Fox Chairman Will Challenge FCC on Syndication Rules

In a move that the television networks hope will cause a major split in the foundations of the Hollywood production community, Fox Inc. Chairman Barry Diller announced Friday his long-expected intention to challenge the federal restrictions on networks’ ownership of programming and syndication of reruns.

Diller said he will file a petition with the Federal Communications Commission on Tuesday asking that the federal government consider relaxing for all networks the so-called financial interest and syndication rules, which bar them from sharing in the more than $1-billion market for reselling old network programs as reruns. The rules also preclude the networks from having a financial interest in the programs they commission from outside production companies.

Those rules, instituted 20 years ago, have played a key role in the development of the syndication business and the rise of independent TV producers. (A consent decree, set to expire in November, further limits the big networks’ ability to produce programming.) The networks and Hollywood studios have been in discussions to reach a new compromise on the FCC rules.

Breaking ranks with the studios, Diller is now arguing that the rules are outmoded. They were designed in 1970 to limit the networks’ influence, but now, he contends, they would inhibit the growth of the networks’ first real competitor, Fox.

The FCC defines an entity that distributes 15 hours of programs a week to be a network and thus bars it from syndication. Fox, which is heavily involved in syndication and owns its own studio, currently airs 7 1/2 hours (three nights of prime time).

But it recently announced plans to move to five nights of prime-time programming next fall, plus childrens shows and perhaps professional sports, which would make it a network.

To keep on schedule with those plans, indeed, Fox is also asking for an immediate exemption to the syndication rules. If it wants to make that fall expansion, Fox Senior Vice President Preston Padden argued that it must have the waiver by May to start selling fall advertising.

Those rules were instituted “when words like VCR and cable TV didn’t exist,” Diller argued in an interview. “If you tell me the status quo must be maintained, I’ll tell you you’re an idiot.”

Yet that is precisely what Diller’s own trade organization, the powerful Motion Picture Assn. of America, is arguing.

“The one thing that hasn’t changed is the potential for excessive abuse by the networks,” said Jack Valenti, president of the association. “They are the only one that can keep you on the air in prime time or keep you off. If this rule (restricting network ownership of programs) is abolished or radically revised, every independent programmer in the country will be vulnerable” to the networks’ demanding excessive shares of program ownership.

“The entire production community, large and small, all independent stations and consumer groups, are all opposed to opening this (syndication) rule,” Valenti said. “It is one of the few rules that stands between competition and the total dominion by the networks.”

Instead, Valenti suggested that if the FCC wants to help Fox continue to build its fourth network, it re-examine the definition of what constitutes a network.

The networks in turn are hoping that this split between Diller, one of Hollywood’s most important figures, and much of the rest of the community will be the leverage they need to abolish the syndication rule.

“For a member of the Motion Picture Assn. and the Hollywood production community to call for modification in this rule represents a landmark development in U.S. communication policy,” said Rick Cotton, executive vice president and general counsel at NBC.

Yet while the networks want the rule repealed, they don’t want the upstart Fox to be granted a special exemption either, not unless it is granted to all of the networks.

“We don’t see why a vibrant company that is doing well and is the third-largest communications company in the world should be given special status,” said Martin Franks, vice president for CBS in Washington.

In their lobbying effort, the networks will also note that Fox is part of Rupert Murdoch’s News Corp., which is an Australian, not an American, company. (Murdoch, who controls News Corp., became an American citizen in order to purchase a group of television stations.)

“If they are going to get a waiver while that review process goes on, the three American networks should get a waiver while that goes on,” Franks said. “The notion that they are a new struggling venture is absurd.”