SR-9-B
. e e ADD TO
~ ~-a
.
. SEP 2: 3 111
CA:RMM:cablesup/hpc
council Meeting 9-23-86 Santa Monica, California
SUPPLEMENTAL STAFF REPORT
TO: Mayor and City Council
FROM: city Attorney
SUBJECT: Supplement to Recommendation Regarding Termination of
the City'S Community Antenna Television System
Franchise with Theta Cable and Group W Cable
for Noncompliance with its Terms and Denial of the
Request for Approval of Franchise Transfer from
Group W Cable to Century Southwest Communications
Subsequent to release of the Staff Report on the
above-titled matter on September 18, 1986, Group W Cable, Inc.
and Century Southwest Cable Television, Inc. have submitted
several documents in an apparent last minute attempt to satisfy
the City'S requests for information relevant to the proposed
transfer of the Theta/Group W cable franchise. Neither the City
Manager's office nor the City Attorney's office has had time to
review these documents. Moreover, the sudden attempt to
cooperate in a process that Group W and Century have been
responsible for stalling for a number of months now neither
negates the grounds which underlie the recommendation contained
in the earlier staff report nor is it timely.
The City requested very specific information by letter on
March 19, 1986. After receipt of an unsatisfactory response on
April 25, 1986, those requests were reiterated by letter on May
29, 1986. The first response to that letter was on August 15,
- 1 - ~O TO Cf-B
SEP 2 3 1986
.
- . . e e
. .
1986. A flurry of activity and phone calls began last week in
response to the September 23, 1986 hearing date and the staff
report recommending termination of the franchise. The time
delays in providing information are most significant in light of
the fact that it was Group W itself that requested that the City
"expedite" the process of considering the proposed transfer
request.
At best, Group W's and Century's recent submissions might
address some of the concerns about the ultimate transfer of the
City's cable franchise from Group W to Century, which are
discussed in greater detail in the Staff Report. However, the
multiple breaches of section 7(d) of Ordinance No. 734, (1) by
Theta/Teleprompter's merger with Group W in 1981 without Council
approval; (2) by Group WI s stock transfer to the consortium in
June 1986 without Council approval, and (3) by Century's
operation of the Santa Monica cable system without council
approval and in direct contravention of the express position of
the City, are not addressed at all by the recent actions.
Therefore, staff recommends that the Council follow the course of
action set forth in the original Staff Report on this matter -
hold a public hearing on whether to terminate the franchise and
adopt the resolution attached to the Staff Report terminating the
franchise on the four separate grounds contained therein.
PREPARED BY: Robert M. Myers, City Attorney
Laurie Lieberman, Deputy city Attorney
- 2 -
... e ~~~j;rvw~~
. GROUP cf-15
~ q-2~~?h
CABLE
GROUP W CABLE iNC
588 SEVENT"l AV['JUE NEW yogI{ ~v 10'06 '2'21 2~~ 87:)(J
september 23, 1986
TO: THE CITY OF SANTA MONICA
FROH: GROUP W CABLE INC.
SubJect Matter: statement concerning the change of control of
Group W Cable Inc's stock which took place on June 19, 1986.
The attached subm~ssion 1S a brief statement concerning Group W
Cable Inc's positIon relative to the transactIon completed on
June 19, 1986. It is not meant to be all inclusive and Group W
Cable Inc. reserves the rlght to expand or make additIonal
statements concerning said transactlon.
Slncerely,
~~~~~
Vlce President
HK:mf
Att.
l369k
< , , e e
SUBMISSION RE SALE OF STOCK
This memorandum is respectfully submitted by Group W
Cable, Inc. ("Group W") , Westinghouse Broadcasting Company, Inc. ,
formerly known as Westinghouse Broadcasting and Cable, Inc.
("Westinghouse Broadcasting"), Westinghouse Electrlc Corporation
("Westinghouse Electric"), Tele-Communications, Inc. ( "TC III) I
American Television and Communications Corporation ("ATC") ,
Comcast Corporation ( "Comcast II) , Century Communications
Corporation ("Century") , and Daniels & Associates, Inc.
