Old Law v. New Thing

The U.S. Department of Justice last week brought anti-trust actions against NBC and CBS. The suits were filed on New Year's Eve, thus came under the wire as an event of 1941--the year when the New Deal finally got around to radio. Engaged since October in what they declare to be mortal combat with the Federal Communications Commission, the two big broadcasting companies now faced a second attack.

On the desks of the network executives lay the neat briefs their lawyers had prepared for submission against FCC next week in a New York Federal court. They asked the court to annul the regulations issued last year by FCC and later suspended (TIME, May 12, Oct. 20). Gist of the networks' argument: "1) we are not monopolies; 2) but even if we were, FCC would not be entitled under law to determine the fact or to regulate against it." Last week's anti-trust suits looked at first like the Government's answer.

But it was nothing so simple. In Washington, FCC's Chairman James Lawrence Fly emphatically denied having anything to do with the suit, or even having known it was to be filed last week.

At the Justice Department, filing of the suit was regarded as an almost inadvertent piece of routine. Prepared last summer, it had been pigeonholed while FCC's Fly and the networks reached a working understanding. Especially during the first three weeks of war, CBS and NBC were soothed by Chairman Fly's evident sympathy. Last week they blew up all over again.

In Manhattan, CBS's earnest young President William S. Paley assumed the worst. The suit, he said, was "evidently an outgrowth of the persistent attempt by FCC to tear apart the present system of network broadcasting in favor of its own impractical theories." In Florida, vacationing Niles Trammell, NBC president, merely said he was "at a loss to understand" why the suit was brought.

Monopoly? To any disinterested citizen, these proceedings might well appear mystifying. He would think that, with a war on, the Government ought to concentrate on fighting it. CBS and NBC would seem to him to be doing their part, putting on news and Treasury shows and all that. "Monopoly" he would recognize as a word lately adjudged inapplicable to Aluminum Co. of America; and he would wonder why, then, it should be fastened on two competing radio companies that are indispensable to the nation at war.

On the desk of Fred Weber, Mutual's general manager, there lay last week not only a brief prepared by Mutual's lawyers in support of FCC against CBS and NBC, but an affidavit of Mr. Weber's. It recounted, among other business tales, the story of a program known as Ballantine's Three-Ring Time. This program went on the air for a 52-week run over a 77-station Mutual network last September.

Of the 77 stations, 14 were in cities "adequately served by less than four full-time stations," i.e., less than enough to allow CBS, NBC Red, NBC Blue and Mutual one outlet apiece. All 14 were NBC affiliates having the usual five-year contracts with NBC--contracts giving NBC an option on their best hours on 28 days' notice. FCC's new regulations modified this, requiring 56 days' notice. But FCC's regulations were not yet in force.

Three-Ring Time had no sooner started than NBC, according to Mr. Weber, exerted its options on ten of the 14 stations for the half-hour when the program was being carried; then, opportunely relaxing a tacit rule against beer and ale advertising, announced that it would carry Three-Ring Time. In December six of the ten stations on which the program had started for Mutual were among those carrying it for NBC Blue.

To NBC this sort of thing was just Mutual's tough luck as a latecomer in the broadcasting field. To Mutual it was restraint of trade, made possible by 1) the option system and 2) the fact that NBC, owning both Red and Blue networks, can recoup on the enormously lucrative Red any losses sustained in snapping up business for the Blue. To Mutual, FCC was a friend because it wanted to alter 1) and, by compelling NBC to sell the Blue, do away with 2). To NBC and CBS, FCC was an enemy because it wanted to go a great deal farther than that.

Protagonists. This struggle, and the issues involved in it, has been among the most complex in New Deal history. On the one hand is a Federal body set up to allot radio frequencies and license stations in the public interest. Through its licensing power it theoretically holds the whip hand over every one of the country's 890-odd stations. At its head is a tall, unreconstructed Texan, an oldtime anti-trust lawyer and regionalist who was once general counsel for TVA.

On the other hand is a newly rich, successful business stung by Fly into self-appraisal. It found itself to be several things at once: a marvelous medium communicating news and home entertainment to scores of millions; a boiler room of advertising patter echoing in every cranny of the nation; (and much less continuously) a fountainhead of beautiful music, intelligent discussion, excellent reporting--all given to the people free. There was no complaint from the people. CBS and NBC indeed made plenty of money. But they pointed to the $8,000,000 a year they spent on their sustaining programs and affirmed that, in an economic society, virtue must have an economic reward.

Messrs. Paley and Trammell had to think about these matters because it was plain to them that FCC's proposed regulations would not merely prevent such squeezes as Mutual complained was applied to it by NBC's Blue. The proposed rules were sweeping and revolutionary. They required that no station anywhere be linked by option-contract to one network alone. On the face of it, that would mean no NBC ... no CBS in their present advantageous forms.

Behind the stiff regulations the network men warily suspected a tough New Dealer's dislike of their urban glamor. They sensed a desire to break them down in favor of regional networks. And they thought they sensed something much more dangerous. If the stories they told were true, FCC's Chairman Fly wanted to reform not only their business methods but their programs.

The Master Argument of the chains is that they are "publications for the ear." In place of a determinable "circulation," they offer to advertisers time on a fixed number of stations they can be sure of. To remove that certainty, they say, would be like removing a publisher's certainty that he can deliver his magazine in certain cities. For FCC to threaten such action through its licensing power, they say, corresponds to an attack on the freedom of the press.

If there were only three national magazines, owned by two New York corporations, the analogy might be better. But there is in fact no good analogy for the network business. It is something new. Until last week NBC and CBS felt they had made some progress in convincing Chairman Fly that, at least, it was inappropriate to treat the chains as if they were the same kind of thing as the Sugar Trust which he prosecuted years ago. Then the Justice Department sailed in.

The anti-trust suits made all the points FCC had made in its report last spring, including some that were out of date because the networks have fixed them. But this time the networks could not argue that the charges were being brought by the wrong body. Sample points: NBC and CBS "control" 50 of the country's 52 clear-channel stations; have at their disposal 85% of the night-time radio power available; are without any possible full-time competition in 45 cities of 50,000 or more population, because they hold dominant contracts with stations.

The anti-trust suits may have been a case of mixed signals. If not, and despite the questionable relevance of the old antitrust laws in the broadcasting context, the Justice Department might make it tough. In Manhattan, the rumor was that Mutual would soon slap down a damage suit against NBC, alleging violation of the anti-trust laws. With this cold turkey NBC and CBS began the New Year.

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