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URL 26: The Long Version of the FCC’s Decision—No Merger at Channel 3

URL 26: The Long Version of the FCC’s Decision—No Merger at Channel 3 (In Chapter 33, page 157) (9,086 words) (26,848 cum words)

Preliminary Statement

By orders of the Commission released June 12 and September 1, 1972, and of the Review Board released January 4, March 9, and March 23,1973, the above-captioned applications were designated for hearing on the following issues:

Point 1: To determine with respect to the application of Western Communications Inc. (Donrey):

  1. Whether the licensee engaged in fraudulent billing practices in violation of Section 73.1205 of the Commission’s Rules and Regulations, by certifying to the National Broadcasting Company in certain documents that the licensee broadcast certain network programs in their entirety, including commercial content, whereas the licensee had deleted certain network commercial advertisements in the programs certified as having been broadcast in their entirety.
  2. Whether in the course of the Commission’s inquiry the licensee made misrepresentations to the Commission or was lacking in candor regarding its policies or practices in joining network programs after their beginning, leaving network programs before their end, or extending network station or commercial breaks so as to affect the content of the network programs.
  3. Whether in light of the evidence adduced under the preceding issues, Western Communications is qualified to remain a licensee of the Commission.
  4. To determine in the event that it is concluded that Western Communications is qualified to remain a licensee of the Commission, what impact, if any, the evidence adduced under issues 1 9a) and 1 (b) would have upon its comparative evaluation.

Point 2:

  1. To determine whether the American Television Co., Inc., former licensee of station KFSA-TV, Channel 5, Fort Smith, Arkansas, owned wholly by Donald W. Reynolds, engaged in fraudulent billing practices in violation of Section 73.1205 of the Commission’s Rules and regulations, by sending invoices to distributors and manufacturers representing charges for advertising in excess of the amounts actually charged a local advertiser, and by certifying to the CBS and NBC television networks in certain documents that the licensee broadcast certain network programs in their entirety, including commercial content, whereas the licensee had deleted portions of said programs, including certain network commercial advertisements in the programs certified as having been broadcast in their entirety.
  2. To determine whether Nevada Radio-Television Inc., licensee of Station KOLO-TV, Channel 8, Reno, Nevada, owned wholly by Donald W. Reynolds, engaged in fraudulent billing practices in violation of Section 73.1205 of the Commission’s Rules and Regulations, by certifying to the CBS Television Network in certain documents that the licensee broadcast certain network programs in their entirety, including commercial content, whereas the licensee had deleted certain network commercial advertisements in the programs certified as having been broadcast in their entirety.
  3. To determine the effect, if any, of the evidence adduced under the foregoing issues, considered individually or together with the evidence adduced under issues 1 (a), (b), and (c), on the comparative qualifications of Western Communications (KORK-TV).
  1. To determine, in light of the evidence adduced pursuant to the foregoing issues, which of the applicants should be granted.
  2. The applicants published notice of the hearing and notified the Commission thereof pursuant to the governing statute and rules. Conferences and hearings were conducted on various dated between October 13, 1972,and January 31, 1974. The record was finally closed by order of the presiding Judge released May 23, 1974. The filing of Proposed and reply Findings of fact and Conclusions was concluded by May 24, 1974. The filing of Proposed and Reply Findings of Fact and Conclusions of Law was concluded by Mary 24, 1974.

Next in this document are 4 issues:

  • Issue 1 (a) Fraudulent Billing (points 3-23)
  • Issue 1 (b) Misrepresentation (points 24-42)
  • Issues 1 ( c) and 1 (d) Effect on Western’s qualifications (points 43-55)
  • Issue 2 Stations KFSA and KOLO

Begin Issue 1 (a) Fraudulent Billing (points 3-23):

Point 3:

Throughout the last license period, KORK was an affiliate of the National Broadcasting Company. The affiliation contract provided, in pertinent part, that KORK would not:

  • without NBC’s prior written authorization make any deletions from or additions to any program furnished to you hereunder, or broadcast any commercial or other announcements during any program.
  • delete any NBC Television Network identification, program promotional or production credit announcement within a Network program period, including any such announcement at the conclusion of an NBC Television Network program except for announcements promoting a network program which is not to be broadcast by the station. For any such deleted promotional announcements, you shall substitute only other NBC Television Network or Station program promotional or public service announcements.

The contract also specified that “The placement and duration of station-break periods provided for locally originated announcements between NBC Television Network programs, or segments thereof, shall be designated by NBC. The station will broadcast each program which it has accepted from the commencement of network origination until the commencement of the terminal station break.”

Point 4:

Each week KORK submitted Station Reports to NBC. The reports were on a form furnished by the network. The form listed the network programs and commercials available the previous weeks and included a column to be filled out by KORK listing which programs or commercials the station did not broadcast. The reports, which were attested by the affidavit of the general manager, furnished the basis for calculating the compensation due KORK from NBC.

Point 5:

During the last license period, October 1, 1968, to September 30, 1971, the general managers were Edward R. Tabor (Footnote 1) from the start of the period to May 1, 1971, and thereafter Robert N. Ordonez. The record indicates the Station Reports which these men attested were generally inaccurate, and that failures to carry portions of programs or commercials were not reported to NBC.

Point 6:

Prior to the installation of a microwave link to NBC’s station in Burbank, California, in 1965, KORK received its network programs on film or tape. Under this system, it was possible for KORK to insert extra local commercials without the necessity of deleting any part of the material furnished by the network. The only effect was to delay the actual moment at which programs started by the amount of time consumed by the extra commercials inserted earlier in the broadcast day.

