it would be sufficient unless, of course, the policy of the Congress were to go on a much broader scale and say that no one could practice at all before a commission within a given time after he left. Mr. WIGGLESWORTH. How many persons formerly with the Commission, would you say, are on your required list to appear for clients? Mr. FLY. That is, how many members of the bar, active members of our bar, are there who were formerly connected with the Com mission? Mr. WIGGLESWORTH. Yes. Mr. FLY. I am informed there are approximately 15 or 20. But, if I had been forced to guess, I think I would have guessed more. Mr. BARTLETT. Mr. Chairman, I had occasion to examine that recently and approximately 15 or 20 former employees are now practicing before us, both attorneys and engineer consultants. Mr. WALKER. Are you talking about employees of the Federal Communications Commission, or employees of the Federal Radio and Federal Communications Commission? Does it include former Commissioners? Mr. BARTLETT. That includes only Federal Communications men, and includes former Commissioners. Mr. WIGGLESWORTH. Will you furnish a list of those 15, or whatever the number is, for the record? Mr. FLY. We shall be glad to do that, sir. Do you want engineers as well as lawyers? Mr. WIGGLESWORTH. Yes. Mr. FLY. All right. Persons employed by Federal Communications Commission whose services have terminated and who have subsequently appeared before the Commission as attorneys or engineering consultants NETWORK CONTRACTS WITH AFFILIATES Mr. WIGGLESWORTH. Now I want to ask you one question about network contracts with affiliates. As I understand it, licensed affiliates frequently surrender control of their time to these networks to the extent, we will say, of over 40 percent. Mr. FLY. Oh, yes; more than that. Mr. WIGGLESWORTH. More than that? Mr. FLY. Yes. Mr. WIGGLESWORTH. And that they also authorize in those contracts the networks to increase or decrease the rate which they can charge for their time, and that frequently the chain will get as much as 80 percent of the return from the affiliate's charges. Now, is that a fair statement and, if so, what is the attitude of the Commission in respect to that practice? Mr. FLY. On the first question, as to whether or not the networks control the rates which the station charges on its own time, that is, for its own local programs advertising national products at least one of the networks is N. B. C. I believe that is the only one. I do not want to be sure, but I will correct the record later if that is in error. The N. B. C. had a provision fixing those rates and requiring that the rates be the same, I believe, as were provided on the network programs. But in the rules which grew out of the monolpoy investigation, the Commission prohibited such an agreement, such a restraint upon a station's liberty of action, and I think the practice of the network has since been abandoned. You gentlemen may be interested in reading our report on this point. The subject is discussed at pages 60 and 73. Mr. WIGGLESWORTH. How about the other question? Mr. FLY. On network programs, as to the amount the stations get out of it, it varies a great deal. By a very complicated system of calculation, the network contracts from station to station depending upon the audience which the station has, that is, the extent of coverage, the quality of the coverage, the number of people, and all that sort of thing and, for that matter, presumably the number of people who actually listen to the station. There may be other factors which enter into it, but the proportion that the station gets out of the fee for the program will vary considerably. It is clear that in many cases the network gets-I do not know whether it is 80 percent, but they do get the bulk of the fees that come in. Mr. WIGGLESWORTH. Is that a matter that is left purely between networks and affiliates, or do you exercise any control over it? Mr. FLY. We have no control over that, sir. That is something the statute does not authorize us to control. Mr. WIGGLESWORTH. You could control it through your licensing power, of course. Mr. FLY. Well, I am not sure of that. Mr. WIGGLESWORTH. At any rate, you are not attempting to do so now? Mr. FLY. That is right. Mr. WOODRUM. Of course, one justification for that fee that the chain gets from the portion of fees charged is the fact that the chains give them sustaining programs, do they not-a lot of free programs? Mr. FLY. Well, in effect they charge them for the sustaining programs and they pay them for carrying the commercials. Again, there is a pretty complex scheme of balancing them off. TAXATION ON STATIONS AND NETWORKS Mr. WIGGLESWORTH. Now, you spoke about the matter of taxation. As you know, a year ago the Treasury made a study and recommended some taxes on these chains which I think ran up to about $10,000,000 and the House put those taxes in the bill. Subsequently, I think you appear before the Senate Finance Committee in opposition to those taxes, and the Senate threw them out. I wonder if you have completed the study of that question that you have been working on for a good many years, and whether you have any recommendations? In Mr. FLY. I thought, sir, my previous answer had covered that. view of the fact that the Treasury itself has begun a study of this specific subject and I assume, of course, they are interested in it from a revenue-producing point of view-we have made our material and our personnel available to the Treasury so that what we have done by way of studies can be utilized in that way. You see, we are in somewhat of an embarrassing position. It is hardly our job, as a Commission, to appear before the Congress and recommend a tax measure, a revenue measure. Of course, we are concerned with it and that sort of thing, but we recognize that that is primarily a function of the Treasury Department. Mr. WIGGLESWORTH. How do you reconcile that with the fact that, after they had studied the matter and made recommendations and the House had adopted it, you appeared in opposition before the Senate committee? Mr. FLY. I think you will find there, sir, I did not appear in opposition to a tax. That was a high gross revenue tax and I did appear and I think it is not unfair to say in opposition. I expressed the thought it was dubious and I still think so. I do not think it was studied through. It would have hit rather severely in certain spots and perhaps it would not have touched substantially at all in many other spots. But I doubt if there was a feasible scheme of taxation, and certainly I was not opposed to the idea of taxation under a wellconsidered scheme of taxation of the industry; I think there ought to be one. Mr. WIGGLESWORTH. I may be wrong in my figures and, if I am, I would appreciate it if somebody