In the Matter of the Petition by ) June 13, 1984 ) WESTCHESTER INTERCONNECT, INC. ) 201 King Street ) Chappagua, NY 10514-3430 ) ) Denial of Application for Second-Class ) Mail Privileges for "PREVIEW" ) P.S. Docket No. 18/75 APPEARANCES FOR PETITIONER: Rodney O. Thorson, Esq. Allen Schole, Esq. Skadden, Arps, Slate, Meagher & Flom 919 - 18th Street, N.W. Washington, DC 20006-5503 APPEARANCE FOR RESPONDENT: Jeffrey H. Zelkowitz, Esq. Law Department United States Postal Service Washington, DC 20260-1143 BEFORE: Judge Edwin S. Bernstein
This is an appeal by Petitioner from a decision of the Director, Office of Mail Classification denying Petitioner second-class mail privileges for its publication, "PREVIEW." The Director determined that "PREVIEW" was ineligible for second-class mail privileges pursuant to Domestic Mail (DMM) Manual, § 422.6(c) because "PREVIEW" was controlled by the owners of cable television systems and conducted as an auxiliary to and essentially for the advancement of main businesses of the cable systems.
The parties filed Proposed Findings of Fact, Proposed Conclusions of Law, Memoranda of Law, and Rebuttal Memoranda. All of these have been considered. To the extent indicated, they have been adopted. Otherwise, they have been rejected as irrelevant or not supported by the evidence.
Petitioner is a corporation which publishes "PREVIEW," a monthly cable television magazine. About three years ago, Ronald Ceisler, Petitioner's President, and several other investors formed Petitioner and began publishing "PREVIEW."
Each month, 11 separate editions of "PREVIEW" are printed and distributed in Westchester and Rockland counties and Long Island, New York, and in northern New Jersey to cable viewers of multiple system organizations ("MSOs"). In August, 1983 when this dispute arose, six MOSs utilized "PREVIEW". Through consolidations, this number had been reduced to three by the time of the hearing. (Tr. 17, 18, 68) The contracts between Petitioner and the MSOs require Petitioner to mail copies to subscriber lists furnished by the MOSs. (R-9 through R-17)
A typical contract (R-12) contains the following relevant clauses:
"SECOND: 'PREVIEW' shall provide UA-COLUMBIA subscribers with the following information and services:
(a) A viewer's guide to all regularly scheduled national and local cable television programming offered by UA-COLUMBIA to its subscribers for the month of such issue;
(b) A guide to all special programming obtained by UA-COLUMBIA via satellite and/or microwave transmission and offered to its subscribers during such month; and
(c) Special reporting and/or commentary relative to the programming.
. . .
SIXTH: UA/COLUMBIA acknowledges the value, publicity and goodwill associated with the 'WESTCHESTER PREVIEW' and UA-COLUMBIA acknowledges that such goodwill exclusively belongs to WESTCHESTER.
. . .
EIGHTH: This agreement does not constitute and shall not be construed as constituting a partnership or joint venture between the parties.
. . .
ELEVENTH: WESTCHESTER shall have the sole right to accept or reject any advertising to be included in PREVIEW; excepting however that WESTCHESTER agrees that it will not knowingly accept any advertising material which is demeaning in nature to the goodwill and the reputation of UA-COLUMBIA, nor any advertising of programming not carried on the UA-COLUMBIA system."
None of Petitioner's stockholders, directors, or employees are employed by or have any ownership or other interest in these MSOs. (Tr. 15) There is no relationship between Petitioner's owners or employees and any MSOs other than the contractual relationship. (Tr. 15).
The first issue of "PREVIEW" was published in October 1981. Since then, Petitioner has increased its subscribers from 8,000 to approximately 400,000. (Tr. 16) It began in eastern Westchester County and has since expanded to most of Westchester County, Rockland County, Long Island and parts of New Jersey. (Tr. 17) Petitioner has grown from one employee to approximately 50. (Tr. 17) As "PREVIEW" has grown, it has become more professional and has increased its editorial and graphics content and its features. (Tr. 18) The February 1984 edition consisted of approximately 140 pages and included feature articles concerning Peru, the Olympics, dieting, a "Kid's Korner" page, a page about a local student athlete of the month, a review of a local restaurant, a crossword puzzle, and a gossip section. A section entitled, "Premium Channel Schedules" occupied approximately 28 pages, including advertising. The "Daily Schedule" section, which lists all television programs during the month, including free programs, occupied approximately 75 pages, including advertising.