Point 7:

However, with the advent of the microwave link in 1965, KORK was broadcasting the network programs live, and it could no longer insert extra local commercials without deleting a portion of the material supplied by the network. This, the station undertook to do as a matter of policy and general practice.

Point 8:

At the beginning of each season, NBC sent to KORK its new program schedule and also specified the time to be allotted to KORK for local commercials. Mr. Tabor would then decide which breaks would be extended to accommodate extra local commercials. He would extend the breaks from 10 to 60 seconds beyond the time authorized by the network, and the station’s salesmen would sell on the basis of the time availability he thereby established.

Point 9:

Mr. Tabor testified that his policy was not to delete or clip network commercials or portions of the actual program. He said his intention was that only network “clutter” would be clipped. By “clutter,” he referred to network transmissions of such things as opening or closing credits; the opening “Peacock” which NBC used at that time; opening slides, films, theme music, etc., used to identify particular programs; and various forms of brief network, program, or sponsor identifications or promotions. Tabor acknowledged that the advance material received from the network did not allow the station personnel to know with certainty exactly how much “clutter” would be within a given program or exactly when it would occur. He relied upon the familiarity of his operators with the format of the various network programs. He expected them to be able to predict when “clutter” would be presented within a given program.

Point 10:

KORK’s operators were instructed to be as unobtrusive as possible in selecting the instant at which they would leave the network early or rejoin it late. They were not to interrupt a sentence or otherwise make the breaks at such a time as might alert the audience to the fact that a portion of the network transmission had not been broadcast. (Footnote 2)

Point 11:

It is apparent that KORK’s policy to clip network “clutter” was in deliberate violation of its contract quoted at Point 3 supra. It is equally apparent that its failure to report such clipping in its weekly Station Reports rendered those reports into misrepresentations. Moreover, the presiding Judge is unable to believe that experienced broadcasters truly expected that the clipping could be limited to only what they define as “clutter.” On the one hand, the extra local commercials which it sold were of a specific duration. On the other hand, the station had no way of knowing with certainty exactly what the network would be transmitting at the exact moments which had to be clipped to accommodate the extra commercials. Even if only “clutter” was eliminated on most occasions, it was inevitable that there would be times when integral portions of the program and of network commercials would fall into the moments which had to be clipped to permit the broadcast of the pre-scheduled local commercials.

Point 12:

This record establishes that, in fact, the clipping of network commercials was a common occurrence. NBC and its station KNBC-TV run a combined operation in Burbank, California. Computers at Burbank simultaneously transmit network programs to KNBC-TV and to KORK, among others. Thus, when both stations are hooked into the network, both should be broadcasting the same material at the same time. A comparison of the logs of the two stations revealed that was often not the case. (Footnote 3)

Point 13: The Broadcast Bureau undertook to compare KNBC-TV and KORK logs for 15 network programs during the last license period. During those programs, KORK clipped all or part of 21 network commercials.

Point 14:

Valley Broadcasting (the challenger for Channel 3’s license) undertook a more extensive study of KORK’s programming. It analyzed 28 weeks of logs during the last license period. That analysis indicated that during those 28 weeks, KORK clipped all or part of approximately 250 network commercials! While Valley’s study was shown to be not entirely free of flaws, it does buttress the Bureau’s study, and permits the finding that during the last license period the clipping of network programs was a regular, frequent practice of KORK. However, no Station Reports from KORK to NBC were introduced covering the weeks Valley analyzed. Hence, it is impossible to say whether KORK did or did not report to NBC that it failed to broadcast the network material which it had clipped. (Footnote 4)

Point 15:

The record also establishes that KORK’s practice of joining network programs late, leaving them early, and extending mid-program breaks was quite extensive. The Broadcast Bureau resented evidence of 41 occasions when KORK joined a network program from 7 to 30 seconds late. Valley’s 28-week analysis revealed some 200 late joins, and over 500 occasions when programs were left early. Some of the instances involved only 1 or 2 seconds, but others ranged up to 30 seconds. The Bureau established 14 occasions on which mid-program breaks were extended by from 20 to 50 seconds. Valley’s study showed over 500 mid-break extensions ranging from a few seconds to a full minute. (Footnote 5)

Point 16:

None of the deviations involved in the Broadcast Bureau showing were acknowledged in the weekly Station reports sent to NBC. Indeed, on two occasions when KORK was off-the-air, once for 17 minutes and 45 seconds, and once for 50 minutes, the Station Report indicated that the network programming being transmitted at the time had been carried. (Footnote 6)

Point 17:

Mr. Tabor justified KORK’s conduct on the ground that clipping was a common practice at the time he authored it. His opinion was shared by other KORK employees who testified that they had personally observed clipping on the other two Las Vegas network affiliates. (Footnote 7) was engaging in essentially similar conduct.) Moreover, as discussed at paragraphs 44-55, infra, it appears that the practice was also being followed at other stations under common ownership with KORK.

