
    500 F. 2d 508
    IOWA STATE UNIVERSITY OF SCIENCE AND TECHNOLOGY v. THE UNITED STATES
    [No. 413-69.
    Decided July 19, 1974.
    Plaintiff’s motion for re-bearing en lane denied October 4, 1974]
    
      
      Charles T. Ákre, attorney of record, for plaintiff. Marion Eirschburg, Clarence T. Kipps, Jr., James F. Gordy, Robert D. Heyde, and Miller & Chevalier, of counsel.
    
      Jane C. Bergner, with whom was Assistant Attorney Gen-erad Scott P. Crampton, for defendant. Gübert E. Andrews and Joseph Kovner, of counsel.
    Before Skelton, Nichols, and Kashiwa, Judges.
    
   Per Curiam :

In this case, Iowa State University of Science and Technology, as plaintiff, seeks to recover a total of $496,280.36, plus interest allowed by law, which was assessed and paid on the income of its wholly owned television station WOI-TV for fiscal years ended June 30, 1962, 1963, 1964, and 1965. The central issues in the case are whether the income in question constituted unrelated business income and, if so, whether expenses derived from the operation of the two university radio stations, WOI-AM and WOI-FM, may be deducted as ordinary and necessary expenses of that business. For the reasons stated below, we hold that WOI-TV constituted an unrelated business within the meaning of § 513 of the Internal Kevenue Code of 1954 and that the expenses generated by the operation of the two radio stations were not deductible expenses of that business within the meaning of §§ 512 and 162. Plaintiff’s petition must, therefore, be dismissed.

Iowa State University (hereinafter frequently referred to as “Iowa State” or simply as “the University”) is a fully accredited institution of higher learning. It is governed by the Iowa State Board of Regents and emphasizes various fields in science and technology. In addition to its instructional functions, Iowa State operates a substantial extension program and participates in numerous research projects for the Federal Government and others. The University owns and operates the three communications facilities here in issue. The first electronic communications activity on campus began in 1914 with the construction of an experimental radio transmitter by the Electrical Engineering Department. In 1921, voice transmissions of weather and crop reports began, and were followed shortly thereafter by the addition of musical broadcasts, educational talks, and book reviews.

In the late 1930’s, a few experimental television stations were being licensed by the Federal Communications Commission (FCC). Applications for construction permits for an FM radio facility and a television station were filed by Iowa State in 1944 and 1945, respectively, and both were approved by the FCC. WOI-FM began transmission in 1949, WOI-TY in 1950. During the interval between the grant of the television station construction permit and the initial broadcast, the FCC ordered a stay, or “freeze”, on all new permit applications, leaving 36 stations then operating as well as 70 stations which were allowed to proceed with construction. Iowa State was then the only holder of an approved construction permit in central Iowa and, consequently, the only station licensed in the area during the period of the freeze. Representatives of four television networks requested affiliation with the station even before broadcasts began, and the State Board approved the negotiation of contracts under which WOI-TY would receive compensation for the broadcast of network programming.

In 1952, the Sixth Report and Order of the FCC ended the freeze and allocated three YHF commercial channels to central Iowa. By May of 1955, NBC and CBS had become affiliated with two Des Moines stations, WHO and KRNT, respectively, and the DuMont network was no longer in existence. The ABC network affiliation was retained by WOI-TY.

The Sixth Report and Order also created a system of licensing for television stations, and classified tbe stations according to ownership. A commercial station could be licensed to either profit or nonprofit groups; on the other hand a noncommercial station could be licensed only to a nonprofit owner. Approximately 10 percent of the allocated stations were reserved for noncommercial stations with the expectation that such stations would be licensed mainly to educational institutions and similar groups which presumably would use the stations as vehicles for the presentation of educational programming. Advertising on noncommercial stations was prohibited because of concern that commercial stations might increase commercially to the detriment of educational and public interest programming. However, the content of programs presented by either class of station was not regulated, and hence, on occasion, program content might well be identical under both types of ownership.

WOI-TY has operated under a commercial license since 1952. Iowa State has produced, however, evidence of a variety of functions in order to illustrate that the station, in both its programming and its other activities, was operated during the years at issue in keeping with the educational goals of the University by participating in both the instruction and training of individuals as well as the dissemination of information to the public. The activities of WOI-TY which would be encompassed by these two types of activities in-7 eluded participation in the Iowa Joint Committee on Educational Television (IJCET) and the resulting in-school classroom broadcasts, extension programming, closed circuit work, and participation in the training of students for careers in the television industry.

As early as 1949, Iowa State had begun consideration of the use of television as a method of classroom teaching. In 1952, IJCET was formed to investigate the feasibility of a state-wide system of educational television. The Committee was then comprised of representatives of the three Iowa institutions of higher learning and the Department of Public Instruction. WOI-TY staff members served as part of Iowa State’s representation with full voting powers. The IJCET budget was approved by the State Board of Eegents and funds were provided by the four participants, with Iowa State providing 20 percent of the total costs. Early attempts by IJCET to secure legislative support for the creation of a state-wide educational television network including WOI-TV failed.

In 1952, IJCET and WQI-AM-FM-TV coordinated the development and presentation of in-school television instruction. The series, entitled “Iowa TV Schooltime”, consisted of daily half-hour programs broadcast during the school year and dealing with Iowa history, science, art and politics. Content and teachers were selected by IJ GET and programs were initially produced in the WOI studios for live broadcasts. By 1956, programs were recorded on kinescopes and made available without cost to other stations throughout the year. By 1965, instructional programs were being collected in regional libraries for general dissemination, and WOI-TV supplemented its own programming with films from the Great Plains Library in Lincoln, Nebraska. An additional instructional program in various levels of Spanish was broadcast during at least part of the period in issue.

WOI-TV also broadcast programs prepared'by the University Extension Service as a part of its dissemination activity. Extension work began at the University in 1870 and is currently headquartered on campus with two extension workers in agriculture and home economics located in every county of the state. Television broadcasts as a means of disseminating extension information dates from 1950, when the first program broadcast on WOI-TV was produced by an agricultural specialist on the faculty of Iowa State. Begular broadcasts in agriculture and home economics began in 1951 and 1952, respectively. The major efforts of extension programming are directed towards providing market news for WOI radio and are aimed at day-to-day market conditions. Television presentations are aimed at trend analysis.

Each week during the years in issue, the Extension Service prepared for daily broadcast on WOI-AM six 4-minute features on agriculture and two 6-minute programs on economic outlook and research, as well as two similar daily home economics programs, which were all taped and distributed to radio stations throughout the state. In addition, the Extension Service provided a regular 45-minute “Farm Facts” program for daily broadcast which included farm news, market information, educational features, and music. Television programming by the Extension Service included a weekday 30-minute noon farm report which presented news, weather, crop reports, daily feature, and 6 minutes of prices and trends. Other television programming included two 6-minute home economics features daily and a 29-minute market feature broadcast on Saturday. The latter was reproduced for use on 15 other stations in the midwest. Occasionally, WOI-TY facilities were used for the production of tapes to be used by other broadcasters throughout the state. The Extension Service was billed through intramural forms for services provided in amounts less than the costs of production. On occasion, the Extension Service produced programs at other stations. Three members of the Extension Service were program specialists who worked primarily in radio and television.

Eegular closed circuit telecasts to Iowa State classrooms began in 1961 and were developed by various instructors in cooperation with WOI-TV regular staff members. All recording equipment and coaxial cable was installed and maintained by WOI-TV. Classroom monitors were acquired by the several departments involved. Although no charge was made for the production of these programs, departments utilizing the facilities were billed through intramural billing forms for use of the videotape heads at $2.25 per half-hour of playbacks. Approximately $60,000 in equipment used solely for closed circuit work was invested by WOI-TV during the years in issue.

No course was offered totally through closed circuit broadcasts ; this method of instruction was a supplement to regular classroom activities. For example, two mathematics courses used closed circuit television for approximately half of scheduled class time. The Engineering Graphics tapes were replayed approximately four times per quarter. A summary of the closed circuit broadcasts is as follows:

WOI-TV also aided the University in its preparation of students for careers in the television broadcasting industry by staff participation in presenting broadcasting courses and by employing students at the studio in various capacities on a part-time basis. For the period in issue, there were a minimum of 21 courses in radio and television offered by the University each year with an average of 78 students per course. The majority of these courses were in the departments of telecommunicative arts and technical journalism, with one course each offered by the English, Music, and Electrical Engineering Departments.

Approximately 10 courses offered by the Telecommunica-tive Arts Department used the facilities of WOI-TV to some extent. The subject matter of these courses included introductory materials, production and direction work in closed circuit, and broadcast speaking. In one advanced course, 400B, students wrote, directed and produced a half-hour program for broadcast on WOI-TV each Sunday morning. These programs were produced in the WOI-TV studios using the studio facilities and some staff members. The series began in 1965 with 18 weeks of programming. Professionals from several local stations, including WOI-TV and educational station KDPS, frequently acted as guest lecturers in the various courses. The Exhibit Hall and its broadcast facilities were turned over to the department for the use of students when the station moved to its new physical plant in 1964.

WOI-TV was used by the Telecommunicative Arts Department as a working example of a commercial television station. Although other local stations were visited and used for instruction, the proximity of the WOI-TV facilities provided an opportunity for regular exposure to the operations of a commercial station.

The Technical Journalism Department offered 30 courses, not all of which were media oriented, during the years in issue. Approximately 10 courses utilized WOI facilities to some extent, and most of these courses considered a variety of media. Only one course related exclusively to television. WOI-TV was again used as a representative example and was one of several stations studied. Courses covered introductory material, advertising, and news writing. Lecturers from WOI and other stations participated in class presentations. Students in Eadio and Television News 481 were given staggered assignments in the WOI newsroom and participated in writing news copy for broadcasts under the direction of a WOI staff member. Students enrolled in Informative Writing 475 produced short closed-circuit programs under the direction of a WOI-TV producer-director. WOI facilities and cameramen were used in these productions.

Ten staff members of WOI-AM-FM-TV acted as occasional lecturers in these courses. The actual participation of these staff members varied from lecturing once a year to serving as the regular instructor for a particular course. Along with lecturing and teaching, the staff performed their regular functions at the station.

Aside from the courses noted above, there was no requirement that students work at the WOI facilities. However, about 15 to 20 students at any given time were employed in various capacities on a part-time basis and were, paid by the station for their work. Two graduate students per year worked as interns in the WOI news department.

In contrast to the above educational activities, WOI-TV was operated generally as a commercial station in competition with the two Des Moines stations for audience, programming, employees, and advertising. Promotional efforts took many forms and included spot announcements of future programming, mail circulars, and newspaper advertising. Business Interruption Coverage Insurance alone totaled $665,000 and was based on an estimated gross annual business of $740,000. WOI-TV was self-supporting during the periods in issue, and other departments of the University were billed for services provided by the station at full cost, with the exceptions noted above. The station paid a rental fee to the University for the land occupied by the physical plant.

The main sources of revenue for WOI-TV were network sales, national advertising, and local advertising. Total revenues after the payment of commissions and yearly profits are reflected in the following table:

Advertising sales accounted for 63 percent and sales of time to the network for commercial programming accounted for 28 percent of total revenues. 'Prices paid by both the network and advertisers were based on two factors: (1) the size of the audience which the station could provide and (2) the time at which the network program or the advertisement was to be broadcast. The highest rates were charged for broadcasts from 6 to 11 p.m., a period which included “prime time”, or the maximum audience available throughout the broadcast day. Advertisers were encouraged to purchase time in quantity through the use of bulk discounts and decreasing rates for repeated ads.

WOI-TV contracted with H-B. Television, Inc., a national sales representative which, as an exclusive agent of the station, sold advertising time to national advertisers on a commission basis. Contact between the station and the Des Moines office of H-B Television was frequent, and the station provided the representative with availability sheets listing prospective programming as well as rate cards for advertising and production fees. Since the sale of advertising was dependent upon programming and audiences, the availability sheets contained information on ratings. Some advertising came directly through the networks with the commercial programming and tlie station was paid a portion of the network’s receipts from the advertising accounts.

The Sales Department accepted local advertising directly. Separate ledger sheets were kept for each advertising client and at least one full-time employee, along with various others, worked exclusively on billing. The average prices charged by WOI-TV to both the network and advertisers were lower per thousand of circulation than those of the other two local stations.

