PAGENO="0001" FINANCIAL INTEREST AND SYNDICATION RULES HEARING BEFORE THE SUBCOMMITTEE ON TEI4ECOMM1IMCATIONS, CONSTIMIER PROTECTION, AND FINANCE OF THE COMIMIITTEE ON ENERGY AND COMIM]~RCE HOUSE OF REPRESENTATIVES NINETY-EIGHTH CONGRESS FIRST SESSION ON H.R. 2250 A BILL TO PROVIDE A MORATORIUM UNTIL JUNE 30, 1988, ON CHANGES TO THE FEDERAL COMMUNICATIONS COMMISSION RULES REGARDING NETWORK TELEVISION SYNDICATION, NETWORK TELEVI- SION FINANCIAL INTERESTS, AND PRIME TIME ACCESS JUNE 1 AND AUGUST 1, 1983 Serial No. 98-96 Printed for the use of the Committee on Energy and Commerce O~,t~,2'1 ~) U.S. GOVERNMENT PRINTING OFFICE 32-MOO WASHINGTON : 1984 PAGENO="0002" COMMI'11~EE ON ENERGY AND COMMERCE JAMES H. SCHEUER, New York RICHARD L OTTINGER, New York HENRY A. WAXMAN, California TIMOTHY E WIRTH, Colorado PHILIP R. SHARP, Indiana JAMES J. FLORIO, New Jersey EDWARD J. MARKEY, Massachusetts THOMAS A. LUKEN, Ohio DOUG WALGREN, Pennsylvania ALBERT GORE, JR., Tennessee BARBARA A. MIKULSKI, Maryland AL SWIFF, Washington MICKEY LELAND, Texas RICHARD C. SHELBY, Alabama CARDISS COLLINS, Illinois MIKE SYNAR, Oklahoma W. J. "BILLY" TAUZIN, Louisiana RON WYDEN, Oregon RALPH M. HALL, Texas DENNIS E. ECKART, Ohio WAYNE DOWDY, Mississippi BILL RICHARDSON, New Mexico JIM SLATTERY, Kansas GERRY SIKORSKI, Minnesota JOHN BRYANT, Texas JIM BATES, California FRANK M. POTTER, Jr., Chief Counsel and Staff Director SHARON E. DAVIS, Chief Clerk/Administrative Assistant DONALD A. WATT, Printing Editor ARNOLD I. HAVENS, Minority Counsel SUBCOMMITTEE ON TELECOMMUNICATIONS, CONSUMER PROTECTION, AND FINANCE TIMOTHY E. WIRTH, Colorado, Chairman EDWARD J. MARKEY, Massachusetts MATTHEW J. RINALDO, New Jersey AL SWIFF, Washington CARLOS J. MOORHEAD, California CARDISS COLLINS, Illinois THOMAS J. TAUKE, Iowa ALBERT GORE, JR., Tennessee MICHAEL G. OXLEY, Ohio MICKEY LELAND, Texas JAMES T. BROYHILL, North Carolina JOHN BRYANT~ Texas (Ex Officio) JIM BATES, California JAMES H. SCHEUER, New York HENRY A. WAXMAN, California JOHN D. DINGELL, Michigan (Ex Officio) DAVID K. AYLWARD, Chief Counsel/Staff Director THOMAs A. ROGERS, Counsel RODNEY JOYCE, Associate Minority Counsel JOHN D. DINGELL, Michigan, Chairman JAMES T. BROYHILL, North Carolina NORMAN F. LENT, New York EDWARD R MADIGAN., Illinois CARLOS J. MOORHEAD, California MATTHEW J. RINALDO, New Jersey TOM CORCORAN, Illinois WILLIAM E. DANNEMEYER, California BOB WHITTAKER, Kansas THOMAS J. TAUKE, Iowa DON RITTER, Pennsylvania DAN COATS, Indiana THOMAS J. BLILEY, JR., Virginia JACK FIELDS, Texas MICHAEL G. OXLEY, Ohio HOWARD C. NIELSON, Utah (II) PAGENO="0003" CONTENTS Hearings held on: Page June 1, 1983 (Los Angeles, Calif.) 1 August 1, 1983 795 Text of H.R. 2250 4 Testimony of: Asselin, Diane, president, Asselin Productions, Inc., and also on behalf of Women in Film 659 Blumenthal, Mel D., executive vice president, MTM Enterprises, Inc 843 Bortz, Paul, consultant to American Broadcasting Companies, Inc 881 Carter, Terry, META-4 Productions 483 Casey, Bernie, POOBAB Productions (Los Angeles) 431 Cassara, Anthony B., president, Television Division, Golden West Broad- cast 167 Colloff, Roger, vice president, Policy and Planning, CBS/Broadcast Group 19, 810 `Dunham, Corydon B., executive vice president and general counsel, Na- tional Broadcasting Co., Inc 17 Funkhouser, Robert, on behalf of Association of National Advertisers 166 Gurian, Naomi, executive director, Writers Guild of America 297 Hargrove, Ward, counsel, ABC Television Affiliates Association 885 Hooks, Robert, founder and chairman, National Alliance for Black Ad- vancement in Communications 420 Lear, Norman, Embassy Productions and Tandem Productions, Inc 833 Ochoa, David, president, Buenavision Cable Co 767 Peters, Brook, Delbro Enterprises (Los Angeles) 425 Poitier, Sidney, Verdon-Dedric Prods., Inc 422 Price, Arthur, president, MGM Productions 440 Salhany, Lucille S., vice president, TV and Cable Programing, Taft Broadcasting Co 887 Sanchez, Dolores, Eastern Group Publishing 778 Segelstein, Irwin, vice chairman of the board, National Broadcasting Co., Inc 816 Thomopoulos, Anthony D., president, ABC Entertainment, American Broadcasting Co., Inc 465 Valenti, Jack, president, Motion Picture Association of America, Inc 28 Was, Joseph W., Jr., counsel, Committee Against Network Monopoly.... 466, 899 Additional material submitted for the record by: American Broadcasting Co., Inc., letter, dated June 23, 1983, from Antho- ny Thomopolos to Chairman Wirth, re additional information resulting from hearing 794 Association of Independent Television Stations, Inc., letter, dated Septem- ber 7, 1983, from James Hedlund to Thomas Rogers, re response to questions to Tony Cassara of Golden West Television 394 National Broadcasting Co., Inc.: Effect of retention of the financial interest and syndication rules on competition between the broadcasting industry and pay cable 413 Letter, dated July 26, 1983, from Grant Tinker to Chairman Wirth, re thoughts on the hearing and the financial interest and syndica- tion rules 797 Response to questions of Chairman Timothy E. Wirth 403 Telecommunications, Consumer Protection, and Finance Subcommittee, report on Hispanics in major television programs 10 (III) PAGENO="0004" PAGENO="0005" FINANCIAL INTEREST AND SYNDICATION RULES WEDNESDAY, JUNE 1, 1983 HOUSE OF REPRESENTATIVES, COMMITTEE ON ENERGY AND COMMERCE, SUBCOMMITTEE ON TELECOMMUNICATIONS, CONSUMER PROTECTION, AND FINANCE, Los Angeles, Cali/~ The subcommittee met, pursuant to call, at 8 a.m. in the Museum of Science and Industry, 700 State Drive, Muses Armory Section, Los Angeles, Calif., the Hon. Timothy E. Wirth (chairman) presiding. Mr. WIRTH. Come to order. I would like to thank you all for coming. Today, the Subcommittee on Telecommunications, Consumer Protection, and Finance is holding further hearings on the broad issue of diversity in television programing, and the immediate issue of the Federal Communication Commission's proposal to repeal the financial interest and syndication rules, We are getting an early start this morning because we have a large number of excellent witnesses to hear from on these impor- tant issues. The financial interest and syndication rules were adopted in the early 1970's to address the problems posed by the overwhelming dominance of the three commercial television networks, ABC, CBS, and NBC. The FCC has initiated recently a rulemaking to repeal the financial interest and syndication rules-rules which I strongly believe continue to play a vital role in protecting the public inter- est. Congressman Waxman, along with Congressman Leland, and I have introduced legislation, which would strip the FCC of authority for a 5-year period to repeal the network financial interest, syndi- cation, and prime time access rules. This bill addresses one of the most fundamental communications policy questions that we as a country face. I have consistently stated that there are two fundamental com- munications policy objectives, which must be addressed before all others. The first is to promote and encourage competition in the marketplace. The second is to provide the American public with the widest possible diversity of programing sources. The financial interest and syndk~ation rules have accomplished and should be allowed to continue to accomplish both goals. (1) PAGENO="0006" 2 It is true that the video marketplace is becoming increasingly competitive. At some point in the future, the networks, which today clearly remain dominant as program buyers and distributors, may no longer occupy such positions of dominance, and repeal of these rules may then be justified. However, in my judgment, the time for repeal of these rules is clearly not now. Information diversity is the cornerstone of the first amendment and is a fundamental precondition of the robust marketplace of ideas that must characterize a free and democratic society. This is our most basic public interest goal. It must be protected, nurtured, and promoted. Whether it is by prohibiting AT&T from owning or controlling information provided over its own monopoly transmission facilities or whether it is through the presentation of conflicting viewpoints under the Fairness Doctrine, regulation is often necessary to help to insure our goal of diversity. We are all aware of the contributions that the networks have made to American television. Network news and much in network entertainment have added significantly to the richness of the lives of the American people. But the dominance of the networks, how- ever, goes to the very heart of the issue of diversity of information sources in a democratic society. The financial interest and syndication rules have prompted di- versity by assuring the viability of an independent production com- munity, a community that is often little heard from in Washington. So, today, we bring Washington to that community. Preserving the unique and independent creative input of this Nation's writers, directors, producers, and actors, free of total network editorial con- trol, is also an extremely important aspect of the rules. Such an ephemeral policy benefit does not lend itself to the hun- dreds of pages of economic analysis that other issues have been subjected. Yet, this might well be the most important component of assuring program source diversity. The rules have also fostered the development of strong, inde- pendent broadcast outlets available to the public. Repeal of the rules might well give the networks the ability to undermine the growing competitive strength of the independent stations by ma- nipulating their ability to obtain off-network shows. Promoting video diversity also means assuring that the Nation's diverse populace, especially its minority populations, receive satis- factory levels of programing directed to their needs and interests. We will focus on that issue this morning, as well. Diversity of sources for programing, diversity in competition amoung broadcast stations and diversity of creativity must be met if the video marketplace is going to serve the best interests of the public. Preserving and encouraging such diversity is the focus of our hearing this morning. I would like to take this opportunity to commend the dedicated efforts of my colleague who represents this great city, Congressman Waxman, for his leadership on the financial interest rule issue. I would like to also commend the leadership of Congressman Leland for his tireless efforts aimed at addressing the very real, serious PAGENO="0007" 3 problems presented by the television industry's inadequate pro- graming directed to the needs and interests of the Nation's minori- ty populations. Additionally, I want to commend Mr. Leland for his efforts aimed at remedying the situation posed by the underrepre- sentation of minorities within the telecommunications industry in the areas of ownership and employment. [The text of H.R. 2250 follows:] PAGENO="0008" 4 I 98TH CONGRESS 1ST SESSION To provide a moratorium until June 30, 1988, on changes to the Federal Communications Commission rules regarding network television syndication, network television financial interests, and prime time access. IN TIlE HOUSE OF REPRESENTATIVES MARCH 22, 1983 Mr. WAXMAN (for himself, Mr. WIRTH, Mr. MOORHEAD, Mr. ROYBAL, Mr. PA- NETTA, Mr. DOWNEY of New York, Mr. EDWARDS of California, Mr. DIXON, Mr. PASEAYAN, Mr. MILLER of California, Mr. TORRES, Mrs. SCHROEDER, Mr. LEVIK1S of California, Mrs. BOXRR, Mr. MYERS, Mr. BOSCO, Mr. BEiuw~, Mr. FAZIO, Mr. LELAND, Mr. BURTON of California, Mr. BEILENSON, Mr. GoRE, Mr. MARTINEZ, Mr. MINETA, Mr. HAWKINS, Mr. SOLARZ, Mr. BROWN of California, Mr. BRYANT, Mr. SYNAR, Mr. MATsm, Mr. DELLUMS, Mr. STARK, Mr. Russo, Mr. PATTERSON, Mr. LEHMAN of California, Mr. FLORIO, Mr. DYMALLY, Mr. ENGLISH, Mr. HEFTEL of Hawaii, and Mr. COELHO) introduced the following bill; which was referred to the Committee on Energy and Commerce A BILL To provide a moratorium until June 30, 1988, on changes to the Federal Communications Commission rules regarding network television syndication, network television financial interests, and prime time access. 1 Be it enacted by the Senate~ani1 Riiuse of Bepresenta- 2 tives of the United States of Americain =Congress assembled, 3 That, in order to maximize competition in the television 4 broadcasting marketplace and to promote diversity of pro- PAGENO="0009" 5 2 1 graming sources for the public, the Federal Communications 2 Commission shall not have authority to take any action 3 before July 1, 1988, to repeal, amend, or otherwise modify 4 the provisions or applicability of any of the following: 5 (1) section 73,658(j)(i) of title 47, Code of Federal 6 Regulations (commonly known as the "Syndication 7 Rule"; 23 F.C.C. 2d 382); 8 (2) section 73.658(j)(ii) of title 47, Code of Feder- 9 al Regulations (commonly known as the "Financial In- 10 terest Rule"; 23 F.C.C. 2d 382); and 11 (3) section 73.658(k) of title 47, Code of Federal 12 Regulations (commonly known as the "Prime Time 13 Access Rule"; 23 F.C.C. 2d 382). 0 PAGENO="0010" 6 Mr. WIRTH. I would like to ask my colleagues if they also have any opening statement they might like to make. Congressman Waxman. Mr. WAXMAN. Thank you very much, Mr. Chairman. I appreciate your holding this hearing today. It enables our sub- committee to listen first hand to our Nation's most active creative community. This morning we will hear not from ideological theo- rists who speculate on what the impact will be if these rules are changes, but from people who will live with the rules on a daily basis and who best know the implications of repeal, not only for the TV industry but for the vast viewing public. If we fail, if we allow these rules to be changed and the Congress sits back and permits the FCC unilaterally to change the industry that affects so many millions of Americans, we will see more mo- notonous, blander, less-inspired television than ever before. The single greatest complaint against television is it is all the same and it is all the same because basically we have three net- works that compete for the vast video audience by giving the same tried and true and bland formula that worked once before. Exactly 6 months ago this subcommittee held a general FCC oversight meeting with Chairman Fowler and the other members of the Commission. At that time we questioned Chairman Fowler as to why he wanted to change these rules. He claims to be a con- servative politically and, of course, the conservatives have always said "If something ain't broke, don't fix it." I saw no reason then and I see no reason now why the FCC ought to be moving to change these rules that have served us well over the past years. But we in Congress are faced with the reality that the FCC may make this change, which is one of the most important and signifi- cant public policy changes that has been made in the television broadcasting industry since the 1934 act. Therefore, we have no choice but to act decisively to save the rules. The bill I introduced last year, H.R. 7347, has now been su- perceded by the current bill, H.R. 2250, and a consensus is slowly emerging that this FCC must be stopped. Last year, my bill had no cosponsors, but this year's bill already boasts around 100 cospon- sors. H.R. 2250's enthusiastic support stems from its reasonableness. The bill recognizes the rapidly changing state of the broadcasting industry. We do not prejudge the future. The bill only precludes FCC action until 1988. I think most people are now familiar with the diversity and com- petition the rules have brought to television viewers. The dramatic rise in the number of independent television stations across the Nation has brought alternative programing choices to millions of Americans. That rapid growth from 73 stations in 1970 to 179 stations in 1982 has increased the independent's viewing audience share from 10 percent to 17 percent. Similarly, the number of truly independent program producers, the people who actually supply prime time programing has in- creased by 26 percent. And the number of autonomous companies distributing programs to the local independent television stations has increased by 51 percent. PAGENO="0011" 7 The only declining statistics the rules have brought are in adver- tising costs. Advertising rates in television markets with strong in- dependent television stations are much lower than in those mar- kets with the weak or no independents. So, who benefits from repeal? The networks. Not the television industry, not the public, iiot the creative community, but three cor- porations who already have a stranglehold on our major means of communications. But while the FCC is busy helping the networks, it should look at what repeal would do to the first amendment. Shortly before his death, Supreme Court Justice William Douglas worried about the first amendment's future. He noted in looking ahead, "The days seem dark to me." As he said, "Great wealth con- trols most of our news outlets. A society of the dialog as espoused by the first amendment will be increasingly difficult to stimulate." But Douglas also saw how to safeguard the first amendment. On another occasion, he wrote, "We seek truth and in that search a medley of voices is essential. That is why the first amendment is our most precious inheritance. It gives equal time to my opponents, as it gives to me." Douglas understood that a diversity of sources is as fundamental to the freedoms of speech and press as is government restraint. The key question is: How diverse will our sources of information be? There is one final and important point I must make. The contin- ued stereotyping of women and minorities, the lack of employment opportunities available to them in television broadcasting is shame- ful. Fingers have been pointed at both the movie studios and the networks and both are to blame, but pointing blame is not enough. The situation must be changed. Repeal of the rules will worsen the situation. The networks con- tinue to enjoy a frightening concentration of power. Only a handful of people make programing decisions that affect millions of Ameri- cans, but that concentration of power breeds sameness. Imitation, not innovation, becomes the yardstick for success. Old pat program formulas come back in show after show. The pat program formulas are successful if they bring big ratings because these ratings bring advertising revenue and the most sought-after reviewing audience is the 18 to 34 year old group. This is a group that shops often. It is not made up of minorities or the elderly and the networks are appealing to the audience, the 18 to 34 spenders, and to no one else, to them, who are of significance. By allowing independent television stations to flourish, the rules have brought a decentralization of programing. Now, local inde- pendent television stations can feature special programing, as a Boston station did for Black History month, to meet the needs of its community. Minority producers don't have to settle on being network employees. They can start their own companies, tailor their programs to their own themes and not those of an advertising formula. The networks do not need tailormade rules to be changed in order to prosper. No foreseeable growth of independents could threaten network dominance. On the other hand, independent cre- atc~rs and producers desperately need the current rules to be pro- tected in order to survive and flourish. PAGENO="0012" 8 Thank you, Mr. Chairman, for holding this hearing, for allowing me to make this statement and to participate with you in what I consider one of the most important issues before us in the Con- gress. Mr. WIRTH. Thank you very much, Mr. Waxman, and we appreci- ate your hosting us in Los Angeles this morning. Mr. Leland. Mr. LELAND. Thank you, Mr. Chairman. Mr. Chairman, I welcome this opportunity to participate in this discussion on the financial interest and syndication rules and their impact on the diversity of programing. This issue, diversity of pro- graming and sources of information, is one about which I am very deeply concerned and one which has received a great deal of the subcommittee's attention in this Congress. Particularly under your leadership, I am most pleased to be here for that purpose. Let me preface my remarks by noting that while I am a cospon- sor of legislation, which would establish a 5-year moratorium on any effort by the Federal Communications Commission to repeal the financial interest and syndication rules, I am also deeply con- cerned with the record of both networks and production companies with regard to the provision of diverse programing. In particular, I have grave concerns about the level of participa- tion of minorities in the industry and the image of minorities, which television portrays. I regret, Mr. Chairman, to say that the record of the television industry with regard to minorities is and historically has been abysmal. The tragedy is that this is valid when applied to the various as- pects of the relationship between television and minorities. Televi- sion has a poor record of gearing quality programing to minorities. The industry has consistently failed to properly portray minorities. The record of the television industry on employment opportunities for minorities in acting, programing, production or managerial po- sitions shows a clear lack of commitment to adequate minority in- volvement. This lack of commitment is also reflected in the level of opportu- nities for minority owned or controlled production companies. I am troubled, Mr. Chairman, by the realization that both net- works and production companies have abrogated their responsibil- ity to the minority community and to the general public by their failure to depict minorities with accuracy. I refer here to the per- sistence of stereotypical portrayals, which reinforce societal racism and sexism. It is sad to note that in 1983, more than 40 years after the birth of the television industry, minorities are still portrayed with the most blatant stereotypes. Talented black actors and actresses are reduced to playing comics. Some examples are "Good Times," "The Jeffersons,'T and "Different Strokes," for example, or maids, "Gimme A Break," or loyal sidekicks, as in "Magnum P.1." and "The Mississippi." These roles are for the most part merely updates of the old Hol- lywood characterizations of the happy, shuffling darkies, mammies, pickinnies, and native guides. What is worse, Mr. Chairman, there is no defense against this ac- cusation. You have only to turn on your television set during prime PAGENO="0013" 9 time to see how networks and production companies see minorities. It strains credibility to suggest that those who make the decisions at the networks and within the production companies put this stuff on the air, but they really don't see minorities in that light. The situation for Hispanic actors and actresses is no better. I would suggest probably even worse. Where their services are used by the television industry, Hispanics are also cast in stereotypical roles or as service workers. A recent survey by the League of United Latin American Citi- zens confirms this. The LULAC study also revealed that nearly half of the roles that went to Hispanics-and that is 9 out of 263- were on one program, "Hill Street Blues," and only two of the nine roles were regular, major parts, and only two of those roles were still less than desirable in terms of major roles. Four of those nine roles, which went to Hispanics, were minor roles as cooks or maids. It is a record which unfortunately speaks for itself. At this point, Mr. Chairman, I ask unanimous consent to insert the LULAC survey in the record of this hearing. Mr. WIRTH. Without objection. [The survey referred to follows:] PAGENO="0014" 10 cM~1 1I~P~Th1Ic~~ XPJ 7DF~ rELE'J I ~ I DII D13F~(~I'1~ t,E~rt I~ ~~Ic P1~1 c~ciy ~ c~r-c1 ~`r~ E~ç ~ ~ m~ 13~r~ i ~ ~Ji~kL I-1c~FF V~mmy' I-I~1 ~c,Ic 131 ~i-~ I-1c~1 1 ~ ~ ~ F~I~~j c~r i ~ ~ i ~ I 1 ~g, r- m ~ri I 1 1 ~rr~~1 I~1r Ic~ra~y' ~ I 1. 1 ~ LLJL~1~1 I~t~ I crs~1 I~r~~i cJ~rit PAGENO="0015" 11 At the request of Mr. Tony Bonilla, Corpus Christi State University students in Political Science 303, Contemporary Political Analysis, agreed' to view television programs and record' the number of Hispanics observed. This report deals with the methodology, findings, and conclusion of this class project. METHODOLOGY This section deals with definitions and procedures used to insure the scientific nature of this project. The students and the professor had to agree on several decisions. First, viewing of programs began in the latter part of January, 1983, with the overwhelming majority of the programs being viewed and coded in February. Second, since resources, especially time, were limited, we had to restrict the number of programs viewed. The first decision was to attempt to view programs that were established and that also enjoyed a certain level of popularity. Consequently, we decided to restrict our evaluation of programs to those generally listed in the top twenty of the publication, Br-oa~casting. Another decision was to exclude programs that either involved special events, such as the superbowl, a special series (`The Winds of War"), or involved a variety of items, such as "Real People,' "60 Minutes." As a result of these criteria, we restricted our programs to the following seventeen listed in alphabetical order: ~ 1. Archie Bunker's Place Dallas ~,ç" 3. Dukes of Hazard 4. Dynasty ~`5. Falcon Crest PAGENO="0016" 12 6. Fall Guy 7. Gloria Hill Street Blues 9. Jeff ersons 10. Knots Landing 11. Love Boat Magnum P.I~ ~i13. Mash J714. Newhart 1$~715.9to5 Simon & Simon ~17. Three's Company All of these programs were viewed and coded by at least two students. Any differences between the coders were reconciled in a class discussion of the programinvolved. We would like to point out that differences in coding were minor-~ To facilitate the coding procedure, we developed a form which aided us in coding several categories - 1. Race and Ethnicity 2. Sex 3. Acting role which must include some speaking (Major,. Support, and Minor) When a particular program was watched on different occasions, the totals were added and then averaged for each program. For example, if at least two coders watched Dallas on three, different dates, the total number of actors was divided by three. We rounded off to the PAGENO="0017" 13 nearest whole number. FINDINGS 44hen we added up the total number of actors for the 17 programs chosen (see Table 1), we found that nine (9) out of 263 were Hispanic, which is 3.4 percent of the total. However, if we left out Hill Street Blues, the total was five (5) Hispanics out of 232, which is 2.2 percent. In short, one program accounted for 1.5 percent (4 out of 263) of the total Hispanics viewed for the 17 programs chosen. In other words, four (4) out of the total of nine (9) Hispanics observed or 44.4 percent appeared on Hill Street Blues. TABLE I PERCENTAGE OF ACTORS ACCORDING TO SEX, ROLE, RACE AND ETHNICiTY MALE (N=170) FEMALE (N=93) MAJOR SUPPORT MINOR MAJOR SUPPORT MINOR WHITE 17.5 19.4 20.5 13.3 BLACK 1.9 1.9 0 1.1 0.8 0.4 HISPANIC 0.4 0.8 1.1 0.0 -0 0.4 OTHER 0.4 0.4 0.4 0 0 0.0 . (Total N263) * 32-540 O-84--2 PAGENO="0018" 14 These total figures could be misleading, especially if one thinkt that Hispanics had major acting roles. For example, we found one major role for aHispanic in Hill Street Blues and in 9 to 5. In addition, during the programs we watched, one Hispanic played a major role in one program of Love Boat In other words, a Hispanic played a. regular, ma3or role in only two of the 17 programs viewed. More specifically, there were 92 actors classified as major; the percentage for Hispanics was 2.2. Four of the nine Hispanics played minor roles. Two were cooks on Archie's Place, one was a maid on Dallas, and another appeared on Hill Street Blues. CONCLUSION The 1980 census data indicate that approximately 6.4 percent of the people in the United States classified themselves as `Spanish origin.' One must remember that this percentage is not precise because persons of `Spanish origin' may be of any race. In addition, with estimates of the undocumented Hispanics, the total percentage for this subgroup could be about ten (10). One conclusion is that Hispanics were definitely underrepresented in the 17 programs observed. Another is that Hispanics were further underrepresented in major roles. Finally, in terms of our perspective, we feel that we have provided useful, valid information with limited resources. A more exhaustive study, as done by Greenberg and BaptistaFerflafldez, would probably reach the same conclusion as theirs, namely, that the percentage of Hispanics lfl ALL programs is even smaller than what we found& PAGENO="0019" 15 Mr. LELAND. I enjoy comedy, Mr. Chairman, as do most other members of the minority community. I dare not say that many people in the Congressional Black Caucus, however, have not turned their televisions on because they don't want to see these roles portrayed by those people who would have jobs, but not neces- sarily have any real substantial meaning to our community. I appreciate the talents of the minority actors and actresses pres- ently on television. In many cases, their comedic gifts are substan- tial as is the public enjoyment of their craft. My concern is, howev- er, that in the absence of a balanced depiction of minorities, the comedic portrayal to which most minorities are relegated, has a significant impact on how we are viewed by the nonminority popu- lace. I am also concerned about the impression the stereotypes create in young, impressionable minds, black, brown, and white. The rich- ness and vitality of the minority experience in America is rarely, if ever, depicted on television. Because of this omission, the American public is denied the op- portunity to view realistic and socially meaningful programing, not to mention the brilliant acting skills that the minorities bring to programing. It is clear to me, Mr. Chairman, that networks and production companies must share the blame for this situation. Neither of them has taken any action to correct the situation of which they have long been aware. Recently, a formula used by one of the networks in determining the viability of made-for-TV movies came to light. One of the factors to be used in considering such movies was social characterizations. Under the formula, and I quote, "The highest weighting is to be used for real people, whose life style is instantly recognizable by the majority of the mass audience." The formula further states, and again I quote, "All the basic al- ternative weightings are reduced if any of the central characters are other than white Americans." It is no wonder minorities are all but invisible on television when the networks use such clearly biased formulas in making program- ing decisions. Turning to the producers, we see a very similar pattern of atti- tude and behavior. A confidential survey commissioned by the Screen Actors Guild and the Alliance of Motion Picture and Televi- sion Producers demonstrates that minorities receive considerably smaller pieces of the casting pie than their nonminority counter- parts. The SAG survey covers all casting in motion pictures and dra- matic, prime time television by production companies for the period July 1981 through September 1982. The survey shows in clear and unmistakable terms that black and Hispanic actors and actresses are underrepresented in casting, particularly in compari- son to their numbers in the general population and for the most part are paid substantially less. The vast majority, Mr. Chairman, of leading roles go to white actors and actresses. I commend the SAG study and its specific findings to you. It is an eyeopener to say the least. / PAGENO="0020" 16 In recent months, Mr. Chairman, I have had a number of discus- sions with representatives from the networks and the production companies. Both have proven themselves, I regret to say, very adept at finger pointing and blame shifting. The networks claim the producers do not provide them with serious proposals or scripts containing positive minority characterizations and have failed to cast minorities in noncomedic, race-neutral roles. The production companies, then, on the other hand, claim that the networks reject their efforts to produce programing that casts minorities in a realistic light and will only accept minority actors and actresses in stereotypical roles. Television, one of the prime educators of our young people and a primary means by which information is communicated to much of the American public must begin to take positive steps to more real- istically portray the myriad roles minorities play in American life. Both the networks and the production companies assert they are best able to assure diversity in the production and distribution of programing for commercial television. Moreover, Mr. Chairman, the financial interest and syndication rules will be a crucial deterrent to their ability to provide diverse programing. But let me suggest to you, Mr. Chairman, that for me and, I believe, a growing number of my colleagues in Congress, their record calls into question their definition of diversity and argues for a more substantial and relevant measurement of pro- gram quality, one which reflects the need for proper portrayal of the minority community in America. I am glad we will have the opportunity today to discuss diversity of programing and to determine what problems might stand in the way of truly diverse programing and how such problems can be ad- dressed. I thank you, Mr. Chairman. Mr. WIRTH. Thank you very much, Mr. Leland. The First panel should now join us at the witness table. Let me introduce the panelists in the order that we would like them to participate. Mr. Cory Dunham, executive vice president and gener- al counsel of the National Broadcasting Co.; Mr. Roger Colloff, vice president for policy and planning, the CBS Broadcasting Group; Mr. Jack Valenti, president of the Motion Picture Association of America; Mr. Robert Funkhauser, vice president for advertising and public relations, the Carnation Co.; Mr. Tony Cassara, presi- dent of Golden West Television in Los Angeles; and Ms. Naomi Gurian, executive director, also from Los Angeles. While you are all taking your seats, let me again remind you of the procedures of the subcommittee. We have three long panels this morning. Each panel has six witnesses on it. As a result we must proceed fairly quickly to hear from everyone. Following the subcommittee's rules, I will give every witness 5 minutes in which to summarize his or her statement. Your full statements will be included in the record, and we would ask you to summarize those in 5 minutes. At the close of that 5 minute time, I will let you know to conclude. We must get a great deal of material into a short period of time. Finally, I might note there have been questions as to how we de- termined ~o have a hearing here. It has been my policy since I PAGENO="0021" 17 have been chairman of the subcommittee over the last 2½ years that when members of the subcommittee request hearings in par- ticular geographic areas, that assuming that we can organize it and fund it, that we would have such a hearing. So, in the spirit of that consensus process, we scheduled this hearing in Los Angeles on an issue that I have made very clear I am concerned about. Mr. Waxman wanted to have it here and Mr. Leland wanted to have a role as well. There are 16 members of the subcommittee. At every hearing, we ask all members of the subcommittee to attend. The three who are here today are the only three who were either able or desirous of attending this hearing. With those opening comments, let us begin with Mr. Dunham's, testimony. We are delighted to have you with us. You are no stranger to the subcommittee or to the Congress. Cory, thank you for being with us. STATEMENTS OF CORYDON B. DUNHAM, EXECTIVE VICE PRESI- DENT AND GENERAL COUNSEL, NATIONAL BROADCASTING COMPANY, INC.; ROGER COLLOFF, VICE PRESIDENT, POLICY AND PLANNING, CBS/BROADCAST GROUP; JACK VALENTI, PRESIDENT, MOTION PICTURE ASSOCIATION OF AMERICA, INC.; ROBERT FUNKHOUSER, ON BEHALF OF ASSOCIATION OF NATIONAL ADVERTISERS; ANTHONY B. CASSARA, PRESIDENT, TELEVISION DIVISION, GOLDEN WEST BROADCASTERS; AND NAOMI GURIAN, EXECUTIVE DIRECTOR, WRITERS GUILD OF AMERICA Mr. DUNHAM. Thank you, Mr. Chairman. I am pleased to be able to participate with you this morning. My name is Corydon B. Dunham and I am executive vice presi- dent and general counsel of NBC. We believe that H.R. 2250 will not serve the public. The bill says its purpose is to maximize competition and promote diversity of program sources. These are fine objectives and we endorse them, but this bill will not serve them. By preventing the repeal of the financial interest and syndica- tion rules, here is what H.R. 2250 will do. First, it would not pro- mote diversity of program sources. Rather, it would continue to limit diversity, as the rules have done for the past decade. Second, it would not maximize competition. Rather, it would fur- ther concentration in the major studios, which has already in- creased under the rules. Third, it would continue restraints against the development of small, independent producers, including minority producers. Fourth, it would handicap the ability of free television to buy programs as the buying power of pay TV increases. This will hurt the American public, particularly lower income groups, retired per- sons and others who can least afford pay television. Fifth, at a time of rapid change in the video marketplace, it would strip the FCC of its authority to act for the public interest and would compel the Commission to maintain rules that favor the major producers, rather than to permit competition benefiting the public at large. PAGENO="0022" 18 In sum, H.R. 2250 has to be seen as anticompetitive. It is in es- sence a studio protection bill, protection against competition. There should be no doubt that the rules do not promote diversity and they do increase concentration. This is the view of the FCC's inde- pendent Network Inquiry Special Staff. It is the view of the De- partment of Commerce. It is the view of the Federal Trade Com- mission and it is the view of the Department of Justice. The FCC with a specific authorization and financial support of Congress has been examining these rules for more than 6 years. The Commission has received extensive economic studies and com- ments from every element of the industry and the public. Let me cite just one key fact from the filing of the Federal Trade Commis- sion. The FTC found that before the rules, the MPAA members sup- plied 27 percent of the networks' prime time schedules. Shortly after the rules were adopted, that number rose to 58 percent. Most of that increase was the result of large studios absorbing independ- ent producers. So, you can see the rules have furthered concentra- tion, not diversity of program sources. Mr. Chairman, your letter asks specifically about minority pro- ducers. We all know that new producers, including minority pro- ducers, have difficulty in getting the financing to develop and launch productions. Yet, as a matter of economics, the present rules prevent the networks from providing the high-risk invest- ment and financial support that these new producers need. So, they must turn to the major producers who obviously are not inter- ested in fostering competition against themselves from new inde- pendent production houses. It seems to me Congressman Leland's point is very well taken. After 10 years of these rules, the number of minority independent production houses is very, very few indeed. Finally, let me turn to the arrival of pay TV as a radical new force in television. Pay is already a serious competitor for televi- sion programing. Its buying power, based on subscription revenues, is increasing rapidly. This does pose a real danger to free televi- sion. New theatrical movies already are seen first on pay. Pay, obviously, would like to do the same with sports, with series, and with other programs. Yet, these Government rules handicap the networks in competing against pay TV in the pro- gram marketplace and the transfer of talent and programing from free to pay is already underway. We do not believe the Government should favor pay over free. Yet, this bill would inevitably do just that. This issue is of concern to Americans, which is why so many low income, retired, minori- ties, and unions oppose the rules. They have been in effect for 10 years. They have restrained the free marketplace, furthered more control by the major suppliers, provided less opportunity for newcomers, decreased diversity of program sources and now threaten the availability of programing for free television. This bill would compel the FCC to abort its present proceeding, keep the rules and wait another 5 years before it could again ad- dress these important public questions. It would then be well into PAGENO="0023" 19 the next decade before any relief from these conditions could be provided by future FCC actions. Mr. Chairman, we believe the bill is not a good bill. It does not serve the public Mr. WIRTH. Thank you very much, Mr. Dunham, both for good testimony and for starting us out within the 5 minutes exactly. Mr. DUNHAM. Thank you. Mr. WIRTH. Mr. Colloff. STATEMENT OF ROGER D. COLLOFF Mr. COLLOFF. Thank you, Mr. Chairman. My name is Roger Colloff. I am vice president of policy and plan- ning at CBS Broadcast Group and I would like to thank the sub- committee for this opportunity to appear before you. As the subcommittee is well aware, the FCC is now reexamining the efficacy of the financial interest and syndication rules. In fact, the FCC's pending rulemaking represents the culmination of a 5- year effort designed to determine the best means of encouraging competition and diversity in television. That effort began with a $2 million, 2-year study by an independ- ent special staff. Among other things, the staff found that the fi- nancial interest and syndication rules had "largely failed to achieve the Commission's stated objectives" and had actually in- creased concentration in program supply. The FCC under both Democratic and Republican administrations has begun to implement a policy of encouraging new forms of com- petition, while removing regulations which have hampered diversi- ty and choice. As part of this effort, in 1982 the Commission began its rulemaking proceeding in this matter. CBS believes, based on a large body of empirical evidence, that a strong public interest case exists for the repeal of the financial in- terest and syndication rules. These public interest arguments go di- rectly to the areas of the subcommittee's stated concerns: the qual- ity and diversity of programing available to the American public. Both quality and diversity are oft-used words and often take dif- ferent meanings. By quality, I refer to the production values of a television program, the values which have led the term "network quality" to stand for the very highest standards in production values. By diversity, I refer to the number of sources of prime time en- tertainment series programing available. CBS believes that repeal of these rules would help increase both the quality and diversity of television programing. First, quality. The video landscape is changing rapidly. Program offerings available to the view are increasing rapidly. This intensi- fled competition for the viewer's attention is beneficial to the public. However, if three participants in this market, the three net- works, are handicapped by artificial rules from participating fully, the quality of the offerings they present to the viewing public may not keep pace with the competition. As pay cable and other similar services proliferate, free, over-the- air television networks should not be forced to hold down their ex- penditures for program development and production because they PAGENO="0024" 20 cannot participate in some of the upside rewards of off-network rights to successful program series. No other participants in the video marketplace operate under these rules. Unless the rules are repealed, those restrictions will lead to a diminution of the avail- able funds to invest in program production and, hence, a diminu- tion of the quality of programing available to the over-the-air tele- vision viewer. Second, diversity. If the financial interest and syndication rules are repealed, added network investment and independent program development and production will help stimulate new, additional sources of programing to the networks. The record before the FCC is clear that the rules in question have led to a significant reduc- tion in the number of sources of prime time entertainment series programing, from 65 before the rules to 47 today. The rules have led to a decrease of diversity and to an increase in the concentration of program production by a few major produc- tion companies, those companies fighting hardest to retain the rules. If the rules were repealed, an increasing number of inde- pendent production companies would gain access to three impor- tant sources of financing for new series development, the three net- works. I would like to comment briefly on the interesting course of the argument over these rules. The proponents of the rules, either im- plicitly or explicitly, have abandoned the major structural under- pinnings used by the FCC to promulgate the rules in 1970. Most importantly, virtually all parties now agree that the networks do not possess the buying power which was the Commission's funda- mental reason for imposing the rules. Without this network buying or monopsony power, the rationale for barring network financial interests in programing, for barring network syndication of first-run programing or made-for-television movies, or for barring the foreign distribution of off-network pro- graming all fall of their own weight. As representative of both the MPAA and the Committee for Prudent Deregulation stated at the FCC arguments in March, the only issue really left in this whole debate is the so-called warehousing question. I am sure you will hear a lot about warehousing today. Some of the proponents of the warehousing have cited M*A*S*H as proving how the financial interest and syndication rules really do work well. They have argued that M*A*S*H appeared in syndication during the network run only because the rules prevented CBS from acquiring syndication rights. If CBS had those rights, the argument goes, CBS surely would have warehoused the reruni of this success- ful program. In fact, M*A*S*H illustrates how the marketplace would operate without the rules. M*A*S*H was a program licensed by CBS from Twentieth Century-Fox before the rules went into effect. In its original network license for the show in 1971, Fox retained all the syndication rights. There was no syndication rule that prevented CBS from acquiring these rights. Rather, Fox would not give them up and CBS acceded to that demand. CBS did acquire a 25-percent share of the off-network profits from this series, but in 1975 had to give up that profit share as the price for Fox's production of additional original episodes. PAGENO="0025" 21 Thus, without the protection of the rules in question, Fox and many local television stations to which M*A*S*H was syndicated, were able to share in the enormous success of this program. Thank you very much. [Mr. Colloff's prepared statement follows:] PAGENO="0026" 22 STATEMENT' ~F ROGER COLLOFF VICE PRESIDENT, POLICY AND' PLANNING, CBS/BROADCAST GROUP I would like to thank the Subcommittee for the opportunity to present CBS's views on the Financial Interest and Syndication Rules. As the Subcommittee is well aware, the FCC is now re-examining the efficacy of these Rules. In fact, the FCC's pending rule-making represents the culmination of a five-year effort designed to determine the best means of encouraging competition and diversity in television. That effort began with a $2 million, two-year study by an Independent Special Staff. That Study recommended a regulatory policy with two major elements: first, changing the structure of the television industry by encouraging new methods of program distribution, and second, repealing a wide variety of anachronistic rules, including the Financial Interest and Syndication Rules. In particular, this FCC Network Inquiry Staff found that these rules had "largely failed to achieve the Commission's stated objectives" and had actually increased concentration in program supply. The FCC, under both Democratic and Republican administra- tions, has begun to implement this policy of encouraging new forms of competition, while removing regulations which have hampered diversity and choice. As part of this effort, in 1982, the FCC began its rule-making proceeding concerning the Financial Interest and Syndication Rules. A massive record has PAGENO="0027" 23 been compiled in this proceeding, including over 225 initial and 35 reply comments. 40 parties have expressed their views in oral presentations. For its part, CBS has submitted the analyses of a number of eminent economists, including Alfred Kahn of Cornell University (and former Chairman of the CAB) and Bruce Owen, former Chief Economist of the Antitrust Division of the Department of Justice. CBS believes, based on a large body of empirical evidence, that a strong public interest case exists for the repeal of the Financial Interest and Syndication Rules. These public interest arguments go directly to the areas of the Subcommittee's stated concerns: the quality and diversity of programming available to the American public. Both "quality" and "diversity" are oft-used words, and often take different meanings. By "quality", I refer to the production values of a television program, the values which have led the term "network quality" to stand for the very highest standards in production values. By "diversity," I refer to the number of sources of prime time entertainment series programming availabLe. CBS believes that repeal of the Financial Interest and Syndication Rules would help increase both the quality and diversity of television programming. PAGENO="0028" 24 First, quality. The video landscape is changing rapidly. Program offerings available to the viewer -- through basic cable, pay cable, public television, videocassettes, videodiscs, and similar technologies -- are increasing rapidly. This intensified competition for the viewer's attention is beneficial to the public. However, if three participants in this marketplace -- the three networks -- are handicapped by artificial rules from participating fully, the quality of the offerings they present to the viewing public may not keep pace with the competition. As pay cable and other similar services proliferate, free, over-the-air television networks should not be forced to hold down their expenditures for program development and production because they cannot participate in some of the upside rewards of off-network rights to successful program series. No other participants in the video marketplace operate under these restrictions. Unless the rules are repealed, those restrictions will lead to a diminution of the available funds to invest in program production, and hence, a diminution of the quality of programming available to the over-the-air television viewer. Second, diversity. If the Financial Interest and Syndication Rules are repealed, added network investment in independent program development and production will help stimulate new, additional sources of programming to the networks. The record before the FCC is clear that the Rules in PAGENO="0029" 25 question have led to a significant reduction in the number of sources of prime time entertainment series programming -- from 65 before the rules to 47 today. The Rules, clearly, have led to a decrease of diversity, and to an increase in the concentration of program production by a few major production companies, those companies fighting hardest to retain the Rules. If the Rules were repealed, an increasing number of independent production companies would gain access to three important sources of financing for new series development -- the three networks. This would aid considerably in increasing the diversity of production sources which we believe u.ltimately aids the American viewer. I would like to comment briefly on the interesting course of the argument over these Rules. The proponents of the Rules, either implicitly or explicitly, have abandoned the major structural underpinnings used by the FCC to promulgate the Rifles in 1970. Most importantly, virtually all parties now agree that the networks do not possess the monopsony (buying) power which was the Commission's fundamental reason for imposing the rules. Without this network monopsony power, the rationale for barring network financial interests in programming, for barring network, syndication of first-run programming or made-for-television movies, or for barring the foreign distribution of off-network programming all fall of their own weight. As representatives of PAGENO="0030" 26 both the MPAA and the Committee for Prudent Deregulation stated at the FCC arguments in March, the only issue really left in this whole debate is the so-called "warehousing" argument. I'm sure you will hear much more about warehousing today. Some of the proponents of the "warehousing" argument have cited M*A*S*H as proving how the Financial Interest and Syndication Rules really do work well. They have argued that M*A*S*H appeared in syndicatiou during the network run only because the rules prevented CBS from acquiring syndication rights. If CBS had those rights, the argument goes, CBS surely would have warehoused the reruns of this successful program. In fact, M*A*S*H illustrates how the marketplace would operate without the rules. M*A*S*H was a program licensed by CBS from Twentieth Century-Fox before the Rules went into effect. In its original network license for the show in 1971, Fox retained all of the syndication rights. There was no Syndication Rule that prevented CBS from acquiring these rights. Rather, Fox would not give them up, and CBS acceded to this demand. CBS did acquire a 257. share of the off-network profits from this series. But in 1975, CBS had to give up that 257. profit share as the price for Fox's production of additional original episodes. Thus, without the protection of the Rules in question, Fox and many local television stations to which PAGENO="0031" 27 M*A*S*H was syndicated, were able to share in the enormous success of this program. Finally, one further comment responding to a specific question of the Subcommittee. We believe that the Rules have little, if any, direct impact on the production and distribution of programming aimed at specific groups of viewers such as minorities and children. However, repeal of the Rules will tend to enlarge the opportunities for new, independent production companies, some of which hopefully will be minority-owned or minority-program oriented. Therefore, the positive effect which repeal could have on minority and children's programming may result indirectly from increasing the diversity of production sources generally. Again, I would like to thank the Subcommittee for allowing me the opportunity to set forth CBS's firmly-held view that repeal of these Rules will increase both the quality and diversity of television programming, and thereby serve the overall public interest. PAGENO="0032" 28 Mr. WIRTH. Thank you, Mr. Colloff. Mr. Valenti. STATEMENT OF JACK VALENTI Mr. VALENTI. First, I want to say as I listened to Mr. Dunham and Mr. Colloff, I was reminded of Socrates trial in which he told his jury that his accusers' arguments were so persuasive, they almost convinced him. However, he said, "I must tell my jury that not a word of what they said was true." And when Mr. Dunham talks about minorities and how terrible it is and the networks want to help, it is such a comic triumph. I think it ought to be filmed and put on NBC's prime time programs because it is an egregious stretching of the truth and we will make more note of that later. But I want to say when the networks forced this issue onto the agenda of the FCC with the cooperation of Chairman Fowler, they engaged in a collaborative illusion and they know it. It was a fanta- sy woven out of their zeal for more profits with only a casual nod to the public interest and I want to demolish the networks' case. You can do it very easily, Mr. Chairman, by simply asking some questions that they cannot answer. Question No. 1: What is the public interest that causes the aban- donment of this rule? And I will answer that by saying there is none. There is no public interest. The public interest is enduringly linked to the continuance of competition in this marketplace. If you abandon this rule, there is no competition and the reason why is without competition, the marketplace shrivels, advertising costs rise, three giants command the landscape and alternative choices for public viewing shrink. The second question is will the repeal of this rule increase or de- crease competition in the marketplace? The answer is, of course, it won't. If this rule is repealed, these three networks will totally, ab- solutely, finally, and fatally dominate this landscape. Every independent producer and every independent syndicator is going out of business and they all know that. That is not competi- tion. The real target of the networks, however, is obscured in their thick meandering filings in this case. The real target is the inde- pendent television station caught right in the cross hairs of the gun sights of the networks -because they know that the independent sta- tions with popular, off-network shows are cutting their affiliates ratings. It goes right to their bone and they bleed easily over it. Does anyone really believe that if the network controlled pro- graming and controlled syndication that they would be licensing these popular shows to independent stations so the affiliates' rat- ings could recede and stutter? Does anyone really believe that? And when intelligent people claim that the antitrust laws are `going to protect the producers and the syndicators, even the net- work executives are a bit bemused, because they know that justice is raw and scarred when it is dragged through all this "dragons and dungeons" maze of interplay between networks and their pro- ducers. PAGENO="0033" 29 Even the Justice Department lawyers readily testified there was no way to police this arena. Now, No. 3, if the rule is working, who the devil wants to have it changed? It is the networks that want to have it changed and except for the affiliates who live under the big brother scrutiny of these network Grendels, everybody else is opposed to changing the rules, independent stations, independent programers, syndicators, children's programers, national advertisers. They are all opposed. The networks stand alone. Don't you find that a bit curious? Moreoverwith, when these gentlemen claim that pay cable is the big enemy, they themselves are now involved in almost every phase of this new technology they have so professed to fear. And the final bit of irony is that CBS has climbed into bed with the one enemy they say is whittling their good fortunes, HBO and pay cable. In other words, with a gall that is fascinating to observe, the networks are insisting that they be allowed to compete with the new technology that they are now are already absorbing. And, finally, are the networks in dire straits? I am not going to bore you with details. They are there on the financial pages. NBC just the other day, as Mr. Dunham knows, said their profits went to $110 million from $48 million the year before and they expect it to go even higher. I have attached to my statement, Mr. Thornton Bradshaw's comments on how strong they are going to be. Now, the final question: Is it true the networks take all the risk that they so unabashedly and repeatedly claim? And the answer is "Hell, no, they don't." They make money on "dead pilots", pilots that they disown as series. They put them on the air, Mr. Chair- man, and they get advertising revenues that recoup their license fee and more. But the poor sappy producer, he is stuck with the deficit financ- ing. He has no place to recoup. He is dead. The network's argu- ment is barren of reality and they know it. Moreover, if they want a financial interest in the program, every producer in Hollywood would be glad to trade them 5 percent financial interest, which is really a kickback to the networks, and we know that, if the net- works would give an equal share of their advertising revenues on the programs that they have a financial interest in. I assure you Mr. Colloff would sooner jump off of CBS's Back Rock than give up $1 of advertising revenues and, yet, the net- works have the chutzpah to implore the FCC to force producers to give to them what they have inflexibly resolved never to give to producers. And my final statement: Why consider a rule change when this rule is one of the few Government interventions in the market- place, Mr. Leland, that is working, that is working easily and well. It has proved itself for 12 years and it is working cost effectively in the public interest. There is no reason to change except the networks roar for more profits. [Testimony resumes on p. 166.] [Mr. Valenti's prepared statement follows:] 32-540 O-84--~ PAGENO="0034" 30 Oral Presentation by jack Valenti, President Motion Picture Association of America, Inc. in Support of H.R. 2250 before the Sub-Corrrnittee on Telecorrrnunications, Consumer Protection, & Finance of the Corrrnittee on Energy & Corrrnerce U.S. House of Representatives Los Angeles, June 1, 1983 There is one question that must be answered for it stands supreme above all other questions that infest this debate. That question is: \M-LAT IS THE PUBLIC INTEREST IN THIS ISSUE? The public interest is indispensably linked to the continuance of competition in the marketplace. Without competition the market shrivels, the giants corrinand the television landscape, advertising costs rise, alternative choices of free television entertainment shrink. Therefore, it is an act of public policy which cannot be omitted to make absolutely sure that competition exists, that it is alive and well, that there are alternate prograrrrning sources and alternate non-network affiliated stations available. It is the public's interest, the public's needs, and the public's reaction to what it views that is paramount. All else is transient and of meager worth. Safeguarding the public interest is the ultimate objective of this congressional conmittee. It ought to be the goal of the Federal ConTnunications Comnission. PAGENO="0035" 31 That brings us to the next question: WILL THE REPEAL OF THE F INANCIAL INTEREST AND SYNDiCATION RULE DECREASE OR INCREASE COMPETITION IN THE TELEVISION PROGRA~ING MARKET? The answer is: If the rule is repealed, the three networks will totally, absolutely, completely dominate all television prograr~ming in prime time, and fringe time. No sane observer of the real world of television suggests otherwise. There are only three buyers of prime time nation-wide television prograrrming. Only three. There is no open marketplace where a creative producer can shop around for a prime time slot for what he has produced. If he can't get licensed by one of the three networks, he is out of business. Moreover, the real target of the networks lies veiled and obscured by their thick meandering files in this case. Their real target is the independent television station. According to FCC data, in 1972, two years after the Rule was created, there were only 73 independent TV stations in 38 markets. In September 1982, 10 years later, the FCC reported that the number of independents had soared to 179 stations in 86 markets. This dramatic increase in the number of independents is crystal-clear evidence of the fact that such stations have flourished in this competitive testing -- thanks in large measure to the availability of prograrrming the public wants to see and advertisers want to sponsor. The networks recoil under the skillful barrage of counter-prograrrrning broadcast by independent PAGENO="0036" 32 stations. Does anyone believe that if the networks controlled all prograrrrning they would allow popular programs to be licensed by independents, so that the ratings of network programs on their affiliates and their owned stations would stutter and recede? Does anyone really believe that? When intelligent people who are not in the daily television tangle suggest that anti-trust laws could protect producers and independent TV stations, the network executives can be pardoned for being amused for they know and we know justice is rude and scarred when it has been run through the "dragons and dungeons" maze of television interplay. There is no way that the lustice Department can police the arena, as 3ustice Department lawyers readily testified at the FCC hearings on March 14. Anot her que s t ion: IF THE RULE IS WORKING, THEN V*IO WANTS IT CHANGED AND ~iY? The networks want the rule changed. And except for affiliates, who live under the Big Brother scrutiny of their network Grendels, and whose rating fortunes are being besieged and assaulted by independent TV stations, the networks have no allies. None. Producers, small and large; prograrrrners, small and large; syndicators, small and large; independent TV stations; childrens prograrrrning producers; large national advertisers, and the list goes on --- all are opposed to any change. PAGENO="0037" 33 In a taunting parody of truth the networks cry, with enlarging anguish, that they must have more profits in order to compete with "the new technology". To listen to the networks argue this is to witness a collaborative illusion. The trajectory of their claim falters considerably when you examine the networks' headlong rush into the new technology. With their vast resources they will soon come to dominate all the new corrrnunications wizardy just as they have for years been made proof against intrusions into their prime-time television domain. The three networks are now involved in one way or another in: DBS High Dc fin i t i onTV Vi deotex Cable pr ogr anmi~g MDS p r o g r arrmir~g. Cab 1 e owner s videodisc, tape and computer pro4~cIt~ ~y cable sery~ç~ Home tftping servi~çç Low Powe!~]'i Sateiiite~pr~g~11~ dis~)1~ti~O!~ Movie product ion. CBS has just gone into partnership with Home Box Office and Columbia Pictures to create a new movie studio, called Tn- Star. In a direct frontal assault on our beliefs, CBS has climbed into bed with the enemy they accuse of withering their good fortunes, HBO and pay cable! PAGENO="0038" 34 In other words, the networks with gall that is almost fascinating to o'bserve insist they must be allowed to make more profits to compete with technology they are already absorbing! So we must ask the next question: ARE THE NETWDRXS IN DIRE STRAITS? It must be lamentable to the networks that they have to present one face to the FCC to unleash them from a rule that worked effectively in the public interest for 13 years, and another face to security analysts and stockholders whose good favor they seek to keep their stock price high. What they say to stockholders and security analysts is this: On May 4, 1983, Thornton Bradshaw, chairman of RCA (parent of NBC) said: "the three major television networks would be very, very strong in 1990" . . . "the three networks would continue to be the basis for entertainment and information in the U.S." . . . (he has) "lost his previous optimism about the great dream of 100 channels on cable TV systems" . . . "I don't believe in 100 channels anymore." On May 19, 1983, Grant Tinker, chairman of NBC reported NBC's profits increased to $110 million last year, from $48 million in 1981, and expects 1983 profits to be even higher. One proof of this was the 1/2 billion price paid by NBC for baseball rights for the next five years. PAGENO="0039" 35. CBS Research Group figures proclaim the durable dominance of network audiences by estimating a 70% network audience share in 1990, which in absolute numbers is larger than their audience today I From 1970 to 1981, network revenues increased 312% and network profits soared 550%. At the same time, the consumer price index for that same period went up only 134%. Wall Street reports that high ratings have pushed CBS stock to new highs. ABC set new viewing records for WINDS OF WAR and THE THORN BIRDS. Now, the final question: IS IT TRUE THAT THE NETW)RKS TAKE ALL THE RISKS AS THEY HAVE REPEATEDLY CLAIMED? The answer is NO. Producers have figures which clearly give the lie to this argument. The networks very seldom pay a license fee that recoups production investment by independent producers. Moreover, the networks make money even on dead pilots! Pilots which the networks turn down as series are aired on the network one, two times and advertising revenues return the license fee -- and more -- so that with material the networks disown they retrieve their investment and make money. But not the producer. He is stuck with deficit financing he cannot recoup. The networks' "risk argument" is barren of reality and they know it. Moreover, if the networks want to take a financial interest in programs they air, the producers would be pleased to PAGENO="0040" 36 trade them financial interest for an equal share of advertising revenues. You may wager safely the networks would sooner fling themselves off cBS' Black Rock than give up one dollar of advertising revenue yet they implore the FCC to give them from producers what they themselves are inflexibly resolved never to give to producers. With the public interest and competition safeguarded, with no public interest reason to change the rule, with no network allies except affiliates coerced by Big Brother networks, with network profits rising, ever rising, with independent TV stations competing handily with the giant networks under the rule, with national advertisers plainly stating that without independent TV stations' growing audiences advertising costs would ascend quickly (to the public detriment), with the networks plunging into all the new delivery systems, why this rush to incomplete judgment? Why consider a rule change when it is one of the few government interventions in the marketplace to work so well, so easily, so cost effectively, to the benefit of the viewing American public? Why? H.R. 2250 is a sane answer to a bizarre reach by the networks. Hold the rule in place. Let the marketplace give its signal if ever there comes a time for change. So far the only sound that is heard is the networks clanging a hollow gong. PAGENO="0041" 37 T}LE WASHINGTON POST Wednesday, May 4, 1983 T~I~A flL/~ UflaLflflafl D~CO~flA3S More Bullish on Networks By Robert Ricci Rciiter BURBANK, Calif., May 3-RCA Corp. Chairman Thornton Braclshaw predicted today that the three major television networks would be `very, very strong in 1990." Bradshaw said he had lost his pre. vious optimism about the "great dream of 100 channels" on cable * television systems by the end of the decade. * "I don't believe in a hundred channels anymore," the head of RCA, which owns the National Broadcasting Co., told a news conS ference before RCA's annual meet* ing here. Bradshaw said there would be no room for eight movie channels, eight news channels and eight sports chan~s nels. "There is not going to be room for all this narrow kind of broadcasting," he said. He said the three networks would * continue to he the basis for enter- tainment and information in the United States. There is a basic Americ3n culture and the networks are supplying that basic American culture, and they're going to get better and better at it,' he said. Bradshaw said NBC was neither in serious trouble nor was it up for sale. "We are not considering and have not considered selling NBC-that I make as a definitive statement," he `said when asked to comment on per. sistent rumors. Bradshaw also said RCA did not expect the imminent sale of its Hertz Corp. subsidiary, which the company had been attempting to dispose of for the past year and a half. He said RCA was still determined not to sell the car-rental company "for less than it's worth to us.' He gave no figures for the com- pany's value, but said Hertz was "making money" and controlled 38 percent of the automobile-truck rental market. PAGENO="0042" Q U Networks Are t}~e New Media CBS DES HDTV *Videotext Cab'e programming * MDS prograrnmLng * Cable ownership * Movie production * Video disc, tape, computer products ABC * Cable news seMce * Pay cable servke * Home taping seMce * Cable program joint ventures Video tape and disc products NBC (RCA) *DBS * Satellite program distribution * Pay cab'e service * Video disc and tape hard~s'are and software *LPTV * Videotext PAGENO="0043" PRIME `rIME SHARES OF THE VIEWING AUDIENCE IN 1990 Network Affiliates . 70% Pay Cable * 11% Basic Cable (Non-Broadcast) 5% Indepe~idents, Including Superstations and Non-Commercial (PBS) Television Stations *. . (CBS/Broadcast Group:"The Road to 1990") PAGENO="0044" cBs ESTIMATES OF ADVERTISING REVENUES -1990 Television Networks $15 Billion to $20 Billion Television Stations $18 Bill:ion Cable"Networks"/Systems $936 Million to $2 Billion * 0 (Source: "The Video Marketplace in 1990") PAGENO="0045" 41 Networks Remain Dominant. and Prosperous * Network audience still at 80% or better * Revenues: +312 percent, 1970 to 1981 * Profits: + 550 percent, 1970 to 1980 * Network profits doable as percent of TV indusny (11% in 1970; 20% in 1980) PAGENO="0046" 42 BEFORE THE ~rbrraI mmu t~uu~ ~ummt5atrni WASHINGTON, D, C, 20554 In the Matter of Amendment of 47 CFR S73.658(j); ) BC Docket No. 82-345 The Syndication and Financial Interest Rule COMMENTS OF THE MOTION PI~PURE ASSOCIATION OF AMERICA, INC. The Motion Picture Association of America, Inc. (MPA.A), by its attorneys, hereby files these initial comments concerning the issues set forth in the Notice of Proposed Rulemaking (NPR) issued July 21, 1982, in the captioned docket. MPAA strenuously opposes repeal or diminution of the syndication and financial interest rule. MPAA submits that the rule has served the viewing public by providing programming diversity through increased availability of off-network series. These series have been the mainstay of the growing strength of independent stations throughout the country. Partial or full repeal of the rule will give the networks effective control over the release of series into the syndication market as well as over the terms, prices, and conditions charged for these series. Such control will eviscerate the healthy and competitive sales of series programming that has grown since adoption of the rule. PRELIMINp~RY STATEMENT -: Primarily, the rule affects television series which are first exhibited by the networks and then are sold in off-network PAGENO="0047" 43 syndication. Syndication of these series is based upon the network exhibition lasting long enough so that a requisite number of episodes are produced. Equally important, the network run promotes viewer identity and loyalty with the series and its characters, thereby improving the series' chances for success in syndication. No alternative to the network exists for providing the exposure and the financial backing required to develop high quality series programming that appeals to broad segments of the viewing public. This is true even though the networks have lower ratings and shares in some time periods as compared to their previous highs. The absolute numbers of viewers reached and delivered by the netwOrks year after year is still several times larger than the next best alternative .Y These realities give the networks a dominant position in the production of television series. If anything, the networks' role has become stronger under two recent changes: fewer episodes are purchased in each option year, thus increasing the time involved in obtaining sufficient episodes; and, all but the highest ranked series are quickly withdrawn from their network run when their ratings fall. So long as the networks stand at the head of and control the funnel through which programs must pass before being made available for syndication, they will dominate the entire process. While it is true that some syndicated programs most 1/ ABC and CBS each have reached $2 billion in television revenues with NBC close behind. Broadcastir~g 24 January 1983, p. 42. In contrast, independent stations in total have yet to reach the $2 billion mark. Id, p. 66. PAGENO="0048" 44 notably game, variety, and talk shows -- have been successful in first-run syndication, these are the exceptions. No other realistic buyers for television series exist besides the networks. To the best of our knowledge, no cable service -- pay or basic -- has offered to provide the necessary financial backing to develop a full-fledged, sustained television series. The few bids for series by pay cable have been directed to proven programs for a limited number of episodes. These can hardly be characterized as offering any real alternative to the development of series that has been done by the networks for many years. Even with cable penetration at 35% today, cable does not have the financial wherewithal tO provide a competing market for series production and development. Perhaps in several years if penetration increases enough to attract substantial advertising dollars to cable, an alternative delivery system could possibly develop. That day is, however, far in the future, and cannot be substituted for today's realities. The Commission has chosen to ignore the networks' control over the process in seeking repeal of the rule. Networks have been, are, and will be the only buyers for first-run entertainment television series. On the other hand, the NPR accepts without comment the Special Staff's claim that "[n]o new outlets or viewing options are encouraged by this rule." (NPR, ¶31.) This claim ignores the tremendous growth of independent stations since passage of the rule. This growth is directly related to passage of the rule: the mainstay of independent stations' schedules and revenues has been the availability of recent, popular off-network syndicated PAGENO="0049" 45 series. The Commission need only look at early fringe schedules this day part is generally the highest revenue producing period for independents to see the heavy reliance on off-network series to deliver large audiences. The effectiveness of independent stations in counterprogramming with syndicated series has offered iirsnediate program diversity. The high ratings and shares achieved by these programs on independents indicate conclusively that viewer interests are being met by strong alternatives to the programming broadcast by affiliates. Another indication of the appeal of independents is found in the widespread retransmission of distant independent signals by cable systems which suggests that the programming available has been judged by cable as a valuable alternative or addition to what is available over-the-air. As independents grow stronger through increased advertising revenues obtained as a result of the large audiences for of f- network series, they are able to provide even more service to their corrununities. In this way, they can and do serve as new outlets for programs and ideas that might not otherwise be available in the marketplace. Further, because independent stations provide an already established group of stations which can deliver the audience (and, hence, advertising revenues), they offer potential support for the more ambitious first-run syndication efforts. This, too, will increase the program options available to viewers. As greater support for first-run programming is offered, producers will be willing and able to take greater chances in providing new programming. 32-540 O-84--4 PAGENO="0050" 46 MPAA disagrees with two major premises of the NPR. First, contrary to the ~ no realistic alternative is apparent for the continuation of network financing and exhibition of television series. Alternative delivery systems are not in the same league, let alone the same ballpark, as the networks in terms of financial backing or audience delivery. Second, the growth and strength of independent stations which parallel adoption and implementation of the rule and which rests upon substantial revenues from of f- network series, has opened new viewing outlets and options throughout the country. Rather than warranting repeal of the rule, these factors strongly support its continuation. The primary purpose of the rule, to lessen the dominance of the networks, is necessary today and can be accomplished while at the same time opening new viewing opportunities. ARGUMENT 1. The Total Context Of Program Development Must Be Judged When Assessing Competition The Commission posits two assumptions as possible reasons for repealing the rule: (1) the producers "are themselves powerful actors" and, therefore, there is less need to protect them from undue influence (NPR, ¶39); and, (2) the rule may no longer promote competition because it unnecessarily restrains the networks' abilities to compete (NPR, ¶42). Both assumptions reflect a naive impression of the network distribution industry as one where free market bargaining and competition applies. In assessing the importance of the rule, the composition of the industry as a whole PAGENO="0051" 47 should be considered because it shows domination by the networks. Given the unequal bargaining strength of the networks, the protection of the rule Is necessary to check further dominance. First-run program production and development for series is currently and will remain almost exclusively in the network arena. Alternative delivery systems have neither the necessary resources nor sufficent audience levels to sustain production for the type of series programs found on the networks. Syndication of series has not been successful other than in sales to television stations. No alternative delivery system buys syndicated series on a regular basis. Cable, which is the strongest of these alternatives, relies largely on the retransmission of over-the-air television stations for basic services and on movies and special sports and other events for pay serivces. First run programming on cable has focused on news, health, sports, performing arts, and music services, rather than on development of new sources of entertainment series. Other delivery systems are so small or still in the development stage and, therefore, cannot be considered to provide any realistic support for series program development. The networks have established both methods of distributing, promoting, and selling advertising on new series, as well as the audiences to provide the necessary viewer interest and support to sustain the continued development of new series. The networks are aware of their position as the only game in town, andhave used it to exact extremely favorable concessions from producers. It is only in the areas of syndication and financial interest, where the PAGENO="0052" 48 Commission has restricted the networks entry, that the producers are able to retain any control over the process. The NPR's assumptions that producers are "powerful actors" in program production is not supported by the record. While it is true that some larger producers have greater financial resources than some smaller producers, the fact remains that the networks have an overwhelming superiority in the contractual process. This overwhelming superiority is evidenced clearly by the absolute uniformity with which the same contractual conditions are imposed by the networks on both larger and smaller producers. It is shown also by the payments under these contracts which require many producers to deficit finance and which do not provide for increased payments to reflect the increased value of successful series. The striking similarity of terms and conditions in network contracts suggests very strongly that the only powerful actors in the marketplace are the networks. As the Commission is well aware, producers have been attempting without success for many years to seek removal of option, exclusivity, and spin-off clauses from the network contracts. Notwithstanding these efforts, the Staff Report indicates that these clauses were found in virtually all contracts ("Network Program Supply Contracts", pp. 162 - 226, Preliminary Special Staff Report, June 1980). If producers were the powerful actors assumed by the Commission, it could reasonably be expected that a number of the contracts would exclude these clauses. Instead, the degree of similarity and uniformity of all networks' contractual clauses supports a conclusion that the networks hold the decisive hand. PAGENO="0053" 49 The superiority of the networks' bargaining power can be seen also by the requirement that production be deficit financed by the producer throughout the network run. The producer must bear front- end development costs associated with the production; if the series is cancelled early, as most are, the producer does not recover these costs. A producer of a successful series will realize only token increases in contractual payments over the remaining years of the option period. These token payments, which are in the range of 5% per annum, have generally been inadequate to cover the annual inflationary Increases in cost, let alone to cover increased compensation often demanded by talent on a hit series.2/ As the program increases in popularity and attains higher audience ratings, the producer's costs will be higher than the additional revenues it gains from the increased audience. (Special Staff Preliminary Report, An Analysis of Television Program Productio~t, Acquisition arid Distribution June, 1980, Tables 20 and 21 pp. 373 - 74 (hereinafter "Staff Report"). The contracts make no provision for the producers to share any profits from the added advertising revenues gained by a hit series, thus allowing the networks to capture all the profits. Any increased payments that the producers obtain during the option period come in the form of "relief" which the producer must beg from the networks. "Relief" when granted, allows producers 2/ MPAA's analysis using the Special Staff's figures shows that the payments to producers averaged about 55% - 60% of the 1977 advertising revenues generated by series programs. See MPAA Comments in Docket No. 21049, filed September 16, 1980, at p. 10. PAGENO="0054" 50 to track some of the increased costs that cannot be covered by the token increases in annual payments under the contract. In most cases relief is extracted at an additional cost to the producer, the common concession being an extension of the option period (Staff Report, 218). Again, were producers the powerful actors assumed by the Commission, it would be unlikely that they would be willing to accept these types of provisions in their contracts. The lack of bargaining strength on the producers' side is shown also by the parallel terms found in all three networks' contracts. Both the Special Staff and the Antitrust Division found that the contract terms of the networks were very similar, if not identical, in virtually every important aspect. This parallelism precludes producers from seeking a better deal at a different network when they are unsatisfied with what has been offered. There are no better deals, only more of the same. All these factors suggest that the metworks have overwhelming superiority during the bargaining. The same terms are offered to all producers, large and small. The similarity of terms and the uniformity of their application is strong evidence that the only "powerful actors" are the networks. They have successfully used their position at the gateway to development of series programs to dictate the terms to be exacted from the producers. As shown, many provisions exacted are antithetical to the producers' best interests and unnecessarily restrict the availability of the programs. These facts of the bargaining process are important here because they show that the networks have maintained a position PAGENO="0055" 51 which is clearly superior to the position of any producer. The only check to the networks using their power to exact even further concessions has been Commission-imposed rules. The need for such protection has not diminished or changed. It is not only likely, but almost a virtual certainty, that the networks, if the rule is repealed, will gain control quickly and effectively over syndication because the producer will have no option but to sell its rights to a network. Competition between buyer.s is not present at this stage of program development and, therefore, marketing forces cannot and do not operate freely to assign risks and rewards in an orderly fashion. The Commission's rule has limited the networks' dominance in one area, and thus opened syndication to new buyers and sellers. Repeal of the rule would eliminate the open competition currently present in syndication of off-network series by allowing the networks to exert their overwhelming superiority to gain control over this stage of program distribution. 2. R~pealofTheRuleCannot8eJustifiedAspromotingCompetition Adoption of the syndication and financial interest rule has ~treq~iired the Commission to supervise or toénforce the rule's strictures. By adopting a flat prohibition against the networks gaining these rights, the Commission provided a framework within which all parties have since negotiated. The regulatory burden has been minimal because the rule is self-policing. Thus repeal cannotb~ justified as reducing regulatory burden. The Commission has turned, instead, to justifications alleging the lack of a continued need for protection of producers, which was refuted in PAGENO="0056" 52 our first argument, and to alleged, unproven, and, we believe, fanciful claims of stifled competition in first-run series development because the networks can't compete for syndication profits. The Commission suggests that "the rule establishes an'1 imbalance in the ability of networks and nonnetwork oiztlets to compete for the products of independent producers." (NPR, ¶17).J This is sheer sophistry. The networks are the sole buyers on a continuous basis for the exhibition rights to first-run entertainment series as a result of their tremendous capital revenues and their ability to deliver very, large audience. No other delivery system. can be expected to challenge the networks as buyers of series. The Commission' s claim of a possible imbalance against the networks rests entirely upon a theorized, hypothetical competitor who has yet to appear in real life. Moreover, when the necessary assumptions are made to postulate the hypothetical competitor, it becomes apparent that such a competitor could be in a position to compete only some time in the future after a series of very favorable breaks. .