FCC Rules on Reruns . . . : Neither Side Gets What It Wants

No sooner had the Federal Communications Commission voted Tuesday on a new set of regulations governing the $4.8-billion TV program rerun market than the networks and Hollywood studios began trashing the decision.

Despite a long, sometimes nasty lobbying campaign that plunged the FCC into a regulatory crisis, both sides could finally agree upon one thing: The other guy got too much and our own team deserves more.

“It’s only modest relief,” complained NBC spokesman Joe Rutledge under a shower of TV camera lights in the hallway outside the commissioner’s eighth-floor meeting room immediately after the vote was taken. “This falls far short of the extensive relief we had sought.”

Warner Bros. Chairman Robert Daly, the leading advocate in the Hollywood production community for retaining the rules, was baffled as well--but for opposite reasons.

“I was shocked about the changes. When we met with the commissioners last week, we were told there would only be minor modifications. There would be no broad, sweeping changes.”

Neither side got exactly what it wanted, which prompted one observer in the packed FCC meeting room to comment: “That must mean it’s good policy.”

Specifically, the studios were angered that a majority of the FCC members adopted a revised plan that allows the networks greater entry into the growing foreign TV program markets--which by one estimate will soar to at least $3.5 billion by 1995.

But the networks claim that access to those markets is encumbered by so many restrictions that it essentially makes entry unworkable.

“The rules will continue to seriously impede our ability to compete with the major studios in production--even though the commission’s stated intention was to permit us to do just that,” said Julie Hoover, a spokeswoman for Capital Cities/ABC Inc.

It should come as no surprise to anyone who has followed the nearly 10-year fin/syn battle between the networks and Hollywood that neither side was happy with Tuesday’s FCC vote.

Repeatedly urged to negotiate a private agreement that would avoid government reregulation, the networks and studios spent hundreds of hours at the negotiating table--much of it yelling back and forth over programming deals they had made years earlier.

Contrary to popular belief, the networks are prevented by law from owning most of the shows they put on the air. Instead, they license them from the major studios and independent producers, who later sell the reruns to local stations, foreign broadcasters and, increasingly, cable TV networks at sometimes huge profits.

The TV program rerun market--called the syndication business in the trade--encompasses everything from the sale to local TV stations of old reruns such as “MASH” and “Cheers,” to original episodes of game shows such as “Wheel of Fortune” and talk shows such as “Donahue.”

Profits on these shows, although not as glamorous as the hype surrounding the networks’ prime-time schedules, can be enormous.

Syndication revenues for “The Cosby Show,” for example, have exceeded $500 million. Although that is an extreme example, the networks argue they should share in those profits since they were instrumental in popularizing the series in the first place.

The networks claim that the video marketplace has changed so dramatically over the last 10 years--due to the competition from cable, home video and the emerging Fox network--that it is now time to lift regulations barring them from the syndication business.

Hollywood, however, still maintains that allowing the networks to own the programs they air will only lead to abuses such as extracting an ownership stake from a producer in exchange for winning a coveted place on the prime-time schedule.

One winner in Tuesday’s FCC decision, however, appeared to be the fourth network, Fox Broadcasting Co.

Fox almost lost out a month ago when the FCC majority’s plan leaked and it was revealed that once Fox hit the mark of 14 hours of weekly programming, the studio would have to sell off its highly profitable syndication arm, which distributes reruns to “MASH” and produces the hit magazine show “A Current Affair.”

In the latest FCC plan, Fox can broadcast up to 15 hours of prime-time programming per week before it must exit the syndication business, which means it can go ahead with plans to expand in non-prime-time hours without penalty.

At least one entertainment industry executive seemed to grasp that the turmoil that led the FCC to a split vote signaled bigger problems than simply favoring one side in a parochial--and critics charge greedy--trade dispute.

“The essence of the problem remains,” noted Fox Inc. Chief Executive Barry Diller. “Minimal regulations, driven solely by public interest, not economic issues, for all TV networks--including broadcast, cable, etc.--do not presently exist. Until they do, and are consistently applied, there can be no proper communications policy in the United States.”

RERUN JACKPOT Most new TV programs fail, but those that remain on the air for five or more years can generate hundreds of millions of dollars in rerun profits for their producers. The table shows syndication revenues from some recent prime-time hit series. It is not unusual for a Hollywood studio to achieve more than 50% pretax profit margins from syndication and up to 80% if a series is resold many times, as in the case of “MASH” or “I Love Lucy.”

Estimated Year Producer/ syndication Series available distributor revenue The Cosby Show 1988 Viacom $600 million Who’s the Boss? 1989 Columbia $300 million MASH 1984* Fox $230 million Cheers 1987 Paramount $157 million Family Ties 1987 Paramount $157 million Three’s Company 1983 D.L. Taffner $148 million Webster 1988 Paramount $147 million Golden Girls 1990 Disney $130 million Married With Children 1990 Columbia $122 million Night Court 1988 Warner $121 million Laverne & Shirley 1981 Paramount $119 million Barney Miller 1980 Columbia $116 million

*Second cycle of syndication

Estimates exclude foreign revenues and revenues from sale of commercial time retained by the distributor.

Source: C. J. Lawrence Inc.

FCC’S NEW FIN/SYN RULES

* Limitation: The financial interest and syndication rules are eliminated for all parts of the networks’ schedule except prime-time entertainment programming.

* Outside productions: A network may acquire a financial interest and rerun syndication rights, both domestic and foreign, in any TV show airing in prime time--provided that the rights are not acquired until 30 days after the network has agreed to a program license fee.

* In-house productions: A network may not fill more than 40% of its schedule with “in-house productions,” defined as any program that is produced solely by the network, co-produced with a foreign entity or with an outside producer that initiates the deal.

* Off-network syndication: A network may earn profits in the syndication market from any outside-produced shows, but those shows must be sold through an independent distributor. A network itself, however, can syndicate its in-house productions internationally and, subject to certain safeguards, domestically.

* Foreign syndication: A network may syndicate internationally all in-house productions, including shows produced in-house and broadcast on another network.

* First-run: A network may produce shows for first-run syndication but may distribute them only through an independent third party.

* Network definition: A network is defined as any entity providing more than 15 hours per week of prime-time programming with affiliates covering 75% of the country.

TV SYNDICATION MARKET SOARS The TV program syndication market, one of the fastest-growing and most lucrative areas of the television business, is projected to reach $9.5 billion in 1995--roughly the size of the combined advertising revenues of ABC, CBS and NBC. The syndication market includes everything from the sale of reruns of old network shows (the most profitable segment) and the sale of so-called first-run shows such as “Wheel of Fortune” and “Oprah Winfrey” to local TV stations. In addition, the market now encompasses the sale of programs to cable TV networks and overseas broadcasters. Source: Wilofsky Gruen Associates and McCann-Erickson Inc.

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