"PREVIEW" also emphasizes matters of local and community interest. It includes articles concerning high school athletics, student athletes, a calendar of local events (Tr. 37-38) and the promotion of civic efforts such as the United Way Campaign (Tr. 40) and the Cancer Fund for Westchester County. (Tr. 41)
About 95 percent of "PREVIEW's" programming information is purchased from Telelog, an Atlanta firm. The other 5 percent includes listings supplied by the MSOs. (Tr. 46)
"PREVIEW's" sources of advertising revenue are local, national, and satellite services. Local advertisers include banks, retail stores and restaurants. In 1983, 2,790 pages in "PREVIEW" were sold to local advertisers. (Tr. 54) National advertisers, such as Sony Corporation, accounted for 298 pages in 1983. (Tr. 57) "PREVIEW" also sold 186 pages of advertising to satellite services. These are independent networks such as HBO, Showtime and Playboy which sell their programs to the MSOs. (Tr. 55-57) The MSOs accounted for only about 100 pages of "PREVIEW's" 1983 advertising, despite strong efforts by Mr. Ceisler to persuade them to buy more space. (Tr. 60-62) The MSOs pay for their advertisements in "PREVIEW". No free advertising space is provided to them. (Tr. 61, 64)
"PREVIEW" also includes several pages submitted by the MSOs in addition to program listings. These include a general manager's letter, a calendar of events, and several pages of general information (Tr. 61).
The format for "PREVIEW" was developed by Mr. Ceisler who has been responsible for instituting changes in its format, print, paper, articles, and features since "PREVIEW's" initial edition. (Tr. 25) Mr. Ceisler utilized the services of a major advertising agency at considerable expense to develop the "PREVIEW" logo. (Tr. 79)
Cable TV customers pay monthly fees to the MSOs which cover both the cable service and their subscription to "PREVIEW".
The program listings in "PREVIEW" are informational in nature. Both the Premium Channel Schedule and the Daily Schedule are non-commentary, listing nothing more than the name of the show, its time and channel. The movie descriptions in "PREVIEW" do not tell the reader whether films are good or bad. They describe films in neutral terms. These descriptions are in contrast with paid advertisements which praise the films that they promote.
None of "PREVIEW's" editorial material, articles, features, or advertisements are submitted to the cable operators for approval. (Tr. 86) However, Petitioner submits listings of their programs to the MSOs to assure accuracy. (Tr. 86)
During its three-year life, "PREVIEW" has greatly improved its format, cover design, and features, and its advertising has increased. Mr. Ceisler and his staff have worked extremely hard to achieve these improvements. (Tr. 31).
All decisions as to cover design, types of articles, numbers of articles, types of features, numbers of features, and layout of the magazine are made by Mr. Ceisler and his staff. The MSOs have no influence with regard to these decisions except to furnish pages to be inserted in "PREVIEW".
The MSOs have no control over any financial aspects or employee decisions with respect to Petitioner.
Petitioner's survival does not depend upon the survival or financial future of any individual cable operator. (Tr. 81)
Mr. Ceisler impressed me as a sincere, hard working, conscientious businessman who was determined to continue to improve "PREVIEW". I found "PREVIEW" to be an attractive, interesting and useful publication. Mr. Ceisler testified that the policies and objectives of "PREVIEW" are his. He does not tell the MSOs what to do with their systems and he does not believe that they have the right to tell him what to do with his publication. (Tr. 87)
The Postal Service denied Petitioner's application for second-class mail privileges based upon Domestic Mail Manual § 422.6(c). That provision states that to qualify for second-class privileges:
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 main business or calling of one of those who own or control it.
Clearly, Petitioner is not owned by the MSOs. I further find that Petitioner is not controlled by these MSO's.
The existence or absence of control is a factual question to be determined by an analysis of the facts and circumstances of each case. Rochester Tel. Corp. v. United States, 307 U. S. 125, 145 (1939).
As Respondent acknowledged, most cases in which second-class privileges were denied under DMM § 422.6(c) were based upon ownership rather than control. (Respondent's Rebuttal Memorandum, p. 5)
Two recent decisions, Banner Publications, Inc., P.S. Docket No. 17/32 (1983) and TV Host, Inc., P.S. Docket No. 17/25 (1984) are distinguishable. In Banner, the publication was designed to highlight programs of one cable operator, Storer Cable TV. The publication did not describe any programming on local channels. The contract between Storer and the publisher gave Storer the right to examine manuscripts submitted for publication and suggest revisions of editions. It also gave Storer the final editorial approval of the publication's content. Storer was found to have exercised editorial control by making decisions on format and content and disapproving of proposed answers to letters to the editor. Also, the publication's survival was found to depend upon Storer's financial support since Storer was the only cable company that utilized the magazine. That fact effectively gave Storer great control.
TV Host found that the publisher itself did not exercise any significant editorial control over the contents of its publication. Most of the copy printed in the magazine was provided by the various premium and satellite channel companies. The remainder of its editorial copy was provided directly by the individual cable companies for whom the magazine was published. The cable companies placed editorial restrictions each month upon the format and content of the publication and essentially dictated its content. The cable systems were able to sell advertising space in their own editions and retain 100% of the revenues. The decision concluded that "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." (p. 7)
In Vertical Marketing, Inc., P.S. Docket No. 2/6 (1974) control was not found despite a contract provision which prevented the publication, "Sphere/The Betty Crocker Magazine" from advertising products that competed with those of General Mills and which gave General Mills the right to approve or disapprove product advertising. General Mills owned the Betty Crocker trademark but did not own the publication. General Mills also was paid royalties based upon the publication.