~/ Moreover, the risks faced by the networks in buying syndicated series rights for network exhibition are minimal, and thus have little, if any, effect on the networks' ability to continue to compete for new products in this market. MPAA, in its September 3/ If competing on a par with the networks were a relatively easy thing to do7 it could be expected that many new entrants would already be successfully competiting, given the enormous rewards to be realized. The fact that no new entrants have appeared or been successful suggests the overwhelming obstacles. PAGENO="0057" .53 16, 1980 comments in Docket No. 21049 responding to the Staff Report, showed, based on the Special Staff's numbers and assumptions concerning the networks' purchasing practices and costs (Staff Report, 61 - 62), that if the networks lost their ~ti~ investment in program development including the time value of the money used, the loss would amount to less than 3.5% of their annual advertising revenues (MPP~A Comments, 17 - 20). Under the more realistic, but still unlikely, scenario that the entire investment In 10% of the scripts is lost, the networks' outlay would amount to approximately 1% of their annual revenues from advertising. This inconsequential risk factor does not suggest that the networks need additional incentive, in the form of possible syndication revenues, to compete successfully for new series programs. Quite clearly, these possible risks are not now at a level which can seriously impair the networks' rate of return. The networks can continue, as they have since the rule was adopted, to show impressive, and entirely just and reasonable, rates of return for their series program acquisition efforts. The Commission's theorized imbalance is made of whole cloth. No competition exists to the networks' purchase of series nor coulá~ be expected to exist for several years under the most favorable 1 assumptions. The networks are burdened very little by the. development of series, and have and will continue to earn acceptable' rates of return without repeal of the rule. Further, the Commission has no authority to base its decisions on the return earned by the networks. The only imbalance is caused by the PAGENO="0058" `54 overwhelming superiority of the networks which allows them to control virtually every aspect of series development. The Commission uses as a second justification that retentio~\ of the rule "could result in a disservice to the public interest by limiting hearty competition in the provision of alternative] forms of programming." (NPR, ¶42.) The only realistic alternative delivery system for series to the viewing public is off-network syndication. The Commission's possible "disservice" justification assumes that hearty competition in off-network syndication can only result by allowing entry to the networks. Nothing could be further from the truth. The chief benefit of the rule has been opening off-network syndication to many new buyers and sellers. These new entrants and the competition they have spurred have resulted in widescale program diversity to the viewing public. From any viewpoint, of f- network syndication since adoption of the rule must be characterized as one of "hearty competition." There are many, many syndicators, from very small operations to very large ones, which now offer a variety of deals to producers in return for syndication rights. On the buying side, the influx of new independent stations has created new opportunities for syndicated series to be broadcast and available in new time slots and in new markets. Because so~_\ many players are participating, because movement is flexible, because the rewards are great, and because no one player or group can dominate, off-network syndication of series is extremely responsive to individual situations. As a result, off-network series are more widely available at prices that reflect full value PAGENO="0059" 55 to those who produced the series and those who use the series. Producers and television stations are free to choose from a large number of syndicators who have introduced and marketed a gre~J variety of off-network series. Current, ~off-network syndication provides the maximum opportunities for free competition which serves the viewer's interests best. Not only are a wide number of programs available at all times, but they are readily accessible should sufficient interest warrant their purchase. Independent stations have capitalized on their ability to counterprogram effectively with off-network series, particularly in the early fringe daypart. Their success in these efforts reflects viewer interest. With several stations available over the air in most markets (NPR, ¶33), and each station airing different programs throughout the day, the viewing public has a degree of diversity that has not previously been experienced in broadcast television. Equally important, the wide availability of programs is fulfilling the needs of substantial segments of the viewing public. Public acceptance of and interest in off-network syndicated series has given new independents strong ratings in local markets. While some of the shifts may result in decreased ratings for the networks, the shifts are directly attributable to the viewers' choices, which is exactly the interest the Commission should promote. This hearty competition for the viewing public exists in large part because producers are not stifled in syndication by contractual limits set out the outset of a series' development. PAGENO="0060" 56 Whether the hearty competition would remain once the rule is repealed is problematical because of the network's competing ownership positions. Assuming that the networks acted rationally to maximize the opportunities available, it would be likely that a network would analyze its entire position before making any business judgments on program delivery, whether first-run or syndication. This analysis involves, among other things, the interest and profits in continued network exhibition, the ownership of 0 & 0 stations, the affiliate relationships, and the state of the syndication market; these factors can be weighted on a national basis or on a local basis or some combination. As rational investors, the networks will seek to maximize their overall position by considering these and other factors, which may be in conflict. Continued network exhibition strength~\ may depend upon limiting or avoiding the syndication market for several years. Protecting an 0 & 0 may require making no sale in a big-city market even though significant syndication revenues / otherwise would result. Maintaining affiliate relationships may/ require that syndicated series be offered first or only to the! affiliated station in a market. Finally, the networks may determin that their large holdings in syndicated series would be maximize by tine release sales, rather than by introduction of all series concurrently. MPAA does not claim that the networks will always act in a certain manner, other than the rational one of maximizing their own interests. What we do claim is that the networks have important competing interests which can and would warrant limiting program PAGENO="0061" 57 availability to the detriment of the viewing public. Today, buyers and sellers of off-network series respond entirely on viewer interest by gearing prices and availability to their perceptions of how viewers will respond to a series. Networks, with their built-in competing interests, would not rationally be expected to decide solely on grounds of viewer Interest. The probable result would be a constriction in availability to the detriment of the viewing public. Moving from a responsible situation to one that is less responsive is not an adequate ground for repeal of the rule. 3. Retention of the Rule Will Not Increase Concentration In Program Production The Special Staff's and the Commission's inability to deal with obvious realities is shown by the claims that networks will continue their minimal payments for network exhibition if the rule is retained and that retention of the rule "could increase concentration in the program supply market by limiting involvement only to those entities large enough to bear the great risks involved." (NP~, ~13O.) These two claims go together with the premise that the minimal network payments will lead to limited involvement by fewer entities. The premise is refuted by the fact that networks now pay the lowest possible amounts for series without obtaining syndication or financial intrest rights. Further reductions for a "loss" of rights that the networks don't possess would be unwarranted, as well as economically counterproductive. More important, the conclusion that retention of the rule will increase concentration because of the great risks has been PAGENO="0062" 58 totally invalidated by the historical experience since passage of the rule. During these years, concentration in program production has not occurred; movement in and out of production by parties has been relatively easy and constant. Many small ccmpanies at the time of the rule's enactment have borne the great risks, and have used their successes in syndication to improve their position. Program production has been consistently marked by "great risk" in the forms of a high failure rate during the network run and deficit financing. The possibility of syndication revenues has been strong enough, however, to induce new investors and entrants into the market. This incentive will be lost if the rule is repealed. Assigning the risk function for syndication to the networks will, at best, lead to rather modest increased revenues during the network run, and nothing thereafter. It is doubtful that these increased revenues from the networks will match the revenues that could be obtained in syndication. This, by itself, would reduce the incentive to enter program production. Because the majority of new series can be expected to fail before reaching syndication, the value of syndication rights at the pil~t stage (when the network contract is reached) is either nonexistent or worth a pittance. It can be expected that the amounts paid by the networks would be valued accordingly; the resulting minimal payments received by the producers would, in turn, lessen the incentive to enter program production. The question on this issue is: will new entrants be likely to move into a situation where the full extent of their possible PAGENO="0063" 59 -18- rewards will be judged when the series has no proven record and is expected to be unsuccessful? The answer is obvious, yet this is the probable scenario facing series producers if the rule is repealed. Contrary to the Special Staff's assertions, Small producers have been shown to be willing to take the "great risks" involved where they have control over the rewards available in syndication. This incentive is lost entirely when the only reward is a modest increase in network license fees. It is more likely that many producers, large and small, will see no advantage in entering such a low yield investment. Producers, like other entrepreneurs who risk their money on individual ideas, are more likely to enter a situation where they retain sane control and where their successes will be rewarded. Network domination of the syndication rights to series, which will occur without the rule, would destroy these incentives with a result of fewer entrants into program production. The record since passage of the rule shows that entry has been fluid for small entrants. This obvious reality indicates conclusively that the rule has not led to concentration and, therefore, repeal is not warranted on this ground. CONCLUSION The reasons listed in the NPR for a change in the rule do not support partial or whole repeal. The rule serves a useful function which has directly benefitted the viewing public by increasing the number and availability of off-network series in syndication. In these circumstances, !`~AA urges the Commission to retain the rule. \ Respectfully submitted, TEE MOTION PIOTURE ASSOCIATION OF AMERICA, INC. Arthur Schemer Of Counsel: _____________________________ Dennis Lane Fritz Attaway Wilner & Schemer Motion Picture Association 1200 New Hampshire Avenue, N.W. of America, Inc. Suite 300 1600 Eye Street, N.W. Washington, D.C. 20036 Washington, D.C. 20006 (202)861-7800 Its Attorneys January 26, 1983 PAGENO="0064" 60 BEFORE THE Federal Communications Commission WASHINGTON, D. C. In the Matter of: Amendment of 47 C.F.R. S 73.658(j); ) BC Docket No. 82-345 the Syndication and Financial Interest Rule To: The Commission COMMENTS OF PARAMOUNT PICTURES CORPORATION Paramount Pictures Corporation ("Paramount"), by its attorneys and pursuant to Section 1.415 of the Rules of the Federal Communications Commission, hereby submits its Comments in opposition to the proposal of the Commission in the above- captioned proceeding to repeal the financial interest and syndication rules. See Notice of Proposed Rule Makiflg, BC Docket No. 82-345, FCC 82-300 (released July 21, 1982) ("Notice"). 1/ I. Introduction Paramount is vehemently opposed to the Commission's proposal to repeal the financial interest and syndication rules. 1/ Paramount is also a member of the Committee for Prudent Deregulation, a broadly-based coalition of independent producers, artists, syndicators, independent television stations, adver- tisers, and others that has been formed to address in broad terms the crucial need to maintain the financial interest and syndica- tion rules at this time. Paramount generally supports the comprehensive comments being filed in this proceeding by the Committee. However, we write separately here to explain the particular importance of the rules to program suppliers such as ourselves. PAGENO="0065" 61 In fact, we respectfully question how the need for these rules could even be in doubt, let alone how the FCC could unfairly place the burden on those who would retain the rules to demonstrate why the status quo should not be changed. The financial interest and syndication rules provide the only check on the dominant position of the three major broadcast networks in the television program market. Because of the rules, program suppliers such as Paramount have at least some safeguard in their negotiations with the monopsonistic cartel that controls access to every American home. We therefore have been able to recapture revenues that permit us for the first time to develop high quality programming for the more risky first-run syndication market. And because of the rules Paramount and other program suppliers finally have been able to offer attractive syndicated programming on a timely basis, and independent television stations have been able to take advantage of such programming to come into their own as meaningful competitors to the networks and their affiliates. It is not surprising that the networks object to the financial interest and syndication rules so strongly, for the rules remain as two of the few significant restrictions preventing them from exercising the full extent of their dominant market power. However, we submit that for that very reason it is vital that the rules remain in place. Speaking for itself, 32-540 0-84--S PAGENO="0066" 62 Paramount has no doubt as to the consequences that would follow if the rules were eliminated. The networks would force us to give up the lion's share of the syndication rights of the programming we create as a condition for their ordering and subsequently broadcasting that programming -- just as they did until the rules were adopted. They thereby would deny us the funds to support our first-run syndication efforts. And further- more, the networks would prohibit us from selling our off-network programming until long after that programming had any significant audience appeal -- again, just as they did before the rules were adopted. The newly-achieved ability of the independent stations to compete with the networks would be eliminated. Triese results are easy to foresee; they reflect the common-sense business judgments of the networks, who will use their unique access to American homes to maximize profits at the expense of their suppliers and their would-be competitors. The networks themselves admit that they would pursue these goals. Indeed, the networks would be likely to exercise their market power even more anticompetitively than in the past. At least prior to 1970 the networks had reason to show some restraint for fear that the government would restrict their programming activities if they were overly aggressive. The FCC nevertheless promulgated the limited rules at issue here. However, if the rules are repealed the networks reasonably will conclude that the PAGENO="0067" 63 government no longer cares how they exploit their market. They will push for every penny they can get. Paramount does not object to such marketplace activi- ties when the marketplace is competitive. Indeed, we already compete with the three networks in many areas, including home video entertainment (through the sale of videocassettes and discs), advertiser-supported cable programming (through our one- third ownership interest in the "USA Network"), and pay cable programming (through our pending acquisition of interests in "The Movie Channel" and "Showtime"). We have not sought FCC pro- tection in these ventures, nor do we believe that we deserve it. Where the networks have no bottleneck control, and we therefore are able to bring our product to market, we strongly believe that government regulation is inappropriate. We work hard to produce programming that audiences prefer, take our profits when we are successful, and accept our losses when we are not. We have chosen to participate in an extremely risky industry, but we believe that we can survive and prosper in free competition by creating a better product. But Paramount faces an entirely different situation in the commercial television market. Paramount and other program producers simply do not have any significant avenue by-which we can distribute television programming to natiOnal audiences other than that provided by the three major networks. The FCC PAGENO="0068" 64 created this bottleneck thirty years ago when it assigned television channels in such a way as to permit only three networks to develop. The bottleneck continues today. Particularly given its role as the designer of an allocation scheme that ordains that the networks be dominant in national television, it is the responsibility of the FCC to prevent the networks from exerôising that dominant position in an anticompetitive fashion.. Frankly, Paramount is confused as to why the FCC has chosen to devote its limited resources to a reconsideration of the financial interest and syndication rules. The Commission speaks of ending a "decade-long debate," 2/ but there has been no such "debate." The facts that led the Commission to promulgate the rules in 1970 never have been in serious dispute. Indeed, as we discuss in more detail below, see infra at 11-13, the FCC's findings were later confirmed by separate investigations into network programming abuses conducted by the United States Department of Justice. The facts developed by the Justice Department left no room for significant "debate" over the need to restrain the dominant market power of the networks. Rather, the Department found the history of abuses to be so compelling that, notwithstanding the FCC rules, it imposed even broader financial 2/ See Notice, Separate Statement of Chairman Mark Fowler, at 1. PAGENO="0069" 65 interest and syndication restraints in consent decrees to which the networks agreed as recently as two years ago. 3/ From all appearances~ the FCC has issued its Notice in this proceeding not because of any "decade-long debate" over the two rules, but instead because of heavy lobbying from the affected networks. This lobbying is part of an unseemly attempt by the networks to reverse the judicial decrees to which they so recently committed themselves. In private the networks must admit to themselves that the circumstances that led the FCC to promulgate the financial interest and syndication rules, and led the Justice Department and the court to strengthen them, have not changed. However, the networks clearly believe that this particular Commission offers them a brief "window of opportunity" for repeal of the rules, at least so long as repeal is couched in the fashionable name of "deregulation." If successful here, the networks undoubtedly will return to court and use the favorable decision of the Commission as a wedge to break open the consent decrees. 3/ See United States v. National Broadcasting Co., 449 F. Supp. 1127 (C.D. Cal. 1978), aff'dineifl., No. 79-3381 (9th Cir. April 12, 1978), cert. ~inied, sub non. CBS v. U.S. District Court, 48 U.S.L.W. 3186 (1979); urT~i~ States V. CBS, Inc., Civ. No. 74-3599--RJK (C.D. Cal. July 31, 1980), ~printed in 45 Fed. Reg. 34,463 (1980); United States v. ABC, Inc., Civ. No. 74-3600-RJK (C.D. Cal. Nov. 15, 1980), ~printed in 45 Fed. Reg. 58,441 (1980). PAGENO="0070" 66 The FCC properly stood up to similar pressure from the networks a year ago when it refused to review the Prime Time Access Rule, a regulation imposing restrictions on the amount of programming that the networks may broadcast during evening hours. 4/ ~Yet that rule was adopted at exactly the same time as the financial interest and syndication rules, and for exactly the same reasons. The package of rules was intended as a compre- hensive scheme to reduce network dominance. See Report and Order, Docket No. 12782, 23 F.C.C.2d 382 (1970), modified in ~ 25 F.C.C.2d 318 (1970), aff'd sub non. Mt. Mansfield Television Inc. v. FCC, 442 F.2d 470 (2d Cir. 1971). Nevertheless, without any explanation for the distinction, the FCC proposes to undercut its access rule decision and grant the networks' request for repeal of the financial interest half of the package. The Commission does so despite the fact that the Network Inquiry Study on which it so heavily relies was even more critical of the Prime Time Access Rule than the financial interest and syndication rules, 5/ despite the fact that the access rule has been the subject of 4/ See Order, RM-3951, FCC 81-536 (released Nov. 20, 1981). 5/ See Network Inquiry Special Staff, Preliminary Report: An Analyili of Television Program Production, Acquisition and Distribution 132-40 (1980). PAGENO="0071" 67 much more Ndèbate~ over the past decade, 6/ and despite the fact that the Justice Department had not found the access rule to be so important as to require incorporation in the network consent decrees. Paramount strongly supports retention of the Prime Time Access Rule as well as the financial interest and syndication rules. But we fail to see the logic of repealing the latter and not the former. The same problem of network dominance underlies both. It would be disingenuous for the FCC to distinguish between them; presumably that is why the Commission has not even attempted to provide a rationalization for doing so. We question whether the FCC actually intends to repeal all of the network rules, and has simply made a political decision. to move forward in stages to divide the opposition. Paramount hopes that this is not the case, and that the Commission will not destroy one of the most successful policy regulations it has promulgated in the last twenty years. In the balance of these Comments Paramount discusses the serious flaws in the reasoning of the Commission's Notice. We submit that if the FCC impartially examines the actual structure of the televi- siori industry, it can only conclude that the financial interest 6/ See, ~ Second Report and Order, Docket No. 19622, 50 F.C.C.2d 829 (1975); Report and Order, Docket No. 19622, 44 F.C.C.2d 1081, 1137 (1974). PAGENO="0072" 68 and syndication rules have been and still are a successful and necessary response to the bottleneck power of the three networks. They must not be repealed. II. The Rules are Vital to a Healthy Program Market A. The Rules Correct Continuing Imbalances in the Marketplace A decade ago, after many years of study, the FCC concluded that it was essential "to eliminate the networks from distribution and profit sharing in domestic" and certain foreign syndication. ~port and Order, Docket No. 12782, 23 F.C.C.2d 382, 397 (1970). The Commission found that the networks were the only significant distribution medium by which independent producers could offer their programs to the public, and that the networks exploited this position to obtain signific~nt concessions as a condition of purchasing programs for network runs. According to the FCC, "networks do not normally accept new, untried packager-licensed programs for exhibition unless the producer/packager is willing to cede a large part of the valuable rights and interests in subsidiary rights to the programs to the network." Id. at 398. In fact, as of 1968 the networks exerted their market power such that they had a financial interest in over 96% of their evening entertainment programs. Paramount was all too aware of the networks' insistence on such rights. By the mid-l960's it became impossible for us to PAGENO="0073" 69 produce television programs for network distribution unless we were willing to grant the networks a substantial share of the syndication rights. And we are still bearing the burden of those adhesion contracts. We continue to pay the networks millions of dollars as their share of the off-network profits of programs we developed during this period, including "Star Trek," "The Brady Bunch," "Love American Style," and "The Odd Couple." The financial interest and syndication rules went part way toward redressing the competitive imbalance between the networks and producers. The networks, however, in parallel actions, continue to require other uniform concessions as a condition of broadcasting a program, including "spin-off," renewal, artistic control, and exclusivity rights (including the stipulation that re-runs of the program may be stripped in daytime periods only on the network that originally purchases it). It is well-known within the industry that these boilerplate provisions are essentially non-negotiable. But thanks to the financial interest and syndication rules, producers at least have a means of recovering their other costs and even earning significant profits through the later syndication of successful programs. As discussed above, the sound judgment of the FCC was later confirmed by the separate investigation of network practices conducted by the Department of Justice in the course of PAGENO="0074" 70 prosecuting antitrust actions that the Department brought against ABC, NBC, and CBS in 1974. Most of the evidence assembled by the Department is unavailable under the terms of the consent decrees agreed to by the networks between 1978 and 1980. But in filings made in Support of those decrees the Department made clear that it had found substantial proof that the networks had used their dominant control of the nation's television airwaves to demand and obtain financial interests and other concessions in exchange for accepting a program for network broadcast. In fact, the Department had testimony that the networks not only refused to purchase specific programs when they were denied such rights, but also threatened to and sometimes did subsequently boycott all programs offered by recalcitrant independent studios. 7/ The Justice Department acknowledged that the FCC's financial interest and syndication rules had been a necessary first step toward eliminating these abuses. However, the Department contended that even so the networks continued to use their "dominance and control over access to the broadcasting time" to force program suppliers to "relinquish[ I valuable rights and interests in their programs * * * ." Competitive 7/ See Attachments 1 and 2 to "Identification of the Evidence Tn Support of the Government's Contention that CBS and ABC Have Violated Sections 1 and 2 of the Sherman Act," United States v, CBS, Civil No. 74-3599-RJK (C.D. Cal. 1974); United States v. ABC, Civil No. 74-3600-RJK (C.D. Cal, 1974), PAGENO="0075" 71 Impact Statement, United States v. CBS, ~ (filed May 8, 1980), printed_!~ 45 Fed. Reg. 34467, 34468 (May 22, 1980). In response to evidence of these practices, the networks agreed to a number of limitations on their dealings with producers. As noted above, the Justice Department viewed financial interest and syndication restrictions to be so important that, notwithstanding the presence of such restrictions in the FCC's rules, it insisted that even more expansive limitations be written into the consent decrees. See, e.g~, United States v. National Broadcasting Co., 449 F. Supp. 1127 (1978). The Department then went on to impose many other prohibitions designed to allow the program suppliers "to compete free of the artificial leverage which [the networks) have exercised in the past." Competitive Impact Statement, United States v. CBS, ~ 45 Fed. Reg. at 34469. Most notably, the decrees include a general injunction forbidding the networks from conditioning the purchase of exhibition rights to a program on the supplier granting any rights other than those incident to the network broadcast. The Department advised the court that this restriction S~j5 based on the assumption that the [three commercial television networks will continue to have substanti~~l market power for the foreseeable future." Id. (enphasis added). Absolutely nothing has changed since 1980 to make that assumption invalid. The networks in fact have become larger and PAGENO="0076" 72 more dominant in the industry. Commercial network television is still the only avenue into the homes of most Americans. The networks have expanded the percentage of homes reached by their own television stations. 8/ They will be able to expand further if the FCC goes forward with proposals to remove the "7-7--7" limits on television station ownership. It is no wonder that network executives unabashedly brag (except in this proceeding) that their dominance will continue through the next decade. See infra at 22. Paramount is at a loss as to what rational basis there could be for repealing rules that -- by consensus of prior Commissions, the Justice Department, and the Courts -- are vitally necessary to redress competitive imbalances in the program marketplace. The FCC's Notice of Proposed Rulemaking is of only limited value on this point. The Commission relies most heavily on two arguments: first, that of the Network Inquiry Special Staff that the rules are misguided and interfere with efficient risk-sharing, and second, the claim that the market for television has been revolutionized by the arrival of new technologies, eliminating the dominant position of the networks. But neither of these theories is consistent with reality. 8/ In 1970 the network owned and operated stations reached 42% of the total U.S. television households. By 1980 their reach had increased to 52% of the households, and by 1982 they served 57% of American homes. See Arbitron Local Market Books for February 1970, 1980 and 1982. PAGENO="0077" / 73 B. The Recommendations of the Special Staff ~nore Marketplace Realities The Network Inquiry Special Staff's recommendation that the financial interest and syndication rules should be repealed is doubly flawed -- it both ignores the crucial benefits of the rules and erroneously suggests that they have public interest costs. The Special Staff's report has been criticized at length elsewhere. 9/ The Department of Justice has warned that the "Staff's methodology was significantly flawed; therefore its conclusions are open to question and (its] studies should not form the basis for action by the Commission." 10/ The Committee for Prudent Deregulation is today filing an exhaustive report that further discusses many of the errors contained in the Network Inquiry Study. As a result, Paramount will only make a few significant points here. 9/ Paramount, like other program producers, provided the Special Staff with extensive information regarding the television entertainment market. We therefore were extremely concerned when the Staff ignored or distorted much of that information in their report. Frankly, however, we made a practical business decision not to spend any additional resources in an attempt to correct the Staff's many errors. It was our view that, given the consent decrees that the Justice Department obtained in its antitrust Suits against the networks at the same time that the Special Staff issued its report, any comments on that report would be superfluous. And in any event, we believed that the Staff's theoretical conclusions with respect to the networks' relationship with program suppliers was so clearly contrary to reality that those conclusions would never be given credence by the Commission. Obviously we were naive in that regard. 10/ Comments of the United States Department of Justice, Docket No. 21049, at 1 (September 16, 1980). PAGENO="0078" 74 First, the Special Staff's disregard for the benefits of the rules is rather surprising. Elsewhere in the Report the Staff properly found that "[p]ast Commission policies have served effectively to limit television to a system dominated by three over~-the-air advertiser-supported networks." Final Report, at 3 (emphasis added). The Staff also stated that "[t]he near-term prospects for a fourth [such] network are not bright," though it was more optimistic that pay and non-broadcast networks eventually may develop with proper Commission nurturing. Id. at 4-5. But despite this recognition of the dominant bottleneck position achieved by the networks thanks to the FCC's channel allocation policies, the Special Staff cavalierly dismissed the need for the financial interest and syndication restrictions. According to the Staff, the FCC "should be indifferent" to the ability of the networks to extract financial concessions from program suppliers. The Staff apparently believed that as long as the networks do not push so hard as to drive the producers out of business, it does not matter whether the networks exploit their monopsonistic leverage to obtain supra-reasonable returns for themselves. See Final Report at IV-77. This narrow view of the public interest is absurd on its face. Paramount willingly admits that the financial interest and syndication rules are in its own economic self-interest. But PAGENO="0079" 75 the rules are not a protectionist device giving producers a special advantage in an otherwise competitive marketplace. Rather, the rules are well-considered counterweights to the dominant power of the three networks. Notwithstanding the rules -- and the other restraints contained in the consent decrees -- the networks have proven themselves fully able to earn huge profits from their broadcast activities. From 1970 to 1980 the networks' profits increased 550%, from $50 million to $325 million. Even more impressive, their share of total television industry profits increased from 11% in 1970 to 20% in 1980. Compare Broadcasting, Sept. 6, 1971, at 58, with Broadcasting, August 10, 1981, at 40. That trend continues today. Last week the President of the ABC Television Network announced that despite the recession ABC had a record year in 1982, becoming the first network to break the $2 billion mark in revenues. See Broadcasting, January 24, l~83, at 42. Moreover, the CBS network reportedly also passed the $2 billion level in 1982, and NBC is said to be close to doing so as well. See id. at 7. The FCC cannot simply ignore these facts and permit networks to exploit their dominant position further; it has a special responsibility to balance the television program market structure, particularly given its responsibility for the creation of the networks' control of the national airwaves. PAGENO="0080" / 76 Further, the Special Staff simply ignored the fact that the financial interest and syndication rules permit entre- preneurial returns that independent suppliers require in order to have the capital to invest in new programming. This may be a reflection of the fact that, as of the time that the Staff studied the program market, suppliers were only just beginning to receive significant profits from syndication of programs without the toll taken by network-demanded financial interests. But that situation has now changed. Paramount, for example, has used some of the profits it has received from the syndication of its successful programs, such as "Happy Days" and "Laverne and Shirley," to create three new first-run syndicated programs: "Entertainment Tonight," "Solid Gold," and "Madame's Place." It is in the process of developing a fourth such program -- "Taking Advantage" -- for syndication in the Fall of this year. We also were proud to produce the feature-length film "A Woman Called Golda," which won this year's Emmy as the Best Dramatic Program of 1982. That film also was distributed as first-run syndicated programming (after all three networks refused to purchase it for network distribution). Of course, such a strengthened program market is exactly what the FCC hoped would develop when it enacted the network restrictions in 1970. But the market cannot survive without contjnujn~ revenues from off-network syndication. We can PAGENO="0081" 77 state categorically that without the revenues provided us by the current and expected syndication of our off-network programming, we would not be able to assume the huge expenses involved in creating and marketing these new first-run programs. And if a company the size of Paramount cannot do so, the Commission can be sure that smaller producers will not be able to do so either. The networks may permit producers to earn a modest return on programs developed for network broadcast; they have no incentive to permit producers to earn the additional revenues that support non-network program development. However, the Special Staff did more than simply ignore the benefits of the financial interest and syndication rules; it also incorrectly argued that the rules are harmful to the program market. The Staff naively suggested that the rules have "disrupted an efficient risk-sharing arrangement between the networks and their program suppliers." Notice at ~ 31. According to the Special Staff, but for the rules the networks could share the risk of program production, particularly with smaller producers and new entrants. Id. at ¶ 30. Paramount has no objection to "efficient risk-sharing;" indeed, it has entered into joint venture agreements partially for that purpose. Such arrangements are in the public interest when they are based on fair bargaining between equal parties. But the Staff's theory tumbles like a house of cards when one 32-540 0-84--fl PAGENO="0082" 78 recognizes the basic fact that, as explained throughout these Comments, no producers stand on an equal footing with the networks. Not even large studios like ourselves can bargain on equal terms with the networks over "risk-sharing." significantly, not one program producer has supported repeal of these rules, even the smaller companies that the Special Staff implies would be most interested in sharing risks with the networks. This fact is telling, for it suggests that -- whatever the merits of the Special Staff's argument in theory -~ the television market structure is not competitive enough for "efficient risk-sharing" to become a reality. Given the oppor- tunity, the networks will simply demand a share of syndication profits without having to assume any reciprocal share of the risk. Thus, the bankrupt logic of the Special Staff simply cannot in any rational way justify repeal of the financial interest and syndication rules. C. The Developing Video Markets are Not Substitutes for Network Television The FCC also suggests in its Notice that "the market for television programming has undergone significant change since adoption of the syndication and financial interest rule," and that consequently the networks no longer may be able "to act as monopsonistS in the purchase of television progr~mzning * * * Notice at ¶ 32. Implicit in what Paramount has explained above, PAGENO="0083" 79 however, is the underlying truth that -- whatever their promise for the future -- the new video markets have in no way reduced the dominant position of the networks. To the contrary, the networks are more dominant now than they were in 1970, and will continue to *be so over at least the next decade. First of all, the Commission should not be misled into thinking that the so-called expansion of program outlets reflects the arrival of a practical alternative to the three networks. Such a simplistic notion ignores the immature state of these outlets, and the realities of the markets they serve. It is necessary only to look at them briefly but clearly to understand their inadequacies: Cable televiS~2f~ Cable television offers perhaps the best hope ~f ultimately providing an alternative national delivery system to the networks. But it is completely wrong to suggest that cable provides such an alternative today, or that it will soon do so. Cable television is still in its infancy as a vehicle for something other than the retransmission of off-air broadcast stations. Only 30% of the nation has access to any cable television at all, 11/ and less than 50% of the nation is expected to be wired by 1990. 12/ Moreover, many of the existing systems have limited channel capacity that, particularly given the Commission's own "must-carry" rules, 13/ prevents them from providing any significant access to non-broadcast programmers. Thus far the only successeul cable services have been those offering theatrical films for a monthly fee. Consumers have yet 11/ Broadcasting, Dcc, 20, 1982, at 27. 12/ ICF, "An Analysis of the Impacts of the Repeal of the Financial Interest and Syndication Rule," Appendix 2, at 6 (1982) (hereinafter cited as "ICF Report"). 13/ 47 C.F.R. SS 76.57-.63 (1981). PAGENO="0084" 80 to demonstrate any willingness to pay a fee to receive the kind of original television programming produced by Paramount and others for the networks. And similarly, "basic" cable services simply do not yet have sufficient audiences to attract advertising to support such programming either. 14/ STV and MDS: These two technologies are not widely available at this time. And in any event, operators only have found it economical to program STV and MDS facilities with sports and theatrical films. The outlets provide Paramount with no useful alternative to the networks. Videocassettes and discs: The FCC itself acknowledges that only ~6% of American households currently own video- recorders, see Notice at ¶ 36, and an even smaller percentage own videodisc players. This market is far too snail to provide a distribution outlet for paramount, and, more important, consumers have shown a willingness to purchase only theatrical films. New technologies: LPTV and DBS may become a reality, or they may not develop at all. However, their mere potential does not magically render them effective competitors to the networks, and therefore obviously cannot justify repeal of the financial interest and syndication rules today. Additional television stations: Although the absolute number of television stations has increased since 1970, that number is irrelevant insofar as it includes new network affili- ates (who increase the dominant position of ABC, CBS, and NBC), and public television affiliates. The remaining new stations theoretically could provide a video distribution alternative, but they have nOt done so, and even the Special Staff concluded that they were unlikely to do so. Final Repp~ at 4. Paramount may be uniquely knowledgeable in this area. In the late 1970's we made a considerable investment in a failed attempt to organize independent stations into a "fourth network." Despite our losses in that venture, we have continued to support atempts to organize ad hoc networks for special events, such as the "Operation Prime Time" consortium. However, paramount 14/ ICF Report, ~ note 12, Appendix 2, at 11-21. PAGENO="0085" 81 essentially agrees with the Special Staff that a fourth commercial network would be possible only in the event of a "large increase in advertiser demand" or "a radical revision of the Commission's spectrum allocation plan." Id. Neither is even on the horizon. The networks themselves certainly do not see these new outlets, either individually or collectively, as a threat to their dominant position in the television entertainment industry. For example, Thornton Bradshaw, Chairman of the RCA Corporation, recently stated his conviction "that although cable will be a formidable competitor, the networks will remain the only television medium with a national franchise reaching every American television household." 15/ CBS similarly has predicted that "[f]or the foreseeable future at least, network television will continue to be the predominant national advertising medium." 16/ ABC is equa~lly confident of its ability to maintain its marketplace leverage. 17/ And in any event, the networks themselves will play a large role in the development of these new distribution systems. 15/ Speech of Thornton Bradshaw to the Academy of Television Arts & Sciences, Los Angeles, Ca. (Apr. 12, 1982). 16/ "The Video Marketplace in 1990: Diversity and Growth in Perspective," at 6 (1982). 17/ See Broadcasting, January 24, 1983, at 42. PAGENO="0086" 82 They are establishing cable program services. 18/ They are developing SD! networks. 19/ They have received authority to operate cable systems themselves. 20/ They are distributing videocassettes and discs. 21/ They have been granted licenses to operate direct broadcast satellites. 22/ NBC's sister corpora- tion, RCA American Communications, is the owner of the major satellite transmission system. Paramount is ready and willing to compete with the networks -- and the diverse other players -- in these competitive arenas of the future. But at least in the near term, none of these technologies will replace traditional network television as the central avenue by which producers of original entertainment programming distribute their product to American homes. As a result, the dominant competitive position of the networks will continue unabated. 18/ See, e.g., Broadcasting, May 3, 1982, at 38. 19/ See Letter of William 3. Tricarico to American Broadcasting ~mpai~Ths,. FCC 82-367 (released Aug. 10, 1982) (authorizing the "Home View Network"). 20/ See CBS, Inc., 87 F.C.C.2d 587 (l98l)(waiver of the cross-ownership rules to permit CBS to own cable systems); Notice of Proposed Rulemakij~g, CT Docket No. 82-434, FCC 82-323 Ti~éleased Aug. 27, 1982) (proposing repeal of the network-cable cross-ownership limits). 21/ For example, CBS has entered into a joint venture with Twentieth-Century Fox. See Broadcasting, February 22, 1982, at 31-32. 22/ See Memorandum Opinion and Order, Applications of CBS, Inc., File Nos. DBS-81-02, et. al., FCC 82-498 (released Dec. 3, 1982). PAGENO="0087" 83 III. Repeal of the Rules Would Be a Serious Economic Blow to Independent Television Stations The Commission suggests in its Notice that the recent decline in network audience shares may indicate a lessening of the networks' dominar~ce. Notice at ¶ 38. This is not the case. Just as the FCC may not draw simplistic conclusions from statistics regarding new program outlets, so it must take care not to read too much into share figures. There does appear to be some small drop off from the halcyon days when the networks almost completely monopolized television. But some of that decline can be attributed to audiences watching pay theatrical movie services, an entirely separate market from the advertiser- supported services that would be an outlet for television entertainment programming of the type produced by Paramount. More important, however, a substantial percentage of the decline is due to the new strength of independent television stations. That strength is largely an intended result of the financial interest and syndication rules. And, when all is said an~i done, the new strength of the independents is the primary reason that the networks find the rules so distasteful. The television industry correspondent for The Washington Post recently confirmed this fact: "Network executives will tell you these days that it isn't the competition from the "new technolo- gies" like Cable TV that is cutting into their regular audiences so much around the country as it is the stronger independent PAGENO="0088" 84 stations which use network re-runs (like M*A*S*H) and old movies for counter-programming." The Washington Post, § B, at 6, col. 2 (Jan. 17, 1983). Prior to 1970, the networks did not allow this corn- :petition to develop. The network's control over syndication was sufficiently strong to permit them to block independent stations from obtaining television programs until long after such programs were a competitive threat to them or their affiliates. The refusal of the networks to release programming in a timely fashion was devastating for independent television stations, often already disadvantaged by FCC channel allocation policies that left them alone on the UHF dial. There is no marketplace substitute for off-network programs. 23/ It is well-established that syndicated programming is most valuable while original episodes are still being broadcast on the networks -- yet the networks refused to permit the release of such programming. 24/ And it is also clear that most programs become dated and unattractive by approximately the fifth or sixth year after the 23/ The market for recent of f-network programs is truly separate and non-interchangeable with the market for feature films. 24/ There were two exceptions to this rule. Both "Bonanza" and "Gunsrnoke" were syndicated toward the end of their long network runs. However, these exceptions essentially prove the rule, for both of these series were produced by the networks themselves. Thus, by keeping independent producers from syndicating their attractive programming, the networks artificially and anticompetitively kept a larger market for themselves. PAGENO="0089" 85 network run -- yet again the networks were able to warehouse programming so that independent stations could obtain only dated material. See ICF Report, Chapter 5. One of the primary reasons the Commission promulgated the financial interest and syndication rules was to eliminate the conflict of interest that led to such anticompetitive abuses. The FCC argued forcefully that Nthe presence of the networks as domestic syndicators is inherently undesirable. They are in the position of selling programs to independent stations in competition with their own network programs on affiliated stations * * * ." port and Order, Docket No. 12782, 23 F.C.C.2d at 394. The Commission hoped that the financial interest and syndication rules would eliminate the ability of the networks to keep independent stations as second-class facilities. Much to the dismay of the networks, the FCC rules have worked exactly as intended. Paramount and other producers have been able to offer syndicated programming to independent television stations in a timely fashion while that programming still has significant audience appeal. As a result, independent stations have been able to attract larger audiences, and in many cases, fo~ the first time achieve financial stability. Not coincidentally, the network shares have declined in prpportion to the independent stations' successes. PAGENO="0090" 86 The networks clearly are not content to watch this trend continue. They have been outspoken in their complaints regarding producers who sell programming to independent stations while those shows are still are on the network. For example, Donald Grant, President of CBS Entertainment, frankly admits that independent stations are benefiting from what he calls the "short-sighted" distribution practices of syndicators such as Paramount. He warns that CBS is very unhappy that shows like "Happy Days" receive substantial airtime in independent markets; "we are suffering because of it." See variety, April 27, 1982, at 51. For the past decade the networks have been unable to block the development of independent stations because they no longer control syndication. But there can be no doubt what fate would befall those stations if the financial interest and syndication rules were repealed. Networks would warehouse programming or keep it for their own stations as much as possible. 25/ They might also make the programming available to 25/ The networks might also use off-network programming to expand network time. Under this scenario, the networks would strip recent off-network shows in "early fringe," where independent stations currently earn a large share of their revenues. In doing so the networks would both maximize their own revenues from the programs (rather than simply warehousing them) and use up the value of such programs to independents as "early fringe" competition. As an independent syndicator, on the other hand, Paramount is able to protect the value of off-network programming as competition to the networks. For example, when Paramount sold "Happy Days" and "Laverne & Shirley" to ABC to be stripped during the daytime, we required that the shows be broadcast prior to noon or 1 p.m. so that they would still be fresh later for afternoon and early evening audiences on independent stations. PAGENO="0091" 87 their affiliates, albeit with restrictions on when and how often the programs could be broadcast. And as in the 1960's, indepen- dent stations would be denied the off-network programming until its competitive value was marginal. 26/ IV. Conclusion In light of these facts, Paramount again questions why this proceeding has been instituted, and why the Commission seems to presume that the financial interest and syndication rules should be repealed. Unlike many of the FCC's regulations, these rules have proven to be well-targeted corrections to major competitive imbalances. Since the rules were adopted in 1970: ~ More independent producers have entered the marketplace; * More first-run syndicated programming is being produced; * Independent television stations have become much more competitive with affiliates, 26/ In the words of the chairman of the CBS Television Network ~Tfiliates Association, "[i]f the networks participate in or influence syndication of network programs and have a share of downstream profits, this may impact premature syndication of network re-runs that are being made available to independent stations and are competing with first-run shows carried by affiliates." Letter of James G. Babb, Jr. to CBS Network Television Network Affiliate Association, "css Affiliate Option Paper on Repeal of Network Financial Interest and Syndication Rules" (Oct. 18, 1982). PAGENO="0092" 88 perhaps even to the point of providing the basis for a potential "fourth network;" * `And last but not least, the networks have increased their profits by over 550%, and have actively begun to expand into non-network distribution technologies. The marketplace is working just as the FCC intended. Paramount believes that the FCC should examine the success of its policies, engage in some brief self-congratula- tion, and then terminate this proceeding rapidly so that the agency -- and we in the broadcast television industry -- can devote our attention to the real issues that demand our attention today. Perhaps at some time in the future the national commercial television market will be competitive, and the networks will no longer hold their bottleneck grasp on access to American homes. At that time Paramount will gladly support elimination of the financial interest and syndication rules, and look forward to the "risk-sharing" that the Special Staff so favors. But until that day comes -- if it comes -- the FCC must not undo the progress of the past decade. Respectfully submitted, PARAMOUNT PICTURES CORPORATION By ___________________ Howard F. Roycroft L~, By ___________________ Peter A. Rohrbach Hogan & Hartson 815 ConnectiCut Avenue, N.W. Washington, D.C. 20006 Its Attorneys January 26, 1983 PAGENO="0093" 89 BEFORE THE ~r~brra1 QIammixxiiratkrn~ ~nmmiaøtun WASHINGTON, D. C. 20554 In the matter of BC Docket No. 82-345 Amendments of 47 CFR S73.658(j) The Syndication and Financial Interest Rules To: The Commission COMMENTS OF MCA, INC. MCA, Inc. ("MCA"), submits herewith its comments in response to the Notice of Proposed Rulemakj~g, FCC 82-300, released July 21, 1982, in the above-captioned proceeding. MCA and its wholly- owned subsidiary, Universal City Studios, Inc., are actively engaged in the production and distribution of programs for network television and in the syndication of programs to local television stations. MCA is one of the most significant creative forces in the television industry today and is thus vitally interested in the present proceeding. I. Introduction And Summary Of Positjoii The Commission has here proposed the repeal of one of its most important and effective rules for limiting the otherwise overwhelming dominance of the three commercial networks--the syndication and financial interest rules. The financial interest rule, 47 CFR S73.658(j) (ii), prohibits the networks from acquiring any ownership interest in a program produced by any entity other PAGENO="0094" 90 than the network itself. The syndication rule, 47 CFR S73.658(j)(i), prohibits the networks from selling or "syndicating" programs for non-network broadcast exhibition. The syndication and financial interest rules do not bar the networks from the acquisition of syndication rights and financial interests in the foreign distribution of foreign-produced programs,2J nor fron the acquisition of non-broadcast rights to any television programs.2./ The syndication and financial interest rules were promulgated in 1970 after over fifteen years of extensive study of the practices which had led to the domination of television programming by the three commercial networks. Network Television Broadcasting, Report and Order in Docket No. 12782, 23 FCC2d 382, modified on recon. 25 FCC2d 318 (1970), aff'd, Mt. Mansfield Television, Inc. V. FCC, 442 F.2d 470 (2d Cir. 1971). The financial interest prohibition became effective in September of 1970, and the syndication prohibition became effective in September of 1971. In addition, in the early 1970's the Justice Department.instituted antitrust suits against the three networks seeking to curtail further the networks' dominance over the television broadcast industry. These separate suits against each network were resolved by consent decrees 1/ Network Television Broadcastin9, 26 FCC2d 28, 31 n.3 (1970). 2/ claratoryRulingonSectjon73.658(j)(jj), 87FCC2d30 (1981), aff'd sub non. Viacom International, Inc. v. FCC, 672 F.2d 1034 (2d Cir. 1982). PAGENO="0095" 91 entered against NBC in 1978 and against ABC and CBS in 1980,~/ whereby the networks agreed to restraints that included both the prohibitions imposed by the syndication and financial interest rules as well as further limitations on network practices, as will be discussed below. Only a few years have passed, yet the Commission is now proposing the repeal of these rules. The repeal is sought in the wake of a ponderous economic study, prepared by the FCC's Network Inquiry Staff, which called the rules "misguided" and recommended their deletion. An Analysis of Television Program Production~ Acquisition, and Distribution, Preliminary Report in Docket No. 21049, June, 1980. MCA disagrees with this study, and for numerous reasons stated herein, opposes the proposed repeal of the syndication and financial interest rules. As MCA will demonstrate, the syndication and financial interest rules have served to increase grea~ly both competition in program supply and the diversity of programming available to consumers. Indeed, in view of the rules' success in serving these important public policy goals, the burden should be on the * commercial networks to demonstrate why the rules' repeal would be in the public interest. 3/ United States v. National Broadcasting Co., 449 F. Supp. 1127 (C.D. Cal. 1978), aff'd men., No. 77-3381 (9th Cir. April l2,* 1978), cert. denied sub non, CBS v. U.S. District Court of Central Division of Calif., 48 U.S.L.W. 3186 (1979); United States V. ~ Inc., Civ. No. 74-3599-RJK (C.D. Cal. July 31, 1980), reprinted in 45 Fed. Reg. 34,463, 34,466 (1980); United States v. ABC1~ Inc., Civil No. 74-3600 RJK (C.D. Cal.), reprinted in Fed. Reg. 58,441 (1980). PAGENO="0096" 92 MCA believes that the Commission has both the jurisdiction and responsibility to pursue these policy goals through the imposition of the syndication and financial interest rules. The rules and the network abuses they remedy are matters of communications policy and are not merely economic antitrust concerns, and thus this is an entirely appropriate area of FCC involvement. Indeed the Commission should not abdicate its responsibility in this matter to the Justice Department Antitrust Division, which may only concern itself with the antitrust considerations and would ignore the Commission's longstanding communications policy of fostering diversity. Only the Commission has the expertise to decide all these questions. ThJ MCA will also show that while the Network Inquiry Report noted above is an impressive exercise in economic theory, it fails. to recognize the facts and realities of television series program sales. In this respect, it should be understood that not every deregulatory action necessarily promotes fair and healthy competition, and it is evident that the networks are seeking the freedom to gain financial interests in programs and to enter the syndication business in order to control and restrict the availability of television series programming to their present and future competitors. The networks have argued that without repeal of these rules, they will be unable to compete effectively with the wide range of new delivery systems -- such as cable television, direct broadcast satellite (DBS) service, low power television, arid multipoint distribution service (MDS) -- that are expected to provide PAGENO="0097" 93 competition for the networks over the next two decades. However,1 the rules presently do nothing to limit the involvement of the networks in programming for these new media sources. Today the major competition for the networks are the independent television broadcast stations, which have as a direct result of the effectiveness of the syndication and financial interest rules over the past decade grown into a realistic alternative to the networks. If the syndication and financial interest rules are repealed as the networks and the Commission / propose, the networks will again have the power to restrict or withhold altogether the availability of the types of syndicated televisionSSerieS that have made the independent television stations so successful in providing effective competition to the,, network affiliates on a local market basis. Moreover, it has been the excellent ratings and advertising returns for syndicated series that have enabled these independent stations to provide substantial local programming and expensive first-run syndicated programming that could otherwise not have been afforded by the stations. Additionally, the success of existing independent stations has encouraged entrepreneurs to start new independent stations in both large and small markets, increasing the number of outlets available t~ all viewers in those markets. In these ways, the syndication and financial interest rules have been extraordinarily successful in increasing the diversity of programming available to the vast majority of the viewers throughout the country. Conversely, repeal of these rules will undoubtedly lead to retrenchment by existing independent statiøns, and will 32-540 0-84--? PAGENO="0098" 94 also inhibit the initiation of new independent stations, thus resulting in a loss of diversity from the primary competition for the networks in the 1980's. Additionally, MCA submits that repeal of the syndication and financial interest rules would lead to a decrease in another important type of diversity by reducing the number of independent entities producing programs for network television. The networki' will remain for the rest of this decade and beyond the only entities who can afford to pay the costs involved in buying high quality television series programming. Repeal will enable the networks to use their continued control of their programming bottleneck to force program producers to give up control over the future rights to their program series if they wish to get their series on the network schedules. In addition to the damage such a potential programming cartel will do to independent stations and to program acquisition, independent producers will no longer have a profit motive to encourage the production of new television series. Operation of the syndication and financial interest rules over the past decade has led to a dramatic increase in the number of entities producing televison series programming, but removal of the profit motive through repeal ca~ be expected to lead to a reduction in the number of independent studios, especially in light of the system by which network,s require deficit financing of television series. Although the networks do exert considerable control over many aspects of program production by independent studios, the involvement of the independent studios still adds a considerable PAGENO="0099" 95 diversity of voices compared to a system where all or most programs are produced by the networks themselves. Because the ultimate profit from a successful series is theirs, the independent producers are encouraged to battle the networks continually over programs, scripts, concepts and other production matters, and a successful / producer will often win these arguments when its future profits~ are seen as being put in jeopardy. Although the Network Inquiry Reports only viewed diversity in terms of the creation of additonal outlets, the involvement of a multitude of independent producers, even on just three networks, clearly results in a real diversity of voices. MCA submits that there is no public interest in increasing the overall dominance of the three commercial television networks, and for all these reasons, the syndication and financial interest rules should be retained. II. In View of the Success of the Syndication and Financial Interest Rules in Fulfilling Their Goals, the Burden Should be on the Networks to Show Why Repeal Would be In the Public Interest. The syndication and financial interest rules were promulgated in 1970 after roughly fifteen years of study by the Commission of the historical factors and subsequent network practices which had led to the domination of television programming by the three commercial networks. The Commission and its staff noted that a number of its early decisions, especially the Table of Televisloli Assignments, 41 FCC 148 (1952), "had the effect of creating three dominant entities -- ABC, CBS, and NBC -- which provided the major PAGENO="0100" 96 conduits through which the public received television."~/ Under the 1952 allocation plan, only 7 of the 50 markets received 4 or more VHF assignments, and only 20 received 3 VHF assignments. This situation favored the viability of no more than three networks, for the reason that a fourth network would have access to VHF stations in only 7 markets.~J In the mid-1960's, after a series of staff reports examining network practices, the Commission concluded that the networks had greatly abused their positions to dominate American television. The Commission found: Among other things the staff concluded that policies and practices presently pursued by network corporations tend unduly to restrict competition--both economic and creative--in the production and procurement of programs for television exhibition; that entry into network television program markets for independent program producers is substantially impeded; and that network corporations control the source of supply of television programs and dominate competition in both the network and syndication program markets. Network Television Broadcasting, Notice of Proposed Rulemaking in Docket No. 12782, 45 FCC 2146, 2147 (1965). The Commission further found that the practices of the networks in obtaining financial interests in television series programming produced by "independent" studios had grown so pervasive that by 1964 the networks had financial and proprietary control over roughly 90 4/ FCC Network Inquiry Special Staff, New Television Networks: Entry, Jurisdiction, Ownwershjp, and Regulation, Vol. 1, p. 39 (Washington, D.C.: Federal Communications Commission, October 1980) (hereinafter referred to as the "Network Inquiry Report's). 5/ Network Inquiry Report, Vol. 2, p. 74. PAGENO="0101" 97 percent of the programming appearing on American television in prime time. j~ at 2153. The Commission concluded that the networks' near total control over television program production and procurement was in direct derogation of the public interest: The total effect of this condition has been a marked tendancy to centralize control of what the American public may see and hear through television in network corporations and thus to hamper the competitive development of "diverse and antagonistic" sources for television program service. This is almost the exact reverse of that "condition of competition" within the framework of service in the public interest intended as the principal criterion of choice of program fare under the American system of broadcasting. ~ at 2154 (footnotes onunitted). To help reverse the course of network domination, the Commission proposed, inter alia, the sync~icatiofl and financial interest rules. In proposing these rules, the Commission stated its purpose as follows: The purpose of the rule proposed herein is to foster free competition in television program markets. Specifically, the proposed rule is designed (a) to provide opportunity for entry of more competitive elements into the market for television programs for network exhibition and (b) to encourage the growth of alternate sources of television programs for both network and non-network exhibition. j~ at 2147. The Commission further explained the desired effects from the rules as follows: The proposed rule is directed toward a strengthening of independent program production. It should increase the opportunity of the independent producer for access to the networks, and the opportunity for the development of new ideas in program production. Furthermore, it is our hope that the proposed rule would reduce the possibility that independent producers may be forced to give up rights of their programs in order to obtain access to network time. A further benefit from the strengthening and development of independent program producers may well PAGENO="0102" 98 be the development of new program sources available for additional UHF television stations. Id. at 2158. Additionally, in adopting the syndication and financial interest rules, the Commission expressed great concern over the conflict of interest inherent in allowing networks to act as syndicators of programs: Finally, the presence of the networks as domestic syndicators is inherently undesirable. They are in the position of selling programs to independent stations in competition with their own network programs on affiliated stations, and they compete against independent syndicators in the affiliated-station market where they have an advantage due to their permanent relationship with the stations. Network Television Broadcasting, Report and Order in Docket No. 12782, su~ra, 23 FCC2d 382, 394. Thus the rule was enacted to "eliminate a potential for competitive restraint in these respects." Id. at 398. The syndication and financial interest rules, in their dozen years of operation, have been extraordinarily successful in fulfilling their purposes of increasing competition and diversity in program production. The number of producers supplying prime time series to the networks has grown substantially between 1970 and the present. In addition, the number of independent television stations has grown from 73 stations in 38 markets in 1972, to 179 stations in 86 markets in 1982, and nearly all the new independents are UHF stations. Moreover, in that same period, the financial standing of independent stations as a whole has improved dramatically. In 1970, all independent stations on art aggregate basis experienced a net loss of over 20 million dollars, while in 1980, independent stations reported total profits of over 159 PAGENO="0103" 99 million dollars.~J The operation of the syndication and financial interest rules, as explained herein ,have contributed directly to these positive developments. It is clear that the syndication and financial interest rule'~\ have substantially met these central purposes of increasing competition in television series program production and distributiàn, and of contributing to the development and viability~i / of both VHF and UHF independent television stations. The syndication rule has also by necessity prevented the "inherently undesirable" conflict of interest involved in the networks being permitted to engage in the domestic syndication business. In light of the clear success of the rules in meeting these goals, the burden should be on those who seek repeal to demonstrate why repeal would serve the public interest. The networks, on the other hand, are claiming that their ability to compete is being hampered by the operation of the syndication and financial interest rules, and point to the growth of their "competitors" over the past few years as evidence of the threat to the networks' future viability. The networks thus ask the supporters of the rule to prove anew the necessity of these restraints, ignoring the Commission's well-reasoned decisions adopting the rules only a short time ago. The Commission found as reèently as 1970 that the three networks had in fact greatly abused their inordinately strong positions to dominate and control the television program supply industry. Even if the television 6/ FCC, Annual Reports. 1971 and 1981. PAGENO="0104" 100 industry has changed over the past decade as much as the networks claim (and MCA denies that it has), the networks should be required to establish beyond question that repeal of the rules would be in the public interest. III. The Network Inquiry Report Does Not Adequately Justify Repeal of the $yndication and Financial Interest Rules The primary document urging repeal of the syndication and financial interest rules is the Network Inquiry Report. Indeed, the Commission's news release announcing the present Notice of Proposed Rulemaking (Report No. 17051, released June 24, 1982) listed the Network Inquiry Report's recommendation as the first reason why the Commission was proposing repeal.l/ MCA submits, however, that while the Network Inquiry Report is an impressive exercise in economic theorizing, it fails both to recognize the - realities of program sales and to take into account important, long-established, non-economic communications policies. The Report too often uses economic theories to ignore the facts and to. explain its built-in conclusions in purely theoretical terms. Additionally, the Report fails to address the likelihood that repeal would lead to the creation of a network cartel in control of off-network syndicated programming, as was developing prior to the syndication and financial interest rules' enactment. 7/ It should be recognized, however, that the Commission had neither accepted nor rejected the findings and conclusions of the Network Inquiry Report. PAGENO="0105" 101 Another failing is that the Report employs too limited a definition of diversity. In this respect, the Report first recognizes that the Commission has reviewed diversity as having "three different, but related dimensions: the types of programs, the sources of programs, and the number of choices or outlets available to viewers at any one time." Network Inq~airy Report, Vol. 1, p. 469. Rowever, the Report's authors then forget two of these three important aspects of diversity and focus on the "number of available outlets" as the ~ measure of the Commission's diversity policies. This approach ignores the obvious increase in diversity offered by having numerous producers develop series programming for even just three networks. The Report also does not consider adequately other Commission policies, such as the policy of promoting localism, which do not lend themselves to purely economic quantification and analysis. Most significantly, however, the Network Inquiry Report, in seeking to characterize the controversy as a simple reallocation of profits, does not sufficiently identify any public interest considerations in favor of weakening the position of the creative community in their bargaining with the networks. The Commission, in setting out a number of economic and non- economic questions for cOmment in the present proceeding, has recognized that there is far more involved here than the mere allocation of profits. MCA submits that beyond the theoretical economic models there are long-standing communications policies that would be set back significantly by repeal of the syndication and financial interest rules. PAGENO="0106" 102 IV. The Syndication and Financial Interest Rules Are Entirely Appropriate and Necessary Subjects of Commission Regulation One of the primary questions posed by the Commission's Notice of Proposed Rulemaking is whether it is appropriate for the Commission to involve itself in the regulation of network-program producer relations, especially in light of the existence of the somewhat duplicative network consent decrees. Notice of Proposed Rulemaking, pp. 17-18. MCA submits in response that the network- program producer relations are an entirely appropriate and necessary subject for FCC regulation. As has been discussed above, and as was specifically recognized by the Commission in promulgatin~ these rules, the nature of the network-program producer relations / has a direct impact both on the specific programming available to the American public, and on the diversity of voices inherent in-a that programming. Additionally, as will be explored in greater detail below, the syndication and financial interest rules have permitted the growth and prosperity of existing independent television stations, as well as encouraged the activation of dozens of new independent television stations, nearly all of which are UHF stations. These policies of fostering diversity!! and of 8/ ~ ~ National Broadcasting Co. v. U.S., 319 U.s. 190 (1943) ; Mt. Mansfield Televison, Inc. v. FCC, supra, 442 F.2d 470, 477; Declaratory Ruling on Section 73.658(j) (ii), s~pra, 87 FCC2d 30,32. PAGENO="0107" 103 encouraging the development of UHF outlets2! have long been central concerns of the FCC in its statutory charge to "generally encourage wider and more effective use of radio in the public interest." Section 303(g) of the Communications Act of 1934, 47 U.s.c. §303(g).19.! Thus, it is clearly appropriate for the Commission to act to prevent these potential abuses by the networks of their dominant position, and to foster healthy competition in program supply and syndication. By contrast, the Justice Department's concerns generally are limited to the remedying of anticompetitive practices, and thus the Commission should not abdicate its responsibility for these important communications policies that are also involved, merely because the Justice Department has acted 9/ See, eg~, ~provements to UHF Television Receptj~l, Wotice~.~ Inquiry in Gen. Docket No. 78-3~i, 70 FCC2d 1720 (1978); Fosterij~g ~pañded Use of UHF Television Channels, Report and Order in DocJc~ No. 14229, 2 FCC2d 527 (1966). 10/ The Commission's decision to limit the networks' domination of program supply was directly affirmed in the appellate review of the syndication and financial interest rules. Mt. Mansfie]4 Television, Inc. v. FCC, 442 F.2d 470(2d Cir. 1971). In Mt. Mansfiei~, the Court of Appeals concluded that the rules were well within the Commission's authority: The syndication and financial interest rules., though direct regulations of networks, as well as the prime time access rule, are within the CommsiiOfl'S statutory power if they are reasonably ancillary to the effective performance of the Commission's various responsibilities for the regulation of television broadcasting. Id, at 481, ç~~n United States v. Southwestern Cable Co~, 392 U.S. 157, 178 (1968). The Court of Appeals went on to find that the syndication and financial interest rules were indeed "reasonably ancillary to the Commission's various responsibilities for the regulation of television broadcasting." 422 F.2d at 487. PAGENO="0108" 104 to remedy the flagrantly anticompetitive aspects of these network practices1i/. Only the Commission has the statutory charge to address the communications policies. V. The Networks Do Not Take Sufficient Risks in the Program Production Process to Justify Their Claim for Furture Profits. One of the most prominent reasons urged in support of repeal of the syndication and financial interest rules is that the networks take substantial risks in the process of developing new television series programming, and that this risk-taking role justifies allowing the networks to share in the future profits of successful series. This argument is usually set out by analogy to the "dry hole" situation in the oil drilling business. `It is suggested that because the networks "finance" the development of many pilots, only a fraction of which ever become regular series, these failed pilots are much like "dry holes" which turn out no oil. As the Network Inquiry Report argues at Vol. 1, p. 503, "[tjhe cost of drilling dry holes as well as the cost of drilling gushers must 11/ This is not to suggest that the Commission does not have concurrent responsibility with the Justice Department to seek to prevent anticompetitive business practices of broadcast entities; the promotion of healthy competition among the viewing outlets available to the public has long been recognized by the Commission as a primary communications policy goal. ~ ~ Network Cable cross-Ownership Rules, Notice of Proposed Rulemaking in Docket No. ~4334, 47 Fed. Reg. 39212, 39213 (1982); CATV Syndicated Program Exclusivity Rules, Report and Order in Docket Nos. 20988 and 2li78T FCC2d 663, 814 (1979), aff'd sub non.', Malrite TV of New York v. FCC, 652 F.2d 1140 (2nd Cir. (1981), cert. denied, 102 S.Ct. 1002 (1982). PAGENO="0109" 105 be covered by the expected revenues from all the networks' programs." Thus, the analogy is intended to suggest that the networks are entitled to all or part of the future profits of successful television series to make up for the "losses" experienced in "bankrolling" the production of pilots that never make it to / the regular network schedule. - The analogy to "dry hole" losses is entirely ludicrous. When a oil company comes up with a "dry hole," there is a total loss of all money invested. The oil company receives no revenues, few benefits, and must bear all the costs in the "dry hole" situation. In network television there is no such thing as a "dry hole": for every network program exhibited, whether or not the series is successful, the networks obtain revenues, generally in excess of the license fees paid, and the only losses are those borne by the producer. The networks allegedly provide two theoretical risk-taking functions: investment and banking in program development. One would expect, from the vehemence of the networks' arguments, that these risks are quite substantial. The facts, however, establish the contrary: the risks are at most minimal, if not completely illusory. The "investment risk" of the networks relates to payments for scripts and pilots which are not developed into series. The likelihood of loss, as well as the amount of loss, will provide a measure of the risk involved. A reasonable approximation of these possibilities can be calculated from the information provided in one of the Network Inquiry Staff's reports, An Analysis pf PAGENO="0110" 106 Television Program Production Acquisition, and Distribution, Preliminary Report in Docket No. 21049, June 1980 (hereinafter "Preliminary Report"). For possible losses relating to ~ç~ipts, the calculation begins by estimating that the networks review 600 scripts per year, based upon the figure of 200 scripts reviewed by NBC for the 1977 season. Assume that the networks pay $40,000 per script,1a/ so that the total expenditures for scripts would be $24 million. For purposes of this analysis, it will be assumed that none of the $24 million can be recouped. Of course, producers also invest money in scripts which may not be recouped. The calculation for the risk associated with pilots can be developed from this same information: assume 25% of the scripts, or 150, are ordered as pilots (Preliminary Report, p. 61) at an average cost of $500,000 per pilot (Preliminary Report, p. 62). For all pilots actually broadcast the networks will receive advertising revenues from which the networks can recoup their investment and earn a profit. To determine the level of risk associated with pilot development, it is necessary to choose a percentage of pilots that will not be broadcast: at the 10% level (15 pilots not broadcast), the possible loss is $7.5 million; l~/ at the 50% level (75 pilots not broadcast), the loss could be 12/ Preliminary Report, P. 61. A higher than average script cost is used in order to include expenses for story treatment as well. 13/ We believe the 10% level to be a reasonable outside estimate: levels of 50% and 100% are unrealistic, but are included to demonstrate the minimal risk incurred by the networks. PAGENO="0111" 107 $37,500,000; and at the 100% level (150 pilots not broadcast) the possible loss is $75,000,000. A realistic measurement of the risk involved for the\~ investment function would be to compare both possible losses, with the networks' gross advertising revenues of $3,349 million for 1977. The results of these of risk involved: Percentage of Pilots Not Broadcast 10% Possible Losses on 100% of Scripts Possible Losses on Pilots Compared to Gross Advertising Revenues of $3,349 Million Possible Percentage Loss Relating to Investnent Function comparisons indicate the minimal level $24,000,000 $24,000,000 $24,000,000 7,500,000 37,500~QQQ 75,000,QQ~Q .94% 1.83% 2.95% These can hardly be said to repr~esènt a large risk to the networks: in the unlikely event the network loses its entire investment for scripts and pilots, the loss will be less than 3% of its revenues from advertising on network prograrns.3~i/ The other "risk function" involved in the network program acquisition is that of banker for the advancement of funds. This ~j/ If the revenues for network programs from network owned and operated stations were included, the percentage figures would be even lower. Furthermore, the possible losses do not reflect any advantageous income tax consequences which would diminish the actual effect of the loss to the networks' net income. PAGENO="0112" 108 is not really a risk function as such, but rather accounts for the money advanced to the producer prior to delivery of a series, for which the network charges no interest. What is really involved here is the loss of a return that could have been earned on alternative investments if the amount had not been advanced to the producers.1~/ And this loss assumes that the cost of money advanced is not included in either the license fees or the rates charged advertisers. This amount can be calculated by using the 1977 ~ Broadcast Financial Data, Table G, expenses for "Program obtained from others" (excluding feature films) as the amount paid for program series. This amount of $949 million must be adjusted to account for license fees relating to repeats, which are not financed by advance payments. The adjustment factor used is 83% on the basis that the license fee for a repeat equals 20% of that for the original episode, and thus the fee relating to original episode is 83% of the total fee paid or $788 million in 1977. Assume that the networks advanced 70% of this amount at the commencement of production of the new episodes; and that the time between commencement of production and delivery of a program is three months with an interest rate of 12% per year as the interest which could have been charged in 1977 for *the advances.l~J The networks' lost interest is then calculated as follows: 788 million x 70% x 15/ No*judgment is made as to whether the alternative investments would have been better or worse than investment in program development 16/ 12% is higher than the prime rate or other debt yields were in 1977. PAGENO="0113" 109 3/12 year x 12% = $16.5 million. This adds .49% to the risk's percentage calculated on the investment risk factor, making the total investment and banking risk factors under the three assumptions, shown above, to be 1.43%, 2.32%, and 3.44%, respectively. This is a very low expenditure for any business for the development of new products. More important, this risk is quite low in comparison to the risks run by the producers. The Network Inquiry Staff calculated that the probability of a program reaching the second season is 30%, and of completing the fourth season, and thus being eligible for syndication, 17% (Preliminary Report, p. 146). The Staff recognized that the producer has substantial start-up costs which must be amortized for recovery over the entire life of a program series, so that an early cancellation means the producer loses these amounts (Prelininary Report, p. l67).l2./ Given the high probability of early cancellation, the producer's risk is quite high that it will lose money on a typical program. Of the two parties involved, it is clear that the producers have the far greater risk, to which must be added their extra burden of deficit financing even for successful series. Finally in this regard, it is submitted that as a policy matter, there is no equitable reason why the networks, rather than the creators of the programs, should receive the after-network 17/ The Network Inquiry Staff indicated that some network contracts (although not their typical one) provide for payment in the event of early cancellation. No attempt is made, however, to determine whether such payments are compensatory. Preliminary Report, p. 167. 32-540 O-84--8 PAGENO="0114" 110 profits from the very few series that prove to be successful. The creators take all the substantial economic risks in television series program production, and the networks take few. But if the networks were allowed to seek control of the future profits, there is little question that the assignment of most future profits would become a prerequisite for a producer to get his new series onto the network schedule. And as will be shown in the next section, the financial success of television series programs, at least through the end of this decade, will continue to be primarily dependent on the ability to get through the network bottleneck. For the foreseeable future, the networks will remain by far the predominant buyers of television programming. Because the networks will still be the buyers of television series programming, producers will again be forced, as they were before l97O,~/ to give up future profits in order to gain access to the network schedule and thereby afford production. 