Point 18:

Mr. Tabor testified, and he is un-contradicted that he never advised his superiors in Western’s corporate organization of his instructions to his staff to engage in clipping. However, the record indicates that higher echelons did have at least tacit knowledge of the practice. During the last license period, Tabor’s immediate supervisor was Donald W Reynolds, who was Executive Vice President of Donrey Inc., the owner of Western Communications Inc. Mr. Reynolds Jr. is the son of Donald W. Reynolds, the owner of Donrey Inc. Reynolds Jr. was responsible for the Donrey Media Group which operated a number of broadcast and non-broadcast companies, including Western. Although he did not inquire into the specifics of KORK’s commercial practices, he assumed that KORK was overloading breaks because he believed it to be a common practice. His first acquaintance with a specific instance of clipping at KORK came in the falloff 1970 when he was called upon to deal with a viewer’s complaint regarding a commercial which interfered with the broadcast of a World Series baseball game. However, it does not appear that at time he pursued the matter to determine just how extensive the practice was. (Footnote 8)

Point 19:

By the time Mr. Ordonez took over as general manager on May 1, 1971, the corporation was beginning to show some concern about its clipping. Prior to his appointment to KORK, Ordonez had been General Manager of Donrey’s station KFSA-TV in Fort Smith, Arkansas. When Mr. Reynolds Jr. promoted him to KORK, he told him to look into a possible problem with over-commercialization in Las Vegas. Mr. Ordonez asserted that almost immediately after his arrival in Las Vegas he commenced an investigation of the situation. On May 18 or 19, he received a report on the matter, and issued orders that overloading during prime time be ceased the following day. In order to establish time availability for excess commercials which had already been contracted for in prime time, KORK pre-empted several network programs during June 1971. Feature films were run in their stead because such films allowed the station to allocated however much advertising time as might be needed during their presentation.

Point 20:

In July 1971, following another Commission inquiry into the matter, Mr. Ordonez eliminated overloading during daytime hours.

Point 21:

On January 19, 1972, some 7 months after this case was designated for hearing, Western wrote to NBC. It stated that in the course of preparing for this hearing, it had determined that some or all of certain network commercials had been missed. It offered to recompense NBC for those commercials enumerated in the Broadcast Bureau’s Bill of Particulars which followed the order of designation. It also offered recompense in such amount as NBC might deem appropriate for any non-commercial network programming as had not been broadcast. Finally, it asked for copies of its Station Reports over the last license period (its own copies having been destroyed by fire) in order that it might compare them with its logs to determine whether any material not specified in the Bill of Particulars had been deleted.

Point 22:

On January 30, 1973, NBC replied stating that KORK had received $324.36 for the commercials listed in the Bill of Particulars. With respect to the non-commercial programming which was clipped, it stated that NBC did not suffer any specific financial loss and, although it regarded such deletions as a violation of its contract with KORK, it did not regard restitution as necessary in view of the station’s abandonment of the practice of clipping. (Footnote 9)

Point 23:

On February 5, 1973, Western paid NBC $324.36 in recompense of what it had received for the deleted network commercials. It also undertook a comparison of the Station Reports with its own logs in order to determine whether any other commercials might have been missed. As of the time of the close of the record, that study had not been completed. (Footnote 10)

Begin Issue 1 (b) Misrepresentation (points 24-42):

Before points 24-42, though, the FCC inserted paragraphs 164-169. Here they are:

Paragraph 164:

From the start of the last license period through July of 1971, KORK, as a matter of policy and practice, regularly deleted portions of the network programming it had contracted to broadcast in order that it might accommodate extra local commercials. The station has advanced the claim that its policy was only to delete what it has described as network “clutter” and that it did not intend to delete network commercials. That claim is rejected as incredible! Given the not entirely predictable intermixture of network program material, clutter, and commercials, the insertion of extra local commercials of pre-determined length could not have failed from time to time to result in the covering of network commercial material. This fact could not have been less than apparent to the experienced broadcasters responsible for the operation of KORK. It is concluded that KORK deliberately and knowingly undertook a policy which inevitably resulted in the clipping of network commercials.

Paragraph 165:

Nevertheless, KORK consistently reported to the network over the affidavits of its General Managers that all scheduled network commercials had been carried. The record does not establish that in any instance where a network commercial has been proven to have been clipped, the General Manager had actual knowledge of that fact when he certified to the network that it had been carried. However, the record also fails to establish that the General Managers made any affirmative effort to ascertain the accuracy of the reports which they certified. In view of the fact that they knew their station was following a policy which must inevitably have resulted in the clipping of network commercials, their failure to check the accuracy of the reports they submitted to the network renders them constructively knowledgeable of those reports which were inaccurate.

Paragraph 166:

The ultimate ownership of KORK vests in Mr. Donald W. Reynolds, Sr. The record indicates that he delegated all of the authority for the day-to-day operation of the station to subordinates. His chief subordinate was his son, Donald W. Reynolds, Jr. The record does not show that either of the Messrs. Reynolds had any contemporary knowledge of any of the specific acts of clipping which had been proven.

Paragraph 167:

However, the record does show that Mr. Reynolds, Jr., had responsibility for and tacit knowledge of KORK’s practice of clipping. He instructed the General Manager that sales and income projections for the station must be increased. In a situation where network breaks were already full or overloaded, such instructions by an experienced broadcaster were tantamount to orders to clip. Thereafter, he had general knowledge that the station was commercially overloaded. If he then remained unaware of the specifics of the clipping, it was only because he chose to remain unaware. Rudimentary investigation by a man in his position would have revealed to him precisely what the situation was.

Paragraph 168:

Rule 73.1205 provides in pertinent part that” “No licensee…shall knowingly issue to any party, any document which misrepresents the quality of advertising actually broadcast. Licensees shall exercise reasonable diligence to see that their agents and employees do not issue any documents which would violate this section if issued by the licensee. It is concluded that KORK violated this rule in two particulars.

Paragraph 169:

The General Managers of the station issued documents to the network which they constructively knew contained misrepresentations as to the quantity of advertising actually broadcasted. Mr. Reynolds Sr., who as the ultimate owner of the station is to be regarded as the licensee within the meaning of the rule, exercised no diligence whatsoever to see that his agents and employees were complying with the rule. He delegated his entire authority to his son who issued instructions which invited violation of the rule and who, thereafter, elected to remain in ignorance of what was happening.

