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NEWS ANALYSIS : Networks Can Enter Rerun Market


The three major broadcast networks, in a decision that will have major repercussions throughout Hollywood, were handed an important victory Thursday as the Federal Communications Commission eased rules barring them from the lucrative syndication business.

Signaling a major shift in the balance of power in Hollywood, the FCC decision could also make much easier the eventual merger of a network and a studio.

The FCC repealed many of the restrictions that have prohibited ABC, CBS and NBC from investing in hit shows such as "Roseanne" and "Home Improvement."

The decision means the networks are largely free to invest in the multibillion-dollar TV program reruns market.

Although details have not been finalized, under the new rules TV producers could find themselves working for or in partnership with the major networks in program production. That would be a significant change in the way business has been conducted in Hollywood, where most producers are at the mercy of studios that finance their programs in exchange for equity stakes and "distribution fees."

The FCC did not give the networks unfettered freedom to compete with the big Hollywood studios and independent producers that supply the majority of TV shows, however. Under pressure from Hollywood, the networks are still limited in investing in TV shows produced by non-network producers for the "first-run" syndication market, a fast-growing business for the major studios that encompasses most daytime "talk" programs and game shows.

"We got somewhere between half and three-quarters of a loaf," a jubilant NBC President Robert C. Wright said of the decision. "We should begin to work on partnerships with producers almost immediately."

The FCC voted 3 to 0 in favor of the new rules, with Commissioner Ervin Duggan dissenting on certain portions.

Not surprisingly, Hollywood executives bemoaned the FCC decision.

They said it hurt independent producers with little financial clout, which are in a weaker bargaining position when selling shows to the networks.

"This is a disaster for independent producers," said Robert Daly, chairman of Warner Bros., the leading producer of prime-time TV programming. "They will be whip-sawed in their deals with networks. The networks will end up abusing their power."

Daly and other Hollywood executives say the FCC's new rules will allow networks to extract unfavorable concessions from producers. For example, Daly said, a network may require that it be given a share in the profit of a new show in exchange for putting it on the air.

The latest twist in the long-running saga of the FCC's "financial interest and syndication rules" got underway last year, when a federal appeals court judge in Chicago ruled that the FCC's 1991 compromise granting the networks limited entry into the syndication business was "unreasoned and unreasonable."

The judge threw the proceeding back to the FCC, either to justify its rules or rewrite them.

At the heart of the "fin-syn" controversy is the question of whether the networks or Hollywood producers will control the potentially lucrative profits from reruns of popular prime-time TV programs and "first-run" syndicated talk shows and game shows.

Syndication can be an immensely profitable business. The reruns of "The Cosby Show," for example, generated nearly $900 million in revenue, and first-run programs such as "The Oprah Winfrey Show" garnered $171 million last year.

The networks, facing increased competition from cable, independent stations, the Fox network and home video, want access to syndication revenue to offset their squeezed profits.

In the last few years, however, some of the sizzle has gone out of syndication, as a glut of shows swamped the market at a time when TV stations have less money to pay for them.

By giving networks the legal basis to share in syndication profits, the new rules could spur a merger of a network and a studio. Previously, a merger would have required a studio to sell its syndication division.

Portions of the new fin-syn rules will not take effect until consent decrees, which are overseen by U.S. District Judge Robert Kelleher in Los Angeles, are either lifted or modified.

The networks entered into the consent decrees with the Justice Department more than a decade ago, as part of a settlement, to stay out of the syndication business.

Observers expect Kelleher to act on the consent decrees sometime within the next year.

The biggest beneficiary of the FCC decision is Fox Broadcasting Co., the 7-year-old fourth network owned by Rupert Murdoch's Fox film and TV studio.

Fox won exemption from the new rules and is free to operate a network while participating fully in syndication.


FCC commissioners were said to have given the Fox network a break because it did not want to discourage an emerging network.

Commissioner Duggan, who has sided with Hollywood during much of the contentious proceeding, said Fox deserved a "dispensation."

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