("Danlels") . This memorandum is submitted in connection with the
public hearing which has been scheduled by the City of Santa
Monlca ("the Clty") for September 23, 1<?86, to consider whether
as a result of Westinghouse Broadcastlng and Westinghouse
Electric's sale of Group W Cable's stock to TCl, ATC, Comcast,
Century and Danlels there has been a breach of the franchlse
agreement, pursuant to whiCh Group W operates a cable television
system in the City.
The sale of Group W's stock by Westinghouse
Broadcasting and Westinghouse Electric to Tel, ATC, Comcast,
Century and oaniels did not violate Santa Monica's cable televi-
sion ordinance and, therefore, there has been no breach of the
ordinance which would justify revocation of Group W's cable
television franchise.
- -
T " e e
, . ,
D2dx
.
I
THE SALE OF STOCK DOES NOT COME WITHIN
THE ACTIVITIES PROSCRIBED BY THE SANTA MONICA
CABLE ORDINANCE BECAUSE THE SALE OF STOCK
DOES NOT CONSTITUTE A TRANSFER OF THE FRANCHISE
A reading of the relevant Santa Monica cable ordinance
discloses that the ordlnance does not prohiblt a stock sale.
Section 7(d) of Ordinance No. 734 provides as follows:
"Any such franchlse shall be a privilege to
be held in personal trust by the original
grantee. It cannot in any event be sold, trans-
f,e,!red, leased, assigned or disposed of, in
whole or in part, either by forced or
involuntary sale, or by voluntary sale, merger,
consolidation or otherwise, without the prior
consent of the Council expressed by resolution,
and then only under condltions as may thereln be
prescrlbed. . . . [pJrovided, further, that no
such consent shall be required for a transfer ln
trust, mortgage, or other hypothecation, as a
whole, to secure any lndebtedness. " [Emphasis
added. ]
The ordinance on its face prohibits the sale, transfer,
lease, assignment or disposal of the franchise w1thout the prior
consent of the Council. However, no party has sold, transferred,
leased, assigned or disposed of the Group W franchise for Santa
Monica. Rather, Westinghouse Broadcasting and Westinghouse
Electric entered into an agreement with a joint venture composed
- 2 -
, ~ ' e e
. D2dx
~
of TCI, ATC, Comcast, Century and Daniels to sell all of the
stock in Group W to the Joint venture. The cable television
franchise for Santa Monica continues to be held by Group W, an
ongoing legal entity whose stock is now held by the buyers rather
than by Westinghouse Broadcasting. The purchasers of the stock
are all substantial cable companies. Indeed, TCI and ATC are the
two largest cable teleVlslon operators in the United States.
The concept of the sale of the stock 1n a corporation
is a well-recognized concept. There are standard provisions
found in contracts and leases that deal w~th this kind of trans-
fer. If the drafters of Santa Monica1s ordinance had wished to
prohibit a sale of stock without the Council's permission, it
would not have been difficult to include such a prohibition in
the ordinance. The fact that 1t was not included indicates that
the ordinance does not encompass these types of transactions.
Rather, Section 7(d) of Ordinance 734 was designed to prevent a
franchise from being transferred from one entity to another, not
to prevent a change in the ownership of the entity holding the
franchise.
This interpretation of the ordinance is supported by
the exception for transfers for purposes of securing an indebted-
ness. Such transfers are exempt from the requirement of munici-
pal approval. Of course, transfers to secure an 1ndebtedness
present a risk of default and foreclosure. If there were a
foreclosure, a transfer of the franchise along with the rest of
the franchisee's business assets would occur. There would be no
purpose in exempting such transfers from the cable television
ordinance requirements except if the ordinance is directed at
- 3 -
, e
. . . e
D2dx
......
4
franchise transfers as distinguished from the sale of corporate
stock. Otherwise, the exemption provision of the franch1se would
make no sense.
II
CONCLUSION
For the reasons d1scussed above, the sale of Group Wls
stock was not a violation of Santa Monica's cable television
franchise ordinance. There is, accordingly, no basis to revoke
Group W's franchise.