Point 24:

In the course of the Commission’s investigation into KORK’s clipping practices, several representatives of the licensee submitted letters to the Commission. Certain factual statements in those letters form the basis for the issue alleging misrepresentations and lack of candor.

Point 25:

On October 29, 1970, the Commission directed a letter to KORK enclosing a letter of complaint from a viewer. The complaint alleged that during the 1970 World Series, KORK extended its commercials during station breaks to the extent that it was returning to the games after they were in progress. (Footnote 11) The Commission inquired of KORK:

Did or does station KORK-TV insert advertising in network programs at other than the scheduled times for advertising or join the program late in such a manner as to affect the program content of such broadcasts? If so, please state when and under what circumstances this occurs and whether it is the policy of the licensee to insert commercial or other material in programs, join them late, or leave them early, with such effect.

Point 26:

A copy of the Commission’s October 29, 1970, letter was sent to KORK’s Washington communications counsel where it was handled by Mr. Victor E. Ferrall. On at least two occasions Ferrall telephoned KORK’s then General Manager, Edward Tabor. On the basis of these conversations, Ferrall prepared a letter which he filed with the Commission on November 6, 1970, over his own signature.

Point 27:

Ferrell’s letter stated in pertinent part: During each of the World Series games, there were two between-inning breaks reserved for local advertising announcements. Although the length of the breaks was such as to require the use of 20 second announcements, the program director had available to him only 30 second announcements which he used in those few local breaks. The result was that the commercial time broadcast by the station in the two breaks was slightly longer than the break, and a few seconds of sports programming was lost. The general manager of the station was out of town on business at the time the World Series was broadcast. When he returned to the station long before the complaint letter was received, he learned what had happened and severely reprimanded the program director. It is the firm policy of KORK-TV to limit the length of commercial announcements to the available break time and not to carry advertising in such a manner as to affect program content. The station realizes that strict adherence to this policy can be of particular importance to viewers of sporting events. KORK-TV regrets the isolated incident about which Mr. Lockhart complains.

Point 28:

The record reveals facts quite different from those stated and implied in the November 6, 1970, letter. With respect to the assertion that the length of the breaks required 20 second announcements but that the station had only 30 second commercials available, the TWX which KORK received from NBC informed it that 32 second breaks would be available at the end of the 5th and 7th innings. Thus, if KORK had only 30 second spots available, it was on notice that it had time to broadcast one such commercial plus a two second station identification at each break. In the program, it actually sold and broadcast three 30 second spots plus a two second station identification at each break. It is found that its assertions regarding this matter in its letter were factually false and designed to mislead the Commission as to what happened and why. (Footnote 12)

Point 29:

Whereas the letter asserts that the general manager “severely reprimanded” the program director for this specific incident, Tabor testified at the hearing that, although he discussed the matter with the program director, “I wouldn’t necessarily say I severely reprimanded him.” While this mis-statement in the letter may appear at first glance to be immaterial puffery, the presiding Judge views it more seriously. Since, as noted at paragraph 7 and 8 supra, Tabor had made the overloading of network breaks a matter of policy and practice, he is most unlikely to have “severely reprimanded” a subordinate for carrying out that policy. The statement that he did so is found to be an attempt to mislead the Commission into believing that KORK’s management regarded the overloading as unusual and culpable.

Point 30:

Finally, the station’s expression of regret over the “isolated incident” is found to be both hypocritical and false. The record shows that during the four other games of the 1970 World Series, KORK overloaded the network breaks essentially as it did during the first game. (Footnote 13) During the four games of the 1968 World series, the station consistently extended the 32-second 5th and 7th inning breaks to 62 seconds. During the first network baseball game of the 1971 regular season, NBC again TWXd KORK that two 32-second breaks would be available. The station, however, took a 65 second break after the 5th inning and a 55 second break after the 7th. Thus, far from being an isolated incident, the occurrence which was the subject matter of KORK’s November 6, 1970, letter was a typical result of the station’s policy of overloading network breaks.

Point 31:

On March 8, 1971, another Las Vegas viewer wrote to the Commission to complain that on that date KORK had covered a portion of a network program with a local commercial. (Footnote 14) On April 8, 1971, the Commission forwarded this complaint to KORK with a letter which inquired in pertinent part: (Footnote 15) “Did or does Station KORK insert advertising in network programs at other than the scheduled times in such a manner as to affect the program content of such broadcasts? If so, state when and under what circumstances and whether it is the policy of the licensee to insert commercial or other material in programs, join them late, or leave them early with such effect.”

It should be noted that this inquiry is very limited in its area of interest, although less than precise in the terms it employs. It does not ask the general question whether any network program material has been clipped, but rather the specific question whether such material has been clipped in such a matter as to affect the program content. However, it does not define the term program content, and the presiding Judge is unaware of any generally-understood usage of that term in the broadcast industry.

Point 32:

Again, Victor Ferrall consulted with Edward Tabor by telephone to ascertain the facts, and on April 21, 1971, replied by letter over his own signature. His letter stated in pertinent part: “In response to the question asked by the Commission, it is the policy of KORK-TV not to insert advertising in network programs at other than the scheduled times in such a manner as to affect the program content of such broadcast. Of course, on occasion, errors do occur. When they do, steps are taken in order to attempt to insure that they will not be repeated. The management of the station takes a very stern view of such oversights. In connection with the particular complaint transmitted by the Commission, the commercial matter was broadcast in error. The member of the station’s staff responsible for the mistake has been severely cautioned not to permit such errors in the future.”

