Broadcasting Telecasting (Oct-Dec 1957)

BARROW REPORT continued both on its own rate and those of other affiliates. Among other items regarding rates, the staff said both stations and networks have used other bargaining powers besides that of circulation. Networks, the report said, have used their power to withhold or grant rate increases to improve their pattern of clearances for network shows, which conflicts with the regulatory tenet which seeks to give stations as much programming freedom as possible. The report mentioned that networks "appear" to be in conflict with rule 3.658 (a) prohibiting agreements which adversely affect the station's broadcast of another network's programs. The report exhibited several series of correspondence (names deleted) between the three networks and various affiliates indicating bargaining on rates in exchange for favorable network program clearances. It termed this practice against the public interest. The report charged that both CBS and ABC have attempted directly to influence the national spot rates of their affiliates on "frequent occasions," and, accordingly, "appear" to have violated Sec. 3.658(h). It also questioned whether this might violate Sec. 1 of the Sherman Antitrust Act. No evidence was found of direct influence by NBC in this regard, but this network was said to have attempted "indirectly" to influence national spot rates in a manner, which, while not a specific violation of the Chain Broadcasting Rules, still is against the "public interest." The report said that while CBS and NBC compete freely with each other in ratefixing, ABC has possibly violated the Sherman Antitrust Act by checking in advance with CBS or NBC in single-station markets on their rate plans before setting the rates of an affiliate which it shares with CBS or NBC. ABC also has checked with CBS or NBC to determine the rates these networks are paying their own affiliates in a three or four-station market before setting its own affiliate's rates in that market, the report said, adding that this practice is open to "serious question" under the antitrust laws. Such practices have put ABC in the posi tion of a "price follower," the Network Study Staff said, expressing the belief CBS and NBC might have gone along with ABC because (1) by setting lower rates, ABC is established as a qualitatively "inferior" network or (2) ABC would be more unlikely to take rate actions that would force CBS or NBC to raise their own affiliates' rates. chapter 8 Network Practices: Compensation Arrangements Available evidence doesn't show that networks are getting an unreasonably large share of network time sales, to the detriment of affiliates, the report concludes. A wide variety of compensation arrangements was found, with substantial differences in pay to stations. These differences are based to some extent on relative cost of stations to the network, it was found. Larger stations yield a higher net return to the network than smaller stations, after AT&T line costs and other expenses, according to the report, so networks tend to give larger stations better compensation. No systematic relationship between cost and network profit with variations in payment to particular affiliates was observed. The report said affiliates in important single-station markets, as well as large multiple owners, have obtained better terms than the standard formula in some cases. These instances were ascribed to network desire to protect and improve their access to the stations at the expense of competing networks or other program sources. No judgment was passed on the reasonableness of network terms in general or with respect to any particular affiliate. Insistence on uniform compensation for all affiliates of a network would create "a serious competitive problem," it was stated. ABC, it was pointed out, has resorted to "premium compensation in order to gain access to oneor two-station markets, where the stations have sometimes regarded themselves as almost exclusive affiliates of either CBS or NBC." And it was recalled that CBS once faced a problem in competing with NBC in one-station markets. At the same time, the report stressed, "preferential compensation arrangements can have practical disadvantages in addition to the objection in principle to the 'buying' of access to the time of stations. For example, the favorable treatment which some multiple owners have been able to achieve may adversely affect competition by tending to encourage the trend away from local station ownership." Another practice, that of providing a higher rate to a station for carrying more network programs, was called "a further step away from the selection of programs on the basis of their quality or public interest, since it induces the station to accept a large block of programs." Program competition could be seriously jeopardized by an extreme form of sliding-scale payment, the report said, calling "a flat percentage rate with no free hours" the most desirable arrangement. In any case, the network study staff felt the present standard plans of the three networks, including the free hour waivers, "have not given rise to abuses such as would make a Commission rule in this area imperative at the present time." The staff then recommended that affiliation contracts be made public by the FCC, including payments, since the network has the advantage of knowing what all its affiliates are paid when it negotiates but the affiliates lack this information. Publicity, it was predicted, will tend to some extent to decrease differences in payments and tend to limit the number of cases of premium compensation. Study of affiliation contracts "is an essential Commission responsibility," the report emphasized, and continued surveillance would help avoid serious abuses. In reviewing advertiser discounts, the report said CBS and NBC discounts may reach a maximum of 25%, averaging around 15%, with ABC granting "substantially higher" discounts. chapter 9 Network Practices: The MustBuy Practice The study held that the must-buy practices of networks impinge on the freedom of the advertisers and give "undesirable" leverage to networks in seeking station clearances. The imposition of must-buy requirements by CBS-TV and NBC-TV "tends toward monopoly," the Barrow group said. A more favorable attitude was indicated toward ABC-TV's minimum buy practices (which require a minimum gross from the national advertiser) than toward CBS-TV and NBC-TV's more rigid must-buy method (which designates the basic outlets that must be taken). The study found no great harm had been done by imposition of basic required stations by the networks in that almost all advertisers buy in excess of the stipulated number. Agencies queried did not cite any instance in which the must-buy or minimumbuy practice had been a factor in an advertiser's decision not to purchase tv network time. ". . . The large majority of network advertisers are undoubtedly glad to purchase most of the stations included in the basic group and would do so even if there were no must-buy requirements," the report said. As to exceptions from the basic list granted certain advertisers by CBS-TV and Cincinnati's Most Powerful Independent Radio Station 50,000 watts of SALES POWER WC KY CINCINNATI, OHIO I STATION On the Air everywhere 24 hours a day— seven days a week Page 96 • October 7, 1957 Broadcasting • Telecasting