WOI-TV used network and recorded programming in addition to locally produced broadcasts during the periods in issue. Under a standard affiliation contract, WOI-TV was offered all programming produced by the ABC network. The station could refuse to 'broadcast certain programs offered, a practice known as non-clearance, or could substitute local programming, or preempt, previously cleared offerings. Until 1963, however, the network contract contained a clause under which WOI-TV forfeited the right to refuse network programming at certain times unless the offering was contrary to the public interest or a local program of outstanding public interest would better serve the audience. The times covered by this clause included the bulk of weekday afternoons and evenings and the majority of broadcast time on weekends. Network programming accounted for 52.3 percent of total broadcasts, of which all but 1.7 percent were commercial. Program content was primarily entertainment, but included news, public affairs, and various other types of programming.

The second largest source of programming for WOI-TV was recorded programs, consisting of feature films and syndicates, the latter of which, included programs produced for television and series which had not been carried by the networks for one year. In order to use these programs, WOI-TV had to purchase broadcast rights from the owners. [Recorded programming constituted 33.7 percent of total programming, of which 19.4 percent carried commercial advertising. Both syndicated programming and feature films were primarily entertainment.

The remaining 14 percent of programming was locally produced. During the years in issue, 66 different local programs or series were produced by the WOI — TV staff. These varied in length from 15 to 130 minutes and in frequency from one broadcast to daily presentation. With three exceptions, all local programs could be termed non-entertainment in content. “TV Schooltime” was, by this time, largely recorded programming. Live non-entertainment programming averaged 567.8 hours per year. The subject matter of these programs included news, instructional programs, local sports events, and special programs on such topics as politics, religion, and activities at Iowa State University. On weekdays, regularly scheduled local programs consisted of two morning presentations of 30 and 45 minutes each, the noon “Farm Report,” and late evening news. A half-hour local discussion program was regularly scheduled on Monday at 10:30 p.m. for the first half of the period and Friday at 6:30 p.m. for the remainder of the period. Network programming was refused clearance for the latter time period. Regularly scheduled local programming on weekends consisted of the noon “Farm Report,” on Saturday, and half-hour Sunday afternoon. In 1965, the half-hour programs produced by students in the Telecommunicative Arts program were broadcast on Sunday at 11:30 a.m.

The primary question here involved is close and perplexing. See Myers, Taxing the Colleges, 38 Corn. L. Q. 368, 380 (1953). 'On balance, however, the facts surrounding the operation of WOI-TV, as summarized above, require a holding that the television revenues constitute unrelated business income to the University and, therefore, the petition should be dismissed.

It is not disputed that Iowa State University is itself an exempt organization and that the WOI complex of communications facilities is wholly owned and operated by that institution. The presence of an income tax exemption for the University, however, does not automatically exempt all activities in which it may participate. Income accruing to an educational institution exempt from taxation under Internal Revenue Code § 501(c) (3) is taxable if the income is generated by the operation of an unrelated trade or business. To be taxable, tbe activity in question must be (1) a trade or business, (2) regularly carried on, and (8) not substantially related, other than through the production of income, to the purpose for which the institution was granted exemption under § 501. Treas. Beg. § 1.513-1 (a) (2).

Plaintiff, as it must, admits that WOI-TV is a trade or business within the meaning of § 513. In addition, there is no disagreement concerning the second requirement of the § 513 regulations. The record is clear that WOI-TV has presented continuous and regular broadcasts since 1950.

The third requirement is more complex. The applicable regulations state that ordinarily a trade or business—

is substantially related * * * if the principal purpose of such trade or Business is to further (other than through the production of income) the purpose for which the organization is granted exemption. In the usual case the nature and size of the trade or business must be compared with the nature and extent of the activities for winch tlie organization is granted exemption in order to determine whether the principal purpose * * * is to further * * * the purpose for which the organization is granted exemption. Treas. Reg. § 1.513-2(a) (4).

Treating the University as exempt under § 501(c) (3), the applicable definition of its exempt purpose, education, is found in Treas. Reg. § 1.501(c) (3)-1(d) (3), as follows:

Educational defined — (i) In general. The term “educational”, as used in section 501(c) (3), relates to—
(a) the instruction or training of the individual for the purpose of improving or developing his capabilities;
or
(b) the instruction of the public on subjects useful to the individual and beneficial to the community.

Thus, the method for determining and weighting the purposes of the activity in question is a comparison of the nature and size of the commercial television operations with the extent and scope of its educational operations. The regulations contain an example of this distinction particularly appropriate in this case:

* * * A university radio station * * * is considered * * * related * * * if operated primarily as an integral part of the educational program of the university, but is considered * * * unrelated * * * if operated in substantially the same manner as a commercial radio station * * * Treas. Reg. § 1.513-2 (a) (4).

A typical commercial facility, of course, is one whose primary purpose is profit maximization. Thus, for the purposes of § 513, the relevant considerations here are (1) those factors which might distinguish WO'I-TV from other commercial stations, and (2) whether the presence of these factors either changed the essential nature of the station or justified the scope of its commercial operations.

Determination and weighting of the purposes of a business with diversified activities is admittedly difficult. The problem is not novel, however, in this and other courts, and certain helpful guidelines have been established. Profits are, although not conclusive, at least some evidence that the business purpose is primary. American Institute for Economic Research v. United States, 157 Ct. Cl. 548, 556, 302 F. 2d 934, 938 (1962), cert. denied, 372 U.S. 976 (1963). Very substantial profits, or profits relatively large wlien compared with expenses, are also not conclusive but do constitute some evidence indicative of a commercial enterprise. Scripture Press Foundation v. United States, 152 Ct. Cl. 463, 468, 470, 285 F. 2d 800, 803, 806 (1961), cert. denied, 368 U.S. 985 (1962). It has been observed that fundamental to the loss of exempt status by Scripture Press Foundation wore findings of large profits, substantial accumulations of income, and relatively small amounts of actual exempt activity. See Edward Orton, Jr., Ceramic Foundation 56 T.C. 147, 159-60, 162-64 (1971). The record here supports similar findings with respect to the manner in which the University conducted the operations of WOI-TV.

Initially, WOI-TV was meant to be, and always has been, a profitable enterprise. During the years in issue, revenues ranged from $739,481 to $1,052,914, while profits for the first four years ranged from $132,253 to $304,079. Profits in 1965 were $13,654. Reinvestment in the business was substantial, with $990,000 being invested in the Communications Center alone. Cf. Edward Orton, Jr., Ceramic Foundation, supra, 56 T.C. at 164. Although the total revenues of WOI-TV were substantially less than those of its regional competitors, the station offered advertising time at rates per thousand of circulation somewhat lower than those of the two Des Moines stations.

As pointed out above, however, the presence of a profit motivation is not wholly determinative of the issue. Of greater importance is the manner in which the enterprise is conducted; a profitable operation may be justified by factors which, on balance, show that the conduct of the business was substantially related to the exempt purpose of the institution. Compare, for example, Parker v. Commissioner, 365 F. 2d 792, 798-99 (8th Cir. 1966), cert. denied, 385 U.S. 1026 (1967), with Campbell v. Big Spring Cowboy Reunion, 210 F. 2d 143, 146 (5th Cir. 1954).

Tn analyzing the method of operation of WOI-TV, it is important to understand the position taken by the plaintiff’s witnesses. Station management, University administrators, and faculty have repeatedly emphasized that the only reason for the operation of WOI-TV was to further the educational goals of the University. The sincerity of the belief thus expressed by these witnesses, many of them distinguished educators on the Iowa State faculty, can hardly be questioned. Indeed, since total television net revenues were obviously for the sole benefit of Iowa State, their testimony would be sufficient to justify a decision in favor of the University were it not for Congressional action in 1950 which terminated the previously existing “destination-of-income” test, thus overruling the theretofore leading decision of Trinidad v. Sagrada Orden de Predicadores, 263 U.S. 578 (1924). The purpose of this legislation was to tax commercial enterprises operated by charitable organizations on the same basis as their tax-paying competitors, regardless of whether such enterprises were operated directly as divisions of charitable organizations, like WOI-TV, or operated indirectly as separate incorporated feeders. See, H. Rept. No. 2319, 81st Cong., 2d Sess. (1950-2 C.B. 380 et seq.); S. Rept. No. 2375, 81st Cong. 2d Sess. (1950-2 C.B. 483 et seq.). For a further discussion of this change in tax law, see SICO Foundation v. United States, 155 Ct. Cl. 554, 295 F. 2d 924 (1961). The effect of the 1950 legislation was to abandon the preexisting doctrine that the destination of income (i.e. for the- exempt Iowa State) was more important than its source (i.e. a commercial enterprise such as WOI-TV). Thereafter, “source” of the income was the important consideration in determining exemption, and it is probable that plaintiff’s witnesses simply did not understand this change in legal climate.

That the “source” here (WOI-TV) is, and always has been, a commercial enterprise cannot be doubted. A commercial station was originally chosen as a medium because of two difficulties inherent with -all educational stations — problems of funding and difficulties in holding audiences. The administration felt that a commercial station could -attract and retain -a qualified staff which would then be available also to produce local programs of high quality and quantity. Audiences would be provided by using popular entertainment programs as a lure to secure the maximum available number of viewers. This method of building and retaining of audiences is termed “audience flow” and is loosely based on a theory of viewer inertia. The presentation of entertainment programming was also felt to contribute to a practice of habitual viewing patterns in which viewers would return to a station which regularly presented programming acceptable to them.

The building and retention of large audiences is a major factor in the development of a television station’s revenue, and in the presentation of entertainment programming. As such, it is a typical aim of commercial television stations. The WOI-TV affiliation with the ABC network and the station’s advertising operations were virtually indistinguishable from those of other commercial stations. Its balance between entertainment and nonentertainment programming was also typical. Approximately 75 percent of total programming was commercially sponsored and station policy would have allowed up to 85 percent if paid advertising were available to support the additional amount. Programming policy also indicates that the maximization of revenues was the primary, not to mention overwhelming, goal in the conduct of the business. WOI-TV was paid by the ABC network on the basis of the number of hours of commercial programming accepted and broadcast, and virtually all offered network programs were accepted. If a program were preempted for local broadcasts, substitute time for the network program was generally offered. Syndicates and feature films were selected by the station management in coordination with the sales staff for their audience potential. Local programming, although a fine effort and of great value to audiences, did not differ substantially either in quantity or subject matter from that of stations whose admitted goal was profit maximization. Many of these programs carried typical commercial advertising or “messages” to use the advertiser’s euphemism. Live nonentertainment program produced by the WOI-TV staff during the periods in issue averaged approximately 11 hours per week, of which about 9 hours were regularly scheduled. In comparison, the average educational station, handicapped as it may be by lack of funds, produced an average of about 19 hours of local educational programming per week. Thus, it is impossible to conclude that the maximization of local educational and public affairs programs was the primary aim in the operation of WOI-TV. Indeed, the commercial aspects were so overwhelming as to make it impossible for the operation of WOI-TV to be substantially related to the educational purposes of the University.

Neither do the other activities of the station support a finding that WOI-TV was operated substantially for the achievement of educational goals aside from the need of the University for additional revenues. 'Public interest programming, presentations by an extension service, in-school classroom broadcasts, and the employment of qualified students are not unique to WOI-TV. The only activities which would appear to distinguish this station from other commercial stations were its closed-circuit operations, its participation in two courses in which students worked at the station as part of their course assignments, and its close relationship with the Extension Service.

It is clear that a substantial investment was made by the station in closed-circuit equipment for classroom use. In addition, the station participated in the partial presentation of from two to five of some 2,000 courses offered each year, but this limited participation would hardly change the nature of commercial operations of the magnitude discussed above. Undoubtedly, the presence of an efficient advertising operation was valuable in the teaching of two advertising courses. The two courses in which students worked in the WOI newsroom and produced programs for local broadcasts were clearly valuable experience. However, the station was not meant to be, and was not, a vocational training center for students. With the above exceptions, all students working at the station were selected on the basis of their ability and were paid by the station. Extension programming on a regular basis was certainly a laudable endeavor. Here again, however, the station’s efforts were not totally gratuitous. The Extension Service had three programming specialists and the station was reimbursed, at least in part, for its expenses. Either individually or in combination, these factors do not serve to change the essentially commercial nature of the station, and, as previously noted, the fact that its net profits from such commercial operations wore ultimately destined for the educational uses of the University becomes irrelevant in the light of § 513 (a), supra.