18/ As the Commission specifically held in adopting the syndication and financial interest rules: twie believe on the basis of the record before us that networks do not normally accept new, untried packager-licensed programs for network exhibition unless the producer/packager is willing to cede a large part of the valuable rights and interests in subsidiary rights to the program to the network. Network Television Broadcasting, Report and Order in Docket No. 12782, supra, 23 FCC2d 382, 398. PAGENO="0115" 111 VI. The Networks' Ability to Compete With the New Delivery Systems Is Not Dependent On Repeal of the Syr~dication and Financial Rules. The Notice of Proposed Rulemaking poses the question of whether the recent and expected future development of new delivery systems--such as pay cable, MDS, video cassettes and discs, low power television, and DBS service--warrants a reexamination of the Commission's prior view of "the networks as the overwhelming force in the (program] marketplace." Notice of Proposed Rulemaking, p. 16. It is further suggested by the Notice that the networks mayfl ~ the right to obtain financial interests in programming in order to compete effectively in this "rapidly changing~ environment." MCA urges the Commission to take a careful look at the current and foreseeable future status of these new delivery systems before / qoncluding that the era of network domination has passed. The new delivery systems are not yet a strong competitive force with respect to competition in the acquisition of series-type television programs. At least throughout the end of this decade, the networks' will continue to be the predominant purchaser of television program series. Indeed, even the networks' own predictions of future viewing shares recognize that the networks will retain in the aggregate by the end of this decade at least 70% of the overall television viewing in the United States. Additionally, it is expected that overall audience, in terms of number of viewers, will grow for the networks by 1990. PAGENO="0116" 112 Specifically, the CBS Broadcast Group study, report ~ concluded that by that year, the networks will still have a 70 percent share of the prime-time audience.121 While this percentage level is somewhat lower than 1981 share for the networks of 81 percent, CBS' report predicts that there will actually be a net increase between 1981 and 1990 of 5,000,000 television households reached by the networks in prime time2Q.!. Mo~t significantly, these predictions from CBS show that they expect the three networks- to continue to be the dominant forces in the overall video scene" -J through 1990. Indeed, they are predicting that all other video sources expected to exist in l990-'-including all the new delivery systems combined--will garner no more than a 30% share of all viewing. With these overwhelmingly superior viewing shares, the three networks will continue through this period to be the most powerful and predominant buyers of television series programming. Certainly the networks do not "need" financial interests in and domestic syndication rights to series programs in order to "survive" in their competition with the new delivery systems. Moreover, it can be seen from these predicted comparative viewing shares that the networks will continue to retain control of the "bottleneck" for televison series programming. Only the networks will have a sufficient revenue base to support the 19/ CBS Broadcast Group, report 1990, p. 29. See also, CBS Television Network Sales/Marketing Services, You and CBS: A Marketing Partnership; The Video Marketplace in 1990: Diversity and Growth in Perspective. ~/ report 1990, P.30. PAGENO="0117" 113:. production of the types of high quality series that have been most popular with American viewers. Thus the networks will remain the dominant buyers of television series programming, and if the syndication and financial interest rules are repealed, producers will again be forced, as they were prior to 1970, to give up ownership and control of these series in order to get them onto the network schedules. Indeed, it is readily apparent that the acquisition of th~T') additional program rights by the networks will directly inhibit / the viability of many of these new delivery systems and that the networks are seeking repeal of the syndication and financial interest rules now in order to control and restrict the availability of quality series programming to these developing, future competitors. By gaining control or ownership of series programs, the networks can keep these mew delivery systems from exhibiting the series programming that has proven to be the most popular with the American viewing public, thus limiting their potential competitors' growth. This is precisely analogous to the type of conflict of interest situation vis-a-vis independent television stations found abhorrent by the Commission in its decision promulgating the syndication rule. Indeed, it may well be that the syndication and financial interest rules are not sufficient to the extent that networks are presently permitted to acquire non-broadcast rights in any television programs. ~ Declaratory Ruling on Section 73.658(j)(iQ, 87 FCC2d 30 (1980), aff'd sub non. Viacom International, Inc. v. FCC, 672 F.2d 1034 (2d Cir. 1982). If any PAGENO="0118" 114 modification of the syndication and financial interest rules is undertaken, the Commission should consider extending the rules to prevent the networks from obtaining such non-broadcast rights in programs. In Sum, the level of network control over the structure of the television industry has not changed all that drastically since 1970, and all predictions are that the networks will continue to be the predominant buyers of series programming through the end of this decade. It appears that the Spector of the new delivery systems is being bandied by the networks as a magic incantation thought to be capable of bringing down the regulatory walls. However, the danger presented by premature repeal of the syndication and financial interest rules is that the networks would then be in the position of using their increased control of program supply to restrict the availability of the most popular television series programming from the emerging delivery systems which are otherwise reputed to hold so much promise of future competition. Repeal ati this time would effectively revoke the positive effect of the pro- competitive policies embodied in the Commission's recent DBS, LPTV, cable deregulation, and STV decisions. VII. Repeal of the Syndication and Financial Interest Rules Would Seriously Impair the Ability of Independent Television Stations to Compete With the Networks and Their Affiliates The most immediate danger posed by repeal of the syndication and financial interest rules is the competitive damage such action would do to independent television stations, which pose the most PAGENO="0119" 115 substantial direct challenge to the networks and their affiliates. The potential for harm to the continued competitive success of the independent stations arises out of the same conflict of interest situation between the networks and independents that was found to be "inherently undesirable" by the Commission in initially adopting the syndication and financial interest rules. Network TelevisiQi~ Broadcastjj~, Report and Order in Docket No. 12782, su~p~, 23 FCC 2d 382, 394. There are still the same grave problems as before inherent in allowing the networks to control the availability and terms of syndication sales of off-network television series to independent stations. The failure of the Network Inguiry Report to acknowledge the significance of this conflict is especially glaring in light of its authors' avowed focus on "diversity" strictly in terms of number of available outlets. Repeal is an obvious threat to diversity even as measured by the Network Inquiry Staff's narrow view of that policy. Independent stations have truly blossomed since the syndication rule was enacted. As noted above, in 1972, there were a total of 73 independent television stations in operation, serving 38 markets. By 1982, new independent stations were being activated so quickly that there were 179 independent stations serving 86 markets by year's end. Nearly all of the new independents are UHF stations. Independent stations now cover 78 percent of U.S. television households, compared -to 54 percent in 1972. Additionally, during the 1970's, notwithstanding the massive start-up costs experienced by all the new stations, the overall financial success of independent television stations as a whole PAGENO="0120" 116 has improved dramatically. In 1970, the operating independents experienced a substantial aggregated net loss; by 1980, however, the 120 operating independent stations had reported total pretax income of $159,100,000,221 Most importantly, the financial success of the existing independents has been the source of great encouragement to entrepreneuts considering starting up new independent stations in dozens of markets, and has led to floods of applications for the remaining open UHF channels throughout at least the top 125-150 television markets. It is the competition that is and will continue to be provided by the independent stations that is the primary, immediate concern of the networks and their affiliates And repeal of the syndication and financial interest rules will return the networks to the position of being able to restrict the flow of off-network television series to these very real, immediate competitors. Indeed, the competitive success of the independent television stations during the period after 1970 can be traced directly to the availability of relatively recent, extremely popular, off- network syndicated series such as "MASH," "Barney Miller," "Six Million Dollar Man," "Mary Tyler Moore," "Three's Company," "Bionic Woman," "The Jeffersons," "All in the Family," --- the list goes on. These series, scheduled generally in the early-fringe and prime time hours, have attracted unprecedented wide audiences for the independent stations during the times the network affiliates offer primarily news, first-run game or magazine-type stripped 21/ FCC Annual Reports, 1971, 1981. PAGENO="0121" 117 series, and then the network line-ups. Many of these off-network series are regularly winning their time slots against their network affiliate competition, and have been the real key to the overall success of the independent stations. Most importantly, the excellent ratings and substantial revenues generated by the recent off-network television series have enabled the independent stations to present an ever greater amount of locally-produced programming at other times, as well as more top-quality first-run syndicated programming than has heretofore been available. Although the locally~produced programming of the independent stations may not involve more than 20 percent of overall station time, it has often been the success of the types of off-network syndicated program series noted above that has made even that much local programming economically feasible. Indeed, in many cases, independent stations have been able to sell spot availabilities on local programs only as part of a package of spot runs that include adjacencies to both the top series and the less popu4r locally-produced programs. Additionally, there has been some substantial growth recently in the market for first-run syndicated programs, such as ~A Woman Called Golda," "The Seekers," "The Rebels," and "Nicholas Nickelby." Production costs for these first-run series are substantially higher for stations than the cost of buying of f- network series, but the revenues generated by the off-network series have made it economically feasible for many independents to be able to afford the expensive first-run series. In these ways, the Commission's primary policy goal of increasing diversity PAGENO="0122" 118 is fostered both by the economic health of alternative outlets in the form of independent stations, and in the presentation by that growing roster of independent stations of unique locally-produced and first-run syndicated programming not appearing on the local network affiliates. The repeal of the syndication rule, however, will likely lead to a wide variety of competitive abuses by the networks in their added role as syndicators. Indeed it would be useful here to catalogue these potential abuses so that the ramifications of this obvious conflict of interest are fully understood. The most significant competitive abuse likely to arise from network participation in the syndication business is that the networks will not release television program series for syndication while those series are still strong network performers. Independent stations will thus not be able to air these top series until after they have lost their greatest audience .appeal. Currently, because the networks do not have control over the syndication rights of network series beyond the five year or so "exclusive option" period, many of the top-rated network series have entered syndication while they are still at the peak of their popularity on the network schedules. Examples of these instances are "MASH," "Happy Days Again," "Barney Miller," "LaVerne and Shirley," "Three's Company," "One Day at a Time," and "The Jeffersons." These series have been at the forefront of successful syndication and have been the series most directly responsible for the growth and economic viability of the independent television stations. PAGENO="0123" 119 Indeed, the networks have made no secret that the appearance of their top network series concurrently on independent stations has been a real bane to the networks. For example, B. Donald Grant, the President of CBS Entertainment, explained his network's view in the April 27, 1982 issue of Variety: "Producers should be aware it makes a Network uneasy when a show such as `M.A.S.H.' is on as many as seven times a day in some independent markets as well as on the Network [CBS). It sure doesn't help it." Once the networks can again obtain the syndication rights for network series, there is little doubt that they would use this power to "warehouse" their best series until the network run is over, rather than allow this type of head-to-head competition with independent stations to continue. Prior to 1970, before the syndication rule, the syndication of a series to independent stations before it had finished its network rum did not exist at all. It is quite clear that this situation would return, and that there would be no more "MASH's" through which independent stations could build viewing shares, if the rules were repealed. * Additionally, just as the Commission had found was occurring prior to 1970, it is extremely likely that if the syndication and financial interest rules were repealed, the networks as syndicators would be inclined to favor their affiliates, and especially their owned-and-operated stations, when they did get around to selling their syndicated television series. It is certainly in the networks' interests, especially when their owned and operated stations are involved, to keep the most popular syndicated program series on the affiliates' schedule and off the schedule of the independent station competition. The networks' great interest in PAGENO="0124" 120 protecting their affiliates from competition from independent stations is strong impetus for the affiliates to be favored in the competition for, top syndicated series. On the other hand, due to the mature of the network-affiliate relations, allowing the networks to be in the syndication business may put affiliates in a situation of having, their schedules dictated even further by the networks. In this regard, it should be noted that in 1970, the networks on the average provided affiliates' with programming consuming roughly 61 percent of the affiliates' total broadcast time.2i/ By 1980 this level had increased to 69 percent of the affiliates' total broadcast time, even with the prime time access rule limiting the prime time feed.221 Additionally, as the networks continue to increase their network feeds on the weekends, this percentage will continue to rise over 70 percent. If the networks are freed to engage in syndication, they will effectively be a9le to extend even greater control over the affiliates' broad~ast schedules. \The possibilities for network abuses are almost endless. For ex4mple, an affiliate might be afraid to decline to purchase from its network a series that it does not especially want, if it is concerned about losing its affiliation with that particular network. Another likely situation would be that an affiliate would fear that it would lose an opportunity to obtain a hot, newly- available syndicated series if it had too often preempted the 22/ Neilson Television Index, October 1970. 23/ Neilson Television Index, October 1980. PAGENO="0125" 121 network in prime time for local programs or for first-run syndication. The networks have been exerting considerable pressure recently against affiliates that are in the habit of not clearing their full network lineup,2~/ and added control over syndicated programming would give the networks a potent new whip to keep their affiliates in line. There is no public interest in permitting the networks to gain even greater control over the schedules of their affiliated stations. In all conceivable circumstances, the repeal of the syndication and financial interest rules will enable the networks to exert inordinate control over off-network television series programming. This control over program series will enable the networks to threaten the continued viability of their primary competition through the end of this decade, the independent television stations, by allowing the networks to choke off the independent stations' supply of their most popular and successful televison series programming. The independent stations now offer consumers the greatest diversity of viewing outlets, and the conflicts of interest inherent in allowing the networks to act as syndicators should not be resurrected to give the networks the power to drive out these very real competitors. The program producers and distributors presently engaged in the syndication business have none of these glaring conflicts of interest. 24/ For example, CBS recently threatened certain affiliates with termination of their affiliations if the stations carried out plans to air the indepedently produced, first-run syndicated mini-series "Nicholas Nickleby" in place of t1~ie network line-up. ~ "Mobil, CBS Swap Angry Words Over Nicholas Nickleby," Wall Street ~~ournal, PAGENO="0126" 122. VIII. The Syndication and Financial Interest Rules Have Substantially Increased Diversity in Program Supply As discussed briefly above, the operation of the syndication and financial interest rules has led to an increase in the number of independent producers of network television series programming. Additionally, the rules have resulted in an increase in the number of companies engaged In the syndication of off-network and first- run programs. It is clear, however, that repeal of the rules will lead to a reduction in the number of both independent producers and syndicators. The loss of the potential for future profits from off-network sales removes the financial reward that had encouraged the entry of many of these new players in these businesses. Not only will new entrants be discouraged, but many existing producers will likely be forced out of the business. Due. to the magnitude of losses to producers inherent in producing series for network television, the potential for profits from subsequent off-network syndication has been, for most producers, the sine qua non of television series production. MCA has set out in detail above the reasons why the networks have remained the "bottleneck" through which nearly all televison series programming must pass for producers wishing to reach a mass audience.2~J Additionally, for many years to come, the networks will continue to be in the position whereby a producer, in order to be able to initiate production of a series, must have a network (cont.) Dec. 23, 1982. 25/ See discussion at pp. 23-25, supra. PAGENO="0127" 123 contract and financial commitment in hand. Moreover, as MCA and other production studios have emphasized repeatedly to the Comxnmission, the networks' combined status as "the only game in town" allows the networks to dictate the rules of television series program purchases. The superior power of the networks as monopsonists enables the networks, in the "bargaining" over unproven and untried prograins,2~/ to demand that producers accept inclusion of often onerous terms or risk being passed over. Most prevalent of these onerous contract terms is that producers are required to finance production of a network television series on a deficit basis. The Network Inquiry Report's own data showed that deficit financing is the norm and, indeed, continues even as a series becomes more successful. For example, the Report's analysis of program license fees indicates that average annual revenues per program series for producers are $5.3 million, while the average annual costs per series are $6.1 mil~ion.22/ This indicates that deficit financing occurs in general throughout the entire program acquisition period. The only reason why producers are willing to accept this oppressive condition imposed on them uniformly by the networks, is the hope that they will be able to 26/ The terms of program series contracts between producers and networks are set at the pilot stage, when the future success o~ a series is an unknown quality. The terms decided on at that early point will generally govern the production through the entire life of the series. This includes agreement as to the amount to be paid for each program in all future seasons at preset prices, regardless of the degree of success for the program. 27/ Averages were furnished in 1980 by the Network Inquiry Special Staff on request, for equations in Tables 20 and 21, Preliminary Report, pp. 373-374. PAGENO="0128" 124 produce and accumulate enough episodes of a series to allow for syndication and ~ be able to realize a profit. Without the possibility of future off.-network syndication profits from the few series that are around long enough to be syndicated, producers would have no reason or justification to continue to produce television series. The Network Inquiry Special Staff, relying on economic the~~~) to the exclusion of reason, postulate that if producers are forced to give up future rights and interests, they will receive additional payments for these rights in each instance from the networks at the outset. Thus the producers' benefit from this theoretical process would be that they would receive small additional payments for each program rather than a large payment for the few program series that are eventually sold in syndication. Without any study of whether the revenues from these several small payments would in the long r~n be equal to the revenues from the present system, the Network Inquiry Staff concluded that their proposed system would allow for the market entry of additional small producers who cannot afford deficit financing. The failure of the Network Inquiry Report's reasoning is that the theory fails to mesh with its other conclusion that the prices paid by the networks for television program series do not really reflect the specific rights granted, but rather reflect the minimal "reservation price," which is the lowest payment level at which a producer will continue production. Additionally, the Report presented no evidence that prior to the enactment of the syndication and financial interest rules, the networks paid higher PAGENO="0129" 125 prices for television series programs because they obtained more rights. It is clear that no matter what rights are conveyed, the networks will continue to pay the minimum "reservation price" for unproven series, and producers will be forced either to accept the same deficit level payments for fewer rights or get out of the business. We submit that without the potential for future profits, many producers will choose to get out of the business. A reduction in the absolute number of entities producing programs for network televison would clearly result in a loss of diversity in the number of voices represented in the network schedule.2~J Although at present the networks still exert considerable control over most phases of the production of television series programming to be aired on the networks, the independent producers themselves are varied and diverse, and the producers are often quite willing to fight with the networks over program concepts and values that the producers view as important, at least when the producers' own financial interests ride on the outcome. Producers have the impetus to seek to win these arguments, and often do win them, when they will ultimately gain from the success of their series. The tension created by the present syste~~1 where networks are barred from syndication and from gaining control of the programs, adds substantial diversity to the network schedule.. 28/ Indeed, as noted above, among the purposes of the syndication and financial interest rules were to decrease the "centralization of creative control" over programming by the three networks, thereby fostering a "diversity of approach which would result from a more independent position of producers developing programs in both network and syndication markets." Network Television Broadcastin9, Report and Order in Docket No. 12787, 23 FCC2d 382, 389, 394. 32-540 O-84---9 PAGENO="0130" 126 IX. Conclusion For the past few years, the Commission has engaged in a steady course of deregulation of telecommunications, with the goal of replacing unnecessary regulation with an atmosphere of free competition. The Commission's recent deregulatory actions, as well as its decisions authorizing new delivery systems generally on an open entry basis, have markedly increased competition and diversity. It does not follow from this recent success, however, that every, possible deregulatory action increases competition and diversity. This caveat is especially important with respect to over-the-air television, which is not a new delivery systems that can be opened up on a truly competitive basis merely by the Commission ringing a bell and letting the various parties fight it out. The chain of regulatory and other events in the history of televison broadcasting since the 1940's, especially the Commission's early structural decisions, have led to the development of a national television system in which three networks in tandem, control nearly every aspect. The pervasiveness of the networks' control over American televison is virtually unparalleled in any other industry. Any deregulation of the networks must therefore be undertaken with great circumspection, for should the Commission underestimate the degree domination and power of the networks, or their intentions, the result will be' that numerous erstwhile competitors of the networks may be driven out of business. PAGENO="0131" 127 MCA submits that repeal of the syndication and financial interest rules would be extremely regressive. Repeal would destroy the atmosphere of competition that has developed in program supply since the rules were enacted. Repeal would also, as shown above, cripple the primary competition the networks will face over the next several years the independent television stations by giving the networks the power to control and restrict the availability of the type of syndicated television series programming that has in the recent past made the independents so successful. Additionally, the networks would gain from repeal the further power to restrict the flow of popular series programming to the new delivery systems, such as DBS, MIDS, low power television, and cable television. In sum, repeal of the syndication and financial interest rules, in the name of deregulation, would lead to far greater concentration of control and far less competition and diversity. MCA submits that there is no public interest in freeing the networks to increase their domination of American televison. WHERE~'ORE, for all the foregoing reasons, MCA, Inc., urges the Commission to retain its syndication and financial interest rules. Respectfully submitted, PICA, INC. By ~ Arthur Schein By_________ Richard H. Waysdo f Its Attorney January 26, 1983 WILNER & SCEEINER Suite 300 1200 New Hampshire Avenue, NW Washington, ID.C. 20036 PAGENO="0132" 128' BEFORE THE Federal Communications Commission WASHINGTON D C In the Matter of BC Docket No. 82-3 45 Amendment of 47 CFR S73 658(j) the Syndication and Financial Rule To The Commission COMMENTS OF EMBASSY COMMUNICATIONS AND TANDEM PRODUCTIONS INC Fmbassy Communications and Tandem Productions, Inc by their attorneys, and pursuant to Section 1 415 of the Commis- sion s Rules, hereby respectfully submit their Comments on the Notice of Proposed Rulemaking in BC Docket No 82-345 released July 21 1982 I BACKGROUND 1 O~ May 4 1970 following 11 years of study, and consideration of extensive comments and research analyses, the Commission adopted a series of rules designed to limit the domination of the television program marketplace by the three national television networks. See Report and Order in Docket No. 12782, 23 FCC 2d 382 (1970) recon denied 25 FCC 2d 318 (1970) In concluding that rules were necessary to promote diversity and competition in television programming the Commission found that PAGENO="0133" 129 the networks had come to overwhelmingly dominate the television industry generally and program production specifically, particularly in prime time. 2. First, the Commission found that, by the end of 1969, the networks had achieved dominance over the broadcast television industry. Of 224 stations in the top 50 markets, 153 were network affiliates and only 14 markets had independent VHF tele- vision stations. Nationwide, 499 of 621 TV stations in 1969 were network affiliates. Id. at 385. Second, the Commission found that network programming dominated the program schedules of the network affiliated stations. In 1968, network affiliates carried an average of only 3.3 to 4.7 hours a week of nonnetwork program- ming during the 28 prime time hours. Id. 3. Third, the Commission found that "a direct relationship existtsl *between new programs chosen for network schedules and network acquisition of subsidiary rights and interests." Id. at 393. As a result, the Commission concluded, "networks accepted virtually no entertainment program for network exhibi- tion in a 5-year period in which they did not have financial interests in syndication and other subsequent use. . .~ Id. More- over, the data submitted by the networks and by their consultant, A. D. Little, confirmed that "no matter how producers are cate- gorized in terms of bargaining power, their entry to the prime time network television market is accompanied by the transfer of a substantial part of the potential profitability of their products to the purchasers -- the networks." Id. at 38S-9. Indeed, despite the great bargaining potential o~ the existing PAGENO="0134" 130 major motion picture studios, they were unable to obtain entry to the network television market on terms more favorable than those obtained by other, less experienced, and financially weaker, producers. Id. at 388. 4. Fourth, the Commission concluded that the ownership by the networks of syndication, financial, and other interests in allegedly independently produced programming posed a significant conflict of interest in the selection of programming by the networks. Id. at 394. In essence, the networks' judgment in selecting new programs for prime time exhibition was improperly influenced by their acquisition of subsidiary interests in the programs chosen. In addition, the Commission was concerned by the obvious conflict of interest created by network control over, or influence regarding, the syndication of off-network program- ming to independent television stations which compete with the networks' owned and operated stations, as well as the networks' affiliates, for viewership. Id. 5. Finally, the Commission was disturbed by the extent to which close network supervision of so much of the nation's pro- gramming centralizes creative control in the hands df the few. The Commission concluded that this concentration of program control in the hands of the networks tends to work against the diversity of viewpoint and approach which would result from a more independent position of producers developing programs for both the network and syndication markets. Id. 6. Based on the facts, the Commission concluded that rules were necessary to limit the influence of the networks over the PAGENO="0135" 131 television marketplace. The three key rules adopted by the Com- mission were: The Syndication Rule, 47 C.F.R. §73.658(j) (1) (i), which prohibits the networks from syndicating television programs to domestic television stations for nonnetwork exhibition, distributing programs of which the network was not the sole producer outside the United States, or participating in profit-sharing arrangements involving these activities. o The Financial Interest Rule, 47 C.F.R. §73.658(j) (1) (ii), which prohibits the networks from owning any financial or proprietary right or interest in any program that is independently produced, other than the network exhibition right itself; and O The Prime Time Access Rule, 47 C.F.R. §73.658(k), which, as applied, prohibits network-affiliated sta- tions in the top 50 markets from carrying more than three hours of network entertainment programming during the four hours of "prime time" each night. 7. It is most important to remind the Commission at the outset that the Syndication and Financial Interest Rules were not designed as a panacea. They were intended as a check on the ever-growing intrusion of the networks into the creative and production process. No one perceived these rules as a tool that would promptly end all vestiges of network dominance. Rather, reviving the production community and giving independent stations an opportunity to grow were seen as reward enough to justify their adoption. 8. Since they became effective in 1971, the Financial Interest, Syndication, and Prime Time Access Rules have achieved the modest success sought by the Commission. The independent program production companies have achieved a degree of vitality and ~Lndependence in excess of that in effect prior to adoption of PAGENO="0136" 132 the rules. Creative control of the television marketplace has been dispersed to some degree. Moreover, while the development of first run syndicated programming has not blossomed to the extent sought by the Commission, the independent television stations have achieved a level of competitiveness unprecedented in the history of the industry. 9. Now the winds of deregulation have swept through the regulatory landscape. In many instances deregulation has been properly used to eliminate ~innecessary and counter-.productive regulations. In some cases, however, the cause of deregulation has been used by private interests as a reason to sweep aside valid and valuable regulations that clearly serve the public interest. So it is with the instant proceeding. The networks, sensing a change in regulatory mood at the Commission, have mounted a massive multi-million dollar campaign to eliminate any restraints on their domination of the television industry. Through their efforts, the Commission is now proposing to elimi- nate the Syndication and Financial Interest Rules. Tandem Productions and Embas~y Communications most vigorously oppose deletion of these most important rules. They will demonstrate herein that the public interest would be disserved *by hasty abolition of these checks on network hegemony over the airwaves. II. QUALIFICATIONS TO COMMENT 10. Embassy Communications ("Embassy") is a diversified entertainment company involved in the production and distribution of television proaram series. Tandem Productions, Inc. is art PAGENO="0137" 133 independent production company devoting itself exclusively to the television market. Embassy and Tandem believe they can assist the Commission's resolution of this proceeding because they can offer the Commission personal insight into the relationship between the national television networks and independent production companies. 11. Embassy and Tandem have great experience in dealing with the networks. As experienced producers of television series, they have licensed to the networks more than 20 series for exhibition during prime time over the past 12 years. Their current prime time network series include: Archie Bunker's Place (CBS) Gloria (CBS) One Day at a Time (CBS) The Jeffersons (CBS) Diff'rent Strokes (NBC) Silver Spoons (NBC) Facts of Life (NBC) Square Pegs (CBS) Each of these series is a 30-minute duration situation comedy. 12. Embassy and Thndem are also experienced in the market- place for syndicated programming, especially the syndication of off-network programs. Several current and former network series produced by Embassy or Tandem are now in syndication, including: All in the Family The Jeffersons Maude Sanford and Son One Day at a Time Good Times PAGENO="0138" 134 Each of these programs, except "All in the Family", is syndicated by Embassy Telecommunications, an Embassy division. Tandem formerly produced, and distributed through an affiliated company, several first run syndicated programs, including "Mary Hartman, Mary Hartinan", which is now being released again through Embassy Telecommunications, as well as "Fernwood 2 Nite," "America 2 Nite," and "All that Glitters." 13. Embassy *and Tandem are well qualified to provide the Commission with insight on the relative bargaining position of the networks vis-a-vis the independent production companies. Tandem's first successful series, "All in the Family", was conceived prior to the Syndication and Financial Interest Rules, whjch rules were adopted on May 7, 1970, but did not become effective until July 23, 1971. Negotiations for network exhibi- tion rights commenced between Tandem and CBS in May 1970. CBS conditioned its agreement to broadcast "All in the Family" on a grant of all distribution and syndication rights in the program to CBS. The first broadcast of "All in the Family" took place in January 1971, No written agreement covering broadcast or syndi- cation rights, however, existed prior to late September 1971, when an agreement dated "as of July 10, 1970" was executed by CBS. As a result of adoption of the Syndication Rule, CBS assigned its syndication and distribution rights in "All in the Family" to Viacom International, Inc. through a "spin-off" of its subsidiary, CBS Enterprises, Inc. The validity of the assignment PAGENO="0139" 135 of distribution and syndication rights in "All in the Family" to CBS and, ultimately, to Viacom, was unsuccessfully contested by Tandem on a number of grounds, including incompatibility with the Syndication and Financial Interest Rules and the Sherman Act. See Viacom International, Inc. v. Tandem Productions, Inc., 526 F.2d 593 (1975). 14. Embassy and Tandem hope to utilize these Comments to inform and educate the Commission as to the dangers that will inexorably flow from abolition of the Syndication and Financial Interest Rules. They offer these Comments through the perspective derived from their roles as producers and syndicators of a broad range of network, of f-network, and non-network pro- gramming. III. DELETION OF THE SYNDICATION AND FINANCIAL FINANCIAL INTEREST RULES WILL CRIPPLE OR DESTROY THE INDEPENDENT PROGRAM PRODUCTION INDUSTRY A. There is a Fundamental Imbalance in the Bargaining Positions of the Networks Vis-a-Vis the Independent Program Producers 15. A detailed understanding of the relationship between, and relative bargaining positions of, the networks and the independent program producers is of critical impottance to under- standing the necessity for retaining the Syndication and Finan- cial Interest Rules. A key premise underlying the Notice of Proposed Rulemakin~ in this proceeding is that the networks and the independent program producers engage in bargaining from positions of roughly equal strength. Nothing could be farther PAGENO="0140" 136 from the truth. In fact, the networks totally dominate the exhibition licensing process. They have all the chips on their side, and use their dominant bargaining position to impose their terms on the program producers. No arms length bargaining takes place between the network and program producer; rather, the networks dictate the terms of the license for network exhibition to the producer, who must accept or be deprived of any chance of network exposure. The Commission's assumption that the networks and the program producers have equal bargaining positions, and could fairly negotiate for distribution of risks and benefits from both network and syndication runs, is, quite simply, wrong. The Commission's suppositions, while convenient from the point of view of theoreti~al economics, do not reflect the real world. in which the networks dominate their program suppliers. Repeal of the Rules would exacerbate the situation and make it intolerable. 1. The Relationship Between the Networks and the Independent Program Producers 16. To appreciate this imbalance, the Commission must understand the process by which an idea is ultimately converted into a network program series. While, of course, there are many variations o.n the following theme, it represents the most typical structure leading from story notion to broadcast series. 17. First, of course, is the creation of a concept for a new series. The independent production companies employ staffs of writers to produce scripts for existing series and to develop concepts for new series. In addition, the production companies PAGENO="0141" 137 receive a number of story concepts from outside sources. The "story notions" developed by these sources are reviewed by the creative development staffs of the independent producers. Concepts that lack appeal are dropped; those that seem promising are nurtured and modified to provide what the producer believes is the most appealing (and saleable) form. When the producers believe they have developed a story notion or idea that will be appealing to the networks, they contact representatives of a network's creative development department. 1/ Note that the producers do not normally contact more than one network. Consciously or unconsciously, the practice is that a story concept reviewed and rejected by one network is most unlikely to receive favorable consideration by either of the other two networks. Therefore, the production compaiiy must decide which network to present its story notion to, based on the quality of the relationship between the network and the producer, as well as an evaluation of the particular programming needs of each network. 18. The independent producers then present their story notion to executives of the creative development staff of the ~/ Few series are produced with the intention that they will be sold directly to the syndication market. Indeed, first run syndication programming consists almost entirely of game shows and variety/talk programs. Continuing dramatic, action, and comedy series are far too expensive to produce to be justified by the potential first-run syndication market. None of Tandem's or Embassy's forays into that market (e.g., "All That Glitters," "Fernwood 2 Nite," etc.) have met the kind of sustained success their network series have. These program forms can only be supported by network exhibition. PAGENO="0142" 138 network. This is normally an oral presentation; occasionally written notes will be supplied, and, on a few occasions, a written narrative "story" or "format" will be provided to the network. At this time virtually no active producers go so far as to commission a "freeball" script without prior consultation with the network. The cost of such a presentation is high, and, as is the case with every presentation of an idea for a series to the network, the chances for acceptance very low. 2/ 19. The network creative executives may accept a story notion as originally presented. Or, more often, they suggest changes in the concept, and a series of meetings are held refin- ing the concept for the series. If the network creative develop- ment executives decide to proceed with a concept, they authorize the production of a pilot script. A contract is negotiated which provides for the preparation of a teleplay by the production cOmpany in return for reimbursement of its out of pocket costs. It should be stressed that this is on an "out of pocket cost up to" a specified amount basis. Any cost overruns must be absorbed by the producer.. Moreover, no compensation is provided for the producer's general overhead or for its initial costs in developing the initial story notion. 20. The pilot teleplay script is written by the producer's creative staff, and honed and polished by its developmental executives. When they are satisfied w.ith the product, it is 2/ For a half-hour script, script fees alone would be anywhere up to $50,000, and, in the unusual circumstance, can be up to $75,000. PAGENO="0143" 139 presented to the network's creative staff. They review the script, suggest possible changes, and, ultimately, make a deci- sion as to whether the concept is worthy of further consid- eration. If the pilot script satisfies the network creative department, they authorize their business affairs staff to enter into negotiations with the production company for a broad-ranging contract that will essentially govern their entire financial relationship for the next four to five years. 3/ 21. The contract that is negotiated between the network and the producer governs both the developmental and continuing pro- ductioti phases of the series' life. It authorizes the production company to produce a film or video tape pilot episode based on the pilot script. Once again, this is on the basis of reimburse- ment for out of pocket expenses up to a stated maximum only. The producer canno~ profit during the developmental stage, and in fact in the vast majority of cases cannot even cover its direct out-of-pocket costs, let alone overhead expenses not directly related to production of the pilot. Network auditors inspect the producers' books to insure that no indirect costs, or costs not expressly approved by the networks, are reimbursed to the pro- ducer. The contract executed at thi.s tine also gives the network a series of options to license the series for network exhibition. At one time, the standard arrangement required the network to order an initial run of 39 episodes if it chose to purchase a 31 Indeed, at least one network requires this to be done at the script commitment stage. PAGENO="0144" 140 program for network exhibition. The networks subsequently cut back their initial exposure to 26 episodes, then 22 to 24 epi- sodes. Now the norm is for the network to guarantee the producer only 13 episodes, including the pilot. An increasing trend is for the network to insist on an option to acquire only 4 to 6 initial episodes. 4/ This initial contract will give the network a series of options to acquire additional first-run episodes. covering a period of four to four and one-half years, depending on whether the series will receive its initial airing in the fall or spring television seasons. 22. Price is not really negotiable at this point. Although discussions take place, the bottom line is that the network essentially dictates the price it will pay, and the producer must accept what is offered or forego network exhibition. These compensation amounts a~e not necessarily related to quality or production costs; indeed, they place many producers in a deficit situation throughout the life of the contract. Moreover, the prices are fixed for the full life of the contract; provision is made for minor (in the neighborhood of 5%) annual increases in compensation. The program producer must bear the risk of 4/ If the series is not a quick success, the network can simply not exercise its options for further episodes, and the series will die a quick death. An order for only four episodes, for example, gives the producer almost no oppor- tunity to amortize his initial expenses over a meaningful number of episodes. Many actors, writers, and directors will succeed in negotiating a minimum guarantee of 13, 20, or 24 episodes from the producer. The network may or may not agree to cover those unused guarantees in the event of a cancellation. PAGENO="0145" 141 exceeding this budgeted amount; the producers cast costs alone can easily increase by as much as 20% in each year. On the other hand, the producer cannot share in the benefits of the potential success of the series. Indeed, Embassy and Tandem do not know of a single case in which a program producer was able to success- fully negotiate a provision giving the producer a share in profits from a successful network run or to obtain bonuses for exceeding ratings or profit goals. 23. The program contracts contain a number of other pro- visions. Syndication of the program is normally prohibited during the life of the contract. The network is often permitted to re-run the series during daytime hours without significant additional compensation. 24. Once the development and production contract is exe- cuted, the program producer makes the pilot program. ?~fter the producer is satisfied with the program, it is presented to the network. The network then makes a decision as to whether to place the series in its program schedule. If it decides to do this, it exercises its first option in the contract between producer and network, and orders the initial run of episodes. If the series is successful, the network will continue to exercise its options for additional episodes throughout the life of the contract. If the program is immediately unsuccessful, the series may be cancelled. The producer will be compensated only for those episodes already produced even though the contract provides for a longer initial run. If the program is marginal in the ratings, the networks will often "string along" the producer, 32-540 0-84--lO PAGENO="0146" 142 insisting on modifications to the contract to order only a few additional episodes at a time. The producer, whose only real chance of recovering his expenses, much less making a profit, is a long network run followed by syndication, has no choice but to accede to the network's dictates. 25. If the program is unusually successful, and lives out the four to four and one-half year term of the initial contract, the network and the producer will negotiate a new agreement covering network exhibition rights. The producer of such a series will have somewhat greater bargaining strength than the creator of an untested pilot script. But even the creator of the most successful program series has limited negotiating room. The simple fact is that there is no competition among the three networks for the rights to successful series. There has not been a single case in the past decade where the networks have competed for the rights to a successful series. Indeed, the other net- works simply will not enter into meaningful negotiations for the rights to programs appearing on competing networks. The only bargaining chip held by the production company is its threat to terminate production of the series and to rely on revenues from syndication and from other series. Such a "suicide" threat can only be made, of course, by a financially strong and independent producer. 26. In most cases, the producer's only chance to profit from production of a television series is through a long network run followed by successful syndication for off-network exhibi- tion. At best, the producer will break even on out-of-pocket PAGENO="0147" 143 development costs; overhead and cost overruns will always be absorbed by the producer. Normally, the compensation fixed by the network for prime time exhibition will not cover the produc- er's production costs for the continuing episodes of the series. These deficits must also be absorbed by the producer, who has to proceed on the assumption that a sufficient number of episodes will eventually be ordered by the network to support successful off-network syndication of the series. 5/ If the network cancels a series before a sufficient number of episodes have been produced to permit syndication, the producer of a deficit series can never offset its entire costs. It will have taken a loss on the series which can never be recovered. Only "the light at the end of the tunnel," the possibility of syndication income following a long network run, sustains the independent production companies and encourages them to make the investment in time, money, and creative energy necessary to develop new television programming. 5/ The nunther of episodes necessary to support successful syndication of a series has not been firmly established, but runs in the range of 65-150 episodes. This large number is necessary to permit a series to be "stripped", i.e., carried by the local station on a five days per week ~ without undue duplication of episodes. PAGENO="0148" 144 2. The Networks Have, and Will Exercise, the Power to Extract Coercive Contract Terms From the Independent Production Companies 27. Several facts are immediately apparent from the rela- tionship between the networks and the independent production companies. First, all essential contract terms for the initial network run are negotiated at a time when the network's bargain- ing position is strongest and the prodticer's position is weakest. All the producer has is a concept and an initial pilot script. 6/ He cannot intelligently gauge the likely success, and hence the value, of the series concept, especially since the network can insist on "creative" changes in that concept at any tine. Moreover, because first-run syndication is not a viable market for new series presentations, the producer must obtain network exposure in order to give his product marketability. The networks have the potential to reach over 80 million TV households, and no other medium, or combination of media - pay cable, MDS, STy, or the like - can even approach this potential. The ~ way to obtain needed network exposure is to accede to the contract terms dictated by the network. 28. Second, it is apparent from the very terms of the contracts between producers and networks that they are one-sided and dominated by the network's dictates. Indeed, there has been a pattern of the networks imposing ever more onerous provisions 6/ See, however, footnote 3, supra. PAGENO="0149" 145 in their contracts with producers, further increasing the pro- ducers' risk. For example, the number of episodes in an initial order has been reduced, at network insistence, from 39 initially to 13 (and often only 4 to 6) at present. This substantially reduces the opportunity for the producer to recover its overhead and other intangible expenses. Similarly, where the networks once were willing to reimburse the producer for unusual expenses, and to renegotiate compensation for unusually successful series, their approach now is to be hard nosed in any such renegotiations, making alterations extremely difficult to obtain. 29. Finally, it is clear that the networks and the pro- ducers will never be able to negotiate equally in an arms-length transaction to rationally distribute the risks and benefits of program development, production, and exhibition. At present, the producer absorbs all the risks of failure. His expenses incurred in developing a story notion are not recovered if the notion does not lead to series production. His overhead and often his out-of-pocket expenses in the pilot script and pilot episode phases of development are not compensated by the network. Even if the program reaches network exhibition, often the production is in deficit financing, and the producer is encouraged to go on only by the hope of eventual profit in the syndication stage. The networks, on the other hand, incur no real risk. The demand for network advertising availabilities is so high that they can always find advertisers, even for the most unsuccessful program. Moreover, the price of advertising on even the lowest rated shows is high enough that the total revenues from any episode are PAGENO="0150" 146 always much higher than the program acquisition costs for that program. The only risk that the networks absorb is that they will make less profit from a series with low ratings than they might have made from a series in the same time slot with high ratings. In every case, however, they will make a profit! 30. Not only is it clear that the networks have the ability to effectively coerce program producers into assigning to the networks either their entire domestic and foreign syndication rights, or share in the profits from such syndication, but there is a well established record that the networks will exercise such power. Indeed, the network' s proclivity to impose such adhesionary provisions is irrefutably demonstrated by the statistical evidence relied on by the Commission in adopting the Syndication and Financial Interest Rules. The networks had the right to participate in any profits from the first network run in 96.7% of the series programs produced by the 15 major program packagers studied by A.D. Little, and they shared in the first-run profits of 96.1% of the series produced by the major motion picture companies from 1959 to 1964. Similarly, the networks had the total domestic syndication rights in 18.7% of the programs produced by the 15 listed packagers, and shared in the domestic syndication profits of fully 65.4% of their programs between 1957 and 1964. The major movie companies gave up domes- tic distribution rights to the networks in 8.5% of the programs they produced from 1959 to 1964; more importantly, they gave the networks domestic syndication profit shares in 77.6% of their series. Foreign distribution rights and profits shares were PAGENO="0151" 147 ceded to the networks in a similar number of cases. Report and Order in Docket No. 12782, ~ There is no reason to doubt that the networks will extract similar rights if the Syndication and Financial Interests Rules are repealed. 31. Embassy and Tandem have the advantage of many years experience in dealing with the networks, and it is inconceivable for one moment to believe that if these rules are repealed the networks will negotiate with the independent producers on an equitable basis. They have the upper hand. Why should they give the producer more for production in return for a percentage of the syndications rights, when they know the producer has no other choice but to accede to whatever they propose. It challenges credulity to even suggest that the networks will be fair. After all, in the final analysis it is not a question of being fair and equitable but rather whether it is good business practice to give a supplier more compensation for this product than necessary to obtain that product. Good business sense, and responsibility to maximize profits for their public investors, dictate that the networks will pay no more than is required, and give up only those rights necessary to obtain their product. 32. It is obvious then, that should the Syndication and Financial Interest Rules be abolished, the networks will demand and receive an interest in both the network and syndication rights of every program they carry. The producers are powerless to stop this. The suggestion in the Notice of Proposed Rulemak that there will be bargaining as to the distribution of risks PAGENO="0152" 148 and benefits from network exhibition of programming is supremely naive. The truth is that \h~ networks have, and will continue to have, the upper hand and wil\l be able to impose their will on the program producers during contract negotiations. B. Elimination of the Syndication and Financial Interest Rules Will Have a Significant Adverse Inpa~t on the Program Producers and on the' Public Interest 33. We have seen that the networks have, and will exercise, the power to require program producers to cede substantial interests in their potential program series in order to obtain even the possibility of network exhibition. Without such network exhibition, a program series stands virtually no chance of success. On the other hand, the producer normally cannot earn a profit even through a lengthy network run. The producer's prospect for profit lies in the potential of the series for syndication. If the networks are permitted to extract a share of such syndication revenues from program producers, the independent program production industry will be crippled. This would decrease outside influence over television programming, decrease diversity of viewpoints, and thus disserve the public interest. 34. Prior to adoption of the Syndication and Financial Interest Rules, the television program production industry was subject to domination by their "customers," the networks. In order to sell their programming to the networks, they were compelled to assign a share of their profits from the first network run to the network. Furthermore, the program producers PAGENO="0153" 149 were effectively coerced to assign to the networks either their entire domestic and foreign syndication rights, or a share in the profits from such syndication. 35. Since the adoption of the Syndication and Financial Interest Rules, the independent program production industry has prospered. The number of producers supplying prime time program- ming has grown - there were 29 different producers of prime time network entertainment programming during the 1981-1982 television season. Among these were 22 producers that were not active prior to 1971; these newcomers accounted for over half of the prime time shows from independent producers. Adoption of the Syndica- tion and Financial Interest Rules has directly resulted in a reduction in network ownership of prime time programming. In 1964, networks owned part or all of 87% of all prime time pro- gramming. By 1981, this had been reduced to only 13% of prime time programs; yet network profits were at an all time high. 36. Elimination of the Syndication and Financial Interest Rules would have a significant negative effect on the continued vitality, and viability, of the independent television production industry. Without the safe harbor of these rules, the program producers will once again be subject to the total coercive practices of the national networks. In order t.o market their programming to the networks for prime time exhibition, producers will be required to give the network a major financial interest in their programs. Moreover, the current deregulatory trend may well extend to relaxation of the "consent decrees" that limit the extent to which the* networks may have ownership interests in PAGENO="0154" 150 broadcast programming. In such event, the networks would be likely to greatly expand their own program production efforts. In one case, the network would become the program producer's "partner"; in the other, his employer. In either event, there would be a substantial diminution in the role and in the independent influence of the program producers. 37. The public interest is well served by the continued viability and independence of the television program production business. Independent program producers provide the only tempering of the networks' dominant influence over the content of prime time programming. Should the networks be permitted to obtain financial interests in a substantial percentage of prime time programming, their influence over program content can only increase still further. The networks will no longer review pro- gramming produced by others and advise the producer as to pro- posed changes. Rather, as an owner of rights in the programming, they will dictate its content! This will further centralize control of the creative process in the hands of network bureau- crats who are not noted for their zest for diverse, quality programming. The inexorable result will be a stifling of the creative process and an aversion to take risks in innovative new program concepts -- resulting in more of the "sameness" in network programming that we all deplore. 38. Finally, there will be every economic incentive for the networks to favor those production companies in which they have a financial interest in the program selection process. Programming decision~ will not be made on the merit of program content, but PAGENO="0155" 151 on the relative advantages of the financial interests involved. As the Commission has already recognized, this places the net~ works in a patent conflict of interest. If the networks choose to follow their own financial best interests, as the record clearly indicates they will, the public will suffer by receiving lower quality programming. Moteover, elimination of the Syndica- tion and Financial Interest Rules will create great barriers t~ entry by new, innovative program producers. 39. Should the Syndication and Financial Interest Rules be abolished, the public interest will be irreparably harmed. The networks will demand and receive an interest in both the network and syndication rights of every program they carry. The independent producer's incentive to produce, and indeed his margin for economic survival will be diminished, proportionate to the networks' direct financial interest in the syndication rights to a given show or shows. The suggestion in the Notice of Proposed Rulemaking that elimination of the rules will allow fair bargaining between the parties, and a fair distribution of risks and benefits, is extremely naive. Eliminating the rules will diminish, if not dry up altogether, the independent program production system as it now exists. And a new system, with total network involvement and domination over general mass media programming will replace it. The public will have even less chance of receiving high quality, innovative prime time programming. Program diversity, long a key Commission goal, will be hindered. All these factors demonstrate the wisdom of continuing the course set by the Commission'in 1970 and retaining PAGENO="0156" 152 these vital regulations, which are the only real checks on the dominance of the networks. IV. ELIMINATION OF THE RULES WILL HAVE A SIGNIFICANT ADVERSE IMPACT ON THE ECONOMIC VIABILITY OF THE UHF INDEPENDENT TELEVISION STATIONS 40. One of the most noteworthy broadcasting phenomena of the 1970s was the emergence throughout the United States of increasingly strong and competitive, independently programmed television stations. In 1969 there were only about 80 opera- tional independent stations in the country. For that year only 27.1% of all independent stations reported a profit. Fully 52% of reporting independent UHF stations, and 14.7% of independent VHF stations, showed losses in excess of $400,000 per year. This can be contrasted with network TV stations, 78.5% of which were profitable in 1969, and only 2.3% of which had deficits in excess of $400,000. By 1980 there were 110 independent stations in the United States and 54.5% were profitable; only 30% experienced losses of $400,000 or more. We submit that of the varied contributing factors to the strengthening of the independent stations, one of the most important has been the availability of popular off-network syndicated programming. Furthermore the adoption by the FCC in 1970 of the Syndication and Financial Interest Rules has been a major, if not the major, reason for the increased availability of this syndicated programming product. 41. The independent producer/syndicator has rio axe to grind insofar as selling syndicated shows to network affiliates versus independent TV stations. As a result independents have PAGENO="0157" 153 increasingly, through the 1970's, been able to obtain popular off-network products that are fresh and most attractive to viewers. At the same time, independent stations have become increasingly competitive for audiences in the major markets -- even versus the network affiliates -- and have acquired a significantly greater share of the viewing audience. It is clear that the Syndication and Financial Interest Rules have enhanced competition in the TV markets in that the rules have contributed to the availability of desirable programming for non-network independent television stations. 42. Elimination of the Syndication and Financial Interest Rules would jeopardize the continued viability of all independent stations. If the networks are allowed to control the syndication of such programming, or even to have a financial interest in the post-network run profitability of network series, they will have the power to control the destiny of the independent television stations. The networks will have the opportunity, as well as every economic incentive, to deprive the independents of the best off-network product. They will also have the opportunity, as well as every economic incentive, to favor their owned and operated stations and network affiliates in the syndication process. 7/ This is art obvious conflict of interest that is 7/ The economic incentive exists because network affiliates are captives of the network during most of the programming day. Only a limited opportunity exists for syndicated programming on network affiliates, and then never in competition with network offerings. Independents, on the other hand, can be competitors in the very same time slot as network program- ming. PAGENO="0158" 154 contrary to the public interest, and yet is inevitable if the Commission abolishes the Syndication and Financial Interest Rules. 43. The networks could discriminate against independent stations in a number of ways other than by favoring its affili- ates. First, they could require that syndication be withheld pending completion of a series' complete network run, or even longer. This would mean that the independent stations would be deprived of product while it was still fresh and popular. Under such a restraint, such mainstays of independent programming such as UM*A*S*H", "One Day at a Time" and "The Jeffersons" could not be used while they were at their peak of popularity. 8/ This would be clearly contrary to the public interest. Another likely restraint that could be imposed by the networks if the Rules are abolished is a prohibition on prime time presentation of top quality off-network programming. This would effectively prevent the independents from offering any real competition to the networks during the most valuable portion of the broadcast day. There would be every incentive for the networks to impose such a requirement if the rules were eliminated and there was no restraint on their acting to protect their economic turf. For example, independent VHF station KTTV in Los Angeles recently began to broadcast syndicated episodes of `M*A*S*H' during prime time. Initial rating reports indicate that KTTV is achieving a 8/ Under present practices, initial syndication is barred during the life of the initial 4 to 4 1/2 network contract. The producer can, however, release the early episodes into syndication during the term of any subsequent contracts. PAGENO="0159" 155 greater share of the audience than at least one network during that time period. Is there any doubt that the networks would act to stop such competition if they had the opportunity? 44. Permitting the networks to control, or have any finan- cial stake in, thesyndication of off-network programming gives them the key to the purses of their only viable broadcast com- petitors, the independent stations. The networks will have both the incentive and the opportunity to hamstring the independent stations. It is contrary to the public interest to permit the networks to obtain such dominance over the raw material upon which their competitors depend. Faced with such an inherent conflict of interest, the networks can be expected to act ir~ their own best financial interest -- and thereby reduce the diversity of programming available to independent television statiàns, and, ultimately, the public. To the extent, then, that a strong and competitive independent broadcasting system is in the public interest, so too are the Syndication and Financial Interest Rules in the public interest. V. THE NETWORKS DERIVE THEIR DOMINANCE OF TELEVISION VIEWING AND THE PROGRAM MARKETPLACE FROM THEIR DOMINANCE OF A SCARCE PUBLIC RESOURCE -- THE VHF SPECTRUM. THIS ALONE JUSTIFIES RULES WHICH FOSTER AN INDEPENDENT PROGRAM PRODUCTION INDUSTRY 45. The executives of the three national television net- works hold rio monopoly on good management, on foresight, on the willingness to invest large sums in the hope of even greeter PAGENO="0160" 156 rewards, or even on luck. Yet we have not seen a major new net- work enter the television marketplace in the past 25 years. In every other industry, there are winners and there are losers. Some new entrants succeed and become industry leaders; some old leaders fail to keep their grasp on the keys to success and fade into obscurity. This has been true in virtually every industry, from airplanes to automobiles, from ferrous metals to ferris wheels. It has been especially prevalent in the entertainment industry. Indeed, in its Report and Order in Docket No. 12782, supra, the Commission identified 15 major packagers of television programming in the period from 1957 to 1964. Few of these entities are active today in the development of new network series. Most have faded away entirely. Yet, year after year, the networks maintain their dominance of the American television. viewing outlets, and in turn dominance of the television program market. This dominance is easy to document. But how can it be explained? The answer lies in the networks dominance of the VHF television spectrum. 46. There are only 525 operating commercial VHF television stations operating in the United States. Of these, fully 500 are network affiliates. The remaining 25 are independent stations. The networks themselves each own and operate 5 VHF television stations in the top 8 markets. In contrast, of the 276 operating UHF stations in the United States, 122 are network affiliates and PAGENO="0161" 157 154 operate as independent- stations. It is clear then, that the networks continue to dominate the use of the VHF spectrum. 9/ 47. The continuing dominance by the networks of television viewing and pro~raxnming then, is directly related to their dominance of the VHF television market. Indeed, the only places where there are VHF independents are markets with 4 or more VHF allocations. The VHF spectrum constitutes a scarce and extremely valuable public resource. If anyone should benefit from the exploitation of this great natural resource, it should be the public. Yet the networks already extract great profits as a result of their dominance of the VHF spectrum. Now they seek to utilize their dominant position to extract a portion of the potential revenues of the program producers. This is contrary to public policy and to the public interest. The only reason that the networks will be able to share in the producers' rights is their almost complete control over access to the nation's airwaves. 48. It is most unfair and serves no public good to allow the networks to use their entrenched position -- founded on a public resource (the VHF spectrum) to in turn take over complete 9/ A truly competitive fourth national television network cannot hope to emerge under these conditions. Any such network would be forced to rely upon UHF affiliates to cover a significantly greater proportion of the national viewing audience than the existing dominant networks. Such UHF affiliates could not effectively compete with the entrenched VHF affiliates of the existing networks. If the Commission doubts this obvious fact, it should search its records to determine the last time a network voluntarily changed from a VHF affiliate in,a market to a UHF facility in the same market. It will be a long and fruitless search! 32-540 0-84--il PAGENO="0162" 158 content and financial control of all TV programming, and ulti- mately to cripple or destroy the independent program industry. That is exactly what will happen if the Syndication and Financial Interest Rules are repealed. The response to the Commission's inquiry, raised in its Notice of Proposed Rulemaking at Paragraph 42, as to whether protection of program producers from undue network influence is a proper object of FCC concern, is a resounding "YES!" The limited control over network activities brought about by the Syndication and Financial Interest Rules is little enough for the networks to pay for the VHF spectrum they dominate now -- and by virtue of being there "first," have dominated since the beginning of TV broadcasting. 49. Moreover, the networks should not be permitted to use their shared monopoly power to block the entry of new, and potentially superior, program suppliers. Yet there is an insuf- ficient number of unaffiliated VHF stations to support the entry of any new national television network. Only through the recently improved competitive position of the UHF independent stations is there any hope on the horizon for the emergence of a competitive new network. As noted earlier, however, abolition of the Syndication and Financial Interest Rules will give the networks control of the programming upon which the recent success of the independents has been built. The networks would have the power to decimate the independents and thus prevent their forming the basis for an emerging competitor network. Certainly the public interest would be served by the entry of a fourth television network. If the Syndication and Financial Interest PAGENO="0163" 159 Rules are deleted, there will be no chance that a new network will link the VHF and UHF independents into a viable new competitor for national viewing habits and national advertising dollars. For this reason alone, the Rules should be retained. VI. REPEAL OF THE SYNDICATION AND FINAN- CIAL INTEREST RULES CANNOT BE JUSTI- FIElD BY AN ALLEGED NEED TO IMPROVE THE NETWORKS' COMPETITIVE POSITION AGAINST EMERGIN~ TECHNOLOGIES 50. It has been suggested that the networks are in a poor competitive position vis-a-vis emerging video technologies such as low power television, subscription television, pay cable, direct broadcast satellite television, video cassettes and discs, and the like. Indeed, the Notice of Proposed Rulem~4p~., ~ at paragraph 34, et ~., expounds at great length as to these alternative program sources to support the proposition that the networks may no longer have a dominant position in the market for television programming. The Commission's assessment is, at best, premature. The fact is that the networks' dominance over the program marketplace is more effective than ever. Moreover, while a few new television viewing outlets are in their infancy, and others may emerge over the next decade, the networks will con- tinue to dominate the television viewing and advertising market- place for the foreseeable future. As long as the networks PAGENO="0164" 160 dominate television viewing, they will, by definition, dominate television programming. 10/ 51. The assertion .that the networks need control of the syndication market, as they will achieve if the Syndication and Financial Interest Rules are abrogated, so as to better compete with such new video outlets, is ridiculous. There are only a handful of LPTV stations in operation, and it will be many years before LPTV is a viable force in the television marketplace. DBS is at least three years away from operation. At best it is anticipated to attract a moderate proportion of non-cable house- holds. Pay cable and home video are not viable markets for the series programming that is the mainstay of network television. Their staple is motion picture and sports telecasting, which appeal to viewers on an irregular basis and at a cost that will always limit the size of their audience. In contrast, network television continues to dominate television viewing patterns. While their share of viewing has slipped slightly in recent years, this has been due primarily to the competitiveness of independent television broadcast stations, not to the emergence 10/ Indeed it is in recognition of the fact that the networks dominate TV viewing in the United States that independent producers are required to go through the network turnstile in order to reach the mass TV audience and thereby obtain marketability for such programming. A pay cable programmer such as Home Box Office may in the future acquire a program series or two for distribution to their approximately 10 million subscribers. But this is a drop in the bucket compared to the 22 hours of programs needed by each of the three networks for their weekly viewing sched~T~ And remember, the network shows are available to in excess of 80 million United States TV households, the true mass TV viewing audience for some time to come. PAGENO="0165" 161 of new technologies. Moreover, the total nutnber~ of households watching network television continues to increase. The networks do not need a share of syndication rights to better compete with new video technologies. A more likely answer is that they seek such rights so that they can control the syndication market and thereby limit the competitiveness of independent television stations. 52. A fact which the Commission has overlooked is that there is nothing stopping the networks from participating in every aspect of the development of these new technologies. Indeed, the networks have taken steps in recent months to do exactly this. For example, both CBS and the parent of NBC have received authorizations for new direct broadcast satellite television facilities. They will be in the forefront of DBS development. All three networks have been active in the development of non-broadcast cable program channels, in general, and pay cable services, in particular. The networks have recently received permission to enter into the ownership of cable television facilities, and one network has already acted to implement such an interest. Similarly, the networks are all active in the development of software, and in two cases, hardware, for the home video and home computer market. Embassy and Tandem believe that the appropriate role for the networks is to foster these.new technologies, not to erect roadblocks to their implementation. 53. It is clear, therefore, that the emergence of new video technologies, which have yet to take a meaningful share of the PAGENO="0166" 162 viewing audience, and which will not be fully implemented for the next decade, offers no rationale for the deletion of the Syndica- tion and Financial Interest Rules. There is no prohibition to network involvement in such emerging video forms, if, as claimed, they offer such competitive potential. In no event should the networks be allowed to obtain interests in television programming that will enable them to stifle the emergence of these bright new hopes for the viewing public. They will be able to do this if the Rules are done away with because the networks will then have the capacity to control the accessibility of all off-network programming -- the very programming that must form the initial basis for the potential success of such new technologies. VII. CONCLUSION 54. The Syndication and Financial Interest Rules have well served their intended modest purpose. The total dominance of the networks over the creative element of television programming has been arrested somewhat. The independent production companies have achieved a measure of financial independence and viability. Equally as important, independent television has prospered through ix~creased access to fresh new off-network programming. In addition to serving these beneficial purposes, the rules have caused no harm. The three dominant national television networks remain highly successful; their profitability is staggering. Clearly the networks have not suffered under these Rules. 55. If the Syndication and Financial Interest Rules are abolished, the public will ultimately suffer. Fir3t, the PAGENO="0167" 163 independent production companies will become true puppets of the networks, with a reduction in their willingness, and ability, to develop risky new innovative programming. Second, the fate of the independent television stations will be placed in the hands of the networks, who will have every incentive to limit their access to popu:Lar programming, and thus lirnit.their competitive- ness. Again the public will suffer a loss of program diversity. In addition, the development of new video technologies will be limited by network control of programming, the software upon which all forms of technological hardware depends. Finally, the public will suffer because the possibility of a new, innovative fourth network will diminish. If the Rules are abolished, the public will be the ultimate losers. 56. In contrast to all these negative public interest factors, there are no public interest considerations supporting repeal of the Syndication and Financial Interest Rules. Rather, all we have is a naked power grab by the networks, who already have more than enough power, wealth and influence. There has been no change in the underlying facts since the Rules were adopted to provide an opportunity for an independent programming industry to develop, and thereby to offer some degree of diversity and independence to the programming available to the American public. These limited goals, we submit, have been achieved. But let us not deceive ourselves. Stronger rules, not repeal of the limited rules now in effect, are in order if the creeping power of the networks is to be effectively curtailed. PAGENO="0168" 164~ 57. As the Commission said in 1970, the Syndication and Financial Interest Rules are prophylactic in nature. Let us weigh them in that light. The Commission has seen the process that independent producers live with on a day-'to-day basis, and has heard from parties with extensive practical experience the actual nature of the relationship between producer and network. It is not a pretty picture. The relationship between producer and network is still very one-sided,. but the Rules have made the financial risks the producers undertake, and the intrusions they suffer from the networks, worth the candle. The system is a long way from perfect, but the public has to be better off by having a stronger independent production community that the networks must rely on, and a stronger, healthier independent television station market to compete with the networks, than was the case prior to 1970 and will be the case once again if the Rules are repealed. 58. If the Syndication and Financial Interest Rules are abolished, the independent production community will no longer be independent. Indeed, it could appropriately be renamed the unetwork production community." The program producers have gained a modicum of independence through the Rules. As a' result, the public has benefited from the creative talents of the independent production community, and the diversity of ideas that talent has brought to network programming. We respectfully plead that this "small" effort to free us even partially from the death grip of network control not be retracted. PAGENO="0169" 165 59. If the Commission succumbs to two years of network pressure and abandons these rules, the industry will suffer and network dominance of programming -- syndicated as well as network programming -- will be all pervasive. The independent program industry will clearly be a loser under this scenario. More importantly, hewevar, the American public will suffer in that it will lose the opportun~ity for diversity and independence in programming determined by the Commission to be so important when the Rules were initially adopted. For all the above reasons, this proceeding should be termi- nated without further action. Respectfully submitted, EMBASSY COMMUNICATIONS TANDEM PRODUCTIONS, INC. 1901 Avenue of the Stars Los Angeles, California Fisher, Wayland, Cooper & Leader 1100 Connecticut Avenue, N.W. Suite 730 Washington, D.C. 20036 By g2~2~-V C(~~ Robert V. Cahill, / Executive Vice President And ~ By ope C if ord M. Harringtofl Dated: January 26, 1983 Its Attorneys PAGENO="0170" 166 Mr. WIRTH. Thank you, Mr. Valenti. Mr. Funkhouser. STATEMENT OF ROBERT FUNKHOUSER Mr. FUNKHOUSER. You are a tough act to follow, Jack. My name is Bob Funkhouser and I am vice president of advertis- ing for the Carnation Co. I am speaking here today on behalf of the Association of National Advertisers. The membership of the Association of National Advertisers are the companies which advertise most consistently on network televi- sion strongly oppose repeal of the financial interest and syndica- tion rule because the rule is necessary to provide the public with a wide variety of program options and the rule is necessary to pro- vide significant competition in the television marketplace. In 1970, the FCC concluded that there was undue concentration of control in the three networks over television pragrams. Thus, the primary objective of the rule is to encourage growth of alterna- tive sources of programing. The benefit of the rule is demonstrated by the growth of the number and economic health of independent television stations, which provide the principal competition to the networks. Repeal of the rule would, in effect, return the potential to significantly influ- ence or control the distribution and pricing of off-network pro- grams to the network. Some suggestions have been made that the FCC consider adop- tion of a narrow rule, which would prevent the networks from warehousing off-network programs from syndication. While in theory such action may appear to be a solution to the potential problems, in our view such a rule would not be adequate. There are several ways in which the networks could deny independent sta- tions timely access to off-network programming and thereby re- strict competition. For example: by giving own stations and affiliates the first oppor- tunity or preferential treatment in acquiring a program in their market; by imposing restrictions on when a particular off-work pro- gram can be scheduled and by deliberately establishing unreason- ably high prices or unacceptable conditions for sale. These same restrictions could be imposed if the networks are barred from direct syndication of programs but are permitted to ac- quire financial interest in programs they broadcast. In reality, it would be impossible to detect or eliminate the influence of the net- work through its financial interest alone could exercise over a dis- tributor. Such influence would probably result from private agreements or understandings to the benefit of the network and to the detriment of their principal competitors, the independent stations. In summary, the public is best served by a broad variety of tele- vision viewing options and by the lowest possible advertising prices. The financial interest and syndication rule works to help provide a competitive marketplace for television programs and for the sale of television advertising and, therefore, serves the public interest. The FCC should not rely on the good will or self restraint of the networks to assure that the competitive marketplace continues. PAGENO="0171" 167 ANA, therefore, strongly supports the retention of the rule in its present form until such time as it is demonstrably clear that changing marketplace conditions have made the television adver~ tising market truly competitive. Mr. WmTH. Thank you very much, Mr. Funkhouser. Mr. VALENTI. I forgot to ask earlier that my comments prepared by MPAA would be included in the record. Mr. WIRTH. Yes. I had noted earlier that statements of all the members of the panel, along with supplementary elements that anyone has information added would be included in full in the record without objection from either of my colleagues. Mr. Cassara. STATEMENT OF ANTHONY B. CASSARA Mr. CASSARA. My name is Tony Cassar~. I am president of Golden West Television, which is the owner of channel 5, the inde- pendent station here in Los Angeles. The growth of independent television stations over the last 10 years is proof that the financial interest and syndication rule is achieving what the Federal Communications Commission wanted it to, a counterbalance to the networks' total domination of television programing. The rule ended the networks' control of off-network syndicated programs. As a result of the rule, KTLA and other independents have been able to provide alternative program choices to the view- ing public. The rule has created a thriving marketplace in which a large number of suppliers compete to sell programs to independent and affiliated stations alike. The suppliers profit from our success as operators. Eliminating the rule will disrupt that free marketplace. It will force independ- ent stations to deal with an oligopoly, the networks, who have a much greater interest in our failure than in our success. Should in- dependents suffer, a likely result if the rule is repealed, the public would pay the price in reduced program choices and higher prices for goods and services due to increased advertising costs. Off-network programing has been the mainstay of schedules on independent stations and a major factor in the growth of independ- ents over the last 10 years. Like all other independents, KTLA competes with the network stations for audience and advertising revenue. We compete by counterprograming; that is, by giving the public program choices different than the network stations offer. The most critical time period for independents is 4 to 8 p.m., Eastern and Pacific time. The network stations tend to schedule news and information programs during this time. By scheduling recent off-network syndicated programs instead, independents pro- vide viewers with alternatives. It would be naive to assume that if the rule were repealed the networks would not use their control of or considerable leverage over the off-network syndication market to restrain the growth and viability of their foremost competitors. If the networks were to control the syndication of the most popu- lar off-network series, independent stations would suffer. More im- PAGENO="0172" 168 portantly, the viewers would suffer from the reduction of the quan- tity and quality of alternative television program choices. The networks are not three poor aging dinosaurs that will be driven to extinction soon if the rule is not repealed-the very rule that more than anything else has been responsible for the growth of the independent television ~tations in this country over the last decade~ To the contrary, the networks are three of the most powerful and successful communications companies in the world. And the compe- tition they fear is not the new technologies. It is independent tele- vision. Make no mistake, no mortal blow will be dealt this three- headed Goliath by independent stations pelting it with off-network programing. An erosion in combined network shares from 86 per- cent of the country's TV households in the fall of 1981 to 82 per- cent in the fall of 1982 is hardly a mortal blow. With an 82 percent of television households, the three networks are far and away the most effective mass advertising medium in existence. That hardly sounds like the verge of extinction to me. We independent stations have been surviving with a mere frac- tion of that share. And as far as the new technologies go, as Pogo used to say "We have met the enemy and he is us." The networks are heavily involved in the new technologies now and will be more so in the future. ESPN, satellite news channel, Tn-Star, DBS, video discs, video tapes, `satellites, videotex, the networks are involved in all of these and more. The networks are the new technologies. Reports of the three networks' extinction has been greatly exag- gerated by them. Despite the fact that thanks to the financial in- terest and syndication rule they do not enjoy the total dominance they once had, the networks are still stronger than anything else in sight and are likely to remain so for many years to come. This is not a fight between big New York network money and big Holly- wood producer money, as the networks would like us to believe. This is a fight for the viability of the country's independent tele- vision stations. Repeal of the financial interest and syndication rule would give the networks the ability to control our very life- blood, popular, recent, off-network programs that are the backbone of our schedules. If the networks are allowed back into syndication, with one stroke of the bureaucratic pen, 10 years of growth of independent television stations will `be reversed and there will be less competi- tion in free television. Mr. Chairman, I fail to see how that is in the public interest. Thank you. [Testimony resumes on p. 297.] [Mr. Cassara's prepared statement follows:] PAGENO="0173" 169 Pral ~ Q14at~iq~i ~i~nthQrw ~ Division, ~g~4~rL ~e r~qa4c~L~ ~ ~p~QXt_Q~_22~Q_ ~ i~e ~ ~c2 c~t~cm~~ and Financ~, Los The growth of Independent television stations over the last 10 years is proof that the Financial Interest and Syndication Rule has achieved what the Federal Communications Commission wanted it to -- a counter-balance to the networks' total domination of television programming. Due in large part to the removal of the networks' control as sellers of off-network syndicated programs to their own biggest rivals -- the independent stations -- KTLA and other independents have been able to provide alternative program choices to the viewing public. Viewers now can see what they want to see when they want to see it. The Rule has created a thriving marketplace in which a large number of suppliers compete to sell programs to independent and affiliated stations. The suppliers prof it from our success as operators. Eliminating the Rule will disrupt that free marketplace. It will force KTLA to deal with an oligopoly -- the networks -- who have a greater interest in our failure than in our success~ Should independents suffer -- a likely result if the Rule is repealed -- the public would pay the price in reduced program choices and higher prices for goods and services due to increased advertising costs. PAGENO="0174" 170 Off-network programming has been the mainstay of schedules on independent stations and the major factor in the growth of independents over the last ten years. Like all other independents, KTLA competes with the network stations for audience and advertising revenue. We all compete by counterprogramming, that is, by giving the public choices different than the network stations offer. The most critical time period for independents is 4-8 p.m. Eastern and Pacific time. The network stations tend to schedule news and information programs during this time. By scheduling recent off-network syndicated programs instead, independents provide viewers quality programming alternatives. By recent off-network syndicated programs, I mean shows that are still on the network or have just completed their network runs: MASH, Happy Days, Laverne and Shirley, Barney Miller. do not mean older off-network offerings such as I Love Lucy and Bonanza. PAGENO="0175" 171 In light of this, it would be naive to assume that if the Rule were repealed, the networks would not use their control of, or considerable leverage over, the off-network syndication market to restrain the growth and viability of their foremost competitors. If the networks were to control the syndication of the most popular off-network series, independent stations would suffer. More importantly, the viewers would suffer from the reduction of the quantity and quality of alternative television program choices. Of course, the networks would not engage solely in outright "warehousing" of all their syndicated programs. That is, they would not withhold all programs from independents, since such anticompetitive conduct would be obvious. However, the networks could use their control of syndication rights and interests to weaken independent stations in more subtle and less visible ways. MASH is a very successful syndicated program on many independents~ If CBS controlled its syndication, would it be sold to independents in major markets or to CBS affiliated and owned stations? PAGENO="0176" 172 The networks could favor affiliated stations through such behind-the-scenes devices as advanced negotiations and discrim- inatory price concessions. Networks can alert affiliates as to when certain programs will enter the syndication markets, allowing affiliates to plan for this in their future program schedules. An independent with no such advance warning might have already committed its program budget to less desirable shows. Networks put all this aside and claim that competition from the new technologies is their only reason for wanting the Rule repealed. They say the Rule unfairly prevents them from competing for programming in the "free marketplace," and that the future of free, advertiser-supported television depends on the Rule's repeal. This is nonsense. The networks are not three poor, aging dinosaurs that will be doomed to extinction soon if the Rule is not repealed -- the very Rule that, more than anything else, has been responsible for the growth of the independent tele- vision stations in this country over the last decade. To the contrary, the networks are three of the most power- ful and successful communications companies in the world. And the competition they fear is not the new technologies. It is independent television. But make no mistake. No mortal blow will be dealth this three-headed Goliath by independent stations PAGENO="0177" 173 pelting it with off-network programming. An erosion in combined network shares from 86% of the country's television households in the Fall of 1981 to 82% in the Fall of 1982 is hardly a mortal blow. With an 82% share of television households, the three networks are far and away the most effective advertising medium in existence. That hardly sounds like the verge of extinction. We independent stations have been surviving with a mere fraction of that share. And as for the new technologies, as Pogo used to say, "We have met the enemy and it is us." The networks are heavily involved in the new technologies now, and will be more so in the future. ESPN, Satellite News Channel, Tri-Star, DSS, video discs, video tapes, satellites, videotex -- the networks are involved in all of these and more. The networks are the new technologies. Reports of the three networks' extinction has been greatly exaggerated -- by them. Despite the fact that they do not enjoy the total dominance they once had, the networks are still stronger than anything else in sight and are likely to remain so for some time to coffle. This is not just a fight between big New York network money and big Hollywood producer money. It is not just a fight for the independence of the creative small producers. This is a fight for the viability of the country's independent television stations. 