In the Matter of the Petition by

HOLMES MANAGEMENT COMPANY,
P. O. Box 7133, Tamuning, Guam 96911

Denial of Application for Second-Class Mail Privileges for "TV GUAM"

P.S. Docket No. 4/71

February 12, 1976

William A. Duvall Chief Administrative Law Judge

Lee M. Holmes, President,
Holmes Management Company,
P. O. Box 7133, Tamuning, Guam,
for Petitioner

Grayson M. Poats, Esq.,
Law Department
United States Postal Service
Washington, D. C., for Respondent

Before: William A. Duvall , Chief Administrative Law Judge

INITIAL DECISION

On April 4, 1975, Holmes Management Company, Tamuning, Guam (Petitioner), filed with the Postal Service an application for second-class mail privileges for the publication "TV Guam" (hereinafter sometimes referred to as the publication). After a review of various issues of "TV Guam" and after further correspondence with Petitioner, the Director, Office of Mail Classification, U. S. Postal Service (Respondent), denied Petitioner's application for second-class entry on May 30, 1975, stating that "TV Guam" was designed primarily for advertising purposes within the meaning of Postal Service Manual 132.226. The specific reasons for the denial were stated as follows:

"Section 132.226, Postal Service Manual, provides that publications designed primarily for advertising purposes may not qualify for second-class privileges. This includes those owned or controlled by individuals or business concerns and conducted as an auxiliary to and essentially for the advancement of the main business or calling of those who own or control them, and those that consist primarily of advertising and editorial write-ups of the advertisers.

"'TV Guam' is published by Holmes Management Corporation which is also a major stockholder in Guam Cable TV System. Most of the available television in Guam can be seen on cable TV, and 'TV Guam' contains the scheduling of these programs as well as those aired on regular television channels. 'TV Guam' does carry feature articles, but its main purpose is to provide a schedule of television programming for viewers. This advances the business of the Holmes Management Company, both as major stockholders in the Cable TV System and as the publishers of 'TV Guam.'

"Therefore, 'TV Guam' is designed primarily for advertising purposes and the application for second-class mail privileges is denied." (Ex. R-8)

Following additional correspondence between the parties, Petitioner, on September 5, 1975, filed a Petition appealing the denial of its second-class mail application. Respondent filed its Answer on September 15, 1975, and the hearing in this matter was held in Washington, D. C., on September 16, 1975.

THE ISSUE

The issuance of the second-class mail permit Petitioner seeks depends upon the answer to the following question: Is "TV GUAM" designed primarily for advertising purposes? In resolving this issue it must be determined whether the publication is conducted as an auxiliary to and essentially for the advancement of the main business or calling of its owners or whether it consists primarily of advertising and editorial write-ups of the advertisers.

PERTINENT POSTAL LAWS AND REGULATIONS

Section 132.226 of the Postal Service Manual, cited by Respondent in the notice of denial, provides, in pertinent part, as follows:

"Publications designed primarily for advertising purposes may not qualify for second-class privileges. They include:

* * * * * *

b. Those owned or controlled by individuals or business concerns and conducted as an auxiliary to and essentially for the advancement of the main business or calling of those who own or control them.

c. Those that consist principally of advertising and editorial write-ups of the advertisers.

* * * * * *"

This regulation serves to implement 39 U. S. Code 4354(c), which, so far as is here pertinent, provides:

"A periodical publication designed primarily for advertising purposes *** is not entitled to be admitted as second class mail under this section."

THE PUBLISHER, THE PUBLICATION, AND THE EVIDENCE

Holmes Management Company, 2A Sanchez Building, P. O. Box 7133, Tamuning, Guam 96911 is the publisher of the weekly publication known as "TV Guam." Petitioner is a small business corporation and Lee Holmes is its president. Mr. Holmes and his wife own all the shares of stock in Holmes Management Company except one, and that share is owned by the Holmes' attorney, a Mr. Ariola, who is the third member of the Board of Directors of Holmes Management Company.