It cannot fairly be said that WOI-TV operations were wholly unrelated to the educational purposes of the University, or that the educational activities of the station were incidental. The issue here is, however, whether the conduct of WOI-TV, which includes the goals of that station, was substantially related to the educational purposes of the University. The facts support a conclusion that the commercial aspects and the emphasis on revenue maximization were the overwhelming goals of the operation of the station; and, thus, the business was not substantially related to the educational purposes of the University. Thus, WOI-TV falls squarely within the definition of an unrelated trade or business the income from which is taxable to the University under § 511(a) (2) (B). See Rev. Rul. 55-676, 1955-2 C.B. 266 and Mertens, Law of Federal Income Taxation, Vol. 6, § 34.14a at p. 95 (1968).

Plaintiff’s alternative position is that, assuming WOI-TV constitutes an unrelated trade or business, all of the expenses generated by the operation of nonprofit WOI-AM and WOI-FM may be offset against WOI-TV income. The plaintiff first argues that the radio and television stations constitute, in the factual sense, an integrated operation. We view the facts as establishing precisely the opposite. Perhaps most significant in this determination is the non-commercial nature of the radio stations. State appropriations were the only source of funding for these two stations and, although they received benefits from the new 'Communications Center and its modern facilities, the profits and revenues generated by the commercially operated television station were not generally available to the radio stations. Despite some sharing of functions on the part of staff members, expenses were divided by the accounting department between the two media.

In addition, although all the stations were under a single general manager and chief engineer, on the next level of management each medium had a separate associate manager and engineer-in-charge. Below this level, approximately two-thirds of the staff worked for only one medium, and of those serving both media, half worked predominantly in television. Until May of 1964, the stations were separated physically.

This is not to say that the radio and television stations were totally unrelated. The news and weather departments, for example, would be difficult to divide by the relative time devoted to either medium. Other departments also show a sharing of functions in varying degrees. However, the weight of the evidence, in particular, the fiscal differences, establish that the radio and television facilities were not operated as, and did not constitute, a single integrated trade or business.

Even if the three stations were considered functionally integral, the regulations themselves would foreclose any argument that the three could comprise one trade or business for the purposes of § 513. Treas. Reg. § 1.513-2(a) (1) states that, for the purposes of § 513, the term “trade or business” has the same meaning as it has in § 162, governing the deduction of business expenses. Although the latter section also lacks a definition of the term, case law interpreting the provision, not surprisingly, distinguishes between profit and nonprofit motivated activities and concludes that a nonprofit endeavor, even if operated by a profit-making concern, does not constitute a trade or business for the purposes of the deduction of expenses under § 162. American Properties, Inc., 28 T.C. 1100 (1957), aff'd per curiam, 262 F. 2d 150 (9th Cir. 1958). See, also, W. C. Hudlow, Jr., 30 T.C.M. 894 (1971), and Joseph V. Curran, 29 T.C.M. 696 (1970). Thus, it appears equally impermissible to combine commercial and noncommercial facilities as one trade or business for the purposes of § 513.

The plaintiff relies primarily on the case of Anaheim Union Water Co. v. Commissioner, 321 F. 2d 253 (9th Cir. 1963) , for the proposition that profit and nonprofit activities could be aggregated and treated as one trade or business. Anaheim involved a nonprofit water company which developed water and water service for shareholders. Certain of the lands acquired by Anaheim, however, became a source of substantial, unrelated revenue in the form of oil royalties, rentals, and other miscellaneous sources. The company was thus able to provide water to its shareholders at or below cost, the charge being the difference between unrelated income and expenses incurred by the companies. When the taxpayer attempted to offset against unrelated income, the cost of acquisition and distribution of water, the Government balked and sought to limit the deductible costs to income received. The Government contended, with success in the Tax Court, that expenses in excess of income were not “ordinary and necessary expenses.” It should be pointed out that, as the Tax Court later said,

5 In Anaheim, respondent did not argue the expenses were not paid or incurred in carrying on any trade or business. The Court stated: “It is. not disputed that Anaheim during 1952-54 was carrying on a business;— the furnishing and delivery of water to those of its shareholders who desired to purchase water.” [Adirondack League Club, 55 T.C. 796, 808, n. 5 (1971).]

A case could be made that Anaheim is distinguishable from the instant case on the basis of the Government’s failure to argue in Anaheim that expenses were not paid or incurred in carrying on a trade or business, an issue hotly disputed before this court. However, the Ninth Circuit in subsequent cases, Bear Valley Mutual Water Co. v. Riddell, supra n. 13, and San Antonio Water Co. v. Riddell, supra n. 13, ruled directly against the Government’s assertion that the expenses were not paid or incurred in carrying on a trade or business. To the extent that the Ninth Circuit’s rulings contemplate a “business” in the absence of a profit motive, we must respectfully disagree. We find that reason and case law authority stand for the proposition that a profit motive is intrinsic to the concept of a business. In the Ninth Circuit’s water-rights cases, supra, the purpose was never profit; it was always to provide water and water services to the shareholders. We believe the Ninth Circuit was in error in allowing the two distinct activities — one profit motivated and one not — to be amalgamated.

In Adirondack League Club, 55 T.C. 796 (1971), aff’d, 458 F. 2d 506 (2d Cir. 1972), the petitioner, a nonprofit New York membership corporation, was organized for, inter alia, the maintenance of an ample preserve for the benefit of its members for the purpose of hunting, fishing, rest, and recreation. Petitioner, however, also conducted timber operations on its property. The issue was whether an amount representing the excess of expenses incurred in maintaining and providing facilities and services over membership dues and fees could be offset against timber income. The Tax Court held the expenses in issue were not deductible since they did not arise from the “carrying on of any trade or business.” The Tax Court found it necessary, as we do, to disagree, with the Ninth Circuit’s water-rights cases and to require a basic profit motive as a sine qua non to carrying on a business. There was no profit motive with respect to the hunting preserve ; and, thus, the “net loss” from that activity could not be offset against the timber business gains.

Likewise, in Five Lakes Outing Club v. United States, 468 F. 2d 443 ( 8th Cir. 1972), a social club incurred losses on its recreational operations but received income from rentals on adjacent land which it had purchased. The Eighth Circuit after approving the disallowance of the offset when no profit motive was present or when an activity of a profit-motivated enterprise constituted a “hobby” said:

* * * The only issue in either case is whether a corporation can merge the tax consequences of profitable and nonprofit activities simply by putting them under a single corporate roof. That question, of course, turns on whether a profit motive is a prerequisite to deductibility under § 162(a). For the reasons well-stated by the Tax Court, and adopted by the Second Circuit, we agree that it is. See Adirondack League Club, 55 T.C. at 808-809, 815-819, aff’d, 458 F. 2d 506. [468 F. 2d at 445.]

In the instant case we have already determined that WOI-TY is an unrelated trade or business within the meaning of § 513. Within that ultimate conclusion is the finding that it was profit motivated. Plaintiff is now attempting to offset the excess expenses of its radio stations, WOI-AM and -FM, which are clearly and, in fact, conceded to be nonprofit activities against its profit-motivated activities. WOI-AM and -FM were performing educational functions, seeking no revenue at all and wholly subsidized out of the State’s subsidy to the University. For the factual and legal reasons discussed above, such amalgamation of profit and nonprofit activities is not possible. Adirondack League Club, supra; Five Lakes Outing Club v. United States, supra; American Properties, Inc., supra; and see, also, Patterson v. United States, 198 Ct. Cl. 543, 552, 459 F. 2d 487, 493 (1972), in which this court reaffirmed the concept, albeit in a different context, basic to the tax law, that “[t]he ultimate guideline in determining whether a venture is a business rather than a hobby is the presence of a good faith intent to make a profit. * * *”

Finally, counsel for the University assert that the levy of a tax on the income of WOI-TV would be tantamount to the levy of an income tax on the State of Iowa which owns the University and hence WOI-TV. This, say counsel, would constitute an unconstitutional burden laid by the Federal Government on the activities of a sovereign state. Moreover, they argue that WOI-TV revenues are excluded from gross income by § 115(a) (1) which states that gross income does not include:

income derived from any public utility or the exercise of any essential governmental function and accruing to a State * * *.

Neither point is persuasive. Referring first to the § 115 argument, it will be noted that the section excludes only income derived from the exercise of any “essential governmental function.” However strongly it might be urged that the operation of a purely educational television station would constitute an “essential governmental function,” it certainly cannot be fairly argued that the operation of a commercial station could be so classified. Once again, it would seem that plaintiff’s approach is colored by its continuing emphasis on the obsolete “destination of income” test and its failure to recognize the Congressional change to “source” as the test of unrelated business income.

Passing to the remaining issue of constitutionality, it is our view that the United States Supreme Court has resolved this question adversely to plaintiff’s contention. For example, in Allen v. Regents of the University System of Georgia, 304 U.S. 439 (1938), the question was whether the exaction of the Federal admissions tax in respect of athletic contests in which teams of state colleges participated unconstitutionally burdens a governmental function of the State of Georgia. In holding that the immunity implied from the dual sovereignty recognized by the Constitution does not extend to business enterprises conducted by the States for gain, the Court said at 304 U.S. 451:

* * * In final analysis the question we must decide is whether, by electing to support a governmental activity through the conduct of a business comparable in all essentials to those usually conducted by private owners, a State may withdraw the business from the field of federal taxation.
When a State embarks in a business which would normally be taxable, the fact that in so doing it is exercising a governmental power does not render the activity immune from federal taxation. In South Carolina v. United States, 199 U.S. 437, it appeared that South Carolina had established dispensaries for the sale of liquor and prohibited sale by other than official dispensers. It was held that the United States could require the dispensers to take licenses and to pay license taxes under the Internal Kevenue laws applicable to dealers in intoxicating liquors, and this notwithstanding the State had established the dispensary system in the valid exercise of her police power. * * *

See, also, New York v. United States, 326 U.S. 572 (1946) where a divided Court held that the sale by New York of mineral waters from Saratoga Springs was not constitutionally immune from the Federal tax on sale of mineral waters. Said the Court (per Mr. Justice Frankfurter) at 326 U.S. 582:

* * * But so long as Congress generally taps a source of revenue by whomsoever earned and not uniquely capable of being earned only by a State, the Constitution of the United States does not forbid it merely because its incidence falls also on a State.

Counsel for plaintiff attempt to distinguish these cases on the ground that they dealt with Federal excise taxes as opposed to Federal income taxes. However, the reasoning in the Supreme Court’s decisions is broad enough to make this a distinction without a difference.

For all of the above reasons, the petition herein is hereby dismissed.

Nichols, Judge,

concurring in part, dissenting in part:

I agree that WOI-TV is an unrelated business activity to Iowa State University. However, I deem that the two radio stations are so integrated with the TV station that their excess expenses should be offset under the Code. I join the majority again in failing to see any issue of Constitutional dimensions.

The integration issue is primarily factual. I note that the joinder of radio and TV facilities is ordinary and usual. There is reference in the findings to two other instances in the Des Moines-Ames market alone. It is natural as permitting fuller employment of sports casters, weather prophets, news analysts, etc., as well as studios and other technical facilities, and it allows of a fuller saturation of the available market. In various fields the joinder of profit making and un-remunerative activities is ordinary and usual. Should members and associates of a law firm devote some portion of their time to pro bono publico activities, as, e.y., representing indigents in court, I would not expect the tax man to demand the segregation and disallowance of a corresponding portion of the law firm’s costs. Yet that is a logical corrollary of the reasoning used here, and one that no doubt we will come to.

The cases cited do not deal with factually integrated business operations and do not warrant the disallowance of the costs of a division or branch of an enterprise merely because it is, temporarily or permanently, unprofitable.

More to the point is the court’s holding that the TV profits were not “generally” diverted to support the radio stations. Support came, the court says, out of the state’s “subsidy” to the University. We are not given details as to the state’s appropriation procedure, or whether it included “line items”. One gathers from the summary in Finding 59 that the University kept its revenues out of “miscellaneous receipts” and obtained appropriation only of enough to cover its overall deficit. Thus the TV earnings apparently operated to reduce the subsidy necessary. The absence of effort to sell advertising on the radio has significance. If the radio stations developed some revenue, even if not enough to cover their costs, plaintiff would have a stronger case, one must concede. I do not deem the point conclusive, however, in light of the very generalized finding.

