In the Matter of the Petition by ) February 28, 1984 ) TV HOST, INC. ) P. O. Box 1665 ) Harrisburg, PA 17105 ) ) Denial of Second-Class Mail ) Privileges for "TV HOST PREMIUM & ) SATELLITE MONTHLY" ) P.S. Docket No. 17/25 APPEARANCE FOR PETITIONER: Robert D. Kodak, Esq. P. O. Box P Harrisburg, PA 17108 APPEARANCE FOR RESPONDENT: Jeffrey H. Zelkowitz, Esq. Law Department United States Postal Service Washington, DC 20260-1143 Mason, Randolph D.
This proceeding arises out of a petition filed by TV Host, Inc., ("Petitioner") from the ruling of the Director, Office of Mail Classification ("Director"), denying the application for second-class mail privileges for the publication TV Host Premium & Satellite Monthly ("TV Host"). In its timely filed Answer, the Respondent Postal Service stated that the application was properly denied because (1) each edition of TV Host is "controlled" by the cable television company for which it is published and "conducted as an auxiliary to and essentially for the advancement of" that cable company under Domestic Mail Manual § 422.6(c), and (2) because Petitioner failed to furnish certain information requested by Respondent for the purpose of processing the application.
A hearing was held by the undersigned on September 15, 1983, in Washington, DC. Both parties filed proposed findings of fact and conclusions of law which have been duly considered. To the extent indicated below, proposed findings and conclusions have been adopted; otherwise they have been rejected as irrelevant or contrary to the evidence. Based on the entire record herein, including my observation of the witnesses and their demeanor, the exhibits, stipulations, and other relevant evidence adduced at the hearing, I make the following findings of fact and conclusions of law:
1. Petitioner is TV Host, Inc., located at P. O. Box 1665, Harrisburg, PA 17105. This proceeding was precipitated by an application to mail TV Host as second-class mail as a Requester Publication. The application was submitted by David W. Stefanic, Petitioner's president, on April 20, 1982. TV Host is published monthly (Exh. R-1; Tr. 157).
2. TV Host has been owned and published by the Petitioner at all times since the filing of the above application (Exh. R-1; R-5 at 4, 5).
3. Every month Petitioner publishes over 75 separate editions of TV Host (Tr. 104). Each edition is separately published and custom-designed for a different cable television company pursuant to separate monthly contracts between Petitioner and each of those companies (Exh. R-6, R-5 at 1).
4. Prior to the publication of TV Host and other similar magazines, many individual cable companies simply sent their customers copies of the program listing guides furnished by the premium channel company (e.g., Home Box Office ("HBO"), Showtime). However, as the number of channels increased, the cable companies could no longer afford to send out individual service guides for each channel that it provided (Exh. R-5 at 4). Since each of these cable companies carries a different mix of channels, the need arose for the publication of separate program listing guides such as TV Host for each of the cable companies (id).
5. In order to satisfy its need, each cable company served by Petitioner submits a monthly order dictating the content of its edition of TV Host for that month (Tr. 34; Exh. R-6; Tr. 107). The order is submitted on a form entitled "Purchase Order Agreement" (Exh. R-6). All copies of each edition of TV Host are purchased by the cable company for which it is published (Exh. R-5). Petitioner mails the copies of the publication to a list of persons furnished each month by the cable companies (Exh. R-5 at 2). Copies not circulated in this manner are given directly to the cable companies, which distribute some of these copies to new customers when they initially subscribe and to potential subscribers as an advertisement (Tr. 156-157; Exh. R-24).
6. Unless additional pages are specifically purchased, each edition consists of 40 pages. This includes the "basic magazine" of 36 pages which will accommodate listings for several premium and expanded channels. Also, the cable company is identified on the front cover above the words "TV Host," and is provided four additional pages containing information for the subscribers from the local cable company (Exh. R-11 to R-26; Exh. R-6).
