Motion Picture Daily (Oct-Dec 1960)

Record Details:

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ilDTuesday, October 4, 1960 Motion Picture Daily 3 Sunday Law SEC Rules Skiatron Deficient Pay-TV Hearings Hailed by Harling (Continued from page 1) OiiAjnusement Co.; Drive-in Theatres j{ S. C, Inc.; Greenville Enterprises, sine., Spartanburg Theatres, Inc.; laude Rumley, H. P. McManus and pi Mrs. B. C. Williams, partners doing eousiness at the Greer Drive-in theatre; Augusta Road Drive-in Theatre Corp.; Textile Amusement Co., Inc.; ]. Mason Alexander, Wake Meyers, R. M. Caine, Calvin S. Teague, and itiiVm. H. Beattie, individually and for other patrons of motion picture theares similarly situated. ' Before 1959 the appellants did not open on Sunday because of a ruling of the attorney general of South Carolina but after that because the ilue law does not specifically menion motion pictures, and because of he first and fourteenth amendments, hey did open theatres. The operators were arrested and charged with iolation of the law. ! The brief argued against the South Carolina statute first on the grounds of religious freedom. "If those who oelieve it irreverent and wrong to :ngage in innocent and otherwise egal recreational activities or recreaion on Sunday are correct in their belief, they should be content with ogical, moral, and spiritual persuasion to convince others and not report to punitive police action in the ^iame of the state. To do otherwise is the antithesis of religious freedom jind the separation of church and itate." Cite Communication The theatres then argue against • he state law on the grounds of basic . onstitutional rights. The brief states iihat movies "are an important organ »f public opinion." It notes that c nowhere is there any intimation that here is any clear or present danger 3n the exercise of free speech on ; lunday. Nowhere is it suggested that j. statute prohibiting the reading of woks, magazines, or newspapers on iunday would be a valid exercise of wlice powers ... it is only the ^articular media of communication s epitomized by the motion picture ndustry that is sought to be hamiered or restricted." Since movies are vithin the basic protection of the irst and fourteenth amendments, they rgue that basic constitutional rights re being violated. Petrauskas Resigns as Republic Treasurer John Petrauskas, Jr. has resigned s treasurer of Republic Corp., effecive Sept. 30, he announced here esterday. He submitted his resignaion as an officer of the company and or his unexpired term as a director t the board meeting here last j.ug. 10. A veteran of the industry and a lember of the Motion Picture Pioeers, Petrauskas served as a director nd treasurer of Republic for the ast 12 years and as assistant treasrer of Consolidated Film Industries, ac. for 15 years prior to its merger 'ith the parent organization in 1945. ( Continued vening period, the further factual information concerning the company audits and operations . . . will be publicly disseminated and should assist investors in making an informed evaluation of Skiatron stock." SEC has no present intention of continuing the suspension of trading beyond Oct. 12. Whether there is to be any future action in the case is not clear. The record and stipulations in the Skiatron hearing, as well as the decision, will be available to the Justice Department. Decision on what, if anything, is to be done is out of SEC's hands. Organized in 1948 The SEC notes that Skiatron was organized in 1948 by Levey, and that it began research and development in the pay-tv field in 1950. In 1951, it was considering over-the-airwaves pay-tv. Skiatron "lacked the resources for the development and operation of a pay television system." In 1954, the company entered into agreements with Matthew M. Fox wherey Fox or his assignee, Skiatron of America, Inc. (the "assignee"), controlled by Fox, became the exclusive licensee of Skiatron's system. Fox assumed responsibility for the commercial development and exploitation of a subscription television system and all related aspects, including arrangements for programming. Skiatron was to receive a royalty of 5 per cent of the gross revenues paid by public subscribers. More recently, Fox turned his efforts toward development of an overthe-wire system believed exempt from FCC jurisdiction if the network were confined to a sinele state. A monthly charge of $4.33 would be made to each subscriber in addition to a specific charge for each program viewed. Because it was believed the cost of such a system would exceed the installation of an over-the-air svstem, the agreement was renegotiated to reduce Skiatron's royalty to 2V2% of gross revenues (not including the monthly charge). Skiatron's principal asset is the rieht to receive royalties under the licensing agreement, and the value of the right depends entirely on the possible commercial exploitation by the licensee of the proposed subscription television system. "No Basis in Fact" According to the Commission's decision, there was no basis in fact for statements in the Skiatron prospectus that its licensee was planning for the immediate use of its subscription television system by means of wire or closed-circuit operations and that, if existing negotiations with owners of outstanding entertainment and with municipalities and public utilities whose facilities might be required for such operations