It was a drama to rival any TV movie of the week. For months the three major networks had battled Hollywood studios and independent producers in a last-gasp campaign to settle the all-important issue of TV syndication rights. Under debate: the 21-year-old thicket of regulations that has kept the Big Three from sharing in the $5.7 billion worldwide rerun business, the richest part of the TV industry. The networks had the support of the White House, Federal Communications Commission chairman Alfred Sikes, even the editorial pages of the American newspapers. They had a multimillion-dollar lobbying campaign. It wasn’t enough. Last week, in a surprise ending that confounded nearly everyone, the FCC relaxed but didn’t repeal the restrictions, and established new guidelines that might further hinder the Big Three’s ability to cut deals with program suppliers. “If abrogation of the rules was the whole loaf of bread,” says John Reidy, a media analyst with Smith Barney, “the networks got a heel and a couple of slices.”
They wanted a lot more. The Financial Interest and Syndication (“fin-syn”) Rules had been in effect since 1970, enacted at a time when the Big Three enjoyed a virtual monopoly in TV production and distribution. Before 1970, shows like “Hawaii Five-O” were owned or controlled by the networks, which distributed the reruns to local stations and overseas for huge profits. By stripping the Big Three of their ability to keep syndication rights, the FCC hoped to stimulate competition from independent producers. The plan worked: when an “indie” produces a TV series now, it receives a licensing fee from the network and retains the rights to sell the reruns. A hit sitcom can reap enormous revenues in the rerun market (chart). The number of independent production companies has thus grown from 30 in 1975 to 123 last year. The other winners have been the Hollywood studios, which cut deals with independents to coproduce shows and rake in huge fees distributing reruns to local stations. Today the studios and indies supply the networks with more than 90 percent of their primetime shows.
In 21 years, financial reality has changed drastically. With audiences turning to VCRs and cable TV, the networks have suffered severe drops in profit. The Big Three insist they deserve a share of syndication money, since they nurture and promote TV shows; without the extra cash, they say, their existence may be threatened. CBS has been particularly wounded: vice president Martin Franks expects the network will rack up a second straight annual loss in 1991. It recently posted a 73 percent drop in first-quarter profits and said it will cut 400 jobs. Even the nation’s premier network, NBC, is troubled. Profits shrank by $100 million in 1990, and could drop an additional $75 million this year. Johnny Carson jokes routinely about owner General Electric’s cost cutting.
The networks waged an expensive, sometimes comical campaign to change the FCC rules. NBC sent pizzas to about 70 members of Congress when an Italian-controlled firm, Pathe Communications, bought the MGM/UA movie studio. The not-so-subtle point: if foreigners can gain a piece of the syndication pie, why can’t the networks? Jack Valenti, the wily chief of the Motion Picture Association of America, struck back, mobilizing 200 producers to plead with the FCC. Three of five FCC commissioners voted to keep strong regulations; although the ruling could be challenged by Congress or the courts, many experts say the matter has been settled at least for a few years. “Jack won,” says CBS’s Franks. “He’s still the master.”
The FCC did sprinkle a few crumbs to the networks. They still can’t have a piece of the “first run” syndication business–depriving them of the opportunity to produce programs like “The Oprah Winfrey Show.” But for the first time they will be able to distribute reruns domestically–though only for shows they produce in-house. Such productions will be limited to 40 percent of the prime-time schedule. The networks can also acquire foreign syndication rights to programs they license from outside producers. But there’s a catch:they must wait 30 days after licensing the program before they can begin negotiations for overseas rights. The networks say the producers will simply cut a deal with someone else, leaving them in the cold.
Despite the minimal concessions to the networks, many producers are grumbling. Some argue that, even with the 30-day waiting period, the networks can force independents to surrender rights or for being frozen off the air. Leonard Hill, a TV-movie maker, typically receives $2.6 million from a network for a program, or roughly 80 percent of production costs. To make his profit, he then licenses foreign rights to a distributer. Hill is worried that a network may refuse to take his projects or slash his fee unless he gives them overseas rights. Some producers contend the three networks will support shows in which they own a financial interest and neglect others. “There will be in-house producers,” predicts Hill, “and everybody else will be in the outhouse.” Others dismiss those fears. Says Larry Gerbrandt, a senior analyst at Paul Kagan Associates: “Producers who have hits cut the deal they want.”
One clear winner is Twentieth Century Fox, which benefited from masterful lobbying by chairman Barry Diller. The studio’s TV network will be able to syndicate all its series as long as it doesn’t exceed 15 hours a week of prime-time programming. Fox also produces “L.A. Law” for NBC; it can hold onto syndication rights for that show. Another division can continue distributing the first-run program “A Current Affair” to local stations. That infuriates rival networks. “It is monumentally unfair to allow a major competitor….. to get off scot-free while we labor under extremely burdensome regulation,” says NBC general counsel Richard Cotton.
The FCC ruling is likely to make the networks less enticing takeover targets. Rumors have circulated that Paramount would like to acquire NBC, and that Disney is seeking to buy CBS. But the tangle of regulations could well chill the studios’ ardor. If Paramount acquired NBC, it would have to give up its lucrative first-run syndication business, which includes “The Arsenio Hall Show” and “Entertainment Tonight.” It would also be unable to syndicate reruns of shows that it produces for other networks, such as ABC’s “MacGyver.” “The only way to make these deals work would be to have no rules at all,” says Gerbrandt. Some industry watchers say that losing potential suitors is the least of the Big Three’s worries. As audiences keep shrinking, the FCC’s crumbs may not be enough to keep them from slow starvation.
