Fin-syn ruling leaves all scorned and some in fear of extinction.

Fin-syn ruling leaves all scorned and some in fear of extinction

In a worst case scenario, Hollywood's independent production and distribution companies will drop like flies, as the mammoth television networks and major studios snatch away their business.

The networks say it's they who face years of continuing struggles to compete against the foreign-owned major studios, which still have all the regulatory advantages, and against the so-called fourth network, Fox Inc., which will continue to grow, free of federal constraints.

Meanwhile, both struggling studios and networks are trying to figure out whether they can merge their businesses with the "enemy" and turn a profit. One observer reckoned the changes had opened the door a bit to a possible studio-network merger, along the lines of the much-rumored and never-consummated dealmaking between CBS Inc. and Walt Disney Co.

Any way it's looked at, the entertainment/ media industry is going to change because the Federal Communications Commission relaxed its financial interest and syndication rules last week. But the battle is far from over, as nobody is satisfied with the rules, and appeals are expected - at the FCC, in the courts and possibly in Congress.

Some of the major changes the FCC made in the "fin-syn" rules April 9 include: eliminating the rules in all areas of programming except prime time; allowing the networks to produce up to 40 percent of their prime time schedule; and allowing the networks to engage in the foreign syndication business without any restrictions on distribution.

NBC plans to "vigorously" pursue appeals of the new rules to both the FCC and the courts, said Joe Rutledge, vice president for corporate communications. He said the rules will continue to strangle networks and independent producers.

"These rules will further perpetuate consolidation of major studios and the extinction of independent producers," said Rutledge.

The independent producers are especially irate over the FCC's allowing networks to engage in foreign syndication. This will hurt the studios' profits, said one industry expert in the independents' camp.

For instance, a typical one-hour action show costs an average of $1.2 million to produce, but a network pays a typical license fee of $800,00 to the studio for it. While a studio is waiting several years for its shows to go into syndication (a series must run 80 to 100 episodes, which is usually four to five years, to become marketable in off-network markets), the studio depends on foreign syndication revenues for its profits, the expert said.

Now producers will be competing with the networks in the foreign syndication business, the expert added.

"It's clearly a major defeat for the independent producers," said Robert Daly, chairman of Burbank-based Warner Bros. Inc.

The networks' ability to get foreign syndication rights also hurts the major studios because overseas markets are very lucrative for them as well, said Daniel Brenner, counsel for Leboeuf Kamb Leiby & Mac Rae, a law firm in downtown Los Angeles.

The independent producers said the FCC dealt them another blow by allowing the networks to produce up to 40 percent of their own programming. There is now nothing to stop the networks from using their allotment to produce only television movies and miniseries, thus driving small studios that make only one or two of these a year out of business, said Jerry Leider, president of Brentwood-based Jerry Leider Productions.

However, one expert said the independents might benefit from this provision in the next few years because the networks don't yet have the materials they need to produce prime-time programming. There might be a bidding war for talent, said Joel Koening, partner in charge of the Century City office of Deloitte & Touche accounting firm.

Furthermore, the independents are angered over another provision in the rules that allows networks to obtain financial interest and syndication rights through a third party in all shows they don't produce themselves.

Studios, the "third party," could be coerced into selling programs to the networks' affiliates rather than to independent television stations to insure the network will give the studio more programs to syndicate, an industry expert noted.

But Julie Hoover, spokeswoman for Capital Cities/ABC, said the opportunities afforded networks under the new rules carry too many restrictions to make much difference in how competitive the networks can be.

"The rules will continue to seriously impede our ability to compete with the major studios," Hoover said.

Rutledge at NBC agreed, calling the changes a "cosmetic attempt" at reform that is "light years away from repeal," which is what the networks wanted.

In a surprise move following the FCC ruling last week, Beverly Hills-based Fox Inc. issued a statement calling for rules that apply to all over-the-air vehicles, including cable stations, satellite networks and even Fox itself.

"There should be some attempt at broad-based control of all delivery systems," said Fox spokesman Dennis Petroskey.

It was an unexpected position for Fox to take because the fourth network has been fighting to remain exempt from fin-syn rules to allow for its continued growth.

Under the new rules, Fox will be able to produce up to 15 hours of prime-time programming per week and still be exempt from the fin-syn rules. Earlier plans would have defined a network as a company producing 11 hours of programming per week. If the more narrow definition had been approved, Fox would have been forced to reduce its programming or sell off its highly profitable syndication arm.

"All five members of the commission seem to be in agreement that Fox should be permitted modest additional growth in our effort to build a fourth over-the-air network. For that, we are genuinely grateful," Barry Diller, chairman of Fox Inc., said in a brief prepared statement.

But Diller added that: "Unfortunately, the essence of the problem remains. Minimal regulations, driven solely by public interest, not economic issues, for all television networks ... do not presently exist. Until they do, and are consistently applied, there can be no proper communications policy in the U.S."

Petroskey explained that studios have interests in cable systems that are exempt from the rules, giving them a competitive advantage over broadcast networks, which Fox will probably be counted among soon.

"It (cable) has gotten to be enough of a force that it ought to be addressed," said Petroskey.

The rule changes also affect the possibility of mergers between major studios and networks. Rumors have floated in entertainment circles of a merger in the works between Walt Disney Co. and CBS Inc. and of the likelihood of Paramount Communications Co. merging with a network.

The possibility of a studio-network merger is greater now, said Paul Marsh, an entertainment analyst with Kemper securities Group brokerage firm.

The rules place a 40 percent limit on the amount of programming a studio could produce for a network it merges with, but studios currently produce only about 15 percent of programming per network, so 40 percent is not necessarily a significant limitation, he said.

A studio such as Paramount, however, would have to divest its first-run syndication distribution arm if it merged with a network, Marsh said. Networks are not allowed to participate in the distribution of first-run syndicated programs.

Congressman John Dingell (D-Mich.), chairman of the House Telecommunications and Finance subcommittee, blasted the FCC last week on a variety of counts, most notably for spending a long time on the fin-syn issue, only to wind up passing, by a 3-2 vote, rules that will change little and please no one.

PHOTO : Robert Daly, and Jerry Leider: Claim FCC ruling is a major setback for independent producers