The separate management and accounting maintained for TV and radio is without significance, as the following quote sufficiently shows:

ACCOUNTING FOE DEPARTMENTAL OPERATIONS
Management of an enterprise that sells two or more distinct classes of services or commodities or that is divided into departments, needs accounting reports to evaluate the various segments of the business. * * * *****
* * * In a modern department store, for example, there are a number of distinct departments each under the control of a departmental manager. A departmental breakdown for accounting and reporting helps place responsibility for the control of a department’s operations upon departmental managers. It assists top management both in evaluating the relative operating efficiencies of individual departments and in planning future operations. [C. Niswonger and P. Fess, Accounting Principles, pp. 469-70 (10th ed. 1969). See also C. Horngren, Accounting for Management Control, Chapter 11 (2d ed. 1970).]

In short, I do not assert that the losses of an unrelated pro bono publico activity may be offset against the profits of a business enterprise, but I deny that the activity here is unrelated. It has a close and intimate relation, as the undisputed facts all show.

FINDINGS OF FACT

The following findings of fact are based on an extensive stipulation of facts agreed to by the parties and on the testimony of numerous witnesses taken at trial sessions held in Ames, Iowa and Washington, D.C.

1. The plaintiff, Iowa State University of Science and Technology, is located in Ames, Iowa, and was created by act of the Iowa legislature in 1858 as a state college (originally known as Iowa Agricultural College) to emphasize training in agriculture and mechanical arts. In 1862, Congress passed the Morrill Land Grant Act creating the land-grant college system throughout most of the United States, and Iowa became the first state to accept the terms of that Federal statute. The college opened its doors in 1868 and in the following years, as a coeducational land-grant institution, taught agriculture, mechanical arts, mining, ceramics, and subjects in related areas; it conducted extension work in agriculture and home economics and established agricultural experiment stations. The first graduate degrees were offered in 1877.

2. Under the laws of the State of Iowa, the University, owned by the State of Iowa and operated by it as a part of the state system of higher education (together with several other institutions of higher learning), is governed by the State Board of Regents. This board is composed of nine members appointed by the Governor of Iowa and confirmed by the Senate of Iowa. The University is administered by the president and faculty of the University.

3. Iowa State was a pioneer in the development of educational programs in agricultural curricula, veterinary medicine, engineering, and home economics. In addition to teaching, graduate students participate in research, and faculty members participate in research and extension functions. During the years in issue, plaintiff was a broadly based university with special teaching responsibilities in science and technology. It had an extension education program throughout the state and substantial research interests. The nature of plaintiff’s threefold program is recognized as:

Higher education with emphasis on science and technology;
Extension education to make knowledge available throughout the state;
Research to advance the frontiers of learning.

In 1965, its enrollment exceeded 14,000 students with a faculty approximating 1,500.

4. The courses of study available at Iowa State have constantly been enlarged, but a substantial emphasis has remained on agriculture, engineering, home economics, veterinary medicine, and the publication and dissemination of useful information. Current trends in the development of the plaintiff’s curriculum are toward fewer but broader requirements in the humanities, a shift from specific basic preparation in areas of specialization, more interdepartmental work and development of new areas. The University offers opportunities for study in many fields of mathematical, physical, biological, and social sciences, as well as in history, literature, philosophy, and music. Although the plaintiff has been well-known for its science and technology courses, more than one-third of its undergraduates in 1964 were enrolled in the College of Sciences and Humanities. This one college accounted for nearly half of the University’s total enrollment increase between 1960 and 1968. Undergraduate students in agriculture, engineering, home economics and veterinary medicine earn nearly half their credits in the College of Sciences and Humanities.

5. Educational functions at Iowa State are not limited to formal instruction of registered students. For example, in the year ended June 30, 1965, 158 short courses and conferences attracted 22,941 persons to the Ames campus for education and training in such areas as fire-fighting techniques, advances in educational methods, and bank lending practices. In the same year, more than 8,000 persons attended off-campus adult education classes in such fields as city administration, engineering and management, and civil defense training. Over 24,000 persons attended agricultural field days conducted at various locations throughout the state.

6. The plaintiff also offers off-campus courses for credit designed for fully employed professional and technical workers who seek courses available only from the University but who cannot economically commute to the campus due to factors of time and distance. Enrollment in such courses in 1964-1965 was 8,375.

7. Extension activity at the University began in 1870 and Iowa State became a pioneer in this field. In 1882, the first organized home economics extension project in the nation was presented in Des Moines by the wife of the president of the University. A member of the faculty initiated the first county cooperative extension plan in the country in 1903. The engineering extension service was organized in 1913. Extension activities have continued to the present time to carry useful and practical information to people throughout the state. Extension personnel deal with people where they are and according to their interests and needs for information coming from the research of the University.

8. A central extension staff, headquartered on the campus, and a field staff, with headquarters in each of the 99 counties of the state, work with nearly 50,000 local volunteer leaders in carrying out the University’s various extension activities.

9. The United States Department of Agriculture, the University, the county governments and locally organized groups are all cooperators in extension. Financial support for extension work comes from state, Federal, and county appropriations.

10. In 1914, the University’s Electrical Engineering Department built an experimental wireless transmitter and directed its operation. The call letters “9Y1” were chosen. The transmitter operated by using a synchronous spark with a 240-cycle note and Morse Code signals. In 1921, the station’s signal was converted to voice transmission and with this development the station began to disseminate weather reports, forecasts, and crops reports. In 1923, the programming of farm news on the station, by then called WOI, became the function of the extension service. Not long after the beginning of broadcasting, the radio station added music programming. In 1925, the radio station was designated an independent part of the College and made responsible administratively to the Engineering Extension Service. It was determined that funds for its operations would come from the Agricultural Extension Service and the general funds of the Institution. By 1926, educational talks and a book review program had become regular features of the station.

Television was presented to the public in 1939, and a few experimental stations had been authorized by the FCC. In the early 1940’s, the administration of the University studied the feasibility of constructing and operating a television station. Considerations at that time included the University’s obligation to extend its talents and functions to the' people of Iowa, including expansion of the extension service.

At this time, no consideration was given to commercial sponsorship of any kind.

11. Upon obtaining approval of the Board of Begents, applications for construction permits were submitted to the Federal Communications Commission by the University in 1944 for FM broadcasting and in 1945 for television. In 1947, FCC issued to the University a license and construction permit for television and FM broadcasting. A common AM-FM-TV transmitting plant, tower, and antennae system were then built. WOI-FM went on the air on July 1, 1949, and WOI-TV followed on February 21, 1950. However, since it is not possible to transmit both radio and television signals from the same antennae, WOI-TV and WOI-FM transmit from antennae hanging from the tower while WOI-AM transmits from the tower itself.

12. In the meantime, in 1948, the Federal Communications Commission had stayed all new permit applications. There were then 36 television stations operating in the United States. The order, known in the television world as the “freeze”, was designed to permit long-range planning and give the FCC time to restudy the allocation and assignment of television broadcast frequencies based on engineering studies to be conducted by the Commission.

The freeze left Iowa State University as the holder of the only permit in the central part of the State of Iowa and one of 70 stations in the country with applications pending and which were permitted to proceed with construction. 'Because WOI-TV was the only television station licensed to operate in central Iowa, after construction of its facilities, but before the station actually began broadcasting, representatives of the existing commercial television networks, CBS, ABC, NBC, and DuMont, called on the University, each asking that the station act as an outlet for its commercial programs in the area. 'In January 1950, President Friley took the offers before the State Board of Education. He recommended acceptance of the offers, noting at the same time that as soon as the freeze was ended by 'FCC (thought then to be in two years) and additional licenses granted, the Des Moines radio stations affiliated with a radio network would be free to obtain television licenses of their own with the assurances of affiliation with their own television networks. Two radio network stations had already filed applications for permits and ■construction of television stations. KRNT-TY filed its application on February 12, 1948, and WHO-TY on February 20, 1948. The Board of Education, noting there was no element of competition involved and that the 'Des Moines radio stations would be protected, approved President Friley’s recommendation and, accordingly, contracts were entered into with NBC, CBS, ABC, and DuMont under which WOI-TY agreed to broadcast commercial network programs for compensation. On April 14,1952, the FCC canceled the freeze and in its Sixth Report and Order assigned and allocated frequencies throughout the United States according to the best scientific and engineering studies then available. The Sixth Report a/nd Order laid down tho ground rules for the development of the television industry. James Sheridan, presently chief of Research and Education Division of the Broadcast Bureau, Federal Communications Commission, and former chief of the Broadcast Bureau, testified as an expert in this case. Mr. Sheridan was a member of the staff of the Commission which worked on the Sixth Report a/nd Order prior to its promulgation.

13. The Federal Communications Commission, in its Sixth Report a/nd Order, made available for the first time two types of licenses for television operation, each to be utilized on specific channels. These two types were (1) a commercial television license and (2) a noncommercial educational television license.

Commercial stations could be licensed to individuals, organizations, corporations, and institutions without restriction or regard to their use for profit-making purposes. They may be used for eleemosynary purposes. The programming requirement placed upon the ownership of commercial allocations is that they must be used “in the public interest, convenience and necessity.” This test is the sole basis for the grant of a station’s license and its renewal. Operation under a commercial license does not mean that a station is not or cannot be owned by an educational organization nor have educational purposes in programming. A commercial station could be operated on a noncommercial basis. However, a noncommercial station may be licensed only to nonprofit institutions. Tbe 'FCC does not require that noncommercial stations limit their programming to educational topics. Stations licensed as noncommercial may program in any way that serves the public interest.

14. In the Sixth Report and Order, the FCC sought to establish a group of stations which would function as noncommercial educational stations. They were to be licensed to educational institutions, educational foundations, public school systems, and similar institutions. The FCC had had experience with commercial AM radio stations, and this experience led it to conclude that if television stations were not specifically allocated for noncommercial educational broadcasting, a balanced radio and television system would not exist because commercial interests would occupy all frequencies. Commercial advertising was thought to be inconsistent with broadcasting directed primarily to educational purposes because it would erode and undermine objective decisions on program content. Thus, to provide more objective decisions concerning programming, advertising was prohibited on noncommercial educational stations.

15. In the Sixth Report and Order, the FCC announced that it would reserve both UHF and VHF channels, and approximately 10 percent of the assignments were reserved for noncommercial educational purposes. The reservation of specific channels for education was the result of efforts by various groups, including the United States Office of Education, the National Educational Association, the National Association of Educational Broadcasters, and the American Counsel on Education. An ad hoe Joint Committee on Educational Television had been formed in October 1950, to represent these and other groups, and it was this committee which petitioned the FCC for a noncommercial television reservation plan. The committee rejected the alternative, suggested by a number of its members, that it petition for the allocation of channels for educational television to operate on the concept of nonprofit, as well as noncommercial, educational stations. Nevertheless, certain groups proposed the concept of nonprofit educational stations to the FCC. This proposal, which would have allowed educational stations to sell advertising in order to support their educational programming endeavors, was rejected. The Commission at that time felt that a commercial system had certain restrictions built into it which would not permit it to perform functions in the area of education and instruction.

16. The Sixth Report and Order allocated only three commercial YHF channels to central Iowa, of which one was the channel already allocated to the plaintiff. NBC affiliated its television license with the NBC radio station in Des Moines. The CBS network ultimately affiliated with the CBS radio station in Des Moines. DuMont television had gone out of existence. The ABC network had no radio affiliate in the Des Moines area which had filed an application to engage in television operation. The third VHF channel was held by Iowa State University. ABC and the plaintiff agreed to continue their affiliation, and this affiliation has continued to the present time.

WHO-TV has operated in the years in issue, and up to the present time, under a commercial license in affiliation with the NBC network. KRNT-TV has operated in the years in issue, and up to the present time, under a commercial license in affiliation with the CBS network. KDPS-TV, owned by the Des Moines public schools, has operated during the years in issue, and up to the present time, under a noncommercial educational license and received programs from the National Educational Television network (NET). Its present call letters are KDIN-TV.

17. Since 1952, when the two types of license became available, WOI-TV has operated under a commercial license. During the years in issue, WOI-AM-FM-TV participated in various educational activities both independently and as part of the University community. The station was involved in planning for a state-wide network of educational television stations through its participation in the Iowa Joint Committee for Educational Television (LICET). Although early plans called for WOI-TV to become part of this network, when the final legislation passed in 1967, KDPS-TV, the Des Moines educational station, became the local participant.