Guam Cable TV System, which began broadcast operations in 1970 as Marianas Communication System, is a public corporation which provides cable television service on Guam. It presently broadcasts over eight channels. Lee Holmes is president of Guam Cable TV and he is also a member of its Board of Directors. Mr. and Mrs. Holmes own a majority stock interest in Guam Cable TV. The offices of Guam Cable TV are in the same general location as the offices of Holmes Management Company.

"TV Guam" is the most important entity in the Holmes Management Company from the standpoint of production of income. (Tr. 41) In terms of net worth and revenue production, Guam Cable TV is roughly twenty times larger than "TV Guam." (Tr. 46-47) It appears from the record, therefore, that Guam Cable TV is, financially, the largest business interest of Mr. and Mrs. Holmes.

Because the local newspaper had refused to publish the TV listings, as a public service, and because there was no weekly magazine carrying local items of interest, "TV Guam" was conceived and designed to publish "a TV schedule for the cable television and other TV viewers" and to provide a weekly magazine on Guam. Seven issues of "TV Guam" were received in evidence. (R-2-6; P-5 and P-6) Those issues average 38 pages each, excluding the covers, and consist of two basic sections. The first section contains feature articles which occupy, on an average, eleven pages. Some of the regularly occurring articles are "Guam Happenings", "On the Go", "From Dorothy's Kitchen", and "TV Guam Spotlight". The second section of "TV Guam" contains television viewing information and occupies an average of 24 pages. Advertising copy takes up from one-sixth to one-half of these 24 pages, however, and this situation is not present in all of the pages containing articles. The remainder of the space in the publication is comprised of advertising matter and announcements.

There are two television stations on Guam whose signals may be received via an antenna. These stations are referred to in "TV Guam", and in the testimony in this case, as "off-air" stations. KGTF is a government-owned station and KUAM is an independent commercial station that is affiliated with the three major networks -- ABC, NBC, and CBS. These stations do not begin to broadcast on weekdays until 3:30 or 4:00 P.M., and at 1:30 P.M. on Saturdays and Sundays; whereas Guam Cable TV begins its broadcast day at 6:30 A.M. on weekdays and 8:00 A.M. on Saturdays and Sundays and continues without interruption until midnight or thereabouts.

Guam Cable TV currently carries eight channels. KGTF and KUAM broadcast over cable channels as well as off-air. Either on the inside front cover or on page three of each issue of "TV Guam" there are listed the Cable TV and the off-air channels on Guam. KUAM broadcasts off-air on channels 6, 7, 8, 10, and 13 and is carried on Cable TV as channel 9. The Cable TV channel numbers listed in the publication are the television selector numbers for Cable TV viewers. The TV schedule listings in the television information section of "TV Guam" indicate only the Cable TV channel numbers. The off-air channel numbers are not listed.

The first two pages of the television section of "TV Guam" feature special "focus" programs for different days of the week. Each focus program is discussed and the day, time and Cable TV channel for each program are listed. Following the focus programs is a "Program Notes" section which highlights special programs, sports events and movies for the week. The day, time, and Cable TV channel number for each show are listed. The main body of the television section is the daily program listings. The scheduled programs for each day are shown chronologically by Cable TV channel number. Frequently a short synopsis of a particular show is included. The television section usually concludes with one or more articles concerning television. These articles may be a critique of a particular program ("Critic's Corner"), a gossipy article on television personalities ("Heard on the Set"), an article on local television programs ("Made on Guam"), or an article featuring several programs to be aired on Cable TV ("Close-ups"). On some occasions, the off-air channel number is given for a locally produced program when it is discussed in a "Made on Guam" article.