32-540 O-84--12. PAGENO="0178" 174 The networks blame the new technologies for their problems. But it is the independent stations that really concern them. What concerns independent stations is the network's regaining the ability to control our very lifeblood -- popular, recent, off-network programs. If the networks are allowed back into syndication, with one stroke of the bureaucratic pen ten years' growth of independent television stations will be reversed and there will be less competition in free television. And that is not in the public interest. (CONNITTEE NOTE: The material supplied for the record has been placed in the files of the committee.) PAGENO="0179" 175 BEFORE THE Federal Communications Commission WASHINGTON, D. C. In the Matter of Amendment of 47 CFR § 73.658(j); the Syndication and Financial ) BC' Docket No. 82-345 Interest Rule To: The Commission COMMEN'~S OF TEE ASSOCIATION OF INDEPENDENT TELEVISION STATIONS, INC. The Association of Independent Television Stations, Inc. ("INTV"), by its attorneys and pursuant to Section 1.415 of the Commission's Rules, hereby submits its Comments in response to the Commission's Notice of Proposed Rulemaki~g~" in the above-captioned p~oceeding.u/' I. INTRODUCTION 1. INTV is the principal industry association of Ameri- ca's independent television stations, with 97 member stations not affiliated with any of the three national television networks, located in 70 television markets ranging from 19 of the top 20 markets to some of the smallest. Sixty-'tiine 1/ FCC 82-300, tel. July 21, 1982 (hereinafter referred to as the NNoticeN). 2/ INTV also is a member of the Committee for Prudent Deregulation ("CPD"), which has prepared separate comments in this proceeding. INTV concurs fully in the comments of CPD. PAGENO="0180" 176 of INTV's ninety-seven member stations are UHF independents.~." INTV's participation in the instant proceeding is uniquely appropriate, inasmuch as the Financial Interest and Syndica- tion Rule,~" the Cotnmissiori's review of which is the subject of the Notice, was promulgated in part to foster `~the birth and development of its members, "the independent stations, and particularly the UHF independents upon which Congress arid the Commission have relied for a fully competitive nationwide television broadcast service." Report and Order in Docket No. 12782, Network Television Broadcasting, 23 FCC 2d 382, 394, modified in part, 2.5 FCC 2d 318 (1970), aff'd sub mom. Mt. Mansfield Television, Inc. v. FCC, 442 F.2d 470 (2d Cir. 1971) (hereinafter referred to as the "Report and Order"). 2. The Notice seeks to determine whether the Rule, which was the fruit of a generation of study of network pro- gram procurement and syndication practices that culminated in the Report and Order,~1 is efficacious and in the public interest, or whether it should be repealed. As a 3/ A list of INTV's menber stations is attached hereto at Appendix A. 4/ 47 CFR § 73.658(j), hereInafter s~metimes referred to as "the Rule." 5/ The Report and Order also adopted the "Prime Time Access Rule,' 47 CPR § 73.658(k), which is not under review in the instant proceeding. PAGENO="0181" 177 possible rationale for the latter alternative, the Notice propounds that the Rule could not and has not `deterired] the practices that (it] was designed to reach" or, alternatively, that `changes in market conditions over the past decade nay have obviated the need for this rule."~~' INTV and its mem- bers are living proof that the Rule fl~ achieved its avowedly "modest" purpose of "encouraging the inclusion of the feas- ible maximum of independently controlled and independently provided programs in (station] schedules."1' Due in large part to the Rule's removal of an "inherently undesirable" net- work presence as sellers of programs "to independent stations in competition with their own network programs on affiliated stations,"~" independent stations have flourished both in numbers and as truly competitive providers of attractive, alternative program choices for the American people. Because the Rule has served the Communications Act's "cardinal prin- ciples" of competition and diversity in the television indus- try so well, INTV submits that the public interest demands that the Rule be retained. 6/ Notice i~ 2. ~/ Report and Order at 400 (emphasis added). 8/ Id. at 394. PAGENO="0182" 178 II. THE RULE HAS SERVED THE PUBLIC INTEREST BY FOSTERING COMPETITION AND DIVERSITY IN BROADCAST TELEVISION A. The Rule has Aided the Development of Numerous and Strong Independent Stations, Thereby Con- tributing to Increased Program Choices for the Public 1. Growth of Ind~ nd_ant Stations 3. The Commission's Notice in the instant proceeding is at once puzzling and disturbing, in that it relegates to a mere mention the "issue of the impact that deletion of this rule would have upon independent television stations, where networks, acting as syndicators, would be in the business of selling program-rights to be used in competition with their network fare."V The Report and Order underlying the Rule did not treat this question so summarily; rather, it recog- nized and addressed the harmful conflict of interest inherent in the networks acting as sellers of programs to their prin~ cipal. competitors. Indeed, this conflict was a primary reason for the Rule's adoption: the presence of the networks as domestic syndicators is inherently undesirable. They are in the position of selling pro- grams to independent stations in competi- tion with their own network programs on affiliated stations, and they compete against independent syndicators in the affiliated-station ntarket where they have an advantage due to their permanent rela- tionship with the stations. ~9/ 9/ Notice ¶ 42. 10/ Report and Order at 394. PAGENO="0183" 179 4. For these and other compelling reasons, the Commis- sion determined that it was necessary to remove the three networks from the business of syndicating independently pro- duced television programs to other domestic television sta- tions. Moreover, the Commission reasonably found that it was necessary to prohibit the networks from acquiring financial interests in first-run programming, inasmuch as it would be ineffectual "to exclude networks from active participation in the syndication market and then permit them to act as brokers in acquiring syndication rights, and interests and reselling them to those actively engaged in syndicatiofl."~" At the heart of the Commission' s conclusion was its long-held con- viction that Diversity of programs and development of diverse and antagonistic sources of program service are essential to the broadcast licensee's discharge of his duty as trustee for the public in the operation of his channel. . . . In this way we may more nearly achieve the goal described by Judge Learned Hand in 1942, and echoed by Justice White in 1969, of a television broadcast structure which is served "by the widest practi- cable variety" of choice of programs available for broadcasting; that system which will most stimulate and liberate those who create and produce television programs and those who pur- vey them to the public. ~/ 5. As "purveyors" of television programs to the pub- lic, independent television stations are second only to the ~/ j~. at 398. 12/ Id. at 400 (footnotes omitted). PAGENO="0184" 180 networks; indeed, by their very definition, independents are the ~ conventional broadcast competitors of CBS, ABC and NBC. That the independent stations have been "stimulated and liberated" in the years succeeding the adoption of the Rule is a matter of statistical fact)~-~' As depicted in Table 1, there were 65 independent stations in the tjnited States at the end of 1970. By 1982, the ranks of licensed independents had swelled almost threefold, to 179 all but 25 of which are UHF stations, upon which Congress and the commission hai~e expressly rested their hopes for a "fully competitive nation-~ wide television broadcast service. 13/ The data contained herein concerning independent sta~ tions are a product of Commission reports and records arid INTV's own research. INTV is widely recognized, as the most authoritative and accurate source of statistical data relating to independent stations. li/ Report and Order at 394. PAGENO="0185" 181 TABLE 1 GROWTH OF INDEPENDENT TELEVISION STATIONS BY FORMAT, l97O~1982 (ALL MARKETS) General STy! VHF UHF Religious SpaniSh ~ ~/Othe~ ~ As of 12/31/70 22 26 6 8 2 1 1/71 12/78 0 19 11 4 2 2 1/79 - 12/82 ~J ~, 46 _.a .1 TOTAL 25 91 28 14 13 8 Increase Since 1970 3 65 22 6 11 7 NOTE: All VHF independent stations have a ~general" ~ com- mercial, advertiser-supported) format. Includes three licensed stations scheduled to go on the air in 1983. **/ Several stations offer a part~'STV and part financial or news format. PAGENO="0186" 182 6. As the table shows, independent stations have truly become a "nationwide' presence, reaching 78 percent of the nation's households, compared to only 54 percent in 1972. Even more impressive is the fact that no fewer than 75 of these 114 additional stations have been licensed in the past four years. Importantly, the vast majority of this growth has been among "free" independents: 68 of the inde- pendents licensed since 1970 are general format, advertiser~ supported stations, with most of the remainder comprised of religious (22) and Spanish language (14) stations. Only 21 independents offer any subscription television (STy) pro- gramming, usually mixed with "free" programming during part of the broadcast day. 7. While the ranks of independents have swelled by 114 stations since the adoption of the Rule, network-owned and affiliated stations (while obviously far more numerous) have registered a net gain of only ~ station, and their tJHF stations actually have decreased by 15. Thus, the growth in number of television program outlets available to the American public since 1970, and the diversified program choioes that such' additional viewing outlets offer to the public, has consisted entirely oe the growth of independent stations. PAGENO="0187" 183 2. Growth in Competitive Viability of Independent Stations 8. Just as important as the growth of independent sta- tions in raw numbers is their development as a truly attrac-' tive alternative to network programming. While the networks clearly continue to dominate the television programming industry, independents have made significant inroads in viewer acceptance in recent years. As Table 2 illustrates, independent station audience shares have increased substan-~ tiaU.y in every viewing "daypart~' in recent years, especi- ally among adult viewers between the ages of 25 and 54, the largest television audience "bloc" and the one that accounts for an overwhelming majority of purchasers of products advertised on television. Since free broadcast television consists only of network and independent stations, the cor- relation between the independents' increased share and the networks' decreased share is readily apparent. PAGENO="0188" 184 TABLE 2 INDEPENDENT/NETWORK AFFILIATED STATION DMA AUDIENCE SEARES, 1979 and 1982 ~(TOP 20 MARKET COMPOSITEL~ DMA FIOtJSEHOLIDS ADULTS 25-'54 Share Share 1222. 12~i Change 1979 1982 Change 1. Early Fringe (6-'7:30 pm, M-F) INDEPENDENTS 25 27 +2 25 32 +6 AFFILIATES 67 64 -.3 70 64 -.6 2. Prime Accesa ~7:30-.8 pmf ti-F) INDEPENDENTS 22 26 +4 25 31 +6 AFFILIATES 69 63 -.6 70 63 -7* 3. Prime Time ($~1l pm, ti-F) INDEPENDENTS 9 11 +2 8 12 +4 AFFILIATES 86 79 ...7 88 83 .5 4. Late Fringe ~11-11:30 p.m. ti-F) INDEPENDENTS U. 15 +4 12 16 +4 AFFILIATES 85 79 ..4 86 81 -5 5. Late Evening 0.1:30 p~-1 am ti-F) INDEPENDENTS 10 16 +6 13 19 +6 AFFILIATES 83 73 ]~J 84 77 Source: NSI, February 1979 and 1982. PAGENO="0189" 185 9. In fact, as illustrated in Tables 3 through 8, the modest inroads into the networks' once absolute dominance of America's television system that have been made in recent years have been forged mostly by the increasingly competitive inde- pendents, and ~ (as the networks have suggested) by pay cable and other "new" video technologies. In the periods depicted, independents draw a vastly greater audience share than pay cable in all households ~ in pay cable households over the total viewing day (Table 3), in daytime (Table 4), early fringe (Table 5), late fringe (Table 6) and on weekends (Table 7). Indeed, independents have even outdrawn pay cable in pay cable households in prime time (Table 8). PAGENO="0190" % AVERAUE AUDIENCE - TOTAL DAY ANNUAL TRENDS Composite HH's Pay Cable Hi-folds Basic Cable H'Holds Non-Cable l-l'Hokls TV tjsage* 27.9 29.5 29.6 31.8 35.5 34.9 30.7 30.1 27.6 26.8 28.2 28.5 I U~TI 0.5 0.9 0.2 __________ `~2~8 I Pay Cable O~4 ~ii~ 1.09 r-i II Cable Origin. ~.o 110.3 r-~i ~ 6.0 ] Other On-Air INTWK -AFFIL 22.5 22.9 22.0 20.9 21.2 19.9 22.6 23.3 23.0 NTWK Share** 81 78 74 66 60 57 84 83 81 November `79 `80 `81 `79 `80 `81 79 `80 `81 * May be less than sum of reception sources because of simultaneous viewing % NTWK / % TV USAGE 1.9 9.7 CHART 0 PAGENO="0191" % AVERAGE AUDIENCE - WEEKDAY DAYTIME (MON... FRI. 1OAM-4:3Uf~u `ANNUAL TRENDS Composite HH's Pay Cable H'Holds Basic Cable H'Holds Non-Cable l-l'Holds TV fJsage* 25.2 25.7 25.8 27.2 30.0 29.3 29.6 26.2 24.3 23.9 24.7 25.2 1.0 o.iI~ I 01 0.1 0.3. ...LJ~ I r]o.5 * f I Oi7~l 1 _____ r1 ~flJ Pay Cable I 4*~I ~`IJ~I 8.D~ .6.4 ~ ~ 4.51 4.7 1 D Cable Origin. 1-~-4----1~---1 5.3' D Other On-Air EJ NTWK -AFFIL 20.6 20.3 20.0 20.5 19.9 19.0 22.4 19.8 18.1 20.1 20.4 20.7 NTWK Share** 82 79 78 75 66 65 76 76 75 84 83 82 November 79 `80 `81 79 `80 `81 `79 `80 `81 `79 `80 `81 May be less than sum of reception sources because of simultaneous viewing `%NTWK/%TVUSAt3E Cl-IARTH PAGENO="0192" % AVERAGE AUDIENCE - EARLY FRINGE (MON.-FRI. 4:30-7:3OPM) ANNUAL TRENDS Cémposlte HHs Pay Cable H'Holds BasIc Cable HHotds Non-Cable H'Hokls TV Usage* 46.7 49.0 49.5 54.0 53.5 53.2 49.9 51.2 49.2 45.1 47.5 48.4 I 1.1 o.s 0.9 1 1 I 1.2 ._L. 2.0 1111 0;3 44.9 I Pay Cable ~.. ~ ~i'4~t; .13.9 12.2 12.1 13.3 10.5 I Cable Origin. I Other On-Air J NTWK -AFFIL 35.3 35.4 34.4 32.3 28.8 27.4 35.9 36.6 36.0 35.5 36.3 35.9 NTWK Share** 76 72 69 50 54 52 72 71 73 79 76 74 November `79 `80 `81 `79 `80 `81 `79 `80 `81 79 `80 `81 * May be less than sum of reception sources because of simultaneous viewing %NTWK/%TVUSAGE . CHP~RTJ PAGENO="0193" 0 % AVERAGE AUUIEI~#~ - LM I ~ rFfl~~13f~' L"~ ANNUAL TRENDS Composite IIH's Pay Cable HFtolds Basic Cable H'Holds TV Usage* 26.0 28.2 26.7 28.3 39.3 35.5 27.3 25.8 22.2 Non-Cable HI bIds 25.3 26.7 25.3 I Pay Cable I Cable Origin. 3 Other On-Air I NTWK -AFFIL NTWK Share** November 0.8 0.7 5.1 0.7 5.9 4.1~ 21.9 19.4 17.8 80 75 80 79 80 81 * May be less than sum of reception sources because of simultaneous viewing *&%NTWK/%TVUSAOE 3.5 22.2 22.51 20.1 ~L0~ 79 81 CHAFIT I PAGENO="0194" % AVERAGE AUDIENCE - SATURLPAY/SUNUAY 1-II~Vi ANNUAL TRENDS Composite Ill-I's Pay Cable H'Holds Basic Cable H'Holds Non-Cable Il'Holds TV Usage* 39.2 43.6 43.6 48.7 55.1 53.4 43.3 45.3 40.9 37.1 41.0 41.5 :~6~ 1.4 _____ f~9 0.3I~9 I I 1 ~ ~4~J II II ~2 F~ii1o~4I1o.9I 167 15.5 I [1 8.6 9.7 J Pay Cable . 12.8 106 9.7 8.1. J Cable Origin. J Other On-Air J NTWK -AFFIL 29.4 32.7 31.5 27.7 30.9 30.3 29.9 32.5 29.1 29.5 33.0 32.4 NTWK Share** 75 75 72 57 56 57 69 72 71 80 80 78 November `79 `80 `81 79 `80 `81 `79 `80 `81 `79 `80 `81 * May be less than sum of reception sources because of simultaneous viewing CHART N PAGENO="0195" % AVERAGE AUDIENCE - PRIMETIME (MON.-SUN. 8 11 i-~u~; ANNUAL TRENDS Composite HI-I's Pay Cable H'Holds Basic Cable H'Holds TV Iisage* 61.2 64.3 63.3 70.0 13.2 70.6 65.7 65.6 60.5 j 2.4 2.2 ff~i14 1.5 2.3 0.9 ~n .u~U .~ 9.6( 53.6 54.1 51.5 133 2.6 10'7 ~3 Pay Cable El Cable Origin. El Other On-Air D NTWK -AFFII NTWK Share** November Non-Cable lit-bids 59.1 62.2 62.0 6.8 8.7 9.5 53.5 54.7 53.7 91 88 87 `79 `80 - ~81 50.5 50.9 45.8 55.7 53.8 49.0 J~8i~J~J .~ ~ :: :~ ~ * May be less than sum of reception sources because of simultaneous viewing **%NTwK/%TvusAGE CHART F PAGENO="0196" 192 10. AS independent stations have garnered increasing television audience shares, their advertising revenues, and thus their profitability, naturally also have increased. Specifically, as indicated in Table 9, the independent sta- tion share of national and local spot advertising sales has almost doubled, from 12.7% of the 1970 total to 23.2% in 1982. Consequently, Congress' and the Commission's hopes for a viable independent television industry are far closer to becoming a reality than when the Financial Interest and Syndication Rule took full effect. As depicted in Table 10, 54% of all independents were profitable in 1980, as compared to only 38% in l974)-~1 Although UHF independents are "still struggling," as they were at the time of the Report and Qrd~, 45.7% of independent "U's" are now profitable, com- pared to only 29.1% of independent "U's" which were prof it- able as recently as 1974. (Lest the growth in profitable independents seems ove.rly encouraging, it should also be noted as a matter of perspective that a significant majority (67.2%) of network-affiliated UHF stations were profitable in 1981.) 15/ Because of the unprecedented growth of independent sta- tions in the past few years, and the typical pattern of independent stations needing several years on the air before reaching profitability, the total percentage of profitable independents actually has decreased in recent years, from a high of .74% in 1977. However, "established" independents are more profitable than ever before, and a great many more independents are profitable now than before the adoption of the Rule. PAGENO="0197" 193 TABLE 9 TREND OF NATIONAL AND LOCAL SPOT TV REVENITE (GROSS) YEAR TOTAL SPOT TV TOTAL INDEPENDENT SPOT TV Revenue (in mi,l1ions~ 7, change from prey. ygar Revenue (in millions) 7. change from prey. year INDEPENDENT SHARE OF TOTAL 1970 1.692 214.3 12.7, 1971 1.688 -0.2 225.1 +5.0 13.3 1972 1.988 +17.8 274.4 +21.9 13.8 1973 2.162 +8.8 290 +5.7 13.4 1974 2.351 +8.7 343 +18.3 14.6 1975 2.565 +9,1 401 +16.9 15.6 1976 3.354 +30.8 585 +45.9 l7~4 1977 3.598 +7.2 627 +7.2 17.4 1978 4.375 +21.6 780 +24.4 17.8 1979 4.871 +11.3 885 +13.5 18.2 1980 5.471 +12.3 1087 ` +22.8 19.9 1981 6.275 +14.7 1351 +24.3 21.5 1982 7.154 +14.0 1.662 +23.0 23.2 Source: 1974-1980: FCC 1981-1982: INTV estimate from TVB/FCC data PAGENO="0198" 194 TABLE 10 PROFITABLE STATIONS BY TYPE: 1974-1980 Net~rk Affiliates Indee~iderxts I~L i UHF T~L ~ L 2~1 JLS7~JL~1JLS~2. 1974 378 (87.3) 64 (57.1) 442 (81.1) 17 (54.8) 16 (29.1) 33 (38.4) 1975 376 (87.0) 59 (51.8) 435 (79.7) 22 (73.3) 27 (51.9) 49 (59.8) 1976 393 (91.4) 80 (68.4) 473 (86.4) 25 (83.3) 39 (63.9) 64 (70.3) 1977 397 (92.5) 89 (76.1) 486 (89.0) 25 (86.2) 38 (67.9) 63 (74.1) 1978 402 (93.1) 96 (82.8) 498 (90.9) 24 (82.8) 40 (57.1) 64 (64.6) 1979 387 (90.4) 89 (76.1) 476 (87.3) 21 (77.8) 33 (49.3) 54 (57.4) 1980 378 (89.2) 78 (67.2) 456 (84.4) 23 (79.3) 37 (45.7) 60 (54.5) SOURCE: FCC Ar~nua1 Reports, Table 9 PAGENO="0199" 195 11. Thus, it is evident that although network-owned and affiliated stations continue to dominate the American televi- sion market, a far greater measure of competition for viewers exists today than prior to the adoption and effective date of the Rule. In short, the past decade has witnessed the ascent of independent stations as viable competitors of network-owned and affiliated stations and, as explained below, as popularly accepted conveyors of diverse, alternative television program choices and viewpoints. B. The Rule, by Affording Independent Stations Fair Access to the Most Popular Off-Network Syndicated Programming, has Made an Impor- tant Contribution to the Development of Independent Stations and to Diversity in Television Programming 12. The previous discussion demonstrates that indepen- dent television stations have become far more competitive and prosperous vis-a-vis the three dominant national networks in the years since the adoption of the Financial Interest and Syndication Rule. Yet, neither the Commissions ~~ce initiating its "review' of the Rule, nor the Final Report of the Network Inquiry Special Staff~" that recommended its repeal evinced any understanding that the existence of the 16/ Network Inquiry Special Staff, FCC, New Television Net- works: tntry, jurisdiction, Ownership and Regulation (1980) (hereinafter referred to as the `Net~crk Inquiry Report'). PAGENO="0200" 196 Rule has been a crucial catalyst of this beneficial increase in free television outlets and, consequently, in diversity of program choices available to the American people. 13. The Report and Order wherein the Rule was formu- lated found, largely on the basis of data and studies commis- sioned by the networks themselves, that: the three national television networks for all practical purposes control the entire network television program production pro-S cess from idea through exhibition. Begause off-network programs constitute a principal staple of the nonnetwork prograrn narket, networks also control the production and hence, the form and content, o~ a large share of the syndicated ~roqrams exhibited by television stations. The networks have gradually ~- since about 1957 ~- increased their economic and creative control of the entire television program process. 17/ 14. The dependence of independent stations on of f- network syndicated programming is well known, and can be discerned merely by perusing the program schedule of any independent station. This reality of independent programming is chiefly a function of (1) the fact that an independent station must purchase or originate programming for its entire broadcast day (typically 19 1/2 hours), while a typical net- work affiliate need only program its own channel for 7 1/2 hours daily; and (2) the particular appeal of popular and re- cent off-network programs across broad demographic categories of an independent stations audience. That recent off-network ~/ Report arjd Order at 389 (emphasis added). PAGENO="0201" 197 syndicated programming is the lifeblood of the independent station was not lost on the Network Inquiry Special Staff in its overall survey of the television programming marketplace. The Network Inquiry Report observed: "Independent stations use many more hours of, and invest far more heavily in, syndicated programs [than network affiliates]. Obviously, this derives primarily from the fact that these stations lack a network program source."~" The Rep~~t observed that virtually every independent station with the where- withal to do so has striven, usually with considerable success, to increase its ratings (and, consequently, its advertising revenues and profits) by building its program day around popular, current off-network series such as nM*A*S*H," "Happy Days," "Laverne and Shirley," "Barney Miller," "Three's Company" and similar long-running "hit" programs. As the Network Inquiry correctly observed: Independent stations have been able to garner a substantial share of the added (advertising] revenues as they have demon- strated *an ability to compete successfully with affiliates during certain periods of the broadcast day, especially between approximately 5:00 and 8:00 P.M. E.S.T. Independent station programmers often refer to this period as their prime time and schedule their most popular, and expensive, off-network programs during these hours. These stations view this as counter pro- gramming, to offer viewers an alternative ~/ ~etwork Inquiry Report, Vol. 2 at 405. PAGENO="0202" 198 to local and national news and first-run syndicated programs usually telecast by affiliates during the same period. ~/ 15. The sustained growth of independent stations in the past decade, in numbers, prosperity and competitiveness with network-owned and affiliated stations, is due in no small part to the independents' freedom of access to the most popular and most recent off-network syndicated programs. A notable illustration of the enhanced audience share that a schedule built upon such programs can achieve is that of independent station KPBO, Phoenix, Arizona. Table 11 sets forth KPBO's weekday schedule, which relies principally on off-network syndicated series. Since introducing such a pro- gram schedule, KPHO has become one of the highest rated sta- tions in Phoenix, outdrawing even network affiliates, and in fact achieved the highest rating of j~ station in the Phoenix market during the July 1982 ratings "sweeps."aQJ Affidavit of Richard De Angelis, attached hereto at Appendix B. Although few independents have duplicated the extraordi- nary success of KPEO, independent station managers universally agree that the unfettered availability of the most popular, most current off-network syndicated programs has played a leading role in independents' recent ratings gains, and that 19/ Id. at 428 (footnote omitted). See July 1982 ARE and Nielsen Reports. PAGENO="0203" iProgram H- Schedule Monday through Friday 6:00AM Great Space Coaster 6:30AM Sgt. Preston 7:00AM Wallace & L.admo 8:00AM Tom & Jerry Show 8:30AM Open House 9:00AM Morning Movie 10:30AM Donahue 11:30AM News 5 Midday 1 2:00PM Dick Van Dyke Show 12:30PM Andy Griffith Show 1:00PM Hogan's Heroes 1:30PM lLove Lucy 2:00PM I Dream of Jeannie 2:30PM Gilligan's Island 3:00PM Bugs, Tom & Jerry, & Pink Panther 3:30PM Scooby Doo 4~00PM Happy Days Again 4:30PM Mork & Mindy 5:00PM Eight Is Enough 600PM Laverne & Shirley & Co. 630PM M*A*S*H 7:00PM Charlie's Angels 8:00PM Hawaii5-0 9:00PM Bob Newhart Show 9:30PM News 5 10:00PM Barney Miller 10:30PM Soap 11:00PM Benny Hill 11:30PM TheOddCouple 12:00AM Movietime 2:00AM News 5 Final Friday Night 2:30AM Friday Late Show 4:30AM Friday Late, Late Show Saturday 6:30AM It's Your Business 7:00AM Open Camera 7:30AM GetltOn 8:00AM EsteEresTu 8:30AM Little Rascals 9:00AM Saturday Morning Movie 10:30AM World Beyond 12:00PM Action Theatre 2:00PM Adventure Theatre 4:00PM Bionic Woman 5:00PM Starsky & Hutch 6:00PM HeeHaw 7:00PM Saturday Movie Special 9:00PM Bob Newhart Show 9:30PM News 5 Saturday 10:00PM Hollywood Greats 12:00AM Late Show 2:00AM News 5 Final 2:30AM Late, Late Show 4:30AM Early Morning Movie Sunday 6:30AM Johnny Quest 7 OOAM Bewitched 7:30AM Robert Schuller 8:30AM Oral Roberts 9:00AM Mass For Shut-Ins 9:30AM Richard Jackson 10:30AM Wallace & Ladmo Presen Comedy Greats 12:00PM Million Dollar Movie 2:00PM Sunday Afternoon Movie 3:30PM Wild Kingdom 4:00PM Bionic Woman 5:00PM The Invaders 6:00PM Buck Rogers 700PM Sunday Movie Special 9:00PM Bob Newhart Show 9:30PM News 5 Sunday 10:00PM The Honeymooners 10:30PM Fight Back with David Horowitz 11:00PM Harry-C 12:00AM News5Rnal 199 I KP~C TEL~'/TSC~4 .~C16 MCRT'I 3L,~CX CANYON ~C 3CX 2C100 ~YOENIX. ARIZONA wCOB ~A- PAGENO="0204" 200 continued access to such programming is essential to sustain their recent successes and to permit further development. The importance of such continued access is attested to by the Statement of over 50 independent station managers in support of the Comments of the Committee for Prudent Deregulation, of which IN'TV is a member. That Statement, which is being filed concurrently in the Comments of the Con~ittee, is incorporated herein by reference. 16. It is equally apparent that independent stations today continue tohave freedom of access to early episodes of current first-run network programs because the networks are unable to prevent such popular programming from reaching their independent competitors. The networks have not reacted gracefully to even the slightest semblance of competition for the American television audience, and have become increasingly transparent about what they would do if given the opportunity again to own ~yndication rights and financial interests in programs. Even as the networks profess, in the context of the instant proceeding, that their re-entry into the program syndication business would not affect the availability of the most popular network series to independent stations, their own public and private statements belie these assurances and crystallize the "inherent conflict of interest" that would recur if the Commission were to repeal the Financial Interest and Syndication Rule. For example, a recent article in Variety PAGENO="0205" 201 attributed the following views to B. Donald Grant, President of CBS Entertainment: Producers should be aware it makes a net~ work uneasy "when a show such as `Mash' is on as many as seven times in one day in some independent markets, as well as on the network (CBS). It sure doesn't help it," he said. . . . Because of government regulations, networks are not allowed to have any real say on syndication, he noted. . .. 17. Even more to the point, if less veiled, is the written statement of the Chairman of the CBS Television Net- work Affiliates Association, who in a letter to CBS affiliates enclosing a ballot soliciting their views on whether to sup- port the network's effort to obtain repeal of the Rule in the instant proceeding, advanced the following "Reasons for Affiliates to Favor Repeal": 3. If the networks participate in or influence syndication of network programs and have a share of downstream profits, this may impact premature syndication of network re-runs that are being made available to independent sta- tions and are competing with first-run network shows carried by Affiliates. 22/ CBS' appeal to greed has not gone unnoticed by its affili- ates. In early filed comments in this proceeding, CBS 21/ D. Kaufman, "Grant: Rush to Syndie Short-Sighted -- Indies Benefit at Nets' Expense," Vari~y, April 28, 1982, at 51. 22/ Letter of James C. Babb, Jr. to CBS Television Network Affiliates Association, "CBS Affiliates Option Paper on Repeal Of Network Financial Interest And Syndication Rules," Oct. 18, 1982. PAGENO="0206" 202 affiliate ~IEN, Eureka, California, predicted that if the Rule were deleted, "(p]remature syndication of ne~twork reruns made available to independent stations would be slowed. . . . 18. The networks apparently deem the syndication of a series to independent stations to be "premature' if the program is still popular enough and current enough to provide significant competition to network programming, whether the program is used in early fringe to "counter prdgram" against network and local news, durinq prime time, or even in late fringe in competition with network-fed late might programming. Indeed, given the accelerating trend toward more network- supplied programming and less affiliate-supplied programming in all dayparts, the networks have a strong incentive to with- hold off-network programming that may attract substantial audiences to their competitors in virtually every period of the broadcast day. 19.. In truth, the networks seem to define "premature" syndication as the distribution of reruns of popular series at a time when they still appeal to audiences. The Commis- sion must recognize that, if it repeals the Rule, it will not only be fortifying the networks' overwhelming supremacy over pay television and other emerging services, but also will be restoring a significant anti-competitive, anti-diversity 23/ Letter filing of KIEM-TV in BC Docket No. 82-345, Dec. 22, 1982. PAGENO="0207" 203 weapon that can, and evidently will, be wielded by the net~ works to retard the development of competitive independent stations, by delaying the availability of programs that have significant audience appeal. As has been demonstrated time and again, network conduct in pursuit of maximum ratings rarely has been tempered by a public-spirited interest in diversity or viewer welfare. If anything, recent events compel an opposite conclusion, as the following letter to the editor of Broadcasti~ç illustrates: EDITOR: As program director for WNtJV-TV channel 54, a new independent UEP station in Baltimore, I share Bob Keeshan's con- cern over the decline in children's pro~ graming (BROADCASTING, Aug. 2). WN~JV~.TV is deeply concerned about the messages children get from television. And since the local CBS affiliate has chosen not to run Captain Kangaroo, it was our feeling that channel 54 would make a fine home for the Captain, Bunny- rabbit and all their friends. However, after contacting Eunice Lewis, district supervisor for affiliate business at CBS, we were informed that we could carry the program -- but not at any time when CBS was feeding network programs. "We don't compete with our- selves," Ms. Lewis told me. This meant that either WNUV-TV could run Captain Kangaroo at its current graveyard slot at 6:30 a.m., or after the kids have left fcr school at 9. So because of CBS's inflexibility, the children of Baltimore will not have the opportunity of being able to enjoy this fine program. We sincerely hope PAGENO="0208" 204 that one day soon CBS will reconsider this restrictive practice. -- Mark Salditch, director of programing, WNtJV- TV Baltimore. 24/ 20. The preceding statements of network and affiliate executives, and the above-described pattern of network con- duct, underline the central and very real danger, eliminated by the adoption of the Rule, which would be reimplanted by its repeal: that the networks would favor their affiliates and, even more assuredly, their wholly-owned and operated statiøns, in the syndication of the most coveted prime time programs, through such behind-the-scenes devices as advance negotiations and discriminatory price concessions. 21. In fact, the Rule is far more essential today than it was a decade ago. The record shows that independent sta- tions have developed the financial ability to compete with network ~o&o's'T and affiliates for premium syndicated pro- grams only since the mid-l970's. Thus, the importance of syndication and who controls it in the overall balancing of relationships between network-owned and affiliated stations 24/ Broadcasting, Aug. 16, 1982, at 18. ~ recent example of the possible exercise of network market power to preserve ratings dominance without regard for the public's inter- est in diverse television program choices is CBS' alleged threat to cancel affiliation agreements with one or more stations if the station(s) aired the independently pro- duced (and critically acclaimed) adaptation of Charles Dickens' ~Nicho1as Nickleby" in place of network pro- gramming on January 10~l3, 1983. See "Mobil, CBS Swap Angry Words Over `Nicholas Nickleby'," Stall Street Journal, Dec. 23, 1982, at 14. PAGENO="0209" 205 arid independent statio~is has intensified dramatically since the Rule was adopted. In 1970, as the Network Inqui~ry Report observed, the economic dominance of the networks was such that they shad no need to resort to exclusionary practices to forestall competitors."~-~~' 22. Now, the calculus has changed somewhat, as indepen- dent stations have become able to compete with the o&o's and affiliates -- in a fair syndication marketplace, in arm's- length dealings with independent syndicators -- for the most appealing off-network programs. Absent the Rule, the networks could favor their owned and affiliated outlets in the distri- bution of such programming, in a wide variety of direct arid indirect (and, importantly, undetectabl~) ways. The current marketplace testifies that the networks have far more power- ful incentives to use their power today than in 1970, and their recent conduct, statements and broad hints evince that they will use this power to favor their proteges and fore- stall their competitors. 23. Finally, the gains in profitability that have been made by independents in the past decade, in large part because of their freedom of access to popular off-network syndicated series, have provided many independents with the financial wherewithal to participate occasionally in ad hoc "networks" 25/ Network Inquiry Report, Vol. 1 at 521 (emphasiS added). 32-540 O-84--14 PAGENO="0210" 206 to exhibit high quality first~run programs and mini~series such as "Nicholas Nickleby," "A Woman Called Golda" and "Edward the King" on a national basis. This healthy devel-' opinent in the television industry, which unquestionably furthers the richest kind of diversity of program concepts as well as provides alternative viewer choices, is the direct result of independents' ability to attract large audiences and increased advertising revenues to their "regular" program schedules. 24. The Rule has thus achieved at least a modicum of success in fulfilling one of the Report and Order's primary goals in adopting it, ~ to "more nearly achieve . . . a television broadcast structure which is served `by the widest practicable variety' of choice of programs available for broadcasting. "~-~" At the same time, the Rule has guaranteed independent television stations fair access to program sources by removing the networks from the "inherently undesirable" conflict of interest of "selling programs to independent stations in competition with their own network programs on affiliated stations. . . . ~ The demonstrable public interest benefit is that more television stations are showing diversified programming that the public most wants to see, at the times when the public most wants to see it. j~,' Report and Order at 400. 27/ Id. at 394. PAGENO="0211" 207 III. REPEAL OF TEE RULE WOULD BE INIMICAL TO TEE PUELIC INTEREST IN COMPETITION AND DIVERSITY IN TELEVISION PROGRAMMING V A. The Enduring Public Interest Basis of the Rule 25. As the Financial Interest and Syndication Rule has played an important role in furthering competition (more viable stations with higher audience ratings and advertising revenues) and diversity (increased, and more attractive, program choices and enhanced ability to offer expensive first-run syndicated programming) in the American television industry, so the repeal of this prophylactic structural regulation would be contrary to these paramount communications policy objectives. Repeal of the Rule would enlarge the overbearing market power of a three-firm oligopoly that owes its existence to the Commis- sion's thirty-year old channel allocation policy. 26. Competition and diversity in television service are not vague, catch-all concepts to which Congress and the Com- mission have merely accorded polite lip service. Instead, the Financial Interest and Syndication Rule was specifically designed "to foster free competition in television program markets."~1" In affirming the Report and Order, the United States Court of Appeals for the Second Circuit observed that the Rule is "aimed at decreasing network dominance and curbing potential competitive restraints."~-~' And in the Commission's 28/ Notice of Proposed Rulemaking in Docket No. 12782, 45 FCC 2146, 2147 (1965). 29/ Mt. Mansfield Television, Inc. v. FCC, 442 F.2d 470, 486-87 (2d Cir. 1971). PAGENO="0212" 208 most recent interpretation of the Rule, it reaffirmed the underlying conclusion that demanded its ameliorative action: that it was not desirable for so few enti- ties to have such a degree of power over what the American public nay see and hear over so many television stations; that a diversification of economic interest and power in this area is a cardinal principle of the public interest standard of the Communications Act. Networks Can Buy Nonbroadcast Programs, 87 FCC 2d 30, 32 (1981), aff'd sub nan. Viacom Intern. Inc. v. FCC, 672 F.2d 1034 (2d Cir. 1982). 27. The Commission's unwavering policy to foster compe~- tition and diversity in television has been equally prominent in its authorization of new television services such as cable television, low power television and direct broadcast satel- lites)-~/ And, as indicated earlier, it is "the independent stations, and particularly the still-struggling tIHF indepen- dents upon which Congress and the Commission have relied for a fully competitive nationwide television broadcast ser~ because independent broadcast outlets are the best, and virtually the only, free television alternatives to the networks. 28. The reason for the Commission's efforts to encourage competition in television broadcast service is simple: an 30/ See, ~ Amendment of Part 76, 52 FCC 2d 1, 43 (1975); Direct Btoadcast Satellites, 90 FCC 2d 676, 680 (1982); Low Power Television Service, 51 RR 2d 476, 486, appeal pending sub non. Black Citizens For Fair ~4edia v. FCC, No. 82-1549 (D.C. Cir., filed April 26, 1982). 31/ Report and Order at 394. PAGENO="0213" 209 inadequate degree of competition to the three broadcast networks has existed to date. As the Network Inquiry Report concluded: there are at present only three full- time nationwide networks principally because of FCC policies. Since 1952, the Commission often has acted, perhaps inadvertently, to prevent additional networks from serving American viewers. Whatever economic power ABC, CBS and NBC ppssess is in large measure a result of Commission policies that p~g~ tected them from potential competitors. Consequently, the networks have had no need to resort to exclusionary practices to fore- stall competitors. ~/ 29. Baying ordained the evolution of a broadcast tele- vision system dominated by three companies, it cannot seri- ously be asserted that the Commission's maintenance of a structural regulation that has loosened but not measurably affected that dominance is anti-competitive or contrary to the principle of a free marketplace. Rather, the Commission recognized the Rule to be a necessary measure to permit a modicum of competition in the television program supply and distribution markets. It is elementary that measures which assist competition and diversity in this industry upon which the American people so heavily depend for both information and entertainment are in the public interest, and that actions which would tend to perpetuate or fortify an oligopoly situation in that industry are not. 32/ Network Inquiry Report, Vol. 1 at 521 (emphasis added). PAGENO="0214" 210 30. As demonstrated above, the Rule furthers competition and div~ersity in television by permitting independent sta~ tions unfettered access to the types of programming that enable them to compete effectively. Moreover, this new and healthy upsurge in competition has had another important and beneficial effect: it has exerted a stabilizing p~essure on television advertising costs. Table 12 depicts the compara~ tive magnitude of television advertising cost increases since 1976 in markets with and without a significant number of independent stations. It shows that advertising price increases have been significantly smaller in markets that have a strong independent station presence, because there are more outlets competing for advertising dollars. Since product advertising costs are invariably passed through to consumers of the products, it is evident that the competitive pressure of independent stations on advertising cost increases carries with it a tangible consumer benefit, in the form of lower product prices than would otherwise be the case. PAGENO="0215" 211 *1 TABLE 12- Sample of Competitive Cost Per Point Station Grouping: 1976 1982 % Chang~e I. Top 10 Markets (6) (3+Independents) Prime $186 $264 + 41~9 Fringe 62 97 + 56.5 II. Top 20 Markets (10) (2 Independents) Prime 80 127 +. 58.8 Fringe 27 52 +: 93.0 III. Top 30 Markets (7) (1 Independent) Prime 44 88 +100.0 Fringe 18 38 +111.0 ~/ Source: Media Market Guide, 4th Quarter 1976/1982. 31. This conclusion is strongly confirmed by independent studies performed by the Association of National Advertisers (DANA"). MA has already registered its support for retention of the Rule, based on its central finding that: In those markets with high levels of vjes~ij~g to independent stations, the cost per thousand viewers paid by ty~1ca1 advertisers ranged from 20% to 60% lower than the cost paid in markets with fittle or no independent station viewing. ~/ 32. Thus, America's major television advertisers recog~ nize that the presence of strong, competitive independent stations is in the public interest, for without such competi- tion, "the price of televisi~on advertising -- a cost which 33/ Statement by the Association of National Advertisers, Inc., Jan. 21, 1983, at 6 (emphasis in original). See ~ "Presentation of A.N.A. Position With Regard TO Financial Interest Rule," INTV Annual Convention, Jar.. 18, 1983, attached hereto at Appendix C. PAGENO="0216" 212 \the public, directly or indirectly, must eventually bear -- ~uld increase."~~1 Therefore, these advertisers, who deal on~\constant basis with both networks and independents, urge that the Rule should be retained. B. Barmful Consequences of Repeal of the Rule Upon Independent Stations 33. As noted earlier, independent stations have, in the past decade, risen from relative obscurity to become the most formidable competitors of the networks and their affiliates. Indeed, the independents enjoy far greater total audience and viewer share than pay cable or any other non-network video medium. In short, the independents' growth has been at the expense of the networks, and has been attributable in large measure to the free availability, through arm's-length deal- ings with independent syndicators, of the "best" (j~, the most popular) off-network progrants.1~1 As demonstrated supra pp. 27-29, the networks have all too clearly delineated their intentions should they be permitted to re-enter the domestic program syndication market. In light of these manifestations of intent, it would be passing naive, not to mention a grave disservice to the public interest, blithely to assume that the networks would not use their control or significant leverage 34/ Statenent by the Association of National Advertisers, Inc., at l1 ~ Network Inquiry Report, Vol. 2 at 423; supra text accompanying note p 24, n.l9. PAGENO="0217" 213 in the off-network syndication market to restrain the grcwth and viability of their foremost competitors. Instead, all available evidence indicates that repeal of the Financial Interest and syndication Rule would reinstate one of the primary evils that the Couixnissiori's 1970 ~port and Order documented and sought to eradicate)-~' 34. If the networks were to withhold or delay syndica- tion of the most popular network series, the long-term resu~.t could only be a weakening of independent station schedules and viewing shares and, more pertinent in the context of the Commission's public interest goals, a significant reduction in the quantity and quality of alternative television program choices available without cost to the American public. If off-network series with the broad audience appeal of ~M*A*S*H" and "flappy Days" were replaced by less popular, more shopworn 36/ The Commission recognized that it would not be satisfac- tory to the public interest to wait until the syndica- tion market was completely dominated by the networks before taking corrective action. Indeed, the Commission did not expect that the Rule would make the syndication or program supply market perfectly competitive, or that the first-run syndication market would immediately flourish. As the court in Mt. Mansfield noted, it "is irrelevant that the rule is aimed at potential rather than actual domination or restraints, or that the Com- mission is not certain that the developments forecast will occur if the rule is not enacted." Instead, the court observed, the Commission's purpose was to "`plan in advance of foreseeable events, instead of waitthg to react to them.'" 442 F.2d at 487 (quoting United States v. Southwestern Cable Co., 392 U.S. 137, 176-177 (1968)). The Rule, then, was designed to prevent a deteriorating state of affairs from worsening. PAGENO="0218" 214 programming such as "My Favorite Martian" or "Bewitched" or by old movies, viewers clearly would be unfairly arid need- lessly deprived of attractive alternative program choices to the networks' fare. Indeed, if the networks successfully recapture the ratings points that independent stations have gained in the past decade, the ultimate result could be fewer free television alternatives for the public at large and a resulting increase in demand for pay television programming. 35. Moreover, the predictable erosion in the competitive position of independent stations that wotild ensue if the net- works were able to warehouse their top programs or to limit "premature" syndication (i.e., release to syndicatior~ when the program is still sufficiently popular, current and topical to draw ratings points away frørn first-run network series) would starve the independents of their principal source of revenue. Consequently, independents would be denied the financial ability to acquire such high quality first-run syndicated programming as "A Woman Called Golda" and other Operation Prime Time productions. They might also be severely limited in their ability to purchase popular access period programs such as "P.M. Magazine" and "Entertainment Tonight." 36. Finally, it is evident that whatever small potential may exist for the formation of a fourth free, over-the-air national television network depends crucially on the partici- pation of strong independent stations such as those that PAGENO="0219" 215 occasionally have been successful in forming "~ fl' net- works in order to exhibit a particular program or mini-series nationally.~-~ To the extent that the competitive posi- tion of independent stations is eroded, the prospects for the creation of a fourth network, and the immeasurably beneficial increase in program choices, sources and ideas that such a network would provide, would disappear, and the domination of free television by three entities would be all but assured in perpetuity. Such a result clearly would be destructive of the long recognized public interest in having access both to alternative program choices and to more diverse types of programming. 37. In short, repeal of the Rule most likely would result in (1) less desirable program choices for the public; (2) diminished program servicg to the public; (3) even less credible competition in broadcast television for CBS, ASC and NBC; (4) higher advertising prices in many markets; and, eventually (5) higher consumer product prices. INTV submits that ~ of these consequences, let alone all of them, would constitute an extremely high price in terms of the public interest generally and, more specifically, in consumer welfare, for the singularly dubious goal of promoting the 37/ See Network Inquiry Report, Vol. 1 at 168-171, where it is posited that a new network comprised of existing and new independent stations on presently assigned onan- nels might possibly be financiallyfeasible. PAGENO="0220" 216 `free marketplace" by assisting and fortifying a three~firm, government-created oligopoly. C. Harmful Consequences of Repeal of the Rule Upon the Television Program Su~~ly Market 38. The Commission obviously did not adopt the Financial Interest and Syndication Rule solely out of concorn for independent stations. Indeed, the Rule is the culmination of a generation of study of network practices with respect to the television program supply industry. However, the Commis- sion recognized the interrelationship in the impacts of net- work program procurement practices upon television program creators and producers on the one hand and independent sta- tion purchasers of off-~network programming on the other: the three national television networks for all practical purposes control the entire network television program productidn pro- cess from idea through exhibition. Because off-network programs constitute a principal staple of the nonnetwork program market, networks also control the production and hence, the form and content, of a large share of the syndicated programs exhibited by television stations. The networks have gradually -- since about 1957 -- increased their economic and creative control of the entire television program process. ~/ The Report and Order concluded: to the extent that close network super- vision of so much of the Nation's program- ing centralizes creative control, it tends to work against the diversity of approach which would result from a more independent 38/ Report and Order at 389. PAGENO="0221" 217 position of producers developing programs in both network and syndication markets. ~/ 39. The Commission reasonably concluded, on the basis of network-'commissioned studies, that there existed a strong correlation between the networks' retention of financial interests and syndication rights and the extent of network control over the creative process in program production. By helping to loosen the "centralization of control" over program creativity in the networks, the Rule has contributed to diversity in television programming sources as well as pro- gram outlets, to the benefit of independent stations and the public at large. IV. REPEAL OF THE RULE IS NOT NECESSARY TO ASSURE THE CONTINUED VITALITY OF TEE THREE DOMINANT TELEVISION NETWORKS 40. Tables 2 through 10 herein, discussed sup~ pp. 9- 21, clearly indicate two undeniable facts: (1) that America's independent television stations have become more competitive and profitable since the adoption of the Rule; and (2) that the three national television networks continue to dominate broadcast television service in the United States. The Rule, then, has not crippled the networks; rather, it simply has imposed a structural restraint on the overwhelming power of the networks in the program supply market. The networks, however, insist that the Rule must be repealed if they are to be able to continue to compete with cable and pay television 39/ Id. at 394. PAGENO="0222" 218 and other emerging video technologies for programming. They plead that the Rule unfairly prevents them from competing in the free marketplace, and that the survival of free televi- sion itself is at stake in the instant proceediri~. As the principal spokesman for free mon-network television stations in the United States, INTV submits that these claims are utterly devoid of merit. 41. First, as demonstrated earlier, broadcast television is not a "free marketplace," but is dominated by a three-firm oligopoly that controls the television program market arid the national advertising market. Nevertheless, the networks contend that competitiom from the "new media" has or will become so overwhelming that, unless the Rule is repealed immediately, they soon will be unable to compete with pay cable and other video services for first-rum programming. The networks project losses in potential audience and audience shares for free television, coupled with a massive exodus of audiences to pay services, and allege that unless they are permitted to acquire syndication rights and profit shares in independently produced programs, they will be unfairly pre- vented from obtaining the minimum amount of revenue necessary to protect the free television system from pay television "theft0 of high quality first-run programs. In the same breath, the networks claim that their share of financial interests and syndication rights was insignificant prior to the Rule and would continue to be insignificant if it were PAGENO="0223" 219 repealed. Finally, the networks pledge that they would not restrict the availability of off-network programming to independent stations because such a practice would be con-' trary to their economic interest. 42. The networks' pessimistic predictions before the Commission and their affiliates during the course of this proceeding are glaringly inconsistent not only with external projections, but with their own bullish estimates as show-' cased in other forums. For example, in November 1982, NBC network management warned affiliates that "pay television will economically overtake the networks" by 1986 and in 1990 will surpass network revenues by $3 billion annually.~' ABC affiliates were presented with estimates that network audience would decline from 39.4 million in l98~ to 39.1 mil- lion in 1990, and that the network audience share, which had "fallen" to 81% in 1982, would drop to 64% by l990.~'~ 43. In sharp contrast to these bleak forecasts are CBS and ABC forecasts prepared for other audiences. A CBS! Broadcast Group analysis projects that pay cable's total prime time share in 1990 will be 11% to the networks' 70%, and ~Q,/ Minutes of Presentation of NBC Management to NBC Affili- ates Board of Directors, Nov. 7-9, 1982 ("Repeal of the Financial Interest and Syndication Rules: The Critical Facts," National Broadcasting Company, Nov. 1982, at 2). ~j/ Summary of Remarks of Everett H. Erlick, Senior V.P. and General Counsel, ABC, Inc.: ("Financial Interest/ Syndication Rules," ABC-TV Affiliate Closed Circuit, Nov. 29, 1982, at Table 1). PAGENO="0224" 220 that "(ejven with a share loss for the network affiliates, arid gains for the other sources, the network homes delivery is more than twice the size of all other sources combined, and the actual network gain 5,000,000 homes -- is the largest of any source.'ia" CSS estimates that network revenues in 1990 will be $15-~20 billion, compared with total pay cable revenues of $6~-8 billion, and adds: "It should be noted that, while the network number is divisible by three, * * . (pay cable] totals will be fractionalized much further."~~' Finally (and of particular interest to INTV), CBS predicts that pay cable will reach only 6.7 million homes in 1990, and that, in fact, "shifts of programming from independent stations to cable will provide more available audience for network affiliates. 44. Meanwhile, the President of ABC Television, in a November speech to the Broadcast Advertising Club of Chicago, projected that "both local and network television revenues (will] grow from well over $12 billion today to $35 billion in 1990. We expect cable revenues in 1990 to equal about seven percent of that total, and pay cable revenues to reach 42/ CBS/Broadcast Group, `The Road to 1990,' at 29-30. 43/ Id. at 32 (emphasis added). 44/ Id. at 28 (emphasis added). PAGENO="0225" 221 about 14 percent ($4.9 billion1."~' Finally, ABC'S 1981 (and most recent) Annual Report to Shareholders stated that "the network achieved record revenues and profits in both the fourth quarter and full year 1981." CBS' Annual Report advised that "For the CBS Television Network Division 1981 was an excellent year. Record revenues and profits were achieved. . . ."~-~1' NBC's view of the future was summarized in the headline of a May 17, 1982 News Release: "Commercial Networks Will Dominate Communications Media In Future, Accord- ing To `State Of The Media' Data Shown To NBC Affiliates." 45. Of similarly dubious authenticity are network claims that pay television services will soon be able to outbid free television for first-run "network quality" progroms. In fact, no network entertainment series has yet been "stolen" by pay cable,~2-~' and the pay networks themselves openly acknowledge that they cannot compete with the networks in the development of new entertainment series. 45/ Remarks of John C. Severino, President, ABC Television, Nov. 17, 1982, at 9. 46/ NBC profits declined during this period, but Thornton Bradshaw, Chairman and Chief Executive Officer of RCA, stated on April 12, 1982 that "If we were just average in ratings we would have an upswing in earnings of $175 million." 47/ Reported attempts by pay cable to outbid the networks for "Hill Street Blues" and "Taxi" (which was cancelled by ABC and subsequently picked up by NBC) obviously were unsuccessful. "Paper Chase," which reportedly will air on cable in the future, was discarded by a network several years ago after one-half season. 32-540 O-84--15 PAGENO="0226" 222 46. The networks would have the Commission believe that they desperately need syndication revenues and profit shares in order to beneficently plow those revenues back into the free television system and thus assure its continued preemi- nence; yet the networks and their affiliated companies have in recent years invested most heavily not in their broadcast properties, but in the very services that they say are primed to swallow them whole. For example, CBS, in addition to investing scores o~ millions in its short-lived "CBS Cable" Network, is a pay cable programming partner, a cable system owner, a DBS system permittee, a videotext venturer, a pro- posed multi-channel. MDS programmer in the nation's largest markets, a videodisc manufacturer, and a feature film partner with Home Box Office and Coli.unbia Pictures. ABC supplies prograxnmthg to the principal cable sports network, ESPN, is a partner in a cable news network, has established a subscription television (S'rv) "Home Video Network" over its owned and affiliated stations, and through ABC Video is involved in a number of pay cable and other video delivery ventures.~~1 NBC is a videotext developer and videodisc venturer and its parent, RCA, is the primary cable satellite operator, a 50% partner in The Entertainment Channel, a pay cable network, a 48/ See "ABC's Wide World of Risks," Washington Post, Jan. 16, 1983, at Fl. PAGENO="0227" 223 DBS permittee, and a videodisc and videocassette equipment manufacturer, In fact, as Table 13 illustrates, the networks are unrestrained from entering practically any communications field, and are totally unrestrained in this respect under the terms of the Financial Interest and Syndicatron Rule. Rather than "saving" the networks from pay television, repeal of the Rule would permit the networks to reap oligopoly profits from broadcast television in order to invest even more heavily in the lucrative new technologies. 47. Stripped of its "disinformation" aspects, the net- works' campaign to secure rescission of the Rule is in truth an effort to maintain the oligopolistic structure of the television industry, rather than a fight for their "survival." Their own worst scenarios would see a 1990 network share of 60-'65 percent of the American television audience less than their current 80-'85 percent share, but still enough to qualify them as oligopolists. PAGENO="0228" Permitted Network Activities Network broadcast program exhibition Foreign syndication of network produced programs Foreign syndication of foreign produced programs (subject to separate negotia- tion requirement o~ DO~ consent decrees) U.S. and foreign cable distribution U.S. and foreign videocassette distribution U.S. and foreign videodisc distribution Local broadcast exhibition through owned and operated stations Direct broadcast satellite program distribution Mu.ltipoint distribution service (MDS) program distribution Theatrical n~vie production TV program production U.S. and foreign theatrical mstion picture distribution Program Riqhts That May Be Acquired From U.S. Ptoducers (Subject to separate negotiation requirements of D3~ consent decrees, where applicable Network broadcast rights Local broadcast rights for network owned and operated stations Pay TV rights Videocassette rights Videodisc rights Cable TV rights 085 rights t4DS rights SIV rights Merchandising rights (T-shirts, toys, etc. based upon network licensed programs) Theatrical exhibition rights "Spin-Off" rights (rights to any program based on cast and/or plot of program licensed by network) Exclusivity rights (exclusive rights to exhibit programs during network license term) Artistic approval rights (rIghts to control cast, script and all other creative ele- ments of programs commissioned from inde- pendent producers) Renewal rights (right to order new episodes of series licensed by network at preset- prices) U.S. broadcast syndication Foreign syndication of programs acquired from U.S. producers ProqramRiq~ts That May N~ Be Acquired From U.S. Producers TV broadcast syndication rights 224 PEBMITT~ ~ND PRCHIBITED NET~BK ACrIVITIES ~ THE FINANCIAL ~TEREST~)ND SYNDICATIC~ RULE Prohibited Network Activities PAGENO="0229" 225 48. Finally, the networks claim that their re-entry into the domestic syndication market would have no negative or anti-competitive effect on that market. The most ubiquitous network claim is to the effect that "the honest truth is that all three networks combined totalled only about 9 percent of the domestic syndication market in the period before the rules were adopted. . . . lIlt is ludicrous to believe the networks could control the syndication market in the `80's when they had less than 10% of it in the 49. However, the 1969 Arthur D. Little, Inc. report~-~'1 that was commissioned by CB$ and NBC and utilized by the Commission found that, during the 1960's, the networks held domestic syndication rights in 23.0 percent to 31.2 percent of independently proauced entertainment series hours,~ and syndication profit shares in 57.2 percertt to 74.3 percent of such hours.~~ The ~~p~rt and Ord~ observed that "revenues accruing to networks from syndication activities are substan- tial and are increasing,"~' and that "networks accepted vir- tually no entertainment program for network exhibition in a 49/ NBC Presentation to Affiliates, Nov. 1982, at 7. ~Q~/ Television Program Production, Procurement, Dis- tribution and Scheduling: Data Relating to ?ro- posals for Rule Making in FCC Docket No. 12782 (Arthur D. Little, Inc., 1969). ~ j~. at 52, Table 21. 52/ Id. at 54, Table 23. 53/ Recort and Order at 392. PAGENO="0230" 226 5-year period in which they did not have financial interests in syndication and other subsequent use. . . . There-' fore, there was ample support for the Commission's determina-~ tion that "network judgment in choosing new programs i~ substantially influenced by their acquisition of subsidiary interests in the programs chosen."~' 50. The networks' contention that they did not actively pursue syndication rights and financial interests in programs prior to the Rule is fantasy, and their assurances that they would not be heavily involved in syndication if the Rule were deleted, in view of their own s~tatements and their current all-'out campaign to secure its repeal, seem to ring hollow. Repeal of the Rule would give a regulatory blessing to the "significant conflict of interest" inherent in the networks' role as syndicators of programs to their principal competitors, the indèpend-e-n-t stations. It would be grossly unreasonable for the Commission to conclude that this inherent and harmful conflict of interest would not recur if the Rule were deleted. V. CQNCLtJSION 51. Contrary to the Network Inquiry Staff's perception that "no new outlets or viewing options are encouraged by the 54/ Id. at 393. 55/ Id. at 394 (footnote omitted). PAGENO="0231" 227 rule,"~-~' INTV submits that precisely the opposite is true: scores of new advertiser-supported television outlets and g~reat~y enhanced viewing options have been encouraged by the Rule. 52. In a nutshell, the Rule has played a significant role in enabling independent stations to compete fairly and freely for the recent off-network syndicated programming that most appeals to television viewers. The free availability of these programs has enabled independents to grow larger and stronger, in numbers, audience shares and profitability. Finally, it has allowed independents to offer the programs that viewersrnost want to see at the times they most want to see them, to become better able to purchase high quality first-run syndicated programming, and to exert a positive influence in stabilizing advertising prices and, resultantly, consumer product costs. The Rule has, quite simply, con- -tributed to competition and diversity in free television. 53. ~epeal of the Rule would not be consistent with the Commission's proper mandate to deregulate the television in- dustry in order to steer clear of decisions better left to competiti~ze forces in a free marketplace. Instead, repeal of the Rule would insulate the networks from what little compe- tition exists today in that marketplace, to the detriment of 56/ See Notice ~j 31. PAGENO="0232" 228 independent stations, program suppliers and, most importantly, the public interest in diversity of program outlets, sources and ideas. By any reasonable yardstick, the three national networks are robust and will remain so for many years to come. The networks have demonstrated repeatedly over the course of a generation that they can compete in the marketplace more effectively than any other communications medium. That mar~ ketplace is best served by retention oe a low cost, effective rule that furthers, rather than inhibits, competition in broadcast television. Respectfully submitted, ASSOCIATION OF INDEPENDENT TELEVISION STATIONS, INC. By -. .. J. Latxránt Scharff James M Smith PIERSON, BALL & DOWD 1200 18th Street, N.W. Washington, D.C. 20036 Its Attorneys January 26, 1983 PAGENO="0233" 229 AcrivE ~ERS 1~AYtJ Spo~cane `~3DRB Louisville I~}~ S~ Francisco WFBT Mirx~e~olis KCJX El Paso WFFL' Fot Wayne KCOP Los ~Angeles WElD Chicago KCPQ Seattle-Tacora WFLX West Palm Beach ~C~L St. Louis WFNZ Allontcwn ~CH Portland-Sal~ WF~S T~a KETZ S~ta Rosa ~GI' Greensboro KC~ Oklahcma City WG~ Chicago KGSW Albuquerque W~O New Orleans 1~J Los Angeles WJ'~4 Wthston-Sal~ K}t[V Houston ~`iI~D De~oit KJAA Lubbock, Texas W~S Philadelphia KIIPH Fresno . WLVI Boston I~NSP Minneapolis ~D ~1botmne, Florida 1~AI Albuquerque WHEW New York I~D1~B Cklaliccoa City ~`tFL Orlando KOKI Tulsa ~R New York KPHO Phc~iix WP~i Pittsb~gh K?LP~ St. Louis WPHL Philadelphia KPIV Portland WPIZ New York 1(BBK Sa~to WPtII ~bile-Pensacola KRIV Houston WFtY M~his KS}3B Kansas City WPWR Aurora, Illinois KSTtJ Salt Lake City WRLH Richrnnd KS'IW Seattle-Taccxxia W]~F Philadelphia - KIIA Los Angeles WIOG St. Petersb~xg-Tan~a I~V Nanna-Boise WTSG Albany, Georgia ICIV Los Angeles WTI'G Washington, D.C. KL'VT Dallas-Ft. Worth WrTO Bir~.n~~t KIVU San Francisco WrIV Indianapolis KIXA Dallas-Ft. Worth WIVZ Norfol1~ F~1 Saor~to-Stoc1~on WDC~ Waterb~y, Connecticut KUSI San Diego WU~JB Cleveland KVVU Las Vegas WUHF Rochester I~1(~ Denver WUTV Buffalo KILl Minneapolis WVAH Ch~lestcri-Hi.~tington 1~X~ Dallas-Ft. Worth wry Nilwau~ee I(ZAZ Tucson WYAH Ports~uth-Norfolk-Newport News WANX Atlanta WXD( Cincinnati WAWS Jacksonville WXNE Boston WCD~ Miani WZIV Nashville WDCA Washington, D.C. ~IV San Diego ~ Focus Ccctxiications, Inc., Nashville, Tennessee Green River Broadcasting, Inc., C~bellsville, Kentuclcj Independence Broadcasting Corporation, Des ~bines, Iowa ~VO-lV/Austin Television, Austin, Texas Sh~ock Broadcasting Co., Inc., Honolulu, Hawaii W}~S-TV Asheville, N. C. -Gre `lle-Spertanbt.~g, S.C. WIVtJ Skokie, Illinois I~.~/Lictle Rock Ccn~.~ications Associatas, Little Rock, Arkansas CIV of Connecticut, Inc., Worbixn, ~assadrusetts Anacc~, Inc., Indianaoolis, Indiana WFTG-lVf~trovisicn, Inc., St~ord, Connecticut PAGENO="0234" 230 T~D1T/~ ` t'Tt~'T T( .~LI_L. £1 ~ } i. ~4_~ .L~A..4 ~ L ) J. ~ AFFIDAVIT State of Arizona \ ) County of Maricopa I, Richard De Angelis, being first duly sworn, do hereby depose and state: 1. ~I\am Vice President and General Manager of independent television station KPHO\1V, Phoenix, Arizona. 2. Table~1 of the "Comments of the Association of Independent Television Stations, Inc." (\~TV") of which this Affidavit is a part, accurately represents KPHO's regular weekdaç program schedule. 3. As stated in iNT~'s Comments, KPHO achieved the highest AOl and DMA Sign-On/Sign-Off ratings a~ shares of any television station in the Phoenix market in the July 1982 rati~g~ sweeps. In addition, KPHO was tied for the second highest AOl and DMA rati)~g~ in the November 1982 sweeps. KPHO has regularly achieved high audience ra~ngs in the Phoenix market. 4. KPHO's ratings haveincrease~\substantially in the period since our program schedule was altered to include `~ny more off-netWork syndicated programs. I believe that KPHO's increased popularity'~àq~ng audiences in Phoenix has been due in large part to our station's schedule wh~c!~ is built upon a significant number of off-network syndicated programs, and that our continued success is dependent in part upon our continued fair access to the most recent and popular off-network syndicated programs. PAGENO="0235" 231 5. The information contained herein is true and complete to my own knowledge and belief. Richard De Angelis Sworn to and subscribed before me this of January, 1983. N ary Public 6 My Cormission expires PAGENO="0236" 232 PRESENTATION OF, AJ4.A. POSiTION WITH REGARD TO FINANCIAL INTEREST RULE s ?t.. ~ ~ , ~y ~ Thcrna~ 1. Ryan INTY ANNUAL CONVENTION (Los Angel es1 Ca ii forni a January 18, 1 ~83) PAGENO="0237" 233 Good Afternoon...I'm delighted to be here. It's a much nicer place * to be on january 18th than Boston.. *: * *. *: I am here representing the membership and Board of Directors of the Association of 1~ational Advertisers to tell you about the Association's * postion with regard to the Financial Interest/Syndication Rule. About a year and a half ago, we became aware that the F C C. was considering rescinding the Rule Subsequently we1learned thaf Interest ~ t~ (~ 1 3øf~ t~~t" 3 ~ In the F.C.C.. `s deliberations ~with regard to the Rule was becomi n~ very intense. And the Independent stations, the networks and the producers * had it at the very top of their list of priority items. After some discussIon, the Board of the A.N.A. determined that the vItal interests of viewers and advertisers clearly could be affected by a change in this rule. The Board voted, therefore, to study the matter carefully and develop a position with regard to changing the rule. Obviously, television is extremely important, If not vital, to the operation of many of the businesses of A.N.A. members. The networks have been extremely important to many of us for a period of years and have contributed significantly to the successes of our businesses by providing PAGENO="0238" 234 an efficient means of ccmmunication with our markets. Obviously the stations, both independent and affilated, all over the country have also been extremely Important to us as the theans of efficiently and forcefully coninunicating with our markets. And the producers have provided the programoing which has attracted the large audiences advertisers seek. So the advertisers are somewhere in the middle of this debate beàause all parties have been important to us over the years and continue to be: important to us ..:~ .` ~:. ~ : ... *i(. I .~ t 3 Therefore~ in developing its position the A H A Board felt we should make every effort to provide all concerned an opportunity to share their views with. us before- we came to any firm conclusion. As a result, we have spent a good deal of time over the last 8 or 9 months considering this Issue, listening as carefully and ob.jectively as we could to anyone who wished to talk with us. : -* As a matter of procedure, we first asked the Television Coninittee of the A.NA. to look into this question and make a reconsnendation to the Board. The TV Coninittee heard presentations from each of the networks individually and a rna.jor joint presentation from the networks. They also heard a presentation from the Coninittee For Prudent De~'Regulation which, as you know, represents the Independent stations and producers. They also listened to representatives of the 4A's. PAGENO="0239" 235 In short, we have tried to go through a process here to arrive as objectively as possible at a position which we believe represents the best interests of our membership, the advertisers and, very importantly, the best Interests of the viewing public. In 1982 national advertisers invested 6.2.. billion dollars In network television and 4.3- bil1ion~ dollars in Spot Television. So we are obviously very concerned with the health and well being of television.~ ~ r 1 1' ~ 4 1 Our ob,~ectives on a continuing basis and Immediately with regard to the Financial Interest/Syndication Rule are to help maintain the attractiveness of television `as the primary source of Information and enter~ainment for viewers and to keep television an efficient advertising medium. Therefore, in the last several months we have looked at the impact the Financial Interest/Syndication Rule has had or is likely to have on these two objectives. Sie have also tried to assess what impact the new media technologies are having now and are likely to have in the future on these objectives PAGENO="0240" 236 and what impact retention or rescinding of the Rule may have in this changi ng envi ronrnent. It seems to us that one critical question is this: Have the Financial Intarest/Syndi cation Rule and the growth of the new media technologies so altered the market structure and diminished the market dominance of the networks as to make It in the viewers Interest to eliminate the Rule and let market forces work? r ~`y In the late' ~6Os there obviously waa~ problem.~' Yerj simply, the FCC. said `,..there Is an undue concentration of control in the three~-network corporations over television programs available to the publicTM. The FCC studied the matter thoughtfully and thoroughly and then promulgated the Rule In question. ., The clear objectives here were to serve the viewing public by opening up the marketplace to provide viewers with greater viewing opations, this to be accomplished by encouraging the growth of alternative sources of prograrmning to compete with the networks. IThat has happened? In 1972 the average prime time share of audience held by the three networks together was 9O~. PAGENO="0241" 237 In 1982 the three network share on the same basis is 70%. In 1972 the Independent Stations held a 9% share of audience. In 1982 the Independents' share is 20%. Cable systems supported by adverti si rig now has 3% of the audi enca. In 1972, then 99% of viewing was, to either the networks or Indpendents Since then the total has fallen to 93%. The reason for the decline, of course, is the growth of cable te1evfsion~-basjc and pay...which now has 6% of the audience share4 Public television in both 1972 and 1982 has had about a 1% share. In part, the growth in share of audience that the Independents have achieved is the result of an increase In the number of independent stations from 73 in 38 markets to 165 in 78 markets. Both the Increase in audience share and the number of stations are the direct result of the availability of programing the public wants to watch brought about by the Rule. 32-540 O-84--16 PAGENO="0242" 238 It is apparent from this very simple analysis that the Rule is starting to have the effect the FCC desired. It is also apparent, however, that the networks with 80% of the audience in prime time continue to be the dominant distributors of progranmiing. In arriving at our position we have not attempted to analyze or interpret In any detail what the effect of the networks roonopsonistic position Is on the producers, but have left that to others to deal with who are mare directly Involved *~ `~. *:;~ ~ What have been the economic consequences so far for adverti sers? The price of television time is important here because it is a cost which the pubi Ic--either directly or thdirectly--must eventually bear. W& looked first at the cost trends of television, using the index numbers compiled by McC~nn-~rlckson. Using their numbers for the same years, 1972-1982, we find that network unit costs through 1982 have Increased 194%. Over this same period, the Consumer Price Index has risen l32%--a difference of 61 percentage points. PAGENO="0243" 239 It's true that network prices were quite stable until about 1973 when they started Increasing sharply. As part of our analysis we tried to deteii~ine whether stronger Independent stations with an increased share of viewing are providing greater competition to network-affiliated stations and helping hold down the cost for Spot television time paid by advertisers. * Several of our members looked at their Spot costs for the second quarter of l~82 Cost per thousands for the particular demographic an advertiser used for buying were used as the base These CP7I's for the top 50 inar~ets were then added and am average for all 50 markets obtained. Then the CP?4 in each of the 50 markets was indexed to the average. For example, if the average for all 50 markets was $6.00, the index would * be 100. Then, if New York was $4.00, the New York index would be 66. Next we determined the share of viewing to Independents in all day parts versus network~affiliatas and ranked the 50 markets from highest share of viewing to 0 share. What we found was that in the 10 markets with the highest share of viewing, Spot costs were at an index of 75.5. In the next 10 markets with second highest share of independent viewing, Spot costs were at an index of 81. PAGENO="0244" 240 The next 11 markets had a cost index of 91. And markets 32-~38 were at a 90 index. The last 12 markets had an index of 123. What we found was a very close correlat~on between the Independent& share of viewing and Spot costs. Where Independents are strongest, Spot costs are lowest. There was ã spread in Spot cost~ therefore, from the top group of markets where independent viewing was hightest to the bottom group with little or no independent viewing of 47.5 points. There have been two basic reasons for the dramatic increases in the cost of network television over the last. ten years. One reason has been increases in the costs of progra~mn1 ng. The other reason has been an excess of demand over the~ fixed inventory supply of the three networks. We are dealing with supply and demand of an extremely valuable commodity, the cost of which has been rising at a rate out of proportion to the rest of the economy because of Insufficient supply. PAGENO="0245" 241 We believe the analysis I just gave correlating spot costs to increased Independent station viewing clearly demonstrates the economic value of enhanced competition made possible by the Financial Interest/Syndication Rule. : This is obviously in the interests of advertisers. We also believe, however, that increased viewer options and greater television price competitiøn are a direct result of the FCC's original objectives and are very much in the public interest. But, the FCC is questionning wh~ther it should rescind the Rule. We have seem so far that the network share losses are to independent stations primarily, as those stations provide viewers with attractive progran~ui ng options. Stronger independent stations are providing greater advertising price competition ir( the marketplace for the affiliated stations. W~ believe It is reasonable to assume that if the networks are permitted to gain an ownership position In the programs they carry, they will take whatever action they can to prevent further erosion of their audiences and provide protection to their affiliates in the marketplace. PAGENO="0246" 242 -j The cost of programming Is, as I mentioned a few minutes ago, a rnnjor Ingredient In the cost of television. The networks, as the prlmarj buyers of programming and under some pressure from advertisers, are in a strong position to exercise cost control. If, however, they are permitted to abdicate their buyer position and become partners with the sellers of programming, it seems to us self-evident that they would no longer have the same incentive to hold ~osts down. The argument Is made that the networics need the revenue from owner~hip In pogi'a~s and pI~Of1~ f~om~'the subsequent syndication of those programs' in order to remain competitive. It is difficult for us' to understand how a group of companies that have enjoyed revenue increases' substantially greater than the rate of inflation need further strengthening to maintain themselves. Furthermore, since the revenues from syndication will occur three to five years downstream, that will not solve today `s probl ems. At this point we should also point out that we do have sympathy for the problem of the networks In dealing with the seemingly uncontrolled Increases in the cost of programming. The growth of the new media technologies Is creating an unprecedented demand for entertainment software. If the productIon community is going to meet this challenge, PAGENO="0247" 243 we believe a whole new level of maturity and a much more disciplined approach to program development and production Is going to be required. But there is' another prcbl em that the networks are faced with that must be considered and that Is pay television. Although the audiences are still reiatively small, they are making' inroads in the network shares... The, networks' position is that they are being outbid by HBO for the best movies and that they need greater revenue in order to compete with HBO and the other emerging services.. First..of all, as I indicated a moment ago, the revenues from syndication, which come later, will not meet the networks current need. The networks will have to increase current prices to do that. `,` . While we recognize the networks potential problem in competing with Pay Television Services,'such as HBO,' we fail to see how rescinding the Financial Interest/Syndication Rule will solve that problem. Finally, a major premise underlying the FCC's decision to consider rescinding the Rule is the belief that the new media delivery systems have developed to the point where there are strong alternatives to the networks.~alternatives for viewers and alternatives for producers-~for the distribution of their programs. PAGENO="0248" 244 On the basis that this premise is valid.~ the argument is advanced that elimination of the Rule in line with the current trend toward de~regulation would allow the marketplace to operate freely and in the public interest. Philosophically we are in support of de~.regulation. We believe, however, that timing is critical. Cable, both~ basic and pay, satellite t~ home delivery, video cassettes, and subscription television have Just begun to emerge. They are far from developed and most are losing money. Although 35~ of the country has cable television, the networks still remain the overwhelming,; s~iir~e~~ of inforiiation and entertaiment for television viewers. The networks are still the dominant outlet for * programs and the primary means used by national advertisers to reach their markets efficiently. *.: : For all of the reasons I. have outlined, the A.N.A. will file with the FCC the recoemendation that the Financial Interest/Syndication Rule not be rescinded at this time. We do recognize that important changes may occur In the television marketplace in the next few years. We are further recormnending, therefore, that the issue be reviewed again In 1986. Thank you. PAGENO="0249" 245 BEFORE THE Federal Communications Commission WASHINGTON, D. C. In the Matter of Amendment of 47 CFR73.658(j); the Syndication and Financial ) BC Docket No. 82-345 Interest Rule To: The Commission REPLY COMMENTS OF TEE ASSOCIATION OF INDEPENDENT TELEVISION STATIONS, INC. The Association of Independent Television Stations, Inc. ("INTV"), by its attorneys and pursuant to Section 1.415 of the Commission's Rules, hereby submits its Reply Comments // in the above-captioned proceeding.~ /" 1.. INTV'S initial Comments in response to the Conimis- sions's Notice of Proposed Rule Makjjig~/ in this proceeding, filed January 26, 1983, expressed its full a~d unequivocal support for retention of Section 73.658(j) of the Commission's Rules, the Financial Interest and Syndication Rule ("the Rule").. Notwithstanding self-'serviflg claims to the contrary by the three national television networks, independent television stations have grown and flourished since the LI INTV also is a member of the Committee for Prudent Deregulation ("CPD"), which has prepared separate comments in this proceeding in which INTV concurs. 2/ FCC 82-300, rd. July 2],, 1982 ("Notice"). PAGENO="0250" 246 adoption of the Rule and, in the view of virtually every independent station owner and manager,~1' in large part because of the Rule. More importantly, in terms of the public interest goals of the Commission pursuant to the Communications Act, competition and diversity in broadcast television outlets and program choices have increased as the numbers and audience shares of America's independent stations have increased. For these reasons, tNTV renews its plea that the public interest demands retention of the Rule. I. INTRODUCTION AND SUMMARY Z. INTV's initial Comments in this proceeding docu- mented the phenomenal increase in the number of independent television stations in the United States under the Rule, from 65 in 1970 to 179 in 1982, all but twenty-five of which are UHF stations, "upon which Congress and the Commission have relied for a fully competitive nationwide television broad- cast service."~ Concurrently, independent station audiences have multiplied from a 9 percent share in 1972 to a 20 3/ See "Statement of Facts by Independent Television Broadcasters," Comments of the Committee for Prudent Deregulation in BC Docket No. 82-345, filed Jan. 26, 1983, at Att. 3. 4/ Network Television Broadcasting, 23 FCC 2d 382, 394, modified in part, 25 FCC 2d 318 (1970), aff'd sub nom. Mt. Mansfield Television, Inc. V. FCC, 42~2 F. 2d 470 (2d Cir. 1971) ("1970 Report and Order"). PAGENO="0251" 247 percent share in 1982, and the independent station share of national and local spot advertising sales has nearly doubled since 1970. As the extraordinary p~rogress of inde- pendent television broadcasting has measurably furthered the Commission's goal of increasing competition in the television industry, it has also furthered another paramount Communi- cations Act policy goal by greatly increasing diversity in television outlets and program sources since the adoption of the Rule. During this period, the number of network- affiliated stations increased by one, while the number of independent stations has swelled by 114. Thus, it is the independent stations that have accounted for the substantial increase in free television viewing outlets and the innova- tive and diversified program choices that have become avail- able to the public since the adoption of the Rule. 3. Of greatest significance to the Commission's deliberations in this proceeding, INTV's Comments established that the unfettered availability to independent stations of recent off-network syndicated programming under the Rule has been a key element in this beneficial increase in free television outlets and, consequently, in the diversity of television program choices available to the American people. One need only review the audience ratings of independent stations to discern that the independent station programming that is most coveted by audiences, and that which is most PAGENO="0252" 248 responsible for the substantial competitive inroads that independents have forged vis-a~-vis the networks in the past decade, consists of entertainment series that are released into syndication while they are still fresh and popular, often while they are still enjoying a successful network run. In short, the Rule has fostered the growth and viability of independent stations by making the most popular and recent syndicated programming available to independents on a fair and equitable basis, through independent program syndicators who have a clear and unambiguous economic inter- est in the success of independent stations.. 4. ~`inally, INTV demonstrated, based on empirical data and the networks' own public and private statements, that the networks, as the dominant economic entities in the American television industry, have both the present ability and strong economic incentives to weaken the competitive strength of their independent competitors. Absent the Rule, the networks would have the opportunity to weaken the independents and thus recoup the audience shares lost to independents, by restricting the timely and unfettered availability of popular off-network programs. 5.. In these Reply Comments, INTV will show that the full record now available to the Commission in this proceeding -- consisting primarily of the initial comments of Interested parties and the wealth of testimony presented during the PAGENO="0253" 249 Commission's hearings on this issue on March 14, 1983 -- con- firms INTV's conviction that the Rule has served the public interest by contributing mightily to competition and divers-' ity in broadcast television, and that its rescission pre- dictably could erase the gains that independent television stations have made in the past decade in contributing to this beneficial enhancement of competition and diversity in free television service for nearly all Americans. Therefore, while the Rule has not perfectly accomplished all of its stated objectives, it has served the Commission, the conuner- cial television industry and the American people well and clearly should be retained to permit it to continue its contributions to the ultimate achievement of a truly com- petitive and diversified television marketplace. First, virtually every cominenter in this proceeding, includin~g the three national television networks and their affiliated station associations, acknowledge that it is the nation's free independent television stations - and not pay and advertiser-supported cable and other so-called Nnew media" -- that are the foremost competitors of the three networks for the American television audience. 