18. In 1952, WOI-TV, in coordination with, the Iowa Joint Committee on Educational Television, began the production of half-hour programs for use in the classrooms of the State. Programming began in October of that year and has been telecast continuously since that time. The content of the broadcasts and teachers were selected by the Committee. The teachers selected woi’ked with WOI-TV producer-directors and staff in the station’s studios and the programs were originally produced live. WOI-TV bore some of the costs of production, and the rest were paid for by the Committee. Iowa State, as a member of the Committee, bore 20 percent of the IJCET expenses.

By 1956, programs could be recorded on kinescopes without bringing the teachers to the WOI-TV studios. These kine-scopes were used by WOI-TV and four other Iowa stations during the years in issue. The tapes were made available by WOI without cost to the other stations.

The series, entitled “Iowa TV Schooltime”, was presented five days a week, extended over a nine-month school year, for a total of 30 weeks per year. The content ranged from Iowa history to science, art, and political science. Enrollments in the program, compiled by participating school superintendents for the purpose of allocating costs, were as follows:

By 1965, instructional programs were being deposited in regional instructional television libraries, and WOI-TV supplemented a few of its programs from the Great Plains Library in Lincoln, Nebraska. The rental costs of these programs are $55 per half-hour and $50 per quarter-hour, or a total of $1,500 per series per year. Total cost for five series of programming has been approximately $7,000 per year. Station WOI-TV has made no charge to participating schools for broadcast time for carrying these program series.

In addition to the above-described “TV Schooltime” series, WOI-TV presents classes in elementary Spanish for 15 minutes each day during the school year. These recorded presentations alternate between two levels of study and were used in approximately 60 elementary schools.

19. The University Extension Service has the responsibility for taking the results of research, scholarship, and educational programs of the campus to groups and individuals throughout the State. Person-to-person contacts and educational meetings formerly constituted the chief methods of bringing education to the Iowa population, but mass media, radio, and particularly television have become the means for extending these staff resources to increasing numbers of people.

WOI-TV and Eadio were not the only outlets of Extension Service information during the years in issue. Programs were occasionally produced at other local stations, including the Des Moines educational station KDPS-TV. Newspapers and other media were also utilized. WOI-TV has allotted time periods for regular extension programs. The major efforts of extension programming were in the area of market news for WOI radio. Eadio news was aimed primarily at day-to-day fluctuation while television news dealt mostly with trend analysis. Three members of the Extension Service staff performed duties primarily in the programming and broadcasting of extension features during the periods in issue.

20. Each week during the periods in issue, the Extension Service prepared for daily broadcast on WOI-AM six 4-minute features on agriculture and two '6-minute programs on economic outlook and current University projects. Programs were taped and 52 copies were made and distributed to 20 radio stations serving Iowa. In addition, a regular 45-minute Farm Facts program' was produced daily on WOI-TV.

Also, during the years in issue, a weekday 30-minute Noon Farm Eeport on WOL-TV included time programmed and presented by the Extension Service personnel, utilizing the broadcast facilities and staff of the station. Kegularly programmed features on this program included news, weather, and crop reports, a daily feature, and 6 minutes of news on prices and trends with visual illustration. Four minutes of advertising were included in the news and weather segments. In addition to the Farm Eeport, two 6-minute home economics features were programmed daily.

Special 29-minute market programs were televised each Saturday. Occasionally one-half minute of advertising followed. The programs were reproduced and sent to 15 other stations in the Midwest.

Among the programs offered during the years in issue by the plaintiff’s Extension Service were agricultural production, conservation of national resources, efficient marketing and distribution of farm-raised products, family living, 4-H Club work, youth development, and community improvement and resource development.

Sometimes during the period in issue, the Extension Service used WOI-TY staff and facilities in the production of tapes to be used by other broadcasters throughout the State. WOI-TV was partially credited by the University for production expenses in amounts less than the costs incurred. Tapes became the property of the Extension Service.

21. The station has been helpful in aiding the Extension Service in responding quickly to new developments. For example, in 1961, the Federal Feed Grain Program was enacted during the busy spring season at a time when crop decisions had to be made immediately. Four days after the Secretary of Agriculture met in Omaha with administrative and educational leaders, WOI-TV broadcast a one-half hour program aimed primarily at county administrative personnel and Extention Service workers. The live program was taped and taken to four other stations. Within one week, the program had been broadcast through signals blanketing the entire State.

WOI-TV’s participation in the production, broadcast, and other dissemination of plaintiff’s extension programs contributed significantly to the carrying out of plaintiff’s extension obligations to the people of Iowa.

22. During the years in issue, WOI-TV provided closed-circuit instruction in from two to live of approximately 2,000 courses offered each year. These programs were developed by the WOI staff usually at the request of a faculty member. The station provided the production, direction personnel, and the use of studio equipment. No charge was made for the production assistance, but a fee of $2.25 per half-hour was made through Intramural Billing forms for wear and tear on the equipment. During the period in issue, WOI-TV had approximately $60,000 invested in equipment used solely for closed-circuit work.

No course was offered solely through closed-circuit presentations, and this method of instruction was considered supplementary to regular classroom sessions. The following chart ■represents the courses taught during the years in issue which utilized the technique of closed-circuit instruction.

The mathematics courses consisted of 40 tapes of 50 minutes each which were run for eight class sessions per quarter, and accounted for approximately one-half of total class time. The Engineering Graphics tapes were used approximately four times per quarter.

For the period 1961-65, there were a minimum of 21 courses in radio and television taught to Iowa State students per year with an average enrollment of 78 students per course per year. Most of the courses offered were in the areas of Technical Journalism or Telecommunicative Arts. In addition, one course each was offered by the Electrical Engineering, English, and Music Departments.

23. The two main departments which utilized WOI facilities during the years in issue were the Telecommuni-cative Arts subdepartment of the Department of English and Speech of the College of Arts and Sciences, and the Department of Technical Journalism (now the Department of Journalism and Mass Communication) serving majors in the Colleges of Agriculture, Home Economics, Science and 'Humanities, and Engineering. Academic credit was given for these courses.

The following courses offered by the Telecommunicative Arts Department utilized the facilities of WOX-AM-FM-TV to some extent:

TV Workshop 206A — Introduction. Theory and functions of studio facilities; duties of television production team; drill and practice in various duties.

TV Workshop 206B. On-the-air experience in educational television production and direction via closed-circuit or floor work and talent in WOI-TV programs.

TV Workshop 2060. Continuation of 206B.

Survey of Radio and Television Broadcasting SOI. American structure of radio and television and related industries; analysis of types of programs; role of broadcast media in education, entertainment, and public service; standards of evaluation.

TV and Radio Speech 80%. Theory and practice of effective television and radio speaking under closed-circuit conditions.

Radio Workshop 321. Introduction to radio techniques in announcing, writing, acting, use of sound and music; practice in integrating the various audio elements in actual production of radio programs.

TV Performance 326. Problems of the television performer ; adaptations in composition and interpretation which the medium requires of the announcer, narrator, master of ceremonies or actor. Studio situations designed to aid student in improving his performance skills.

TV Production and Direction 328. Theory and practice of television production. Programs analyzed with reference to staging, lighting, sound, shooting, and switching. Theory and practice of television directing. Translation of facts, ideas, emotions, and attitudes into meaningful visual and aural images.

Telecorwmnmicative Arts 400B. Students who have emphasized in earlier work, writing, lighting, staging, news-casting, demonstration, and performing will work as crews to create, write, direct, and produce programs for weekly broadcasts on WOI-TV.

These half-hour programs were broadcast by WOI-TV on -Sunday mornings beginning in 1965.

24. In 1964, when WOI-TV abandoned its quarters in the Exhibit Hall to move into its new building, the former studios were turned over to the Telecommunicative Arts Department. The studios were fully equipped for broadcasting; and the equipment, lighting, and insulation were left for the use of students.

The Technical Journalism Department, now known as the Journalism and Mass Communication Department, instructed students in the preparation, editing, production, and dissemination of information through all journalism media. Instruction in journalism at Iowa State was specialized and hence, students could major in agricultural journalism, home economics journalism, science journalism, or engineering journalism. In any of these fields, students could concentrate their studies in the broadcasting area. Not all of the 30 courses offered by the department are media related. Of those which are, many relate to combined media and only one exclusively to television.

25. The following courses were offered by the Technical Journalism Department in 1965 and involved some usage of the WOI-AM-FM-TV facilities:

Introduction to Mass Oom/nmnication 101. Communication models and their application to mass communication; mass communication process; characteristics and responsibilities of mass media; media-related professional operations.

Publicity and Public Relations 225. Communications fundamentals ; gathering and preparing materials for mass communication media; use of communications media for public relations purposes. Members of the WOI staff regularly lectured in this course.

Advertising 325. Principles of advertising; market and product research; planning, preparing and placing advertising; basic appeals; servicing advertising accounts.

Radio a/nd Television Advertising 326. Principles of advertising as applied to radio and television. Analysis of broad-oast media; preparation of radio and television commercials; time buying.

Radio and Television News 481. Techniques for gathering, writing, and editing news for radio and televison; use of film and other visual devices in television news; field trips. Students in this course were given staggered assignments in the WOI newsroom, and were involved in writing news copy for broadcast. At least one member of the W01 news staff devoted full time to these students while they were performing their writing, editing, and taping duties.

Informative Writing for Radio and Television 475. Writing and planning continuity, talks, discussion, demonstrations, and forums; documentary programming for radio and television. Part of the course work involved the production of closed-circuit programs of five-minute duration using WOI staff and facilities. Each class produced four to five or ten productions each year. The programs were replayed over closed-circuit for discussion and criticism.

Motion Picture Techniques 476. Basic techniques for shooting, editing, and presenting motion pictures as a means of communication with special emphasis on television requirements.

During the years in issue, graduate students seeking the Master of Science degree in journalism at Iowa State could apply for two WOI-TY assistantships which provided a substantial part of the student’s fees and living expenses. The students selected worked in the WOI-TY news staff on a half-time basis and the staff members gave them professional guidance.

The WOI-TY facilities were used by the Journalism Department as an example of the operations of a commercial television station. While a commercial television station was not necessary for preparation in the broadcasting profession, the close proximity provided students with an advantage in their opportunity to observe operations on a more frequent basis.

26. Students did not receive academic credit, nor was it a portion of assigned course work, when they broadcast on the air at WOI-AM-FM-TV. Students who were used as newscasters were paid for their services by the University. The stations employed students (majoring principally in Telecommunicative Arts. Technical Journalism, or Engineering) on a part-time basis for positions in the daily operations. These students were selected by WOI-AM-FM-TV from those recommended by the faculty. About 15 to 20 students per quarter were employed by WOI on a part-time basis. Other area stations also used students as part-time employees, but not to as large an extent as in the case of WOI.

27. Several members of the WOI staff, all skilled and competent experts, lectured in Iowa State University courses during the years in issue. These lectures were primarily in courses in the Department of Technical Journalism or in Telecommunicative Arts. (Representatives of other commercial and educational stations also lectured, as did personnel from other media. On occasion, students visited the noncommercial educational television station and the other commercial stations in the area market.

¡Professor 'Carl 'Hamilton headed the Department of Technical Journalism and taught several courses in advertising and publicity methods. Assisting him in the work of the department were an associate professor and two assistant professors. In addition, ten members of the WOI-AM-FM-TV staff participated in the lectures to various classes dealing with the areas of radio and television at Iowa State. These lectures were essentially based on the operation of WOI-AM-FM-TV. For example, Mr. Mulhall, general manager of the stations and an assistant professor on the University faculty, lectured four or five times per quarter in a course in radio and television advertising. Also, Mr. Mulhall lectured to several different Telecommunicative Arts seminars three or four times each year and led special project work with a number of students in these seminars, devoting three to four hours per week to this work. Mr. Ketcham, chief engineer of the stations and an assistant professor on the faculty, taught seminars several times each quarter and lectured at least once each year to electrical engineering students with respect to the technical aspects of television station operation. Mr. Ketcham also lectured to students in the basic course in Telecommunicative Arts to familiarize them with television engineering responsibilities and problems. Mrs. Varnum, Children’s Program supervisor and an associate professor on the faculty, lectured approximately 20 times per quarter for a total of 45 hours per quarter in the fields of child development and education. Mr. Tostlebe, sales and service supervisor for WOI-TV, lectured in one course three hours yearly.