According to a list of subscribers of "TV Guam" presented by Petitioner (P-1, Ex. F), 88 out of 90 subscribers are Cable TV viewers. In every case, however, the viewer had become a Cable TV viewer prior to his subscribing for the publication. The Cable TV viewing antedated the publication subscription for periods ranging from a few days to three and, in some instances, four years. Sales of "TV Guam" increase greatly in areas of Guam when Cable TV service is provided to those areas, but, although customers for the Cable TV service have continued to increase in numbers at a rapid rate to about 12,000 at the latest count, the number of subscribers to the publication has stabilized at between 7,500 and 8,000. (Ex. P-3)

Advertisements for Guam Cable TV have appeared in "TV Guam". Most of the advertisements appeal to current Cable TV viewers and a few have appealed to potential Cable TV viewers, but advertisements seeking new subscribers to Guam Cable TV System have been discontinued. The advertisements consist, for the most part, of such matters as information on extra Cable TV hookups, requests that viewers get street signs and house numbers, application for Cable TV service, instructions on bill paying, special service offers, information on new areas to receive Cable TV service, and Cable Playback announcements of viewers who are rewarded for prompt payment of their monthly bills. All of the last-mentioned inserts or notices are directed to, and carry information for, persons who are subscribers to the Guam Cable TV System.

THE POSITIONS OF THE PARTIES

Respondent

Respondent asserts that ^1/ :

(1) Guam Cable TV is the main business interest of Mr. and Mrs. Holmes "who are in reality the owners of Holmes Management Company and publishers of 'TV Guam'."

(2) "Although 'TV Guam' carries some feature articles on subjects other than television, its primary purpose is the publishing of Cable television scheduling and viewing information." Respondent states that the foregoing proposition is supported by the use of "TV" in the title of the publication, the "TV Guide" style logo, the proportion of the publication taken up by the television section, and the printing of only the Cable TV channel numbers for all program listings.

(3) "Sales of 'TV Guam' usually increase greatly whenever Cable TV service is extended into a new area of Guam."

(4) "Frequent advertisements for Guam Cable TV are included in 'TV Guam' both to keep present viewers informed about the operation and benefits of Cable TV service and to induce potential Guam Cable TV viewers to subscribe to that service."

(5) Petitioner's President stated that he certainly hopes that Guam Cable TV derives goodwill from the publication of "TV Guam".

(6) "TV Guam" is designed to provide a beneficial service to current Cable TV subscribers and to advertise the availability of the Cable TV service to potential viewers. "TV Guam" in turn is advertised each week on Guam Cable TV. It is obvious that there is a strong connection between Guam Cable TV and "TV Guam" in terms of business operations and information presented.

(7) Guam Cable TV System predates the publication of "TV Guam" (Tr. 20, 23) and without the existence of a strong cable TV system on Guam it is very questionable whether "TV Guam" would have ever come into existence.

Petitioner

Petitioner bases its claimed eligibility for second-class mail privileges for "TV Guam" on the following propositions:

(1) "TV Guam" does not serve as a means of attracting new subscribers to Guam Cable TV System.

(2) The publication is not essential to Guam Cable TV System.

(3) The publishing of "TV Guam" is a separate business venture entered into for profit and was not intended to be, and, in fact, is not advertising for Guam Cable TV System.

(4) "TV Guam" has independent content appeal to the residents of Guam, beyond any function related to Guam Cable TV System, Inc.

DISCUSSION

The issue that is involved in this proceeding is one that in many instances, including the present one, is difficult to decide. The trier of fact must attempt retrospectively to diagnose the "design" of the publisher and to ascertain which of several possible likely and logical designs is "primarily" the factor which motivated the publisher. To reach a judgment in such matters one must consider as many as possible of the elements which went into the publisher's decision to (1) enter and 92) to remain in the business of publishing the particular publication. Each case must be considered separately in the light of the individually pertinent facts and circumstances.

Most of the factors which enter into the resolution of this case have been alluded to above as a position taken by one or the other of the parties. These and other matters will now be considered.

