Nov
01
1994

Felons on the Air

Does GE's Ownership of NBC Violate the Law?

General Electric's ownership of the NBC TV network has been in the news in recent months. As Extra! went to press, companies like Time Warner, Disney, ITT and Turner Broadcasting have reportedly been negotiating to either buy NBC outright or enter into some kind of partnership with GE. But a little-noted aspect of communications law raises questions about GE's ownership of NBC's broadcast licenses -- and its ability to sell those licenses to another company.

Shady Characters

The Federal Communications Act of 1934 created the Federal Communications Commission to regulate the airwaves, which are considered public property. The act states that the FCC should assess the "character...of the applicant to operate the station," and ensure that the "public interest...would be served by the granting" of a license.

Despite a general decline in the FCC's enforcement of the public interest aspect of this law, there is at least one factor that the FCC still considers before granting a license: whether the applicant has committed a felony.

In 1989, Rep. John Dingell (D-Mich.), who chairs the House Energy and Commerce Committee, complained of FCC laxness in examining felons (Broadcasting, 1/1/90); his office said the policy "represents one of the excesses of the last eight years." This apparently led the FCC to issue a statement saying it would "consider all felony convictions," as well as "misdemeanors in certain circumstances," as factors in granting or renewing broadcast licenses. This announcement toughened a policy that had been weakened in 1985.

Shortly thereafter, the FCC revoked the broadcast license of WFXL-TV in Georgia because the license-holder was an individual convicted of laundering drug money. The FCC also denied the licensee's appeals to be able to sell the station, forcing him to forfeit his investment (Broadcasting, 8/12/91).

Not all felons have been treated so harshly. Alan Gottlieb, an anti-environmental, pro-gun activist who helped raise money for the 1988 Bush/Quayle campaign, was convicted of tax evasion in the mid-'80s. Though he was denied a gun permit for a time, he was granted the license for KBNP in Portland, Ore. in 1989.

Gottlieb, who also owns a chunk of the Talk America radio network, told Extra! that he disclosed his felony conviction to the FCC, but they still allowed him to purchase the station; apparently he convinced the FCC that his felony was due to a record-keeping mistake. To Gottlieb's knowledge, no one has contested his license.

A corporation, like an individual, can also lose its license on character grounds. "If you're going to permit corporate licenses in the first place -- which is questionable -- you've got to apply the same standard" to corporations and individuals, former FCC commissioner Nicholas Johnson told Extra!.

Broadcasting reported in 1991 (3/25/91) that "the FCC was considering holding license revocation hearings" for WNCN-FM in New York after its parent company, GAF, was convicted of securities fraud. The FCC dropped the matter after the conviction was overturned on appeal.

Even without a felony conviction, a corporate entity can lose its license because of character questions. In a prolonged case, the FCC decided not to renew the licenses of 14 of the TV and radio stations owned by RKO General, a subsidiary of General Tire (now GenCorp). "The FCC decision was not based on the quality of broadcast service...but on the question of RKO's corporate integrity," Fortune noted (4/21/80). "General Tire was maintaining slush funds for such uses as improper overseas payments and questionable campaign contributions," Time later reported (8/24/87), and "allegedly filed false and misleading financial statements." Of particular concern was RKO's lack of candor in reporting these wrongdoings to the FCC.

RKO was stripped of one station (Boston's WNAC-TV) without compensation,and was forced to sell other stations for less than full market value, resulting in major financial losses.

Citizen GE

These cases would pale in significance if the FCC applied the "character question" to NBC's parent. As the owner of the network, GE controls the licenses for NBC's six owned-and-operated TV affiliates. These stations,located in key markets, are worth an estimated $2.5 billion.

But these assets could be threatened if the FCC ruled that GE's criminal record -- including a host of fraud, environmental, financial and employment violations -- made the corporation unfit to hold broadcasting licenses. (See Extra!, 6/92.) As William Greider writes (Rolling Stone, 4/16/92), "Citizen GE practices its everyday politics unhindered by its status as a convicted felon."