28. In contrast to the above educational activities by staff members, WOI-TV was run by them as a commercial enterprise during the years in issue. In both its internal operations and programming, it did not differ significantly from other commercial television stations. The efficiency of the operation is attested by the fact that from its inception, WOI-TV has been self-supporting, and no state funds have been allocated for its operation, equipment, or physical plant. The teaching activities by the staff were not allowed to interfere with regular activities in the operation of WOI-TV.

29. For each of the calendar years 1981-65, in accordance with the regulations of the Federal Communications 'Commission, Iowa State University filed financial reports for WOI-TV. These reports showed net broadcast income for those years as follows:

1961 _$203,122
1962 _ 132,253
1963 _ 209,415
1964 _ 304,079
1965 _ 13,654

The average of WOI-TV’s total broadcast revenues for the years in issue was 55.23 percent of the average revenues of the two other commercial stations in the Des Moines-Ames market. WOI-TV realized the bulk of its revenues from the sale of station time to (1) the network, (2) national and regional spot advertisers, and (3) local advertisers. WOI-TV did not set out its revenues from local advertising separately from revenues from national and regional advertising for the years 1981-63, although the station did have local sales during this period. As with other commercial television stations, WOI-TV was paid by the network or advertisers for its time on a predetermined rate based upon its circulation, or audience. In effect, the payments equalled a percentage of the rates listed on the station’s advertising rate cards, and they represented a portion of the income which the ABC network received from its national advertisers.

Under the network contract, WOI-TV was paid for broadcasting commercial programs provided by ABC. The prices paid depended on the hour of the day in which the program was to be broadcast, with the most expensive period being the evening hours of 6:00 to 10:00.

30. Tike other commercial television stations, WOI-TV had a contract with a national advertising representative during the years in issue, and its representative sold national advertising (known as “spot”) time on its schedule. With the exception of the percentage commissions payable, the contract was typical of the agreements between other commercial television stations and their national advertising representatives. The commission rate charged of 15 percent was within the usual range. WOI-TV’s national representative performed roughly the same services for that station that the representative performed for its other commercial television station clients. These services included (1) using the WOI-TV advertising availability sheets and rate cards to sell national spot advertising, including advertising time in the State of Iowa; (2) assisting in the production of commercials at the WOI-TV studios; and (3) creating advertising copy for commercials to be telecast. One person in the sales section of the station was responsible for coordination with the outside sales representative and for maintaining liaison with advertisers and their agencies. A second person in the sales section was the sales service supervisor.

The WOI-TV availability sheets, which indicated those periods of time available for advertising, were substantially the same as those used by other commercial television stations. These availability sheets also listed ratings so that potential clients were able to ascertain the size or potential size of the audience generated by the designated programming.

31. The advertising rates in effect were indicated by WOI-TV’s rate cards. Tlie rate cards also gave information on the station’s coverage in terms of specific audiences, such as the farm audience, and the total population in the market so that advertisers would be able to gauge the market. As was the case with the other commercial stations in the market, WOI-TV’s national spot advertising rates, indicated on its rate cards, were based in part on the hourly rate determined by the network in its contract with the station. WOI-TV’s rate cards were similar to those used by the other two local commercial stations.

WOI-TV’s basic advertising rates were based on a number of factors. One factor was the time of day in which the advertisement was to be telecast. Class A time, which corresponded with so-called “prime time,” or 6:00 to 10:00 p.m. daily, was the most expensive. Class B time, immediately prior to and following prime time, was less expensive. Class C time was the least expensive and comprised the bulk of the broadcast day from sign-on to the beginning of Class B time and thereafter in the late evening. In addition to the time of the day during which the advertisement was to be telecast, the rates depended on the length of the advertisement and the frequency of telecasts thereof. Longer advertisements were more expensive, of course, but, at the same time, the rates were less expensive if additional advertisements were purchased. This system was an inducement to the advertiser to buy more advertising spots on the station. In addition to its basic rates, WOI-TV offered both weekly and yearly advertising saturation plans under which an advertiser could buy time at a basic weekly or annual rate which was dependent on (1) the time period for which it was purchased, (2) the length of the advertisement, and (3) the frequency with which the advertisement was to be broadcast. The weekly and yearly saturation plans were both less expensive than the basic rates and, as a further inducement, the yearly plan was made less expensive than the weekly plan. In addition, the station offered an annual plan discount. A guaranteed Class A spot was more expensive than one which could be moved at the station’s discretion if it were to subsequently sell the same spot at a higher advertising rate. Class B and C advertisers were fixed in their respective time periods because of the greater availability of Class B and C time. WOI-TV sold both advertising spots to be inserted in a program (participation) and break spots to be inserted between two network programs. All these considerations are typical of the sales planning generally by commercial television stations.

32. Insofar as local advertising was concerned, during the years in issue, the two members of the sales staff worked directly with advertisers, advertising agencies, and the station’s national spot representative located in Des Moines. WOI-TV charged for the production of advertisements in its studios which included specific charges to the advertisers for photographic labor, film, slides, tape, and studio production costs. It also made available its production Talent Bate Cards through its national sales representative.

33. Both network and advertising rates were dependent on the size of the audience a program could generate. Of the three stations in the Des Moines-Ames are, WOI-TV had the lowest network and Class “A” hourly rates per thousand of circulation, as shown by the following table:

34.The accounting section, averaging a staff of three, maintained records for both the television station and the radio stations. With regard to WOI-TV, it maintained advertising contracts, the ledger book containing sheets indicating billing to advertisers (including ABC), records indicating the commissions paid by WOI-TV to its national sales representative, preparation of the daily cash reports stating how much money was collected by WOI-TV from its advertisers, and preparation of Intramural Billing Forms to be submitted by WOI-TV to other University departments in order to receive credit in the University’s accounts for the station’s services to those departments. During the period in issue, there was at least one person in the accounting section who was exclusively responsible for posting the revenues received from advertisers. There were additional efforts by others. A separate ledger sheet, on which income was posted, was maintained for each advertiser. Spot advertisements were taken off the station logs and posted to the records. The ABC network’s computer printout was checked for accuracy with respect to the amount the network owed Iowa State for time, purchased on WOI-TV.

35. "WOI-TV Sales was listed during the years in issue in the Northwestern Bell Telephone Company’s directory for Des Moines by H-B Television, Inc., the station’s national advertising sales representative, as follows:

WOI-TV SALES (Bold print) 282-0201
1004 Paramount Building

The number given for WOI-TV Salles corresponds with the telephone number for H-B Television, Inc. "WOI-TV SALES was listed in the commercial yellow pages telephone directory by H-B Television as follows:

TELEVISION BROADCASTING COMPANIES AND STATIONS
WOI-TV SALES 1004 Paramount Bldg. 282-0201

36. On June 4,1962, the Building and Business Committee of the Iowa Board of Begents received bids for insurance on WOI-TV. The insurance subscribed to included “Business Interruption Coverage Insurance” based on a $740,000 estimated gross annual business less $75,000 estimated commissions payable. This netted to $665,000, of which 80 percent was coinsurance.

37. During the period in issue, the television station promoted or advertised its programming in the Des Moines newspapers. In addition, mail circulars designed by the graphics department were used approximately every three months.

The station received and, on occasion, used promotional and newspaper layouts and newspaper mats from the ABC’ network. WOI-TV’s advertising in local newspapers during the years in issue consisted primarily of promotion of its entertainment programs. Sponsors were sometimes identified in the advertisements. The advertisements were similar to those used by the other local commercial and educational stations.

38. WOI-TV’s affiliation relationship with the ABC television network was governed by contracts which were entered into periodically. These affiliation agreements were the typical standard form contracts entered into between the ABC network and any major market affiliate.

The contracts contained the standard provision allowing for termination by either party on six months’ notice. Pursuant to the requirement of the FCC that all commercial television stations be granted the rights to either preempt or not to clear network programs, such rights were set out in the contracts. Preemption is the failure of a network affiliate to carry a previously confirmed network program and to substitute what is, in its judgment, a program of greater local or national interest. Nonclearance is the deletion of a specific continuing network series of programs which a station believes is unsuitable or contrary to the public interest, or which is telecast by the network at a time period which the station feels should be better devoted to programs of local interest. The scheduling of network programs was done by ABC, which notified the station of its offerings in lists termed “orders”. Upon receipt of such orders, WOI-TV decided whether or not to clear the programming for broadcast. In the event that a previously cleared network program was preempted for local programming, the station always offered a substitute time, or “makegood”, at which the program could be run. The makegoods were not always accepted by the network.

Under its contracts in effect until September 1963, WOI-TV, like other commercial stations, was governed by the practice of network option time. Thus, during several periods of tbe day, WOI-TV agreed to broadcast network programming unless tbe offered program was found to be either (1) contrary to the public interest or (2) of less importance than a local program of outstanding value to the public. The times covered by this clause included 7:30 to 10:00 p.m. throughout the week as well as 2:00 to 4:30 p.m. to 6:00 p.m. on weekends. Although the practice was outlawed by the FCC in 1963, the existence or absence of the option time clause did not make a substantial difference in programming by the station. During the years in issue, the majority of network programs offered were broadcast by WOI-TV.

39. On December 19, 1965, Iowa State President, W. Poberts Parks, issued a lengthy statement of'general policy regarding the objectives and operations of WOI-TV. This policy memorandum had been under consideration and study within the University by several committees throughout 1965. WOI-TV management endeavored to adhere to this policy throughout the years in issue. Keproduction of this very detailed memorandum in its entirety is deemed unnecessary since large portions of it deal with future plans. It is thought sufficient to quote the following extract.

GUIDES FOB WOI-TV SERVICES
The purpose and function of WOI-TV is not to produce financial gain per se but to operate in such a manner as to:
1. Maintain and preserve its plan, facilities and staff,
2. Preserve the station status as an effective medium of mass communication to the general public of central Iowa and operate in accordance with the responsibilities imposed upon it by virtue of its FCC license,
3. Provide service in support of the various departments of the University,
4. Extend the University to the general public, and
5. Provide an audience and a financial base for a significant schedule of educational programs.
The University recognizes the need for WOI-TV commercial success as the basis upon which the station may accomplish these objectives. Station management is expected to work in conjunction with appropriate officials of the institution to develop budgets, pay scales and general policies which will assure financial success as well as accomplishments of the stated objectives.
:Jj # ❖ * ❖
It is not expected that WOI shall function as a vocational training center for student personnel any more than other service departments do, nor that student trainees shall be a substitute for professional WOI staff employees. Nevertheless, it is expected that WOI-AM-FM and TV will provide part-time employment and, hence, on-the-job experience for qualified students. * * *

40. The essential product of television is its programming. Different program philosophies underlie the operation of commercial and noncommerical stations. The programming of a commercial station is intended to reach the largest possible audience, or circulation, in any given market or transmitting area. Greatest attention is focused on prime time, those evening hours when the most television viewers are available and which bear the highest advertising rates. In this regard, the commercial television station concentrates on maintaining a high level of audience flow from program to program. In order to reach a large number of viewers, a commercial station on the average will tend to provide entertainment or programming a bit lower on the intellectual level than will noncommercial stations.

Audience appeal is measured by ratings, and those reported by the American Research Bureau ( ARB) and A. C. Nielsen Company are generally regarded as authoritative in the television industry. The audience level, as measured by these ratings, is important to commercial stations, generally, because the sales revenue from advertising time is dependent upon the circulation, or audience, which a station can reasonably forecast to an advertiser. For this reason, schedules listing programming available for commercial advertising also list ratings.

41. In general, noncommercial educational television stations are not concerned with maximizing advertising revenues by programming for the largest number of viewers in a market on a continuous basis. Rather, the emphasis is on reaching a series of separately identifiable smaller audiences by programming for each audience’s particular educational needs. Because of the nature of their programming, many noncommercial educational television stations do not reach large audiences, and ratings do not assume the same importance to the noncommercial educational station as they do to the commercial station. The noncommercial educational station is not interested in how large an audience is tuned to the station at a particular time but, rather, in how many people view the station over an extended period of time. Since advertising is not allowed on noncommercial stations, commercial availability sheets are not circulated. While the commercial station ordinarily does not shut down during the broadcast day for fear of losing its audience, the noncommercial educational station shuts down when it has completed its educational broadcasting for two reasons: one budgetary, and the second, a lack of appropriate programming to fill the day. Some stations would consider that the use of commercial-type entertainment programming in order to stay on the air would be inconsistent with their educational purpose.

