position would not prove beneficial to NBC in the long run even though I might win a temporary victory. He kept talking about "cutting off the flow of talent to NBC" and the fact that William Morris has always been more friendly to NBC than to CBS. He claimed that they generally give us first crack at talent or properties and that that is worth a lot to us. I asked Weisbord if I should consider what he said as a threat. He replied that he meant nothing of the sort, but that it was natural to do business wherever it was easier.

Weisbord pulled out a letter from Leonard Kramer which stated that Kramer was under the impression that a deal had been made with NBC, New York, on the Hildegarde Withers property based on the Charlie Isaacs formula. He could not understand why we accepted the formula in that case but would not do so for McKnight. My information from both Gus Margraf and Tom McAvity has been that no deal had been concluded on Hildegarde Withers pending the discussion on the whole problem with Morris and I so told Weisbord. He still felt that the Withers deal had been made but had been pulled back at my request.

When it looked as though I would not give in to the Morris request for at least above line package commission Weisbord indicated that the Morris office had the rights to both Botts and Withers and that they could peddle them elsewhere although he hastened to add that they would not do so since it was not their intention to hurt Tom McKnight. He also claimed that he had been working on the Botts property for 4 years which is before the time that McKnight had asked them to obtain the rffiights. With regard to both properties I believe that Weisbord is embroidering on the truth since according to McKnight neither property has been locked up and the Morris office is still dickering with Brandt & Brandt for the Botts rights. I am having a meeting today with Dick Graham and Tom McKnight on doing both of these properties direct with McKnight especially in view of the fact that Stuart Palmer who owns and writes Withers is anxious to go along with McKnight and drop the Morris office from the picture. I will report the results of that meeting to you tomorrow.

I do not place any value on Weisbord's "threats" as it is obvious that they will deal wherever they can get the best arrangements, and I believe that this is our best opportunity to date to spread our own wings. Do you have anything further to add on this problem or any advice as to our procedure from the point? TOM SARNOFF.

Cc: Tom McAvity, Earl Rettig, James Dennings, John West, Fred Wile, Frank Cleaver, Richard Graham.

To: Mr. Tom SARNOFF.
From: Gus MARGRAF.

TOM: This is in reply to your memo of September 15.

SEPTEMBER 21, 1954.

I am all in favor of any attempt to limit talent agency commissions to what is truly a reasonable amount. I certainly agree with every effort being made to exclude in any event below the line items for film shows as well as for live shows. I believe also that it is appropriate to go even farther.

As I have already pointed out before, the very first network film deal I know of excluded talent agency commission on below the line elements. This was the original Life of Riley deal which was made in 1949. We made even more progress last year in the Charles Isaacs deal, when we were able to get a provision to the effect that though Isaacs would have a right to package his shows the talent agency commission would be limited to above the line elements excluding taxes and insurance and also excluding the star performers unless the agency represented them. This kind of deal provided an opportunity for MBC to select and cast its own contract artists in vehicles created by such people as Isaacs without having to use star performers furnished as a part of the package. It also at least limited the commissionable items to something less than the full above the line package.

I believe the source of the commission problem is the practice which has developed of permitting the other party to furnish the package. In other words, if this could be broken down, and we could make the kinds of deals which would permit us to package the shows ourselves, the solution to the commission problem would follow. As long as we are in the position of having to take outside packages, and this may be beneficial to us in many instances, it will be tough to resolve the commission problem in a way entirely satisfactory to us. This is particularly true if other networks are willing to make kinds of deals which are more favorable to the agencies.

I believe it would be fair, if we have to accept a package arrangement without having the right to package the show ourselves, to recognize the payment of a talent agency commission on the talent elements of the package only. We should be able to get the right to supply the star performers without their compensation being commissionable as a part of the package commission unless they are represented by the agency concerned. This would of course exclude commission on such items as taxes and insurance.

As for NBC's charge in a profit sharing deal, I feel that we should arrive at a figure, either in terms of a flat dollar amount or in terms of a percentage, to cover our legitimate costs and we should insist on being able to retain this amount before the profit split. In a true profit split arrangement I do not feel that we should seek a 10 percent or other profit payable to us, over and above a proper cost charge, before the net revenues are divided. I do not feel either that it necessarily follows that NBC's charge and the agency charge should always be the same. If the agency actually is handling the packaging of the show a commission of 10 percent of the items indicated above may be entirely fair even though NBC's charge is less so long as our charge is enough to recoup our costs. On the other hand, our costs might be higher than a commission, and in that event we should do our best to get a charge high enough to recoup the costs. In any event, if the NBC charge and the agency commission result in pricing the show out of the market I believe we then have to work out ways all around to reduce the costs, possibly including reductions in talent fees and production costs as well as reductions in commissions and NBC's charge. I would not exclude the sibility of handling the situation through deferments of part of the expenses and charges although I believe it is much better in the first instance to try to reduce the amount of the items without getting into complications of deferments.

Since you are in the midst of these discussions on the Alexander Botts property for Tom McKnight, I have told Leonard Kramer that such points as these have to be resolved in the same way in the Hildegarde Withers deal which also involves McKnight. In the meantime, we will not indicate any position to William Morris here inconsistent with what you are doing.