Point 33:

Due to the very limited nature of the Commission’s inquiry and its use of the undefined term “program content,” this response of KORK comes near to being the literal truth. It was during the Ferrall / Tabor conversations regarding this incident that Ferrall was first told of KORK’s practice of clipping network “clutter” as defined at paragraph 9, supra. Since Ferrall did no regard such material as being “program content” within the meaning of the Commission’s letter of inquiry, he did not deem it necessary to discuss the practice in the response he prepared. However, it appears that Tabor did not brief Ferrall quite fully enough on the mechanics of KORK’s clipping, and Ferrall’s lack of knowledge led to statements in the letter which were not in accord with the facts.

Point 34:

At paragraph 10 and footnote 3, supra, it has been noted that KORK’s operators were instructed to be unobtrusive in inserting the extra local commercials. In other words, although the station’s official policy was not to clip “program content,” it was aware that there would be times when the extra commercials would intrude on the network programs. Hence, it was necessary to issue instructions to the operators to leave and rejoin the network in such a manner as to leave the viewers unaware that there had been an unauthorized absence. In short, policy did not and could not accord with practice, and the statement that it is “not the policy of KORK-TV to insert advertising…in such a manner as to affect the program content” asserts a station policy unrelated to what was actually being done.

Point 35:

On May 14, 1971, the Commission again wrote KORK on the subject of overloaded network breaks. This time, the Commission’s letter was motivated by a viewer complaint as to the commercial practices of all of the Las Vegas commercial TV stations. (Footnote 16) The Commission’s letter inquired: “The licensee has stated that it is not its policy to insert commercial material during network programs at other than the scheduled times so as to affect the program content of such broadcast. However, complaints have been received over a period of approximately six months indicating that there has been a continuing pattern of operation of KORK-TV with respect to network programs having the effect of reducing program content. You are requested to submit a statement setting forth in detail the procedures you have adopted or intent to adopt to prevent recurrence of the practices complained of.”

Point 36:

At about the time it received the Commission’s May 14 letter, KORK became aware that the same viewer who had complained to the Commission, Donald W. Hendon, had circulated among advertising agencies a document alleging that the Las Vegas TV stations were broadcasting commercials which interfered with program content. On Ferrall’s advice, KORK’s general manager Bob Ordonez initiated an investigation of the allegations. On May 20, he reported to Ferrall that he had determined that the network breaks were too full of local commercials to avoid the possibility of switching errors. He proposed to correct the problem by reducing the number of local commercials scheduled during breaks.

Point 37:

On June 1, 1971, KORK responded to the Commission’s May 14 inquiry with a letter signed by Ordonez. In pertinent part, that letter stated in five paragraphs: (Footnote 17)

Paragraph 1: The two earlier complaints referred to in the Commission’s letter related to isolated operation errors….The policy of KORK-TV not to broadcast commercial matter so as to affect program content has been continuously in effect for many years and is unchanged….However, scheduling requirements are tight and require alertness and exact switching by the operator on duty. In those circumstances, operator errors have in the past occasionally occurred.

Paragraph 2: The potential problem of commercial matter interfering with program content is compounded by the fact that local advertising agencies in Las Vegas are not always careful about meeting precise commercial announcement length requirements. As a result, the announcements which they make are not infrequently several seconds too long.

Paragraph 3: The problem of operator error has been one which has deeply concerned the station. Repeated efforts to insure the elimination of such occasional errors by strict enforcement of pre-logging and switching accuracy requirements have been made.

Paragraph 4: As a result of (complaints and a review described in the letter), the station has put into effect a policy of reduced commercial matter during heavy commercial periods. That is to say, the station will now carry less commercial matter during local breaks within and between network programming where such errors can occur. The result of this new policy will be substantially to relax the switching tolerance requirements, thereby eliminating the likelihood of switching errors except resulting from gross operator negligence.

Paragraph 5: While, of course, there is no way in which occasional operator errors can be insured against absolutely, the station believes that it has taken every possible and reasonable step to insure that commercial matter will not interfere with program content.

Point 38:

Summarized, this letter asserted and implied that the station had a tight but workable schedule of local commercials during network breaks and that network programs were covered only as a result of the failure of individual operators to maintain the schedule. Such explanation is simply untrue. It must have been as apparent then to the station’s executives as it is apparent now to the presiding Judge that if approximately 90 seconds of local commercials were scheduled during a break of approximately 30 seconds, something would have to be covered. Assuming perfect switching, some 60 seconds of network transmission had to be lost. Hopefully, it would only be what KORK has described as “clutter,” but there was always a risk that other program material would be left out. While it is entirely possible that operator error may have compounded the problem, the root cause of the trouble lay in the scheduling, not the switching. For KORK to suggest otherwise in its letter is found to be a deliberate misrepresentation designed to deceive the Commission as to the actual situation which existed.

Point 39:

On June 30, 1971, Mr. Hendon again wrote a letter of complaint to the Commission wherein he described specific incidents of interference with network programming on KORK. By letter of July 15, 1971, the Commission solicited the station’s comments. On August 2, 1971, Mr. Ordonez replied. He explained what had transpired with respect to each incident of which Mr. Hendon complained. He stated the KORK’s operating practices “accord exactly” with the station’s prior representations to the Commission and described in some detail the steps which had been taken to correct the problem. (Footnote 18)

Point 40:

On June 2, 1972, Mr. Tabor executed an affidavit designed to clarify the letters that had been sent to the Commission while he was general manager. In essence, he explained that he thought the Commission’s reference to program content indicated an interest only in those portions of the program which were actually part of the subject matter of the presentation. He did not think the Commission was concerned with the sort of material which he described as “clutter.” Hence, he regarded the responses which were sent to the Commission as being accurate. However, he has since revised his view and concedes that what the Commission was seeking was information as to whether any network programming at all was covered. Messrs. Ferrall and Ordonez adopt essentially the same position. Thus, all three men (Tabor, Ferrall, and Ordonez) attribute any imperfections in the KORK letters to semantic misunderstandings and maintain that the letters for which they were responsible were intended at the time they were written to be accurate and responsive to the Commission’s inquiries.

