Studios, Networks at Loggerheads in Talks : Entertainment: The deadline is nearing for an agreement on syndication rules. If they don’t settle by June 14, the FCC will make its own rules.

When negotiators for the networks and Hollywood studios filed into the executive dinning room at Warner Bros. on Wednesday morning for the latest round of talks in the so-called financial interest and syndication rules, the hostility between the two sides was as oppressive as the smog over the Burbank lot.

The negotiators are coming down to the wire in their talks over whether to allow the networks a piece of the lucrative profits from television reruns. Next Monday, they must report to the Federal Communications Commission in Washington about their progress and present a settlement by June 14.

If they cannot reach an agreement by that date, the FCC will begin to formulate a new set of rules, which could place either--or both--parties at a serious disadvantage compared to the current system.

At stake are billions of dollars in profits from the reruns of old television shows. Because of the bizarre system of economics that has grown up in the television industry over the past 30 years, most programs lose money for producers until the reruns are sold, or “syndicated,” several years later.

The risks are high but the payoff can be phenomenal. Reruns from “The Cosby Show,” for example, generated more than $575 million for the show’s producers.

Federal regulations adopted in 1970 prevent the networks from sharing in that jackpot or from owning shows that they do not already produce. Before the rules were drafted, the networks were much more dominant than they are today and allegedly demanded a slice of the rerun profits in exchange for putting a show on the air.

Unlike other political battles between powerful groups, this particular fight has failed to arouse public sympathy. To outsiders, it seems nothing more than a cat fight between “the rich and the wealthy”--the powerful television networks versus the big Hollywood studios.

Expectedly, both sides claim their position encourages greater diversity in programming. The producers say giving the networks a slice of their pie will erode their hard-fought independence and again make them all employees of the networks. The networks argue they are unfairly restricted from controlling their biggest cost: programming.

At first glance, the networks appear to have some valid points. Over the past 20 years, they say, the competitive landscape in television has changed so radically that the fin/syn rules no longer make any sense. With slower advertising growth and competition from cable, the networks claim they need additional sources of revenue and better control over their program costs.

Producers counter that nothing has really changed all that much. If the rules are dropped, they say, the networks will quickly return to their old way of doing business. Independent producers would be driven out of business if the networks were again allowed to own shows they do not make.

Under the current system, the fees that networks pay for shows do not cover the producer’s costs, so the studios have put forth a series of formulas that would give the networks some of the rerun profits in exchange for covering more of the costs. But the networks have rejected the formula-based solutions, citing the need for “maximum flexibility” in their negotiations with producers.

But the latest round of talks has been thrown into disarray by an implicit threat from the Hollywood studios to sue the networks on antitrust grounds, accusing them of colluding to keep down the price they pay for programs. The implied threat, which the producers now deny, “damages any chance of a settlement,” says one participant.

The charges of colluding to hold down license fees is a highly sensitive topic and is angrily rebuked by the networks. Another network representative said the allegation has “poisoned” the final round of negotiations.

An already strained negotiating process began turning even uglier two weeks ago.

It was then that Capital Cities/ABC Inc. Chairman Thomas S. Murphy took an unexpected telephone call from Robert A. Daly, chairman of Warner Bros. Murphy knew the call would be about the upcoming round of fin/syn talks, but he was not prepared for the bomb that Daly was about to drop.

“Tom,” Daly intoned gravely. “We may have a little problem.” Daly informed Murphy that the Motion Picture Assn. of America had hired Paul Rabinowitz, a powerful Washington attorney, who allegedly had uncovered evidence that the networks had colluded to hold down program fees.

Murphy instantly knew what Daly was getting at--retaining Rabinowitz, after all, is the antitrust equivalent of hiring Marvin M. Mitchelson to sue for divorce--and suggested that Rabinowitz call Stephen Weisswasser, Cap Cities’ general counsel and the point man in the network’s campaign to overturn the fin/syn rules.

Rabinowitz met Weisswasser the next day and, during a two-hour meeting, briefed him on “research” that suggested that the networks had conspired to hold down license fees paid to the studios.

Weisswasser, a carefully spoken attorney who was picked to be the lead negotiator because of his diplomatic and tactical skills, couldn’t believe what he was hearing. The networks and the studios were coming down to the wire on the deadline to settle the fin/syn issue, and without warning at the 11th hour the studios launched what seemed a hostile attack.

“If the producers think the networks will negotiate with a gun to their heads, it is a big mistake,” said one insider.

MPAA President Jack Valenti, the tireless lobbyist who has been fronting Hollywood’s campaign to keep the rules intact, says the producers sought the networks’ help in asking the FCC for an extension of the June 14 deadline if “we are close to an agreement.”

The networks, however, turned down the invitation. “It’s time to make a deal or not,” one network representative said.

The studio charges about price fixing were interpreted by the networks to mean that the producers had largely given up hope of reaching an agreement and were acting out of desperation. The networks point out that the allegations are 7 years old and have never been proved. And they say the producers even made the cheeky suggestion that more restrictions should be put on the networks, not less.

Both sides doubt that an agreement can be reached by the June 14 deadline. Valenti says he is “not hopeful” that the parties can negotiate their own deal in the little time that is left.

If that happens, then the FCC will open a proceeding, invite comments and make up its own mind about whether the rules should be changed, and how.