GUS MARGRAF.

Cc: Messrs McAvity, West, Rettig, Wile, Graham, Sargent, Denning.

Mr. SARNOFF. We will stipulate the authenticity. Mr. PIERCE. Now, does NBC have a policy prohibiting its contract performers from making films for independent packagers which could be sold directly to a sponsor?

Mr. SARNOFF. It depends on the terms of the individual contract. Mr. PIERCE. There is no blanket policy?

Mr. SARNOFF. No. But where an artist is exclusive to NBC that means he is exclusive to NBC.

Mr. PIERCE. Now, is Martha Raye under contract to NBC?
Mr. SARNOFF. Yes; she is.

Mr. PIERCE. In the first part of 1955 did the William Morris Agency on behalf of Martha Raye submit a proposal to NBC to make a film series to be sold directly to a sponsor?

Mr. SARNOFF. Not to my knowledge, Mr. Pierce. You mean to be sold to a sponsor for the 1956-57 season?

Mr. PIERCE. The question was simply this. In the first part of 1955 did the William Morris Agency on behalf of Martha Raye submit a proposal to NBC to make a film series to be sold directly to a sponsor maybe 1955-56, maybe 1957-58?

Mr. SARNOFF. I don't recall whether they did or not.

Mr. PIERCE. Did NBC

The CHAIRMAN. What is the answer to that question?
Mr. SARNOFF. I don't know; I said.

Mr. MALETZ. May I ask this question: Is it or is it not a policy of NBC to refuse to permit its own contract artists to film their own shows and sell them directly to a sponsor unless NBC has a profit participation?

Mr. SARNOFF. That is not a policy of NBC.

Mr. PIERCE. I would like to read a document from Tom Sarnoff to Gus Margraf, the date of which is February 8, 1955:

Your recent summary of the revised Martha Raye proposal submitted by William Morris indicates that in the event the show were to go on film during the 3d, 4th, and 5th years it would be filmed by Martha Raye's Corp. and sold directly to the sponsor. NBC would not participate in profits and William Morris would receive commission on the full package. It is interesting to note that William Morris has admitted the reason for this being our recent policy of limiting the commission to the above-the-line elements.

I feel it would be a very serious mistake to agree to this provision. William Morris had made it clear on several occasions that they plan to counterattack our commission limitation by selling direct to clients and advertising agencies. While in a way this would not be too serious because we can offer our shows at lower price, I feel it would be an unfortunate development since we again lose control of the programs. We should certainly not permit our own contract artists to film their own shows and sell them direct without NBC's participation. This problem will become even more acute when we begin to provide our own below-the-line facilities for film shows.

Now, does that refresh your recollection in any way?

Mr. SARNOFF. I have some recollection of there being a discussion about the Raye film. I understand she now has got the right to film a series and sell it to the sponsor.

Mr. MALETZ. But does NBC have a profit participation?

Mr. SARNOFF. No, sir.

I might say you know, this is a very complicated subject, and the ground is shifting a little this is a problem of the business, a problem of trying to hold costs down-I don't want to get into really a discussion on the merits of the contribution of talent agencies, because they are important in the field-we ourselves obviously can't deal with all the talent, they have to handle it—but it is a question of their contributions to business, and whether or not-well, what we say, whether it is better to put the money on the screen or put it in the pocket. We think there is no justification in some cases-and I think there are honest differences of opinion-take the other side of the case, naturally-we feel that in the case of facilities that there is no justification for paying a talent commission on the below-the-line element, and we feel that that money actually can be put on the screen, it can be put above the line. It is perfectly true that where we have had difficulties in negotiations with talent agencies representing performers and packages, that they have taken the position, well, all right, we will produce it ourselves, and we will go sell it. And I think that is what this memo really refers to that you just read.

Mr. MALETZ. Now, do you say now that there is no policy of NBC to refuse to permits its own contract artists to film their own shows and sell them directly to a sponsor unless NBC has a profit participation?

Mr. SARNOFF. I know of no such policy.

Mr. PIERCE. I will offer these two documents for the record, dated February 8 and January 12, 1955.

The CHAIRMAN. They will be accepted.

(The documents referred to are as follows:)

To: Mr. Gus Margraf.
From: Tom Sarnoff.

Subject: Martha Raye.

FEBRUARY 8, 1955.

Your recent summary of the revised Martha Raye proposal submitted by William Morris indicates that in the event the show were to go on film during the third, fourth, and fifth years it would be filmed by Martha Raye's corporation and sold directly to the sponsor. NBC would not participate in profits and William Morris would receive commission on the full package. It is interesting to note that William Morris has admitted the reason for this being our recent policy of limiting the commission to the above-the-line elements.

I feel it would be a very serious mistake to agree to this provision. William Morris had made it clear on several occasions that they plan to counterattack our commission limitation by selling direct to clients and advertising agencies. While in a way this would not be too serious because we can offer our shows at a lower price. I feel it would be an unfortunate development since we again lose control of the programs. We should certainly not permit our own contract artists to film their own shows and sell them direct without NBC's participation. This problem will become even more acute when we being to provide our own below-the-line facilities for film shows.

