U.S. TV Restrictions to Revitalize Int’l Markets

When the U.S. government abolished the Financial Interest and Syndication (Fin-Syn) Rules in 1995, it opened the door to network participation in series ownership. As now disgraced former Salomon Smith Barney telecommunications stock analyst Jack Grubman once said [the Clinton administration] made “what used to be a conflict [into] a synergy.”
Now, almost a decade later, with consolidation gone astray and independents increasingly vocal about their lack of opportunity, the government is considering re-tightening the reins and implementing new ownership restrictions.

Mickey Gardner, NATPE’s Washington D.C. counsel, wrote that “the son of fin syn could be the surprise arrival of 2003.”

Because of the financial stake networks have in shows they partly or wholly own, it behooves them to keep a lower-rated show on the air long enough to accumulate episodes for both domestic and international syndication. If that incentive goes away, it could have a significant impact on the amount of programming they make available to international markets.

The U.S. TV authority, the FCC, originally implemented the Fin-Syn rules in the 1970s in order to increase programming diversity and limit the market control of the then-”big three” networks. The rules prohibited network financial interest in the television programs they aired beyond the first broadcast run and repeat, and thus prevented them from creating an in-house syndication arm. Then, the FCC was concerned that vertical integration unfairly increased the grip of the networks. By taking away the monetary rights to programs commissioned by the networks and restricting their profit participation in syndication, the FCC eliminated incentives for the networks to produce programs, thus separating production from distribution. Independent television stations would also be protected from networks selling successful program rights to network-owned and-operated stations and affiliates.

Not surprisingly, from the beginning, the networks brushed aside concerns about vertical integration and aggressively argued against such limitations, calling Fin-Syn unfair and counter-productive. They claimed that because large production entities such as Warner Bros. or Columbia could absorb short-term losses more readily than an independent production company, Fin-Syn was actually increasing their strength while regulating independents to inexpensive programming such as game shows.
The FCC eventually bowed to the pressure and in 1983 proposed eliminating most of the rules. But an immediate and unified reaction from major television distributors temporarily stopped such considerations. However, by 1990, thanks to cable and the introduction of Fox-TV, the network’s share of the television audience had dropped from a 1970’s high of 90 percent to approximately 65 percent. In 1991, the FCC relaxed the Fin-Syn rules and various appeals court rulings, which essentially eliminated Fin-Syn by November 1995.

Ironically, once the rules were reversed, the original concerns about vertical integration that caused the FCC to implement the rules in the first place came to pass. As a result, many affiliates who formerly supported relaxing ownership rules are now strongly encouraging lawmakers to press on with their threats to restrict a network’s financial stake.
“There are many days we regret the decision to support recission of the financial interest and syndication rules,” admitted Alan Frank, president of Post-Newsweek Stations and chairman of the 600-member Network Affiliated Stations Alliance, a coalition of the ABC, CBS and NBC Television Station Affiliate Associations. “It perverts the system.”

This is a drastic about-face, considering that it was only with the support of the affiliates that ownership restrictions were reversed in the first place, mostly out of concern about cable competition. But what has happened instead is that domestic syndication has been undermined. “There’s a lot of evidence that bigger is not necessarily better,” Frank added.
The movement to bring back the rules is getting support in the political arena, with Senator Fritz Hollings of South Carolina a leading proponent of the changes. “The last several years have wrought unprecedented concentration in the entertainment and media industries. These transactions and other consolidation in the industry have decreased, rather than increased competition among media outlets.”

Not surprisingly, the networks and studios (which are now one and the same) beg to differ. Preston Padden, executive vice president, worldwide government relations for Los Angeles-based Walt Disney Co., called the regulations obsolete. “The financial interest rule was put into effect when there was a three-network funnel. There are now 18,000 networks, and on a good day, even the most successful enjoys only a miniscule market share. There is no factual basis for government intervention in such a wildly competitive marketplace.”

Padden did not, however, acknowledge that a few companies now basically own those “18,000 networks.”

But, it is no secret that FCC Chairman Michael Powell is a strong supporter of deregulation and not a fan of ownership restrictions: “I start with the proposition that the rules are no longer necessary and demand that the commission justify their continued validity. When there were three television networks that dominated the land, before cable television, before direct broadcast satellite, before VCRs, before the Internet, it was a time of highly concentrated video markets in which only one medium - television - reigned. By any measure, the market, and thus the foundation of the FCC’s structural ownership rules, has changed dramatically in ways that should lessen the dangers we purport to address that are associated with market dominance.”

Nevertheless, it is said that if the U.S. ownership restriction rules are tightened, the upside will be that quality and quantity of programming may improve. Rather than amortize the same few shows with repurposing, split sales and repeats at different times during the same week, the networks will commission more programs - since the burden of failure will revert to producers - from independents, who, in turn, will look to the international market for deficit financing and to U.S. syndication for profits.
The return of rules and regulations is not limited to the TV industry. Now the U.S. Congress is even calling for the repeal of the Private Securities Litigation Reform Act (PSLRA), aka the “given corporations a license to lie” act, which passed in 1995 and made it harder to sue companies for stock fraud.