When GE acquired NBC's licenses, the rules were somewhat looser. On Dec. 10, 1985, the FCC relaxed the policy on character qualifications, declaring that a large corporation could be held responsible for felonies only if the heads of the corporation or those directly involved in the broadcasting aspect were the wrongdoers. The very next day, GE announced it would buy NBC's parent, RCA, for $6.2 billion. (The timing, of course, was completely coincidental -- as was the fact that GE chair Jack Welch was an old friend of then-President Ronald Reagan, who had gotten his start in politics largely thanks to GE.)

GE was a direct beneficiary of the new FCC policy, as an AP report noted the following year (6/5/86):

Acting for the first time under a new policy on judging the "character" of broadcast licensees, the commission determined there was no reason to deny the license transfers because GE had rehabilitated itself [since pleading guilty to fraud charges in 1985] and convinced the government it had taken steps to insure that similar violations would not happen again.

GE's Rap Sheet

But despite the FCC's faith in GE's redemption, the corporation has returned to its criminal ways repeatedly since it took over NBC. A partial sampling of its rap sheet since then:

In 1990, GE was "convicted of defrauding the Defense Department by overcharging the Army for a battlefield computer system." (Fortune, 9/5/94) GE paid $30 million in criminal and civil fines.

In 1992, GE "pleaded guilty to charges of fraud, money laundering and corrupt business practices in connection with its sale of military jet engines to Israel," the Washington Post reported (7/23/92). "Bob Pettit, general counsel to the FCC, said today that such convictions are 'relevant' for the commission to consider, but do not result in automatic loss of license," the paper noted.

GE currently faces anti-trust charges "of a scheme by GE executives to rig prices with DeBeers Consolidated Mines, the secretive South African cartel that controls much of the world's diamond production." (Fairfield County Business Journal, 5/25/92)

Most recently have come revelations of illegal reporting at Kidder Peabody, GE's investment subsidiary, which resulted in the dismissal of Kidder CEO Michael Carpenter -- who was brought in from another GE division by Welch in 1989 to put Kidder in order. "Like it or not, the scandals at Kidder Peabody were brought on by GE's management," Fortune asserted (9/5/94).

A February 1994 report of the Project on Government Oversight found that GE had 16 instances of fraudulent activity against the government since 1990 -- the most of any company listed (Daily Citizen, 3/14/94). Such revelations led Russell Mokhiber, editor of Corporate Crime Reporter, to note, "If the law were 15 strikes and you're out, GE would be banned."

The FCC is particularly concerned with questionable activity before other government agencies, since this might indicate a willingness to deceive the FCC. Despite GE's unsavory record, formal challenges have rarely been made to its ownership of the NBC licenses. Such cases were to be raised in a hearing against NBC by National Capital Communications Inc., which was filing a competing application for WRC-TV, NBC's D.C. affiliate. But NBC and NCCI made a deal whereby NBC would pay $295,000 (ostensibly for legal costs) to NCCI, in return for NCCI dropping its challenge Television Digest, 5/24/93).

"The Price They Ought to Pay"

In the past, the FCC has ruled that non-broadcast legal cases against GE "raise no substantial and material question" as to NBC's qualifications to own its licenses. (See Communications Daily, 3/5/92). But this was under an FCC with a more conservative cast, and preceded the somewhat toughened 1990 character policy. As things stand, "the FCC's rules on the subject are vague about what impact wrongdoing by one corporate subsidiary has on another," Electronic Media reports (7/27/92).

Any sale of NBC's licenses has to be approved by the FCC. This may give the agency (and anyone seeking to challenge NBC's licenses) an additional opportunity to review GE's fitness to own the outlets in the first place. Any action by the FCC against GE would likely result in a prolonged court battle, but could prove disastrous for GE should it lose.

GE maintains that it should not be held responsible for the actions of rogue employees. But Greider, in his book Who Will Tell the People, writes that this argument is disingenuous, given GE's "high-pressure management culture":

GE first turns up the heat on its line managers by creating a climate of purposeful insecurity -- everyone's job is at risk if his or her division's profit performance lags. Then, when division managers in the field are caught in false billings and other forms of profiteering, GE piously disavows them as "miscreant employees."

The Washington Post (7/23/92) noted that

some disaffected former employees contended that GE's relentless competitive drive to dominate markets and increase profits fostered a climate in which some managers decided to cut corners to preserve their careers.