7. Each cable company directs the Petitioner on the purchase order form to print a specified number of copies of the magazine for that month. The order form also lists the premium channels (Home Box Office, the Movie Channel, etc.) and satellite channels (ESPN, CNN, etc.) to be included in that month's edition. The "basic magazine" is assembled by Petitioner on the basis of these instructions. Petitioner then obtains the copy for the basic magazine from the various premium and satellite channel companies (Tr. 142-143, 103, 124).
8. Each magazine typically contains the following sections: (a) Two pages for each of the premium channels listing the movies and special programs in alphabetical order with a brief description of each show and the dates on which it will appear during the month; (b) longer articles previewing the premiere movies and specials for the month; (c) a section on premium channels listing for each day of the month the name of each movie or special and the time it appears for each of the premium channels; (d) a similar section listing the programs appearing on the satellite channels for each day of the month; and (e) a letter from the cable company to its customers plus other information or instructions for subscribers concerning the cable service.
The copy for section (e), above, is provided to Petitioner by the cable company itself. Sections (a)-(d) are provided to Petitioner by the premium and satellite channel companies.
9. The front cover of each magazine gives the impression that it is published by the individual cable television company. Only a careful reading of the small print on the table of contents page reveals that the magazine is actually published by Petitioner. The impression given by the cover has been fostered by the cable companies in the letter to subscribers. One cable company stated that it had, in fact, "designed" the magazine and "we would appreciate your comments about this publication so that we can make the necessary changes to please you in the future" (Exh. R-16).
10. As previously indicated, each cable company places its order on a "purchase order agreement" form. The following language on the back of that form appears to give the Petitioner a certain degree of control over each edition of the magazine:
. . .
2. TV Host, Inc. will draft all editorial and promotional copy, as well as, design and provide any and all artwork and materials required in printing and publication of the guide; Cable system may apply a customized front cover message and logo, inside front cover letter and two additional pages in the text to promote its sytem or describing how to use its equipment and/or the guide. TV Host, Inc. will attempt to use same provided the publication deadlines established by TV Host, Inc. are met and said copy is in compliance with the standards set by TV Host, Inc....
3. TV Host, Inc. anticipates the participation of advertisers in TV Host Monthly. Acceptance of advertising is at the discretion of TV Host, Inc. Local advertising may also be sold by the operator. . . .
. . .
6. The operator agrees that the concept, copy and artwork prepared and included in TV Host shall remain in the property of TV Host, its publishers, sic TV Host Monthly is the exclusive property of TV Host, Inc. and shall not be used in connection with any advertising, promotion, and/or marketing program engaged in by the operator without the express written approval and consent of TV Host, Inc.
11. In practice, however, Petitioner did not exercise any significant editorial control over the contents of TV Host. The bulk of the copy printed in the magazine was provided by the various premium (HBO, etc.) and satellite channel companies (Tr. 103, 124, 142-143). The remainder of the editorial copy was provided directly by the individual cable companies for whom the magazine was published. Thus, Petitioner is essentially a printing company which primarily performs a layout function with respect to certain predetermined sections of copy pursuant to the directions of each individual cable company.
12. The fact that Petitioner "talked a cable company out of running" some pictures advertising an X-rated program (Tr. 157-158) does not constitute the exercise of control. Also, the fact that Petitioner is asked to draft the company's letter to subscribers in some cases does not, by itself, indicate control.
13. The survival of each edition of TV Host depends upon financial support and assistance from the cable company for which it is published. In this regard, the cable operator purchases the entire output of TV Host (with the exception of approximately 500 copies out of a circulation of more than 200,000, see Tr. 150; R-5, Schedule A). In this manner, the cable operators directly provide Petitioner with virtually all of the subscription revenue generated by TV Host and also provide Petitioner with a ready-made market for the publication (Exh. R-5). The cable operators also provide TV Host with computer-printed address labels each month reflecting the entire list of subscribers (Tr. 30; R-1).