Thus, in 1964, the average educational station broadcast only five days per week, presenting 42 hours, 20 minutes of programming, averaging about eight and one-half hours per day. Of this, approximately 50 percent was provided by the various educational networks and 40 percent was locally produced.

The A. O. Nielsen Company, the only company engaged in making audience surveys which reported on educational television stations from 1960 to 1965 found that there were none in the United States which reached a weekly cumulative audience of 10 percent of the households in its market on any continuous basis. The American Eesearch Bureau, the other major company engaged in making surveys of television audiences, did not report on educational television stations because the audiences did not reach a level which met the company’s minimum requirements for reporting.

42. The geographical area covered by the three commercial VHF television stations in the Des Moines-Ames market consisted of approximately 47 Iowa counties in the central portion of the state, having a population in 1960 of 1,123,479. These three stations together served an average of 337,466 television households in this area in 1965. WOI-TV competes with the other two stations for a share of the viewing audience.

A comparison of the audiences reached by the three Des Moines-Ames commercial stations shows that during the years involved, WOI-TV (ABC) averaged 30.78 percent of the audience reached by the three commercial television stations, while WHO-TV (NBC) and KRNT-TV (CBS) shared the remaining 69.22 percent

43. One substantial difference between commercial and noncommercial educational stations is found in the nature of the programs they telecast. The general categories of broadcasting by educational stations for what was shown to be a typical week within the school year in 1964, as published by the Morse Communication Research Center, Bran-déis University, showed that music, fine arts, and dramatic theatre predominated with children’s programs running a close second. Prominent also were various news programs, social science programs, and presentations in various scientific fields, medicine and technology. So-called “entertainment” programs comprised less than four percent of the total.

44. The regulations of the Federal Communications Commission require that all licensed television stations file for renewal of their licenses every three years. A dossier containing the initial license application and all renewal applications for each station is maintained by the Commission as a matter of public record. All statements made by a licensee in the renewal application are considered material representations. The form states that replies to the included questions “constitute a representation of programming policy upon which the Commission will rely in considering the application.” The Commission relies on the applicant’s responses in the Statement of Program Service in judging whether the station is operating in the public interest. This includes both the applicant’s past operations and its proposal for the ensuing license period.

The renewal application form used by the FCC was prepared pursuant to the Commission’s rule-making authority, and the Commission has sought the views of industry prior to changing or adopting a form. The Federal Report Act of 1968 indicates that, at least from that year on, the industry could be granted a hearing in the discretion of the agency. Any substantive change in the form must be approved by the Bureau of the Budget, and such approval is noted on the first page of the form.

Section IV of the commercial Renewal Application, the Statement of Program Service, utilizes a composite week to represent a commercial station’s typical programming over the preceding three-year period. The composite week (Sunday-Saturday) normally straddles two years because it is announced in November of a given year after the seven days in it have passed. The FCC recognizes that summer programming differs from that during the rest of the year, and, consequently, at least one day is selected for the composite week from the summer months. The Commission also recognizes that certain days of the year contain atypical programming due to a national event which may have disrupted the normal schedule, and these days are avoided in the selection of the composite week. The 1964 Renewal Application had a composite week selected by the Commission consisting of two days in the calendar year 1963 and five days in 1964, including a representative day from the summer months.

45. Under Section IV, the Statement of Program Service of the commercial Renewal Application, applicable to the composite week, the FCC has. used certain categories to describe the nature of the station’s programming. These categories were determined by the FCC under the rule-making procedures mentioned above. During the period relevant to this case they included the following:

(1) Entertainment (all programs intended by the station primarily for entertainment, such as music, drama, variety, comedy, quiz, breakfast, children’s, etc.);
(2) Religious (sermons, religious news, music, drama, etc.);
(3) Agricultural (all programs containing farm or market reports or other information specifically addressed to the agricultural population);
(4) Educational (programs prepared by or in behalf of educational organizations, exclusive of discussion programs);
(5) News (news reports and commentaries);
(6) Discussion, (forum, panel and round-table programs) ;
(7) Talks (all conversation programs not falling under religious, agricultural, educational, news or discussion including sports);
(8) Miscellaneous.

These categories are not without controversy. The category of educational programming is defined by source; the other categories by subjective content. Many programs could be classified under different categories. The Commission has never instructed stations as to how to categorize certain programs, recognizing that such classification is more or less of a subjective nature. Stations are allowed to determine their own classifications. For example, in determining which programs to classify as entertainment, the station makes the determination of the primary intent of the broadcast.

The Renewal Application allows a television station an opportunity to offer alternative program classifications or an alternative measure to the use of the composite week. The application states:

If the data furnished in response to the questions in this Section IV do not in the applicant’s opinion adequately reflect station operation, attach as Exhibit No. — a statement setting forth any additional program data that the applicant desires to call to the Commission’s attention. (If the applicant feels that the program material classified in Paragraph is susceptible of classifications other than those listed he may supplement Paragraph 2 with an explanatory statement of this Exhibit.)

46. A commercial television station is required to submit as a part of its renewal application its daily program logs for the composite week. The logs reflect everything the station has telecast on the air. The programs listed in the logs are those classified into the above categories.

WOI-TV’s program logs have listed everything which it has telecast on the air, as well as the classifications of those programs in accordance with the FCC categories enumerated above. The station has used its own judgment in determining how-to classify its programs. It has always filed a commercial Renewal Application, and on its Renewal Application filed in 1964, it classified its programs during the composite week as follows: - ■ ■

Percent
(1) Entertainment_ 82. 0
(2) Religious_ 1. 3
(3) Agricultural_ 3. 6
(4) Educational_ 3.1
(5). News _ 4.9
(6) Discussion _ 1. 3
(7) Talks __ 3.8
Total_100.0

WOI-TV’s programs classification made reference to three exhibits which were (1) the underlying program logs, (2) a statement of time devoted to the discussion of public issues, and (3) a statement in response to the FCC invitation to offer alternative program classifications or an alternative measure to the composite week. Although WOI-TV made a supplemental response to its application, there is nothing in this response to indicate that WOI-TV disagreed with the program categories used by the Commission in the Renewal Application, nor is there any indication that the composite week did not accurately reflect its programming during the preceding license period. The composite week would include all programming presented on the selected days, including regularly scheduled broadcasts. Of the programs listed, and discussed in the station’s Exhibit VII, only the election coverage is not listed as being regularly scheduled.

47. The respective, program data on the renewal applications filed with the Federal Communications Commission during the years in issue by the three commercial Des Moines/ Ames stations and the ABC affiliates in markets comparable in either population or circulation showed the following:

Program data for commercial stations

[In percent]

48. From the foregoing chart, it may readily be seen that the programming of WOI-TV was not substantially different from that of other commercial television stations comparable to WOI-TV.

As a further indication of this fact, it should be noted that there are three basic sources for television programs: (1) the network programs distributed to all affiliates, (2) films, including feature films originally produced for television or broadcast as reruns of previously broadcast network series and sold in the form of tapes or films to all commercial television stations, and (3) locally produced programs. On its 1964 renewal application, WOI-TV indicated that 52.3 percent of its total telecast time was devoted to programs supplied by the ABO network. This percentage is typical of a network-affiliated commercial television station. Syndicated reruns of network programs, syndicated programs produced originally for television, and feature movie films accounted for 33.7 percent of WOI-TV’s total broadcasts. Most of the syndicates broadcast by WOI-TV were intended primarily for entertainment. Together, network programs, syndicates, and feature films represented 86 percent of WOI-TV’s composite week, and the station indicated that the sources of programming would remain substantially the same for the ensuing license period. Three percent of the proposed broadcast schedule was to represent news, weather, and sports, which are also typically broadcast on all commercial stations. Thus, fully 89 percent of WOI-TV’s broadcast time was devoted to programs typically aired on other commercial stations.

49. WOI-TV’s renewal application for 1964 represented that it had devoted 75.6 percent of its total telecast time during the composite week to programs which were either commercially sponsored or contained commercial spot announcements at intervals of less than 14% minutes. The station indicated that no substantial change would be made in the ensuing license period. The station also represented that its commercial policy would permit up to 85 percent of broadcast time to carry commercial advertising and that its proposed schedule showed availabilities for further commercial time.

Although WOI-TV’s commercial policy was typical of a commercial station, the manager of one of the two other network-affiliated stations in the Des Moines-Ames market testified that a policy permitting commercial time in up to 85 percent of the broadcast schedule would be high as far as his station was concerned and may have been at the maximum level permitted by the National Association of Broadcasters Code to which WOI-TV also subscribed. WOI-TV’s policy would permit the use of a maximum of advertising time under the Code if a sufficient number of advertisers wanted to buy that time. This number was not available very often.

5,0. Through analysis of the nonentertainment categories as listed on the renewal application, the Commission evaluates the extent to which a station is devoting its facilities to matters and concerns of the community over and above the provision of entertainment programs. The Commission does not prescribe programming by requiring performance in each individual category; rather, overall performance is considered in evaluating the station’s performance as an outlet for the problems in the community. Although not all programs in these categories would be considered public affairs broadcasts, the nonentertainment classifications would in-elude programming intended primarily as public affairs broadcasts. As reflected in the composite weeks and proposed schedules, the broadcast time devoted to nonentertainment programming during the years in issue by WOI-TV and the two Des Moines stations is as follows:

WOI-TV 18.0 to 20.6%
KRNT-TV 30.6 to 30.6%
WHO-TV 25.5 to 25.5%

51. WOI-TV, like other commercial television stations produced locally originated public affairs programs, and, like other stations, frequently received praise for some of these programs. Some of its locally produced programs carried commercial advertising. Programs which were produced for less than the full-time period permitted the insertion of promotional material, station breaks, public service announcements and commercial advertising. All local public affairs programs are reflected in the station’s logs and, if telecast on the days selected by the Federal Communications Commission, were also reflected in the composite week. 'Locally produced programming accounted for 14 percent of the total broadcast time during the years in issue. Of this, 5.6 percent was listed as commercial programming.

Locally produced programs telecast during the years in issue included such programs as Farm Facts, Noon Report, Uterine Cancer, Introductory Math, athletic events, and many others. Three of these programs were categorized as “intended primarily for education” by the station in its 1964 license renewal application. Subtracting the telecasts of Bozo, Graves End Manor, and Magic Window, the total hours of programming was 2,571, or an average of 643 hours of nonentertainment programming per year. If “TV School-time” is eliminated as being based in large part on recorded material, the total drops to 568 hours per year.

Regularly scheduled local programming which was neither intended primarily for entertainment nor based in large part on recorded materials accounted for approximately 9 hours per week, or 468 hours per year. This left approximately 2 hours per week available for locally produced special programming.

The scheduling of local programming was a balance of several factors, and maximization of the available audience was one. The availability of network programming for a particular time slot was another. Where special audiences were involved, consideration was given to the time at which they were available. For example, in-school broadcasts were scheduled for midmorning and regular Extension Service programs for the noon hour. However, during prime time, when the maximum audience was available, only one regularly scheduled nonentertainment local program was scheduled each week.

WOI-TV had a policy of granting free and equal time to political candidates for major state and national offices. It did not sell time to, or on behalf of, any political candidate.

52. WOI-TV was not the only station in the market to produce such locally originated programs. Extension programs were presented on KRNT-TV and WHO-TV maintained a farm service department to provide programming in that area. Local programming and public service presentations on the latter two stations included broadcasts concerning pollution and conservation, health and medical programs, local election reports, life-saving techniques, and political broadcasts.

The programming policy of WOI-TV was not substantially different from that of its competitors. All three practiced nonclearance and preemption pursuant to their network contracts.

Both Des Moines stations hired students as part-time employees and WHO-TV employed one per year as an intern in its newsroom. Employees of these stations lectured at various universities in the area, including Iowa State and Drake University in Des Moines.

The advertising procedures of the three stations are and were virtually identical.

53. The two radio stations, WOI-AM and WOI-FM, were noncommercially operated. They sold no advertising and received no funds other than their allocation from the University budget. From its inception, WOI-TV has been self-supporting, and no state funds have been allocated for its operation, equipment, or physical plant. Any funds in excess of the television station’s needs were approved by the University president and, on occasion, by the Board of Regents, for capital expenditures of WOI-TV or other University purposes. Revenues from the television station were not available for use by the radio stations.

