TV firms, studios on tenterhooks over syndication decision.

TV firms, studios on tenterhooks over syndication decision

The Federal Communications Commission is scheduled to decide this week whether to loosen rules that for the past 20 years have prevented television networks from syndicating or having financial stake in most programs they broadcast.

At stake is the $3 billion-a-year broadcast syndication business, as well as the future of 20th Century Fox and the possible merger of television networks with major production studios, such as Walt Disney Co. and CBS Inc.

The financial interest and syndication - or "fin-syn" - rules were devised in 1970, at a time when networks CBS, NBC and ABC dominated the television airwaves. The FCC implemented them because the commissioners were concerned the networks would have too much control over television.

Essentially, the rules barred networks from owning most of the programs and TV films they show, which in turn excluded them from profiting when the programming was then syndicated, or sold to local TV stations and (later) to cable television networks for "reruns." The rules thus also forbid cross-ownership of networks and movie studios.

But with the medium's diversification, the networks' market share has been waning and they are clamoring for more chance to compete. That share has dwindled from 90 percent in 1970 to 64 percent today.

Growing foreign ownership of major U.S. production studios also has given more ammunition to proponents of repeal. They say that if a foreign company can buy a U.S. studio, an American network should have the same option.

In setting up the 20-year-old rules the FCC's three basic concerns were that networks would put pressure on independent television producers for financial interest and syndication rights; that the programs in which the networks had a financial interest would be favored over other programs; and that the networks might favor their affiliates when syndicating programs.

But now the face of television has been altered beyond recognition. Cable, video and independent television stations are winning a growing portion of the viewer's attention. "The networks are no longer a monopoly. The consumer voted to watch other things," said Alan Gould, an analyst with Dean Witter Reynolds in New York.

Of the three major networks, CBS is having the most apparent financial problems. CBS profits last year were off 63 percent from 1989, dragged down by a $156 million fourth-quarter loss. That decline stemmed in part from losses on its contract to cover major league baseball.

But all three networks want the added flexibility that a repeal of fin-syn rules would provide.

"We have urged the commission to recognize that fundamental changes in our industry over the past decade have rendered these regulations unnecessary and counterproductive," said Julie Hoover, spokeswoman for Capital Cities/ABC.

Kidder Peabody & Co. analyst Chris Dixon said although the networks may make money from syndication, "in the long haul" if fin-syn rules are relaxed or repealed, the short-term impact will be higher costs for programs.

"It's a make/buy decision," Dixon said.

In the past few years, several foreign companies, such as Matsushita Electric Industrial Inc. and Sony Corp., have bought American studios. But because of the fin-syn rules, the networks have been prohibited from doing so. "Something seems wrong when a Matsushita can buy an MCA, but a GE can't," Gould said.

But Walt Disney Studios President Rich Frank said foreign ownership of American studios is not an issue because the networks are still the players with the access to the American public. "It's a total non-issue, but it sounds good in Washington," Frank said.

"The face of Hollywood has changed," said Dan Brenner, counsel for LeBoeus, Lamb, Leiby & Mac Rae law firm. One of the major studios, 20th Century Fox, is now the fourth network and three other major studios, namely Walt Disney Co., MCA Inc. and Paramount Communications Inc., have all owned television stations, he said.

Furthermore, the FCC granted the owner of the fourth network, Fox Inc., which produces and syndicates its own television shows, a one-year waiver of the fin-syn rules.

The FCC has been considering revising the rules since the early 1980s and is set to make a final decision on March 14. It's likely the current rules won't be repealed in full, but that there will be a compromise, sources said.

One proposal would regulate the fashion in which negotiations take place so that the network is not in a position to intimidate producers. Furthermore, only the producer would be permitted to initiate negotiations regarding financial interest in a program by a network, said Suzanne Rosencrans, an associate with the law firm Loeb & Loeb.

With the second proposal, the FCC would designate a percentage of programming in which the networks could have a financial interest or syndicate. That scenario is more likely, Rosencrans said.

The fight is over the percentage of financial interest the networks will be able to negotiate for, Brenner said, in addition to whether or not the networks will be able to negotiate for syndication at all.

A relaxation of the fin-syn rules will not necessary set a precedent for deregulation of other industries, industry experts contend.

"I think this is pretty peculiar to the television production and distribution market," Brenner said.

Joel Koenig, a partner in charge of the Century City office of Deloitte & Touche accounting firm agreed. There are special circumstances surrounding the television industry, he said, and deregulation in that industry is not necessarily transferable to other industries.

PHOTO : Star Trek crew: Syndicated for 21 years