6. Second, the Comments of such diverse entities as the United States Department of Justice, the Association of National Advertisers and tile Committee for Prudent Deregula- tion confirm the strong causal link between the fair and early PAGENO="0254" 250 availability of off-network syndicated programming to indepen- dent stations (by virtue of an independent syndication market- place) and the concomitant rise of independent stations as a ubiquitous and competitive force in broadcast television. In fact, the comments of unbiased participants in this proceeding have persuasively discredited virtually every network argument relating to the Rule's impact on independent stations. In plain fact, while the networks have attempted to disassociate the new competitiveness of independent stations from the existence of the Rule, the networks fail utterly to assail two plain facts which severely undercut the networks' thesis: (1) the most popular shows on independent stations are pro- grams that are still on the networks' prime time schedules; and (2) prior to the Rule, network series did not appear on independent stations during their initial network run. 7. Finally, the Commission's March 14 hearings in this proceeding further crystallized the fact that rescission of the Rule would pose a grave danger to independent stations and to the modicum of competition that they have contributed to America's free television system under the Rule. The t~tiinony presented for the record during the March 14 hear- ings made all too clear that, absent the Rule, the networks could restrict the availability of the lifeblood of indepen- dent station schedules -- i.e., recent off-network syndicated programs -- either by simply withholding or delaying their PAGENO="0255" 251 syndication or through the far subtler and virtually undetect~ able techi~ique of favoring their owned arid affiliated sta- tions over independents through advance notice and negotia- tions, discriminatory price concessions and a variety of other methods. Therefore, as INTV will further establish herein, the Rule must be retained, both because of its beneficial effects upon independent television broadcasting and television viewers and because of the crippling effect that its repeal predictably could have upon those stations and the public. II. THE COMMENTS SUBMITTED BY OTHERS IN THIS PROCEEDING CONFIRM INTV'S VIEW OF THE RULE'S POSITIVE AND PREVENTIVE EFFECTS 8. The initial comments submitted by other interested parties in the instant proceeding confirm the primary thesis of INTV's Comments and the underlying reason for its support of retention of the Rule: that (1) recent of f-network syndi~' cated programming, which has become available to independent stations under the Rule, has been a critical factor in the growth and profitability of independents in the past decade; (2) repeal of the Rule would give the networks the opportunity to weaken independent stations by restricting their access to the most popular and recent off-'network programs; and (3) the networks have the ability and the economic incentive to exercise the market power necessary to impose such restraints on independents' access to programming. PAGENO="0256" 252 9. The most pronounced effects of the Rule have only begun to be felt during the last few years as programs have become available in syndication during their prime-'time net- work runs. For example, independent station WPIX New York signed a letter of intent for Happy Days in November 1976, three years after it debuted on the ABC Network, for exhibi- tion commencing in October 1979. Since that time, WPIX has acquired other popular programs through independent syndica- tors during their successful prime time runs, ~ Laver~e and Shirley (purchased three years into its network run and first aired in syndication in October 1981), The Jeffersons (first aired in October 1981), Chips (first airedin Septem- ber 1982) and Alice (first aired in October 1982). This pattern has been followed by independent stations throughout the nation with similarly successful results. 10. Even the networks acknowledge, as they must, that since the Rule was adopted in 1970 independent stations have become far more competitive to the networks' owned and af- filiated stations. However, the networks seek totally to divorce the rise of independents from the freedom of access to off-network syndicated programming that the Rule has in- troduced. Instead, the networks contend that N(s)everal fac tors unrelated to the rules account for the enhanced competi- tive position of independent stations and the resulting in- crease in the number of independents."~" Among these factors, ~ Comments of CBS, Inc. in BC Docket No. 82-345, filed Jan. 26, 1983, at 72 ("CBS Comments"). PAGENO="0257" 253 the networks credit improved UHF reception, carriage of in- dependent stations on cable systems, the Prime Time Access Rule, and, cryptically, "an overall upturn of viewer and advertiser interest in independent stations."~~' 11. Fortunately, commenters as diverse as the Associa- tion of National Advertisers, the U.S. Department of Justice, Action for Children's Television, the Communication Commission of the National Council of the Churches of Christ in the U.S.A. and the Office of Commun6catiofl of the United Church of Christ, and the Committee for Prudent Deregulation, as well as INTV and a large number of individual independent station licensees and owners of both independent and affiliated sta- tions, have illuminated the single most proximate cause of this "overall upturn of viewer and advertiser interest", to wit: the independents1 ability to obtain fair and equitable access to recent off-network syndicated programming. 12. The CommentS of the Association of National Adver- tisers ("ANA") and the Department of Justice ("DOJ") are par- ticularly instructive. ANA and its members are intimately 6/ Comments of National Broadcasting Company, Inc., at 75 n.l ("NBC Comments"). CBS also attempts to disassoci- ate the growth of independents from the Rule on the basis of the fact that most of that growth has occurred in the past three years. See CBS Comments at 72-74. CBS fails to mention that this time frame correlates strongly with the expiration of network exclusivity rights to many of the first generation of popular programs that were developed after the Rule took effect. ~ `~ 9, ~ 32-540 O-84--17 PAGENO="0258" 254 involved in business dealings with both the networks and the independents on a daily basis and are thus free of institu- tional bias in this proceeding. More importantly, ANA's membership is perhaps the best authority on what brings ratings success to television programs and stations, and is uniquely qualified to judge the validity of the claims of the networks and their economists that "(t]he cost of network time to advertisers and the cost of advertised products to consumers have been made greater than they otherwise would have been"1' absent the Rule. Based on its thorough review of the Rule and its impacts on broadcast television programming and stations, ANA reported to the Commission: The benefit of the growth of competition through the independent stations within the advertising market is apparent on examination of advertiser costs. In those markets with high levels of viewing to independent stations, the cost per ~housand viewers paid by typical adv~r- tisers ranged from 20% to 60% lower than the cost paid in markets with little or no independent station viewing. A.N.A. believes that the growth in the number of independent television stations and their economic health are directly attributable to greater access to off-network programming following upon the adoption of the E'inancial Interest/ Syndication Rule. A.N.A. further be- lieves that rescinding the Rule would. ~/ CBS Comments at 146 (footnote omitted). PAGENO="0259" 255 curtail the further growth of the inde-' pendents and might indeed jeopardize their present health.V ANA concluded: The Financial Interest/Syndication Rule gives the independent stations assurance that off-'network syndicated programs will be available to them. If the Rule is rescinded, the networks could control both the distribution and the pricing of off-network programs and thereby deny the independent stations -- the networ~p± principal competitors timely access to this most vital ingredient to their successful growth4/ Finally, with respect to the cost to ~~sume~ of rescission of the Rule, ANA concluded: ~With less competition and higher program costs, the price of television advertising -~ a cost which the public, directly or indirectly, must eventually bear -~ would increase."~" 13. The Comments of DOJ further corroborate INTV's thesis, and indeed contradict and discredit virtually every network contention concerning the relationship between the Rule and the nation's independent stations. In brief, the networks' comments argued that: V ANA Comments at 6 (emphasis in original). See also Thomas Ryan, Presentation of A.N.A. Position with Re- gard to Financial Interest Rule, INTV Annual Convention (Jan. 18, 1983) (INTV Comments at App. C). 2.1 Id. at 7-8 (emphasis in original). 10/ Id. at 11. PAGENO="0260" 256 (1) "factors unrelated to the rules account for the enhanced competitive position of the independent stations and the resulting increase in the number of independents;"ll/ (2) the television marketplace of 1983 precludes any possibility of network monopolization of, or control over a substantial portion of, the off~network syndicated programming market ;ia/ (3) network collusion to control the off-network syndication market is similarly impossible; and even if it were possible, it would quickly be detected and prosecuted by the Department of Justice;13/ (4) there is no basis to believe that the net- works would seek control of the off-network syndication market if the Rule were repealed, inasmuch as they did not do so prior to the Rule and it would be against their economic. interest to do so now;l4/ (5) the emergence of the "new" video media has eliminated network dominance over the tele- vision industry and has created a new, coin- petitive programming marketplace;l5/ and 11/ CBS Comments at 72. 5~ also NBC Comments at 75 n.1. 12/ See CBS Comments at 158, 162-63; Comments of American Broadcasting Companies, Inc., at 115-116 ("ABC Com- ments"); NBC Comments at 212. 13/ See CBS Comments at 7, 12, 163-166. 14/ See CBS Comments at 142, 158, 164-166; ABC Comments at 112-115; NBC Comments at 11-12. 15/ See, ~ CBS Comments at 112 ("EBO, not one of the conventional broadcast networks, may be `the most power- ful force in the entertainment business today.'") (footnote omitted);ABC Comments at 77-89; NBC Comments at 16-72, 103. PAGENO="0261" 257 (6) the networks today are merely "three efficient competitors" in the television marketplace, and should be able to obtain the same rights and interests as other video media.~/ 14. Although DOJ supports a search for a narrower rule rather than retention of the Rule in its present form, it concurs fully with INTV's assessment that access to off-' network syndicated programming has been instrumental in independent stations' recent competitive gains and, cru- cially, that repeal of the Rule could endanger the compet- itive viability of existing and future independent stations. In apparent anticipation of the network contentions outlined above, DOJ's Comments, in sequence, found that: (1) the "independent stations' success in program- ming against the networks has been based largely on off-network programming;"~/ (2) "(t]he networks are in a unique position to monopolize off-network syndicated programming," and could collude tacitly to reduce the supply of off-network programming;~/ (3) "It is unclear . . . how likely detection and effective prosecution would be under the Sherman Act in cases of tacit collusion--that is, parallel conduct arrived at by the networks without explicit agreement. The networks ha~e engaged in many parallel practices., includ~~g the number of reruns aired, the number~~ commercial minutes run on networks programS~ and the production fees paid for programmi~q. Thus, the Department ~S not confident See CBS Comments at 169; NBC Comments at 7-9, 12-13, 201. DOJ Comments at 29. Id. at 39-40. PAGENO="0262" 258 that the antitrust laws can be relied upon as the most effective tool for ensuring against possible anticompetitive network practices in this area; "19/ (4) "Clearly, the networks have more incentive to monopolize syndicated programming today (than prior to the Rule, when the value of syndicated programs was far smaller than current prices]. . . . The number of inde- pendent television stations has increased from 73 ut 1972 to 165 in 1982. Viewership of independent stations in prime time has in- creased from 10% in 1970 to 17% in 1981. The independents have successfully used off-network syndicated programming to develop viewer acceptance and increase ratings dramatically, pa:ticularly in the 4:00 p.m. to 8:00 p.m. period. Thus, the networks have more incen- tive now than in the 1960s to delay or withhold programs from independent stations;"20/ (5) "it is by no means certain that (the] new media will eliminate network dominance. * * .. Thus, in light of the uncertainty surrounding the new technologies, the Commis- sion should not, for the present, rely heavily on this factor in assessing the warehousing problem . . . ;"fl/ and (6) "The problem (of competitive danger to independents absent the Rule] stems from the networks' dominance over national broad- casting, a role that has resulted not so much from market forces as from the Commission's spectrum allocation policies."22/ ~/ Id. at 40-41 (footnotes omitted; emphasis added). 20/ Id. at 44 (footnote omitted). 21/ Id. at 46 (footnote omitted). 22/ Id. at 47. PAGENO="0263" 259 III. THE COMMISSION'S MARCH 14 ORAL HEARINGS DEMONSTRATED THAT THE RULE'S BENEFICIAL IMPACT ON INDEPENDENT STATIONS M~D THE DANGER TO INDEPENDENTS OF ITS REPEAL ARE THE PRINCIPAL ISSUES BEFORE THE COMMISSION IN THIS PROCEEDING 15. The above-described Comments of DOJ and ANA, as well as many others, have crystallized the principal issue that faces the Commission in this proceeding: whether the Rule serves the public interest by virtue of its substantial con- tribution to the growth and competitive viability of indepen- dent television stations, and, consequently, to competition and diversity in broadcast television. Or, put another way: whether ~pea~ of the Rule would be contr~y to the public interest, inasmuch as. it would threaten the competitive posi- tion and viability of independent stations and especially the UHF independents "upon which Congress and the Commission have relied for a fully competitive nationwide television broad- cast service."~' The Commission's March 14, 1983 oral hearings in this proceeding further clarified that the threat to the continued vitality of independents in the event of repeal of the Rule -- and the viewer and consumer losses that such a threat would necessarily entail -- is a very real, legitimate and crucial issue that the Commission cannot afford to discount. ~/ 1970 Report and Order at 394. PAGENO="0264" 260 16. Although the impact of the Rule on independents was not the primary reason for its adoption in 1970, INTV submits that its beneficial impact on independents as well as tele-' vision viewers and consumers of products advertised on tele-~ vision, coupled with the injurious effect that its repeal could well have on independents and the viewing and consuming public, more than adequately justifies the Rule's retention. As CBS has acknowledged, the Rule should be retained "if the Commissior~ now believes that (it] in fact serve(s] legitimate purposes at an acceptable cost to the public whatever may have been thought ten or more years ago."~-4~' INTV believes that the initial comments in this proceeding demonstrated, and the March 14 Commission hearings confirmed still further, that the Rule does serve legitimate purposes., i.e., the cardinal Communications Act principles of competition and diversity in television -~ and that the Rule's "cost to the public", if any, is relatively slight. 17. During the March 14 hearings, representatives of the Department of Justice and the Association of National Advertisers reiterated and underscored their concerns,, described above, that outright repeal of the Rule could have potentially serious negative effects on independent stations and viewer and consumer welfare. They agreed that 24/ CBS Comments, Vol. II, App. A at 1. PAGENO="0265" 261 the networks could and quite possibly would restrict or delay the availability of off-network syndicated programming to independent stations, resulting in fewer and weaker indepen- dent stations, less diversity in television program choices and, ultimately, higher consumer product prices. Moreover, owners of television station groups that include both inde- pendent and network-affiliated stations, such as raft Broad- casting and Metromedia, eloquently testified both to the importance to independent stations of fair access to recent, popular off-network syndicated programming and to the abil- ity and incentives of the networks to restrict or delay the availability of such programming to independents. These group owners strongly favored the Rule's retention. 18. First-hand portrayals of independent stations' gains under the Rule and the genuine threat to their viabil- ity if they are stripped of the Rule's pro-competitive pro- tections were presented by two independent station managers, Bob Wormingtofl of station KSHB-TV Kansas City, Missouri, and Dick Dc Angelis of station KPBO-TV Phoenix, Arizona. INTV submits that the Commission would be well served to carefully consider and reflect upon the testimony of Messrs. Wormington and Dc Angelis, who have personally witnessed the beneficial effects of the Rule on their own stations and whose experi- ence uniquely qualifies them to perceive the predictable consequences of its rescission. hccordingly, the prepared PAGENO="0266" 262 statements of Messrs. Wormington and De Angelis are appended hereto as Exhibits 1 and 2, respectively, and are hereby incorporated by reference in these Comments. A. ~atings, Advertising and Programming 19. Mr. Wormingtort's testimony focused on the immutable precept of broadcast television stations everywhere: the competition between the network station and the independent for audience and the advertising revenues that critically depend on the size of that audience: Advertisers don't like to buy low~rated shows. That's why the networks cancel them. That's why Indies strive for maximum ratings. Many advertisers have minimum rating cutoffs, usually a 5 rating or better. Why? Because on a statistical variation if you have a 3 rating it could be a 1, it could be better than that, but an advertiser shelters its buy by buying a minimum rating. To us and to the networks ratings are money in the bank, and if someone controls our programming, they control our revenues..~/ 20. It is the presence of the Financial Interest and Syndication Rule that prevents the networks from influencing the current syndication marketplace, where release of pro~ grams into syndication is achieved on a timely basis, and where 25/ Stenographic Transcript of Bearings in the Matter of Net- work Television Financial Interest and Syndication Pro- ceeding (International Transcription Services, Inc., Mar. 14, 1983) ("Tr.), Testimony of Bob J. Wormington at 235 (hereinafter referred to as "Testimony of . . A copy of this transcript is on file in the Secretary's office. PAGENO="0267" 263 syndication sales are based on marketplace forces rather than vested interests. As Mr. WOrmington testified: Right now there is a very sharp, clear line of distinction between the creators of programs and those who program them. The networks buy and program. We buy and program, and we compete with each other. Does the current system work? Yes. It's a give and take marketplace right now. We don't mind bargaining with sellers whose only incentive is to make money selling programs. We need them, but just as importantly, they need us. They're not going to drive us out of business with exorbitant prices or by withholding or delaying programs or putting restrictions such as when we can or cannot televise programs. But to the networks we're competition. If the independent station is cut off at the pass in getting programming, the networks stand to gain a lot more in advertising revenues, than they would lose in recoup~ ing program investments. It's a fact that we're in an expensive competitive business of competing for people's times and attentions, and since multimillion dollar program contracts are involved, we plan our programming moves months, even years, in advance. Our competition in those moves are the ABC, CBS, and NBC stations. If we have to buy from the major networks, we are telling them well in advance what our programming plans are going to be.j~/ 21. Mr. Dc Angelis, who has utilized recent off-network syndicated programming to achieve audience shares for KPffO~- TV Phoenix that are competitive with or greater than the network affiliates in that market,~" offered a unique 26/ Id. at 237-38. , ~ INTV Comments at 24-26 and App. B. PAGENO="0268" 264 perspective as to the ways in which the competitive position of his and other independent stations might be undermined if the Rule were repealed: The existing financial interest and syndication rules have created a thriv-~ ing marketplace in which a large number of suppliers compete to sell KPHO-TV programming. These suppliers profit enormously from my success as an opera~ tor. Changing the rules to enable the networks to gain financial interest and syndication rights will disrupt a free marketplace. . . Unlike the indepen- dent producers who profit from KPHO's success, the (networks as holders of syndication interests] would have greater profit from the station's failure. Ultimately, the public would pay the price in reduced free program choices and higher costs of goods and services through increased advertising costs..~/ B. "Warehousing" and Network Favoritism 22. During the March 14 hearings, network representa- tives fervently disavowed any intention to "warehouse" ~ withhold from syndication) programs in which they might obtain syndication rights and interests if the Rule is repealed. Indeed, the Senior Vice President and General Counsel of ABC testified: We state flatly and for the record that there will be no warehousing of any product for which we have the syndication rights. . . . However, if FCC still has reservations . . . , it could adopt a gen- eral policy statement in its final Report 28/ Prepared Statement of Dick Dc Angelis, Exh. 2at 1; see also Tr. at 227. PAGENO="0269" 265 and Order precluding warehousing, an approach the Commission has frequently followed in the past and one to which we would have absolutely no objection because that will not be our policy.~/ 23. INTV believes that the networks might not engage solely in outright and overt "warehousing" of all of their syn- dicated product, as the networks appear to define that term (, outright withholding of programs), inasmuch as such anticompetitive conduct would be susceptible to detection. Unfortunately, however, the networks could use their control of syndication rights and interests to weaken their indepen- dent competitors in far subtler and less visible ways than outright "warehousing." Indeed, as cited in INTV's initial Comments, the danger to independents in the absence of the Rule is not limited to network "warehousing," but "that the networks would favor their affiliates and, even more assuredly, their wholly-owned and operated stations, in the syndication of the most coveted prime time programs, through such behind- the-scenes devices as advance negotiations and discriminatory price concessions,"~' or by delaying syndication until the program was no longer carried by the network in first-run. Or, as Bob WormingtOn testified before the Commission: 29/ Testimony of Everett if. Erlick, Tr. at 74. Significantly, the President of CBS, Thomas Wyman, declared that CBS was unwilling even to accept a general policy statement precluding warehousing, stating: "I see no reason to compromise." "Verbal Battling Qver Financial Interest, Syndication," Broadcasti~q, March 21, 1982, p. 58. INTV Comments at 30. PAGENO="0270" 266 Could they warehouse? Yes, but beyond warehousing can they put unrealistic restrictions on their [programs] use? Yes. Can they make them available on short notice? Yes. Can they make them available at exorbitant prices? Yes. And why these fears that they would do this? Just by way of example, a week ago the ABC affiliate in Kansas City did not clear the opening premier telecast of USFL footbaL]~. It was never offered to us by ABC. They chose to keep it off the air in our market rather than offer it to the independent .31/ Dick. Dc Angelis also noted that anticompetitive network conduct in the absence of the Rule likely would not be limited to "warehousing." My fear and a real fear is that the network has more to gain by withholding or diverting product from KPBO than can be generated in license fees on the competitive market. By withholding product to diminish the independents' audiences, the network and its owned and operated and affiliated stations would reap a bonanza in artificially increased advertising rates. The net- works could also create additional availabilities to corner advertising dollars by diverting off-network pro- grainming to create secondary cable channels. Or by withholding minutes for network sale in whatever programs they do release to the marketplace to create ad hoc, secondary network avails. * . . The gains to the networks in any of these three instances would be awe- some in comparison to legitimate license fees for off-network syndication in the free and competitive marketplace as it exists today.32/ 31/ Testimony of Bob J. Worinington, Tr. at 236. ~/ Testimony of Dick Dc Angelis, Tr. at 231. PAGENO="0271" 267 24. Specifically, the networks could favor their af- filiates `and disadvantage independent stations by setting prices at a level whicIi~ would preclude independents from bid- ding for off-network programs. If an affiliate purchased at the higher price, the network could increase the station's compensation, thereby returning to the station a portion of the purchase price. Also, networks could, through means no more sinister than a telephone call, alert affiliates as to when certain programs would enter the syndication market. AffiliatCs could plan for this, while independents, given _short notice of program availability, already may have com- mitted their program acquisition budgets for other, less desirable programs. A network, as syndicator, also could disadvantage independents !jl-A-xil affiliates by insisting on a short-term contract for rights to an off-network program. After the independent station invested in publicizing the program, the contract would end and, through the means dis- cussed above, the program could be sold to the affiliate. Additionally, when an independent station contracts for a program the network-syndicator plans to release in the future, that information could be relayed by the network to its local affiliate, thereby revealing the independent's program plans to a direct competitor. This would give the affiliate information with which to plan its own programming. The independent would not have access to comparable intel- ligence. PAGENO="0272" 268 25. The networks also could restrict an independent station's programming flexibility by imposing restrictions on when a syndicated program can be scheduled. For example, NBC released Saturday Night Live into syndication with a restric- tion prohibiting its use on Saturday night. Similarly, NBC will not allow scheduling of the syndicated Johnny Carson Show in the late night time period..IV Additionally, the network could withhold several commercial minutes from a syndicated program, selling that time to national advertisers and thus restricting the amount of advertising time available to the local independent station.-14~' 26. Finally, a network could restrict the supply Qf pro- gramming in a variety of ways. Certainly it could refuse to syndicate a program altogether, perhaps holding it for the network's own use on, for example, a cable network. A net- work could strip a program during the daytime after removing it from the network's prime time schedule, thus being able to claim that syndication would violate an exclusivity agree- ment)-~/ The withholding of even a small portion of of f- network programming could be injurious to independent sta- tions, as well as to advertisers and, ultimately, the viewing public. ~ Testimony of Lucille Salhany, Tr. at 275-76. See Comments of Turner Broadcasting System at 32. 35/ See Comments of Taft Broadcasting Company at I17~26. PAGENO="0273" 269 27. Therefore, a mere Commission "policy statement" pre~ cluding warehousing would be wholly inadequate, inasmuch as it would reach only one of the many techniques that the net- works could use to undermine independent television stations and thus increase their own ratings and revenues. Instead, the Commission must ensure that the networks are prevented from gaining any measure of control over any facet of the market for off-network syndicated programming -- an insurance that the Rule provides today, with little or no cost to the networks or the American public. IV. THE COMMENTS AND HEARINGS IN THIS PROCEEDING REAFFIRM THAT REPEAL OF THE RULE IS UNNECESSARY TO PRESERVE THE VITALITY OF THE THREE DOMINANT NETWORKS OR OF "FREE" TELEVISION 28. At the heart of the networks' arguments for repeal of the Rule is their contention that, unless the Rule is re~ scinded, they will be unable to "remain" competitive with cable and pay television and other emerging video technolo- gies. In essence, they plead that the Rule unfairly prevents them from competing for programming in the "free market- place," and that the future of free, advertiser-supported television depends critically on swift Commission action to rescind the Rule.1~/ 36/ Perhaps the best testimony to the accuracy of the net~ works' estimation of the audience-generating potential of cable networks may be found in the performance of their own cable network ventures, ~ CBS Cable and (footnote continued) 32-540 O-84--18 PAGENO="0274" 270 29. The initial comments in this proceeding of the enti-~ ties whose livelihoods depend on the prosperity of the "free" television system, and specifically on the continued vitality of network entertainment series, for their very existence independent broadcast stations and television advertisers -~ delonstrate that the networks remain highly profitable institutions, as well as the dominant force in the Amen- can television industry. As INTV's Comments pointed out, pay and advertiser-supported cable, pay television and the other "new media" have made only minor competitive inroads vis-a- vis the networks, and in fact independents, and not the new media, have become the networks' foremost competitors.~" Moreover, the networks' own forecasts (with the notable excep- tion of those tailored for this proceeding) project that in 1990 the networks will continue to enjoy a 70 percent audience share (compared to 11 percent for pay cable), will garner revenues of $15-20 billion to cable's $6-8 billion, and will actually gain an additional audience of 5 million households.~" (footnote continued) RCA's The Entertainment Channei -- both of which dis- banded, in the face of losses in the tens of millions, within the past six months. See "Shifting Through The Fallout of CBS Cable, Disney, Broadcasting, Sept. 20, 1982, p. 27; "Entertainment Channel's End," Broadca$~ ~ Feb. 28, 1983, p. 44. 37/ ~ 1NTV Comments at 9-17. 38/ Id. at 45-47, citi~q CBS/Broadcast Group, The Road to 1990, at 29-32. PAGENO="0275" 271 CBS itself has observed that "while the network number (for total audience and revenues] is divisible by three, the ~ cable] totals will be fractionalized much further."~' Moreover, CBS predicts, perhaps too optimistically, that only 6.7 million households will subscribe to pay cable in 1990, and that "shifts of programming from independent stations to cable will provide more available audience for network affili-~ ates."~W While the networks make many claims and present many pessimistic forecasts in their Comments, it has proven rather difficult for them to explain away their own decidedly inconsistent statements. 30. The initial comments submitted in this proceeding and the testimony of witnesses at the Commission's March 14 hearings only confirm INTV's finding that the networks con~ tinue to dominate the television programming industry and will for many years to come. While the networks speak of "massive defections" of series programming to cable networks, they must acknowledge that no network entertainment series has ever "defected" to pay cable, although they protest rather lamely that the pay cable networks' efforts to obtain ~J and Rill Street Blues were unsuccessful "for a variety of 39/ CBS/Broadcast Group, The Road to 1990, at 32 (emphasis added). 40/ Id. at 28 (emphasis added). PAGENO="0276" 272 reasons."~" In sum, while it may be true, as well as beneficial to the public interest, that the networks are no longer "the only game in town,"~" they remain the town's most prominent citizens and 80 percent landowners. As Peter Ailport, President of the Association of National Adver- tisers, testified during the Commission's March 14 hearing: More recently, in the current 1982/83 television season, during a time of economic recession and in the face of share erosion, the networks increased their (advertising] prices some 16 to 19 percent. This is hardly a sign of an industry that is vigorously competi- tive. . . . The only true competition to the networks has been the growth of the independent stations.j~/ Or, in the words of Fred Pierce, President and CEO of ABC: "The lowest-rated show on the ABC Television Network 41/ CBS Comments at 110. Mel Blumenthal, Executive Vice President of MTM Enterprises, Inc. (Bill Street Blue~i producer) offered a first-hand perspective during his March 14 testimony: Although there is a lot of talk of original programming for pay television, and, indeed, some limited amount of original programming has been produced, the amounts of money available from pay services are so far below what the net- works will spend due to their enormous audiences which generate billions of dollars of advertising revenues per year that MTM cannot now, nor for the foreseeable future, contemplate produc- tion of high-quality expensive program- ming such as "St. Elsewhere" and "Bill Street Blues" for pay television. (Tes- timony of Mel Blumenthal, Tr. at 69.] 42/ NBC Comments at 122; CBS Comments at 112. 43/. Testimony of Peter Allport, Tr. at 178. PAGENO="0277" 273 prime-time schedule this season has an average audience of 18 million people. I think you'll agree we have a very high definition of failure. Overall, we attract audiences that no one else can compete with."~~ 31. The Commission's oral hearings also revealed the falsity of another network tactic in this proceeding: to lead the Commission and the public to believe that the survival of the free television system requires the Rule's repeal. NBC's Comments, for example, asserted: "All ele- ments of free television . . . are adversely affected. That is precisely why many members of the public who cannot afford to pay for television service have asked the Commission to repeal the Rules. These members of the public have no economic stake in this proceeding--other than that they depend on free television."~' During the March 14 hearings, the fears expressed by elderly persons' groups for the future of free television pr4pted Commissioners Dawson and Jones to express dismay at t~e "scare tactics" encouraged by the opponents of the Rule.~1' 44/ Frederick S. Pierce, President and Chief Executive Officer, American Broadcasting Companies, Inc., Remarks Before the Financial Analysts Federation, Kansas City, Mo. at 2 (Mar. 2, 1983) (emphasis added). j~/ NBC Comments at 9. 46/ §j~ Tr. at 362-66. Commissioner Dawson commented during the hearing: I'm absolutely astounded by the amount of education that must have gone on to get (footnote continued) PAGENO="0278" 274 32. In fact, as the Department of Justice commented, "it is by no means certain that Ethel new media will eliminate network dominance. . . . Thus, in light of the uncertainty surrounding the new technologies, the Commission should not, for the present, rely heavily on this factor in assessing the warehousing problem . . . . Indeed, the President of the CBS Television Network has stated that the recent "ero-~ sion" of network audience (to an 80 percent share in 1982) is "manageable and leveling off,"~V and NBC has actually cited a "significant trend" in pay cable ratings, ~ that "liBO's average primetime rating within its own subscriber universe (!:.~.:.` pay cable homes] has been consistently de- dining for the last five months," from a high rating of 13.3 and a 21 share in June 1982 to a 9.0 rating and a 13 share in October 1982. NBC said this rating decline "was initially masked by EBO's increasing penetration."~' Meanwhile, the (footnote continued) this group together to talk about the immediate demise of the three networks. I'm just astounded. I think the scare tactics we have seen today are rather frightening. The networks themselves talk about having a dominant position into 1990. If they're going to be in new technologies, their competitors are going to be themselves. [Tr. at 362.1 47/ DOJ Comments at 46. 48/ Electronic Media, Feb. 24, 1983, p. 14. 49/ "NBC Points to Drop in Ratings for EBO," Multichannel News, Nov. 15, 1982, p. 11. PAGENO="0279" 275 Commission has reported that cable television system profits plummeted by 79 percent in 1981 to $40 million, from $168 million in ~ and over.the-'air subscription television (STV) stations are losing subscribers and shutting down in major markets.~~' In contrast NBC, generally considered to be the "least healthy" of the three networks, registered a profit increase of 124.3% in 1982, with profits of $107.9 million in 1992 compared to $48.1 million in 1981, and posted revenues of $1.8 billion.L~/ Both CBS and ABC boasted reven~ ues of over $2 billion in 1982, making the past year the first in which total network revenues have surpassed the $6 billion mark.~" Finally, the 1982 Nielsen rating compilations reveal that television viewing reached an all-'time high in 1982, with 92 percent of viewing attributable to over-the- air television and 8 percent to cable, "with no increase in 50/ "Cable Took a Beating in `81," Broadcasting, Mar. 28, 1983, p. 91. 51/ STV stations are largely unprofitable and actually lost nearly 79,000 subscribers in the last quarter of 1982 alone. At least four STV services (in Boston, San Francisco, St. t.ouis and Oklahoma City) have shut down in *the past six months. See Pay TV Newsletter, Jan. 26, 1983, pp. 1-4; Satellite Week, April Il, 1983, p. 8. 52/ "The Phoenix Ariseth," Broadc~~Sting, April 4, 1983, p. 121. 53/ Broadcastipg, Jan. 31, 1983, p. 7; Broadcasting, Jan. 24, 1983, p. 7. See also, ~ABC-TV's First $2 Billion Year," Broadcasting, Jan. 24, 1983, p. 42. PAGENO="0280" 276 cable's share during (the] year's last 8 inonths."~-~" Clearly, no "threat" exists to either the networks or free television as. a whole that justifies repeal of the Rule. V. THE RULE HAS ENABLED INDEPENDENT STATIONS TO BETTER SERVE THEIR COMMUNITIES OF LICENSE WITH FIRST~RUN AND LOCALLY ORIGINATED PROGRAMMING - 33. INTV's Comments urged the Commission to retain the Financial Interest and Syndication Rule because its member stations clearly have benefited from the open, competitive syndicated program marketplace that the Rule has engendered, and the American public in turn has benefited from the development of competitive and financially stable independent stations that now broadcast to far greater segments of the public. 34. The most direct effect of the Rule, the increase in independent stations' access to recent off-network syndicated programming, has itself contributed to diversity by enabling audiences to view the most appealing off~networic programs durinq time periods that are particularly desirableand con~ venient. However, the Rule's foremost contribution to diver- sity in television lies in the fact that the independents' increased presence and profitability under the Rule has provided them with the economic wherewithal to originate or purchase first-run programming that network O&O's and affili- ates either cannot or will not exhibit. 54/ Television Digest, Jan.. 31, 1983, p. 8. PAGENO="0281" 277 35. As noted earlier, the impress~.ve increase in the number of television stations serving the American public since the adoption of the Rule has been entirely attributable to the increase in independent stations. Moreover, as noted in INTV's initial Comments, independent stations, by their very definition, purchase or produce programming for their entire broadcast day (typically 19-1/2 hours or more), while the preponderance of an O&O or affiliated station's day is filled by inherently non-local network programming designed for maximum mass-audience appeal. A network-owned or affili- ated station typically programs its own channel for only 7 to 7-1/2 hours daily, and that number is continuing to contract. 36. Demonstrably, the networks are expanding their dominion over their local owned and affiliated stations. Network-fed programming is increasingly predominant in every broadcast daypart, from expanded early-morning news and infor- mation shows (NBC's Early Toda~! and Today, ABC's News This Morning and Good Morning America, and the two-hour CBS MOrN- ing News), to increasing amounts of network-supplied soap operas; game shows and other daytime programming, to an expanding network presence in late-night programming (~ News Nightline and The Last Word, NBC's Late Night With David Letterman and NBC News Overnight, and CBS's Weekday Night Movj~es), to an everincreasing supply of weekend sports and special programming. 37. More recently, the networks have stepped up efforts to gain affiliate acquiescence to expanded network evening PAGENO="0282" 278 news broadcasts.~-~~1 Moreover, the Prime Time Access Rule, which was promulgated primarily to encourage the development of more locally originated and independently supplied programs on network stations, clearly has not arrested the trend toward increasing network-supplied programming outside of the 7:30-8:00 p.m. weekday time slot. The general manager of an NBC affiliate has observed: "Since the prime time access rule was put into effect, the networks have expanded their program- ming hours by 38. The obvious impact of this increasing network intru- sion into local station program schedules is that affiliated stations have an ever-dwindling portion of their broadcast day available for eithen locally oriented programming or first-run syndication. As another NBC affiliate manager has stated: "We [network and affiliates] have to remain partners *in all of this, but my license calls for me to serve the local com- munity."L!/ `Today's profitable independents are better able than prior to the Rule to fill this void and to produce and air locally oriented entertainment, informational and public affairs programming for their local communities in fulf ill- ment of their obligations as ]~icense-holders and public 55/ See "Affiliates Ready to Fight Network Expansion," ~Tctronic Media, Mar. 10, 1983, p. 21. ~/ i~. ~2/ ~. PAGENO="0283" 279 trustees. As Lucille Salhany, a director of NATPE Interna~ tional and programming supervisor for five network-'affiliated and two UHF independent stations, testified during the Commis-' sion's March 14 hearings: If a 10 o'clock news service in Miami or in Philadelphia is important, if local coverage of sporting events is important, and if a public service special like "Job Fair" in Washington is important, then so are these rules because if you tip the balance of power in favor of these net-' works and if you in any way slow down the growth of the independents, you're stifling profit potential and preventing investment in projects (such] as I've mentioned4~/ 39. Moreover, in no small measure due to tk~e Rule, many independents today are capable of acquiring, at least occasion-' ally, high-'quality, first-'run programs and mini-series such as "Edward the King," "A Woman Called Golda" and, most recently, the highly acclaimed "Nicholas Nickleby." The~e types of pro-' gramming, which indisputably contribute to the richest form of diversity in broadcast television, are within the capabilities of independent stations only because of their ability to at-' tract large audiences and increased advertising revenues to their "regular" program schedules, the most profitable corn- ponent of which is recent off-network syndicated programming. ~/ Testimony of Lucille Salhany, Tr. at 278-79. PAGENO="0284" 280 VI. THE COMMISSION MUST ENSURE THAT THE NETWORKS CANNOT OBTAIN CONTROL OF SYNDICATION RIGHTS TO ANY OFF-NETWORK SERIES PROGRAMMING 40. The Pinancial~Interest and Syndication Rule has served the interests of television viewers and consumers the public interest by enabling independent stations to compete fairly and freely for the recent off-network syndi- cated programming that most appeals to television viewers. Simply put, the R~e has contributed mightily to the birth of scores of new advertiser-supported television outlets and has greatly enhanced consumer viewing options. Additionally, the Rule has enabled independents to offer more local and original programming, to purchase more high quality first-run syndi- cated programming, and to exert a positive influence in stabilizin~ advertising prices and, resultantly, consumer product costs. The Rule has, in short, contributed to compe- tition and diversity ~in free television. 41. The plain fact is that the Rule has assured the existence of an independent, decentralized program syndica- tion industry that, given the increasing value of syndicated product in the past decade, predictably would otherwise have become centralized in the three dominant networks. The Dc- partment of Justice has confirmed that "there is some danger that if the networks obtain control of of f-~network syndica- tion rights, they may have the ability and incentive collec- tively to exercise market power over off-network syndicated PAGENO="0285" 281 programming.~1~' Moreover, DOJ has concluded that it would not be necessary for the networks to control all recent off- network syndication to weaken independents and force artifi- cial increases in advertising rates and, ultimately, consumer products: Since the three networks have market power in national broadcasting, a position they are not likely to lose in the near future, they may be able to obtain an undue amount of syndication rights to the network programming. The networks would have an incentive and may have the ability to withhold some of this programming from syndi- cation in order to increase license fees or advertising rates. This could have an adverse effect on independent broadcast stations which use off-network programming to compete with the networks and their affiliates in each market. If this effect were achieved through tacit rather than overt collusion, the antitrust laws might, as a practical matter, not reach the.network's actions .jQ/ 42. Therefore, it is clear that the Rule must be retained in some form to ensure that the networks could never exercise any measure of control over the off-network syndication market.~' DO.7 Comments at 4. Testimony of Stanley Gorinson, Tr. at 20-21. In the 1979-80 television Nseason,~t CBS alone accounted for 8 of the 10 highest-rated television series. The following season, 1980-81, it had 7 of the top 10 shows. If this pattern holds in future years, it is entirely possible that CBS alone could control syndication rights to enough of the m~t popular series to exercise market power in the off-network syndication market. This theory (footnote continued) PAGENO="0286" 282 43. In view of the overwhelming evidence presented in this docket that the networks are healthy and profitable and will continue to dominate American television for the fore- seeable future, that the program supply market is competi- tive,iY barriers to entry are low-~' and small producers have acceptable alternative methods of sharing risk than ced- ing syndi~cation rights or interests to a network investor,~" INTV submits that the wisest course would be sinply to leave this unobtrusive and self-executing Rule in place, at least until such time as the networks are no longer capable of exercising market power~1" and the U.S. television industry is (footnote continued) is bolstered by one of CBS's economic consultants in this proceeding, Dr. Bruce Owen, who testified in a 1980 anti- trust case that control over a 50 percent share of the programs in the market for pay television programming would be sufficient to confer the power to affect the price of progranuning in that market. See Testimony of Dr. Bruce N. Owen in United States v. Columbia Pictures Industries, Inc., No. 80 Civ. 4438 (GLG) (S.D.N.Y.), Tr. at 1625 (Dec. 2-3, 1980). 62/ See, ~ DOJ Comments at 15; NBC Comments at 107 (cur- rent program supply market, is "vigorous and healthy"). 63/ See DOJ Comments at 19. j4J ~. j~/ In fact, at least one network apparently has succeeded in wielding its market power to deprive local independent stations of their rights to televise local baseball games. NBC Television's new agreement with major league baseball provides that, effective next year, ~ NBC stations (footnote continued) PAGENO="0287" 283 truly competitive. Since it has become manifestly evident that there must be some rule to restrain the networks from exercising control over the off-network syndication business, the best and most efficacious rule clearly is one that is entirely self-enforcing, practically impossible to circumvent and low in cost to the public. The only rule that adequately satisfies all of these criteria is the financial Interest and Syndication Rule as it exists today. 44~ Several alternatives to the current rule have been suggested. Unfortunately, all of the alternative formula- tions that INTV has studied to date would be far more costly and difficult to enforce than the current Rule and, more importantly, all would give the networks interests in programming that could amount to de facto control. The proposals that would allow the networks to obtain substan- tial financial interests but not syndication rights in (footnote continued) may broadcast local games on Saturday afternoons. This will mean that independent stations (such as WPIX New York, WOR New York and WDCA Washington, which long have telecast New York Yankees, New York Mets and Baltimore Orioles games, respectively) will be prevented from telecasting local major league baseball teams' games on Saturday afternoons, and millions of fans will be de- prived of the opportunity to watch their home teams on Saturdays, notwithstanding the fact that local audiences currently prefer to view the Saturday games of their hometown teams over the "national" NBC games by over- whelming margins. See New York Times, April 12, 1983, at 38. PAGENO="0288" 284 programming, for example, suffer from the same infirmity that OOJ ascribed to one of its "alternatives": "The major drawback . . . is the difficulty in drafting and policing a rule that properly defines what contractual terms constitute an effective minority interest. The networks might be able to draft contracts that would give them effective control over distribution although they appeared to be merely minority owners."j~/ Indeed, the Commission's adoption of the financial interest prohibition in the Rule was based on its recognition of a similar infirmity, i.e. that it would be ineffectual "to exclude networks from active participation in the syndication market and then permit them to act as brokers ifl acquiring syndication rights and interests . . ~i2/ 45. In sum, INTV supports retention of the current Rule because it most completely accomplishes the two paramount policy objectives that, in IN~rV's view, must be preserved: (1) independent television stations ~ have unrestricted access to ~ of f- network syndicated programming in a free, open and independent marketplace; and (2) independent stations ~ have access to syndicated programming through the widest possible number of syndicators, , in a competitive market. 46. Preservation of these essential and complementary objectives necesSarily means, at a minimum, that the three 66/ DOJ Comments at 50. ~/ 1970 Report and Order at 398. PAGENO="0289" 285 major networks cannot be permitted to control or influence the syndication of any first-run entertainment series, either during or after its initial network run. Moreover, the networks cannot be given the leverage to restrict the off-' network exhibition of any program during any part of a television station's broadcast day, inasmuch as independents must compete with network stations and their network-supplied programming during nearly every period of the broadcast day. The Commission must at all costs ensure that its resolution of the instant inquiry permits of no possibility that the networks could achieve any measure of profit participation that could possibly amount to control over the broadcast exhibition of any off-network entertainment series. The most efficient and simple resolution would be achieved by retention of the current Rule. VII. CONCLUSION 47. INTV respectfully submits that the Financial Inter- est and Syndication Rule should be retained because it serves legitimate purposes that clearly are in the public interest: it furthers competition and diversity in television by permitting independent television stations to thrive and serve ever-greater numbers of the American people with high- quality entertainment, cultural, news, information, public affairs and locally oriented ~rograrnming that offers viewers 32-540 O-84--19 PAGENO="0290" 286 a genuine alternative to the national, "mass market" pro~ granuning exhibited by the three national television networks. INTV does riot wish the networks indeed, it believes that the networks serve legitimate needs and preferences of the American people. However, the immutable fact remains that the three networks unquestionably continue to dominate the American television industry and shall for many years to come, if not in perpetuity. As long as broadcast television remains riot a free marketplace but a Commission-ordained oligopoly with but three gatekeepers, the Commission must continue to ensure that those gatekeepers do not obtain any measure of control over the programming that permits its only broadcast competitors -- the independents to continue to provide diverse, alternative program choices to the American public. ~/ INTV believes, as Bob Wormington indicated during an exchange with Commissioner Dawson during the Commission's March 14 hearing, that the Commission's priorities in pursuing its goal of a more competitive television mar- ketplace would be far better served by re-examining those of its regulations, such as the "7~7~7 Rule," which may prevent experienced broadcasters from achieving suffi~- cient size to realize economies in program acquisition and networking activities. See Tr. at 3l3~'3l7. Such rules may well prevent the full realization of scale economies. If so, their elimination would increase com~ petition and enhance the welfare of television viewers. An "experiment" with lifting such artifical ownership limits would approach the issue of broadcast industry Structure and network dominance in a more fundamental and promising way than the preseht proceeding. PAGENO="0291" 287 48. It has become apparent during the course of this proceeding that the Rule has in fact benefited independent stations and the public at large by permitting independents to obtain the programming they need to survive and prosper on a fair, equitable and arms-length basis, from suppliers who will benefit handsomely from their success and would suffer from their failure. It has become equally evident since the initiation of this proceeding that the motives of the networks and their affiliates in seeking the Rule's repeal are something less than purely pro-competitive, and their public and private statements have not been comforting to independents. INTV cannot be optimistic as to network conduct upon the Rule's repeal at a time when network officials are acknowledging that "in our opinion a far more important competitor for us to watchand program against and compete with is the independent television station. That is going to grow at a rate that far exceeds any of the wired media as f at as we are concerned,"~V and affiliate associa- tions are openly suggesting that repeal of the Rule "may im- pact premature syndication of network re-runs that are being made available to independent stations and are competing with 69/ Remarks of James if. Rosenfield, Executive Vice-President, CBS Broadcast Group, to New England Chapter, National Academy of Television Arts and Sciences (played in tape- recorded form during Testimony of Robert Bennett), Tr. at 247-48. PAGENO="0292" 288 first run network shows carried by Affiliates."2-21' Indeed, as Robert Bennett, Senior Vice President of Metromedia, Inc., observed during the Commission's March 14 hearings: The chain of events which brought us all to this room today is really quite simple to trace. The syndication and financial interest rules fostered a strong syndica- tion market which facilitated the growth of independent stations which, in turn, led to a slight decline in network shares and which caused the networks to seek the repeal of the rules. 71/ 49. The comments submitted in this proceeding, and the testimony presented during the Commission's March 14 oral hearings by witnesses whose only vested interest in this proceeding is the future of a truly competitive free televi- sion system, establish beyond any doubt that the Rule fl~ benefited independent stations and television viewers, and that the danger to the continued vitality of independents if the Rule were repealed is all too real. The Commission observed upon adopting the Rule that "the presence of the networks as domestic syndicators is inherently undesirable. They are in the position of selling programs to independent stations in competition with their own network programs on 70/ Letter from James 0. Babb, Jr. to CBS Television Network Affiliates Association, "CBS Affiliates Option Paper on Repeal Of Network Financial Interest And Syndication Rules" (Oct. 18, 1982). j~/ Testimony of Robert Bennett, Tr. at 247. PAGENO="0293" 289 affiliated stations . . . . "~/ Nothing in today's televi-' sion marketplace would make a restoration of this x~etwork presence any less "inherently undesirable." INTV reaffirms its conviction that the American television marketplace is best served by the retention of this low cost, effective Rule that furthers, rather than inhibits, competition among broad-' cast television outlets. Respectfully submitted, ASSOCIATION OF INDEPENDENT TELEVISION STATIONS, INC. J. Laurent Scharff / / Oa4,~Q~ iC(. ~ J~s M. Smith PIERSON, BALL & DOWD 1200 18th Street, N.W. Washington, D.C. 20036 (202) 331-8566 Its Attorneys April 26, 1983 72/ 1970 Report and Order at 394. PAGENO="0294" 290 ~.emarks of Bob .1. Wormington March 14, 1983 My name is Bob J. Worrnington. I'm General Manager of KSHB-.TV Kansas City, M~,ssouri, a VHF independent station. Kansas City is the 27th television market . . . and probably typical of a lot of markets with independent television stations in the U.S. we have six television stations, three network V's and three UHF's, which includes 1 PBS station and 2 independents. We operate what we feel would be, in many instances, a typical inde- pendent station. Prior to my coming with KSHB-TV, I spent 18 years with network affiliated stations. I've been in independent television for the past 13 years. I am the past chairman of the Association of Independent Television Stations, and I am here speaking on behalf of th~ INTV . . . because we feel that the issue being argued here today is sri issue of competition . . competition not only between networks and independents . . . but competition for viewers and competition for advertisers. The real competition for the networks is not pay television . is not cable news networks . . . or ESPN . . . or USA Network . not the so-called "new technology" . . . it is the independent television stations and you cannot talk about the future of free television without considering the role of the independents. (GO TO CHART #1) PAGENO="0295" 291 This chart shows the growth of indies in the last decade (1) Growth of number of stations; (2) Advertising revenues; (3) Now showing profits (was a loss); (4) Ana in 1983, advertising spot revenues for thde- pendent stations are expected to top 1.5 billion dollars. Why this increase? Purely and simply, the availability of better programming, which translates to bigger audiences. For example, in the top 20 markets ... . independents versus affiliated stations . . . in various weekday time periods here's what's happened: Early fringe or 6.7:30 p.m.: Between 1979 and 1982, independents increased their share of audience from 25 to 277. - network affiliates dropped from 67 to 647. . . . a 2 share point gain for independents, a 3 share point loss for affiliates. - In prime access, 7:30 to 8 p.m.: Indies went from 22 to 267. shares, affiliates dropped from 69 to 637. shares . . . a 4- point gain for indies, a 6 point loss for affiliates. In late fringe: Indies went from an 11 to a 157. share, a gain of 4 share points, and the affiliates lost the same amount. What is significant about these share losses by the ne~ts and their affiliates is that the lion's share of these losses was to independents, not to the so-called "new media" that the networks say is threatening them. PAGENO="0296" 292 Recent . . . or "fresh" is the term we use.. . . off~-network progratraning has played a key role in the independents' success. The freshness of this programming has certainly increased tre- mendously since the FCC rules on financial interest and syndication were imposed some years ago. (GO TO CHART #2) You can see from this chart -- which would be typical of many independents - - the tremendous importance of off-network prograing to the revenue and profitability of an independent television station such as ours. Revenues are tied very directly to audience shares. Note how much of our revenue is geared to the off-network shows. A major reason is that in early fringe prograning, based on the latest Arbitrons, we are either #1 or #2 in rating and share, or #1 or #2 in adults 18-49 throughout those hours -- and that's important to advertisers. Advertisers don't like to buy low- rated shows. That's why networks cancel them, and why indies strive for maximum ratings. Many advertisers have minimum rating cut-offs . . . usually a five or better. Why? Because of statistical variations, a 3 rating could be a 1 . . . it could be. a 5 . . . so an advertiser shelters its buy with a minimum rating. Ratings are money in the bank . . . to networks and to independents. So if someone controls our progranuning, they control our revenues. (pause) PAGENO="0297" 293 We make no bones about it -- given the networks' ability to control the distribution of the bulk of our programming, this is what we face. First the reality that we get our audience basically from network affiliates. Our gains are their losses -- and all revenues . . . theirs and ours . . . are tied very directly to audience size. Second, a network is the sum of its affiliates. If an affiliate is weak, it hurts the network, so networks support the affiliates and do what they can to protect and support them. In protecting the affiliate, would the networks offer the best properties to us, their competition? No: Would they warehouse, or put unrealistic restrictions on their use? Yes: Why these fears? Just as a footnote, a week ago, the ABC-TV affiliate in Kansas City did not clear the opening premier telecast of IJSFL football. It was never offered to us by ABC-TV . . . they chose to keep it off the air in our market rather than offer it to the independent. Incidentally, they do sort of the same thing with college football. Under the network contracts with the NCAA, it is virtually impossible for an independent in a major market to televise a live local college football game because of the restrictions imposed by the networks and the NCAA . . - impositions so restrictive that. the courts have ruled those contracts to be PAGENO="0298" 294 unlawful . . . a decision the Justice Department is supporting in the appeal filings. And those are the same networks telling us how nice they'll be to do business with. (pause) What happens if off-network programming isn't offered to us? What then? What about alternate sources? The "new technologies" are into movies and sports . . . not .series programming there isn't another source available. To go to our source now, we buy our programming from producers . . . we compete against the networks. What this lets us do is go to the creative sources of the prograing . . . the Norman Lears of our industry . who actually create prograiing. The networks do the same thing we do -- go to the creative producers -- only they have a first- run crack at it. We use the residual benefits in a further expansion of the creations of the program distributors. Right now, there is a very clear line of distinction between the creators of programs and those who program them. The networks program -- we program. We compete with each other. Does the current system work? Yes. It' s a give and take in the market right now. The good shows bring lots of money - - the bad ones don't. Untested shows bring less than tested shows~. . and a good test of audience acceptance is on the network level. PAGENO="0299" 295 We don't mind bargaining with sellers' whose only incentive is to make money selling programs. We need them but just as important, they need us. They're not going to drive us out of business with exorbitant prices, or by withholding or delaying programs or putting on restrictions such as when we can or cannot televise a program. But to the networks, we're competition -~ and they'd just as soon we weren' t there. If the independent stations are cut off at the pass in getting prograing, the networks stand to gain a lot more in advertising revenues than they would lose in recouping progranmiing investments. The repeal of the financial interest rule .would reverse not only the progress that has been made in free television for the past decade, it would ha~.?e a tremendous imp&ct on the next decade in alternatives in viewing and advertising opportunities for both viewers and advertisers. It is a fact that we are in a fiercely competitive business.-- competing for people's time and attention. Since multi-million dollar program contracts are involved, we have to plan our pro- gra~ing moves months, sometimes years, in advance. Our competition in those moves are the ABC, CBS and NBC stations. If we have to buy from maj or networks, ~e are telling them well in advance what our programing strategies are. It's like Macy's having to tell Gimble's, or Sony telling RCA, what they're going to market next. PAGENO="0300" 296 We would have to reveal to the networks what our future progranmting plans are. Keep in mind that we program in the same manner the networks do -- in blocks of programs. If we try to assemble blocks of programs and they choose to stop us in our tracks, they just have to sell one of the programs to their own affiliate, not make it available or put unrealistic restrictions on its use so we couldn't effectively block programs. Even worse, in major markets where the networks operate owned and operated stations, the independent stations in those markets would be forced to deal directly with their competitors. The networks, by their own comments, face a bright future, with or without repeal of the rule. But the future o~ independents is inUmately linked to the availability and continuing supply of fresh, current off.network programming being supplied by the people who create them . . . the program producer and distributor. We need to have this supply without fetters, without restrictions, and with increased opportunity. We don't mind open competition. If you've been around independent television stations, you know we're for it . . . we thrive on it. But the competition has to be open. Putting the networks back into the syndication business makes the business less open . more subject to abuse. That's why we're here. And that's why we ask you to carefully consider the points we are making here today. Thank you. PAGENO="0301" 297 Mr. WIRTH. Thank you very much, Mr. Cassara. Our final witness on the first panel is Naomi Gurian from the Writers Guild, who we are especially, pleased to have with us this morning. Ms. Gurian had a 11/2-hour trip to get here this morning. Thank you very much for being here and welcome, Ms. Gurian. STATEMENT OF NAOMI GURIAN Ms. GURIAN. Thank you, Mr. Chairman. I am Naomi Gurian and executive director of the Writers Guild of America West. I represent approximate 6,200 writers located mainly on the west coast and through my Eastern affiliate, another 2,100 writers. These are the writer-entrepreneurs who will be dev- astated by repeal of the rule and specifically our minority writers will be most severely injured. Our writers strongly support H.R. 2250. Frankly, gentlemen, we need 5 years. Let me explain. In 1981, after struggling for years, against all three networks and all of the companies I find myself allied with today, we finally made a break- through, along with the other talent unions and we negotiated comprehensive, extensive, affirmative action programs for writers, actors, and directors. Those programs were not easy to negotiate. Originally, our mem- bers looked at the companies and the networks and said a pox on both your houses. A more internal, detailed look revealed that out of the two doors leading to employment, we could pry open the door that led to the independent producer. The door that leads to network employment is closed to our minority writers. Let me ex- plain. We negotiated affirmative action programs that have several prongs. One prong relates to those minority writers within our union, but that is a trap if you let yourself relate only to that, be- cause entrance into our union is dependent on employment and if a minority writer can't get employed-and the major employer is, of course, the three networks-then he can't even get into the union. So, our affirmative action program has two major programs, one addressed to union members and one that is addressed to minority writers who are not able to get into the union, but functioning all over the country and attempting to break into the industry. In the 1½ or 2 years since we negotiated this program, we have initiated and reactivated a committee of black writers, a committee of Latino writers, a committee of women writers, a committee of older writers, and a committee of disabled writers. These commit- tees are at long last functioning. We are meeting on a constant basis with representatives of the independent producers and we have begun a program which in a short time should begin to give us a channel for employment, employment of minorities that the networks do not afford us. The networks are a closed door. One of the provisions that exists in our collective bargaining agreement exists in similar form in the collective bargaining agreement of the Directors' Guild and the Screen Actors' Guild and that is that creative control should reside in the hands of the independent producer and under the collective PAGENO="0302" 298 bargaining agreement, the independent producer is precluded from feeding creative decisionmaking to the third party, the networks. These provisions are violated constantly by the networks every day. The violations occur because the networks intend to master- mind profit and bleach programs there. That is their double objec- tive. The violation of the talent guilds collective, bargaining agree- ments is so consistent, so pervasive, that the three unions have met together, have examined the problems and finally hired legal coun- sel to examine and draft legal action against the networks for these violations. We believe that the double-pronged action of enforcing, imple- menting and the shotgun approach of our affirmative action plan, coupled with legal action against the networks for violation of the creative control provision will at long last provide the talent in Hollywood a pathway to employment. We need the 5 years, gentlemen. I would like Some remarks made by writer members and non- writer members of the union to be put into the record, Mr. Chair- man. [Testimony resumes on p. 382.] [Ms. Gurian's prepared statement follows:] PAGENO="0303" 299 Oral Presentation by Naomi Gurian, Executive Director, Writers ~iIld of America, in Support of H.R. 2250 before the Subcommittee on Telecommunications, Consumer Protection and Finance of the Committee on Energy and Commerce, U.S. House of Representatives, Los Angeles, California, June 1, 1983. My name is Naomi Gurian. I am the Executive Director of the Writers Guild of America West and I represent our 6,200 writers who reside in and around the West Coast, and approximately 2,100 writers in our Eastern New York affil- iate. These 8,300 writers are the struggling Norman Lears of today. These are the writer entrepreneurs that the f in- ancial interest, syndication and prime time access rules currently protect. The rules create a nurturing environment within which young writers can grow and aspire to the posi- tion of a Norman Lear with Embassy Productions. The members of my guild strongly support H.R. 2250. Quite frankly, we are frightened by the FCC's headlong rush to repeal their own recently adopted rules. A simple moratorium, during which time we can rationally assess changes occurring in this industry, will harm no one. FCC repeal of the rules, however, will devastate the members of my guild from both a financial and creative point of view. Without these rules there are no checks and balances to protect the small guy, the member of my union. Let me explain to you the two major ways in which this happens. First of all, economic; by allowing the small guy to have a financial interest in the back end rights to the programs he helps create, you provide him with an incentive to stay PAGENO="0304" 300 in this risky business as well as that modicum of bargaining leverage that is necessary to compete with the three network giants. Without this leverage, he has no hope of selling his ideas, and that leads me to the second most important part of my statement. I believe that this Subcommittee wants to serve the public interest, and I believe you serve that goal by creating an environment which is conducive to the diversity of expression, which inevitably leads to new ideas and pro- grams. If you remove the minimal controls the FCC estab- lished in 1970, you will stifle all diversity of expression. Even today, with the rules, a writer's creativity is im- pinged by network dominance. You must realize that to my Guild, the rules are the ~ mechanisms that prevent total network control of the creative process. The talent unions in Hollywood, that is, the Screen Actors' Guild, the Directors' Guild, and the Writers' Guild, have, after hard and arduous sessions, negotiated provisions in their collective bargaining agreements with various production entities. The agreements reserve certain cre- ative decisions to those production entities. Thus, the production entities are able to exercise creative discretion as to the nature of the script which eventually becomes the program 2~merica watches, the individual playing the princi- pal role, and the individuals that we call the day player. PAGENO="0305" 301 Today, these collective bargaining provisions give the producers certain vital creative controls. But we wage an ongoing battle against the pervasive and'consistent network expansion over creative control. The stuggle to protect our rights from network encroachment has reached such a level that the diverse talent unions have organized together and hired a law firm to examine potential legal action against expansion of network creative contrpl. If the networks acquire syndication rights or any financial interest in programs, they will surely impose their institutional creative biases on writers even more than they do today. You must remember that the networks are seeking to reach the lowest common denominator of ~znerican viewers to attract advertisers. In contrast, when a writer and a producer develop a program, the producer does not share the network's concern with pleasing advertisers and airing "safe" programs aimed at the collective tastes of television viewers across the nation. With regard to minority programming, it could be on the air tomorrow if the networks permitted it. The only thing stopping them is their own profit maximizing motives. The Guild fights the networks by filing EEOC claims every day. Our thought is that if minorities have greater oppor- tunities to work on scripts and behin6 the scenes, the viewing public will benefit by having more programs reflect- 32-540 O-84---20 PAGENO="0306" 302 ing the minority way of, life. The networks have opposed us at every juncture. One network recently issued an edict prohibiting writers over 35 years old from participating in programs created for that network. They wanted all of their programming to iterest only viewers between 18 and 35 because they are the predominant consumers of products advertised on the networks. Together with the production company, we have battled this' unreasonable policy. I find their credibility questionable when the networks argue that repeal of these FCC rules will allow them to air more programming involving the elderly or ethnic minorities. Fortunately for writers, the lowest common denominator mentality does not filter down to the producers we work with -- creativity is encouraged, not discouraged. With the protections of the rules, writers and producers are more willing to push for fresh, innovative programming ideas. Even if we are only occasionally successful in gettinq such quality programs on the air, the viewing public is enriched. Without the rules to provide financial and creative in- centives for talented writers to stay in the television business, I genuinely fear that the overall quality of television will suffer. I would like to address myself to another significant point. To the unions in Hollywood, it is ludicrous to hear PAGENO="0307" 303 the three network giants state that they are fearful about the competition from the growing cable-pay markets. The networks are effectively asking the FCC to protect them from the very competition the FCC has encouraged for years. The networks do not need protection from cable: rather cable, which is still in its embryonic stage, needs protection so that it can mature into healthy adulthood. Right now, if the networks do not buy an idea, it goes into the wastebasket. There are stirrings of new opportun- ity in cable and pay-TV, but these are only distant hopes to our membership which suffers an unemployment rate approach- ing 60 percent. Quite frankly, cable cannot afford writers of original programming under the terms of our collective bargaining agreements. To write for cable projects, we have had to secure special waivers on a case-by-case basis permitting us to get sub-standard pay for our work. As a member of the industry which could be devastated by the FCC's headlong rush to repeal the rules, I am here to tell you that the "new media" revolution has not yet come, it is only beginning. The FCC's perception of a competitive new media is wrong, it is a distant and weak prospect. A cable industry, that has done very little original programming and does not have the wherewithal to air ori- ginal programmitig without reducing union wages, is not a PAGENO="0308" 304 threat tQ the networks. Writers and producers of quality series are not flocking to cable -- they will continue to look to networks as the forum for their product for many, many years to come. In conclusion, this is not the time to repeal the f in- ancial interest, syndication or prime time access rules. The Writers Guild strongly urges Congress to enact H.R. 2250. To provide the Subcommittee with additional support for the position that repeal would be harmful to the cre- ativity and diversity of the guild members that I represent, I would like to submit, along with my testimony, the at- tached letters, speeches and Senate testimony which was prepared by guild members and submitted to t}~e FCC. (CONMITTEE NOTE: The additional material submitted for the record has been placed in the files of the Committee.) PAGENO="0309" 305 ~flITEfl~ ~ILD OTAMER!CA,west,Lflnc. 8955 BEVERLY BOULEVARD LOS ANGELES. CALIFORNIA 90040 213) 550-1000 Cable: INTWRITER, LOS ANGELES January 20, 1983 BEFORE THE FEDERAL COMMUNICATIONS COMMISSION WASHINGTO~I, D.C. In the Matter of Amendment of 47 C.F.R. 473.658(j); the ) BC Docket No. 82-345 ~ Syndication and Financial Interest Rule The antecedents of the Writers Guild of America, west, Inc. (and Writers Guild of America, East, Inc.) reach back * to the early 1920's when the Screen Writers Guild was first formed in Los Angeles. The Guild has long been recognized and certified by the National Labor Relations Board as the exclusive harg~ining agent for writers who are employed to write the entertainment portion of motion pictures or tele- vision films. Its collective bargaining agreements with producers of motion pictures and films for television cover writers employed on an assignment basis as well as those employed on a term basis and also cover the purchases of literary material from professional writers for use in motion pictures and television. The attached documents are the comments of the Writers Guild of America, west on the proposed repeal of the Syndication and Financial Interest Rule. Ver truly yours,-.