14. Each cable company receives part of the revenue from its edition of the magazine. In this regard, it receives half of the net advertising revenue for all advertising space sold to national and regional advertisers after the first page. In addition, individual cable systems may sell advertising space in their own editions and retain 100% of the revenues (Exh. R-15).
15. The existence of TV Host magazine is clearly beneficial to each of the cable companies for which it is published. TV Host lists and describes the programming and services available to the customer of each system it serves, and facilitates their use of those services (Tr. 121; Exh. R-5 at 5). The magazine admits its "an integral part of each cable system subscriber's overall cable service" (Exh. R-5 at 5). Also, it is equally clear that TV Host is conducted essentially for the advancement for each of these cable television companies, and that it benefits the systems in a number of ways (Tr. 76-77). First, extra copies are ordered by the cable companies for the purpose of convincing potential customers to purchase cable services (Tr. 28-29, 65, 100, 156-157; Exh. R-24). Second, the availability of a guide providing program listings facilitates a customer's use of the cable system, and influences him to renew his cable services each month (Exhs. R-5 at 5; R-16 at 2; R-20 at 4; R-21 at 10). Third, the publication makes customers aware of the current programming they would have received on channels they have not yet purchased, and might induce the purchase of those additional services (Tr. 55-56; Exh. R-19 at 20a, 20b-c).
16. Each edition of TV Host is controlled by the cable television company for which it is published and is conducted as an auxiliary to and essentially for the advancement of that cable television business.
Petitioner's Failure to Provide Information
17. On March 10, 1983, while Petitioner's application for second-class mail privileges was still pending, the Mail Classification Specialist assigned to this application sent Petitioner a written request for additional information. This request consisted of four typewritten pages setting forth 14 questions for Petitioner to answer. Petitioner responded by letter dated March 29, 1983, consisting of seven typewritten pages and numerous attachments.1/ Petitioner gave satisfactory answers to all of the questions that were within the personal knowledge of its staff but declined to obtain a large amount of detailed information for five of the questions from each of the 20 (now over 75) companies for which magazines were published. Petitioner supplemented the answers with a general description of the operation of the cable companies and Petitioner's relationship to them. The questions that Petitioner failed to answer in specific detail with respect to each of the individual cable companies are as follows:
. . .
(5) An explanation of how each cable system operates, including the extent of which patrons of the service pay for individual programming and the fees paid by patrons. Please include copies of any forms or contracts used for subscribing to each cable system. (Emphasis supplied).
. . .
(7) For each cable television system that you serve , an explanation regarding the circulation of the publications, including how many patrons of the paid TV service currently subscribe to TV Premium & Satellite Monthly; how many patrons of the pay TV service do not; and, whether there are any subscribers to TV Host Premium & Satellite Monthly who are not patrons of the pay TV services and how many.
. . .
(9) For each cable television system that you serve , a description of the method by which subscribers are provided information on the cable television system (9ther than programming information). If this information is provided through printed materials, please furnish copies.
(10) For each cable television system that you serve , a description of any means, including publication in local newspapers or publications other than TV Host Premium & Satellite Monthly, through which program information is provided for subscribers of the system. If the programming information is provided through written materials, please provide copies.
. . .
(12) For each cable television system that you serve , copies of any and all brochures or any printed material distributed to cable system subscribers, potential subscribers, or any other person or organization which explains or advertises the service or programs offered by the cable system.
(Exh. R-4 at 2, 3)
18. Prior to making its response to the above questions, Petitioner contacted one of the cable companies that it served and requested the information referred to in the above questions (Tr. 159-161). The cable company refused to provide the information on the ground that there were legal restrictions prohibiting dissemination of information on financial records and the internal operations of its company (Tr. 159-161). It also maintained that some of the information regarding individual customers was privileged (Tr. 110). The cable company then told Petitioner that if it would be required to deal with such "red tape," that it would look for another publisher (Tr. 161). After this conversation, Petitioner's staff decided not to propound these questions to the other cable television companies for fear of alienating these important customers (Tr. 162).