Point 41:

The presiding Judge is unable to accept the representations at face value. It is plain that the Commission was responding to viewers’ complaints by inquiring of KORK just what it was doing on network breaks. It is equally plain that the station’s general managers knew that the station as a matter of policy and practice was scheduling more local commercials than could be accommodated in the authorized break time. Nevertheless, none of the station’s letters acknowledge this fact, and there is a consistent pattern of attempting to blame the problem on switching errors by operators. It is found that not only are KORK’s letters individually deficient as heretofore noted, but that they form a pattern of attempting to mislead the Commission as to the station’s commercial practices and the results to which they led.

Point 42:

The record does not indicate that any of KORK’s general managers’ superiors in the corporate chain of command participated in the preparation of or had specific knowledge of the correspondence between the Commission and the licensee. Mr. Reynolds Jr. was aware of the complaints, and knew generally that correspondence with the Commission was being conducted relative thereto. However, it does not appear that the matter came to the attention of Mr. Reynolds Senior, until some time later when his attempt to purchase a TV station in Tucson, Arizona, ran into difficulty because of the Commission’s concern with overloading at existing Donrey stations.

Continuation of Issue 1 (b) Misrepresentation (point 43):

Before point 43, though, the FCC inserted paragraphs 170-171. Here they are:

Paragraph 170:

As detailed at paragraphs 24-41, supra, KORK’s correspondence with the Commission as to its commercial practices was rife with inaccurate and misleading statements. The station was deliberately pursuing a policy of scheduling more local commercials during network breaks than could possibly be accommodated. It had no way of being certain in advance just what network material would be covered, but it is chargeable with the knowledge that from time to time not only network “clutter,” but intrinsic portions of the programs and commercial material as well must be lot. Nevertheless, the entire thrust of its correspondence is that the fault lay with switching errors by individual operators. Such assertions were false, and the station’s executives knew it when the letters were written.

Paragraph 171:

It is concluded that KORK’s subject correspondence contained deliberate misrepresentations to the Commission, and was lacking in candor regarding its policies or practices in joining network programs after their beginning, leaving network programs before their end, and extending network station or commercial breaks so as to affect the content of network programs.

Conclusion: Issue 1 (c) and 1 (d): Effect on Western’s Qualifications (Point 43):

Point 43:

These issues are conclusionary, and no findings relative thereto need be made.

Conclusion: Issue 1 (c): Absolute Qualifications of Western (Paragraphs 172-176):

Paragraph 172:

It is the opinion of the presiding Judge that KORK’s practice of accepting compensation for network commercials which it clipped was dishonesty deserving of the utmost censure. The situation is quite unlike the classic “double billing” where the station is only paid for what it actually delivered, and its offense lies in the issuance of false invoices which it knows will be improperly used by its local advertiser. Here, the station made a practice of selling twice what it could only deliver once, and of collecting for its own benefit the proceeds of both sales. (Footnote 19)

Paragraph 173:

Nor is the situation truly comparable to Channel 13 of Las Vegas Inc., 37 FCC 2d 518. Although both cases involved clipping of network material, in Channel 13 the Commission was not called upon to consider evidence that the licensee had been accepting compensation for network commercials which it had not broadcast. Plainly, the conduct shown on this record is more egregious than that which was before the Commission in Channel 13, and is deserving of more severe sanction.

Paragraph 174:

However, even if it were to be determined that the fraudulent billing did not require disqualifications, the conclusions as to misrepresentation would remain. In case after case, the Commission has repeated that it takes the most serious possible view of misrepresentation, The Neighborly Broadcasting Co Inc., 24 RR 959; Edina Corporation, 7 RR 2d 767, Palmetto Communications Corp., 10 RR 2d 32; Radio Broadcasters Inc., 19 RR 2d 213; Nick J. Chaconas, 21 RR 2d 576. The thrust of the cited cases, and many others, is that the Commission’s capability to perform its function rests on is ability to rely on the candor of its licensees. Hence, if any licensee demonstrates that such reliance has been misplaced, the Commission will conclude that the public interest is not served by continuance of the license.

Paragraph 175:

Here the licensee deliberately and repeatedly strove to conceal from the Commission that it has a policy of clipping network programs. Its letters contained false statements of fact and misleading implications It is concluded that Western Communications Inc. has been shown to lack the qualifications requisite for renewal of its license for Station KORK-TV. (Footnote 20)

Paragraph 176:

Nor is the foregoing conclusion mitigated by the fact that the misrepresentations were unknown to the ultimate owner of the licensee. This is not a case where, despite reasonable precautions, the owner was deceived by an employee. Mr. Reynolds, Senior, elected to completely remove himself from the day-to-day operation of his station. He delegated all of his authority, including the ability to deal with problems as they arose. His son, to whom the primary authority was delegated, first issues orders which invited the clipping, and then showed only the most casual interest when the consequences of his instructions appeared to indicate trouble. The task of explaining to the Commission was delegated to the very subordinates who, if the Commission’s inquiries were directed to real problems, were responsible for those problems. Under such circumstances, the ultimate owner of the station cannot be regarded as the innocent victim of his subordinates. A licensee can delegate his authority. But he cannot delegate his responsibility to the Commission, Continental Broadcasting Inc., 14 RR 2d 813.