Says retired FCC commissioner Nicholas Johnson of the culpability of parent corporations like GE for illegal activity by subsidiaries: "If you're going to allow conglomerate licenses -- something that was prevented in the case of ITT [which tried to buy ABC] in 1967 -- this ought to be part of the price these guys ought to pay."

"Bozos and Thieves"

GE/NBC's potential vulnerability on this question has apparently been used for less than principled reasons. In 1989, Broadcasting Magazine (4/3/89) announced that "NBC will soon have a competitor for Ted Turner's CNN with CNBC," a cable channel that was originally conceived as carrying round-the-clock news. Shortly thereafter, Ted Turner attacked GE as "the most corrupt corporation in America," It was run by "bozos" and "thieves" who have been "indicted and admitted to stealing from the Pentagon" (Electronic Media, 4/13/89). Turner declared: "These crooks, these convicted felons, should be behind bars."

After hearing this implicit threat -- and after getting a cold shoulder from TCI, the nation's largest cable systems operator, which owns part of CNN -- GE decided that CNBC would become merely a financial and talk outlet rather than an all-news channel, thus preserving CNN's monopoly.

Curiously, one of the few outlets to have noted what it called GE's "Litany of Sins" was Fortune, which ran a cover story (9/5/94) about trading scandals at GE's Kidder Peabody division. This issue was on the newsstands when information that Time Warner (which owns Fortune) was considering buying NBC was first reported.

The complicated politics of broadcast ownership make it questionable whether Time Warner was trying to leverage GE in the Ted Turner fashion. Time Warner has reportedly proposed that GE would keep a majority stake in NBC's affiliates in any deal, since the FCC would (for now) frown on Time Warner, a major cable operator, acquiring broadcast outlets.

Still, it's odd to see Time Warner's Fortune complaining about corporate synergy: "When the Kidder scandal came to a head in June, GE went on CNBC, which it owns, to respond," the September 5 cover story noted.

Vulnerable Media

GE is not the only media company vulnerable to the "character" issue. Rupert Murdoch's News Corp. has been charged by the FCC with "either carelessness or recklessness" for failing to disclose a fraud settlement. (See sidebar.)

Turner ally TCI, which benefited from GE's backing down on CNBC, faces similar license problems; although its cable systems are not licensed by the FCC, TCI relies on FCC-regulated licenses to maintain its national system. A TCI anti-trust conviction led to a license challenge from the non-profit Media Access Project; TCI managed to hold on to its broadcast licenses, but had to pay the Media Access Project $50,000 in attorneys' fees (Multichannel News, 6/10/91).

And after the Wall Street Journal (1/27/92) ran an article headlined "Cable Cabal," which tracked a series of insider stock transactions by TCI Chair Robert Magness and CEO John Malone, Broadcasting (2/24/92) noted that

If TCI were ever convicted of a wrongdoing, its microwave licenses (and its current attempts to get a DBS [Direct Broadcast Satellite] license) could be jeopardized. Any conviction could disqualify TCI under the FCC's character-qualification policy, which is primarily concerned with felony convictions that suggest a willingness to deceive a federal agency or the public.

In the past, the government's potential to abuse the FCC's power to strip the licenses of felons has chilled news media. In 1971, the Washington Post was concerned that if it was ruled to have violated the law when it published information from the "Pentagon Papers" -- classified documents about the Vietnam War -- the Post's broadcast holdings might be jeopardized. Publisher Katharine Graham "was really risking the television stations, all of them," by its reporting, editor Ben Bradlee noted (AP, 5/13/91).

What's needed are clear, tough and consistent FCC standards regarding the character of licensees. This would better ensure that the airwaves are used in the public interest in a vibrant manner without fear of political manipulation.

Sam Husseini is FAIR's activist coordinator.

Sidebar: NBC Brings Good Things to GE

While a licensee's deception of any government agency is always problematic, the FCC is particularly concerned when the commission is itself lied to. The FCC allowed GE to take over NBC in part because it accepted "GE's assurance that NBC News will operate autonomously, without interference by the new bosses." (Advertising Age, 6/16/86) But there is considerable evidence this has not been the case.

