Justice Department Backs Networks on Reruns : Entertainment: The battle with Hollywood over who can own syndicated shows now goes to the FCC. Intense lobbying is expected.

The Justice Department on Thursday came out in favor of repealing federal regulations that prohibit television networks from profiting from the lucrative rerun market.

In a filing with the Federal Communications Commission that the networks interpreted as boosting their case for repeal of the so-called financial interest and syndication rules, the Justice Department said “there appears to be no basis in economic theory for a presumption that network ownership of financial interests and exercise of syndication rights would adversely affect program production.”

Stephen A. Weiswasser, general counsel for Capital Cities/ABC Inc., called the Justice Department comments “important, perhaps more important than the comments of the others, because it has expertise with respect to antitrust laws.”

The Justice Department’s comments were among filings made by 18 parties. In addition to the networks and Hollywood producers, those filing comments with the FCC included public interest groups, local affiliate stations, trade associations and Fox Inc.

Fox again asked the FCC for a special exemption from the fin/syn rules because it is an “emerging” television network and does not have “market power.”

On Wednesday, negotiators for the networks and for Hollywood studios and independent producers failed in a last-ditch attempt to reach a compromise on the 20-year-old rules.

FCC Chairman Alfred Sikes encouraged the parties to negotiate their own solution or face the potentially unhappy circumstance of having the FCC draw up new rules.

The focus of the battle between the networks and Hollywood now moves to Washington, where an intense lobbying campaign is expected.

Seven years ago, the FCC adopted a tentative decision calling for a repeal of the financial interest rule and a “phased” repeal of the syndication rule.

Within weeks, then-President Reagan pressured Congress and the FCC to “forbear from further action” while the parties tried to settle their differences through private talks.

Those efforts collapsed amid bitterness and confusion this week in Hollywood.

Representatives for the two sides could not even agree to meet for a final round of negotiations.

The staunchest opponent of any changes in the rules is the Coalition to Preserve the Financial Interest and Syndication Rule, a group consisting of six of the major Hollywood studios and hundreds of smaller independent producers. The coalition argues that the networks have overwhelming power in deciding which programs get on the air and how much they will pay for them.

Now that private attempts at a settlement have failed, most observers expect the positions of the two sides to harden while they launch major--and very expensive--lobbying and public relations campaigns.

The producers, in fact, called for more stringent “safeguards” against the networks in the comments they filed Thursday with the FCC.

They asked the agency to investigate what they called “parallel network practices” involving the fees that networks pay for television programs.

Specifically, the producers asked the FCC to ban the “freeze” that networks put on producers.

The freeze prevents producers from taking programming ideas elsewhere while a network decides whether to order a series.

In addition, producers want the FCC to force the networks to shorten to two years from four the “option period” during which a producer is locked into license terms that cannot be changed.

Perhaps most important, the producers want the FCC to put a cap on the number of programs a network is allowed to make itself. Networks are currently limited to producing only five hours of prime-time entertainment programming per week.

Although none of the networks produce the maximum, the limits will expire in November.

Producers are worried that the networks will decide to make more of their own programs rather than order them from outside suppliers.

“We just have got to persuade the FCC that our cause is just,” said Jack Valenti, president of the Motion Picture Assn. of America and Hollywood’s chief lobbyist in Washington. He said the producers will soon begin a campaign to persuade FCC commissioners, their staff members and members of Congress of the importance of retaining the current rules and even placing further limits on the networks.

He called the fin/syn rules “a regulatory success story.” He said they have given hundreds of independent producers, as well as the big studios, a better chance of getting their programs on the networks’ schedules--without fear that the networks will use their power to select shows as leverage to gain ownership of the same programs.

The Hollywood group that is most sensitive to any change in the fin/syn rules are the 211 members of the Caucus for Producers, Writers and Directors, mostly independent producers who only align themselves with the big studios or distribution companies in order to obtain financing for the programs they produce.

The independent producers argue that if the networks are allowed to take a financial stake in the shows they make, most producers will be forced to become de facto employees of the networks and lose their creative freedom.