Conclusion: Issue 1 (d): Comparative Qualifications of Western (Paragraph 177):

Paragraph 177:

It having been concluded that Western lacks the basic qualifications for renewal of its license, the matter of the impact of its conduct on its comparative qualifications has become moot.

Begin Issue 2(a): Station KFSA-TV, Fort Smith, Arkansas (Points 44-50):

Point 44:

During that portion of 1971 hereinafter discussed, Station KFSA-TV was under the ultimate ownership of Mr. Reynolds, Sr., and was supervised by Mr. Reynolds, Jr. The station was an affiliate of all three national networks.

Point 45:

Although the evidence is considerably less extensive and even less clear with respect to KORK, the record indicates that KFSA was also clipping network commercials and failing to report that fact to the network. For example, on ten occasions between March 3 and 19, 1971,the station clipped approximately one minute from the end of the CBS evening news program. The clipped portion of the program included commercial material for which the station substituted a tease for its local news program, a local commercial, and the beginning of the local news. The clipping was not reported to the network and the station accepted compensation for the commercials it had failed to broadcast.

Point 46:

The record indicates that there may have been other network commercials which the station covered. However, the facts must be inferred from a comparison of various records kept by the station, the network and the network’s owned station, and the presiding judge does not deem the evidence to be sufficiently clear to warrant a firm finding.

Point 47:

Between August of 1970 and May 1, 1971, KFSA’s general manger was Mr. Ordonez, whose previous experience had been in radio. He first became aware that the network breaks were being overloaded around February of 1971, as a result of policies instituted by his predecessor. However, it does not appear that he took any steps to halt the practice when it came to his attention.

Point 48:

For several months following Mr. Ordonez’s departure, Mr. Reynolds Jr. served as acting general manager of KFSA. Early in June 1971, he issued instructions regarding station breaks which, although reducing the clipping, contemplated that the overloading of breaks would continue. It was his intention to eliminate clipping at the start of the new network season in the Fall of 1971, but, in the meantime, he allowed the practice to continue. He asserts he did not know at the time that the overloading involved clipping network commercial matter, although it is unclear how as acting general manager he could have known that clipping was going on without knowing what was being clipped.

Point 49:

There is no evidence that Mr. Reynolds Senior was apprised of the problem at KFSA prior to August or September of 1971.

Point 50:

Nor is there record of evidence supporting the allegation that KFSA sent invoices to distributors and manufacturers representing charges for advertising in excess of the amounts actually charged a local advertiser. It appears that between January and July of 1971, the station’s then sales manager secured blank station invoices to which he signed Mr. Ordonez’s name followed by his own initials and the notarization of another employee. He then gave the blank invoices to a local advertiser. However, there is no evidence in the record showing that those blank invoices were actually filled out only by the local advertiser and submitted to any manufacturer or distributor. More importantly, the record indicates that his action was contrary to specific written station policy and was taken without the knowledge of his superiors at the station. Under such circumstances, it is not found that KFSA engaged in double billing.

Begin Issue 2(b): Station KOLO-TV, Reno, Nevada (Points 51-55):

Point 51:

During that portion of 1971 hereinafter discussed, Station KOLO-TV, Reno, Nevada, was under the ultimate ownership of Mr. Reynolds Senior and was supervised by Mr. Reynolds Junior. The station was an affiliate of the CBS network.

Point 52:

The record indicates hat on several occasions between February 1 and May 17, 1971, the station covered all or part of certain network commercials during the daytime program “As the World Turns” and may have covered all or part of others. (Footnote 21) These omissions were not reported to CBS on those KOLO reports on which the station’s network compensation was based.

Point 53:

Since August of 1970, KOLO had been under the general managership of Mr. James C. Herzig, a former employee of KORK. Some months after he arrived at KOLO, he instructed his traffic department that no more than three local commercials were to be run in anyone network break. Since the station sold commercials of up to 30 seconds in prime time and up to 60 seconds during daytime, his instructions created the possibility of the station taking breaks of up to 90 seconds during prime time and up to 3 minutes during daytime.

Point 54:

Mr. Herzig did not believe that his policy would result in the clipping of anything but what has been described as “clutter,” but the record does not indicate that he investigated the matter. He did not issue instructions as to what should be shown on the station’s discrepancy report when network material was clipped. He did not review the discrepancy reports to see what the station was actually reporting to the network. It is found that KOLO adopted a policy which contemplated the clipping of network programming, and which any experienced broadcaster must have known would inevitably lead to the clipping of network commercial material from time to time. It is further found that his policy resulted in the clipping of network commercial material, and that the management of the station took no steps reasonably calculated to make certain that the network was properly advised.

Point 55:

Mr. Herzig was under the general supervision of Mr. Reynolds Junior. The record is vague as to what Herzig may have told Reynolds about clipping at the time, but it appears unlikely that either Mr. Reynolds Junior or his father was acquainted with the specifics of the overloading at the time it occurred.

Conclusions: Issue 2): Stations KFSA, Fort Smith, Arkansas, and KOLO-TV, Reno, Nevada (Paragraphs 178 and 206):

Paragraph 178:

The issue as to the operation of Stations KFSA and KOLO were designated solely for the purpose of determining its signification to the comparative qualifications of Western. It having been determined that Western lacks the basic qualifications for renewal, no useful purpose would be served by formulating conclusions under this issue. (Footnote 22): This sounds like Donrey lost its KFSA and KOLO licenses, too, although I could be wrong. Bill Ray refused to tell me anything about this.)

Issue 11: Ultimate Issue:

Paragraph 206:

It has been heretofore concluded that neither of the applicants has demonstrated that it possesses all of the basic qualifications requisite to a grant. The public interest would not be served by a grant of either application.