"Don't bend over backwards to go after us just because we own you," former NBC News president Lawrence Grossman said GE chair Jack Welch told him. The GE boss was worried, Grossman reported, "that in the news division, we might be off the reservation and might want to demonstrate our independence."

Grossman also reported that Welch gave him specific criticism, like telling him that "NBC's reporters should stay away from using depressing phrases like 'Black Monday'" to refer to the 1987 stock market crash. Welch even insisted that Today show weather forecaster Willard Scott continue to mention GE light bulbs on the air. "It was one of the perks of owning a network," Grossman said. "You get your light bulbs mentioned on the air.... People want to please the owners."

Grossman, who was fired in 1988, says he also got pressure from NBC head Robert Wright (who had come from GE Financial Services) when NBC News aired reports critical of MCA/Universal, whose TV arm supplied fare to NBC. "The vibrations or message that was being communicated [by Wright] was 'We're losing money and you guys are risking even more when you put on these reports,'" Grossman told Electronic Media (11/11/91).

Grossman's revelations were shrugged off by the FCC. William Johnson,deputy chief of the Mass Media Bureau, said (Electronic Media, 11/11/91): "If the owner has an opinion, he's entitled to say that to his employees. It's hard for me to see what's wrong with that."

NBC News has also edited out or excluded negative reporting on GE, from GE's use of defective bolts in airplane engines to references to the INFACT-led boycott against GE. NBC News has also plugged subjects dear to its corporate parent's heart, as with a 14-minute series on a GE-manufactured breast cancer detector. (See Extra!, 1-2/91.)

Murdoch's Maneuvers

FCC regulatory decisions generally receive scant press coverage. The 1993 FCC waiver that allowed Rupert Murdoch to control a TV station (New York's WNYW) and a daily newspaper (the New York Post) in the same market was an exception.

But some media accounts were bewildered as to why Murdoch would want the money-losing Post. One obvious reason, which indicates why such cross-ownership is prohibited in the first place, is that the Post could promote Murdoch's Fox TV network.

This would hardly be a new thing for Murdoch. As James Ledbetter pointed out in the Village Voice (4/13/93):

In 1989, Fox privately settled a $21million federal fraud suit charging it with, among other things, unlawfully padding its pockets by using Fox TV stations to advertise Fox films. Disregarding FCC reporting requirements, Fox didn't disclose that settlement when applying to renew the license of its Los Angeles station, KTTV.

The FCC review board said that omission, along with other Fox misconduct, "shows either carelessness or arrogance, depending on how the Fox compliance record is interpreted and we cannot sweep them aside lest we condone such conduct on the part of all FCC licensees." However, wrote Ledbetter, "Like good little deregulators, the board then promptly renewed KTTV's license, effectively sweeping the misconduct aside."

Just as troubling were some reports of how Murdoch obtained the cross-ownership waiver. In the mid-'80s, Murdoch had obtained a temporary waiver that allowed him to control the Boston Herald, Boston Fox affiliate WFXT, the New York Post and the New York Fox affiliate. However, he was forced to sell the Post and WFXT after Sen. Edward Kennedy (D.-Mass.) -- a frequent target in the Herald and other Murdoch outlets -- got a prohibition on waivers inserted into an appropriations bill in 1987.

Though a court overturned the 1987 prohibition, Kennedy could still have caused problems for Murdoch. Instead, he backed Murdoch's 1993 repurchase of the New York Post. Daily Variety (4/12/93) noted that shortly after Murdoch received Kennedy's backing, Fox put on hiatus a hard-hitting documentary on alleged ties between John F. Kennedy and the Mafia. "It appears from the timing of the decision to suspend production on the JFK/Mafia project that Murdoch doesn't want to do anything that might anger his longtime adversary, Sen. Edward Kennedy," Daily Variety reported.

Allan Sloan noted in New York Newsday (10/24/93) that on the same day that Murdoch's News Corp. re-acquired the New York Post (with Kennedy's backing), it announced an option to buy back WFXT, saying that it would give up the Kennedy-bashing Boston Herald. "Could that be the sound of two backs being scratched?" Sloan wondered.

In early 1994, Murdoch announced the sale of the Boston Herald--on favorable terms--to his close associate Patrick Purcell, who was to step down from several positions in Murdoch's operations (Boston Globe, 2/5/94).