Respondent asserts that the fact that Petitioner is in the cable television business requires the conclusion that TV Guam was designed primarily to advertise that business. In support of this assertion, Respondent quotes from one of the supporters of the bill enacted in 1879 which contained language carried forward in later enactments and administrative regulations, including the regulations under which this case arose. The language relied upon, in pertinent part, is the following:

"***If a gentleman or a company have a large business and they publish a newspaper, it is prima facie for the purpose of advertising that business, and it makes no difference how much general matter there may be to cover up that design, it cannot be concealed.***" Congressman Money, Cong. Globe, 45th Cong., 3rd Sess., 697 (1879)

It is true that if a person in a particular business undertakes to issue a publication in which that business is mentioned, there is a presumption that the purpose of such person is to advertise his non-publishing business. That such a presumption is rebuttable is suggested by the following language found in an early opinion by an Assistant Attorney General for the Post Office Department concerning the construction of the phrase "regular publication designed primarily for advertising purposes":

"I am not prepared to say that a person engaged in either one occupation I have named, or occupation or profession of kindred character, may not also engage in editing a legitimate newspaper entitled to the pound rate of postage. I am prepared to say, however, in view of the law, that a person so engaging in two occupations having so little legitimate connection ought not (if the paper is devoted to the particular interests in which he is engaged) to advertise himself at all, for if he does he must know that he raises a very strong, if not a conclusive, presumption that the primary or leading object of his paper is to advertise his business." (Ops. A.A.G. for the P.O.D., Vol. 1, p. 400)

It is appropriate to note that in the instant case Petitioner was almost pushed into the publishing business. For a time, Cable TV program schedules were inserted in the local paper in the form of advertisements paid for by the Cable TV System owners. Efforts were made to persuade the local newspaper publisher that interest in Cable TV programming was significant, that such interest was growing, and that it warranted publication in the newspaper as a matter of public interest. The newspaper publisher kept telling Petitioner that when the cable subscribers reached a certain number, which number kept getting larger and larger, the paper would then carry the program schedules as public interest items. Even when Cable TV subscribers numbered 2000, then 3000, and finally 4000, the newspaper continued to refuse to publish the schedule. (Tr. 20)

Against this background, and in view of their belief that Guam should have a weekly magazine containing articles and stories of interest to local residents, Mr. and Mrs. Holmes began, in 1973, to publish "TV Guam". Cable TV telecasts had been produced since 1970 and the number of viewers had grown at a rapid and steady rate, to the extent that at the time publication of "TV Guam" started there were over 6,500 cable TV viewers.

In its first year of publication, the operations of "TV Guam" resulted in a loss of about $10,000.00, but in the second year the situation was turned around completely, with the publishers realizing a profit of approximately $8,000.00. Evidence in the record indicates that the financial success of "TV Guam" is continuing.

While it has not been shown that "TV Guam" enhances the financial status of Cable TV System, a good case can be made that Cable TV System's operations serve greatly to improve the business climate for TV Guam. The evidence of record is to the effect that prior to the extension of cable television into an area of Guam not theretofore served, sales of the publication either lag or stagnate. When, however, the cable reaches into a new area, one immediate result is an upswing in "TV Guam" sales. In an exhibit submitted after the hearing, ^2/ it is shown that of 90 subscribers to the magazine, 88 are subscribers to Guam Cable TV System, but in every case the subscriber started his Cable TV subscription before he began his magazine subscription.

Respondent makes much of the fact that Mr. Holmes hopes that the presence of "TV Guam" on newsstands enhances the image of Guam Cable TV System. There is really nothing so remarkable or so significant about this hope, since rarely do people engage in one business for the purpose of harming another self-owned business. Furthermore, the existence of such a hope on the part of Mr. Holmes is not dispositive of the question of whether the magazine was primarily designed to advertise Guam Cable TV System. Not only is this hope not dispositive of the crucial question, but, also, it sheds little, if any, light on the problem.

The use of "TV" in the title of the publication, the presentation of the TV Guide-style logo on the front cover of the publication, the amount of space devoted to television programs vis-a-vis the space devoted to articles, and the printing of only Cable TV channel numbers for all program listings are other matters relied upon by Respondent in support of its position. A word will be said separately about each of these matters.

