FCC Approves RKO’s Sale of KHJ-TV to Disney

The Federal Communications Commission on Wednesday approved the sale of RKO General’s KHJ-TV Channel 9 in Los Angeles to Walt Disney Co. for $324 million. The decision ends a 23-year broadcast license dispute that the commission called “the most burdensome proceeding in the FCC’s history.”

The approval will make KHJ Disney’s first broadcast station and also clears the way for RKO parent Gencorp to begin the sale of the rest of its broadcast chain, a step that has been blocked for years by a battle over RKO’s fitness as a broadcaster. The FCC said that, while questions of RKO’s fitness linger, the “approval will put the station in the hands of an indisputably qualified licensee and avoid countless years of continued litigation.”

Under the terms of the deal, Disney will pay $218.6 million to RKO and an additional $105.4 million to Fidelity Television, a Southern California investor group organized in 1965 to wrest the non-network station’s license from RKO General. The $105.4 million is by far the largest settlement ever received by a license challenger, communications lawyers said.

RKO General’s two television station and 12 radio station licenses have come under challenge because of alleged improper political campaign contributions and foreign payments. Last August, FCC Administrative Law Judge Edward Kuhlmann, ruling in one facet of the long-running case, said RKO was unfit to hold a license because of its dishonesty in dealings with the FCC and other questionable actions.

The FCC overlooked that finding in Wednesday’s decision, but the commission also made clear that it will not approve any proposed station sale that would give RKO more than 74% of the market value of the property. In the Disney deal, RKO ends up with 67% of Disney’s price; in a deal also approved Wednesday for the sale of an RKO radio station in Memphis, Tenn., the company gets 70% of the buyer’s payment while competing applicants for the station license will receive the balance.

While the commission did not say so directly, the intended message was that broadcast license holders facing such allegations cannot expect to sell their properties for a full price to get out of the business.

But in a strongly worded dissent, FCC Commissioner Patricia Diaz Dennis made clear that she believed that the majority’s solution was a dangerous shortcut to solving the problem. Dennis wrote that, because the FCC is allowing RKO to bail out of the business, “the commission cannot know whether RKO is suffering an injustice (from the allegations) or reaping a windfall.” Dennis said the decision “sends the wrong signal--that the way to avoid license revocation is to prolong proceedings until the commission loses its will to litigate further.”

In its ruling, the FCC prodded Gencorp to try to quickly work out similar deals for its other 11 radio stations and one television station, saying it would resume study of RKO’s fitness as a broadcaster at the end of this year. Gencorp officials said they are negotiating to sell the remainder of the stations, which include KRTH-AM and KRTH-FM in Los Angeles, KFRC-AM in San Francisco and WOR-AM and WRKS-FM in New York.

In each case, presumably, Gencorp will try to find a buyer and persuade the license challengers to divide up about 30% of the sale price between themselves, leaving 70% for Gencorp.

RKO ‘Cleaning Up’

At least one challenger is already unhappy with that idea. Future Broadcasting, an investor group that has challenged RKO’s license for the KRTH properties, a pair of Los Angeles rock music radio stations, contends that a 70% share is more than RKO deserves. “RKO isn’t being punished--they’re cleaning up,” said Robert L. Thompson, the group’s Washington lawyer.

Wall Street analysts agreed that it now appears that Gencorp will exit the broadcast business with a hefty profit, despite the legal turmoil and intermittent bad publicity that it has endured in the license dispute. Because of the dizzying escalation of broadcast property values in this decade, the company’s chain of stations is believed to have a market value of about $500 million.

“It’s going to be a nice pile of cash,” said Charles Rose, an analyst with the Oppenheimer & Co. investment firm in New York.

In a statement, Gencorp Chairman and Chief Executive A. William Reynolds said he was “gratified” by the decision and said it would serve the public interest. Gencorp, based in Fairlawn, Ohio, has interests in aerospace, automotive and polymer products.

It was not immediately clear how soon Disney will take control of KHJ, which has habitually run last in ratings among the four large independent television stations in Los Angeles.

Disney has begun purchasing television programming for KHJ, and some have suggested that it may use the station as the first property in a broadcast chain. A Disney spokesman, however, hinted that the company might not be interested in paying the high prices asked these days for stations. “We’re bottom fishers,” he said.

The spokesman declined to provide further details about Disney’s plans for the station, saying such discussions are “premature.”

KHJ employees were instructed by superiors to make no public statements on the sale. But one employee, who asked to remain unidentified, said the decision “for us just ends one kind of uncertainty and begins another.”

54 Holders Involved

Fidelity Television’s $105.4-million share will be divided among 54 shareholders. The largest block of stock is a 36% stake held by William G. Simon, the Los Angeles attorney who organized the group.

Other shares are held by Maude Chasen, the restaurateur; the estate of actress Donna Reed; former Rep. George Danielson, and more than a dozen FBI employees who were enlisted in the group by Simon, who once headed the FBI office in Los Angeles.

Simon said he had “no inkling” how the FCC would rule, noting that an earlier deal to sell the station to Westinghouse fell apart in early 1987. He said he and other shareholders are planning to distribute some of the profits to colleges and medical charities.

“Spending it is the easy part,” he said.