Accordingly, it is ordered, that unless an appeal is taken to the Commission by a party or the Commission reviews the Initial Decision on its own motion in accordance with Rule 1.276, (Footnote 23) the applications of Western Communications Inc., and Las Vegas Valley Broadcasting Co., are denied. (Footnote 24)

Signed: Chester F. Naumowicz, Jr., Administrative Law Judge, Federal Communications Commission

Footnotes:

1. Under Rule 1.276, appeals (in the form of exceptions to the Initial Decision) must be filed within thirty (30) days of the public release date of the full text hereof, unless an extension of time is duly granted. In the event no exceptions are filed and the Commission has not undertaken to review the Initial Decision during the prescribed 50-day period, or taken any of the actions specified in paragraph (c) of Rule 1.276, the Initial Decision becomes effective pursuant to paragraph (c) of Rule 1.276.

2. This practice resulted in the loss of additional portions of network presentations. If, at the end of an extra local commercial, the moment was not suitable to rejoin the network, a station identification slide would be flashed until a suitable moment arrived.

3. Log comparison constitutes less than perfect evidence. Any difference in the clocks in the two studios, or any inaccuracy in reading those clocks by either log-keeper could lead to apparent discrepancies where none existed. Nevertheless, when KORK was off-network for significantly longer time intervals than authorized, comparison of the logs permits ascertaining with reasonable certainty just what network programming it failed to broadcast.

4: The station reports were probably destroyed in the fire, thus reinforcing my suspicions of arson, which Bill Ray did nothing about.

5. Therefore, Valley’s 28-week study found over 1,200 instances of clipping entertainment and 250 instances of clipping commercials by Channel 3. Presumably, this resulted in the extra $500,000 in revenue mentioned elsewhere. And, according to John Revitt’s Advertising Age story, Channel 3 was fined only $4,000—that’s a great return on investment—a $496,000 profit in just one year!

6. Lying by omission is as bad as lying by commission! KORK was operated by a bunch of greedy liars in those days!

7. Official Notice is taken that In the Matter of channel13 of Las Vegas Inc. 37 FCC 2d.827, the Commission determined that at or about the time KORK has been shown to have engaged in clipping, KSHO-TV (the ABC affiliate in Las Vegas) was engaging in essentially similar conduct.

8. As part of his supervisory performance, Reynolds Jr. required of Tabor that he up his sales and income projections for the station. Since he must have known KORK’s rate card and time availabilities, and since he was aware that KORK was overloading breaks, his demand for increased sales and income can only be construed as implied approval of the practice.

9. Here’s what I think: The network probably wanted to hush it up so it wouldn’t have to reimburse the advertisers. Maybe I’m just too suspicious, though. I wrote NBC on July 2, 1975, asking them if they ever reimbursed the advertisers whose commercials were clipped. Guess what? You’re right! NBC never replied to me!

10. Had the study been completed in time to be included in this record, it would have served to confirm or rebut Valley’s study discussed at paragraph 14-15, supra.

11. I asked the FCC several times for the contact information for this fellow long-suffering sports fan, but they refused to give it to me. You’ll remember, I got pissed off when another 1970 sports event was clipped—the Texas Longhorn-Arkansas Razorbacks game! After I moved from Vegas, I finally found out the fan’s last name, though—Lockhart. I didn’t bother to look him up. Too many Lockhart’s in the Vegas phone book.

12. As sports broadcaster Mel Allen used to say, ”How about that, sports fans!” We return you now to the FCC. —Don Hendon

13. I didn’t complain about clipping / time-stealing during the 1970 World Series, because I didn’t watch it. Why not? Because I was not a fan of either the Baltimore Orioles or Cincinnati Reds.

14. The network program was Laugh-In, the format of which involved rolling closing credits superimposed on a series of short jokes recited by the performers. It was this portion of the program which was clipped.

15. This Initial Decision neither quotes nor considers those portions of the Commission’s letters of inquiry which in effect instruct the licensee to tell all about the incident involved. What constitutes “all” the facts is a subjective matter about which reasonable men might differ. A licensee is not to be faulted for assuming that the Commission is interested only in that about which it specifically inquires and to answer on that basis.

16. This complaining viewer was me.

17. The five paragraphs are 100 percent bullshit, pure and simple! KORK was intentionally lying for two reasons, in my opinion—to keep making more money illegally and to keep the FCC off its back!

18. All I can say is that Brutal Bob Ordonez is a bull-shitting liar! And an unscrupulous, serial liar!

19. Talk about greed! It’s greed to the infinite power!)

20. Bravo, you guys at the FCC!

21. Accurate findings as to just what was covered are difficult. The facts can be ascertained only by comparison of network records of what should have been broadcast at a given amount, the logs of a network-owned station as to just what it actually broadcast at that moment, and the logs of KOLO. In evaluating those three independent records, consideration must be given to possible discrepancies in clocks and imperfections in the reading of those clocks by individual operators. In view of those uncertainties, this initial Decision will make only the generalized findings contained in the text above.

22: This sounds like Donrey lost its KFSA and KOLO licenses, too, although I could be wrong. Bill Ray refused to tell me anything about this.)

23. Under Rule 1.276, appeals (in the form of exceptions to the Initial Decision) must be filed within thirty (30) days of the public release date of the full text hereof, unless an extension of time is duly granted. In the event no exceptions are filed and the Commission has not undertaken to review the Initial Decision during the prescribed 50-day period, or taken any of the actions specified in paragraph (c) of Rule 1.276, the Initial Decision becomes effective pursuant to paragraph (c) of Rule 1.276.)

24. Yippee!

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