The decision emphasized that the publication included many articles and features, included little advertising by General Mills and that General Mills did not exercise any control over the publication's finances, copy or advertising. It stressed that the Petitioner was a business independent of General Mills. The decision stated:
The record is bare of any facts or indication that Vertical subordinated at any time or in any way, by acts of omission or commission, its own interests to those of General Mills or that Vertical was financially controlled by, or dependent upon support of, General Mills. (P. 19)
Similarly, no control was found in Willamette TV & Cable Guides, P.S. Docket No. 16/97 (1984). In that case, the TV guide contained cable program listings, features, articles and advertising. The decision emphasized that the cable company and Petitioner had no proprietary interests and no employees in common, and did not share any office space, facilities or equipment.
In the case at issue, Petitioner is a separate entity from the MSOs. The MSOs have no influence over Petitioner's financial, personnel, facilities or equipment decisions. The MSOs have no control over "PREVIEW's" format, cover design, types of articles and features, content of articles or features and, except for Contract Clause Eleventh, the MSOs have no control over Petitioner's advertising policies and decisions.
Respondent's argument that the MSOs control Petitioner emphasizes Contract Clause Eleventh in which Petitioner agreed not to accept advertising that demeans the MSOs or of programs not carried in the MSO's system. It is not unusual for a business firm that values its customers to avoid demeaning those customers. That is a standard good business practice which, by itself, does not establish control.
Respondent also emphasizes that the MSOs business is important to Petitioner. Frequently, businesses will have large, important customers which they value or law firms with important clients who pay large fees. Such facts, per se, do not establish control in the absence of evidence that control has been exercised. If such was the case, it would lead to the conclusion that, per se, all such businesses and law firms are under the control of their important customers and clients.
Respondent also has failed to prove the second requirement of DMM § 422.6(c) - that Petitioner "is conducted as an auxiliary to and essentially for the advancement of the main business" of the MSOs.
LaSalle County Legal News and Public Record Bulletin, P.S. Docket No. 12/113 is not authority for a rebuttable presumption that "PREVIEW" is conducted for the advancement of the MSOs. In LaSalle, the business being advanced also owned the publication. As indicated, ownership is absent in the case at issue.
TV Host and Banner found that the publication advanced the Cable Companies' main business as based upon distinguishable facts previously described. In Commodore Business Machines, Inc., P.S. Docket No. 14/95 (1983) Commodore owned both the computer firm and the publication which was devoted solely to Commodore's computers, contained mostly advertisements of Commodore computer products and promoted Commodore products.
Moreover, advancement of the customer's main business was not found in the more analagous Vertical Marketing and Willamette cases.
In other cases, even where common ownership existed, "advancement" was not found. Thus, in Credit Bureau of Logan, Inc., P.S. Docket No. 4/191 (1976) a publication of the credit bureau was found to disseminate useful information concerning public records as well as contain advertising.
Exxon Travel Club, Inc., P.S. Docket No. 2/85 (1974) involved a publication of Humble Travel Club, a subsidiary of Humble Oil Company. The travel club's magazine was found to be an attractive, interesting and informative publication designed to educate and entertain its subscribers on travel-related subjects. In Amoco Motor Club, P.S. Docket No. 2/50 (1974) Amoco Publications' "Adventure Road" was found to be informative, entertaining and educational about travel subjects and not an auxiliary to and essentially for the advancement of Amoco's main business.
In The Diners Club, Inc., POD Docket No. 1/225 (1961) the Diners Club Magazine was found to contain articles of general interest and a wide variety of advertising and not be essentially for the advancement of Diners Club's credit card business.
In Holmes Management Co., P.S. Docket No. 4/71 (1976) a TV guide owned by a TV station, which contained a good deal of advertising and editorial material, was found not to be essentially for the advancement of the TV station.
To the same effect in Smokenders, Inc., P.S. Docket No. 4/192 (1977), the publication owned by Smokenders was found to give post-seminar support to non-smokers rather than be operated as an auxiliary to Smokenders' main business.
These cases show that even when there is common ownership, where the publication fulfills worthwhile purposes of its own rather than merely touting the company's products, it will not be deemed to be conducted as an auxiliary to and essentially to advance the main business or calling of its owners. Where there is no common ownership, criteria which impact on the issue of control also tend to impact on this latter issue. This perhaps explains why I have found no case in which a judge has found filfillment of this latter requirement without also finding either ownership or control. RFRANK-MA.131 ing published as an auxiliary to and to advance the MSOs businesses, "PREVIEW" is published as an independent business venture designed to increase its circulation and make a profit while furnishing its readers with a useful guide to cable and other TV programs which contains interesting articles and features.
Accordingly, the decision of Director, Office of Mail Classification denying Petitioner's second-class mail privileges was in error and is set aside.