19. After endeavoring to answer the above questions in a general way in its response dated March 29, 1983, Petitioner received no further communication from the Respondent prior to the determination letter dated June 21, 1983, in which the Director held that the application should be denied. One of the separate grounds for denial was Petitioner's failure to provide information. Respondent relied upon Domestic Mail Manual § 441.22 which states, in part, as follows:
. . .Before taking action on an application, the Director may ask the publisher for additional information or evidence to complete or clarify the application. The publisher's failure to furnish such information is sufficient grounds to deny the application.
The Director's letter of denial, as required by Domestic Mail Manual § 441.23, then stated that the application would be denied effective 15 days from Petitioner's receipt of his ruling unless Petitioner filed information with supporting evidence to show that the requirements of the law had been met. Petitioner was given the alternative of contesting the ruling by filing a petition to appeal the Director's ruling within 15 days in accordance with 39 CFR § 954.8.
20. Petitioner did not attempt to obtain additional information from the cable television companies, and on July 11, 1983, filed its petition initiating the instant proceeding.
1. The primary issue presented for decision is whether Petitioner's application for second-class privileges should be denied under Domestic Mail Manual ("DMM") § 422.6c. That section requires that Requester Publications must meet the following requirement:
(c) The publication must not be owned or controlled by one or more individuals or business concerns and conducted as an auxiliary to and essentially for the advancement of the mail business or calling of those who own or control it . . . .
Thus, the question presented is whether each edition of TV Host is controlled by the cable television company for which it is published and is conducted as an auxiliary to and essentially for the advancement of that cable television business.
2. I have concluded that each edition of TV Host is "controlled" by the cable television company for which it is published. In the first place, the cable company places editorial restrictions each month upon the format and content of the publication. The cable company essentially dictates the content of the magazine on its order form by indicating which channel materials should be included and by providing its own letter to subscribers and other pages providing information regarding its services. TV Host obtains the written copy for each of the designated channels from the various premium and satellite channel companies. Thus, Petitioner is essentially a printing company which primarily performs a layout function assembling certain predetermined sections of copy pursuant to the directions of each individual cable company.
3. It should also be noted that each edition of the magazine gives the overall impression of being published by the cable company. Also, the survival of each edition of TV Host depends upon financial support and assistance from the cable company for which it is published. In this regard, the cable operator purchases the entire output (with minor exceptions) of TV Host. In this manner, the cable operators directly provide Petitioner with virtually all of the subscription revenue generated by TV Host and also provide Petitioner with a ready-made market for the publication. The advertising revenues which flow from this market are shared by Petitioner and the respective cable company for national and regional advertisers; individual cable systems may sell advertising space in their own editions and retain 100% of the revenues. These are further indicia of control by the cable companies.
4. I have also concluded that TV Host is "conducted as an auxiliary to and essentially for the advancement of" each of the cable television businesses for which it is published. Each edition is clearly an "auxiliary" to its respective cable company because it describes the programs and services and thereby facilitates the customers' use of the cable system. Also, the magazine is "essentially for the advancement of" each cable company because (1) it favorably describes (with few exceptions) the programs and services; (2) it encourages existing cable subscribers to continue renewing the services on a month-to-month basis; (3) it encourages existing subscribers to purchase additional services from the cable television company; and (4) the magazine is often used as an advertisement to convince potential customers to purchase cable services.
5. I have concluded that each edition of TV Host is controlled by the cable company for which it is published notwithstanding the fact that the order form purports to give the Petitioner a considerable amount of editorial control over each publication. The language contained in this form does not reflect the realities of the relationship between the publisher and the cable companies. For example, Paragraph 2 (FOF 10) states that the publisher "will draft all editorial and promotional copy, as well as, design and provide any and all artwork". As previously indicated, Petitioner makes only minor editorial changes and basically assembles various predetermined sections of copy for printing. In addition, the order provides that the "copy must be in compliance with the standards set by" Petitioner. In practice, however, Petitioner did not exercise any significant editorial control over the contents of TV Host. The evidence indicates that Petitioner merely assembled and printed copy provided by others at the direction of the cable company, and that Petitioner failed to delete or change any significant material without obtaining the agreement of the cable company.