- 4 -
,
, .. r e e
BEFORE DISTRI~UTION CHECK CONTENT OF ALL FOR CITY C~ERK'S ACTION
DISTRIBUTION OF RESOLUTION It 7<3/-;;J. ORDINANCE 1#
Cuuncil 1>feetlng Date 96.:?ffL ' Introduced:
Agenda Item It q~c Adopted:
14 ]JJJVAYS PUBLISH AOOPTl:lJ ORD~*
Was it amended? - *Cross out Attorney I s aoproval
\fOTE : AffIrmative: 7-() -.
Negative:
Abstain:
Absent:
~ PROOF V01r~ WITH ANOTHER PERSO~ BEFORE A~NTHING
DlSltl.lE-ulluN: uRiGINAL ~o De signeo, sealed and flIed in Vault.
NEWSPAPER PUBLICATION (Date: )
Department originating staff report ( * )
*City Attorney does not want copies of his ordinances or reSOlutions. ~
l1anagement Serv.~~e~ Lynne Bar.rette urdinances only
-
Agency mentioned in document or staff report
(certi fied?)
Subject file (agenda packet) 1
Counter file 1
Others: (Review for depa.rt2t'ents who need to :knew) .
-
AIrport Parking Auth.
Auditorum Personnel
BUIldIng Dept. PlannIng
CulIHillU ty and Econc:nu c Dev. PolIce (en-
forcemen t 1)
Finance
Purchasing .
fIre
Recr/Parks
General Servo
Transportation
LIbrary
Treasurer
Manager -
S~ND F()U~ COPIES OF ALL ORDINANCES TO: *Check Code Sections before sendmg.
CODED SYSTEMS, Attn Peter Maclearie
.I.:' 0 ~,lain r- t j~e t -
AV~I, ~~w Jersey_01717
SEND FOUR COPIES OF ALL mmTNAN(,?~ TO:
gK#ft ~r ick
M NICA MUNICIPAL COURT
'i25 MAIN STREE~ Room lIS TOTAL COPIES .2
SA~rTA MONICA, CA 90401 - --~ t
.
. ' . . e .
CA:RMM:llm09lr
City Council Meeting 9-23-86 Santa Monica, California
RESOLUTION NUMBER 7312 (CCS)
(City Council Series)
A RESOLUTION OF THE CITY COUNCIL OF SANTA MONICA
TERMINATING THE CITY'S COMMUNITY ANTENNA TELEVISION SYSTEM
FRANCHISE WITH THETA CABLE OF CALIFORNIA AND WITH GROUP W CABLE,
INC. FOR NONCOMPLIANCE WITH ITS TERMS AND DENYING THE REQUEST FOR
APPROVAL OF A FRANCHISE TRANSFER FROM GROUP W CABLE, INC. TO
CENTURY SOUTHWEST COMMUNICATIONS, INC.
WHEREAS, Ordinance Number 734 (CCS) was enacted on March 14,
1967, providing for the granting of CATV franchises in Santa
Monica;
WHEREAS, a non-exclusive franchise was awarded to Theta
Cable on October 24, 1967 pursuant to Ordinance Number 756 (CCS) ;
WHEREAS, Theta Cable's ten year term was renewed on December
13, 1977 pursuant to Ordinance Number 1074 (CCS) ;
WHEREAS, Section 7 (d) of Ordinance Number 734 (CCS) states
that the City's CATV franchise is a privilege held in personal
trust by the original grantee and that It[iJt cannot in any event
be sold, transferred, leased, assigned or disposed of, in whole
or in part, either by forced or involuntary sale, or by voluntary
sale, merger, consolidation or otherwise, without the prior
consent of the Council expressed by resolution, and then only
under such conditions as may therein be prescribed. "
. . .
WHEREAS, Theta, a subsidiary of Teleprompter, was acquired
by and ultimately merged with westinghouse in 1981 without
- 1 -
>
. 7 . .
