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A Wild Card in Talks on Syndication?

Times Staff Writer

The proposed merger of Time Inc. and Warner Communications has added fresh impetus to the 5-year-old negotiations between the three major television networks and their principal program suppliers over who should own the entertainment fare on which each thrives.

While outsiders might consider the topic of the talks, which resume April 4, a sure cure for insomnia--the Federal Communications Commission’s financial interest and syndication rules--they are, in industry circles, the stuff of high drama. At stake is how the financial pie will be sliced for the hundreds of millions of dollars earned at home and abroad from sales of TV programming.

The company that would be formed by the Time-Warner merger would be a giant in cable, and film and TV production, one with an estimated market value of $15.2 billion and revenue of $10 billion a year.

The proposed merger has caused reverberations within CBS, NBC and ABC, whose shares of the TV viewing audience have been eroding steadily for the past decade because of the growth of cable, independent TV stations and videocassette recorders.

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“The concern is that our competitors get bigger while our hands are tied . . . that our competitors are able to put together huge new businesses while we are enjoined from doing that by government regulation,” said CBS spokesman George Schweitzer.

But even before the merger was announced, the networks had been loudly urging changes in the government restrictions they feel have hobbled their ability to compete fairly in a fast-changing world.

The thought of a Time-Warner combine only adds to their argument that they need what Schwietzer calls the “ability to play on an even field with studios, with publishers, with anyone who is now carving out a piece of the media business.”

But Jack Valenti, president of the Motion Picture Assn. of America, which represents the major studios and independent production companies in the ongoing negotiations, said the big obstacle to progress has been that “the networks want undiluted power.”

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“They don’t want any restrictions, they don’t want any rules” that would hamper their ability to get into the lucrative program syndication market from which they now are excluded, he said.

Despite the power that some observers believe the new Time-Warner company would have, Valenti argued, it still would not have “the authority to give anybody a slot on prime-time television. Only the three networks can do that.”

Valenti, speaking by phone from Washington, darkly warned that the networks should not try going to the FCC to seek a change in the current rules that bar them from having a financial interest in any programs they buy from outside suppliers, and from syndicating any of their own shows in the United States.

If they do, he said, “they will start a holy war” in which producers, writers, directors, independent TV stations “and consumer groups will mount the damnedest last-ditch stand. It’ll be Masada all over again.”

Of that prospect, NBC Inc. President Robert C. Wright mildly observed: “I would say there probably aren’t enough costumes in the wardrobe room to outfit all the players in that game.”

As for Valenti’s charges about the networks still having the ultimate power to decide what programs get made, Wright merely chuckled and, alluding to cable channels, said that “there are are 30 networks now. That’s the difference. Not all have the same ratings, but there are 30 networks now.”

It is precisely because of this increasing competition that the networks want the rules changed. They maintain that they are no longer the dominating forces that spawned the competition-enhancing regulations back in the early 1970s. Their advertising revenue is not growing at the same rate and they need access to new sources of revenue if the network business is to grow and prosper, they contend.

One such source would be the money that is generated when network shows are sold into syndication.

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Also on the bargaining table are Justice Department consent decrees that limit how much prime-time programming the networks can produce themselves. The limit now is five hours per week, per network. The decrees will expire in stages, starting in November, 1990.

The networks, if they so choose, could then produce all 22 hours of prime-time programming they air each week. But without changes in the FCC’s financial interest and syndication rules, network officials say, the new freedom wouldn’t help them all that much because they still couldn’t syndicate the shows in the United States.

The current negotiations began after the networks and producers battled in Washington in 1983, resulting only in an impasse.

As part of President Ronald Reagan’s deregulation moves, the FCC, at the prodding of then-chairman Mark Fowler, had proposed to free ABC, NBC and ABC of the financial interest and syndication rules. The Hollywood producers, after losing what an FCC official called a “tentative decision” to let the networks have a financial interest in the shows as long as they didn’t participate in the sales of them, turned to Congress and Reagan for help.

The upshot was that former actor Reagan, after assigning his own residual film royalties to charity to avoid conflict-of-interest charges, told congressional leaders in November, 1983 that he supported legislation that would prevent the FCC from changing its rules for at least two years.

After that, the FCC said it had decided to postpone further consideration of the matter for the time being. The matter still is unresolved.

The networks and the Motion Picture Assn. of America have been trying to work the matter out themselves since then.

NBC’s Wright declined to say what he expects will come of next month’s negotiations here with Valenti’s group. He explained that both sides have agreed that “it’s best if we try not to characterize those meetings, for fear that that either creates expectations or anticipates disappointments.”

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Valenti, for his part, noted that the negotiations have been going on for five years, “and we’re continuing to talk. But we’re not anywhere near an agreement.”

What might happen when and if they managed to reach agreement?

“The first thing we’d probably do,” said one source close to the talks, “is go up to Capitol Hill and talk to the key players in the House and Senate. . . . We’d say, ‘We’ve worked it out . . . would you please send a signal to the FCC to change the rules in this way?’ ”

Another approach would be to ask Congress to pass legislation changing the rules, the source added, but “Congress is more likely to want to go the first route.”

No House or Senate hearings on the issue have been requested by the networks since announcement of the proposed Time-Warner merger, said officials of the subcommittees that would deal with the FCC rules.

However, the Senate Commerce Committee’s subcommittee on communications, headed by Sen. Daniel K. Inouye (D-Hawaii), plans to hold hearings in May or June “on the general issue of media diversity and concentration,” said a spokesman, Tom Cohen.

He said the hearings, planned last year, will include the FCC’s financial interest and syndication rules.


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