6. Whether a particular publication is controlled by another company and conducted as an auxiliary to and essentially for the advancement of that company is a question of fact which must be determined on a case-by-case basis. Petitioner argues that magazines similar to TV Host have been granted second-class mail privileges. First, the undersigned is not bound by a decision of the Director even if the facts surrounding the publication in question were similar to those in the instant case. Moreover, even if similar magazines have been granted privileges, there is no evidence of record that these magazines are controlled by the cable companies which they serve.
7. Accordingly, I must conclude and hold that each edition of TV Host is controlled by the cable television company for which it is published and is conducted as an auxiliary to and essentially for the advancement of that cable company within the meaning of DMM § 422.6c.
8. The final issue for decision is whether Petitioner's application should be denied solely because it failed to fully answer certain questions propounded by the Director. Five out of 14 questions required Petitioner to obtain a large amount of detailed information from each of the 20 (now 75) cable companies for which magazines were published. After being rebuffed by one of the cable companies, and fearing that it might alienate the others, Petitioner chose to answer the questions in a general way based upon its own knowledge of the industry.
9. Respondent's position is based upon Domestic Mail Manual § 441.22 which provides in part as follows:
. . .Before taking action on an application, the Director may ask the publisher for additional infromation or evidence to complete or clarify the application. The publisher's failure to furnish such information is sufficient grounds to deny the application.
It seems clear that the failure to furnish information will not automatically cause a denial in all cases in view of the following regulation concerning the same subject. 39 C.F.R. § 954.5 states, in pertinent part, as follows:
. . .Before taking action on an application, the authorized official may call upon the publisher for additional information or evidence to support or clarify the application. Failure of the publisher to furnish such information or evidence may be cause for the authorized official to deny the application as incomplete or, on its face, not fulfilling the requirements for entry.
emphasis supplied
Thus, the question of whether it is reasonable to deny any application based upon the failure to furnish information must be decided on a case-by-case basis.
10. In the instant case it would be unfair to deny the application on this ground. The five questions in issue would have required each of the 20 cable companies to assemble an enormous amount of information. Question #5, itself, was both unduly burdensome and ambiguous. First, it asked for "an explanation of how each cable system operates." This was far too broad. The explanation was also to include "the extent of which patrons of the service pay for individual programming." If information concerning the numbers of patrons subscribing to the various channels had been sought, the question should have been phrased "the extent to which" patrons pay for individual programming. Petitioner thought the question was asking "which patrons" (by name) subscribe to which channels, and this information was considered confidential, particularly for subscribers to X-rated channels. When Petitioner approached one of the cable companies with the five questions, it was told that the information could not be provided and that the company would rather get another publisher than be forced to deal with such "red tape." Thus, Petitioner made an effort to answer the questions in a general way based upon its own knowledge.
11. At this point, fairness would have required the Director to notify the Petitioner of any critical deficiencies and put it on notice that a failure to furnish specific information within a reasonable time might result in denial of the application. Instead, the Director failed to notify Petitioner of its deficiencies until the denial letter was issued. That letter, in accordance with Domestic Mail Manual § 441.23, made the denial effective unless an appeal was filed within 15 days. This procedure failed to give the Petitioner a meaningful opportunity to obtain the information sought in the five questions --15 days was simply not enough time to gather such a large amount of information and documents from each of the 20 cable companies. Thus, Petitioner was left with no realistic choice but to file the petition initiating the instant action.
12. Accordingly, the Director's denial cannot properly be based on DMM § 441.22, and that argument is rejected.
13. However, in view of my conclusions with respect to DMM § 422.6c, it is concluded that the decision denying Petitioner's application for second-class mail privileges is sustained and the appeal is denied.
1/ On July 19, 1982, Petitioner had timely provided a satisfactory response to a series of questions from the Director relating to the "control" issue under DMM § 422.6c.