. ~ ' .. t
seeking City Council approval as required by Section 7 (d) of
ordinance Number 734 ( CCS) ;
WHEREAS, resolution of the issue of whether Theta's merger
with Westinghouse without prior City approval constituted a
material breach of the franchise agreement and what remedy should
lie has been held in abeyance by mutual agreement pending
negotiations with Group W which were to occur following citizen
input from the Cable Communications Task Force, appointed in
Fall, 1982;
WHEREAS, shortly after initiating the renewal procedures
specified by the Cable Policy Act of 1984 on June 19, 1985,
Westinghouse informed the City that it intended to sell its cahle
interests to a consortium of cable television operators including
American Television & Communications Corporation (ATC); Comcast
Corporation; Tele-Communications, Inc. (Tel) ; Daniels &
Associates, Inc. ; and Century Southwest Communications
Corporation (Century) ; and that Century would ultimately be
assigned the Santa Monica franchise;
WHEREAS, the City informed Group W by letter on January 28,
1986 that its impending sale would constitute a transfer or
assignment of the franchise under section 7 (d) of Ordinance
Number 734 (CCS) and therefore required Council approval as well
as adequate information enabling the Council to assess the
transferees' financial capabilities;
WHEREAS, on February 27, 1986, Group W requested approval of
the ultimate transfer of the Santa Monica franchise to Century
but has never requested approval of the stock transfer;
- 2 -
. I
- - . e
. . .. .
WHEREAS, on June 19, 1986, without having sought or received
Council approval as required by section 7(d) of Ordinance Number
734 (CCS), Westinghouse announced that it had "completed the sale
of its cable television business" and had sold the stock of its
Group W Cable subsidiary to a consortium of cable operators,
including American Television & Communications Corporation (ATC) ;
Comcast Corporation; Tele-Communications, Inc. (TCI) ; Daniels &
Associates, Inc. ; and Century Southwest Communications
Corporation (Century);
WHEREAS, Century's operation and management of Santa
Monica's cable system pursuant to a management contract with the
consortium violates Section 7(d) of Ordinance Number 734 ( CCS) ;
WHEREAS, despite detailed requests for information from the
City on March 19, 1986, and May 29, 1986, Group W has not
provided adequate information enabling the city to perform the
necessary financial analyis of Century's qualifications nor to
assess Century's technical operational capabilities and
responsiveness to consumer needs,
NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF SANTA
MONICA DOES HEREBY RESOLVE AS FOLLOWS:
SECTION l. Theta Cable and/or Group W's CATV franchise
with the city of Santa Monica is hereby terminated effective
December 13, 1987 due to the breach of Section 7(d) of Ordinance
Number 734 (CCS) arising from Teleprompter/Theta's acquisition by
and merger with Westinghouse without prior City Council approval.
SECTION 2. Group W's CATV franchise interests in the
City of Santa Monica are hereby terminated effective December 13,
- 3 -
'< <
. r . . e
~ , ..,-
I
1987 due to the breach of Section 7(d) of Ordinance Number 734
, (CCS) that occurred when Westinghouse transferred its stock in
Group W Cable, Inc. to the consortium on June 19, 1986 without
Council approval.
SECTION 3. Group W.s CATV franchise interests in the
City of Santa Monica are hereby terminated effective December 13,
1987 due to the breach of Section 7 (d) of Ordinance Number 734
(CCS) that occurred when Century began operating and managing the
Group W system pursuant to a management contract with the
consortium.
SECTION 4. Group W's request for City Council approval
of the ultimate transfer of its assets to century is denied due
to Group W's failure to provide the City with information
adequate to enable assessment of Century's financial and
technical capability to operate the city's cable system and its
responsiveness to consumer needs.
SECTION 5. The City Clerk shall certify to the
adoption of this Resolution, and thenceforth and thereafter the
same shall be in full force and effect.
APPROVED AS TO FORM:
~ "'-. L.. - ~~- -
ROBERT M. MYERS 6
City Attorney
- 4 -
....... i- ..
. . e e
. ...
.
Adopted and approved this 23rd day of September, 1986.
OJ. C L L-~
r.-~I Mayor -
I hereby certify that the foregoing Resolution No. 7312(CCS)
was duly adopted by the city Council of the City of Santa Monica
at a meeting thereof held on September 23, 1986 by the following
Council vote:
Ayes: councilmembers: Conn, Epstein, Jennings, A. Katz,
H. Katz, Zane and Mayor Reed
Noes: Councilmembers: None
Abstain: Counci1members: None
Absent: councilmembers: None
ATTEST:
~ /n. ~
City Clerk