~, omi Gur~a'~r Executive Director NG:cr Enclosures PAGENO="0310" 306 i~ ~ ~ or AME p~ ~ A, west, cqnc. Dear Commissioner: 8955 BEVERLY BOULEVARD LOS ANGELES, CALIFORNIA 90048 (213~ 550-1000 (`able: INTWRITER, LOS ANGELES January 19, 1983 ~4, l\ As the President of the Writers Guild of America, west, a union of 6,200 writers who write all of what is seen on television that is not written by members of Writers Guild of America, East (a sister union of 2,200 writers), I want to address the issue of deregulation that touches upon net- work ownerahip of syndication rights in shows they air on the networks. As you are already aware, the producers of television shows, majors and minors together, oppose this idea. I want to explain why we- -who work for them and sell to them-- join in their opposition. There is essentially only one market for first run televi- sion programs--the three networks. The success of a show normally depends on network exhibition. A writer with an idea for a show he wants to write and see produced, must therefore persuade a network that it ought to televise that show. If the networks do not buy the idea, it goes into the wastebasket. There a~-e stirrings of new opportunity in cable and pay-TV, but these are only distant hopes to our membership which suffers an unemployment rate approaching 60 percent. In 1970, when the current regulation was adopted, the three networks were the sole market. There were at that time perhaps eight independent producers. They sold a few shows to the networks which they hoped to pay off in syndication to independent stations here and abroad. Many of those independents were in fact thinly disguised fronts of the networks. For example, the star of a hit network show was often able to negotiate a deal wherein he "owned' a company that produced the network show in which he appeared. In fact he was usually a minority partner in the sense that he shared profits with the network, but the actual manufacture, distribution and accounting of the show was done by the net- work. The stranglehold this placed upon the industry was evident both in a business and an artistic way. The production cxc- Continued - . PAGENO="0311" 307 cutives of only three companies determined what America saw on television. Production directly for syndication was eco- nomically impossible without a first-run network sale to amortize production costs. In fact the networks saw to it that what few independents were allowed to function, for whatever reasons, did not get paid their full production costs for a network run; their only hope for profit came from syndication to independent stations of reruns. Yet the only shows that had value as reruns- -like I LOVE LUCY, GUNSMOKE, etc. - -were shows that had been successful on net- works first The result of this particular regulation was a paradox in that for once a government regulation actually resulted in creating a free marketplace- -or one that more closely resembles one. Instead of three network executives, we had within a few years literally hundreds of companies to whom we could bring ideas for new, fresh shows- -even shows that had been turned down by networks as inconsistent with their current philosophy or as competitive with ideas they already had in work. Since 1970 this handful of companies supplying networks (and those, as noted above, closely controlled and majority owned by the networks) have grown into a strong group of major suppliers who have sufficient financial strength and stability to finance development on their own. They still depend upon the network as their primary market, but they provide lively competition not only among them- selves but with the networks to invent, to experiment, to bring some fresh air into the stale and repetitive programming the networks tend to produce left to themselves. But it is not just the dead hand of monopoly upon the inven- tive spirit that is at issue, It is the matter of a free marketplace. When there are only three customers, and some 8,400 writers trying to sell ideas, the idea of a marketplace evaporates; it more closely resembles an intellectual breadline, or the bureaucracy of a socialist state. We need as many companies making as much as they can out there. A case in point: Norman Lear was able to found a company to supply CBS with ALL IN THE FAMILY. On the basis of this and other hit shows, his Tandem became a major independent supplier of programming to networks, In later years he had snother idea- -an irreverent takeoff on soap operas called MARY HARTHAN, MARY HARTMAN which was rejected by all three networks. In other years, and under other conditions, it would have been dead. Tandem was strong enough financially to take the risk of trying to interest enough independent TV stations--as if it were assembling an ad hoc network- -to Continued . . PAGENO="0312" 308 absorb some of the cost. Lear's faith was strong enough so that it was tried. It worked. MARY HARTMAN, MARY HARTMAN was a hit and it paved the way for others--FERNW000 2NIGHT, etc. --that would have never happened had it not been for the existence of financially strong, professionally experienced independent companies. There is a host of small independent producers, often formed to produce single productions but that live on to do others that make this almost a demonstration of the strength and energy of the American free economy. The individual entrepreneur is still alive and strong and kicking sand in the bullies' faces in this arena. They bring to the networks ideas and proposals from the out- side, and they have the economic strength to fight them through--Gerry Eisenberg's Sozak Company that produced JAMES DEAN, HAVING BABIES, SECRETS; David Rinteis' THE MEMBER OF THE WEDDING, ALL THE WAY HOME, and GIDEON'S TRUMPET starring Henry Fonda; Furia/Oringer's CRISIS: AMERICA ~ IRAN, a six- hour mini-series; to name but a few. None of these would have been seen without the clout of strong independents. We, who earn our living in this market, can clearly see the growth of diversity and energy and financial strength that the regulation has given this busiiiess. We also see the constant efforts on the part of the networks to reach out for control, both financial and creative. We experienced it before regulation. We see it constantly working behind the scenes now. During the past year the networks have success- fully moved to take creative (that is writing and producing) powers away from the independent creators in the daytime soap operas. This was traditionally an area in which the shows were produced and controlled on a daily basis by a head writer- -he or she was usually th~ person who had invented and developed the show. Today the day-by-day decisions are increasingly made by network executives, and the writers and producers have been fired. The networks have consistently violated terms of agreements under which independent producers guarantee to their wri- ters, actors, directors that the producers have authority not only to pay but to hire and fire. The networks routi- nely force producers to bow to their decisions as to who is to be hued, what they are to write, who is to direct and how, and what actors may be used. It is a natural thing for them to do. Who resists power when it is available to hand? But in these cases they are in violation of contracts writ- ten with not only our Guild but the Directors Guild, the Continued . . PAGENO="0313" 309 Screen Actors Guild and the Producers Guild. We are jointly exploring legal relief. This may seem to be a aide issue, but to us it sets in high relief the fact that the fear of network domination (if they are deregulated in this way) is not just a vague anxiety that they might try to gobble up the market: it is a certainty. They did it before, and they have never stopped trying in devious ways to do it since. We have a free and healthy competitive entrepreneur market in which some 2,000 firms are doing well, in which the net- works themselves are prospering. I want to paraphrase a conservative slogan we can all agree upon: "If it ain't broke, don't fix it." This is one regulation that works. Si ncer.e,ly, * ~ ~--,**~~ Frank Pierson * President, Writers Guild of America, ~ west, Inc. FP: cr PAGENO="0314" 310 FRANK R. PIERSON PRESIDENT OF WGAW -- 1981-1983 Name of Film SHOT BE REQUEST FRAGILE CAMPAIGN OF BILLY BANJO POINT OF IMPACT CHAMPAGNE SAFARI THE SEARCH NIGHT THE TOWN DIED THE LEDGE FIGHT AT ADOBE WELLS OUT AT THE OLD BALL PARK THE ROAD AN ACCIDENT LOOKING FOR A PLACE TO HAPPEN THE VISITORS THE FOUR THUMBS STORY ARROW IN THE BLUE THE S.S. AMERICAN DREAM PRINCE AMONG MEN THE HUNTERS BUILD YOUR HOUSES WITH THEIR BACK TO THE SEA CAT BALLOU THE HAPPENING COOL HAND LUKE THE LOOKING GLASS WAR 42ND ACADEMY AWARDS PR ESENTAT ION THE ANDERSON TAPES NiCHOLS ~THE DEER CROSSING GULLEY VS. HANSEN ALL IN THE FAMILY AND OTHER SPRINGS I MAY NOT SEE DOG DAY AFTERNOON A STAR IS BORN KING OF THE GYPSIES HAYWIRE From Series Entitled Have Gun-Will Travel Have Gun-Will Travel "Have Gun-Will Travel" "Alcoa-Goodyear" "Have Gun-Will Travel" "Have Gun-Will Travel" "Have Gun-Will Travel" "Have Gun-Will Travel" "Have Gun-Will Travel" "Have Gun-Will Travel" "Have Gun-Will Travel" "Naked City" "Dr. Kildare" "Empire" "Empi re" "Naked City" "Redigo" "Redigo" "Route 66" "An ABC Special" Pilot "The Bold Ones" Network or Company CBS CBS CBS Screen Gems CBS CBS CBS CBS CBS CBS CBS Screen Gems MGM Screen Gems Screen Gems Screen Gems Screen Gems Screen Gems Screen Gems Harold Hecht/Columbia Columbia Warner Brothers Columbia ABC Robert M. Weitman Prods Nichols-Cherokee/Warner Brothers Nichols-Cherokee/Warner Brothers Nichols-Cherokee/Warner Brothers Ni cli ols - Cherokee/War ii or Brothers Amanda Fallon/UTV Warner Brothers First Artists Dm0 de Laurentis Corp. Warner Bros. for CBS PAGENO="0315" 311 LLENRCC PRODUCTIONS I 601 AVENUE OF THE STAAS SUITE 911 LOS ANGELES. CALIFORNIA 90067 January 9, 1983 Chairman Federal Ccmnunicaticns Caiinission Washington, D.C. Dear Casnissioner: As the writer who wrote the first carinercial television program in Hollywocd-the year, I believe, was 1947-I feel qualified to voice my strong opposition to the cont~lated deregulation of the networks "financial interest" in programning. It would be tantanuint to al1~iing a wolf pack to select its a~n dinner. When the networks possessed this right, they had a financial interest in 93% of all network prcgranraing. It was inpcssible for an independent like myself-I also direct and preduce television and theatrical films-to have a program accepted by any of the three networks unless they ware "cut in" on the profits and syndication. Once the rule is repealed, there is every reason to believe they will resort to their old habits. What does this maan for the United States? It maans the almost absolute control of the air by three ccrrpanies and the elimination of independent creativity. The networks, sane of Arrmrica' s most profitable corporations, already ask independent prcducers to "deficit finance" prograirining-protect the networks fran loss. David is forced to protect Goliath, and n~ you wculd take away his slingshot. The free exchange of ideas is at the very roots of the existmnce of a democracy; that free exchange wculd be stifled. Even creators must eat. A few years ago, I wrote and shared the directing and pruduction functions on a six-hour television film about a President of the United States, Dwight Eisenh~r, entitled, "Ike". Because of my protection under the existing regulations, the network, A~, which made the film with its ~n subsidiary, A~ Circle Films, concluded a deal with ma whereby I cz~ned the Anerican syndication rights after two network runs, and shared the foreign syndication equally. The network profited handsanely, and so did I. If the rules ware changed, A~ could easily reserve all financial benefit for themselves; and I would have to resort to my only recourse-refuse to make the film. While that would probably not alter the course of history, many of Anerica `s most creative minds might choose the sane route. The public, to whcxn the airwaves belong, would be the real victim. I respectfully submit that the freedan of the individual to receive a just return for creative effort is at least as iirportant as the right of three giant corporations to receive excessive profits. Sincerely, - ~-- ~1. r'~/trs Melville Shavèlson President PAGENO="0316" MELVILLE SHAVELSON PRESIDENT OF WGAW -- 1969-1971 a~d 1979-1981 PRESIDENT OF WGAW SCREEN BRANCH - - 1967-1969 THE KID FROM BROOKLYN WHERE THERE'S LIFE SORROWFUL JONES TWO GUYS AND A GAL EASY DOES IT IT'S ONLY MONEY ALWAYS LEAVE THEM LAUGHING THE DAUGHTER OF ROSIE O'GRADY RIDING HIGH ON MOONLIGHT BAY ROOM FOR ONE MORE I'LL SEE YOU IN MY DREAMS APRIL IN PARIS TROUBLE ALONG THE WAY LIVING IT UP THE SEVEN LITTLE FOYS ACADEMY AWARDS BEAU JAMES HOUSEBOAT THE FIVE PENNIES THE SECRET LIFE OF JAMES THURBER ACADEMY AWARDS SHOW HOUSE OF HARRIS GUEST ARTIST IT STARTED IN NAPLES ON THE DOUBLE THE PIGEON THAT TOOK ROME THE SEVEN LITTLE FOYS 36TH ANNUAL ACADEMY AWARDS CAESAR'S GHOST CAST A GIANT SHADOW ACCIDENTAL FAMILY YOURS, MINE 6 OURS MY WORLD 6 WELCOME TO IT CR1 STABEL THE NIGHT THE HOUSE CAUGHT FIRE ALLAN EL RE THE WAR BETWEEN M~N AND WOMEN 44TH ANNUAL ACADEMY AWARDS PRESENTATION MIXED COMPANY THE LEGEND OF VALENTINO THE GREAT HOUDINIS IKE TRUE STORIES 54TH ANNUAL ACADEMY AWARDS UA Paramount Paramount Warner Brothers RKO RKO Warner Brothers Warner Brothers Parmount Warner Brothers Warner Brothers Warner Brothers Warner Brothers Warner Brothers Martin/Lewis Prod./Para Paramount NBC Paramount Paramount Paramount Screen Gems NBC L.F. Edelman L.F. Edelman Paramount Dena/Capri--Parainount Paramount Chrysler Theater-Revue ABC 20th Century Fox Mirisch Sheldon Leonard Desilu/Walden Prods Sheldon Leonard Sheldon Leonard Sheldon Leonard Allan/Warner Brothers Elke/Warner Brothers Cinema Center Films NBC Lienroc Prods. Spelling/Goldberg ABC Circle Films ABC Circle Films ABC Circle Films ABC 312 Name of Film Network or From Series Entitled Company NBC Special Special NBC Special "Love I, Marriage" "Love 6 Marriage' ABC Special "Three Coins In the Fountain" Pilot Pilot "My World 6 Welcome To It" "My World B Welcome To It" Pilot Pilot NBC Special ABC Movie-of-the-Week ABC Mini Series Pilot - ABC ABC Special PAGENO="0317" 318 January 13, 1983 Dear Commissiotier, My name is Fay Kanin, and I am a business woman. My business is that of writing and producing television films. I know that you are in discussion concerning repeal of the Financial Interest and Syndication Rule and I am taking this opportunity to communicate with you because my economic future is at stake. Repeal of these rules will effectively eliminate my ability to compete in the marketplace and to continue to do what I do best. In the present marketplace, I must "sell" my idea for a television project to one of the three networks, since those three networks virtually dominate the television program market. I must interest them in financing the production so that I can write and produce the film. If the network has no interest, I have no opportunity to go ahead with the project. If, however, the project looks attractive to the network, then the network and my production company make a deal. Because of its over- whelming power in terms of economic realities, the network wields the strongest club in those negotiations. They give me a license fee for production which does r~ot, in 99 out of 100 cases, cover the necessary production costs. That means I must deficit finance the film, and any hope of making a profit on the film must come in its syndication. Under the proposed repeal of the syndication rule, the networks with their overwhelming bargaining power, will negotiate a deal with me which eliminates any oppor- tunity for me to participate in profits generated by tne syndication markets. Those profits will consequently be dealt directly into the network coffers. In addition, the networks will be able to control the timing of a film's release to the syndication markets so that it will not compete with the viewing audience watching their prime-time programming. PAGENO="0318" 314 The ideal concept of arms-length bargaining between adversaries of equal strength and negotiating ability is not a realistic one in the world in which I work. Thus, the rules enacted by the FCC have in recent years p~otecte~ my interest and allowed me to meet the network's power with some bargaining equality. This has helped me and other independent producers to function in a highly competitive market. In turn, it has made a great diversity of programming available to the American public. I cite my own film entitled "Friendly Fire." It dealt with material of a sensitive nature, drawn from the experiences of a real Iowa family during the Vietnam war, and brought to the public a significant and valuable social theme. It won the Emmy for the best television film of that year. This program could not have been made and aired were it not for the willingness of an independent production company to provide the deficit financing that was necessary above the amount provided by the network. And the company could not have done that if there were no hope of their recouping that gamble in syndication. To repeal the rules that protect such investment by independent producers is to deprive the public of the diversity and quality of programming to which they are entitled. Every day, I and you read anguished pleas by the public and the critical community for improvement in the quality of T.V. programming. The answer lies in enhancing, rather than removing, the present rules, so that the hundreds or thousands of independent producers not only continue to flourish but even win back some of the bargaining leverage and power currently wielded by the three networks. The public interest standard remains the same, and that interest is not well-served by according the three giants in the industry that small remaining wedge Of tt~e pie that they currently do not have. I thank you for your attention and thoughtful consider- ation of this issue. Respectfully, PAGENO="0319" 315 FAY KANIN PRESIDENT OF WGAW SCREEN BRANCH - - 1971-1973 Name of Film GOODBYE MY FANCY MY PAL GUS RHAPSODY CLEOPATRA COLLINS OPPOSITE SEX TEACHER'S PET THE RIGHT APPROACH THE SWORDSMAN OF SIENA HEAT OF ANGER TELL ME WHERE IT HURTS HUSTLING FRIENDLY FIRE From Series Entitled Campbell Star Stage Pilot G.E. Theatre ABC Movie-of-the-week ABC Special Network or Company Warner Brothers 20th Century Fox MGM Revue MGM Paramount 20th Century Fox MGM Metromedia Tomorrow Entertainment Lillian Gallo/Filmways Marble Arch Prods. PAGENO="0320" 316 GIDEON PRODUCTIONS, INC. DAVID W. RINTELS Executiue Producer JACQUELINE TONE Assistant to Mr. Pintels January 10, 1983 Dear Commissioner, Many of us in the television business believe that there is a perception, in Washington and elsewhere, that the current fight over deregulation of our industry is essen- tially a fight over money -- -- that greedy networks and~gzeèdy producers and production companies are engaged in a~sordid little squabble over who will own the product and therefore be able to live in an even ritzier section of Beverly Hills with a larger swimming pool and one more Mercedes in the heated garage. In part it's true. The fight is partly over money, and power, and the F.C.C. will hear a lot of arguments about who is really at risk and why all the rewards should flow in that direction. You will hear rhetoric to the effect that this is the United States, not a foreign country with an alien ideology, and that the Government here has no business meddling in private business. Some of those arguments may have some merit one way or the other but they all indispt~tibly have one thing in common: They are self-serving. They are designed to build up one side's case while tearing dowr~ the otherts, which may be good tactics -- but may also result in you throwing up your hands, saying "A plague on both your houses," and walking away from the fight, not caring who wins. Why should you care? In this not-so-petty money fight, the public interest doesn't seem to be at stake. Let them sort it out themselves with no regulation from us. I hope to convince you that that approach would be a tragic mistake, not because of the consequence on independent producers and writers, although that clearly is a factor -- -- but because of the effect on the American people and what they see on television. I believe that -- 2002 OLD RANCH ROAD. LOS ANGELES, CALIFORNIA 90049 . (213) 4540383 PAGENO="0321" 317 -- the public interest is ~phatical~ at stake here -- -- and that you will best serve that interest by not allowing the networks to control, any more than they now do, the programs which they exhibit. My argument is based on one simple premise: That networks and independent producers -- not all independent producers, but a lot of them, and all the good ones -- have radically different objectives, and the programs they do reflect that difference. The network's objective is, simply and principally, to max- imize its ratings. But its primary audience is not, as commonly supposed, the viewer at home; it is the advertiser with money to spend. Advertisers pay more money to reach larger audiences; networks want as much of that money as they can~ get; therefore they give the advertisers what they want. What do advertisers want? Profundity? Controversy? Innovative drama? Ballet? Science? Literature? Or popular, lowest- common-denominator junk food for the eyes, which will attract the largest possible audience? They -- with the rarest of exceptions, such as Hallmark -- do not want profundity, controversy, etc. And -- again with the rarest of exceptions -- the networks give them what they want. Junk food for the mind. So that's what 90% of television is. What about the independent writer and producer? How is he different? If my name goes on a show, I will fight to my last breath to do that show as well as I can. To pick a subject which interests me -- and not the mythical 12-year-old which TV caters to -- and to fight off the network's pressures to make me soften it, or popularize it, or use an actor that is in a series they want to push, or a director who is maybe quicker and cheaper but not as good. I don't give a damn about ratings (which is, I'm afraid, painfully obvious in some of the shows I've done) if, to get them, I have to do anything which will hurt my show. That is the difference between us and the networks. And that is what is so dangerous about the proposed deregulation. If I do not own a show, if I am merely an employee for rent, a hired gun, I will have to do what the network tells me -- or I will be fired. I cannot be as bold as I would like to be. 32-540 O-84--21 PAGENO="0322" 318 Today, if a network doesn't like what I sin doing, I own the show -- and I can go across the Street and maybe get it made there, either at another network or in pay television. Tomorrow, if you let the network own the shows, it's either do it their way -- or they'll get someone who will. And their way is not the way of the artist, or the visionary, or the risk-taker, the fresh and free and independent spirit. One example will suffice: In 1979, I was asked by a network to write a program specif- ically to "make points with the F.C.C." They wanted a show about the United States Supreme Court. I wrote a script for them which they hated. They hated it so much they wouldn't even meet with me to tell me how much they hated it or what changes they might want. Had the network owned the program, that would have been the end of it. But they did not own it. I went across the street, to CBS, and they bought the show and put it on the air in 1980. The program was GIDEON'S TRUMPET, the last show Henry Fonda ever did for a network. It also starred John Houseman, Jose Ferrer, Fay Wray, Sam Jaf fee and Dean Jagger. It won the following awarda: Writers Guild Outstanding Script of the Year; American Bar Association Gavel Award; Christopher Award; National Board of Review and Films in Review David Park Griffith Award, Best Television Film; A.L. Wirin Writer's Award presented by the ACLU Foundation of Southern California in cooperation with the Writers Guild of America, west; George Foster Peabldv Award; Ohio State School cf Journalism Award; The Chicago International Film Festival Award. Unusual shows, controversial shows, shows which aspire to do something more than merely distract or amuse, are in the net- works' mind a luxury they can rarely afford. Those they do put on are frequently under pressure to do things that will, in the mind of someone at the network, make them more popular. To stem this tide, an independent producer or writer can make a stand which can make a difference. But he must be able to stay independent, to be able to fight for his program. That means he must control it. Must own it. Must be able to fight without fear that he will be replaced by someone who will do whatever the network tells him. An independent show, in short, will usually be a better show. More distinctive. More personal. With a goal other than merely reaching a large mass of undiscriminating viewers. PAGENO="0323" 319 A network-owned show, on the other hand, will be far more likely to perpetuate the kind of television the networks have been giving us for thirty years. If the objective is greater conformity and more of the same, give the networks all the control. But I believe television, and the audience -- the public interest -- will be better served by k~ping the few indepen- dent people independent. W. ~intels President, Gideon Productions, Inc. and Chairman, Committee on National Affairs, WGA, west P.S. In 1972, when I was Chairman of the WGAw's Committee on Censorship and Freedom of Expression, I testified before Senator Sam Ervin and his Subcommittee on Constitutional Rights on the relationship between networks and writerS and producers. I believe that testimony is relevant to the current issue, and at the risk of overburdening you, I append it here. In 1975, as President of the Writers Guild, I appeared with three network executives before the Federal Communications Bar Association and spoke on the same subject. I also append that. DWR/j t end. PAGENO="0324" 320 DAVID W. RINTELS PRESIDENT OF WGAW -- 1975-1977 CREDITS: The Member of the Wedding, 1982, NBC Live Theatre. Executive Producer. Starring Pearl Bailey, Dana Hill, Howard E. Rollins, Jr., Benjamin Bernouy. Written by Carson McCullers. Directed by Delbert Mann. * All The Way Home, 1981, NBC Live Theatre. Executive Producer. Starring Sally Filed, William Hurt, Ned Beatty, Polly Holliday. Written by Tad Mosel. Directed by Delbert Mann. * Gideon's Trumpet, 1980, Hallmark Hall of Fame, CBS-TV, Writer-Producer. Starring Henry Fonda, Jose Ferrer, John Houseman, Fay Wray, Sam Jaffe, Dean Jagger. Based on the book by Anthony Lewis. Emmy Nominations - Outstanding Writing and Outstanding Drama Special; Writers Guild of ~America Outstanding Script of the Year; American Bar Association Gavel Award; Christopher Award; National Board of Review and Films in Review David Wark Griffith Award, Best Television Film; A.L. Wirin Writer's Award presented by the ACLU Foundation of Southern California in cooperation with the Writers Guild of America, west; George Foster Peabody Award; Ohio State School of Journalism Award; The Chicago International Film Festival Award. * The Oldest Living Graduate, 1980, NBC Live Theatre and Stage, Executive Producer. Starring Henry Fonda, Claris Leachman, George Grizzard. Three Emmy Nominations; Two Emmy Awards - Best Supporting Actor (Grizzard), Best Achievement in Camera. Washington: Behind Closed Doors, 1977, ABC-TV, Co-Writer, Co-Supervising Producer. Starring Jason Robards, Cliff Robertson, Robert Vaughn, John Houseman. Seven Einmy Nominations including Outstanding Limited Series; One Enimy Award - Best Supporting Actor (Vaughn). * The Supreme Court and Civil Liberties: The Bank Secrecy Act, 1973, f or the American Civil Liberties Union and KCET-TV, Co-Writer, Co-Producer. Starring Henry Fonda, Burt Lancaster. Exnmy Nomination - Outstanding Information Special. PAGENO="0325" 321 Fear On Trial, 1975, CBS-TV, Writer. Starring George C. Scott, William Devane. Emmy Award - Outstanding Writing; Emmy Nomination - Outstanding Drama Special; Writers Guild of America Outstanding Script of the Year; American Bar Association Gavel Award; Christopher Award. * Clarence Darrow, 1974, Stage and NBC-TV, Writer. Starring Henry Fonda. Directed by John Rouseman (Stage) and John Rich (Television). Ernmy Award - Outstanding Writing; American Bar Association Gavel Award; George Foster Peabody Award (shared); New York Drama Desk Outstanding New Playwright Award. * A Continual Roar of Musketry, Parts I and II, The Senator, 1970, t~~-TV, Writer. Starring Hal Holbrook. Emrny Nomination - Outstanding Writing; Writers Guild of America Outstanding Script of the Year; American Bar Association Gavel Award. * Episodes of The Defenders, Slattery's People, The Young Lawyers, Run For Your Life, The Invaders, etc., Writer. * Articles for the New York Sunday Times, L.A. Times Calendar magazine, etc. FDR, ABC-TV, Researcher. * The Nation's Future, NBC-TV, Researcher. * WVOX-AM, News Director, Reporter. * The Boston Herald, Reporter. OTHER AWARDS: American Civil Liberties Union Bill of Rights Award, 1980. Writers Guild of America Valentine Davies Award, 1980, "In memory of Valentine Davies whose contribution to the Motion Picture community brought dignity and honor to writers everywhere." PAGENO="0326" 322 ORGANIZATIONS: Writers Guild of America, west. President, 1975-77. Board of Directors, 1970-75. Chairman, Committee on Censorship and Freedom of Expression, 1970-73. Chairman, Committee on National Affairs, 1977-present. Chairman, Committee on Cultural Exchange, 1978-present. KCET-TV, Community Advisory Board, 1979-1981. Clarence Darrow Foundation, Board of Directors, 1977-present. The American Civil Liberties Union. Population Education, Inc., Board of Directors, 1975-78. National Captioning Institute, Writers Advisdry Board, 1979- present. PAGENO="0327" 323 REI'tARKS TO ThE FEDE~R~AL CO~1MUNICATIONS 6AR ASSOCiATION David W. Rintels Presscient, Writers Guild of America, West October 25, 1975 PAGENO="0328" 324 When Dick Heffner told me there would be four of us appearing here, that the other three were network censors, and that we would each be given five minutes for an opening statement, I invnediately looked up the Equal Time Provision, Section 315, of the Federal Coimnunications Act ana there found to my surprise that ~Eien one person debates three ~k~o are, in fact, one original and two carbon copies, that the one is entitled to equal time with all three of them. So I wEli be longer than five minutes, for ~4iich I apologize, but I franidy view this forum as so critical to the things I believe in that musthave time just to outline the most important. I hope not to get personal . I have never met any of these three eminently~likeable gentlemen before last week. Also, you will have to be aware that censors are onl~j one facet of a larger problem, that wnsle they are hired by the networks to say No, others called programing people, as opposed to these gentlemen or program practises or standards and practises -- are paid at least as well to say Yes, more blood, more violence, more lowest.coninon~'denominator programing, and to schedule the stew of endless, mindless trash we are exposed to night after night after night. Censors and programing people are in the same schizophrenic relatonshp to eacn other that Milton Berle's left hand is to his right. Most of you have seen Berles routine where, PAGENO="0329" 325 with one hand raised high, he node~tly end pubHcly urges the audience to refrain frcxn applause -- wnile with the other hand, held low, he privately urges them on. So it is with the networks. Today you are seeing on this platform only the rnode~t hand of censorship held high, but the other hand of progranuning is there, in New York and Los Angeles, doing its work.. Both hands are in this togeth'er, and they share responsibility for rnak~ng television what it is today. I want to speak to you ~baut the harm I think television is doing our country. I want to answer your questions about how it works mechanically and to what end. I want tQ share with you the decision-making process and whom it serves, wont to discuss with you possible ways to adapt or change the present system, through law, technology, or negotiation. By cne end of these brief remarks, I may not be any closer to answer;nci the central question posed here -~ `%lho's To Decide What's Fit For The Ar? -- but hope to be approaching an answer to tne quest or' Whs ~ Fit To Decide --?,` and that may be a start. 1 am speaking now of pr~me-tinie entertainment television. There is other TV -- news, public brcadc~ting, public access, cable, daytime, Sunday morning -- but prime time is what the vast majority of the public watches, 75,000,000 and more a night, and it has by far the greatest impact. The memoers of my union write it. The program people schedule it. These tnree men censor it. Let me give you jus: a couple of examples how it wor~.s. PAGENO="0330" 326 Norman Lear wants to do a Thanksgiving show on ALL IN THE FAMILY about whether a coup~e shouid teach a young child about God and religion-- specifically, whether a young child should be allowed to choose his own rd igion. CBS tells him' rio -- that it would offend the religious. Norman offers to film the show at his own risk--meaning at a cost of $100,000 -- and then to let a group of prominent religious leaders sit in judgement and determine if the show is offensive. CBS says no-- they're not going to let any outside group, religious leaders or no, tell them how to program for CBS. We say you'll offend them but we won't let you find out and even if you do find out that you don't offend them, we won't show it. Catch 22. (AUTHOR'S NOTE: There is a revealing sequel to this, story~ CBS has changed its mind and w~ I now broadcast the show. They had 4jC~O ~`O ___ say that they changed their position after Lear changed the script ~ h,y ~..Jsome patently offensive passages. Specifically, a CBS official charged before a large and influential audience that there was a scene in the script in which Mike Stivic, the Cob Coiner character, had said to Archie Bunker/Carroll ~ `If there's a God, he can take this I," accompanied by a skyward thrust of a raised mia~le finger. He also said that, Lear had agreed to make some other chances to to~ down the script. `ver-yoNe (`resePdr 1i-rii+~r ~1Er,~j~, -~-r~ ~ ~ ~ ~CE~«=~ ,`+`i4~ - iu, ` applauded CBS's judgment in removing ob~ e and offensive material from the show. ~A, ~ ori~e~ ~ Norman Lear, ~ was astounded and out- j,~ ~ ~hmrje~. raged,1~ He sad, fir~t, t"et no s'_ch gesture had ever been made in any script he has ever seen associates ~ith; and, second, that he had not ~ 7~a ~ ~.ii1~ CBS, ha~~ ~ ~-~a" Aad capitulated but cad sb.t tne s~"ow exactly as -e wanted. rio sent me the shoot5ng A PAGENO="0331" 327 script (Lear was the producer,Lou Derman the writer) which includes the following passage ~erbat1~i: MIKE If there is a God, which I don't believe there is, then he would be everyplace. ARCHIE Right. MIKE And he would know everything. ARCH1E Rignt. MIKE Then he knows what3s in my heart. ARCHIE So he knows you don: t believe in him. MIKE That's right. But if I be! ieve in God would be because he was a oving and forgiving God. ARCHIE He wouldn't forgive you for being an atheist. MIKE Yes he would, hed forgive me anything. ARCH E He wou!dn't forgive you for beng disrespectfuI~ MIKE Sure he wou~d. PAGENO="0332" 328 ARCHIE Ah (GIVES RASPBERRY) to you. MIKE He'd even forgive me for doing that. ARCHIE For what? Going (GIVES RASPBERRY) to me? MIKE No. For going (GIVES RASPBERRY) to him. ARCH IE (SHOCKED, STARES AT MiKE, THEN RUNS AROUND ROOM) Whoa ... whoa ... what did you do? God have mercy on your sou `. Edith Edith. EDITH (o.s.) 1t111 be ready in a mirlute. ARCHIE I never in my whole I i~e seen anybody so ~ow and deoraved that he would go (GIVES RASPBERRY) to Him. (COVERING HIS HAND IN MOTION UPWARD) MIKE Arch, it doesnt make any difference anyway. if I bel eyed in God, wouIdn't go (GvEs RASPBERRY) to Him. ARCHE He done it agairi~. PAGENO="0333" 329 MIKE But I don't b& eve in God, so went (GIVES RASPBERRY) to nobody. ARCHIE And again~ I'm getting out of here~ (HE EXITS TO KiTCHEN) That scene will appear (appeared) intact when the program is (was) broadcast on November 2L+. Concerning the second point, whether CBS required Lear to make other changes in the script, I've read berman's first script and the final shooting script and I think both sides believe they.are telling the whole truth. The process works like this: Lear sends CBS the script ... CBS protests ... Lear hears and tries to ignore them ... he and the writers rework the script, as they do in every case, for quality ... Lear sends it back to CBS CBS notes an improvement but protests again ... LearAand the writer make more changes, again for quality ... CBS is further mollified and the process continues until both sides are exhausted and ~ _____ a ~ ~ ~`2 ,~ re «=~`/ The process is, in Fred A!lens immortal expression, like being nibbled to death by duck~ ings. In this case the final script was, in my. opinion, better in some resoects than the first draft; it was certainly not bolder. This episode indicates only that although Lear is unique, with more clout than anyone in the history of television, and with more resources and more abMity and more determination to fight back, even he could not have gotten the first drift on the air. PAGENO="0334" 330 Furthermore, Lear hu~ to go through this proc~s~ ifl every episode of every series and it is, he sa~ys, taking a terrible toll on him. Concerning this "Little Atheist" episode, he finaHy told CBS "If you decide not to run it the wa~ made it, then you must know more about this bus;ness than I do and you can produce all my series yourselves." That slowed CBS down only until the next episode of ALL IN THE FAIIIL2Y came in, in which there is a scene of Archie diapering the new baby. CBS insists that the baby must be diapered buttocks up so as not to show the genitals, and never mind that nobody has ever diapered a baby buttocks up in all the long history of diapering. Lear hac Alan horn of his office call jJ~f~L~T~ iLL. ~ to say that he cou 1 d not go through any more of these fights, that it was too debilitating, that it destroyed totally the creative process. Stay tuned for CBS's response) If it se~s that I am being particuiarly hard on CBS, I promise you I don't mean to be. Actually, most of us feel that CBS s.far ana ~wiy the best network in t~r;i;s ol its riunships with.the creative community. In ~ew York it used to ~e said, with considerable truth, tnat CBS was Bloomingdeie's ... NBC was Gimbel's and ABC was E. J. Korvette'~. Today, virtually everyone in the creative community sti Ii feels that CBS is -- in terms of its program staff ana in terms of its censors botn -- far and away the most reasonable and ec'aest, ~t~H Boomirigdalo's; that ABC is still E. J. Korvette, with some occa ora~ positive signs, some rare aspratdns. But ~lBC~s progran~er~ -- I rn nor. taiking about the PAGENO="0335" 331 censors here can now best be compared toW. 1. Grant. NBC programmers are so determined to buy an audience, so dominated by numbers specialists and salesmen and lowest-common-denominator programmers, that the creative community feels that NBC suffers us only as a necessary evil . As a consequence, the creative community views NBC as an unneccessary evil . Recently I have heard it expressed far more strongly, too, that they view us with contempt -- with the consequence that the reverse is also true. For example, FAY, the NBC series starring Lee Grant, was designed as something different for TV -- a modern look at a modern divorcee, middle~aged but young, with human needs, sexual needs, and a fine, free spirit. FAY got killed coming out of the blocks. She couldn't sleep with her ex~husband. She couldn't spend the night with a man. The network even retitled an episode from ~`Fay and the Married Man'1 to "Fay and the Doctor," and then told the producers that Fay could not be involved with a married man at all -- even it she didn't know he was married. i'm sorry to say haven't seen the series, and I guess now I won't get the chance. NBC says, and I think honestly beiieves~ rt cancelled FAY because the series wasn't good and because it was drawing low ratings. But long before those things happened, something else was killed -- the spirit that 5 needed to make a seres work, the freedom, the love, the pride, the independence, the joy, the creativity. Who in tne world can take pride in havinQ to do less than her best, ano at gunpoint? Not Susan Harris, the creator of FAY; said I don't take it personally, but I do; we all do. PAGENO="0336" 332 Ed Weinb~rger and Stan Daniels on PHYLLIS wanted to do a show concerning the communications gap between mother and daughter; many of you probably saw it irs its censored form. The premise of the show was that Phyllis' teen-age daughter was away on an overnight trip, skiissg I believe, and had spent the night in the same room with a young man. Phyllis was deeply concerned: had there been sexual relations between them and, far more importantly for the purposes of the show, how to talk to her daughter about it, and most especially how to talk about it truthfully. Some people might think there is no more important subject in the country today than parent-chile communication. Let me tell you what CBS dld.J~YJfr/a/Iy1 Thty in M Ml 041 The st in ra~,Pere0 o~ hf~4~~ ~7~' ~ having had a heart-to-heart talk with the daughter, clicking her heels as she jumps in the air and saying in obvious relief -- "She didn't do it." - and then doing a tnrrfic double-take of realization and saying -- "Unless she liud." After a bitter fight, CBS5 made them cut that last line -- "Unless she I ed" -- and in the process reduced a play about communications to another sniggering, white-bread, middle-class, muscle-aged morality sermon which ends on the upbeat note that Nice bins Still Don't Do it, ~ ~ _L _. - `_ LL 1--,. It `s a hell - m~. ~ b~,j,e1e `~,.J W4,wlser~er of a note when people or calibreAhave to threaten to resign to try to preserve tneir snow's integrity for the network; and I take that personally, too PAGENO="0337" 333 The harm to us is clear. Most of us do not have the zXxa~Blt strength to fight back. Most of us find the process so nerve-wra~king ant debilitating, so humiliating and destructive, that we do not dare put the thoughts we care most about into our scripts. Why should we)when the at3ndard each idea will be measured against is simply whether -- as the Chief CBS West Coast censor told one poducer -- it might offend `any uptight parent in America7 frxdn~, _____ do these stories, and thousands like them, add up to~ ~4aa.li- 4a..~ They aod up to the fact that television is, from one end to the other, from eight o'clock to eleven o'clock, a lie. It is a lie that is tolo 5 two stages. First the kinos of programs scheduled. Cop ~riows wits cops as judges, juries and executioners, and never mind about civil rigsts arid courts and presumptions of innocence. Family Snows with problems that ace made either unreal or insignificant or can be laughed away. Action-adventure shows with simplistic steel-jawed super- heroes. All three network censors talked this morning about their New ~ankness in selial themes. Sex sells. So; alas, does violence. 32-540 O-84--22 PAGENO="0338" 334 Audiences and advertisers love it. But other aspects of real life? Life with unhappy endings? Government? Politics? War? Religion? Human drama with real pain? A quiet drama in which people just sit and talk about their lives or whatever matters to them? Real crises, from energy to identity? The economy? Race? Treated realistically? Not on your life, not from eight to eleven~ when the real world is superseded by the television world. That's Part One of the lie -- the prograimling part, which says tnat friction, substance, controversy, reality must be avoided at all costs lest any viewer or sponsor, actual or even potential , be offended and criticisn generated and money lost. People want to be ~~tertaine~, they say, and they define entertainment to exclude content -- but of course the exclusion of content is a very loud, profound, content-filled statement about the nature of the real world. The second part of the lie is the censorship part, the small, niggling part of the lie. At the behest of network management and also to avoid offending, these men see to it that bullets wound but don~t kill, that police hit but aon't hurt, that people speak in euphemisms. They show you action but not the drastic or painful consequences of that action, so none of it's real stic. Little of it's true. You, with your knowledge and experience, can handle these lies and sort them out. But can everyone? Can people who live on dirt farms and never see Blacks tell that the Blacks they PAGENO="0339" 335 see on television are 1 es? How about your children? Did you know that according to a study done for the Kerner Commission 15% of middle-class white children ... 30% of poor white children ... and L~Q% of poor black children bel eve in the true-to-life nature of television content? Mr. Travesis of NBC said this morning that he was concerned protecting children. Are children -- is anyone -- protected by being sheltered, totally, from ideas? from the truth, or a truth? If there were only three schools to teach all the children in the country ... if these schools were operated and/or programmed by three large companies which justified their performance in terms of profits ... if the teachers and administrators were hired and fired not on the basis of wnac they taught but only on the basis of how many they taught it to . if tne companies could say, as the networks do, tflat when the schools teach unpopular things or unpleasant things, parents grow angry and withdraw their children, thus unacceptably reduc;ng the profits of the system ... aren't the consequences of that too horrible to contemplate? Yet you have all seen figures tr~at purport to show chat by the time a child has finished college, he or she has spent 5,000 hours in classrooms and 18,000 hours in front of a television set. You have heard the definition of television as cflewing gum for the mind, So you cannot help knowing triat we are raising a nation of children that will barely be smart enougn to watch television and chew gum at the same t i me. PAGENO="0340" 336 Why? How did it happen, not just to the children but t~ all of us? It happened because the men who control television have misread the law, deliberately and to their own interest; and because they must not begin to understand the terrible impact their selfish decisions have on the country. First, the law. You all know better than 1 that the standard of the law is `the public interest, convenience and necessity." They claim on Sixth Avenue that they ~ giving the public what the public wants and that, therefore, they are prograrm~ing in the public interest. There are a number of propositions inherent in that claim, that `~~Ie are giving the public what it wants,' ~nd they bear close examination. In the first place, they are not giving anyone anything. They are selling, at a cost of $L+,850,000,000 a year -~thats the figure `Advertising Age' says was spent by advertisers on all television last year -- proaucts to the American consumer. Thdt cost is passed on directly to viewers in the price of gooes and services. We are paying almost five billion dollars a year for this free television. A ~ot of that money sticks to the networks. ,1 listened in vain this morning, as I knew I would, hoping that one of these three gentlemen would discuss something more than how they must program to balance the competing demands of diverse PAGENO="0341" 337 ideological groups, how they believe in the nobility of ideas and how they have enhanced the flow of these ideas at great risk. I was hoping that one of them might acknowledge an economic factor, the dollar value of their decisions, tneir own and their employers1 self-interest. They did not. In the second place, when they say `the public' they do not mean the public; they mean ~t of the public. Television is demographics; advertisers want tc reach primarily women l8-.L~9 years old. So when a show like `3e'~eriy Hillbillies' a few years ago, or `Gunsmoke' last year, is on, it can be a major hit in terms of audience size and still be cancel tea -- because it appeals to what advertisers consider the wrong people, older, rural , less affluent people, part of the public, to be sure, a nuge part, but the wrong part. So older people are underrepresented on teievision; so are Blacks; so are rural; so are poor. hetworks~ dominated by their sponsors, do not consider cnem an equal part of the public. And, of course, people with taste and intelligence are not an equal part of th~ pubi ic. People who, I hasten to add, do riot say there should not be escapist television.. I don't know anyone in the world who believes triat television snould be elevating all the time. Intelligent people Ike escapist television just as, I know, escape artists like intelligence. Can we not strike a balance PAGENO="0342" 338 in ~4iich if 70% want to escape, the 30% Cc)fl still have drama that is uncensored, and literature, and dance, and politics, and truth ...? No, they say, if 51% of the Country wants escapist drivel, this is a democracy and so virtually 100% of them must have it virtually 100% of the time. On all three channels. And they do not choose to discuss any responsibility they might have for conditioning the public to respond, like Pavlov's dogs, to what they give us. They do not acknowledge that there are tens of millions of us wj~o won't watch what they give us at all because we refuse to be demeaned. In the third place, is everything that the public is interested in necessarily in the puolic interest? Robert Sarnoff, when Chairman of NBC, said that it was. To-which Les Brown answered in TELEVISION: ThE BUSINESS BEHIND THE BOX -- `It was patently a definition to justify broadcasting's excesses in commercial entertainment. A young chiid may be crested in lighting matches and an older one in experimenting with drugs, but any parent knows that neither is in their best interest.' The next time a network official or censor or advertiser or ratings specialist tells you `we are giving the publicwhat it wants,' the translation reads `We are selling to advertisers for profit what ~ want and what a narrowly-defined part of the buying public, largely white, female, 184f9, wants a majority of the time. We are doing this in our own interest.' PAGENO="0343" 339 And now, having pushed my theme to the brink, please allow me to retreat two steps. I know there are good shows on television, skillful shows, beautifully written and produced shows. There are, very rarely, bold and free-spirited and truly challenging shows on television. Networks are large bureaucratic organizations that canh~ot and do not mathematically stamp everything into uniformity. Sometimes real events compel unusual candor. Sometimes subtlety outwits the machine. Sometimes the machine is looking the other way. The first-ever black-white drama, c~alled "A Man is Ten Feet Tall ," got on Philco-Goodyear Playhouse because the series had already been canceHed and nobody paid any attention to what the last program would be. But each time an unusually bold show gets on the air, insiders wiH tell you that there is an unusual answer to explain it. My other step back from the brink is in terms of the comedy shows of recent vintage, ALL IN THE FAMILY and its family of successors. CBS in particular has helped oreak important new ground here despite all the censorship and we are all grateful for these shows and their bold themes well handled; you know how strongly we believe they could profit greatly from more freedom, of course, ~as we all would profit, but I want to make a different point. Comedy, which has throughout history been the cutting edge of social coment and change, has to have a dramatic afly to present a true picture of the real world. GOOD TIMES needs RAISIN IN THE SUN. RAISIN neeas SOUNDER, wnich needs JANE PITTMAN, which needs PAGENO="0344" 340 THE AUTOBIOGRAPHY OF MALCOLM X ... and on and on ana on. And then, slowly, one day, the truth begins to emerge. Television prevents that necessary process of fermentation. Dramatic writers are not allowed the scope and do not have anywhere near the strength of a Norman Lear. Perhaps the networks think drama is not so entertaining -- again, that dreaded word. Perhaps they are concerned lest we hit too close to the bone. Perhaps the fact that people laugh at comedies ma~' give the networks a sense of assurance that the people are not taking these shows too seriously; a laughing audience may provide a disclaimer, while in a dramatic show there is risk and corr~itrnent, two qualities the networks are never comfortable with. There may also be, I hesitate to add, a real risk in situation comedies if they are not balanced by dramatic programs on similar themes, Teiev,sion speeds change in our society. It takes us to the moon and to China. It b~rings the country to the pity and the city to the country. But at the same time television speeds change, as my friend Loring Mandel , President of Writers Guild of America, East, has said, it slows and distorts our ~rcepcipn of change. Thus - - wnen television takes us to the ghetto, it is never the real ghetto, where rats bite and people go hungry and children cry themselves to steep, tts the sit-corn g'iecto. Ahd 75,000 people a night think that's not so baa, what the hell are the Blacks bellyaching about all the timet PAGENO="0345" 341 Of course, the same is true of television drama -- and now I am returning to my original thesis, the harm television is causing to our country. Television police are always honest and SerIe ColMJrIey &s/~ ~/ C/Cc~M4veAI7~vq /~_~ CQ4,&sP,fi.1T104/. sawyers are always pr"istine and medici~ is inexpensive and ~)g.~t ~ t~a c.~, ,`20 ~ c~aJ, ~.4 I,çi ass, ec4cc `~`4" ~,, ~ ~. ~ ~ ,~ everything is fine - - only of course it isn't, so when people are forced to choose between the real worlo and the television world, they choose the warm, safe television world. They choose safe, friendly unreality and consequently they have trouble adjusting. They cannot cope. Because people have lied to them they stone each other as they get on school buses and they don't concern themselves with free lunch programs because no one's starving and they aon't begin to know enough about real government, real law, real love, real anything, to help them order their yes or our country. I don't say television aione is responsible. I do say it's a vitally important factor. Ths country was founded on an nterchange of ideas. Now the people with the it~eas and the forum are siie~ced. I cane to you on behalf of the 5,000 men and women who write television and to ask for your help. We're a mixed lot. Some of us write for money; some for the love of writing, some because we do it well; some because we can't co anything else, some because we have something to say; some to improve television and some even to improve the wor d. PAGENO="0346" 342 One thing unites us. There is not a man or w~nan, dramatic writeç or comedy writer, among us, who is allowud to do his or her best or who feels he or she couldn't write better without the programming and censorship restrictions which dominate our lives and our art. There's not a woman or man among us wno couldn't better serve th"~. public interest if the censors and numbers specialists and lowest- common-denominator programmers were not forever clinging to our backs, slowing our uphill climb toward the truth. There is not one among us who has not felt the bitter humi!,ation of Berthold Brecht when he said, "Each day I journey to the market place where lies are bought; hopefully, take my place among the sellers." aetween us, we must find ways to effect change -- in our interest, in yours, and in the country's. PAGENO="0347" 343 STATEMENT OF DAVID W. RINTELS* Before the SENATE SUBCOMMITTEE ON CONSTITUTIONAL RIGHTS February8, 1972 PAGENO="0348" 344 My name is David W. Rintels. I am a writer, a member of the govern- Ing Council of The Writers Guild of America, West, and the Chairman of the Guild's Committee on Censorship. With me are Christopher Knopf, Liam O'Brien and Norman Lear, all distinguished writers and long-standing members of the Guild. The President of the WGAw, Ranald MacDougall, has written to you that "Insofar as the Writers Guild of America is traditionally, histor- ically, and unalterably opposed to censorship in any form, the members appearing before you have our complete support in their presentation." We deeply appreciate their support and confidence. Today, however, we speak as individual writers about our personal expreiences and working knowledge. As members of the Writers Guild, whose 3,000 members write every network television dramatic, comedy and variety program produced in this country, we appreciate and support fully this Subcommittee's historic efforts to keep the printed and broadcast press free of the restrictions of censorship and intimidation. Your work is vital to insure an informed public, just as an informed public is vital to insure the successful working of democracy. ft is our hope here to convey to you our heartfelt belief that there are two related issues which fall within the scope of these hearings and which demand your most urgent attention: First, the right of the men and women who write for television to deal in ideas and truths and realities free from the repressive censorship and program practices under which we do, in fact, write. - Second, the right of the American people to be exposed to something more than an endless cycle of programs that mislead them and distort the real- ities of what is happening in America today. PAGENO="0349" 345 That these two i sues are related and of grave concern to all of us should be clearly d monstrated by the following statistics taken from a recent poll of our G lid. Of all who responded: Eighty-six (86) percent have found, from personal experience, that censorship exists in television. Many state, further, that they have never written a script, no matter how innocent, that has not been censored. Eighty-one (81) percent believe that television is presenting a distorted picture of what is happening in this country today - politically, economi- cally and racially. Only eight (8) percent believe that current television programming is in the public interest, convenience and necessity, ` as required by The Federal Communications Act of 1934, Title 47, U.S. Code, Secs. 307a, 307d. Because these figures suggest strongly our conviction that the American people are being badly served by the television industry's use of the airwaves which they, the American people, own, it is proper to inquire as to the causes of these abuses. We approach this inquiry not, we hasten to add, in any spirit that all television must be educational or instructive or elevating, but rather from the following basis: Even granting for the moment the questionable argu- ment advanced by those who control television - an argument we do not grant, PAGENO="0350" 346 for reasons we will later explore - that because so many of the American people are willing to settle for non-stop lowest-common-denominator programming, television must be doing something right, must it then follow that virtually one hundred percent of all network dramatic and comedy programming must be aimed at the lowest aspirations of this audience virtually one hundred percent of the time, even to the point of disregard- ing arty reasonable standards of balance, qUality and reality? Must anything which does not amuse and titillate the majority be censored out, as it is in fact, as we shall shortly document? This is where we wish to join the battle and to enlist your support, over the question of whether current television programming and censorship practices and the inevitable resulting product are in the public interest, as the law requires. We believe emphatically that they are not, and that while we are the first victims of these practice~, the' ultimate victims are the American people. The situation in television today - how serious is it? How well does television fulfill its legal and moral obligation to serve the public interest? First, it must be understood how all-pervasive television has become in America. More than 95% of all homes are equipped PAGENO="0351" 347 with television, a substantially larger number than have indoor plumbing. A quarter of all horses have more than one set. The average home has its television on an astounding 6.43 hours a day. At any given time between 8:00 - 11:00 p.m. not less than 75,000,000 people are ~,atching television, with 91% of them tuned to one of the three networks. The people who control television use these figures to demonstrate their wide audience acceptance and to document their positive contributions to American life: Such love and devotion must have been earned. We look at these same figures and are horrified because we know, first-hand, that 75,000,00D ~seop1e are nightly being fed programs deliberately designed to have no resemblance at all to reality, nonsense whose only purpose is to sell snake-oil and laxatives and underarm deodorants. We know this but apparently the 75,000,300 do not. This is what is so tragic: people believe what they are being told, (Broadcasting) .... matters more over the long run.. . .than what anybody else does because (it is) more persistently shaping the minds of more people than the rest of us put together. - ARCHIBALD MacLEISH PAGENO="0352" 348 "(Carroll) O'Connor (of ALL IN TF~ FAMILY) is baffled by some letters which show people take TV so seriously they evidently feel the Bunkers are a real family. Some ask why he treats his wife as he does; one man called hi'ii a big, dumb 5-0-B for so doing; another wrote asking why he didn t leave his wife because she was suèh a dumbbell - VARIETY "Forty percent of the poor black children and thirty percent of the poor white children (compared with 15 percent of the middle-class white youngsters) were ardent believers of the true~to-life nature of the television content." Dr. Bradley S. Greenberg, Michigan State University, reporting on his study of violence to the Kerner Commission. So people watch television by the tens of millions. Many believe it literally. All of us are influenced by it to some extent. Increasingly television has become the literature of PAGENO="0353" 349 the Seventies. It is the newspaper, the magazine, the town meeting, the high school, the college of the country. With such enormous influence comes enormous power, and with such power should come -- must come, in the public interest -- responsibility. We agree wholeheartedly with industry spokesmen who say that television has a responsibility to entertain. But we also believe that television has a responsibility not to deceive. A responsibility not to present one narrow view as the whole truth. A responsibility not to shy away from reality, from issues, from controversy, from substance, from public discussion of all matters in the public interest. Yet it is our contention that in prime-time entertainment television, which most of the people watch most of the time and which has by far the largest impact of all television, these responsibilities are being shirked, wilfully and totally. From thousands of examples consider the following: My collaborator and I interested a producer in doing a script about a magazine photographer in Vietnam who was shooting a picture essay on l8-year-olds going into their first combat. The photographer. a man who likes to incite action as much as to observe it, follows one especially cocky boy until he comes face to face with a guerilla and then takes a picture showing terror in the boys eyes. The boy acts bravely; he just looks afraid. 32-540 O-84---23 PAGENO="0354" 350 On the next patrol the boy, who has been shown the pictures of himself by the photographer with the result that he now begins to question his own bravery, anxiously looks around to see where the photographer is and whether he is taking more damning photos. He turns once too often and is killed. The producer liked the story well enough -a character study that would allow us to say something about truth and bravery, he kindly called it - to forward it to the network for its required approval. The network liked the story, too. They *wanted only one change. Vietnam is controversial, you know. My collaborator, wise in the ways of television, felt his heart sink. If they wanted the story moved to Korea, or Germany during World War II; the usual gambits, we were prepared to make a fight of it. ~o, not at all. Keep the story fresh and contemporary by all means. Keep it in the present. Just change the locale to Spain, make it a bullfight instead of a war, and make the soldier into a matador. That way, when the bull charges, the matador can look to *see whether the photographer is taking more pictures and..., * Last year John Bloch was Story Editor on an ABC-Paramount Studios series called THE YOU~ LAWYERS. He wrote a script iti whiCh the white male Young Lawyer was to be shown having a drink PAGENO="0355" 351 in a public place with the black female Young Lawyer. Just drinking and talking, with perfect and total innocence. Six times the producer, acting under the explicit direction of the Paramount Studios censor and network liaison-man, Henry Colman, requested that the black girl be rewritten into a white girl; six times Bloch refused. Finally he was promised that the change would not be made. His option was not picked up by the studio and, after he was let go, the film was shot - with a white girl playing the part. * Norman Felton, Executive Producer of DR. KILDARE, writes: "On one occasion,. despite backing from the American Medical Association, the National Educational Association and the Surgeon General of the United States (who eventually sent a telegram to the network endors- ing the project) we were not allowed to present a film concerned with venereal disease * It was developed with scrupulous attention to good ~tas te. The advisors, as above, pointed out that people watched a program like DR. KILDARE more than documentaries, and it would be of great benefit to the people of America for the film to be made and shown. The network, however, was afraid of `offending . * PAGENO="0356" 352 Robert Collins, an established writer, was asked three times to write episodes of TI~ SENATOR, deservedly called the boldest and best dramatic series on recent television. The theme of the first story I submitted was the question of possible anthesty for draft evaders. The Producer refused the story on the ground that advocacy of amnesty was not the consensus of the country and was therefore unacceptable. The second show I proposed concerned itself with the question of whether a homosexual in government was, by the fact of his homosexuality, a possible security risk. The Producer was willing in this case - but because the treatment of the homosexual in my story was sympathetic and he was portrayed as neither nance nor psychopath, and I refused to treat him as such, the network refused the story. The third story I proposed, again with the Producers approval, dealt with the Pentagons storage of n~rve gas near an urban area. A one-line memo from Jean Messerschmitt of NBC to the Producer said simply this story was unacceptable to the network. She gave no reason but the Producer told me he had heard the subject would offend sponsors. who had dealings with the Pentagon. I don't know about that; I do know that NBC is RCA, and RCA is one of the biggest defense contractors.' * PAGENO="0357" 353 I have been required, by NBC and also by ABC, to delete the word Pentagon' from scripts even in strictly factual references. I have been allowed, on occasion, to mention the word `army. I don't understand the logic. But I do understand perfectly the logic of the following: On the ABC series T}~ INVADERS, the Producers were ordered to delete the word `integrated' from a script. The networks position, stated to the Producer, was that the word could be used on occasion but must never be spoken by the hero of a series. * Norman Felton, again concerning his experiences as Executive Producer of DR. KILDARE: "We once did a script on KILDARE called `Holiday Weekend'. A doctor had told us that holiday weekends were the worst time in a hospital due to auto crashes. We thought it would be a public service to make a show about this, dramatizing - painfully - the need for safer and saner driving, and put it on the air the Thursday before the Labor Day weekend. NBC fought us, long and bitterly, before finally giving in, on the grounds that we were an entertainment show and what, please, was entertaining about auto crashes? * PAGENO="0358" 354 Writers by the dozens report that they have written characters who are black and have seen them changed to white; they have written Jews and seen them converted to Gentiles; they have proposed shows about South African apartheid, Vietnam, old folks, mental disease, pàlitics, business, labor, , and minorities; and they have been chased out of studios. * This year, one year after THE SENATOR was cancelled, ABC and Universal Studios did a show starring Anthony Quinn called THE MAN AND THE CITY. Producer Stanley Rubin says: "Although the format cried out for relevancy we were flatly forbidden to make a relevant show. On a series about a contemporary Mexican- American Mayor of a southwestern city, no stories about the poor, about the old, radicals, Chicanos, Blacks - the whole field of urban life was, expressly and by fiat, forbidder~." Says Rubin, "I wanted to do one show about the refusal of a father to accept a posthumous medal for his son, killed in Vietnam. The issue of the war was background to the plot, which concerned the man and not the war. The network turned this story down. ABC does not recognize war. * PAGENO="0359" 355 There are thousands of other stories ranging from the ridiculous -- as when.. Adrian Samish, who supervises all scripts for QM Productions, which is responsible for THE FUGITIVE, THE FBI, CANNON, etc., objected to a political referenCe in a script of mine by slanuning his fist on my desk and telling me, `We hired you to write scripts, goddam it, not to put your ideas in them' -- to the marvelously sublime, as when the Producer of the series MY FAVORITE MARTIAN required a writer to change a line on the grounds that "A Martian would never talk like that." The list is so long that it is impossible to believe for one moment that these are isolated instances, temporary abberations, foolishness on the part of a few myopic individuals. On the contrary, these instances are symptomatic of the rigorous and final institutionalization of c ensorship and thought control on television. Let us now look at one whole series: ABC's THE FBI~ PAGENO="0360" 356 T~ FBI series, about to go into its eighth successful year under the official imprimatur of J. Edgar Hoover and the Federal Bureau of Investigation, formerly claimed that its programs were based on real FBI cases, when they frequently were not, and even now claims that its programs are `inspired' by real FBI cases, which they frequently are not; that although the names and places are fictitious, everything you see on the air happened and they have even broadcast official- looking file numbers on the air to prove it; and, if this i~ t enough, a narrator begins each program by announcing the exact date on which the crime was committed and ends each program by announcing, documentary-style, the federal prison terms meted out by federal courts to the criminals. They then show you the great seal of the FBI and thank the Bureau and Mr. Hoover for their cooperation. They strongly imply, in short, that they are telling you the truth about what the FBI does. The facts suggest something very different. For eicample, I was offered a job writing on the series; when I asked them which case they wanted me to adapt, they told me to come up with a story of my own invention - no case needed. Other writers, including the President of the Television Branch of the Writers Guild of America, have had the same experience. It doesn't always work this way -- sometimes the Producers invent and write out, with the cooperation of the resident FBI Agent assigned to the series, one page `notions which they PAGENO="0361" 357 then assign to writers; sometimes the shows are in fact based on real cases but in many cases the story is not only. not based on' or `inspired' by real FBI cases, it is invented solely by the writer and/or producer, and inevitably the story details are fabricated from beginning to end. As William Randolph Hearst cabled the artist Frederic Remington in 1898 before hostilities broke out between the United States and Spain over Cuba, `You provide the pictures, I'll provide the war." For a second example, I was asked to write another episode of THE FBI on a stibject of my.choice, at about the time, five or six years ago, when the four little Black girls were killed ~y the bomb in the Birmingham Church. It had been announced that the FBI was involving itself in the case and I told the producer I wanted to write a* fictional account of it. He checked with the sponsor, the Ford Motor Company, and with the FBI -- every proposed show is cleared sequentially through the producing company, QM; the Federal Bureau of Investigation; the network, ABC; and the sponsor, Ford; and any of the four can veto any show for any reason, which it need not disclose -- and reported back that they would be delighted to have ne write about a Church bombing subject only to these stipulations: The Church must be in the North, there could be no Negroes j~volved, and the bombing could have nothing ~t all to do with PAGENO="0362" 358 civil rights. After I said I wouldn't write that program, I asked if I could do a show on police brutality, also in the news at that time; certainly, the answer came back, as long as the charge was trumped up, the policeman vindicated, and the man who brought the specious charge prosecuted. For a third example, and to lend credence to the second, in the seven years in which the series has been on the air, years of great change racially in this country, change in which the FBI has been centrally involved, the producers have never - not once - done a program about any aspect of the violation of the civil rights of a minority. There is dramatic material for a thousand shows in this area, and the writers would not, for a change, have to invent the details; scores of writers have asked if they could write about civil rights and each has been turned down * I f you want to do a kidnaping, great; Communist espionage, wonderful; organized crime, marvelous; civil rights, never, ~`ourth example: On the series no FBI agent has ever bugged a house or tapped a phone or hired a paid informant, And no writer is ever allowed to suggest that these stratagems are ever employed, or indeed that they xist. They may be invaluable to police work and the FBI certainly employs them, the argument goes, but they're bad public relations. The public can be spared these trvths, PAGENO="0363" 359 Fifth example: Should a writer want to write, say, about violations of anti-trust law, he is told to go elsewhere~ In seven years not one episode of the FBI has allowed on this subject. The trouble is, of course, there is no other place for the writer to go in television -- no other series will touch this subject, either -- so no writer can write about it on television, and nobody who depends on television for his knowledge of the world will ever know that crime in the real world is sometimes committed by respectable white-collar types. Street crime and organized-gang crime and law-an4-order crime exist because they are a staple of dramatic televisiOO. Anti- trust crime does not exist, in effect, because television says it does not exist, any more than violations of minority rights happen. The FBI in Washington of course does know that these crimes happen because it is charged with investigating then, in fact if not on televisiOr1~ There are other misrepresentations made to the American people by this purportedly realistic series. Although the Director of the FBI, Mr. Hoover, has said publicly that La Cosa Nostra exists, the series chooses to call it The OrganizatiOfl~ a criminal syndicate whose chief visible trait is that its membership is comprised of a lot of nen-it~iians named Smith keeping up with a lot of folks named Jones; again, although the FBI explicitly teaches its agents never to shoot PAGENO="0364" 360 except to kill, on the series nobody has been killed for years now wounded by the carload, certainly, but never killed. There is other, sadder evidence of the series refusal to deal with the real world or even to acknowledge its existence -- in seven years on the air, not one woman has ever been hired to write an episode, nor has any Black, despite the fact that on one occasion a white writer with four credits on the series recommended a black writer and said that he would rewrite the script for free if the black writer's script was not up to par; and, a matter which will concern the members of this Subcommittee on Constitional Rights as much as it does us, namely that the producers acknowledge privately what has long been an open secret in the industry, that all actors and writers and directhrs are screened by the Federal Bureau of Investigation in Washington and only those who are politically acceptable to the FBI are hired -- but by now the message. should be clear. The American people are being force-~fed a dishonest picture of the work of a Government agency and any writer who attempts to portray the real world, suggesting that white collar or business crime exists or that crimes against peoples' rights are as much a source of national concern as crimes against their persons, is simply not allowed to do so~ PAGENO="0365" 361 The writer has no more freedom to deviate from the official line in any series in television. Take the omnipresent medical shows as a group -- MARCUS WELBY, M.D. on ABC; MEDICAL CENTER on CBS; THE DOCTORS segment of THE BOLD ONES on NBC. Anybody who watches these programs must of necessity believe the following about American medicine: - No patient is ever denied a hospital bed or required to wait until one is available. No doctor ever charges for his services; no hospital ever bills a patient; no one ever has to go on charity, or do without care. - Almost every doctor cures almost every patient -- if only the patient lets him. Occasionally someone does die, more likely out of boredom or pique than of the medical professions inability to cure him; he's usually 107 when he goes. - The American Medical Association doesn't exisL and of course doesn t lobby. There' s no need for it, to be sure, becat~se rio one on television ever suggests that we need more and better doctors, more and better høspitals, more and better medical schools, lower-cost health care or, heaven help. us, national health insura:~ce, PAGENO="0366" 362 The one man with more experience than any other in producing medical shows for television, Norman Felton, has been responsible for DR. KILDARE, THE ELEVENTH HOUR, and THE PSYCHIATRIST. Felton says: "Television does not reflect truth. On the DR. KILDARE series we were asked by NBC to get the approval and seal of the A.M.A. This meant that we submitted scripts for approval to the A.M.A. Although the organization gave us technical help, it goes without saying that we did not present an accurate picture of the practi~e of medicine, or the difficulties many people had in obtaining adeqtiate medical care... * The networks censorship extended from preventing us from tackling whole subject matters to a myriad of smaller items, such as making us take out any reference to `breast' or use of the word in a film concerned with mastectomy. Control of ideas exists down to the present in series such as MARCUS WELBY, M.D., and MEDICAL CENTER. At least two Senators on this Subcommittee -- Senator Kennedy and Senator Scott -- have strong feeling~ about the cost and availability of health care in this country: they atand up here, in one of the two most influential forums in the country, and they say so. Its their right, not to say their obligation. Many writers agree with them. Those who do are absolutely prohibited from standing up in the other most influential forum and suggesting that American medicine could be improved, its costs reduced, its scope expanded. Your work PAGENO="0367" 363 is more difficult because our television doctors are all heroes and above mistakes or the need for help or improvement. They're doing fine, their patients are all in splendid shape at the end of the hour, and the viewer is content -- what could possibly be wrong with American health care? The consequences of this shallow one-sidedness are tragic. No debate ensues, no national awareness of a problem which some of you and some of us believe may have reached crisis proportions. Personally, I don't know whether there is a health crisis in America; I'd like to know; I do know that it is a gross disservice to the country to refuse to discuss whether such a crisis exists. Here, then, is the impossible situation we labor under. We want desperately to write about the subjects which interest us as writers and human beings, subjects which are not very different from those ~rhich interest you. But we cannot because the men who control television have decreed, we feel in gravest error, that these matters do not interest the public. Cops-and- robbers interest the public; large and happy families whose worst problem is whether Gramps will find his ne~i set of teeth before the Saturday-night wingding at the Go~lden Age Home interest the public; dentists with chimpanzees and priests who solve crimes and lawyers who invariably defend minority-group PAGENO="0368" ~64 children without fee and never lose a case -- these interest the public. But life and truth do not interest the public and cannot be written abouf except in rare instances when we are allowed to explore controversial themes, but only under the most rigidly controlled conditions and only under the expressed conaition that we still play it safe'. It is our contention that this is one of the basest and most virulent forms of censorship imaginable, that there are substantial First Amendment questions here, and that there is, as a consequence, an immediate need to examine the enormous gap between what the law requires -- namely, that television program in the public interest -- and the television industry's own and self-serving interpretation of the law -- namely, that it feels free to put on practically anything which will attract a sufficient audience. The broadcasters have rewritten the definiti,on of `the public interest as follows: "Robert Sarnoff, in a speech while he was still chairman of corporate NBC (he has since become chairman of the parent RCA Corporation), once ventured a definition. He said the public interest was what the public was interested in. It was patently a definition t~ justify - broadcasting's excesses in commercial entertainment. A young child may ~oe interested in lighting matches and an PAGENO="0369" 365 older one in experimenting with drugs, but any parent knows that neither is in their best interest. - LES BROWN in TELEVISION: THE BUSINESS BEHIND TEE BOX. a program in which a large part of the audience is interested is by that very fact.. * in the public interest. - DR. FPANK STA1~TON, then President, now Vice-Chairman of the Board of CBS, 1970. "I believe that he (Stanton) despaired of the broadcast schedule about 1960; there- after he di~ not bother to watch much of it except for news and special programs. - FRED FRIENDLY, former President, CBS News, now with the Ford Foundation, in DUE TO CIRCUMSTANCES BEYOND OUR CONTROL. We do not have to watch, either; but we do write for it and under arbitrary and restrictive conditions imposed upon no other people in this country. We cannot explore, we cannot discuss, we cannot criticize. Lawyers and police and teachers and clergy all have the right. They can say what is on their minds. They can criticize where they feel criticism is merited. We cannot; writers in television are absolutely prohibited that right of speech. The NBC Radio and Television Broadcast Standards and Practices Book, Page 8, Paragraph 1, reads: 32-540 O-84--24 PAGENO="0370" 366 Respect for lawyers, police, teachers and the clergy should not be diminished by undue and unnecessary emphasis on unfavorable aspects of members of these professions. The Standards and Practices books do not spell out the many other restrictions under which we labor. Of course, they do not have to. We all know what the rules are by now and we know how to obey them if we hope to survive. These unwritten rules, which were born out of the union between Television and Business and which limit so drastically our right to speak and your right to hear, were carved in granite long before 1959. But never have they been better expressed than in a memo of that year, when Hubbell Robinson was in charge of all Programming for CBS Television. The following is a letter he received from the general manager for radio and television of a major advertising agency: `We have already passed along to ybur people something of the flareback that came to various members of the sponsor organization and, in turn, was passed along to us. We know that your series is striving mightily to do things that are different and outstanding so that as a series it will rise above the general level of TV drama. This is fine but since the series is a vehicle for. commercial advertisers, it must also be extremely sensitive to utilizing anything, however dramatic, however different, however well done, if this will offend viewers. PAGENO="0371" 367 Creative people, of course, are constantly protesting against being stifled by what they may think are the narrow, limited or prejudiced views of other people, and certainly creative people must be offered an opportunity for the full development of their creative talents - but only under certain circumstances, This cannot be true in the case of a commercial vehicle, You know that we can never lose sight of the fact that the sole purpose for which an advertiser spends money is to win friends and influence people. Any- thing that he might do, however meritorious in one direction, that makes enemies is a bad action and is to be assiduously avoided. As long as this series wishes commercial sponsorship, all of the creative people associated therewith must never forget that not to offend people must be an inviolate rule for guiding their operation, Narrow, prejudiced, ignorant, or ~rhat you will, though any part of the population may be, as a commercial vehicle the series must be ever alert not to alienate its viewers. I think you can gather that from the spensors point of view this matter is serious. We would like to hope that as a result of this second major flare-up in one season you are taking such st~ps as may be necessary to insure that no future program in this series violates the public concept of what is right. - Robinson, Introduction to ELECTRONIC DRAMA, by Averson and White Dollars, ratings, sponsors, affiliates, networks - the whole economic base of television has been so thoroughly documented that it requires no elaboration here. Suffice to say that in the sante year Robinson received that letter, Walter Lippmann PAGENO="0372" 368 wrote While television is supposed to be free,' it has in fact become the creature, the servant and indeed the prostitute of merchandising. What is in the sponsor's interest is clear. What is in the network's intereSt is also clear. We only get into difficulties when we ask, as the law invites us to, what is in the public interest? Realistically and unsurprisingly, every writer who wants to make a living knows what the rules are; learning is the beginning of survival. As a consequence, censorship invarithly and unhappily begins, like charity, at home. The unwritten rules are so well known that it is a recklessly brave and probably independently wealthy writer who attemptS to buck The System in an attempt to get anything of substance on the air. The majority of writers whohope to sell know enough to come in with safe ideas. If they do not, the network quickly tells them~ Writes William Froug: "During the two years I served as an Executive Producer at CES-TV it was repeatedly made clear to me that the network was in the business of `pure entertainment, that nothing of a controversial, provocative or disturbing mature was to be permitted in progranming~ PAGENO="0373" 369 The philosophy, often explicitly expressed, always implicit in the day-to-day operations, was to provide the greatest number of people with the least offensive material. As noted writer Walter Brown Newman, author of the original GUNSMOKE script in radio from which the series originated, stated it to me: `In television the writer's job is to write about nothin~.'" But if a writer screws up his courage and mortgages his house, he can try. Many do. They can go in and meet a Producer.with a story they want to do. With what prospects? What is the Producer's function? Writes Froug: "As the producer of many television series (TWILIGHT ZONE, M1~(. NOVAK, PLAYHOUSE 90, ALCOA-GOODYEAR THEATRE, BEWITCHED, DICK POWELL THEATRE, etc.) it was a correlative of the work that a precise form of pre-censorship and self-censorship be exercised at all times. That is to say that my function was to discourage writers from thinking in areas which the networks would find too `sensitive Froug never was given a written copy of the unwritten rules, either. He never had to be: "The rules existed and to my best knowledge still exist. They were the topic of many meetings with network officials and it was rarely necessary that they be written down. Everyone always clearly understood everyone else when it came to what could and what could not be dramatized on television. There was no chance for misunderstanding for, if a submitted story violated any of the PAGENO="0374" 370 precepts... it was quickly returned with a phone call to the effect that such-and-such could not be approved unless the offensive material were deleted. Even writers who should know better censor themselves and each other when they get into positions of responsibility as producers and executives. Two weeks ago a writer-producer who serves on the Censprship Committee of the Writers Guild told another writer that he would not buy a script about the practice of some otherwise reputable drug companies which manufacture excess amphetamines for the illicit market ox~ the grounds that, although the problem was factual and serious, `You cant get away with taking on a drug company on television and you know it.' In other words, you can attack dope-pushers on television only up to the point where they become a vested interest; and then you must stop. If the fact is that we do admittedly censor ourselves, if only to prevent the networks from doing it to us, why are we here criticizing The System and the networks? The answer is that the network is to blame because it sets a climate, a tone, a standard which requires us to write only the material it Wjil put on. The tone is set when they schedule only action-advent3re melodramas and situation comedies and variety shows to write for; it grows through the meetings at PAGENO="0375" 371 which they expound the unwritten rules; and it reaches full flower when they hunt through our scripts looking for words and ideas and dreams to delete. Does anyone believe for a moment that if the networks actively sought creativity, ideas, provocative themes handled with conviction, that if they encouraged writers to use logic and reason and emotion and truth in ou~ scripts instead of three shootouts, two auto crashes and a karate chop on the neck, we would not jump at the chance? They say they are an entertainment medium although the law says they must program in the public interest. They say they are an entertainment medium and then define entertainment to rule out the actions and passions of our time. They allow laughter but not tears, fantasy but not reality, escapism but not truth. Tele- vision chooses almost never to stretch its boundaries to include serious drama, or indeed any drama that Is not melodrama; chooses not to allow points of view not `safe, not its own; chooses not to include art or music or literature in its giddy chase after what it considers entertainment. PAGENO="0376" 372 We want to entertain; writers don't want to bore anyone any more than executives 5o~ But why cannot entertainment be truthful? Free from distortion? Why cannot television ever reflect the real world? Why must it always be that television brings you a detective in a wheelchair and that is a success so next they bring you an insurance investigator who is blind and that is a success with the result that now ABC is trying to put together a new show about -- I wouldn't kid about this -- a Sheriff in the Old West with a stiff trigger finger. In the public interest, presumably. Earlier we said we would challenge the whole premise that a clear majority of the people want this kind of programming and the corollary to that premise, which has become the credo and raison d'etre and justification of the television industry, that the people will watch no other kind. I hate, personally, being held in such base contempt by the television industry, and I don't believe them. When THE SENATOR ~ias on, so briefly, it had an average 29-rating share for the year, which `translates into imprecise millions but means that 29 out of each hundred television sets were tuned to a show of significant content. PAGENO="0377" 373 On occasion THE SENATOR went over a 35-share, meaning that more than one-third of the national audience was watching this show. Or ~/iewed another way, probably more people watched one episode of THE SENATOR on television than have seen, live in theatres, all the plays of Shakespeare produced in every language in every country of the world since they were written. Does this not suggest that we are smarter, more aware, more eager to be informed and involved in the world around us than these men who program shows in such disregard for us can know or will admit? And isn't it vitally important to ask the' question raised by former Senator William Benton, as cited by Commissioner Johnson of the Federal Communications Commission in his book, `How To Talk Sack To Your Television Set: I can only ask, if this alleged `wasteland' is indeed what the American people want, is it all they want of television?. . .Is it all they are entitled to?.. .Are not.. .these dwellers of the wasteland.. the same Americans who have taxed themselves to create a vast educational system. are they not the same who have established an admirable system of justice, created a network of churches,. .when they turn their TV knobs, do they not by the millions have interests broader than the entertainment which is so complacently theirs?. .1 think the American people should expect that the greatest PAGENO="0378" 374 .1 single instrument of human communication ever developed must make its due contribution to human security and human advancement.... A high corrunon denominator distinguishes our people - as well as a low one - and both denominators apply to the same men, women and youngsters. Television has crystallized into the low road..." There is still another collateral question which must be asked. Is television really giving us what we want, as its spokesmen claim, or has it, rather, simply conditioned us to accept and even appreciate, like Pavlov's dogs, what it programs for us? We can never truly know the price we have paid and continue to pay, individually and as a nstion, for televisicn's conditioning of us and our expectations. Like babies who h~ve been fed nothing but Pablum, our taste h~s been dulled to the point that dry martinis and thick steaks taste somehow wroncr. It does not have to be this way. In Elizabethan England, the popular theatre of the day - their equivalent of our television was Shakespeare and Marlowe. From the royalty in the galleries to the common people in the pits, it was what they got and it became what they wanted - or perhaps it was the other way `round. We have not progressed culturally quite as far as we think in three-and-a-half centuries. Television is partly the evidence of this, and I suspect also partly the cause. PAGENO="0379" 375 And yet, when they give us the few chances we get to see quality progrsmming, as often as not we do respond. Dramatic subjects, provocative themes provocatively handled -- these draw enormous audiences. Norman Lear is here to testify to that as Producer of ALL IN THE FAMILY -- and also to the three years of difficulty he had in getting the series on the air. The Director of Sales and Marketing for Time-Life Films, Wynn Nathan. further substantiates the case for quality programming In a publication of the Broadcast Information Bureau, Inc. "I have talked about `quality and. specialized programs as though I assumed they would get poor ratings. And perhaps I have fallen into a trap I suggested the program makers have fallen into. Actually, when supposedly specialized programs, have been tried in prime time lately, they have often done surprisingly well in the ratings. One good example was `The Six Wives of Henry VIII,' a BBC-TV produced series of six ninety-minute plays -- quite specialized in that it was about English history and was serious drama. Television programming for only a special highbrow audience, it seemed. While it was plainly quality programming, Henry VIII was not a safe programming idea for prime time. Here's what happened when it played: it increased CBS's audienoe for the time period 10% over the previous four weeks, getting a 25% share of the national audience; and in the key markets of Los Angeles and New York it consistently beat network A's movie in the ratings -- by large margins." PAGENO="0380" 376 So the public is truly interested in programs truly in the public interest. We can be delighted that CBS showed this series, even though someone else produced it. Still, why cannot CBS produce good television? Why did CBS, like NBC and ABC, reject the prize-winning British series CIVILIZATION, hosted by Sir Kenneth Clark, when it was offered to them, and let PBS - Educational Television - carry it? One answer is given by William Froug: "A few years ago I was employed by CBS Television as Executive Producer in charge of Dramatic Programs. On my first day of work I reported to Runt Stromberg, Jr., Vice President in charge of Programs for CBS,* Hollywood, at that time. Mr. Stromberg briefed me on my duties with the following statement: `Your job here is to produce shit. And the British Broadcasting Corporation is left to produce CIVILIZATION, THE SIX WIVES OF HENRY VIII and THE FORSYTHE SAGA. Its a disgrace and a scandal but it's also something worse, a source of national sadness and concern for all of us that American television imports CIVILIZATION, THE SIX WIVES OF. HENRY VIII,. and FORSYTHE SAGA, while American televi'sion exports PAGENO="0381" 377 THE BEVERLY HILLBILLIES, GREEN ACRES and GILLIGAN S ISLAND. You are not the only ones in this country who have to worry about a Balance of Payments deficit. And every year it gets worse. Ours is not a new complaint. Television has long been delinquent in its responsibilities. Even its most ardent defenders concede that: Too often the~ machine runs away with itself.. .instead of keeping pace with the social needs it was created to serve. - William S. Paley, Chairman of the Board, CBS, 1936. What, if anything, is significant and new in our appeal? The difference might be only that now the country seems of a mood to demand its rights, to ask for itself what it believes to be fair. There is a bright new spirit afoot which says that if air pollution is legal and Institutionalized, it ought not to be. A protest must be made and must be listened to. PAGENO="0382" 378 It is our belief that air pollution is no less a problem in television than it is in the automobile industry or a mill town or a crowded city, and that the public interest means that we can no more afford the one than the other. The men who control television do not agree with us. But their view of the public interest was made painfully clear several years ago when, long ~fter the Surgeon General issued his report conclusively linking cigarette smoking with cancer, they persisted in advertising cigarettes and stopped only when Congress passed a law forbidding it. Their view of the public interest as being subservient to their private interests has not changed for the better. And now it seems clear that something must be done. The solution could possibly lie in our hands as wr, if only our hands were untied. There is little wrong with television that could not be cured by diversity of ideas and programs, by t1~e freedom to explore and discuss anything in this world free from the fears and strictures which dominate our business. At least it would be a beginning. * We are sometimes asked what we really want, why the end of censorship is so important to us. Sometimes the question is meant to imply that we are little boys who want to write dirty words on bathroom walls. PAGENO="0383" 379 Nothing could be further from the truth. What we want is the freedom that everyone else in this country has and which we alone are denied -~ the freedom not to have to distort the truth as we see it. We are also asked what difference it will make. Aren't we all writers of fiction anyway? Aren't, illusion and fantasy our stock in trade? Here the answer is easier. Perhaps among us there isa Zola or a Dickens, a man who can see a wrong and by his skill and zeal require us to right it. Perhaps we can stimulate and excite the oountry to care about its deeper heritage, its drama and art and music and history and poetry and literature and science, all the glories which television now denies us. But the real difference would be that whereas now we are required to foster, without critical examination, a mythology which states that a punch in the mouth solves all problems and doesn't really hurt anyone, that bullets wound without killing, that ours is a society hampered in its strivings to improve its acknowledged greatness only by the efforts of a few sinister malcontents who seek to undermine us for their own perverse purposes, instead of this mythology we could proceed to ar~ PAGENO="0384" 380 honest evaluation of who we are arid where we are headed. Once we become aware that in real life the cavalry does not always arrive in time, that the good guys do not always win, that it must hurt deeply to be black and unemployed or to be hungry in a land of abundance, once we strip away the cliches and look at the problems, then we can make that new first step toward our great arid shared goals. We want desperately to aid in this effort, not hinder it. A member of this Senate sees deep implications in refusing to make the necessary effort. Senator Robert Dole poses the following questions: Every day and every night for most of their lives your children and mine have watched (on television) the major problemz of the universe solved in 30 to 6~ minutes. Is it possible - and I throw this at you as a question, not a conclusion - is it possible part of the unrest in t1~is country, part of the dissatisfaction with our leaders is that, as far as our children are concerned, they do not solve problems fast enough? The smog that is here today is here tomorrow~ And so is the civil rights problem. And so is the war. And you name it. In real life problems are solved and go away very slowly. Are our children having trouble separating the immediacy of TV from the reality of life? Are they demanding more than we can ever deliver, or more than they will ever be able to deliver? Is TV creating a frustration with reality that car only be relieved by threats and demands for change, and that failing, by violence? PAGENO="0385" 381 I don't know the answer but I suggest that we think about it~ We, too, have raised a great many questions here today and, like Senator Dole, we do not pretend to know all the answers~ ~hit it seems to us that the problems we have discussed are so grave and the consequences for America so great that a new attempt to examine the course of television, drawing on the nation's best minds, must now be made~ We therefore hope that you will recommend creation of a Citizens Committee to Examine Television which can make the necessary study and detailed recommendations that will, hopefully, start us on the high roa& We ask partly for ourselves~ Doestoievski has written, "There is one punishment so terrible that even hardened convicts tremble at the prospect, and that is simply this: to take a man's lifework arid render it meaningless.' But much core than for ourselves as writers, we ask for the countr~j. 32-540 O-84--25 PAGENO="0386" 382 Mr. WIRTH. Thank you very much and those will be included in full in the record. Before we get to questions, it is also the usual procedure of the subcommittee to ask panelists if they would like to respond or have comments on what was said by other panelists. Mr. Dunham. ~Mr. DUNHAM. Thank you. Without undertaking to answer all of my friend Mr. Valenti's comments, I would like to put the question of independent stations and warehousing in perspective in terms of this hearing, if I might, very briefly. The growth of independents is primarily a function of the growth and acceptance of UHF stations. They got on the channel dial and became more acceptable and advertisers turned to them. Off-net- work programs are sold to VHF and UHF independent stations. We don't withhold them now. "Little House," one of the few pro- grams that NBC is able to own, is in syndication and has been for several years. Even though it is on the network, it is sold to inde- pendent stations. The concern of the independent stations seems to be not that the product won't be sold, but that somehow the networks will get all the rights and together collude to withhold not high-rated syndicat- ed product, but marginal syndicated product and there is a great deal of that around. The thought of the three networks being able to collude like tha~t, when we compete in every other respect, programing, audi~ ences, affiliates, news coverage, seems to me almost bizarre, but it is a concern the independent stations express. The fact is that the Department of Justice has addressed that. Every one of the argu- ments you have heard this morning has been