would correct them, but I think after the proposed Treasury tax of $10,000,000 had been imposed, the Treasury indicated there would still have been a 40-percent net profit to the stations and networks. I think also your own figures, which you have made public in the course of the last year or so, show that if you take the net profits of the net works and the 700 or more stations before Federal-income taxes are paid, there has been a net profit of something like 66 percent. And that if you do the same thing for just the networks and their 23 managed stations, you find a net profit of something like 300 percent. If those figures are anywhere near right, it seems to me there is every reason in the world, in these times, for imposing a substantial tax on those who are making a killing out of licenses from the Federal Government for which they do not pay a cent. Mr. FLY. I agree with you, sir, that there is an appropriate field here for taxation and that many of them can pay such a tax without there being any substantial impact. For example, many of them can pay a tax without being driven out of the profit class. Of course, the major return in the industry is to the networks. MONOPOLY INVESTIGATION OF CHAIN BROADCASTING Mr. WIGGLESWORTH. Just one other thing. I understand there is an injunction sought by the three big chains against a threatened antitrust investigation. Mr. FLY. NO. The injunction is sought against the antimonopoly regulations which the Commission has issued. Mr. WIGGLESWORTH. What lawyer is representing the Government in that connection? Mr. FLY. Our General Counsel and his assistants are doing the most of the work, sir, in cooperation with the Department of Justice. Mr. WIGGLESWORTH. Where does Mr. Cahill come into the picture? Mr. FLY. Mr. John Cahill is former United States Attorney in the Southern District of New York and now a member of the law firm of Wright, Gordon, Zachry, Parlin, and Cahill. Mr. WIGGLESWORTH. Is Mr. Cahill representing the networks? Mr. FLY. He has represented the National Boradcasting Co. and, Judge John Burns, former General Counsel of the Securities Commission, up to the present time has represented the Columbia Broadcasting System. Recently Charles Evans Hughes, Jr., has been brought into the case by the Columbia Broadcasting System, and I think he and Judge Burns are associated in the case. Mr. WIGGLESWORTH. Where does Mr. Brodsky come into the picture Mr. Samuel Brodsky? Mr. FLY. Well, Mr. Brodsky is a special assistant attorney general attached to the United States district attorney's office at New York and where, as here, the United States is formally a party in the proceedings he, of course, represents the United States. The Commission, however, is the main party defendant and is the active defendant. Mr. WIGGLESWORTH. Was Mr. Brodsky a former assistant to Mr. Cahill? Mr. FLY. Yes; he was an assistant in the district attorney's office when Cahill was there. He was not appointed by Cahill. And I ought to say that the United States attorney there who was formerly associated with Cahill's firm recused himself because of the fact he was formerly associated with Mr. Cahill. Mr. WIGGLESWORTH. There has been no association between Cahill and Brodsky? Mr. FLY. None other than I have indicated. Mr. WIGGLESWORTH. Now, I do not know whether you saw this, but I will just read a quotation from one of the recent radio business letters. I do not know whether there is any further comment you may care to make or not. The letter says: * ** In 1940 the Antitrust Division wearied of the Federal Communications Commission monopoly investigation of chain broadcasting and demanded all of the evidence and testimony given to the Federal Communications Commission in this inquiry. Federal Communications Commission delayed but promised to get out its monopoly report right away and then send over the desired records. Then the Antitrust Division began to prepare its own action against National Broadcasting Co. and Columbia Broadcasting System and any others believed violating the Sherman Act. However, the Federal Communications Commission issued its chain broadcasting rules and Thurman Arnold's office sat back to see if they would have a salutary effect upon the industry. When radio executives resorted to congressional committees and then showed signs of going into court, Thurman Arnold called officers of National Broadcasting Co., Columbia Broadcasting System, and Mutual Broadcasting System into his office to tell them that he had an antitrust case against them in his mind. That was on October 29, and the next day National Broadcasting Co. and Columbia Broadcasting System went into court to ask injunction against the United States (Federal Communications Commission). Since the Antitrust Division of the Department of Justice is assigned to defend the Federal Communications Commission in the Federal courts, it was understood that Victor O. Waters, of the Department of Justice staff, began to study the National Broadcasting Co. and Columbia Broadcasting System arguments. Then in a surprising move Attorney General Biddle appointed Samuel Brodsky as Special Assistant to the Attorney General, which left the Antitrust Division wondering if its own case against the radio companies had not already received a coup de grâce. Is there any additional comment you want to make? Mr. FLY. I think our own case, that is, the Commission's own report, and the regulations resulting from that were brought into issue by this injunction suit, in which the networks are the plaintiffs and, in that, we have had the cooperation of the department generally-the Attorney General and members of the staff, particularly of the Antitrust Division, including Mr. Waters and others. But the question as to whether the department itself would bring an antitrust action against the networks was a different question and would have involved a different case, in which the United States would have appeared as the plaintiff and as the prosecuting agency, and would have been doing it pursuant to the antitrust laws. MR. WIGGLESWORTH. Has that been dropped now? What is the status? Has it been dropped, pending a hearing on the injunction? Mr. FLY. I do not know, sir. I know it has been given substantial attention by the Department of Justice over a long period, and more intensively since we forwarded our record over there after we completed our own report. I do not know whether they have concluded to proceed or to abandon. Mr. WIGGLESWORTH. What is the status of the injunction proceeding? Mr. FLY. There are presently pending motions by the networks for a preliminary injunction and we, in turn, have motions to dismiss and for summary judgment. Mr. WIGGLESWORTH. When will those be heard? Mr. FLY. They will be argued next Monday, December 15. |