Thus, the radio stations were treated separately from WOI-TV in the University budget and annual financial statements. Separate accounts for each were kept on the University’s books. In the annual financial statements, WOT-TV’s summary of operations was listed as an income-producing activity.

Each year, the University determined which employees were to perform services for WOI-AM and WOI-FM and which employees were to perform services for WOI-TV. Where employees performed services for both media, the University in its records, allocated the compensation of such employees. These employees’ names were also reflected in the University budget for the years in issue. Of a staff of approximately 100, about one-third had functions in both media. Overall management responsibility for WOI-AM-FM-TV rested in the general manager. Other members of the management group included the educational coordinator and associate manager for television, the associate manager for WOI-AM-FM, and the chief engineer. Each station had an assistant engineer.

54. The three WOI stations were affiliated with different networks, i.e., WOI-TV with the commercial ABC television network and WOI-AM and WOI-FM with the noncommercial National Educational Radio Network and the National Education Tape Network respectively.

The program emphases of the radio and television stations were different during the years in issue. WOI-AM offered a broad spectrum of programs in music, news, weather, sports, agriculture, and economics. WOI-FM placed a greater emphasis on good music and cultural events and was aimed at a more limited audience. The three stations kept separate program logs and had separate traffic managers.

55. Full-time television personnel also found their talents in demand for radio programming. For example, one television staff member produced a weekly 30-minute program especially for radio and lias appeared daily on WOI radio in a five-minute discussion feature. Two additional programs, overseen by the same producer, are broadcast regularly on WOI radio. A second television producer was responsible for three weekly radio programs and was co-producer of another WOI radio series.

A single news staff averaging 11 full-time and six student part-time employees had responsibility for gathering, editing, reporting, and broadcasting news on both radio and television. This was similar to the operations of the other radio-television stations in the area. This staff provided local, national and international news events, sports news, and weather reports, the last including forecasting and storm warning services. The news staff was also responsible for public affairs news broadcasting on both media, including in-depth reports on local and statewide issues. WOI-TV carried daily broadcasts of the proceedings of the State legislature when it was in session.

The production section, averaging 20 full-time and nine student part-time employees, had the primary responsibility for the production of local programs for radio and television. These individuals conceived of programs, discussed the possibilities of new programs within their group and, finally, with the station management, planned and produced programs for either radio or television broadcast. These programs were produced at various lengths and were part of the regular broadcast schedule. When necessary or advisable, network programming was preempted. Production personnel also counseled and assisted academic departments concerning the use of closed-circuit television instruction and the techniques involved in using it. Television producers were assisted by cinematographers, artists, and photographers who were part of the production section. Some personnel devoted themselves only to radio or television work, and some worked in both media. The arrangement was similar to that of other affiliated radio and television stations in the Des Moines-Ames area.

Mr. Sheridan of the Federal Communications Commission, testifying as an expert, stated that a commercially operated television station and a noncommercial radio station would not be considered by him to be an integrated facility.

56. In 1960, plans were authorized and architects were engaged by the Board of Eegents for the construction of a Communications Building on the University campus to house the radio and television stations, a film unit, and to provide television teaching facilities. Until the time that the building was completed in May 1964, WOI-TV occupied a different building from the two radio stations. The cost of this building, $990,000, was paid for by funds earned by WOI-TV. The three stations are the sole occupants of the Communications Center. Two classrooms were built adjacent to one of the television broadcast studios.

The two other affiliated radio and television stations in the Des Moines-Ames market also operate from a common building.

57. Graphic materials used for local television productions, open- and closed-circuit television broadcasts and for commercial television broadcasts were provided Jby a graphics section of the production department. The two persons in the section also prepared newspaper layouts and editorial material for television as well as general advertisements placed by WOI-TV in the newspapers. They also made available technical instruction and services to other campus departments using television visuals and provided art services to the Telecommunicative Arts students’ television training program.

58. Supporting services, averaging six staff members and six student personnel, had responsibility for traffic, continuity, and promotion. The traffic subsection was responsible for scheduling and clearing programs and for building the daily program logs required of all stations by the FCC. Traffic also scheduled network programs and commercial advertising. The continuity section was responsible for writing some material delivered on the air. When requested by advertisers, this section also wrote advertisements for broadcast on WOI-TV. Another supporting service involved the training and supervision of the television announcer ■ staff.

The advertising sales section was concerned solely with advertising on W'OI-TV. Of the two persons comprising the section, one was concerned with the coordination of sales representatives outside the station and for maintaining liaison between WOI-TV and its advertisers.

59. The relationship of the television station’s receipts to the plaintiff’s overall finances is shown in the following table for 1964-65, and is typical of all the years in suit:

Iowa State Univeesity, 1964-1965
Source of funds
State Appropriations_$16, 693, 950
Federal Appropriations_ 3, 130, 746
Student Fees_ 4, 368, 550
Sales and Endowment Income_ 586, 246
Organized Activities_ 2, 053, 691
Gifts, Grants and Contracts_ 16, 600, 770
Self-supporting Enterprises_ 11, 977, 794
Other Income_ 889, 400
Total_ 56, 301,148
Broadcast Revenues of WOI-TV (From Form 324, Report to FCC, 1965)_ 1, 052, 915
Revenues to Funds_ 1. 87%
Expenditures
Instruction (Including Organized Activities)_$14, 827, 392
Research and Public Service_ 19, 045, 813
Extension_ 4, 285, 571
Physical Plant_ 2, 350, 033
Administration_ 882, 724
Library_ 685, 200
General Expense_ 1, 119, 299
Equipment_ 376, 554
Self-supporting Enterprises_ 10, 753, 343
Scholarships, Fellowships, and Deposits_ 1, 008, 900
Total_ 55, 334, 829
Broadcast Revenues of WOI-TV (From Form 324, Report to FCC, 1965)_ 1, 052, 915
Revenues to Expenditures_ 1.9%

tTLOTBfATE MNDINGS OF FACT

60. WOI-TY was operated during the years in issue as a typical commercial television station whose overwhelming goal was achievement of its commercial aims. The operation of WOI-TV was not substantially related to the educational functions of Iowa State University, except in the sense that its net income was destined for use by the University.

61. The operation of WOI-AM, WOI-FM, and WOI-TV did not constitute a single trade or business during the years in issue.

62. The income realized by Iowa State University from the operation of WOI-TV was unrelated business income subject to taxation under Section 511 of the Internal Eevenue Code of 1954, and the expenses incurred in the operation of WOI-AM and WOI-FM were not deductible under Section 512.

CONCLUSION OE LAW

Upon the foregoing findings of fact and opinion, which are adopted by the court and made a part of the judgment herein, the court concludes as a matter of law that plaintiff is not entitled to recover, and the petition is dismissed. 
      
      This opinion incorporates the greater part of the opinion prepared by Trial Judge Lloyd Fletcher, with modifications and additions by the judges.
     
      
       As to the remaining 80 percent, the Department of Public Instruction provided 50 percent, the University of Iowa 20 percent, and Iowa State Teachers College 10 percent.
     
      
       It was not until 1967 that a state-wide system was created, and educational station KDPS, owned and operated by the Des Moines Independent School District, became the local participant.
     
      
       Three stations in the Cedar Rapids-Waterloo area used the programs for the years 1962-:63 to 1964 — 65. A station in Mason City used the programs for the 1964-65 year.
     
      
       Hourly rates per thousand of circulation averaged as follows:
      Network Class "A” Advertising
      WHO. $3.68 $3.66
      KENT.. 3.65 3.21
      WOI..-. 3.05 3.00
     
      
       The exact times covered were as follows:
      
        Saturday and Sunday Monday throxigh Friday
      
      10:30 a.m. to 1:00 p.m. 2:00. pm. to 4 :30 p.m.
      3:30 p.m. to 6 :00 p.m. 7 :30 p.m. to 10. :00 p.m.
      7:30 p.m. to 10:00 p.m.
     
      
       Local basketball games ran for various lengths.
     
      
       “Graves End Manor” was a series of horror films with local narration. “Bo%o” was a cartoon series. The two programs accounted for a total of 774 hours of broadcasts during the years in issue. Both series are listed as recorded programming intended primarily for entertainment on the proposed schedule prepared by the station for filing with the Federal Communications Commission in 1964. “Magic Window”, which accounted for 676.5 hours, was a children’s entertainment program.
     
      
       Figures for the individual years are as follows:
      Year Total Local Non-Entertainment and Non-Recorded*
      1962. 909.6 634.6
      1963. 985.0 666.0
      1964. 1,030.0 530.0
      1965. 1,097.0 641.6
      Total. 4,021.5 2,271. 0
      Avorage..-. 1,006.4 667.8
     
      
      In hours.
     
      
       § 501. EXEMPTION EROM TAX ON CORPORATIONS, CERTAIN trusts, ETC.
      (a) Exemption From Taxation. — An organization described in subsection (c) or (d) * * * shall be exempt from taxation under this subtitle * * *.
      *****
      (e) List of Exempt Organisations. — The following organizations are referred to in subsection (a) :
      *****
      (3) Corporations, and any community chest, fund, or foundation, organized and operated exclusively for * * * educational purposes * * *.
     
      
       S 511. IMPOSITION OF TAX ON UNRELATED BUSINESS INCOME
      (a) (1) Imposition of tax. — There is hereby imposed for each taxable year on the unrelated business taxable income (as defined in section 512) of every organization described in paragraph (2) a normal tax and a surtax computed as provided in section 11 * * *.
      (2) Organisations sub feet to tax.—
      (A) Organisations described in section 501(c) (2), (S), (5), and (6) * * *— The taxes imposed by paragraph (1) shall apply in the ease of any- organization * * * which is exempt, except as provided in this part, from taxation under this subtitle by reason of * * * paragraph (3) * * * of section 501(c),
      (B) State colleges and universities. — The taxes imposed by paragraph (1) shall apply in the case of any college or university which is an agency or instrumentality of any government or any political subdivision thereof, or which is owned or operated by a government or any political subdivision thereof, or by any agency or instrumentality of one or more governments or political subdivisions. Such taxes shall also apply in the case of any corporation wholly owned by one or more such colleges or universities.
      *****
      § 512. UNRELATED BUSINESS TAXABLE INCOME
      (a) Definition. — The term “unrelated business taxable income” means the gross income derived by any organization from any unrelated trade or business (as defined in section 513) regularly carried on by it, less the deductions allowed by this chapter which are directly connected with the carrying on of such trade or business, * * ».
     
      
       § 513. UNRELATED TRADE OR BUSINESS
      (a) General rule. — The term “unrelated trade or business” means, in the case of any organization subject to the tax imposed by section 511, any trade or business the conduct of which is not substantially related (aside from the need of such organization for income or funds or the use it malees of the profits derived) to the exercise or performance by such organization of its charitable, educational, or other purpose or function constituting the basis for its exemption under section 501 (or, in the case of an organization described in section 511(a)(2)(B), to the exercise or performance of any purpose or function described in section 501(c) (3j)), except that such term does not include any trade or business—
      '(1) in which substantially all the work in carrying on such trade or business is performed for the organization without compensation; or
      (2) which is carried on, in the ease of an organization described in section 501(e) (3) or in the case of a college or university described in section 511(a) (2)(B), by the organization primarily for the convenience of its members, students, patients, officers, or employees; or
      (3) which is the selling of merchandise, substantially all of which has been received by the organization as gifts or contributions.
     
      
       On a nationwide basis, ABC affiliates, such as WOI-TV, consistently rank lowest in revenues among stations affiliated with the three major commercial networks.
     
      
       See, also, Bear Valley Mutual Water Co. v. Riddell, 427 F. 2d 713 (9th Cir. 1970) ; San Antonio Water Co. v. Riddell, 427 F. 2d 713 (9th Cir. 1970).
     
      
       35 T.C. 1072 (1961).
     
      
       Professor George K. Town, Dean of the College of Engineering at Iowa State, was a member of the ECC Committee on Engineering Studies.
     
      
       Iowa State’s actual accounting year Is a fiscal year ended June 30.
     
      
       Network, advertising, and Incidental broadcast revenues less commission, technical, selling, and other broadcast expenses.
     
      
       Based upon decisions by its staff, WOI-TV refuses certain ABC programs and preempts others. Such decisions are usually based upon the availability and desirability of using programs produced by WOI-TV. A few ABC programs are considered unsuitable locally.
     