progressed favorably, the licensee anticipated that it would commence commercial operations during the early part of 1960. Such representation was materially from page 1 ) misleading in failing adequately to disclose the financial and other difficulties encountered and to be met before such a pay television system can be placed in operation as well as the financial status of Fox and the assignee, the Commission stated. The "most striking omission," the commission observed, was the failure to show the large amounts of capital needed to establish such a system and to point out that neither Skiatron nor its licensee possessed the resources required and neither had access to sources able and willing to supply the funds required (estimated at $13,000,000 minimum for the installation of a wire system first proposed for a densely populated area, not including any allowances for programming costs). Quote Program Arrangements While discussions were had with potential program sources, there were no commitments or arrangements for program material. In this connection, the Commission noted that publicity prior to August 1959 indicated the licensee had arrangements with owners of the San Francisco and Los Angeles baseball teams and with Sol Hurok, a theatrical producer, for program material, and Foxhad paid in excess of $1,200,000 to those persons. But when the statement was filed there were no arrangements in effect with the Los Angeles owners, Hurok had only agreed to serve as a consultant and to endeavor to negotiate agreements with artists affiliated with him, and a contract with the San Francisco owners was in default by reason of Fox's failure to make additional payments of about $4,250,000. Charge Equipment Lack Moreover, Skiatron had no source of income or credit sufficient to finance the establishment and construction of the pay television system. Neither Fox nor his company, on whom Skiatron completely relied to finance and promote the system, had the equipment, facilities or financial ability to undertake commercial operation of such a system. According to the decision, Fox and his company are both deeply in debt and had at least $1,000,000 in outstanding debts which had been reduced to judgments; and Fox is further indebted by about $3 million to various lending agencies and individuals, a substantial portion of which indebtedness is in default. List Stock Transfers The registration statement, filed in August 1959, had covered a proposed offering of 172,242 shares of Skiatron common stock, consisting of 125,000 shares covered by warrants owned by Fox, of which 75,000 shares had already been issued to him: 30,000 shares owned by Arthur Levey, company president; and 17,242 shares issued to certain other persons. There was a failure to disclose that Fox no longer held any of The decision of the Federal Communications Commission to hold full hearings on the Zenith-RKO General application for a broadcast pay-tv test in Connecticut was hailed yesterday as a victory for exhibition by Philip F. Harling, chairman of the Joint Committee Against PayTV. Harling said the Commission's decision to permit exhibitors to submit protests, present witnesses, and their counsel to cross-examine Zenith-RKO General witnesses, were conditions the Joint Committee had requested of the FCC. "Zenith and RKO-General have, in their Connecticut advertising, made a big point of the claim that they will present first run movies, and even told the public they would offer movies like 'Ben-Hur' and 'Can-Can.' Now, these proponents will have to testify what they actually will be able to deliver in return for coins in the slot. "It would not be surprising if their actual programming was far, far less attractive than their much ballyhooed claims. Then the public will have the opportunity of deciding for itself whether it will want to pay for actual programming." This will be the first time, Harling said, a pay-tv proponent will be subject to cross-examination and testify under oath as to actual programming plans. Heretofore, he declared, opponents of pay-tv have had no means of specifically refuting what he termed the "wild" claims and advertising of the proponents. the 75,000 shares, that he had pledged 70,000 of such shares, and that many of these shares had been sold to the public before the statement was filed. Used for Collateral Previously, warrants for 195,000 shares were either sold by Fox or pledged as collateral for various loans to Fox, and by December, 1958 all 195,000 warrants had been exercised and the underlying shares sold to the public. He also had disposed of 206,000 shares loaned to him by Levey, of which 156,000 shares were loaned to Fox to secure his loans during the period June, 1957, to September, 1958. None of these shares was registered with the Commission. The commission ruled that the sale of the 75,000 shares by Skiatron to Fox, his immediate disposition thereof by way of sale and pledge, and the resale of such shares by the pledges, violated the Securities Act registration requirement, and that such sales and die contingent liability arising by reason thereof should have been disclosed. The Commission also held that die registration statement should have disclosed that during the years 195659 Levey sold in excess of 200,000 shares for more than $1,880,800 without compliance with the Securities Act registration and disclosure requirements.