made to the FTC and the Department of Justice. The Department of Justice has said how about a narrow rule that will deal with the concern of the independent stations about collusion and move on. I really don't think that is going to be an issue. The Commission has jurisdiction over it and is considering it. But for the purpose of this hearing, let me point out that ware- housing has absolutely nothing to do with the financial interest rule. It has absolutely nothing to do with the ability to finance new independent producers. To say that we should now have legislation that would strip the FCC for a period of 5 years of its authority to deal with the chang- ing program marketplace, to say nothing of the broadcast industry on this issue, because of this narrow question of warehousing which the Department of Justice has addressed, seems to me is a very extreme position, indeed. Mr. WIRTH. Mr. Colloff. Mr. COLLOFF. I would like to, if I might, address the question of competition, which Mr. Valenti talked about and the question of whether or not the repeal of these rules would increase competi- tion. We believe that repeal of these rules clearly would increase com- petition. I think you only have to look at the record of the past 10 years since the rules became effective to examine wl3at has hap- pened in this marketplace. PAGENO="0387" 383 The number of programing suppliers is down 32 percent, accord- ing to the figures supplied by the Committee for Prudent Deregula- tion, one of the groups advocating continued maintenance of the rules. Four of the major studios, Universal, Columbia, Paramount and Warner, account for 59 percent of the off-network syndicated prod- uct from recent years. One of those studios, Universal, alone ac- counts for 25 percent. That is a higher share than all three net- works combined held during the 1960's before this rule came into effect. There has been a decrease in the percentage of independently supplied programing to the networks, which I believe Mr. Dunham alluded to, since these rules came into effect. The net impact of these rules has been to decrease the number of competitors in this marketplace by, first of all, leaving the three networks out of this marketplace and, second, by cutting off traditional sources of fi- nancing to independent producers, thereby decreasing the number and percentage of independent producers supplying programing to the television networks. That, in our belief, is what has happened under these rules, a de- crease in competition. We believe that repeal of these rules would tend to increase that competition by revitalizing the independent production sector of this industry. Mr. WIRTH. Further comments? Ms. GURIAN. Yes. Mr. Chairman, I am sorry. I just don't want to let that go. It is not the way the industry operates. When a Universal or Paramount television program is aired, that Universal or Paramount program is undoubtedly done in con- junction with one of scores of independent producers who associate with the big companies for distribution and other reasons. The Universal logo does not mean there is one producer. There are many independent producers, many of them my writer mem- bers, who work under the Universal banner or the Paramount banner. That is just a misreading of the way the industry operates. Mr. WIRTH. Mr. Cassara. Mr. CAS5ARA. Mr. Chairman, with respect to the comment that the issue is not one of warehousing, I would like to point out that the networks are very aware of what the independents have been able to do since this rule was put into place. I will give you one example. Here in Los Angeles in the early 1970's, 1972, the four VHF independents in this market collectively had 32 percent of the revenue that was coming into this market. Today, they have 50 percent of the revenue that is coming into this market and it is a direct result of the fact that they have been able to get off-network programs much earlier than they were able to before the rule was put into effect and they, therefore, have been able to compete much more effectively with the three owned and operated stations here in Los Angeles. These are not stupid people, Mr. Chairman. They recognize what is going on and their target is the independent television stations, regardless of what they say. Mr. WIRTH. Mr. Valenti. Mr. VALENTI. Mr. Chairman, I don't know where to begin be- cause what my dear friend Cory Dunham and Roger Colloff are PAGENO="0388" 384 talking about is a world that doesn't exist. Warehousing-I don't give a damn about warehousing because everybody in our business knows that the networks, if they are in control, they are not going to license this material. They will find ways to do it that the Jus- tice Department can't get to. There is a world that we all live in and then there is a world that the academics and some of the regulators live in and they bear the same relations as the rings of Saturn do to the LOs Ange- les Lakers, for God's sake. Why is it-just think about it from a commonsense standpoint. All these gifts that Mr. Dunham and Mr. Colloff come bearing pro- ducers, why is it no producer wants to fall into the clutches of these decent and honorable gentlemen? Why is that? Doesn't that give you some cause to wonder? They have never answered the questions. What is the public in- terest in this, Mr. Chairman? Why should this rule be changed simply because the networks want it changed? Is it going to in- crease or decrease competition? You don't have to be a Ph.D. from Harvard to understand that when you only have three buyers and they take over the marketplace everybody else becomes an employ- ee or they are out. And the final thing on this minority issue. There is a weight of documenation a mile high that some producers are afraid to bring to you because they will blacklisted by these networks. They try to put minority people into a series and some of the responses from the networks are really too egregious to put into the record here. At no time has any of these two gentlemen, intelligent and honest that they are, at no time have they addressed the real ques- tions here. All the questions that I asked they have not answered. Pay cable? CBS has climbed right into bed with HBO. They are partners with HBO, for God's sake. Why are they saying pay cable is going to take over the world, because if it does they are going to be like Senator Robert Kerr, who said "I am against all monopolies that I am not a part of". Well, by God, they are going to be part of the monopoly. I am just asking the networks to answer the real questions in a real world and not live in this theoretical world that doesn't exist. Mr. WIRTH. Well, gentlemen and Ms. Gurian, we might move to questions. Let me just make one comment if I might. I was concerned in your opening remarks, Mr. Dunham, when one of the five points was that this legislation would strip the FCC of the authority to act in the public interest. It has been the concern of this subcommittee for a long period of time that our responsibility is to remind the FCC that it is not an entity unto itself. It is not a creature of the Reagan administration or any administration. The FCC reports to the U.S. Congress. It was established by the U.S. Congress, and it is accountable to the U.S. Congress. I make that point not to you as much, Mr. Dunham, as for the record and, once again, for our friends at the FCC. The other point that you made, which I was concerned about, is that "The rule will mean the demise of free TV." I arrived at my quarters last night at the local Hilton Hotel and found there wait- PAGENO="0389" 385 ing for me a number of telegrams from various groups urging me to make sure that the FCC repeal the financial interest and syndi- cation rules to protect free TV. So, their position would be consist- ent with yours. Remarkable that we received all of those last night, isn't it? I would like to ask Mr. Funkhouser and Mr. Cassara if you all are advocating the maintenance of the rule are you therefore, ad- vocating the demise of free TV?. Is that the position you are taking? Mr. CASSARA. Since we are in free television, it would be pretty stupid of us to take a position that would advocate our own demise. As an operator of an independent station, my future depends on the health and success of the three networks and if I thought that leaving this rule inpiace was going to destroy the three networks, I would be for repeal, because I get most of my programing from the three networks. So, it is quite the contrary, Mr. Chairman. Mr. WIRTH. So, you would not agree with Mr. Dunham's state- ment that unless we repeal the rule we are going to see the demise of free TV? Mr. CASSARA. Absolutely not. Mr. WIRTH. Mr. Funkhouser, do you have any comment on that? Mr. FUNKHOUSER. Well, only that we do depend on the networks because they are still the mass medium and we would not like to see them suffer. We don't think they will if this rule is retained. Mr. WIRTH. Mr. Dunham, would you like to maybe further expand on that? Mr. DUNHAM. Let me say, Mr. Chairman, that I was not for a moment seeking to question the fundamental power of the Con- gress in this area. In fact, this entire proceeding started some years ago, and shortly thereafter, under a Democratic Chairman Ferris, was endorsed explicitly by Senator Hollings who welcomed the in- quiry. He felt it was time for this entire matter of regulation of networks to be reexamined. That proceeding has since been going forward, if not necessarily as a bipartisan effort, certainly not as a recent Reagonomics deregulation effort. It really has to do with the ability of people going to the program market to develop alternate program sources, alternate sources of program supply. The fact is, as Mr. Valenti says, in the real world the program producers, the big studios are here in this community. They make programing for theatricals. They make programing for television and now, of course, are shifting much of their allocation of resources to pay. From our point of view, the point of view of those seeking to buy programing, we fuel the free television system that is made avail- able to our affiliates and, in turn, off network to independent sta- tions. When we gq into the marketplace now, we deal with a cer- tain number of producers. We are not able, as we used to be before these rules, to finance the development of new, independent pro- ducers. That, it seems to us, is an important point. It is an impor- tant point for those interested in the development of minority pro- ducers. We have seen that that issue is brought to the attention of not only the Commission, as you point out, but to members of the public who are also concerned about the future of free TV. It PAGENO="0390" 386 doesn't have to be, I think, the demise of free TV. It's the loss of the kinds of service that free television now provides the public that is at stake~ We have lost first-run theatrical .motion pictures. We have lost some sports events. Certainly, pay television, whose subscription revenues will equal those of the three networks in a few years and will outstrip them by far thereafter, have the purchasing power to move into the program industry, as they are, and to attract what is a relatively finite number of creative talent and writers. From our point of view, our ability to provide the free television service, fueled by entertainment programing, of news, sports and an across-the-board schedule for the American public, whether or not they can afford pay TV, is critical to us. That is our job, which is why we have sought to inform members of the public, union members, people with low incomes and others of this question, so that they can be heard, so that their views can be brought to your attention. Mr. WIRTH. I just don't understand that argument, Mr. Dunham. If the advertisers who would have the most to lose with the loss of all of this programing are arguing on the other side, it just doesn't make any sense. I can't understand that, but maybe we can----- Mr. DUNHAM. It bothers me also. Mr. WIRTH. We can try again at some other point for me to un- derstand how the lifting of this rule could be dangerous to your health. Let me go to my colleague from California, Mr. Waxman. Mr. WAXMAN. I don't want to abandon that last point because it seems to me that there is a misapprehension that has been fostered by the networks that the future of pay TV is at stake. I know that as a chairman of the Health Committee I deal with a number of organizations that are trying to combat diseases and they have been told specifically that they won't have public service announce- ments any more on network television at 4 a.m. or whatever other time they get because pay TV is out the window if these rules are not repealed. Now, Mr. Dunham and Mr. Colloff, do you believe that if the rules are not repealed that pay TV is going to be extinct as we have known it-free TV is not going to be available any longer and it is not going to be a viable alternative for most American people? Mr. COLLOFF. I don't think that we are saying that the demise of free television is at hand. What we are saying is that there is a fundamental unfairness in the marketplace as it currer~tly exists; that is, the three networks are not able to participate in the type of after-market benefits which others in the industry are. Mr. WAXMAN. I understand the argument you-- Mr. Cou~oFF. And that as the purchasing power of competing media grow, and most estimates are that the purchasing power of pay cable will be approximately equal to that of the networks b7 1990, that as the purchasing power of pay cable and other competi- tors grow the quality of programing which free television is able to put on the air will decline. Mr. WAXMAN. It is a very different question of whether you think you are going to be able to pay for quality television or whether you think you are going to maintain the profits that you PAGENO="0391" 387 now have than whether we are going to have the public informed that free TV will no longer be available to them. My question spe- cifically to you, and I understand your answer to be that we are not facing the demise of free television for the public. Is that a fair statement? Mr. COLLOFF. That is correct. I don't think that we would argue we are facing-- Mr. WAXMAN. Mr. Dunham, would you accept that conclusion, as well? Mr. DUNHAM. Yes. Perhaps I can clarify what may be a point of confusion. Mr. WAXMAN. Well, I will tell you what I would rather have is a direct answer, rather than to explain items that you may think are confusing, which may not be. Do you think that we are facing the demise of free television if these rules are not changed? Mr. DUNHAM. Certainly the character of the programing that we now experience will be materially lessened, yes. Mr. WAXMAN. I want to go into another point. I only have a few minutes, but I do want to hear from others as well. I find interest- ing the ar~gument from the network representatives here that they want to protect the small, independent TV producers when all the independent TV producers wa~it to~ be independent of the networks and argue against the networks. I find it curious the networks saying that they want to protect the-they want to revitalize tele- vision and protect this free television market when we find the in- dependent stations saying that they are afraid they are not going to be able to compete and, offer free television as well and we find that the advertisers are saying that they are afraid that there is going to be more of a concentration of power in a three-network situation with affiliates being all-powerful in local television if we change these rules. How do you respond to that, Mr.. Colloff? Mr. COLLOFF. I guess I would say that--. Mr. WAXMAN. Why do you think that you are protecting the in~ terests of groups who disagree with you when they say that they don't feel that you are representing them? .. Mr. COLLOFF. Today's little producers are tomorrow's big produc- ers. If I were a Tandem or a Lorimar or an MTM today, I probably would not want these rules repealed because I am very comfortable operating under these rules. It shields me from additional competi- tion. If I were a Tandem or a Lorimar or an MTM 10 years ago, I think I would have wanted to operate in an atmosphere in. which there were no rules because I, as a small producer, would have wanted to have been able to go to the network-- Mr. WAXMAN. This is what you say the small producers want, but the small producers aren't saying they want this protection. They are saying they want protection from you, not from the larger independent producers. Mr. COLLOFF. It depends on the definition of small. I think you will hear later today from an independent producer, Mr. Ochoa, who does not share that point of view. I think that the history of deregulatory efforts are replete with examples of people within the business who want protection from further competition. It is a per- fectly understandable position. It, however, is not one which we be- PAGENO="0392" 388 lieve fosters the type of competition which this subcothmittee and, I think, we all want to foster. Mr. WAXMAN. Ms. Gurian, I would like you to respond to ,that. You represent the writers and many of the writers are struggling to have an opportunity with a small independent production oper- ation. Do they fear the networks or do they fear the larger produc- ers? Ms. GURIAN; It is the three sisters. The networks that we fear most of all, and we fear them because the networks insist on main- taining the quality of programing that we believe is too homoge- nous and too bleached to serve any sort of public interest. Our writer/producers, writer/directors are the small entrepre- neurs who aspire to be the Norman Lears, the MTM's of tomorrow. They can only flourish with the multiplicity of independent produc- ers and. production houses around. It is the only way that~they can survive. That means that the rules must stay in place. Additional- ly, I have one comment that I must make from the working man and woman's point of view. This fear of the Goliath of pay television and stripping every- thing away from free television is absolutely laughable. Our union went on the most costly 3-month strike we have had in years in 1981 to secure pay television provisions and what we have discov- ered in recent years is that there is almost no domestic, original pay TV programing because there is no money `to pay for it., The market is too fragmented to have any sort of strong economic face. We are approached every day from the small producer who, is will- ing' to timidly put a toe in the pay TV water because he' needs mas- sive waivers from our minimums. He can't pay those minimums and they are not big. Mr. WAXMAN. I just have one last question and I am going to have to then let the chairman decide how much he wants to open up for all sorts of responses. But, Mr. Cassara, we hear from Mr. Dunham that the Justice Department is going to protect you and other independent television stations from warehousing where you will be denied the opportunity to show reruns in order to compete with the network affiliates because the Justice Department will then come in and intercede on your behalf should they find the networks doing what, of course, the networks say they wouldn't do if they had the opportunity to do it to you. Do you feel comfortable with that? Do you think that the `Justice Department ought to be your protector or do you think there ought to be a self-policing rule that prevents the networks from coming in and unfairly competing with independent stations? Mr. CASSARA. I don't feel at all comfortable with that. The Jus- tice Department couldn't possibly police the day-to-day~workings of this business `and what goes on behind the scenes. It is not just what is obvious to everyone that they do, but there is a lot that they can do that would not be obvious. It would be impossible, in my view, for the Justice Department to police the situation. The rule works as a stand-alone situation. It is cost effective. Frankly, I think that the Government has enough to do without having to police the day-to-day workings of the televi- sion industry. I would not feel comfortable at all with that situa- tion. PAGENO="0393" 389 Mr. WIRTH. Thank you very much. Mr. Leland. Mr. LELAND. Thank you, Mr. Chairman. I am very impressed at what I have heard today because I think that this gives essence to the real issues that I have raised in my opening statement and I am truly concerned that everybody is ad- dressing themselves to the issues of minorities and I am pleased that so many people are sensitive about this issue, particularly these representing both sides of the financial-all sides of the fi- nancial interest and syndication rules. Mr. Chairman, let me first compliment and thank Mrs. Gurian, if I can, for her efforts and her organization's efforts concerning af- firmative action. I certainly appreciate that and I hope, indeed, that these hearings and further hearings will give rise to more par- ticipation on not just the part of the independent producers, but also on the part of the networks, because we are truly concerned about not only the minority actors and actresses who have been so blatantly discriminated against but also those writeth and directors and producers, et al. Mr. Dunham, in the Screen Actors Guild survey I alluded to in my opening statement, NBC was the only network for which statis- tics were available. According to that survey, NBC cast almost 94 percent of its 1,145 roles with white actors and actresses. Only 6 percent of the roles went to black actors and actresses and only one-third of 1 percent of the roles were cast with Hispanics. In a 15 month period, NBC cast only one Asian and no American Indians in any of its programs. Does this not reflect an incredible insensi- tivity on the part of NBC with regard to minorities and indicate that minorities are second-class citizens with the networks? In light of these statistics, why should the minorities believe repeal of the rules would be in their interest? Mr. DUNHAM. We have asked SAG for the basis for that report because we would like to examine it ourselves. That was a report, as you understand, not of employees of NBC, but employees of the producers; that is, the producers selecting people and casting them in roles. We have not been able to obtain from SAG the basis for that conclusion, even thought it is only of producers, not NBC's em- ployees. I think the real proof of the pudding, however, is what is on the air and if you look at what is on NBC's prime time schedule, I think there you will see the beginning of the results of work over now several years on our network; that is to say, we meet with pro- ducers at the beginning of every season, our Standards Department and others, and we say to them not only do we want better casting and more representative casting, but we are determined to prevent offensive stereotyping. We work with the producers to that end. We can persuade them. We can reason with them. We can ask them and we review every bit of production they do for that purpose. If you look at our schedule today, think of the pro-social role models-if I might just list the programs: "Hill Street Blues," "St. Elsewhere," "Fame," "Powers of Matthew Star," "Silver Spoon," "Quincy," "Teachers Only," "Chips," next season "Bay City Blues," "Love and Honor." All are programs that have strong, regular-ap- pearing minorities in significant roles. More can be done, but I think in terms of sensitivity, I agree with you about the question. PAGENO="0394" 390 The networks and the producers for that matter may have been a long time coming, but I think there is very substantial movement now. Mr. LELAND. Mr. Dunham, let me respond if I can* by requesting you further, if I can. You just cancelled "Fame," as I understand. Mr. DUNHAM. That is true. Mr. LELAND. You also have Mr. T and you also have Gary Cole- man. Mr. DUNHAM. Yes. Mr. LELAND. Are they the strongest role models that you can produce in terms of leadership roles? I understand in those other programs, the black participation and minority participation are not necessarily strong role models, but they are, and we advocate this, they are more character actors who are acting in roles that are nontraditional black roles. We can appreciate that. The problem we have, though, is that in those strong character roles like Mr. T and Mr. Coleman, they project role models for chil- dren. Can you respond to the lack of interest on the parts of the networks in casting strong role models in those slots? Mr. DUNHAM. Yes, I would like to. That is always the entertain- ment media's dilemma. We do have, for example, in "St. Else- where" Asian and black doctors. "Fame," we stayed with that pro- gram a long time, black teachers, black performers. "Silver Spoon" has a black lawyer. "Teachers Only" had black teachers. "Bay City Blues" and others will have positive role models. Mr. T is one of the more popular figures to arrive on the scene. You see Mr. T talking with youngsters not on screen, but as he is waiting for filming, and it is a very moving experience. That guy is something else. He will say to the children "Do your homework," "Listen to your parents." Now, there is a limit, perhaps-- Mr. LELAND. Mr. Dunham, let me stop you-- Mr. DUNHAM. But he is a winner. Mr. LELAND. He is a winner. Off screen he doesn't appeal to mil- lions of young people as he does on screen. On screen he is a buf- foon and his character is a buffoon. I don't understand your reason- ing, because, you know, Stepenfetchit probably talked to young people off screen. Amos and Andy, those people who played Amos and Andy probably talked to hundreds of young people off screen and told them to do their homework, but on screen, they are talk- ing to millions of American young people and they project images that probably would be followed by impressionable young people. How do you respond to the question of where your responsibility is as a network when you program these people with such horrible and horrendous characters in the vacuum where there is no dra- matic roles to speak of for blacks and other minorities? Mr. DUNHAM. We do, as I say, try to work with producers both in development of roles-- Mr. LELAND. Are you saying that the producers are at fault here? Mr. DUNHAM. No, no. I think it is a problem of the entertain- ment industry across the board. Mr. LELAND. Do you think that you have done a commendable job as far as minorities are concerned? Mr. DUNHAM. I think we have made a good start. We have a long ways to go. PAGENO="0395" 391 Mr. LELAND. Mr. Dunham, that is not the question. The question is have you done a commendable job in your history whereas mi- norities are concerned? Mr. DUNHAM. I would not lay claim to that. Mr. LELAND. Can you answer "yes" or "no," Mr. Dunham? Mr. DUNHAM. No. I would think that we can do better and we do try to do better. Mr. LELAND. Thank you. Mr. Coiloff, can you respond to the same questions that I have asked. Mr. COLLOFF. I would respond much as Mr. Dunham has respond- ed. I think that the-I guess one of the most popular games around this town is blame throwing on this question. As you indicated, the networks blame the studios and the studios blame the networks. I think we all have a responsibility, which I think we are exercising and certainly take very seriously, to insure that both the manner of portrayal and the quantity of portrayal, in addition to behind the camera activities, are representative of the minority communi- ties in this country. I think there is more to be done. I don't think there is any question about it, but I think, frankly, it is a more con- structive attitude to try to look at this as an issue and as a problem which we should try to solve together, rather than to attempt to throw. stones across the table. Mr. LELAND. What kind of guarantees are both of you willing to give minorities-and I have heard both of you talk about minority production, if, in fact, the rules are repealed. You said that in- creased minority production would be realized and all of this. These are great things, but you make those overtures now that the financial interest and syndication rules are in place. What kind of guarantees do you give to minorities once, in fact, if, in fact, FCC or the Congress would repeal the rules? Mr. COLLOFF. I don't think the issue is a question of the specific quota or guarantee. I think what we are saying and I think there are minority producers who have testified to this effect, is that repeal of these rules would open up opportunities by the simple fact that you have three additional financing sources in the mar- ketplace, that there would be three networks, which would then have the financial incentive to help underwrite production by a wide diversity of sources, including minorities. Mr. LELAND. But historically, you have `not treated minorities as equal partners, as equal people in the marketplace and how is it that a minority member of this subcommittee can trust you by sup- porting your side of this issue, when, in fact, your history doesn't prove that you are willing to do or to guarantee roles for minori- ties, whether we are talking about writing, directing, producing, acting, et cetera. - Mr. COLLOFF. All I can say is I think we are making a good-faith effort to do that. I don't think that-- Mr. LELAND. Are you willing to sign a contract? Mr. COLLOFF. No, we are not willing to sign a-- Mr. LELAND. Are you willing to sign a contract, Mr. Dunham? Mr. DUNHAM. I think our record, Congressman, does suggest more positivity, perhaps, than we are getting credit for. Not much, but some. Under the rules that have existed for 10 years. I don't know of any development of minority independent production PAGENO="0396" 392 houses. Before the rules, one of the first contracts I worked on when I came to NBC was to finance the development of a new inde- pendent production house, Bill Cosby. Bill Cosby went on the air. He became a big success, because in those days we could finance production houses. We could get them started and then they could sink or swim in the marketplace like everybody else. Today, under the rules, economically that is not practical. Eco- nomically, today, those same people have to go to the studios. Now, they may be employed by the studios as producers, and many of them are, but in terms of the ability of minorities to set up their own independent production houses, the more buyers, the more people able to finance, the more people interested in developing new sources of program supply the better. I think that is the only guarantee we can offer. Mr. LELAND. Mr. Dunham, you have given only one example. That is an isolated incident. I would suspect, if you can come up with statistics better than what you have alluded to, that minori- ties have not been, given the opportunities by your networks, and I am particularly concerned about that. But I can only judge you by your history, if we don't sign a contract with you, then, in fact, we have no real guarantees and it is business as usual. I would like to ask other panel members if they would like to re- spond. Mr. VALENTI. Yes, I would. Congressman Leland, I think the one question that ought to be put to the networks are the following: One, do you or do you not, Mr. Network, control casting on your prime time shows? I would like Mr. Colloff and Mr. Dunham to answer that question. "Do you or do you not control the casting"? Mr. LELAND. Well, let me ask the question. They might not re~ spond to you. Mr. VALENTI. You ask them. That is No. 1. No. 2, if the networks want an all-black show or an all-Hispanic show or an all-Asian show on prime time television, they can have it in a twinkling of an eye because it is the networks and the networks alone who make the decision as to what goes on the air, not the producers, not the syndicators, not the major or the minor producers. It is the networks. Therefore, if you come to them with an all-black show, Congressman, they alone have the right to say whether it goes on the air. But I would like them to answer the question. You may want to post it, because it hasn't been asked. Do you or do you not control casting? Do you or do you not control what goes on the air? Mr. LELAND. Mr. Colloff, you can respond for all the networks, if you will, and then I will be through. Mr. Cou4opp. I think I would like to make two points. Number one, the networks primarily are receivers of ideas from production companies. We are generally not the initiators of such ideas. We are the recipients of such ideas. No. 2, I think that the process of casting and other, similar parts of the production process are a joint process. It is a process that, hopefully, for the most part is col- laborative. I know it is not always collaborative, but that is the goal, and I think, again, what we are getting down to here is it is wonderful to be able, for Jack or me, to point across this table and say it is his fault, it is his fault. That, it seems to me, is not the issue. There is a joint responsibility which we are trying to exer- PAGENO="0397" 393 cise, which I am sure the production companies are trying to exer- cise in order to increase the quantity and quality of the portrayal of minorities on television. It is a joint responsibility. It is one we should exercise jointly, and I think it is one which we are exercis- ing. Mr. LELAND. Mr. Chairman, I know that we don't have any more time. I would like to ask unanimous consent that I be permitted questions to the panelists and that their responses be entered into the record. Mr. WIRTH. Without objection. In closing off this panel and thanking the six of you for being with us, we will leave the record open for any further comments that any of you might like to make and for questions to you for answers from members of the subcommittee. Two very specific items that have come up that I would like to have clear in the record. Mr. Dunham, going back to the question of pay versus free TV, I would like you to react to this. The finan- cial interest rule, it doesn't seem to me, has anything to do with the economics of pay versus free TV. The essence of pay TV is that the viewer values the programing more than the advertiser values the viewer. So, sports and movie programs may migrate to pay TV, but that reflects on the underlying economics of the business and would be the case whether or not the rules were in effect. Again, if you could answer that for me and see if you can how the free versus pay TV fits into this, please submit that for the record. Also, Mr. Cassara, this morning, the networks have argued that there are many highly rated first-run syndicated shows, which are substitutable for off-network syndicated programs from the vantage point of an independent station. I would appreciate it if you and the independent television operators could respond to that also in writing. Those are two issues that have arisen, one very specifically today and the other referred to indirectly. We would appreciate that if they could be clarified for the record. Thank you all very much for being with us. That record will be open. We greatly appreciate it, particularly the many long dis- tances many of you had to come this morning. Thank you very much. [Testimony resi,imes on p. 422.] [The following material was submitted for the record:] PAGENO="0398" 394 -~ - _IT TELEVISION STATIONS, INC.. 1200 EIGHTEENTH ST., NW. WASHINGTON, b.C. 20036 [2S2J 887-1970 September 7, 1983 Mr. Thomas Rogers Counsel SubCommitte on Telecommunications, Consumer Protection and Finance Committee on Energy and Commerce U.S. House of Representatives Washington, D.C. 20515 RE: Los Angeles field hearing on H.R. 2250 (Financial Interest and Syndication Rules) Dear Tom: At your field hearing on June 1st, Tony Cassara of Golden West Television was asked by Chairman Wirth why first-run syndicated programming could not be substituted for recent, of f- network shows. He promised to supply the subcommittee with a written response for the record. Enclosed please find Mr. Cassara's formal response to that question. In addition, we would also like included in the hearing record an affidavit signed by 57 INTV station general managers which addresses the Financial Interest and Syndication Rules. A copy of this affidavit, which was filed with the FCC, is also attached. Needless to say, I trust you will let me know if I can be of any further assistance. Very best regards, 4ame~ B. Hedlund Vicej-President Govdrnment Relations JBH/amr enclosures . WASHINGTON, D.C. NEW YORK CHICAGO CW ANOEL FA PAGENO="0399" 395 This latter figure suggests that affiliates might use even more of f- network programming, and less first-run were it not for the restriction imposed by the PTPI. RATIONALE The statistics I have provided above demonstrate that managers of independent stations do not believe they can substitute first-run syndicated programming for recent, off-network shows during their key day-part, early fringe. There are some very logical reasons ~ as managers, we know this is true. First, it is important to understand that by necessity, the quality* of first run syndicated programming is not comparable to that of off-network shows. The cost of producing a network show is extremely high -- often exceeding a half-million dollars for a single episode of a series. That cost can be justified, however, by the fact that this episode will run during prime time on a network capable of reaching the entire population of the country. When such a network show reaches the syndication market, a large proportion of its production costs has already been recaptured from the orginal network license fee. As a result, most of the money generated in syndication (after deducting for distribution costs) represents profit for the owners of that show. On the other hand, a first-run syndicated show must recover all the cost of production (as well as the distribution costs) before any profit can be earned. Moreover, since a first-run show is sold market-by-market, it is unlikely to be carried by as many stationê, reaching as many viewers, as a network can achieve through its affiliate structure. As a consequence, it is difficult for the producer of a first-run show to create a program with network production values and, at the same time, be competitive with a syndicator of off-network shows in terms of price. To be competitive from the stand point of price, a first-run shows must be produced at a substantially lower cost. This, in turn, requires the adoption of less-expensive production formats such as talk-shows, quiz- shows, or "soft-news" programs like "P.M. Magazine" or"Entertainlflent Tonight'. * By "quality" we do not mean to imply that network shows are "better" than first-run shows on a substantive basis, but rather that more elaborate production techniques and the like contribute to substantially higher costs ~ more and higher-paid performers, action sequences, more on-location shooting, larger production crews, etc). In the trade this is known as producing a show with "network production values". I / / / PAGENO="0400" 396 TO: Subcommitte on Telecommunications, Consumer Protection and Finance Committe on Energy and Commerce United States House of Representatives RE: Field Hearing on the Financial Interest and Syndication Rules June 1, 1983 Los Angeles, California Written response of Mr. Anthony B. Cassara, President (Television Division), Golden West Broadcasters, Los Angeles, California, to a question asked by Chairman Wirth. ********** ** ** *** ** * Question: For independent television stations, is first-run syndicated programming a suitable substitute for off-network programming, especially during the fxi~ige periods? Answer: Because independents adopt a different programming strategy from those of the network affiliates, first-run shows that may work well for affiliates (particulary during the Prime Time Access period) are inappropriate for most independents' early and late fringe period schedules. SURVEY DATA If it were true that independent stations could substitute -- without suffering audience erosion -- first-run syndicated programs for recent, off-network material, then it is reasonable to assume that we would have done so. This is particulary true in view of the fact that most first-run shows sell for less than recent, off-network shows. Using issues of TV GUIDE (for the week of March 19-25, 1983) for the markets in which INTV h~s on-air members, the INTV staff measured the relative use of first-run and off-network programming during the weekday early fringe period (4-8pm in the Eastern and Pacific time zones; 3-lpm in the Central and Mountain zones) for affiliates and independent~ alike. The results are striking. Of the 82 independent stations included in the survey, only 14 stations used any f.irst-run programming at all during the early fringe. As a group, the independents carried off-network programming in 70% of the time available during early fringe, while utilizing first-run syndicated material for only 3% of the time (the figures do not total~ 100% since some of the time period is programmed with news, movies and other shows which do not fall in either catagory). By contrast, the 168 network affiliates in the markets studied programmed an average of 34% of their early-fringe time with off-network material, and 23% with first-run syndication. Over half of the first-run shows the affiliates did carry were run during Prime Time Access -- a period during which they are prohibited from using off-network programming. PAGENO="0401" 397 During early fringe, independents counter-program network affiliate news blocks with recent, off-network shows assembled into blocks of similiar programming (situation-comedies, adventure shows). The rationale for this is that, as independents, we want to attract a portion of the available audience at the beginning of the block and hold it for the next several hours (at least until prime-time begins). Given this strategy, it is simply impossible to shorten or interrupt this programming block with a "soft-news" or quiz show: the flow of programming is broken, causing viewers to switch channels. A network affiliate, on the other hand, has attracted a different portion of the available audience with its news block, and seeks to hold that audience through to the start of prime time. Under these circumstances, a "P.M. Magazine" or "Entertainment Tonight" can serve as a logical bridge between the end of the mews and the start of the prime-time network feed 30 or 60 minutes later. In short, off-network and first-run programming are different beasts. Each has advantages and disadvantages depending on when it is run, the context within which it is run, and the type of audience the station is trying to keep or attract. Current programming practices of independents, reply heavily on blocks of recent, off-network series during the fringe periods, and first-run syndicated programming is simply not an acceptable substitute. This is not just a theoretical answer. The most important reason independents stay clear of the available first-run syndicated programs has been cited to me by other independent station managers, whose experience re-enforces my own: we have tried it and it just doesn't work! 32-540 O-84-----26 PAGENO="0402" 398 STATEMENT OF FACTS BY INDEPENDENT TELEVISION BROADCASTERS IN SUPPORT OF COMMENTS OF TEE COMMITTEE FOR PRUDENT Q.~REGULATION IN FCC DOCKET NO. 82~345. 1. Network television audience shares have declined significantly in recent years. While much has been said about audiencà losses to cable, subscription TV and home video alter-j natives, the fact is that independent stations' audience shares increased dramatically during this period. Because. of these audience gains, advertisers now have attractive competitive alternatives to network owned and affiliated stations for local and national spot availabilities. The independent'growth has been dramatic enough in some markets to achieve parity or even a competitive edge over affiliated stations. 2. The audience gains for independents have been extra~ ordinary in fringe and access time periods: 4:00-8:00 p.m. Eastern and Pacific; 4:00-7:00 p.m. and 10:00-11:00 p.m. Central and Mountain zones. Even though audience and revenue gains are occurring in prime time, the fringe and access time periods are the economic backbone. of the independents. On average, over 40 percent of an independent station's net revenues are earned in the fringe and access time periods. A significant reduction in the net revenues produced during that day part could not feasibly be offset by ~ncreases,in other day parts, and would, therefore, lead to a net reduction in the financial and competitive strength of independent stations. PAGENO="0403" 399 3. The owned and operated stations and affiliates tend to schedule news and information programs head to head in major blocks of time during early evening hours. By stripping recent off-network syndtca,tion (that is, showing episodes from the same series at the same time each day) against these blocks, the independents provide viewers quality programming alternatives. Recent off-network syndicated programs are the high quality shows which are still on the networks or have just recently completed their network runs. `MASH,' `Happy Days,' `Laverne & Shirley' and `Barney Miller' are examples, as opposed to older off-network offerings such as `I Love Lucy,' the `Cisco Kid,' `Bonanza,' etc. Recent off-network syndication is unique in that the stars and ensemble casts of the shows are currently popular and produc- tion techniques, pacing, scripts and humor are contemporary enough to meet today's audience expectations. This has resulted in audience gains in demographic groups that are attractive to advertisers. 4. Successful stripping requires the availability of a large number of episodes of a given program. While there are a very few exceptional programs that can be stripped successfully with sixty or fewer episodes, about one hundred episodes are generally needed for such use. 5. Older off-network syndicated programs cannot be sche- duled successfully in these time periods, as a rule, and still attract the most desirable audience: young adult viewers. PAGENO="0404" 400 Occasionally, older syndication products, which attract mainly children, are shown; "The Flintstones," "Gilligans Island," "Brady Bunch" and "Scooby Doo" are examples. 6. First run syndication is rarely effective in program- ining these time periods on independents. The costs of producing first run products of the quality of prime time shows and the quantity needed for stripping is beyond the economic capabili- ties of the independents for prime time, much less early fringe, because independent stations, even in the aggregate, do not reach a sufficiently large audience to support the risk and expense of such productions. In addition, running a first run syndicated program in the middle of a block of off-network programming is unlikely to produce satisfactory results in terms of attracting audience. While there are exceptions, the first run syndicated programs that have been available have generally failed to gener- ate the audiences on independents that recent off-network syndi- cated programs achieve. P.M. Magazine is an example of a success- ful offering and that was primarily designed for atfiliates with strong news audience bases. 7. While it is possible, in some markets, for one station to run movies during early fringe, the experience of most mdc- pendents has been that situation comedies or action shows of half hour or one hour duration are the programs most responsive to independent station audience desires during the early evening hours. PAGENO="0405" 401 8. At the present time there are approximately 30 sup~ pliers of off-network programming to independent stations. The cost of this product has escalated dramatically in recent years, yet the independent stations continue to buy because it is the unique program material which meets the audience expectations and generates demographic ratings that are attractive to adver-~ tisers. While varying from market to market, the prices per episode probably have increased more than 100% in the past four years, yet independents continue to buy because there are no suitable alternatives. Given this absence of reasonable alter~ natives, a further price increase of five or ten percent would not lead to significant purchases of alternative types of programming. 9. The number of off-network programs sufficiently recent and popular to warrant exhibition during the crucial fringe and access time periods varies from year to year, but it is generally the case that, in any given market, there are recent off-network programs that a~re available for sale but not purchased. 10. If some of the shows actually being exhibited during the crucial fringe and access time period referred to in Para- graph 9 were Unavailable, independents would be most likely to turn to other off-network shows to fill the gap, rather than to theatrical movies, first-run syndication, news, or sports. This replacement off-network programming might include recent but less popular or slightly older shows. PAGENO="0406" 402 11. Changing or repealing the Financial Interest and Syn~ dication Rule could eventually reduce the number of suppliers and restrict the flow of product to independents. Audience gains on independents would eventually be reversed and the independents' attractiveness to advertisers diminished to the point that many of the stations that are marginally profit-S able today could fail. Having reid the foregoing Statement of Facts by Independent Television Broadcasters in Support of the Comments of the Commit~ tee for Prudent Deregulation in FCC Docket No. 83~345, the undersigned hereby attest that the statements contained therein are true and correct to the best of their knowledge, information, and belief. (Committee Note--The signature sheets have been placed in the files of the Committee.) PAGENO="0407" 403 RESPONSE TO QUESTION OF CHAIRMAN TIMOTHY E. WIRTH At the June 1, 1983 hearing on HR 2250 conducted in Los Angeles by the House Telecommunications Subcommittee, Chairman Timothy Wirth asked for a written statement from NBC regarding the impact of the FCCs Financial Interest and Syndication Rules on the ability of the pay-television media to outbid the free television system for talent and programs. There is no question that the Rules work to accelerate the loss of television programming to the pay media -- particularly cable and pay~cable -- in concrete ways that have been clearly documented:* 1. First, the Rules diminish competition and increase concentration in the program supply marketplace, limiting the formation of new independent sources of television programs for the free television system. * The burden the Rules place on the ability of the broadcast networks to compete for programming with the pay media is described more fully in the attached economic analysis by David M. Blank, a consultant to NBC. PAGENO="0408" 404 This is the conclusion of every Government 1' agency that has studied the question, including the Justice Department, the Commerce Department, the Federal Trade Commission and the FCC's own Network Inquiry Special Staff. By prohibiting the free television networks from acquiring interests in the syndication of television programs, the Rules limit the return networks can expect to earn from successful programs. This has the effect of reducing the ability of the broadcast networks to invest in free television program development, particu- larly. the high risk ventures of new small producers. Even if the prograni defies the odds and becomes a hit, the network return will be limited by these Government constraints. As a result, the risk is generally too great to justify network investment or co-venturing in the projects of new program producers. 2. In this way, the Rules limit the ability of the free broadcast networks to finance new production entities who could become an additional source of programming for the free PAGENO="0409" 405 television system. Independent producers are increasingly driven to the large~studios for financial support. The studios, of course, have no incentive to encourage the establishment of independent production companies to compete against themselves. Instead, they absorb the producers they finance into their own production operations, thus limiting the available sources of program supply for the free television system. This has caused a dramatic shift in program supplier relationships, with large increases in the proportion of primetime programs supplied by studios and studio joint ventures. At the same time, there has been a sharp decline in the proportion of primetime programs supplied by independent producers. (See FTC Reply Comments, pps. 42-43.) 3. The Hollywood studios and large production companies have a firm hold on the finite pool of producers, directors, writers and performers needed to produce television programs. The Financial Interest and Syndication Rules -- by PAGENO="0410" 406 limiting network investment in new production entities. -- help keep it that way. 4. The pay-television media are now bidding against the networks for this limited pool of essential television talent. And pay-TV brings enormous resources to the bargaining table, with subscriber payments already at the $3.5 billion level and projected to outstrip the revenues of all three broadcast networks combined within the next few years. Against this formidable a~d.growing purchasing, power, the free broadcast network that seeks .to outbid pay now inust.sit at the bargaining table under a severe Government handicap. Simply put, the pay television network can invest in the syndication values of television programming; the broadcast network cannot. Thus, the Rules limit the amounts'broadcast networks can economically invest in such pzogramming as made-for-TV movies, series programs and theatrical films. All of these program forms have aftermarket values in which the pay media can, and do invest, but --. by Government fiat -- the broadcast networks PAGENO="0411" 407 cannot.* Thus, the pay-television media can bid sufficient money to attract essential production talent away from the free television system. 5. The movement of programming talent to the pay-TV media is already happening. Cable and pay cable networks are already offering almost 100 original series, including sitcoms, dramatic series, soap operas, children's shows, women's programs, cultural, musical and religious programs. Recently, Disney Channel Productions announced its intention to expand its programming service to 16 hours per day, offering 12 original series. Similarly, Showtime has annouiwed its involvement in * For example, the June 23, 1983 Wall Street Journal (p. 4) and New York Times (p. D4) report that Metromedia has agreed to acquire the broadcast television rights to at least eight made-for-pay programs produced by or for HBO. In addition, Metromedia plans to co-produce future programs for HBO. The articles demonstrate that pay programming does have value in the syndication market and that pay networks can co-venture with program producers in ways that the free television networks cannot. Under the Rules, a broadcast network could not co-produce a program with Metromedia and then share in the program's syndication values, either through sale of the syndication rights to a distributor or by sharing in the profits or revenues of station-by-station distribution. PAGENO="0412" 408 development deals for pilots that could lead to six ongoing original series, ~s well as a magazine format program. Loriznar, the producer of "Dallas', "Knots Landing" and other successful network programs, is now producing `Loving Friends and Perfect Couples," an entertainment series for Showtime. Embassy, Viacom, Twentieth Century-Fox, Henson Associates, Hanna Barbera, Tomorrow Entertainment Productions and other program suppliers are all producing original series programs for pay-TV, diverting talent and resources from the free television system. 6. As the revenues and profits of the pay media continue to increase over the years ahead -~ and as pay turns increasingly to original television production -- each broadcast network will need the ability to bid as much as possible when it sits down at the bargaining table to compete against pay for programs. The Rules prevent this by limiting the broadcast rights in which networks can invest. 7. As the existing pool of studio talent is increasingly absorbed by the purchasing power PAGENO="0413" 409 of pay, broadcast networks will need the ability to finance new sources of television programming. Again, the Rules prevent this by limiting potential network return from the high-risk ventures of new production companies. 8. The effect of the Rules on the ability of the free broadcast networks to finance the program ventures of independent producers not only denies the free television system a new source of talent and programs, it also denies independent producers -- including many minority producers -- the opportunity to obtain an additional source of financing for their production operations. That source was available before the Rules, but is not now. 9. Despite the movement of talent and programming from the free television system to the pay media, pay is not an economically feasible alternative for all viewers. For this reason, numerous groups representing low-income Americans have expressed concern that the Rules may accelerate the movement of programming to pay. It is significant that a large number of PAGENO="0414" 410 organizations representing senior citizens, various minority groups, organized labor and religious groups have supported repeal of the Rules and have expressed their support in communications to the Commission and to Congress. (A partial list of such groups is attached.) These groups are fully aware of the adverse effects the Rules have on the continued availability of quality free television programming. They believe it is inappropriate for the Government to maintain restrictions on competition that ~o directly injure lower income Americans. Their concerns are real and immediate and should not be ignored by the Commission or by Congress. *** PAGENO="0415" 411 PARTIAL LIST OF GROUPS SUPPORTING REPEAL National Council of Senior Citizens -- The Honorable Robert Garcia (Chairman of the Congressional Hispanic CaucuS) -- The American Federation of Grain Millers -- The International Brotherhood of Electrical Workers (IBEW), Local 1430 SER-Jobs for Progress, Inc. -- The Amalgamated Clothing & Textile Workers Union -- The American GI Forum of the United States -- The League of United American Citizens (LULAC) The United Rubber, Cork, Linoleum and Plastic Workers of America (URw) -- Hispanic Republicans of Michigan, Inc. -- The International. Longshoremen's Association Caballero Spanish Media Inc. -- NBC Affiliate Stations Rural American Women, Inc. -- CBS Affiliate Stations -- Ateneu Luso Americano Broward County - Marcia Beach (Chairperson, Board of Commissioners, Broward County, Florida) -- The National Urban Indian Council -- The National Congress of American Indians -- The National Hispanic Arts Endowment -- The National Coalition of Hispanic Mental Health and Human Services Organizations (COSSMHO) PAGENO="0416" 412 ABC Affiliate Stations National Council of La Raza -~ The Honorable Claude Pepper (former chairman of the Select Committee for the Aging) f -- The International Longshoremen's and Warehousemen's Union Association United Marine Division of the International Longshoremen' s Association -- The Coalition of Labor Union Women PAGENO="0417" 413 The Effect Of Retention Of The Financial Interest And Syndication Rules On Competition Between The Broadcasting Industry And'~Pay Cable* Retention of the financial interest and syndication rules improperly handicaps the broadcasting industry in its competitionwith pay cable for viewer~s and for programming and talent. Free television is still the most inexpensive method of distributing entertainment product to the public and has sufficient economic advantages over distribution methods that involve major capital expenditures and require substantial payment from viewers to make the ultimate equilibrium between these media still uncertain. Absent the rules, such a resolution will result from free market competition, and the two media will achieve an optimum balance between cost and viewer satisfaction. The television networks must and will take their chances in this competitive struggle. The Loss of Efficiency Imposed by the Rules There is, however, no reason why the networks and, indeed, the whole broadcasting industry should carry an unnecessary *By David M. Blank, Ph.D., aneconomiC consultant to NBC. 32-540 O-84--27 PAGENO="0418" 414. burden imposed by the FCC in this competitive struggle. The burden is the loss of efficiency enforced upon the broadcast network industry by the FCC's Financial Interest and Syndication Rules. These rules prevent the efficient sharing of risks between the networks and producers. The consequence of such a loss of efficiency is a reduction in program investment and, therefore, a commensurate loss in the quality of programs obtained by the free television system. Pay cable has no such burden. It can negotiate with its suppliers for whatever division of risks and allocation of rights are mutually advantageous. For example, in exchange for guaranteeing the financing of feature films through a limited partnership to be known as Silver Screen Partners, Home Box Office has obtained all of the syndication rights to the films, as well as 25 percent of the revenue obtained from licensing such films to the television networks.~1' 21 Daily Variety, March 31, 1983, pp. 1, 22. Indeed, the practice of the investor in a creative project acquiring some or all after-market rights in exchange for an initial payment is so common in non-video creative industries that it strongly supports the view that this practice is a consequence of inherent efficiencies. See Reply Comments of the Bureaus of Consumer Protection, Economics, and Competition of the Federal Trade Commission, BC Docket No. 82-345, pp. 44, 45. PAGENO="0419" 415 The costs and consequences of the disruption of efficient risk-sharing arrangements are most clearly laid out in the original commentsof the FTC Bureaus)' Their summary of the consequences is as follows: it appears that the rule may prevent the most efficient risk-sharing arrangements in the production of programming and may thereby increase the cost of programming. This, in turn, may lead the networks to exhibit less expensive programming and thus may also reduce viewer satisfaction. It therefore appears that, on balance, the rule may be more likely to harm consumers than to benefit them. And any reduction in consumer satisfaction derived from network programming will burden the free television industry in its competition with the pay medi~a. According to the FTC Bureans analysis: One possible cost associated with the financial interest and syndication rule may be a decrease in the ability of producers of t~levision programming to share the risk they face in pr~oducing programming. This inability to share risk ~fficiently may result in higher costs for program pr~oduction, particularly for small producers. As a re~ult, there say be a reduction in the quantity, quality, or variety of programming produced fQr network exhibition. The FTC analysis goes on to identify the specific efficiency with which the rules interfere: Comments of the Bureaus of Consumer Protection, Economics, and Competition of the Federal Trade Commission, BC Docket No. 82-345. FTC Bureaus Comments, p. 4. .~J Id. at 29. PAGENO="0420" 416 "A financial interest in syndication or the syndication rights themselves could be sold to any number of parties. . . . There is reason to believe, however, that the network that purchases the first run exhibition rights to a program is the most efficient ~purchaser o1 financial interests or syndication rights. "!i Because of the restrictions imposed by the financial interest and syndication rules, however, "program producers must choose between bearing the risk associated with syndication themselves or selling it to another party -- probably for less money than could have been obtained from a network. If producers cannot realize as much revenue by selling all or part of. the uncertain profits associated with program production, they may sell a smaller portion of those profits and carry greater risk themselves."~J' This is bound to have an adverse impact on the market for production of television network programming. "Any increase in the degree or cost of the risk borne by producers may increase the price of programming to networks or other programming purchasers. . . . The increase in the cost of programming may also result in reduced purchases by the networks of relatively high cost programming and increased purchases of lower cost programming. If such changes result from the operation of the financial interest and syndication rule rather than shifts in consumer tastes, they may result in FTC Bureaus' Comments, pp. 30-31. FTC Bureaus' Comments, p. 32. PAGENO="0421" 417 reduced television enjoyment by the viewing public -- i.e., consumer welfare may be diminished."~E1 Reduction of consumer welfare from network programming clearly burdens networks and the free television system in their competitive struggle with the new media, particularly pay cable. And this burden is not a function of free-market competition, differences in costs or inherent advantages of either side. It is specifically imposed by the FCc's financial interest and syndication rules. Agreement about the reduction in efficiency of the network system imposed by the rules is virtually unanimous. For example, the FCC's Network Inquiry Staff reached exactly the same conclusion.~ The Commerce Department Comments on the rules also come to the same con~lusiom.V The Justice Department presented similar Views.±" The Rules Reduce Financing ~pt ions for Free evo~ Producers New data obtained by ICF, economic consultants to the Committee for Prudent Deregulation, in the course of preparing ICF's Comments show more clearly than before the significant effect of the rules upon the television industry's operations and efficiency. FTC Bureaus' Comments, p. 33. V "New Television Networks, Entry, Jurisdiction, Ownership and Regulation", Volume II, Network Inquiry Special Staff, FCC, 1980, pp. 619-622, 730, 731. 21 Comments of the United States Department of Commerce, BC Docket No. 82-345, pp. 12-16. ~i/ Reply Comments of the United States Department of Justice, BC Docket No. 82-345, p. 5. PAGENO="0422" 418 Before the imposition of the rules, small suppliers had the choice of selling syndication rights an~ profit shares to the networks or to the studios or retaining them. Since most small producers needed financing and since the networks were more efficient risk-bearers than studios, most small producers obtained financing from the networks. After the rules were enacted, the network option was precluded. Since small producers continued to need financing, the advent of the rules and the elimination of the networks as buyers of after-market rights should have significantly increased the dependen~e of the small producers on the studios)1 And this is indeed what has happened. Increased Dependence on the Studios has Resulted ICF data, supplied to the FTC, show a substantial rise in that dependence.~1 According to the FTC Bureaus: "During the 1969-1970 television season, just prior to the rule's implementation, only ten percent of prime time programs were jointly produced by independent suppliers and movie studios. During the same season, independent suppliers accounted for sixty-six percent of prime time programs without assistance from the studios. By the 1975-1976 seasons, the percent of joint ventures between studios and independents rose to thirty-four percent and the percent of programs produced solely by independents fell to forty-seven percent. These differences have only a one-in-twenty probability of occurring by chance. See FTC Bureaus' Reply Comments, pp. 40-43. These data are similar to, but not identical with, data submitted by ICF to the FCC. See "Analysis of the Impacts of Repeal of the Financial Interest and Syndication Rule", ICF, Volume I, exhibits 1(d) and 11(d). PAGENO="0423" 419 Interestingly, the 1981/82 season looks very much like the 1975/76 season. There is no statistically significant difference between the percentages of the various categories in these two seasons. This result is interesting because it increases our confidence that these structural chan es are attributable to the rule and er c anges occurring in communications at t e time. If the latter had been true, we would probably seen further changes in the 1981/82 season, changes that differed from the structure ex~sting in the two earlier seasons." (emphasis added)ii Thus, the rules have dramatically increased the dependence of small suppliers on the major studios, a result in full accord with the analytic prediction that while the rules would eliminate the most efficient risk-bearer the networks ~- the need of small producers to shift a portion of their rights to larger, more efficient risk bearers would temain. Efficiency Reductions Have Burdened the Broadcast Networks' Ability to Compete for Programs. with the ?ay-TV Media All this reduction of efficiency and increase of small supplier dependency on large suppliers has a marked impact on the movement of programming from the free television system to the pay-TV media. Elimination of the most efficient risk bearers by governmental fiat clearly burdens the networking industry and raises its costs. Increases in these cost burdens eventually lead to less investment in network programming than would otherwise occur. Pay-TV has no such burdens, so it can 11 FTC Bureaus' Reply Comments, p. 43. PAGENO="0424" 420 invest in programming in the most efficient ways that the marketplace can devise.Y For the broadcast networks, smaller investment in programming leads to a loss of high-cost programs to the pay system and a schedule of lower-quality programming than would otherwise occur; lower-quality programming leads to lower consumer satisfaction than would otherwise occur; lower consumer satisfaction leads to a further reduction in the ability of the networking system to compete with the new media, particularly pay cable. And this set of consequences is in substantial part the result of these governmental rules~ The Anti-Competitive Effects of-the Rules Have Hurt the Public The shifts in the relative competitive abilities of these media have further results. The services of the commercial television industry are free to its viewers, so lower-income families have the same access to its services as upper-income families. But cable and, particularly, pay cable servic5s 21 While some have argued that there may be inherent economic characteristics of theatrical movies and some (but not all) sports which favor pay television in its competition with the free media for these types of programs, it does not appear that there are any inherent economic advantages for pay-cable (or basic cable) with regard to entertain- ment series or made-for-television movies or, indeed, many sports programs -- if cQmpetition is allowed to function unencumbered by Government rules. Weakening the economic structure of the free television system, however, through these artificial Government constraints will work to accelerate the movement of entertainment programming and talent to the pay television system. PAGENO="0425" 421 require consumer payments, and not everyone can afford these Services. As a result, purchase of cable acid pay cable is much higher in upper-income families than in lower-income families. That, in good part, is why pay-cable penetration in markets in which pay cable has been offered for some time typically continues to fall well below 50 percent (of homes passed by cable systems that offer pay services), compared with the well-nigh universal coverage of commercial television. The dependence of pay cable on higher-income families is clear from HBO's experience. In 1982 54 percent of HBO*s subscribers had family incomes of ~3O thousand or more, while only 35 percent of the general population, roughly comparable to the television household population, had such incomes.~ Conversely, only 25 percent of HBOs subscribers had ~l5 thousand in income or less, compared with 44 percent for the general population~ It is clear that a shift in programming strength from free television to pay television will significantly hurt lower-income groups. David M. Blank !/~ Simmons Market Research Bureau, Inc., 1982. PAGENO="0426" 422 Mr. WIRTH. Our second panel this morning, if we could have them join us, in the order in which we have talked to them about testifying, includes: Sidney Poitier from Verdon Productions in Bev- erly Hills; Brock Peters from Delbro Enterprises in Los Angeles; Robert Hooks, the founder and chairman of the National Alliance for Black Advancement in Communications in Los Angeles; Bernie Casey from Poobab Productions in Los Angeles; and Terry Carter from Meta-4 Productions in Los Angeles. Gentlemen, thank you very much for being with us. Let's have order in the hearing room. If there are conversations that people want to hold, please step outside. I think all of you are familiar with the rules of the subcommit- tee. We have asked all of our witnesses to summarize their com- ments in 5 minutes. We have, as you know, a very full agenda today. Your statements will be included in full in the record and we will also leave the record open for further comments that you might like to make. We greatly appreciate your being here. I will be keeping the time. The last panel held very nicely to the time, and we would greatly appreciate your understanding of the timeframe under which we are operating. Mr. Poitier. STATEMENTS OF SIDNEY POITIER, VERDON-CEDRIC PRODUC- TIONS, INC.; BROCK PETERS, DELBRO ENTERPRISES (LOS AN- GELES); ROBERT HOOKS, FOUNDER AND CHAIRMAN, NATION- AL ALLIANCE FOR BLACK ADVANCEMENT IN COMMUNICA- TIONS; BERNIE CASEY, POOBAB PRODUCTIONS (LOS ANGELES); AND TERRY CARTER, META-4 PRODUCTIONS Mr. P0ITIER. Mr. Chairman, distinguished members of the com- mittee, as you seek to properly discharge your responsibilities to the people of our Nation on the important and urgent question that awaits your good judgment, as you seek a decision that would be in the best interest of the people of the United States, we offer you our prayers and our best wishes. It is truly a testament to the flexibility and resilience of our democratic system that in matters concerning the public, the public has input. The public is encouraged to offer that input and, moreover, the public's views are given consideration that is genu- ine, balanced, and thoughtful. It is in this spirit that we respectfully wish to bring your atten- tion to a condition central to the matter at hand that conceivably might otherwise be overlooked, a condition of neglect; neglect to the point of erosion and in too many instances to the point of calci- fication of one of the principal virtues necessary to a robust, strong, and just America; a virtue inextricably woven into the body of our national life~ It was indispensable in our rise to greatness. It touched and en- hanced all of our institutions. It energized individual freedom and it nurtured our courage whenever a national crisis called on the best within us. PAGENO="0427" 423 I speak, gentlemen of the committee, of the tried and true Amer- ican virtue, fairness. Fairness, gentlemen. Without it, it would be all but impossible for us to lay claim to integrity in our national life. Without it, honesty becomes a mere cosmetic. Without it, we sow bad seeds in our families, in our businesses, in our schools, and in our hearts. It is indispensable in helping to cleanse the national body and keep it healthy. It can also flood the mind with good thoughts and lift our spirits. It is not expendable. Without it, America will become another kind of place to our ev- erlasting regret. Therefore, on behalf of our compatriots, actors, actresses, writers, producers, directors, dancers, musicians, technicians who are black and brown, we would like respectfully to draw your attention to the condition of callous and willful disregard of the indispensable American virtue of fairness as it relates to the matter before you that currently commands your committee's attention. In the life of our Nation, black people represent 12 percent of our total population or 30 million Americans. The contending forces around the issue before are businesses. The three major networks are businesses. The independent producers and studios, whether we view them as individuals or as an association are businesses and as businesses, I am sure both sides are in the habit of collecting data. On behalf of black and brown Americans, we would like to give you some data to exemplify the extent to which both these contend- ing businesses have contributed mightily to the erosion of one of America's indispensable strengths. The black community of America supports both contending busi- nesses in proportions greater than their percentage of the popula- tion. The annual disposable income of black Americans is in the vi- cinity of $164 billion, more than the combined spending of all the people in Russia and China and is larger than the national budget of many substantial nations. We are 12 percent of America's population and we represent ap- proximately 20 percent of the movie-going public, considerably more than our percentage of the population. By any evaluation, one wou'd have to conclude that we are strong, loyal supporters of the independent producers and the motion picture studios. We are no less loyal to the three networks. We watch considerably more television than would be expected of 12 percent of the population and our purchasing fidelity to the products manufacturers who advertise on the three networks is no less impressive. It confounds us, therefore, that they are so insensitive to our just needs for jobs in their businesses, a need that has been articulated to them time and time again with the net result of their response being to consciously ignore us, to not play fair with us. The networks are as guilty as the producers, for they, too, ignore the practice of fair play when dealing with us, one of its most loyal constituencies. In bringing this condition to your attention, we are not asking for quotas. We ask simply for fairness. Fairness. We are Americans and we love this land of ours. Our blood, our sweat, our very lives stand at the ready on her behalf. Our commitment to the principal PAGENO="0428" 424 of fairness is illuminated by the fact that we remain loyal, faithful supporters of the two businesses that today stand accused of ignor- ing the practice of fairness in their dealings with us. We have acted responsibly as a community. You are acting re- sponsibly as Representatives of the Congress of the United States in searching out and examining the facts as they exist on both sides of the issue. There is also a responsibility on the part of the networks, the in- dependent producers and the studio to the public good. A part of that responsibility is the exemplifying and safeguarding of fairness and fair play as a principal that lies at the very foundation of our Nation. Because you are in this instance responsible for seeing that the public good is protected, we have come to bring you abreast of this very vital aspect of the matter under your scrutiny. We assume that neither the networks nor the studios would bring it to your attention with the same fervor of those who are directly afflicted, if, indeed, they brought it to you at all. It is our contention that without this input and a full feel of this aspect from the people who are hurting, you may not have the ad- vantage of a complete, full view of the question. Finally, in conclusion, in anticipation of a response from the con- tending parties that will surely include "how much progress has been made in this area," I would like to leave you with the follow- ing cold, hard, irrefutable statistics. They represent the gross unfairness that continues to character- ize the hiring practices of both the independent producers and stu- dios and the networks. Of all the performers hired by Warner Bros. in front of its cameras throughout the fourth quarter of 1981, less than 1½ percent of the leading roles were black and less than 3 percent of all the supporting roles were black. In the first quarter of 1982, again, Warner Bros., of all the on- camera performers, no more than 2.6 percent were black in lead roles and 5.3 percent were black in all of the supporting roles. Bear in mind, gentlemen, if you please, blacks are 12 percent of the population and they contribute in the vicinity of 20 percent of the economic support received from the American public by the motion picture industry. In the second quarter of 1982, again, Warner Bros., there were no black leads. There was merely 2.2 percent of all the supporting roles allotted to blacks. Twentieth Century Fox, third quarter, 1981, of all of the total on- camera performers, 1.8 percent black leads; 3.7 percent supporting cast. Universal Studios, fourth quarter, 1981, total hired 1,274 per- formers. No black leads and 3.9 percent of the supporting cast were black. Aaron Spelling, producer, third quarter, 1982, of 449 on-camera jobs, 1.6 percent were black leads; 1.8 percent black supporting. Columbia Pictures, third quarter, 1981, of the total hired on cam- era, 1.1 percent black leads; 3.2 percent supporting. MGM Studios, third quarter, of the total hired 0.5 percent black leads; 3.9 percent supporting. PAGENO="0429" 425 At all studios in each quarter of any year, the percentages remain uniformly horrendous, even given the frequent fluctuation up or down a fraction or two or even a point or two. It is abundantly clear from the foregoing statistics that 12 per- cent of the U.S. population whose support amounts to roughly 20 percent of the domestic revenues the producers enjoy receive in some instances less than 3 percent of the available jobs. Americans, gentlemen, in each of your constituencies and throughout the rest of the 50 States would agree once given the facts that these statistics unquestionably represent a flagrant un- fairness in the hiring practices of the studios, of the producers and of the networks. We, therefore, ask on behalf of a faithful and loyal segment of our American community that you encourage with whatever means are at your disposal the producers, the studios, and the net- works to adhere to the principal of fair play that must surely exist as a requirement if they are to be honestly judged as having met even the minimal requirements of their responsibility to the public good. To that end, Mr. Chairman, given your and the Subcommittee on Telecommunications stated interest in assuring diversity of pro- graming sources and full access to participation in the broadcasting media for all citizens, we urgently request that the committee con- duct a full-scale investigation of the flagrant discriminatory hiring practices that result in the moral, almost total, exclusion of blacks and other minorities from the communications industry. Gentlemen, our presentation continues with a statement from my. colleague, Mr. Brock Peters. Mr. WIRTH. Thank you, Mr. Poitier. Mr. Peters. STATEMENT OF BROCK PETERS Mr. PETERS. Mr. Chairman, members of the subcommittee, ladies and gentlemen. We are here at the invitation of this Telecommuni- cations Subcommittee not to witness a battle between industry giants over the financial interest and syndication ruling, but to place in the subcommittee's record our concern over the near com- plete exclusion of blacks, Hispanics and other minorities from meaningful participation in all phases of the communications in- dustry. In accepting this invitation, we are exercising a responsibility to ourselves as men, as creative artists and as black Americans who are representative of a large segment of the viewing public. The fact that we are here to place that concern and its accompa- nyiñg statistics on the record is itself testimony that something is wrong. In 1968, the Koerner Commission Report of the National Adviso- ry Commission on Civil Disorders reported that media compounded the exclusion of blacks from the larger society by failing to commu- nicate their needs and concerns. In 1969, the Equal Employment Opportunities Commission held hearings in Los Angeles. The Commission turned its findings over to the Department of Justice for action. In 1970, the Department of PAGENO="0430" 426 Justice conducted its own hearings. In that same year the Associa- tion of Motion Pictures and Television Producers and the Interna- tional Association of Television and Stage Employees entered into a voluntary settlement agreement with the U.S. Department of Justice. In 1976, the California Advisory Committee to the U.S. Civil Rights Commission began a study and also conducted hearings in 1976 and 1977. In 1978, the Advisory Committee published its find- ings. In 1977, the U.S. Civil Rights Commission published its find- ings called "Window Dressing on the Set," and recommended that the Federal Communications Commission take strong action. In 1979, the U.S. Civil Rights Commission published an update and repeated its recommendation to the Federal Communications Commission. In capsule, the hearings and the published reports of over 15 years all declared that the problem for blacks and other minorities in this field has remained virtually unchanged. I ask where lies the responsibility for that. The networks have told us that their advertisers will not accept or sponsor black programing; therefore, it is economically impracti- cal. What seems impractical is that black Americans representing the ninth largest consumer market in the world and at least 20 percent of the U.S. viewing audience should be so underrepresent- ed and so ignored. In their turn, major independent producers, whom we recognize are subcontractors, have placed the blame for their lack of re- sponse to the problem on the networks' door step and over the past decade and a half have, with some exceptions, echoed the voice of the networks. So, our legitimate aspirations are shuttled back and forth like ping pong balls between sponsors, networks and suppliers. I ask again: Where is the responsibility in that? The Nielson Ratings, an admittedly flawed system by which pro- grams are rated, is cited as the final reason for not giving attention to the problem. I must conclude that since advertisers are charged according to the Nielson Ratings system, money is, therefore, the real reason, or is it? We are told that the multiethnic population of America is not in- terested in other ethnic or black product. How does one explain then the success of "Sounder," "Miss Jane Pittman," or the phe- nomenon of "Roots," which remains the highest rated television show in the history of the business. This show, by itself, refutes all of the reasons given by the indus- try for not doing serious black drama. Where then is the responsi- bility to that consumer, whose first amendment rights are entrust- ed to the networks and their suppliers. Is it responsible to ignore public trust? Blacks appear in films and on television as exceptions, when in society they staff our hospitals, teach in our schools, sit as mem- bers of local school boards. They serve in our judicial system from the Supreme Court to the municipal courts in every capacity. They serve in industry from top management to assembly line. They serve as officers and members of American labor unions. PAGENO="0431" 427 They serve in Federal, they serve in State, they serve in local governments. We function in almost every facet of American socie- ty. Yet, in American film and television we appear as the rare ex- ception, without relationships, cut adrift from any cultural moor- ing. Tell me, who is responsible for that? Responsible acts are often tied to understanding. They are tied to concern and in the ideal, they can certainly be tied to love. Con- versely, the lack thereof fosters distrust, disorder and chaos. How then is it possible in what appears to be a strong society, responsi- ble behavior is regularly pushed aside. Business,, political, social and religious leaders find responsibility troublesome when they are running for the roses and have to beat the competition, as they say, to stay afloat. Responsibility becomes a convenience they wear when everybody is watching. Everywhere you put the question the answer seems the same. Money. Not the presence of money itself, but the love of it, for the old adage is often misquoted. However, the communications industry carries a special burden. It mirrors our society both in front of and behind the camera. Through television, it can speak to the imaginations and minds of millions of human beings in a single moment. Its power to influ- ence is awesome. Imagine that power and how that power is used in a totalitarian state. In our society, however, we are supposed to be free of such cen- tralized control and there is minimal monitoring of television by Government. Supposedly only enough to see that the marketplace is open, competitive, and fair. The public assumes that the inordinate success of networks and major independents is the result of good management or corporate responsbility. That estimate is certainly partially true, but only on the surface. Below, there lies a continuing saga of irresponsibility, self-interest and greed, which is manifested at every level, whether by banks, unions, sponsors, independents or networks. These attitudes have prevented whole segments of our society from gaining access and contributing creatively to our citizens' air- ways, a fact which has been thoroughly documented in studies time and time again. Clearly, there appears to exist a gentlemen's agree- ment designed to prevent any black American from gaining the power to fund, produce, advertise or distribute product on a regular basis, either in theatrical release or on television. If this were not so, then Sidney Poitier, Bernie Casey, Terry Carter, Robert Hooks and Brock Peters would not be testifying before you this day. How responsible are American filmmakers to truth? Not very, when you consider that two films made decades apart, television's "Winds of War" and Daryl Zanuck's D-Day epic, "The Longest Day," both omit the crucial presence of the black soldier. Now, it is known that an unusually high percentage of blacks served in Viet Nam, but the movies, "Coming Home" and "Deer- hunter," ignored this fact. The phenomenal success of the Korean War television series called M*A*S*H is undeniable. The series producers practically overlooked the American black and minority presence in Korea. It PAGENO="0432" 428 has been speculated that only the personal integrity of its star saved M*A*S*H from much of the criticism it might have received. In a multi-ethnic society does any of the above seem like respon- sible video or flimmaking? Now, that the Nielson Ratings describe smaller shares of the audience, the networks point to the new tech- nology, for example, cable, satellite, video cassette recorders, et cetera, as a source of their problem, rather than the programing choices they offer to the public. As a result of the fierce, competitive, commercial marketplace, new shows must prove themselves in four or five airings. The old 13- or 26-week chance to build or develop an audience is gone. Today, in place of creative market analysis, networks, buy comput- er services to monitor our viewing and tell them why shows suc- ceed or fail. The documents from all these services insidiously tell us what races, what religious groups and institutions are most saleable and, thus, who, in effect, should be employed. Of course, we are not privy to what information is fed to the computers, but curiously the printouts from those services reinforce the old myths of racism. The Los Angeles Times revealed the existence of a service whose corporate acronym is T-A-P-E. The Times questioned the applica- tion and use of this service. First, there were denials that it exist- ed, then grudging admission of its use and the need for such a market tool and, finally, in some quarters there were statements to the effect that the service was no longer in use. So, responsible men in the industry who make much of their fair and liberal image relying on those computer printouts are found holding the line against minority participation at creative and deci- sionmaking levels. Again, I ask you where is the responsibility in that? Television has been described as the most pervasive tool of com- munication in man's history. It rivals the telephone in shrinking the size of our planet, outmatches radio and telephone through the combined visual and aural images it evokes. On the surface, it can be a peerless entertainer. It babysits our children while it informs us. As a teacher, it has vastly expanded our knowledge of the trivi- al as well as the profound. Its rate of growth is awesome. It has a near cataclysmic effect on all our perceptions. Is it, therefore, any wonder that there has been vital concern over the portrayal of mi- norities and women, over the excess of television violence or the effect of television, advertising on children, as well as adults. The industry has resisted any idea of discussion on these con- cerns, cloak.ing themselves with the protection of the first amend- ment as its personal shield, as if the amendment does not provide the same protection to us all. The situation remains a Pandora's box, whose lid has still not been closed. Perhaps, responsibility lies dead at the bottom of that box. As early as World War II, NAACP leaders started coming to Los Angeles to try to persuade Hollywood studios that it was in the country's best interest, as well as their own, to present a more bal- anced picture of the American black presence. Nothing came of that. PAGENO="0433" 429 Recently, Benjamin Hooks, the NAACP's current executive direc- tor, has come to Hollywood. He has managed to elicit some positive response. The results are yet to be determined. Over all these years of official hearings, public and private studies, and personal con- frontations, there has not been enough industry commitment to ap- proach being described as a sense of responsibility. Evidently, the industry does not believe its contribution to a healthy social cli. mate would pay off, but pay off it must. Since the black consumer's buying power represents the ninth largest consumer volume in the world, one thing can be certain stockholders will not forever reward .the kinds of policies that jeopardize their holdings. Racism is not good management, nor is it a sign of responsibility. We are now in the age of communications, which is overlapped by the electronic age. This has brought to our time a technological explosion, which gives man capability beyond anything he has ever experienced. Through thi~ ability to entertain, to teach, to inform, to share with all mankind the planet's collected cultural experi- ence, there should be no unlit areas of this Earth. The irresponsibility which prevents this industry from taking a pragmatic step into the future is at odds with what we expect of American businesses doing business in a multi-ethnic world. It is totally incompatible with responsibility. Therefore, Mr. Chairman, I join with Mr. Poitier in requesting that this subcommittee consider conducting a full-scale investiga- tion of hiring practices that exclude blacks, Hispanics, Asians, and native Americans in the communications industry. I thank you Mr. WIRTH. Thank you very much, Mr. Peters. I would ask our other three panelists to make sure to keep their comments to 5 minutes. That will give us the opportunity for questions before moving to our third panel. Mr. Hooks. Mr. PETERS. My apologies. May I introduce my colleague, Mr. Robert Hooks. STATEMENT OF ROBERT HOOKS Mr. HooKs. Thank you very much, Brock. Mr. Chairman, believe me, that was the longest statement of this morning. The rest will be shorter. Over the years, the television and film industry has matured, taking its place among the giant industries, which are pillars of the American economy and suppliers to the entire world./ With that ex- pansion and development, this industry has also become an incredi- ble source of employment opportunities. Yet, black and other minority participation is conspicuously absent from the upper echelon of the motion picture and television industry. This point is particularly important when we consider the subjectivity that goes into choosing images, messages and infor- mation that is to reach the public. The impact and dominant influence of the media and particular- ly television on social learning and subsequent behavior is stagger- ing. Studies indicate a tendency on the part of viewers to accept the overall perspective portrayed on television as reality. 