The use of "TV" in the title of the publication, together with the cover photograph emphasizing local matters, simply and engagingly advise the prospective purchaser of the magazine as to the nature of the contents. The use of a particular type of logo has been discussed and found, under certain circumstances, to be of minimal impact in Exxon Travel Club, Inc. , P.S. Docket No. 2/85 (1974). Because of the nature of the material covered, it is to be expected that the listing of television programs will consume a large amount of space in the publication, but, even so, the Petitioner estimates that from 500 to 1000 copies of TV Guam may be sold to persons who do not watch television. The publisher plans to employ more writers to produce works of local interest to the residents of Guam. As this occurs and as the article content of the publication proportionately increases, Petitioner estimates that the number of non-TV viewing readers will increase. As for showing Cable TV channel numbers in the program listings, readers are advised in the front of the publication of the channel numbers of the off-air stations.

Petitioner's assertion that the Cable TV System and the publishing business are independent of each other has persuasive support. While the number of TV viewers has continued to increase to about 12,000 at the latest available count, the number of subscribers to the publication has stabilized at between 7,500 and 8,000. These figures provide significant support for the proposition that the magazine does not serve to attract new cable television viewers. Additionally, other publishers began publishing television program guides after Petitioner began to succeed in its publishing venture, but the addition of these other publishers, one of whom has since gone out of business, did not cause a change in rate of the increase in numbers of TV viewers. (Pet.'s Add. Br., p. 3)

While Mr. and Mrs. Holmes hold the majority of the stock in the publishing company and the cable television system, there are other part-owners in each enterprise. There is in the record the uncontroverted statement that such business transactions as take place between the two concerns are conducted at arms length and that the two companies are separate. As previously shown, the magazine is a profit making venture. (Tr. 34, 35)

It has been pointed out that the practice of inserting advertisements in "TV Guam" for the purpose of persuading persons to become Cable TV subscribers has altogether ceased. Prior to the termination of this practice, there was just one advertisement in each of a few issues of the publication which was inserted for the purpose of obtaining new customers for the cable television service. A few of the remainder of the advertisements were to encourage subscribers to pay their bills or to get proper addresses for themselves so as to improve mail service on the island, or for similar non-sales oriented matters. Most of the large volume of the remainder of the advertisements were for many and varied types of businesses and merchandise, including drug stores, radio, television and sound equipment, insurance companies, clothing, restaurants, hotels, furniture, jewelry, banks, automobiles and others.

Another factor to be considered is Guam Cable TV System's competitive situation. Petitioner estimated the population on Guam to be approximately 100,000. Assuming an average of 5 persons per family, that means that there are approximately 20,000 families on Guam. At the time Petitioner's last Brief was filed, the number of Cable TV subscribers had reached 12,000 (or about three-fifths of the families on Guam, assuming one outlet per family) and the number was still increasing. Guam is about 30 miles long and it varies from four to eight miles in width. While there are other, generally smaller, islands in the Marianas group, there is an awesome amount of water between Guam and other main bodies of land. The point of this recitation is that, taking into consideration (1) the geographic isolation of Guam and (2) the degree to which Guam Cable TV System has captured the market, the likelihood of another entrepreneur entering the cable television field in Guam would seem remote. The situation from this point of view is, therefore, entirely different from the situation, discussed in the opinion of the Assistant Attorney General for the Post Office Department, cited above, supra , p. 13, in which the Washington, D.C., Attorney published his paper stressing his qualifications in the area of obtaining various benefits for veterans. There must have been other attorneys, equally well qualified, who were engaged in the same kind of law practice. Thus, the publishing attorney obviously was causing, or attempting to cause, his name to be more widely known than that of anyone else similarly engaged. He advertised himself and no one else. In the instant case, there is not, and it seems unlikely that there will be, a competitor for the cable TV business on Guam. The result is that one subscribes to Guam Cable TV System or he does without cable television reception. True, there are the "off-air" stations, but their broadcast hours are severely restricted. In addition, "TV Guam" carries notification of their programs and gives their channel numbers, although to get their programs one uses a Cable TV channel. Since Guam Cable TV System has, in effect, a monopoly in the cable television field on Guam, there was initially, and there may well be now, no real need to publish in order to advertise, since experience taught that word-of-mouth advertising was and is the most effective sales booster. Petitioner's President is aware of the likelihood that Guam Cable TV System needs no advertising, but he is also aware that for a time, TV Guam was the sole source of information as to the programs available on Cable TV channels. All of foregoing considerations lend credence to the idea that "TV Guam" performs an informational service for Cable TV subscribers rather than acting primarily as an advertising medium for Guam Cable TV System.