TWS: dc.

TOM SARNOFF.

Cc: McAvity, T., Rettig, E., Denning, J. E., Raub, B., Wile, F., Graham, R. H., Rosenberg, E.

To: Gus Margraf.

From: Tom Sarnoff.

Subject: Martha Raye.

JANUARY 12, 1955.

I have a few brief comments to make on the Martha Raye proposal submitted by William Morris. I am not passing judgment on the deal in general nor on most of the points outlined, however, I believe that 1 or 2 of the deal points are seriously interlocked with our current pattern of negotiations.

With regard to the right of Martha Raye to make a film series, I do not believe that we should agree to a William Morris commission on the below-line elements of such a series. We have at last taken a firm stand on this point and we are successfully resisting agency commission on production elements. I realize that Martha Raye may be a more important property than some of the others for whom we have been negotiating, but I believe it would be unfortunate for us to retreat from this position. This is particularly so if we are discussing films which are to be made 2 years hence.

Point No. 5 of your memo regarding film series indicates that NBC would have no profit participation in such films, presumably because NBC would not be required to pay for a pilot film. I was under the impression that our right to profit participation was for much more substantial reasons than the mere financing of the pilot. As far as the syndication rights are concerned, we have been rather unsuccessful in the past in obtaining more than a first refusal from the Morris office but we have been able to get absolute rights from other agencies. We have also successfully resisted any "most favored nations clauses."

The proposal states that NBC would have to guarantee the purchase from Raye's corporation of a summer show for each year during the 5-year period. Since we use the summer hiatus period in large part to develop new ideas and new programs and since in all probability we will increase such activity, it would seem to me that guaranteeing to purchase a show from Raye (or in effect from William Morris) would restrict us in our own development operations.

TOM SARNOFF.

Cc: Sylvester Weaver, Robert Sarnoff, Tom McAvity, Earl Rettig, James Denning, Fred Wile.

Mr. SARNOFF. I would like to make the observation, Mr. Pierce, so there is no misunderstanding, that a document interoffice betweenthe expressing of opinions by subordinates does not set company policy.

Mr. PIERCE. That is correct. We realize that.

The CHAIRMAN. That is why we are asking your comment on these office memorandums, so that there will be no misconceptions.

Mr. SONNETT. Mr. Chairman, in that connection counsel introduced a memorandum from Mr. Tom Sarnoff to Mr. Margraf, of September 15, setting forth Mr. Sarnoff's views, and we had this uncertainty about distribution charges, and so on. Mr. Margraf's reply to that memorandum is very lucid. It is a memorandum of September 21, 1954, which counsel also has. And I would suggest that the matter would be much clearer if both memorandums went in together.

Mr. PIERCE. That has already been offered in the record.

Mr. SONNETT. Because there is a paragraph by Mr. Margraf setting forth quite clearly what he thinks NBC's policy has been on this. Mr. MALETZ. It is already accepted, Mr. Sonnett.

Mr. SONNETT. I understand. But it was not shown to the witness, and Mr. Margraf, who was in charge of this in New York, clearly stated an answer to some of these questions.

Mr. MALETZ. Possibly we can read that paragraph.

Mr. SONNETT. I think it would be helpful. The paragraph at the second page, beginning "As for NBC's charge."

Mr. MALETZ (reading):

As for NBC's charge in a profit-sharing deal, I feel that we should arrive at a figure, either in terms of a flat dollar amount or in terms of a percentage, to cover our legitimate costs and we should insist on being able to retain this amount before the profit split. In a true profit split arrangement I do not feel that we should seek a 10 percent or other profit payable to us, over and above a proper cost charge, before the net revenues are divided. I do not feel either that it necessarily follows that NBC's charge and the agency charge should always be the same. If the agency actually is handling the packaging of the show a commission of 10 percent of the items indicated above may be entirely fair even though NBC's charge is less so long as our charge is enough to recoup our costs. On the other hand, our costs might be higher than a commission, and in that event we should do our best to get a charge high enough to recoup the costs. In any event, if the NBC charge and the agency commission result in pricing the show out of the market I believe we then have to work out ways all around to reduce the costs, possibly including reductions in talent fees and production costs as well as reductions in commissions and NBC's charge. I would not exclude the possibility of handling the situation through deferments of part of the expenses and charges although I believe it is much better in the first instance to try to reduce the amount of the items without getting into complications of deferments.

Mr. SONNETT. Thank you.

I think that makes it much clearer, Mr. Chairman.

Mr. PIERCE. Mr. Sarnoff, did it come to your attention that Television Programs of American, generally known as TPA, arranged to license its program called Susie to Drewrys Beer for telecast in Chicago over WNBQ in August or September of 1955?

Mr. SARNOFF. I wasn't aware of it, Mr. Pierce, except for the record made here.

Mr. PIERCE. Well, did the report refresh your recollection, or did you make any check on the situation from the record after you studied it?

Mr. SARNOFF. I have made a check. At the time I learned it from the record I didn't recall having known anything about it, it was a local situation.

Mr. PIERCE. Now, is it correct that WNBQ is owned and operated by NBC!