portion of the ultimate profits produced by a television program. The government contends that NBC is able to purchase these valuable subsidiary rights from independent program producers because of its control of access to the NBC television network, and since CBS and ABC pursue the same practice, independent program producers must deal on network terms or not deal at all.

The complaint also focuses on the relationship between NBC and advertisers. At one time in the television industry, it was not uncommon for an advertiser to purchase air time from the networks and to purchase television programs from outside program suppliers for broadcast during such air time. The advertisers thus constituted a substantial market for the income of program producers and served as buyers in competition with the networks. The complaint charges that NBC now will not sell air time to advertisers for the exhibition of a television program, but will sell only time for commercial messages, broadcast in conjunction with a program already selected by NBC. It is claimed this practice has removed advertisers as a competitive force in the purchase and sale of television programming and has left the three networks as the primary market for outside program suppliers.

It is charged that in furtherance of this monopoly over the market of television programming shown on its network, NBC has engaged in the following acts:

(a) excluded television programs in which NBC had no ownership interest from broadcast on the network during prime-time hours;

(b) compelled outside program suppliers to grant to it financial interest in television programs produced by them;

(c) refused to offer program time to advertisers and other outside program suppliers;

(d) controlled the prices paid by NBC for the exhibition rights to motion picture feature films distributed by non-network distributors; and

(e) as a producer of programs itself, obtained a competitive advantage over other producers and distributors of television programs and motion picture feature films.

It is claimed the effects resulting from these acts are:

(a) ownership and control of television programs shown during prime evening hours on the television network are concentrated in NBC;

(b) competition in the production, distribution and sale of television programs has been unreasonably restrained (c) competition in the sale of television programs to NBC by outside program suppliers has been unreasonably restrained; and

(d) the viewing public has been deprived of the benefits of free and open competition in the broadcasting of television entertainment programs.

The complaint prays for the following relief:

(1) that NBC be prohibited from obtaining any interest except for the first-run right of exhibition in television programs produced by others;

(2) that NBC be prohibited from engaging in syndication of any television programs;

(3) that NBC be prohibited from transmitting over its television network any television program, including feature films, produced by NBC or any other commercial television network, and from allowing any NBC-produced program from being transmitted over CBS or ABC networks; and

(4) that NBC be prohibited from using its control of access to broadcasting time on the NBC network to foreclose competition or obtain an unfair competitive advantage in any other field.

In summary, the complaint focuses on three basic aspects of business within the NBC television network: (a) the terms and conditions on which NBC purchases television programs and feature length films from independent producers...