While it had no bearing on the decision in this matter, there appeared to be a lack of total conviction on the part of Respondent as to the correctness of its position. This lack of conviction is apparent in the choice of words used by the Respondent Director, Office of Mail Classification; by Respondent's witness at the hearing; and by Respondent's Counsel. Illustrative of such uncertainty are the following excerpts:

1. Notice of denial of the application (Ex. R-8, p. 2):

"'TV Guam' does carry feature articles, but its main purpose is to provide a schedule of television programming for viewers." (Emphasis supplied)

2. Testimony of Respondent's witness (Tr. 10-11):

"'TV Guam' is primarily a listing of TV offerings available both over the cable system and off the air by the two independent TV stations on Guam.

"The available evidence indicates that 'TV Guam' was originally and is currently the only publication or source of program information for the cable TV offerings on Guam. This is obviously a very beneficial service to the people who belong to the cable TV system and the availability of the service is an attractive drawing point for people who may be considering joining the cable TV system." (Emphasis supplied)

Whether the belief of the witness in regard to the existence of other TV listings is correct is not here material. The important point of this testimony is that the witness recognizes the need for a publication containing Cable TV program listings, and that "TV Guam" was published to meet this need, and not primarily to advertise Guam Cable TV System.

3. Respondent's Counsel (Br., p. 12):

"Although 'TV Guam' carries some feature articles on subjects other than television, its primary purpose is the publishing of cable television scheduling and viewing information ." (Emphasis supplied)

It has long been recognized that the mere fact that a business or an individual is engaged in one pursuit does not, of itself, preclude such business or individual from publishing a newspaper, magazine, or other periodical publication. When, as here, certain additional facts have been established, such as, for example (1) the publication is not essential to the other business of the publisher, (2) most of the subscribers to the publication previously had subscribed to the publisher's other business, (3) the publisher's President intended, and does intend, to publish a diversified publication which has appeal outside the scope of the publisher's other business, (4) each business of the publisher is financially self-sustaining and profitable, and, so far as this record would indicate, each would continue to operate successfully if the other were terminated, the publication has been held to be entitled to second-class mail entry. (In re Diner's Club, Inc. , P.O.D. Docket No. 1/225 (1961); In re Exxon Travel Club, Inc. , P.S. Docket No. 2/85 (1974))

CONCLUSION

As previously stated, the only issue in this proceeding is whether "TV Guam" is "designed primarily" for the purpose of advertising Guam Cable TV System, which is Petitioner's earlier business enterprise. Weighing all of the relevant factors, those matters which support the position of the Petitioner outweigh those which support the Respondent. Although there is some merit to the points of view of both parties, Petitioner has borne its burden of proving entitlement to the permit it seeks.

Based upon all of the foregoing considerations, the decision of the Director, Office of Mail Classification, to deny the application of Holmes Management Company for second-class mail entry for the publication "TV Guam" is set aside and the permit should be issued.

As previously suggested, this case may not be regarded as a run-of-the-mill proceeding because of a number of unique aspects, including the geographic and competitive situations and other considerations previously discussed. In a different location, and with different circumstances, this decision might well have been different.

Proposed findings of fact and conclusions of law have been submitted by both parties. To the extent herein indicated these proposed findings of fact and conclusions of law are adopted. Otherwise, such proposed findings of fact and conclusion of law are rejected for the reasons indicated, or because they are unsupported by, or contrary to, the competent evidence of record, or because they are immaterial.

_________________

1/ The Petitioner as the "proponent of a rule" in this proceeding has the burden of establishing its eligibility for the permit sought, but the boundaries of the dispute are better defined if Respondent's reasons for denial are stated first.

2/ Respondent's Counsel stated in his Reply Brief that no objection was interposed to this practice in this case.