AT ISSUE : New Battle Looms Over Syndication Rights

Few issues today have galvanized the diverse elements of the entertainment industry more than the battle over whether the three major television networks should be allowed to syndicate and hold a financial interest in TV reruns.

The recently rekindled battle over the question promises to be a hard-fought, bitter one whose outcome could dramatically alter the makeup of the Hollywood production industry.

The dispute, which heated up here in the early 1980s, is brewing once again as ABC, CBS and NBC step up their efforts to seek repeal of the 19-year-old rules that bar the three networks from sharing in the more than $1-billion market for TV syndication rights. The rules also preclude the networks from having a financial interest in programs they commission from outside production companies.

Massing forces to oppose the networks and to keep the rule is a new coalition of movie studios aligned with more than 200 television production companies, independent television stations, the Screen Actors Guild, the Caucus of Producers, Writers and Directors, consumer groups and others. Their umbrella bears the name of the Coalition to Preserve the Financial Interest and Syndication Rule.

Jack Valenti, president of the Motion Picture Assn. of America, recently described the diverse coalition as a “truth squad” whose battle plan is to counter the “trimonopoly” of the commercial TV networks on this issue.

“The possible collapse of these rules frightens all of the people in this business more than any of our singular differences,” Valenti said of the broad array of coalition members.

The long and contentious fight centers on the financial interest and syndication rules that were adopted by the Federal Communications Commission in 1970 to guard against network dominance of the television industry.

More than six years ago, when the rules were challenged in an expensive lobbying battle here, the FCC proposed easing its restrictions on the networks. But a spate of congressional hearings, a parade of Hollywood stars, legislation on Capitol Hill and the involvement of then-President Reagan led to the withdrawal of the FCC proposal.

Now, the three networks, where top management has changed since the last fight, are again challenging the validity of the financial interest and syndication rules in a changing media marketplace that includes increased competition from independent television stations, cable TV and VCRs, along with expanding foreign markets. The industry also says that the proposed merger between Time Inc. and Warner Communications Inc. may mandate changes in old ways of doing business.

Fueling the renewed interest in the issue is the fact that beginning next year, a part of the Justice Department consent decrees with each network will expire, permitting them to produce all 22 hours of their weekly prime-time schedule if they choose to, compared to five hours now. (The consent decrees with the networks stemmed from a 1974 Justice Department antitrust suit that charged the networks with using their powers to monopolize prime-time programming and restrain competition.)

With all of these new factors to be weighed, the key issue still remains: Should the 1970 financial interest and syndication rules be retained or repealed?

Pro

Independent producers, distributors, independent television stations and others argue that any relaxation of the rules will “reduce competition, stifle innovation and diminish program diversity.”

The advocates for retention argue that before the rules existed, the networks took a financial interest in 93% of all independently produced programs broadcast in prime time. Without the rules, they contend, independent producers who rely on syndication to generate profits on programs initially produced at a deficit for the networks would be forced to accept financial terms that might jeopardize their ability to stay in business.

Independent producer Leonard Hill says the FCC rules constitute “the godparent of my business.”

Independent TV stations maintain, meanwhile, that repeal of the rules will threaten their ability to remain competitive by limiting their access to programs. According to John Serrao, chairman of the Assn. of Independent Television Stations, 70% of all the syndicated programs and movies purchased for televison today are bought by independent television stations.

“If these rules are repealed, the networks would be permitted to divert the flow of their off-net programs away from independent television stations favoring their own affiliates,” Serrao, general manager of WATL-TV in Atlanta, said recently.

Ralph M. Baruch, founder and former chief executive of Viacom International, argues that the 1970 rules fostered development of a first-run prime-time syndication industry. Baruch is chairman of the Program Producers and Distributors Committee, representing 25 television companies, to oppose repeal of the rules.

As evidence of the rules’ success, Baruch points to more than 50 producers who provide over 60 different programs amounting to some 200 half-hours of weekly syndicated programming. Many of them would not be able to continue in business if they had to compete against the larger, richer networks.

“If the rules are abolished, station program choices will shrink dramatically,” he says.

Con

“It is simply unrealistic to believe that (nearly) 20-year-old regulations should not be adjusted along with everything else to reflect today’s economic and competitive reality,” Laurence A. Tisch, president of CBS Inc., recently told a luncheon in Hollywood.

Tisch’s comments, and similar statements by NBC President Robert C. Wright and other network executives in recent months, reflect a network consensus that the television landscape is vastly different than it was even just a few years ago, much less when the rules were adopted.

They argue that developments such as cable TV have siphoned advertising dollars and audience from the networks, which they say contribute nearly $4 billion annually to the TV production industry.

Network executives also point to other changes in the entertainment business, especially the blurring of distinctions between production and distribution functions. Some network executives also note that several Hollywood studios own TV stations and advertiser-supported cable TV program services, and that the new company created by the merger of Time and Warner Communications will own both Warner Bros. studios and one of the nation’s largest cable-TV systems.

“We cannot stand by idly as most of the leaders of this community enter into direct competition with us for audiences and revenues in the distribution business, while piously preaching the sanctity of separation of functions solely as it affects us,” Tisch said.

Prospects

Under congressional prodding to work the problem out themselves, negotiations between the networks and their opponents have been going on for 4 1/2 years. At times, the two sides have neared agreement, but spokesmen for both sides say privately that none is in sight now, which is why lobbying in Washington has intensified.

Though the networks were soundly defeated in their last attempt to repeal the rules, the playing field has changed considerably since then.

At the FCC, for example, there are now three vacancies, including that of a chairman to replace Dennis R. Patrick, who recently announced his resignation. Elections have brought many new members to Capitol Hill, and at the White House, former actor Ronald Reagan, whose ear was sympathetic to Hollywood concerns, has been replaced by George Bush.

The only certainty seems to be that, as Jay Kriegel, senior vice president of CBS, observed, “This is going to be a long, complicated process and it’s going to take a lot of time to find a solution.”