32-540 O-84---28 PAGENO="0434" 430 Now, blacks make up more than 20 percent of the television viewing audience. It is reasonable to state, therefore, that it is cru- cial and equitable for more blacks to participate in the creative and decisionmaking process of television to insure that the black com- munity's interest is served. Now, juxtaposing this reality to the current low levels of black employment in the industry, an unbalanced and unfair reciprocal relationship appears to exist between the black community and the entertainment and communication industries it overwhelmingly supports. Increased black and minority employment makes good business sense and must be strongly urged. The industry holds many oppor. tunities. Beyond the creative endeavors of producers, directors, writers and actors lie technical, craft, administrative, clerical, legal, sales and other kinds of support positions which will help keep the industry in good working order. According to the 1981 employment statistics from the Federal Communications Commission, over 150,000 persons work full time in commercial and public television. Blacks account for only 9 per- cent of the working force, while minorities in general comprise only 15 percent of the total. A closer look at the television industry shows a mere .9.2 percent of minorities are employed as officials and managers. A key area of our concern is the low number of blacks and other minorities staff employees in programing decisionmaking positions. The following statistics represent the employment picture for blacks behind the scenes in the film and television industry. Of the 250 network executives primarily responsible for enter- tainment programing, 3 are black. The Writers Guild of America West reportedly has a total of 5,700 individuals. Of these, approxi- mately 70 are black and less than 7 individuals actually worked during the season of 1981. "Blackout in Television," Columbia Journalism's review of 1982, reports that there are no black vice presidents responsible for news programing at any of the network stations around the country. The Directors' Guild of American statistics on seven major pro- duction companies and studios, which include Universal, Twentieth Century Fox, Spelling/Goldberg, Warner Bros., Lorimar, MTM and Paramount, indicate that of the 1,767 directors utilized by these companies during the 1980-81 period, only 27 out of that 1,767 were nonwhite. Thus, it becomes abundantly clear that significant participation in the television and motion picture industry is the exclusive prov- ince of whites. The producers and studios would have you believe that they are restricted by the networks in their desire to employ more blacks and minority performers. If that were true, their con- cern for fairness in employment would be clearly manifest in their hiring practices behind the camera as well as in the non-TV prod- ucts that they create. . But the whites-only pattern of television is duplicated in their theatrical films, where the handful of blacks and minority roles that do emerge are either small or subordinate. Seldom dOes the dramatic experience they depict include us. Even more s~ldorn is it about us. It is clear to us that the television and mOtion picture PAGENO="0435" 431 industry, the networks and the producers are guilty of unfair em- ployment practices as it regards minorities and guilty of the dis- torted depiction of those minorities on the screen. We urge you to explore ways of making the industry accountable to the public on which it depends for a considerable portion of its vast profits. We urgently request, Mr. Chairman, that the commit- tee conduct a full scale investigation of the bold, discriminatory hiring practices and the exclusion of positive images of blacks and other minorities from the communiôations industry. Our presentation continues with a statement from my colleague, Mr. Bernie Casey Mr. WIRTH. Thank you, Mr. Hooks. Mr. Casey. STATEMENT OF BERNIE CASEY Mr. CASEY. Thank you, Robert. Mr. Chairman, committee mem- bers, I want to speak to an issue that is important because it deals with perception or more rightly, misperception, and that is images. Images. Images. Images. If you say the word enough times repeatedly, the word itself begins to create its own rythmic reproduction acoustically inside your head. If you see an image repeatedly, it begins to reproduce itself inside corridors of your mind. If that image is negative, there can come about a destruction to the psyche that many times cannot be repaired. Image. Image. What is it? Well, Webster says it is a mental picture of something, concep- tion, idea, conception, the concept of a person, product, institution held by the general public. Often one deliberately created or modi- fied by publicity, advertising or propaganda. I guess Webster's interpretation is quite usable in this instance, usable in that it is true, but there is an area that is not included in his definition. That area is the devastation and rubble left by the unattended misrepresentation, the callous disregard for the residu- al effect upon the misrepresented and the arrogant posture as- sumed by those who make the images and allow little recourse to those maligned by their insensitivity and misunderstood because of the misperception of the images they create. Let us be constantly aware that thoughts are things. Images become indelible in the minds of those who envision them. There is no more powerful force in the universe than that of thought ma- nipulation and the mind-altering process of the media. Therefore, we are constantly victimized by the mirror effect of you misperceiv- ing us misperceiving you misperceiving us and on and on. The image makers are done a disservice, just as are those whose images they assail. If one continues to perpetrate lies and misinformation from one generation to another and there is never the effort made to correct the dissemination of the propaganda, then there is the distinct pos- sibility that those lies will be perceived as the truth, at least the truth as the image makers see them. The kind of imagery that we* the viewers have to put up with has inherent in it intent an abuse that is unkind in the extreme. It is obvious that the limited inclusion of black performers is an exten- PAGENO="0436" 432 sion of other things, rather than the natural usage one should expect in a multiracial society. The limited usage or outright exclusion of people of color is so impactful that the residual effect can and does manifest for genera- tions. The untruths told are just as harmful to those that tell them as they are to those that hear them and doubly harmful to those persons about whom the lies are told in the first place. The very premise of a story like "Tarzan" is odious. Yet, the image manipu- lators continue to seek the enshrinment of their superiority by re- telling their fantasy. There is never the concern about how the na- tives really feel about Tarzan and/or his presence, only the telling of how absolutely able and capable Tarzan is in an environment that is completely the opposite of the one in which he was raised. The white man prevails, even in the land of so-called Ooga Booga. Images passed along from one generation to another, regardless of how unfounded and harmful they may be, and, believe me, they are harmful,. begin to seem normal because they are housed in the abyss of irrationality and anxiety. Hence, we continue to suffer the Tarzan syndrome. The premise is the same and just as odious. Only the names have been changed to protect the insolent. They update the stories, but lest you misunderstand, they tell you time and time again, this is a white man's land. I need not begin to chronicle the negative imagery by time or date. There are books available that, contain all those things, in- cluding statistics and photographs that will make your heart pale. ,The imagery is familiar because the image makers created it. The simple truth is that from the beginning when this was just an idea in someone's mind until this very moment when it can impact with catastrophic conclusion, black people have only been an appendage of a rather deranged montrosity called media. The industry looks at black people not unlike a transplanted organ that the body poli- tic continually tries to reject. There is almost a mania about it, as if an honest and worthy inclusion at the marketplace might cause some kind of disease. If one begins to discuss the participation of black people with an application of justice and honesty, one can hear the, cries and moans of consternation throughout the industry. The objective of fairness ~s hardly considered. What is considered is whether the ex- clusion of blacks and business as usual is going to be confronted in any manner. That possibility is only considered so that all involved can get their lies together. Image. Image. Image. A curious word in its implications. An im- portant word in its application. A word that seems to suffer from interpretation. It is a distressing fact that there are many in this industry that feel that black people are portrayed fairly. God help us. That only mirrors the knee-jerk racist mentality that manifests time and time again. It is a part of the institution. It is relentlessly distressing because we all suffer, all of us. What is it that prevents the image makers from touching the best in themselves? Why do they pass the buck and not, accept the responsibility for their actions? Is it because they don't think they will be held accountable or they just don't think? PAGENO="0437" 433 The image makers who participate in this charade and contrib- ute to the mangling of minds for generations ought to be ashamed, but, of course, there is no shame because no one is held responsi- ble. That iS going to change. I say to all of you, the legacy that is left is one of mistakes con- founded by misinformation, complicated by an unwillingness to do what is right and a disgusting lack of courage to touch the best in themselves. So, I say to you, Mr. Chairman, and committee members, I stand fast in concert with our point of view that we trust you will con- duct an investigation of the tawdry hiring practices in this indus- try. I give you now Mr. Terry Carter. Mr. `WIRTH. Thank you, Mr. Casey. Mr. Carter. STATEMENT OF TERRY CARTER Mr. CARTER. Thank you, Bernie. Mr. Chairman and distinguished members of the subcommittee, we have attempted with the statements of my colleagues to focus your attention on the abuses and inequities imposed upon black and other minority Americans by the networks, the studios and the independent producers in their selfish, irresponsible quest for prof- its. The ones in disregard of the principle of fair employment, ramp- ant in the industry, would not be tolerated in any other major in- dustry in America and, yet, as we have seen the studios and net- works resist offering opportunities for employment or significant advancement to blacks and other minorities, despite our patronage of their products. We havQ also touched upon the apparent effects of black and mi- nority exclusion from the mainstream of life as it is depicted by the studios, producers and the networks. We have spoken of fairness as we know it to be imbedded in the foundation of our Nation. We have spoken of how the industry shucks off its responsibility to the public and pursues only self-interest without respect to the injus- tice of their practices. The producers in the networks say that the American public does not want to see dramas about black people. There is a certain un- mitigated arrogance in presuming to know what the public wants or does not want to see, particularly when you consider the high failure rate among television series, recently the highest turnover since the advent of television. All but one of the season's failures were shows about white people; yet, they failed anyway. But Heaven help a dramatic show dealing with black characters if it doesn't catch on like wildfire. If it should fail, such failure would be inevitably attributed to its blackness and will provide jus- tification for avoiding the prompt production of any other shows about black characters for seasons to come. In the real world, we know there are black and brown scientists, teachers, airline pilots, industrialists, mayors, fashion designers and, yes, Members of Congress. What Hollywood allows us to see PAGENO="0438" 434 on the television screen is a view of our world from a whites-only perspective. As a consequence, children of all colors grow up with a vision of the world, which relegates nonwhite characters to comedic situa- tions or to positions of secondary importance. The dramas are almost always about white people. All others are mere shadows or two-dimensional support servants, moving in the sidelines or back- ground. The fact is, gentlemen, it is easier .for a black man to become a lawyer in real life than for a black actor to land a role portraying a lawyer. It is easier for a black woman to become a head of a medi- cal center, than to play the head of a medical center in prime time television. There have been a few television shows and theatrical motion pictures, which do depict black and other minority characters in central roles; namely, "Roots," "48 Hours," "Gandhi," "The Jéffer- sons," "Different Strokes," et cetera. Their success is a tribute to the unrealized potential which ethnic diversity in programing can provide profitably, and at the same time, offering satisfaction and inspiration to a `wide~and varied audience. `Roots," that great drama that remains the highest rated mini- series in television history, was aired several years ago with very little followup in terms of dramas of black life. Why are there no dramatic stories about Vietnamese, Puerto Ricans, Chinese-Ameri- cans, Mexican-Americans, West Indians or Pakistanis? Are they not part af the uniquely rich diversity, the constantly reshaping cultural kaleidoscope that is America? The networks have discovered that they can reap greater profits by giving the public less. Whereas the standard used to be 39 epi- sodes of original programing with 13 weeks of summer reruns each year, that standard has deteriorated to `a situation in which the public is presented with 22 original weekly, episodes and 30 weeks of reruns, with an occasional special thrown in. Thus, the networks pay for far less production, harvesting a bonanza off the rehash of second- and third-run shows. The result is that the public is given fewer choices. Another result is that the job market for the television industry has' fallen apart. Actors, directors, and technicians, who used to make a decent living during the production season, spend a great deal of time on the unemployment line. What does the situation hold for actors and techniciai~s who are black or Latino or Asian or Native American? The earlier-mentioned Screen Actors Guild statistics showing that only 10 black actors earned more than $50,000 in the year 1980 is one indication. Another indication is revealed when you list all of the black actors who have starred in prime time television series in the past 25 years and then try to figure out what they are doing today. Answer: Most of them never work. Most of them have been forced to leave the industry altogether, albeit unofficially. One talented black actress who starred in a popular series some seasons ago has been seen selling dresses in a North Hollywood de- partment store. A distinguished black actor who played the title role in a series became a real estate salesman in Hawaii. Others have resorted to similar survival techniques. PAGENO="0439" 435 In the Hollywood system a black actor is rarely considered for a role unless the role is designated black by the writer. But writers rarely think in terms of black principal characters because they fear that such integration might be frowned upon by the producers, who fear that it might be resisted by the networks, who fear that it might be resisted by the advertisers, who fear that it might be re- sisted by the public and so the injustice fIourishes~ What is the result of this cycle of fear? The normalization of seg- regated images resembling South African style apartheid in the American television screen. The trivialization or minimization of the black experience. The relegation of people of color to secondary status as they are portrayed in the life of television drama. We are optimistic that you distinguished gentlemen of the com- mittee will give serious consideration to the irresponsibility and unfairness which prevail in our industry. We urge you to conduct a full investigation into the discriminatory and racist practices of the studios, the independent producers and the networks as a prerequi- site to any disposition of the issues before you, to require both sides to clean up their acts and institute and implement a plan of fair employment and fair portrayal of people of color on the American screen. The next move, gentlemen, is up to you. Only with your intercession can the industry be made to fulfill its responsibility and perhaps a share of its promise. Thank you. Mr. WIRTH. Gentlemen, thank you very much. Congressman Leland and I have discussed this very issue at length, focusing on programing fairness, images, employment, professionalism. Con- gressman Leland, working particularly with Mrs. Collins and other members has asked to work with the subcommittee and full com- mittee staff, the networks and independent producers, the FCC staff, this panel and with other available resources to outline an approach to a careful and complete examination. In those discussions, I said to Congressman Leland that it was my concern that we not wind up with another study without any specific focus. The goal of this effort should be to develop the kind of legislative agenda and legislative approach that builds this in fact into our historic American commitment to fairness. Congressman Leland has asked for and will be developing that agenda and.will be working,. I am sure, with all of you. I might ask Congressman Leland if he has any comments that he might like to make further on the agenda that you all have discussed this morn- ing. Mr. LELAND. I don't, Mr. Chairman, but I would like to just thank this panel particularly for crystallizing what it is that I have been trying to say not only to this subcommittee, but also to the Members of Congress who I feel are close to and those who would listen. I also would like to thank them for bringing forth this issue not only for blacks, but for other minorities. I think that their state- ment is so clear that it is rather difficult to even evolve questions. They have answered all the questions in their statements. It is the most eloquent panel that I have been confronted with as I have served in the Congress, from Sidney Poitier to Terry Carter. I think PAGENO="0440" 436 that we have heard an interesting group of human beings who care about people. Mr. WIRTH. Let me make some further comments that relate to this as well. First,. we had ~some discussion earlier about the ac- countability and responsibility of the FCC. Congressman Leland, and others on the subcommittee, have been pressing the FCC on their hiring practices. We must insure that that regulatory agency is reflective of the kind of goals that are shared by the subcommit- tee. The second agenda that has been much publicized in recent weeks relates to the responsibility of radio and television stations in license renewal. You all may have seen that there has been a great deal of discussion about the question of comparative renewal and the public interest responsibilities held by the broadcasters in both radio and television. We are embarked upon a very difficult, arduous and time-con- suming agenda on the subcommittee, separate from the issues in front of us today, in which we have agreed to attempt to quantify the public interest standard. This will be aimed at assuring that broadcasters serve their local communities, with emphasis on chil- dren's pr9graming, minority programing, and so forth. These are the types /~f programing that the public desperately needs and de- serves, as Mr. Poitier pointed out, but that broadcasters do not find particularly profitable. This is part of our general emphasis on a diversity of sources, of programing, a concept that is at the crux of the first amendment. This is the notion that the public is entitled to a robust marketplace of ideas. I raise these two issues as they relate to to what you all are talk- ing about this morning, and they are of very deep concern to the subcommittee, and to the Congress as a whole. We have a major responsibility to try to make sure that our colleagues in the Con- gress, who are thinking about a whole variety of other issues, real- ize the importance of these issues. We believe that it is terribly im- portant, especially as one notes the extraordinary power of tele- communications as a socializing influence in our society. Mr. Waxman. Mr. WAXMAN. Thank you, Mr~ Chairman. .This has been an excel- lent panel and your testimony is quite devastating. We realize the points you have made about the underrepresentation of the minori- ties in the employment in the communications area, as well as the image that is projected to the public at large, both black and white, whatever ethnic background, the stereotypes that are fostered and continue to be perpetuated by television media is something that is going to haunt us for generations to come. We have before us an issue of some rules that deal with whether the networks ought to be able to own a financial interest and be able to control syndication rights for TV programs. This is a hotly debated question. It, I think, will have an impact on the quality of television and the potential diversity of television. Ironically enough, I can't see, while I strongly support keeping these rules, this is an answer `to the points you have been making, nor do I see it as an answer to the poor quality of television pro- graming overall. I think people are turning off their TV sets be- cause they are not seeing anything worthwhile to tune in to watch. PAGENO="0441" 437 On the specific question of whether we ought to allow the net- works to own a financial interest, to be able to own the syndication rights, I believe that will lead us in the wrong direction, that will lead us to a centralization of decisions about television programing in the hands of the three program producers at each of the three networks and away from the diversity, as limited as it is now, with many of the independent programers. I wonder. if you have opinions on that specific issue or any thoughts to share with us. Mr. CARTER. The problem as we see it, and we do see the larger picture, please understand. We see the concern that you have that it is a rather difficult decision that you have to make, but we want you to take into consideration that accountability to the public is something that both sides must manifest and both sides have failed to manifest. What we are asking you to do is to take into consideration the presentation that we have made today and compel whichever side prevails-in fact, both sides-to be accountable to the public. The airways belong to the public. We are the public. All of us in this room represent the public and we are asking you, whatever deci- sion you make on the basis of whatever other evidence and testimo- ny you gather, you take this into consideration as an integral and essential part of your deliberations. We have carefully not taken sides on this issue, although many of us may have our particular affinities, but those affinities have to be qualified by the fact that we see that we have no friends on either side, that neither side has taken into consideration that which is a very essential responsibility. And we-and when I say "we," I am talking about black and other minority people-have just been left in the lurch and we are saying whatever decision you make, please make sure that you take that into consideration. Mr. WAXMAN. Do any of you have an opinion on whether the sit- uation is going to get better if the networks are able to control the content of programs or whether you have a feeling on this issue that we are going to find less of a movement toward diversity if we have-- Mr. POITIER. I think, sir, that there will be business as usual the next morning. I believe that the networks will go back to business ignoring the questions raised today if they are victorious. I believe it is within the very habit pattern of operations of both the net- works, the studios and the independent producers that they will go back to business the next morning. You had this morning preceding us men who told you a lot of half-truths. In some instances they actually lied. The responsibility that you have is to make sure that the public airways and the re- sponsibility to the public on the part of those who are granted access to that airways is so strong that they cannot ignore their re* sponsibility to the public. Today, there is no sense of responsibility to the public over and above that which brings them a profit. That goes for children's pro- graming. It goes for minority programing. It goes for simply pro- graming that is complimentary through the intellectual disposition of the American people. PAGENO="0442" 438 The lack of responsibility is dimensional. Mr. WAXMAN. Do you think there will be a greater responsibility if you only have the three networks to sell a program to as opposed to an independent station that may be competing? Mr. POITIER. If the independent studio-networks and the inde- pendent studios are bartering for a program, if they go back to business as usual, that program is going to be minus minorities. That is why we are here. We do not want them to go back to busi- ness as usual without an accountability in terms of their responsi- bility to the public good, which includes diversity of programing, but that goes for the networks as well as it goes for the independ- ent producers and the studios. The independent producers and the studios are guilty of exclu- sion. They have been guilty of exclusion for 30 years. They contin- ue to be guilty of exclusion and I think that you are, being the in- telligent panel that you are, aware that unless there is some force to encourage strongly that they do not go back to business as usual, each side will do precisely that. Mr. WAXMAN. Thank you, Mr. Chairman. I appreciate what this panel has to say. I want to work with you and Members of Con- gress who want to see some change in the direction you have out- lined for us. It is an abysmal picture. I gather you really don't want to make a specific recommendation on the question of net- works versus the independent stations and the independent produc- ers and I respect that because I realize, as you do, that this fight, while it is. a very important one, is not going to be a dramatic change unless there are other pressures on the media to change as well and we will look forward to working on those questions also. Thank you, Mr. Chairman. Mr. WIRTH. Mr. Leland. Mr. LELAND. Mr. Chairman, I would just like to thank you and my colleague from California, both, for the opportunity to present this panel in particular, but the whole question of financial inter- est and the rules in general, because it has given us a forum to ex- press ourselves about how minorities are being treated in the in- dustry. I would hope that those here today will take this back home, the proceedings here today, to reflect in their minds and their souls, for that matter, what it is that we are talking about because, indeed, we have to come together and solve some problems. It doesn't mean anything for these gentlemen or the people who are testifying for them to make testimony and then we just place this testimony on the shelf and there is no legislative mandate. Your foresight and willingness to proceed with the request of these gentlemen of this panel are just incredible to me and I think that this will be the first time probably that this kind of opportunity will prevail. * I trust you and I trust my colleague from California and the ma- jority of the members of the subcommittee, by the way, in their wisdom and their compassion with this issue to do justice and in the words of Mr. Poitier, to exhibit fairness to minorities in the marketplace, who, by the way, represent such an incredible-and I am really astounded by the statistics I have heard today-an in- credible market share of the market buyers in our population. PAGENO="0443" 439 Twenty percent black people coupled with-I don't know what the percentage of buyers in the marketplace are Hispanics-coupled with them is an incredible share. It seems to me that something had better be done by the produc- ers, by the studios, by the networks, if, in fact, the stark reality of what it is that they are selling is being bought by such a high per- centage of people. It seems to me that if, in fact, that pressure is brought to bear by the buyers in the marketplace, something chaot- ic might take place and I think that the time is coming. We are seeing that in the political arena where we are now having the au- dacity as black people to consider a black candidate for the presi- dency. We have seen the results of black people coming together and if, in fact, coupled with the coalition of other minorities, Hispanics, and others, the impact made is just absolutely tremendous. We re- alized a near election of a black Governor of California, of this State. We realized the election of Mr. Harold Washington, Con- gressman Harold Washington, as mayor of the city of Chicago. We realized now the Democratic nominee for mayor of Philadel- phia and more victories in the marketplace. Those issues are no more different than the ones that have been brought forth to us today. Black people and Hispanics and other ethnic minorities have suffered at the hands of racism for too long and we are not going to abrogate our responsibility to ourselves and we welcome the oppor- tunity for those people of good will, like yourself and my other chairman, Mr. Waxman, to work together to resolve these very critical problems. Mr. HOOKS. Excuse me, Congressman Leland. Before we go away, in reference to the request for full investigation, is it possible that we can receive from the Telecommunications Subcommittee or through the Committee on Energy and Commerce a response in writing in relation to that request? Mr. WIETH. Mr. Hooks, Mr. Leland and I, as I pointed out, have discussed this and it will be his responsibility on the subcommittee to put this together. As I said, there are limited resources that we have on the subcommittee ourselves. It is a matter of orchestrating the available resources to do the job. Second, my request to Mr. Leland is that we not have another 2 years in a 15-year long set of studies. We have had study after study on this. The challenge is what concrete steps Congress can take to improve the situation soon. I am quite sure that we will be in touch with you as to how to go about doing this. In closing, I want to thank you all very much. Let me summarize the issues that the subcommittee has before it. One of the issues, is the financial interest and syndication rules. We have to deal with that. Another question relates to the whole question of the deregula- tion of broadcasting on which some of us have very defined posi- tions. The airwaves do belong to the public, but sometimes that comes as a surprise to many who use the airwaves. We need to con- tinually remind them of that. I would hope that all of you are aware of the fact that we do not have the opportunity to start from a fresh state. We are starting out after a history of FCC regulation from 1934 to today. We would PAGENO="0444" 440 hope to. have your support and understanding of what we are at- tempting to do in terms of encouraging diversity and competition, which goes right back to the opening statement of your testimony, Mr. Poitier. Mr. WAXMAN. Mr. Chairman, as I understood, I think that it was Mr. Carter who mentioned that there are various views this panel may have on that subject and this panel wanted to present a mes- sage to us that is separate from the narrower issue that we are dealing with financial interest and syndication. Could I suggest that if any of the members want to submit their personal views on this specific issue, that the record be held open for that purpose. If they want to personally express their position, we would appreciate hearing about it. Mr. WIRTH. We would like to hear from you. Gentlemen, thank you very much for being with us this morning. We greatly appreciate it and the subcommittee looks forward to working with you in the future. Thanks very much for coming. Our final panel of the morning includes Mr. Arthur Price, the president of MTM Productions; Mr. Anthony Thomopoulos, the president of ABC Entertainment in New York; Mr Joseph Waz for the Committee Against Network Monopoly; Ms. Diane Asselin, president of Asselin Productions in Los Angeles; Mr. David Ochoa, president of Buena Vision Cable in Los Angeles; and Ms. Dolores Sanchez from the Eastern Group Publishing in Los Angeles. Again, thank you all for being with us and for your patience and forbearance in this long morning of hearings. We greatly appreci- ate your being here. Again, I would remind you of the procedures and the rules of the subcommittee. We would ask you to please summarize your testi- mony in 5 minutes. We will include your testimony in full in the record, and we will be leaving the record open for further com- ments that any of you might like to make for the record and for questions that the subcommittee may wish to submit to you. So, thank you very much for being with us. We will start with Mr. Price. STATEMENTS OF ARTHUR PRICE, PRESIDENT, MGM PRODUC- TIONS; ANTHONY D. THOMOPOULOS, PRESIDENT, ABC ENTER- TAINMENT, AMERICAN BROADCASTING COMPANIES, INC.; JOSEPH W. WAZ, JR., COUNSEL, COMMITTEE AGAINST NET- WORK MONOPOLY; DIANE ASSELIN, PRESIDENT, ASSELIN PRO- DUCTIONS, INC., AND ALSO ON BEHALF OF WOMEN IN FILM; DAVID OCHOA, PRESIDENT, BUENAVISION CABLE CO.; AND DO- LORES SANCHEZ, EASTERN GROUP PUBLISHING Mr. PRICE. Good morning. I am Arthur Price, president of MTM. I think I would first like to respond to panel 2, to a rather re- markable and dramatic presentation, and also to Congressman Le- land's remarks. There is little doubt in my mind that the production industry has to improve its record in the area of minority hiring. The televi- sion production end of the industry-in the production end of the industry, there has been a constant, but unfortunately very slow improvement in hiring policies, subject in larger degree to the PAGENO="0445" 441 extent our customers, the free networks, allow us such improve- ment. Cory Dunham referred to NBC trying to reason with suppliers to hire minority actors. Mr. Dunham has never been in any of the meetings that I have been in. That is an experience I have never shared. It is a fact of life in this industry that everything you see on net- work television has been approved by the networks. I cannot say that the producers are always as contentious as they should, but I can tell you that MTM strives to have realistic and serious roles for members of ethnic minorities and women, both on camera and in production. All aspects of this industry could stand improvement in this issue. However, it is unfair to pin the blame solely on the produc- tion community. The networks are convinced that minorities do not draw viewers. This attitude conspires to slow down the process. The repeal of the financial interest and syndication rules, in my personal opinion, will slow the process down to tokenism. This leads me to the subject of this particular hearing and an ex- amination of some of the effects of the repeal of the financial inter- est and syndication rules and H.R. 2250. In the opinion of MTM, if the rules are repealed, the delicate bal- ance of creative independence $etween program supplier and the network will be gone. It is diffi45ult enough at present to convince the networks to try different programing concepts. If you further complicate the process by legally giving the networks a vested in- terest in the so-called back end profits, that vested interest, in our opinion, becomes the driving force for a creative homogeneity that would make "Ozzie and Harriet" look like an experiment in artis- tic radicalism. Mr. Colloff said that 10 years ago MTM would have liked to have had the rules not in place. I made the CBS deal for "Mary Tyler Moore." This is exactly what happened to me when I negotiated the deal in 1959. CBS demanded and obtained 100 percent of all of the distribution and syndication rights worldwide in perpetuity. They did not finance MTM. The Bank of America financed MTM. The existence of the rules allowed MTM to become more than a one-show company. It allowed us to make shows such as "White Shadow," "Lou Grant," "Hill Street," and "St. Elsewhere." Lately we have heard that the network argument is that it is unfair that they cannot share in the profits of a successful show. I contend that they not only get profits from successful shows, but get them quickly, while the producer has to wait 6 or 7 years, if, in fact, he ever does get profits. Let me give you an example based on "Hill Street." In the 1982- 83 season, "Hill Street" cost MTM $865,000 per hour to produce. Our NBC license fee was $800,000, resulting in $65,000 per episode loss. For "Hill Street" to become a viable show in syndication, we need at least 100 episodes. This would give us a projected deficit of approximately $6 million. At the same time in the 1982-83 season, NBC charged advertis- ers an average of $125,000 for 30 seconds of commercial time in "Hill Street." There are 12 30-second commercials in an hour pro- PAGENO="0446" 442 gram. That means that the network grossed a million and a half dollars per first run of each program. After deducting the license fee for the program, agency commis- sions and affiliate compensation, the network is left with a pro- gram profit of approximately $250,000 per hour. In addition, the network will air approximately 26 reruns of the series this season. NBC's gross program profit on these reruns will total in excess of $550,000 per rerun ~for a total of $14 million for 26 reruns, making the total program profit for the 1982-83 season in excess of $20 mil- lion, a rather quick and handsome sharing. Another network claim is that the new technologies are compet- ing with them for new programing and taking audiences away from them. The networks would have you believe that their audi- ence loss is almost totally attributable to pay TV and that is why the rules should be changed. They don't mention the tremendous increase and effective competition from the independent stations, a competition which is not only impacting on the network affiliates, but more importantly on one of the networks' greatest single sources of profits, the networked-owned and operated television sta- tions. The amount of money pay services have been able to spend in licenses has been far below the network level, due to the obvious difference in the size of the available audience and, therefore, lim- ited the amount of production for pay TV. MTM has no plans now or in the foreseeable future to produce the high quality type of pro- gram, such as "St. Elsewhere" or "Hill Street" for pay television. How fast and how much will pay TV grow and, what effect will that growth have on broadcast television is an unknown piece of the puzzle at this time. Therefore, I strongly urge Congress to enact H.R. 2250, which would at least put a moratorium on the repeal or alteration of the financial interest and syndication and prime-time access rules. This moratorium would allow new produc- tion companies and writers to develOp and with the existing compa- nies be an ongoing force for development and production of diverse programs for the public. The moratorium would allow Congress at some future date to ob- jectively look at the entire broadcasting industry and ascertain its true state, its history and the future to deliver a diverse program- ing menu to its public. Thank you. [Testimony resumes on p. 465.] PAGENO="0447" 443 Oral Presentation by Arthur Price, President, MTM Productions, in support of H.R. 2250 before the Subcommittee on Telecommunications, Consumer Protection and Finance of the Committee on Energy and Commerce, U.S. House of Representatives. Los Angeles, California, June 1, 1983. Mr. Chairman, members of the Subcommittee, I am the President and one of three principal shareholders of MTM. Enterprises, Inc., which is a privately owned independent television proth~ction company. MTM strongly urges Congress to enact H.R. 2250 which would place a five-year moratorium on the repeal or altera- tion of the financial interest, syndication, and prime time access rules so that independent production companies like MTM can survive and thrive, and new production companies can be born to provide the networks and the American public with high-quality and diverse programming. Because much of the information contained in MTh's January 26, 1983 comments filed at the Federal Communications Commission supplements this statement, MTM requests that the attached pleading be entered into the Subcommittee's record. The period of existence of these rules directly coin- cides with the period of growth and prosperity of MTM as an independent production entity. As you know, MTM's first program was the "Mary Tyler Moore Show." It was developed in 1969 for CBS. If the rules had not been enacted in 1970, it is quite probable that MTM would have been a one-show company. There would have been no incentive to continue in the television production business. PAGENO="0448" 444 The following background regarding our negotiations with CBS for the Mary Tyler Moore show is revealing. As an express non-negotiable condition of getting our show on the network, CBS demanded and obtained 100 percent of all dis- tribution and syndication rights in perpetuity and thrOugh- out the world as well as all subsidiary and merchandising rights to the series. MTM is frequently asked whether now, with our estab- lished track record, the networks could still secure most or all of the syndication rights from MTM absent the rules. MTM's answer is absolutely and unequivocally yes. Nego- tiations would resemble those NTM endured to have the "Mary Tyler Moore Show" accepted by CBS. At the point in time when syndication and financial interest rights a~e nego- tiated, the producer is at its most vulnerable. For a show to acquire any value, it must be accepted by a network. We must get into the network theatre. Even though MTM may have had numerous prior hits, the show we are promoting has no guarantee of success~ Networks can simply demand signifi- cant rights as the price of getting the show on the air. Since the inception of the Financial Interest and Syn- dication Rules MTM has produced several series which it has put into syndication, such as "The Bob Newhart Show," "Rhoda," "The White Shadow," "WKRP in Cincinnati," as well as several television movies. PAGENO="0449" 445 MTM has had the freedom with respect to these programs to choose its own distributor at substantially lower distri- bution fees 1~Ehan those dictated by CBS prior to the rules. In addition, MTM has maintained decision-making author- ity over all aspects of the selling and distribution proc- ess. The revenues derived from syndication have been used to help offset the deficits incurred in the production of these shows and other shows which have not been successful enough to reach the syndication market, to fund the hiring of established writers and producers under long-term develop- ment contracts, to develop new programming, and to employ, nurture, and support new and unknown writers and other creative talent. When "Hill Street Blues" was first produced by MTM, it was recognized as one of the most unique television series in recent years. The large ensemble cast and multiple-story lines, complex photographic and sound effects gave the series a realistic look and feel. It also made "Hill Street Blues" unique and quite expensive to produce. MTM was willing to risk a substantial amount of its own capital to produce "Hill Street Blues" because NTM believed it would become a successful show and ultimately bring a return on its investment in the syndication market. The fact that "Hill Street Blues" became a critical and popular success, has given MTM further incentive to invest substan- 32-540 O-84--29 PAGENO="0450" 446 tial sums of money in the series week after week in the hope that syndication revenue will provide a return on its in- vestment as well as a reasonable profit. Let me give you some actual figures concerning "Hill Street Blues" to dispell two myths the networks seem to be fostering. The first myth is that the network pays the full cost of television production. The second myth is that networks, because they are restrained by the rules, are unable to share in the profits of a successful show. Both myths are untrue. In the 1982/83 season, which is the third year of the series, it cost MTM approximately $865,000 to produce each one-hour episode. Our license fee from NBC this season is $800,000, resulting in a $65,000 per episode deficit. After producing 22 episodes this season of "Hill Street Blues," MTM will have invested $1,437,000 that has not been covered by the networks. The deficits incurred this season, when added to the deficits incurred during the first two seasons of the series, brings the total current deficit on this series after three seasons to approximately $3,230,000. As you know, MTM will need approximately 100 episodes of "Hill Street Blues" before it becomes a viable commodity in the syndication market. With the completion of produc- tion this season, we will have completed 57 episodes. That PAGENO="0451" 447 means that at the current rate of deficit we will have accumulated a total deficit in excess of $6 million on the first 100 episodes of the series. While producers must wait five to six years, if ever, to begin syndication sales in order to derive the hoped-for syndication profits, networks do not have to wait. During this season when NBC airs an episode of "Hill Street Blues" it charges an average of $125,000 for each of the 12 30- second commercials that appear on the program. That means that the network has grossed $1.5 million for the first run of each program, at a cost to them of $800,000. After deducting agency commissions and affiliate compensation, the network is left with a profit of approximately $250,000 per hour. In addition, the network will air approximately 26 reruns of the series this season for which we will be reim- bursed by NBC only for the out-of-pocket guild and union residuals which will total approximately $100,000 per epi- sode. NBC's gross profit on these reruns will total in excess of $550,000 per rerun, at a total in excess of $14 million for 26 reruns this season. When added to NBC's profit on first-runs, their profit on "Hill Street Blues" for the 1982"83 season will total in excess of $20 million. PAGENO="0452" 448 As you can see, ur~der the current rules the networks more than share in the success of their programs. For example, advertisers who wish to buy commercial time in hit series such as "Hill Street Blues" are required to buy commercials in less successful shows. In addition, as shows attract more viewers, the net- works increase their rates to advertisers to reflect the program's popularity. Also, even on pilots that do not go to series and on short-run series the networks sell commer- cial time, which recovers their development costs and in most cases also provides them with a profit on their in- vestment. And on successful shows such as "Hill Street Blues," the network makes a killing, as indicated by the profit figures outlined above. All of this is not to say that every MTM show has been commercially and/or financially successful. MTM has pro- duced several series, such as "Lou Grant," "The Mary Tyler Moore Variety Hour," the "Betty White Show," "Phyllis," "The Tony Randall Show," and several others on which it has also incurred substantial deficits and on which it is unable to make syndicated sales. The pay television industry has not created such changed circumstances as to justify modification of the rules. Although there is a lot of talk of original pro- PAGENO="0453" 449 gramming for pay television, and, indeed, some limited amount of original programming has been produced, the amounts of money available from pay services are so far below what the networks will spend due to their enormous audiences which generate billioi~s of dollars of advertising revenues per year that MTM cannot now, nor in the foresee- able future, contemplate production of high-quality experi- sive programming such as "St. Elsewhere," and "Hill Street Blues" for pay television. The networks know that the real threat to their con- tinued dominance for the foreseeable future are the inde- pendent stations and not pay television. I have no doubt that if independent stations do not have access to high-quality off-network programming the independent's growing audience share will diminish and the networks and their affiliates once again will dominate each and every market. The viewers will lose attractive free- broadcast outlets, and without independent station compe- tition, advertising rates will increase and ultimately the consumers will be forced to pay even higher prices for the products being advertised. We at MTM are not economists, but we can say with certainty that the rules have achieved the following goals. One, increased the number of program suppliers. Two, increased competition among program suppliers. Three, encouraged top creative personnel to stay in the business of producing high-quality and diverse programming. Four, increased the number of independent stations and distribu- tors. Five, provided the program suppliers and creators with a degree of independence from networks that would not otherwise have been available. Ultimately, the consumer is the big loser if H.R. 2250 is not enacted and the rules are repealed. The quality and diversity of programming will diminish when companies such as MTM can no longer have the economic incentive to take the risk necessary to develop and produce shows such as "Lou Grant," "The White Shadow," "St. Elsewhere," and "Hill Street Blues." PAGENO="0454" 450 Before the Federal Communications Commission Washington, D.C. In The Matter of: Amendment of 47 C.F.R. & 73.658 (j); ) BC Docket No. 82-345 the Syndication and Financial Interest Rule These comments on the proposed amendment of the Syndi- cation and Financial Interest Rules are being submitted by MTM Enterprises, Inc. ("MTM"), a privately owned independent produc- tion company, which is primarily in the business of producing television series and television movies for prime time network broadcast. Thesa comments will attempt to describe MTM's ex- periences prior to the promulgation.of~.tJte Syndication and... Financial Interest Rules, the changeI which have occurred since the Rules were first adopted by the FCC in 1970, and the likely result if the Rules are repealed. The period *of the existence of the Syndication and Financial Interest Rules directly coincides with the period of growth and prosperity of MTM as an independent production entity supplying prime time television programs to the networks. Because of this fact, MTM may be considered an important example of how a wide variety of high quality television programming does result from the combination àf the efforts of (1) unique creative talents; (2) sound business management which functions synergistically with the creative talent; (3).profit motivation through ownership and a degree of control over the creative pro- cess and the resulting product; (4) and a regulatory atmosphere which has given MTM a "fighting chance" in dealing with the net- works. PAGENO="0455" 451 Some of MTM's programs have been successful and profi- table and some havebeen unsuccessful and have cost MTM enormous sums of money which have never been recouped. MTM's successful programs have varied widely from "The Mary `Tyler Moore Show" and "The Bob Newbart Show", to "Rhoda", a half-hour comedy which evolved out of the original "Mary Tyler. Moore Show": "WXRP'In Cincinnati", a half-hour comedy placed in a radio station and. generally regarded as out of the same mold as "The Mary Tyler Moore Show", providing comedy with a social message; "The White Shadow", a one-hour drama about an inner-city high school and its white basketball coach, who must deal with' the problems of minority teenagers, their parents, teachers and others in the community; "Hill Street Blues", a totally unique undertaking (To be discussed below) which came on the air to a singularly passive response from the mass audience while at the same time earning fourteen Emmys,.the George Poster Peabody Award and numerous other awards; and this season, "St. Elsewhere", another unique one-hour drama set in an inner-city hospital in BostOn, which is meeting resistance from the `mass audience, hut which has received general praise from critics. A recent article in "Newsweek" (lanuary 17, 1983) described "St. Elsewhere as "this season's most intelligent network effort as well as TV's most realistic medical series ever." These comments will strongly urge the FCC to retain the Financial Interest and Syndication Rules so that companies like MTM can survive and thrive and new independent companies can be born to provide, the networks and the American public with high quality and' diverse programming. Historically, at present and for the foreseeable fu- tOre, there has been and will continue to be only three viable theatres (ABC, CBS and NBC) for the t.ype of entertainment pro- gramming produced by MTM. With their. enormous mass audience, these three networks generate billions of dollars of advertising PAGENO="0456" 452 revenue each year which support a large portion of the enormous production costs of this type of programming and which still provides very healthy profits for the networks. (See "Daily Variety" article dated January 24, 1983 entitled "NBC Puts Brakes on Its Declining Fiscal Fortunes, attached as Exhibit #1 and Broadcasting Article dated January 24, 1983 entitled "ABC-TV's first $2~Billion Year" attached as Exhibit p2). Be- cause there are so many program suppliers all competing to get into the same three theatres (ABC, CBS and NBC), these networks have acquired enormous power and control over the production community. The tetworks have historically exercised this power and control to the fullest extent allowed under the applicable rules in effect at any particular point in time. Since the founding of MTM., the Syndication and Financial Interest Rules and the recent Networh Consent Decrees have operated to create a delicate balance to the unrestricted power and control of thb networks in the negotiation process between the networks and program suppliers. At the point that .MTM. and other program.- suppliers are negotiating their lice~se fees with the network, the program supplier i.e at its most vulnerable point in `the creative process to the network's exercise of power. It MTM wants to be on a network, it will have to accept the network terms which the network will exact to the maximum benefit of the network. As an example of the network's exercise of power prior to the imposition of the Rules we can go back to 1968. cBS became interested in developing a half-hour comedy series to star Mary Tyler Moore. However, as an express non-negotiable condition of getting on the network, CBS obtained all' syn- dication, subsidiary and merchandising rights to the series. Although strongly resisted by MTM, CBS without permitting any meaningful negotiation on these points, obtained all such rights pursuant to an agreement which provided that CB.S would retain a syndication distribution fee of 40% of gros3 receipts and a sub- PAGENO="0457" 453 sidiary and merchandising rights fee of 50% of all such gross receipts. Out of the remaining 60% and 50% respectively, MTM was required to pay all expenses of distribution and syn- dication, all residual payments to writers, directors, and - actors, and finally, the remaining proceeds were used to recoup MTM's deficit in the series and to generate profits for MTM and its creative profit participants. CBS also controlled the. timing of release in syndication and the selection of the sta- tions to which the show would be sold. The "Ma~?y Tyler Moore. Show" initially aired on CBS during the 1970 television season. The series became one of television's most popular series with both critics and the public. When the Syndication Rule was imposed in 1970,. CBS assigned its syndication and subsidiary and merchandising rights to The "Mary Tyler Moore Show" to VIACOM, which has sold,.. and continues to sell, the series in syndica- tion. MTM does not have any control or voice over the distribu- tion and syn4ication process such as when, where and for how much the series should be sold in each.ma.rket. In connection. with the proposed repeal of the Financial Interest and Syndication Rules, the networks contend that things were not so bad prior to 1970, and that there is no reason to believe that the development and existence of independent pro- duction companies such as MTM will be jeopardized by the repeal of the Rules. This position is astounding when one looks at the findings of the Justice Department in connection with the anti-trust cases against the.three networks, which found con- sistent refusal of the networks to grant prime-time exhibition to programs in which the networks had no financial interest and/or in which the networks did not obtain the syndication rights. The findings of the FCC and the Justice Department, as well as the experiences of MTM and other program suppliers prior to the Rules, provide the most compelling reasons to retain the Rules, and provide nearly conclusive evidence that repeal of.the Rules would draitically change the nature of the PAGENO="0458" 454 development and production of television ~ogramming. Since the inception of the Financial Interest and Syn- dication Rules, MTM has produced several series which it has put -into syndication such as "The Bob Newhart Show", "Rhoda", "The White Shadow", and "WKRP In Cincinnatti" and several movies for television. MTM has had the freedom with respect to these programs to choose its own distributor and to maintain a voice and decision making authority over all aspects of the selling and distribution process. The revenues derived from thesyn- dication of these shows have been used to help offset. the defi- cits incurred in production of these shows and others which have not been successful enough to reach the syndication market. The profits which remain are used to carry the substantial current deficits of series such as "Hill Street Blues", "St. Elsewhere", "Remington Steele", and "Newhart", and to fund the hiring of established writers and producers under long term contracts to develop new programming and. to employ and support relatively new and unknown wFiters so that they may learn and develop their craft in àrder that they may ultimately develop and produce new programming. When "Hill Street Blues" was first produced by. MTM, it was recognized as one of the most unique television series in recent years. The large ensemble cast and multiple story lines and complex photographic and sound effects which give the series a realistic "look and feel" not only made "Hill Street Blues" unique, but also made it expensive to produce and a very risky investment if £t was not ultimately successful. NBC recognized the potential for "Hill Street Blues", but did not compensate for that risk in negotiating the license fee payable to MTM for the network runs. MTM was willing to risk a substantial amount of its own capital to continue to produce "Hill Street Blues" because MT.M believed it could become a successful show and bring a return of its investment in the syndication market. The fact PAGENO="0459" 455 that "Hill Street Blues" won many Eutmys and became a critical and popular success gives MTM further incentive to invest substantial amounts of money in the series week after week in the hope that syndication revenue will provide return of its --investment as well as a reasonable profit. Two years later MTM attempted another unique and expen- sive series known as "St. Elsewhere". "St. Elsewhere" was the most expensive program in MTM's history in terms of initial startup costs. A license fee was negotiated with NBC, and MTM * received an order for 13 episodes. Because of the complex crea- tive structure of the series it was essential that the first episode clearly set out the f~rmat of the series and introduce a very large number of continuing characters while at the same time telling an entertaining story, all in one hour. After filming of the first episode was completed, MTM realized that the initial episode did not successfully meet MTM's expecta- tions. MTM informed NBC that MTM wished to revise the script and re-shoot substantial portions of thefirst episode. NBC agreed with MTM's creative evaluation of the first episode and NBC indicated they would like the changes made but they were unwilling to pay for these changes. Because MTM firmly believed that these changes were essential to the success of the series, MTM undertook these changes at its own expense. Thus after pro- ducing one episode of "St. Elsewhere", MTM had incurred addi- tional costs in excess of $1,000,000 and has since incurred further substantial episodic deficits with the only hope of recou~pment being that the series would become successful and * remain on the ~ir for at least four years thereby allowing MTM the opportunity to sell the show in syndication. The "St. Elsewhere" experience demonstrates MTM'S phi- losophy and belief that the American audience deserves quality programming, and MTM is willing to invest its capital to bring such programming to the networks. Without the ability to. recover its investment and make a reasonable profit, there would PAGENO="0460" 456 no motivation for MTM or any other production company to create and produce unique and expensive series such as "Hill Street Blues" and "St. Elsewhere". The loss of such profit potential wou~d result in more programs which are of low quality. The type of programming which far too often appears on the networks today. All of this is not to say that every MTM show has been commercially and/or financially successful. MTM has produced several ser,ies such as "Lou Grant", "The Mary Tyler Moore Varie- ty Hour", "Texas Wheelers", "Paris", "The Last Resort", "Doc", Paul Sand's "Friends and Lovers", The Betty White Show", "Phyllis", "The Tony Randall Show" and several others on which it is unable toniake syndicated sales. Although MTM would have had smaller losses on these shows if the networks had paid higher license fees, MTM has been willing to assume the risk of such deficits because of the potential return of its investment and profits in syndt~ation.. A company such ~ MTM, in theab- sense of syndication profits, could not survive and would have no motivation to assume the enormous economic risks involved in innovative types of programming such as "Hill Street Bluel" and "St. Elsewhere" if the only compensation for being in the busi- ness of producing television programming were to be, for example, a weekly production fee and a small portion of poten- tial profits in syndication over which MTM would have no con- trol. MTM is aware that the networks contend that they will be ahie to provide the program suppliers with larger initial license fees if the networks are given a financial interest or syndication rights in the programs. It is MTM's opinion that it may indeed receive, for sønLe short perio4-of time, a modest increase in license fees.. However, with the networks. in abso- lute control of the three theatres, they will undoubtedly revert to their pre-1970 position of extracting, as a condition to putting a series on the. air, a significant financial interest and/or syndication rights. This would deprive MTM and the PAGENO="0461" 457 creative personnel who develop, write, direct, produce and perform of the long-term upside potential now available in television. This upside potential has afforded MTM the ability to attract and retain the high quality creative personnel needed to.produce its shows and to have the resources available to develop new writers, producers, directors and new programs. Historical evidence shows that neither the networks nor the program suppliers can predict with any certainty the reac- tion of the A~ierican public to a new television series. It is also important to note that only between 5% to 10% of the pro- gramming produced for the networks ever gets into syndication. However, it's MTM's belief and corporate philosophy that quality programmin.g will ultimately survive and prosper and MTM is willing to invest its capital in support of this theory. Without the potential profits from. syndication, oompanies like MTM are not likely to evolve in the. future to support this belief in quality programming. - As a founding member of the Committee for Prudent De- regulation (CPD), MTM strongly supports retention of the Finan- cial Interest and Syndication Rules. The economic analysis provided by CPD will more fully explain in technical terms the effects of the Rules and their potential repeal. We at MTM are not economists, but, we can say .with certainty, that in prac- tice the Financi.a-llñterest &nd Syndication Rules have provided increased competition among. program suppliers, encouraged diver- s.ity of prograiming by MTM and others, encouraged top creative personnel to stay in the business of producing television pro- gramming of. the, highest quality, increased the number of mdc- pendant distributors, and provided the program suppliers and creators with a degree of independence from networks that would not otherwise have been available. Even with the' Financial Interest and Syndication Rules in effect, the networks maintain many controls over MTM's programming. The networks ultimately PAGENO="0462" 458 `choose the programs which are put on the air; the networks approve the casting, writers and directors, and the networks approve all scripts. The question must be asked whether these influences would not increase to the detriment of the public -interest if the networks controlled profits and syndication. Doesn't logic tell us that' the networJcs wowld favor programs in which they have the syndication rights and financial interests? Doesn't the same logic tell us that the nitworkS would not per- mit a show such a "WXRP In Cincinnati" or "M*A*S*H*" or "Happy Days" to be, sold to a comp.eting'network's affiliate or tà inde- pendent stations thereby competing with network programming or a network affiliate's programming. The Nielsen ratings for the month of November, 1982 show that "WKRP In Cincinnati" (1) was the highest rated show in its time period in Buffalo, New York on the ABC affiliate ~XBW which preempted, an ABC network series entitled "St*r of the Family", and beat otit the CBS affiliate WIVB and the NBC affiliate WGR; (2) was the highest rated show in its time period in New York City, on Metromedia's independent station WNEW beating out the CBS ownçd and operated station WCBS, the ABC owned and operated station WABC, and the NBC owned and operated station WNBC; (3) and in Los Angeles, on the Metromedia independent station `KTTV for the period January 8-14, 1983 (the series premiered in Los Angeles, in January, 1983) was tied for first place in its time period with the CBS owned and operated station XNXT and beat the ABC owned and operated sta- tion KABC, and the NBC owned and operated station rNBC. It is pertinent to note that, while CBS was in the prOcess of can- celling "W~RP In Cincinnati" last April, they were concurrently trying to obtain from MTM the'right to strip the series on the n~twork during daytime hours thixs preempting the series from going into syndication. MTM did not grant the strippingrights to the network and the series is now in syndication. Had there been no syndication rules, the network would have acquired the syndication rights to the series up front and they would not have neede~ to obtain MTh's consent to the daytime stripping of the series. The show would not be in `syndication today on com- PAGENO="0463" 459 peting network affiliate stations or independent stations. As a program supplier dependent upon exploitation of its shows after the initial network runs for recoupment of its investment and potential profits, MTM must be concerned with these inherent coiiflicte. The networks already have multiple exclusive options on our series, exclusivity clauses, control of spin-offs, and other controls. Statistics provided by CPD show that the networ3~5 do not lose money on even their unsuccessful shows, while the independent production companies such as MTM bear substantial deficits on the same shows. Because of the pricing structure of network advertising time and the fact that the networks do not share advertsing.revenues with the program suppliers, the burden of a failed series is placed on the suppliers such as MTh. MTM is willing to assume that risk because the in~entive for potential future profits encourages it and the creative personnel working with it to create new and diverse programming to obtain such prof its. The Financial Interest and Syndication Rules were adopted by the FCC because of abuses by the networks. Such abu- ses were verified by the Justice Department and resulted in recent network Consent Decrees. There is no indication to MTM as a program supplier that the new media have created such changed circumstances that the Rules should be changed now. Although there is a lot of talk of original programming for pay televi~ sion, and indeed some programming has been produced, the level of payments available to the program suppliers does not approach that available from the networks.. Even by the networks' own projections, the networks will retain well in excess of a 70% share of the audience through the 1990's. The networks argue that one of the main reasons for repeal of the Financial Interest and Syndication Rules is the effect of pay TV on their share of the audience. However, as mentioned above, even by the networks' own projections, they PAGENO="0464" 460 will remain the dominant entertainment and information medium well into the 1990's. If there is any significant erosion of the- network audience such erosion is due to the competition from the independent stations thoughout the country not pay television. Since the inception of the Financial Interest and Syn- dication Rules and the availability to independent stations of high quality of f-'network programming, the number of indepehdent stations haè doubled and their profits have increased dramati- cally as they have attracted an increasing share of the audience away from network affiliates thereby attracting enormous adver- tising revenues. With a strong financial base derived in sub- stantial part from the revenues earned from high quality of f- network programming, independent stations have acquired the economic strength to begin producing and purchasing high quality original programmming such. as "Golda" and "Nicholas Nickelby" both of. which were turned down by the. networks. The networks are aware that the- -real threat to thdt~ continued dominance for the foreseeable future are the indepen- dent stations and not pay television. It is this fear of con- tinual erosion of their share of the audience to independent stations which have caused the networks and their affiliateS to actively support repeal of the Financial Interest and Syndica- tion Rules. If the Rules are repealed, the networks will own and control the øyndication rights and significant financial interests in virtually all programs which they broadcast. With this control and power the programming will be warehoused by the networks as was the case prior to the Rules or it will be chan- neled to their network affiliates and not to the independent stations. If independent stations do not have access to high quality off-network programming, the networks and their affiliates once again will dominate each and every market with the strong possibility that many independents may be driven out of business or reduced to an insignificant competitor. Without healthy competition in the market-place, the network monopolies, their owned and operated PAGENO="0465" 461 stations and their affiliates will be a position to signifi- cant].y raise advertising rates. (See "Daily Variety" article dated January 24, 1983 entitled "Reep Financial Interest Syndie Regs, Ad Group Asks" attached as Exhibit #3.) When the adver- -tising rates increase, the increased costs will be passed on to the consumer. Ultimately, the consumer is the big loser if the rules are repealed. The quility and diversity of programming will diminish when companies such as MTM no longer have the economic incentives to take the risks necessary to develop and produce shows such as "Lou Grant", "The White Shadow", "St. Elsewhere", and "Hill Street Blues". In addition, without a competitive marketplace, the increased advertising costs exacted by the net- work monopolies will be added to the costs of products and ser- vices advertised on television. In conclusion, MTM respectfully suggests to the Commis- sion that the Financial Interest and Syndication Rules be main~ tained. Our experience tells us that dealing with the networks even with the Rules in effect is one-sided at best, and any increased leverage given to the networks can only adversely affect the diversity and quality of programming and decrease competition in the marketplace all to the detriment of the public interest. January 25, 1983 MTr~Ent~rprise~a, Inc. .~ A~thu\r Price, President Mel D. Blumenthal, Executive Vice President 32-540 O-84--30 PAGENO="0466" 462 NBC Puts Brakes On Its Declining Fiscal Fortunes. By JIM HARWOOD After four years of decline, NBC posted "significantly high. er" earnings for 1982, parent. RCA Corp. reported last Fri. I day, noting Its own sales and earnings were at record highs. for the year, despite slippage in the fourth quarter. RCA did not provide figures but said each~f its broadcasting subsidiary's divisions "achieved record sales, reflecting a con- tinning strong advertiser de- mand for time on the television network and favorable market conditions for NBC's owned-and- operated television stations~" For 1982, RCA said Its profits were $222,600,000, or $2.03 per common share. A~ year eai'lieF the company earned~ $54,000,000, which worked down to a loss of 19t a common share after pre. ferred dividends. Sales for the year totaled $8,- 237,000,000, up from $8,004,000,- 000 in 1981. Net income for the fourth quarter declined to $54,000,000, or 48t a share, from $57,800,000, or 54*~ a share, as revenues rose to a record $2,180,000,000 from $2,110,000,000. Chairman Thornton F. Brad. shaw blamed adverse economic conditions for the trouble, add. ing that "the fourth quarter re- sults reflect a continuation of the weak economy which may car- ry over into, the first quarter of this year. "Nonetheless~ our operations are positioned to make further progress in 1983 with some help from an improved economy." Communication operations continued to be paced by RCA Americom Domestic Satellite which posted "sharply higher" revs andearnings, mainly due to sale of tax benefits, the sale of five transponders on Satcom IV and sale of Satcom V to Alas- corn Inc. VidIsk sales were "brisk," RCA said, reporting shipment of more than 3,600~000 albums. Best seller was "On Golden Pond," followed by "Superman," "Star Trek II: The Wrath Of Khan" and "Rocky III." EXHIBIT "1', PAGENO="0467" 463 Duffy says his is the first television network to hit that mark; outlook for 1983 looks to be very upbeat Despite the recession,. the ABC Telvision Network last year scored a record year. and according to network president James E. Duffy. became the first of the three networks to pass the "$2-billion mark." Duffy's obser- vation came in an address delivered to sales and marketing executives in Milwaukee last Thursday. The ABC executive went on to say that 1983 "is off to a strong start"- reiterating the word ABC Inc. President Fred Pierce gave BROADCASTING the week earlier (BROADCASTING. Jan. 17) that the network is 96% sold out in prime time, while adding that ABC scatter rates are up 20% from up- front pricing. ABC. said Duffy. is also optimistic about the second quarter of 1983-the second is a quarter that is historically strong and "at this time advertiser are picking up their options with us at better than a 90% rate." Duffy's t~emarks, which opened with a pitch to the advertisers on the merits of tele- vision in general as a single advertising me- dium. and ABC "the largest single advertis- ing medium in the world") in particular, gave him an opportunity to take note of ABC's latest affiliation gain-luring WDAY- iv Fargo. ND. and its~ satellite. WDAZ-TV Devil'~c Lake-Grand Forks, ND', from NBC. The change, to take place within six months, will give ABC 208. .Duffy also took the opportunity to plug the "novel for television" format, with ABC not coincidentally having "Winds of War" and "The Thorn Birds" waiting in the wings. The former, he noted, cost $38 million to produce. Closing with a look ahead to. 1984. when ABC will present both the Sarajevo winter Olympics and the Los Angeles summer Olympics. Duffy said that four of the L.A. games, ABC has "practically sold out the $450-million worth of commercial timç EXHIBIT "2" PAGENO="0468" 464 Keep Financial Interest, Syndie Regs, Ad Group Asks New York, Jan. 23 - As ex- pected, the Association of Na. tional Advertisers has filed with the Federal Communications Commission in favor of retain. ing the financial interest, and syndication rules.. In its filing, the. ANA ex- pressed little sympathy with the networks' pitch for deregula- tion, arguing that to rescind the rule would force up prices to ad. vertisers, reduce competition and adversely affect the growth and viability of independent tv stations. ANA said Its position re- flected the "overwhelming" opinion of its membership and the "unanimous" vote of its board. Clearly, the ANA is looking out for its own interest. In its filing it said, "In those markets with high levels of viewing to inde- pendent stations, the cost per thousand viewers paid by typi- cal advertisers ranged from 20% to 60% lower than the cost paid in markets with llttle.or no inde- pendent station viewlng.~'. ANA went on to say that it saw the situation "as ana~ogóu.i to that which once existed In the motion picture industry, when. the producers could and did re- strict the distribution of popular films to their own theatres and denied their best films to com- petitive dIstributors~" Finally, the ANA said, In the past decade the power of the webs have enabled them, since 1972, to raise unit prices..by about 200%, "a rate which Is signifi- cantly greater than that of-other national advertising media, and some 60% above the rate of in. flation It~s that price thing that real- ly burns the ANA. It tears that if producers are forced to yield a share of ownership and profit in order to get the network to pick up their show, they'll have to de- mand a higher price for the original network run. Resuft: the network will pass this high- er cost on the advertiser. EXHIBIT "3" PAGENO="0469" 465 Mr. WIRTH. Thank you, Mr. Price. Mr. Thomopoulos. STATEMENT OF ANTHONY D. THOMOPOULOS Mr. THOMOPOULOS. Thank you, Mr. Chairman, Mr. Waxman, Mr. Leland. My name is Anthony D. Thomopoulos. I am president of ABC En- tertainment, the ABC division responsible for entertainment pro- graming on the ABC television network. Thank you for the opportunities to present ABC's views regard- ing the FCC syndication and financial interest rules. As the subcommittee is probably aware, ABC has been an active participant in the FCC current rulemaking proceedings looking to- wards possible repeal or modification of the syndication and finan- cial interest rules. We believe that these rules should be repealed. We have also in- dicated in response to a concern expressed by some parties in the. FCC proceedings that networks as syndicators might warehouse programs or otherwise discriminate against independent television stations, that we would no objections-and I repeat, we would have no objections-to a regulatory action directed to that specific con- cern, even though we believe such a course is unnecessary. The Department of Justice, which has recommended repeal of the existing rules, suggested that the Commission consider such a narrowly focused substitute rule. Five Government agencies, three Federal and two State, are participants in the FCC proceeding. All have urged repeal of the rules in their present form and, of course, the FCC's own network inquiry special staff, which was appointed and served and reported during the chairmanship of former Chair- man Ferris, recommended repeal. ABC believes that the syndication and the financial interest rules are unfair and anticompetitive. They deny to ABC, CBS and NBC the opportunity to bargain for an interest in the downstream revenues from the programs which these companies largely finance from inception to completion. In so doing, the rules effectively raise the cost of programing to the detriment of the networks, affiliated stations throughout the country, and ultimately the viewers. At the same time, they impose no like burden on any of the new and emerging networks like Home Box Office with which we compete, and they deny to the syn- dication market the benefits which would flow from three more competitors. The syndication and financial interest rules are pro- tectionist in character and we understand why established produc- ers and syndicators would like to continue to enjoy the protective status which these regulations provide. But that does not mean the rules serve the public interest. Quite the contrary. Protectionist regulations, such as those, distort the marketplace process and cheat the economy of the very efficiency which a free market provides. Contrary to the suggestions of some, the rules do not contribute to program quality or diversity. By arti- ficially inflating the cost of network programing, they work to di- minish program quality. PAGENO="0470" 466 By denying to the producers the options of selling to networks' potential downstream revenues in programs, they make it more difficult for new and untried producers to get a start in television production. Some minority producers have so testified before the FCC. Potential entrants find themselves looking to their competitors, the established producers for financial backing. It should come as no surprise, therefore, that the FCC special staff found that the rules tended to increase the concentration of the supply of network programs. Our nation has already entered a new era of video competition. This new era has provided many new distribution networks; for ex- ample, cable, pay cable, subscription television, multi- point distri- bution service and within the next year, satellite to home broad- casting. Most of these new networks offer programing only for those able and willing to pay for it. In just a few years, the pay services will be spending more for programing than ABC, CBS and NBC com- bined. Whether justification may have existed for the syndication and financial interest rules when they were adopted in 1970, surely it does not exist today. Thank you very much Mr. WIRTH. Thank you. Mr. Waz. STATEMENT OF JOSEPH W. WAZ, JR. Mr. WAz. Thank you, Mr. Waxman, Mr. Leland. I am here today as special counsel to the Committee Against Network Monopoly, an ad hoc coalition, whose supporting organiza- tions include representatives of consumer, religious, labor, minori- ty, elderly and other significant interest groups. The committee was organized in conjunction with the creative community and in- dependent broadcasters to support the retention of the FCC's finan- cial interest and syndication rules. A roster of the 37 organizations supporting the committee has been submitted for the record. Gentlemen, just to give you a flavor of the organizations in- volved, some of the members do include the American Association of University Women, the American Civil Liberties Union, the Na- tioñal Council of Churches, the U.S. Catholic Conference, the Urban Elderly Coalition, the Hispanic Telecommunications Net- work and the Association of Independent Video and Filmmakers. Gentlemen, Chairman Fowler of the FCC is fond of saying that what is in "the public interest" is that which the public is interest- ed in. Well, clearly, the public is interested in this issue and in this legislation, and they strongly concur that these rules should be re- tained. The financial interest and syndication rules and the complemen- tary prime time access rule have helped make more aud diverse viewing options available to the public by allowing greater creative and financial independence to the creative community and by re- ducing the three major networks control over what Americans may view. PAGENO="0471" 467 These rules have been a palliative, but not a cure. Network dominance persists in the video marketplace. Despite rosy predic- tions and buoyant rhetoric the video age of abundance is not, and may not soon be, within the reach of most Americans. Today, as at the time these rules were adopted, most Americans still rely primarily on over-the-air broadcast services for most of their news and entertainment. Barely a third of the Nation's TV households are wired for cable. Fewer than one in seven house- holds take any form of pay TV. As the litany of various new media, to which Mr. Thomopoulos referred, find their way toward the marketplace, their commercial prospects and their ability to serve the diverse needs of American viewers are uncertain at best. Already we are witnessing a major shakeout, with subscription TV stations folding and major cable programing services, backed by such substantial players as CBS and Rockefeller Center, disap- pearing. The combination of economics and ill-considered regulations has prohibited the emergence of any delivery system with the audience reach and financial clout of the three networks. The financial in- terest and syndication rules were intended to offset somewhat this unchallengable dominance. Yet, just as these rules have begun to work by making independent broadcasting a viable enterprise and by opening up the network programing marketplace to new ideas and new faces, the current FCC proposes to pull the plug. Gentlemen, a reasoned view of the state of the video marketplace militates in favor of retaining these rules, but reason hasn't dis- suaded the networks' from letting loose a stream of hyperbole and myth urging repeal. The networks nominal goals are to save "free TV" from the threat of pay media and to bring improved program- ing to special audiences. Let's consider the first of these myths, that failure to repeal the rules will mean "the end of free TV" or, as Mr. Dunham hastily rephrased it this morning, the loss of a "level of service" free TV provides. What is far more likely is that repeal of these rules will mean the end of competition in advertiser-supported television. The rules do not affect the networks' ability to bid for any programing or to produce news and public affairs programs. The rules affect only the networks' right to syndicate entertainment series and specials. The rules have caused no perceptible harm to the networks. Net- work profits climbed 550 percent during the first 10 years the rules were in effect. They raked in $6 billion in ad revenues last year and they still hold a combined 80-percent share of TV homes in prime time. By the end of the decade, by the networks' own estimate, they will still retain a combined 70-percent audience share, a command- ing portion of what will then be a much bigger total audience. And consider the recent remarks of RCA chairman Thornton Bradshaw that were alluded to earlier, "I don't believe in 100 chan- nels any more. In 1990, I do believe that three networks will be here and very, very strong." That, gentlemen, is the attitude of an industry with little to fear from fledgling competition. The networks have trotted out "the demise of free TV" before, Mr. Chairman, when they tried to delay or deny the growth of PAGENO="0472" 468 cable in the sixties. In fact, cable has provided merely supplemen- tary service to the American public and has lured little programing of consequence away from the networks. No competitor, not cable, not independent stations, not the new media remotely threatens the networks. Gentlemen, repeal, not retention of these rules, is more likely to result in loss of program service to the public. Deprived of their fi- nancial independence, producers will be far less likely to take cre- ative risks. Deprived of access to popular programs to build their audiences and revenues, independent broadcasters cannot serve as additional outlets for competitive newscasts or local public affairs programs addressing community concerns, for local sports and local and first-run syndicated programing aimed at minorities, children and other specialized audiences, which the networks too often ignore. That brings me to the second network myth, that if only these rules were repealed the networks would be free to invest in "risk- taking" programing to serve special audiences. A look at the record unfortunately deflates this promise. Under these rules and the networks' consent decrees, the net- works have been free to produce a substantial number of hours per week of entertainment and information programs in all dayparts, including prime time. And, in fact, the networks have increased the percentage of the broadcast day during which they provide feeds to affiliates from 50 percent in 1970 to 69 percent in 1982. But even so, the networks have done precious little to serve mi- nority, handicapped, children and other special audiences. Organi- zations concerned with the failure of the networks to serve these audiences have gone on record in opposition to repeal. Action for Children's Television and the National Education Association, the National Council of Churches and the Urban Elderly Coalition all agree that repeal of these rules will perpetuate this indifference toward significant segments of the public. Many new and would-be entrants into the video marketplace want the opportunity to serve these audiences and do not feel that repeal of the rules will open up opportunities for them. The National Institute for Low-Power Television, Black Enter- tainment Television, the Hispanic Telecommunications Network, Mestizo Production Associates, the Association of Independent Video and Filmmakers and many more agree that reimposition of network monopoly would reduce their ability to compete. Despite their ability, indeed, their obligation as public trustees, the networks have failed to serve special audiences. Repeal of the rules should not be some sort of quid pro quo for the networks to provide service they and their affiliates are already obligated to provide. Indeed, only from the competition which the rules inspire are opportunities for greater diversity and service to special audi- ences likely to grow. Only by curbing network control over the programing market- place will we give these fledgling producers an opportunity to suc- ceed and serve the public. Gentlemen, broadcasting remains a highly imperfect market- place in which the three networks reign supreme. In carrying out its statutory charge to promote diversity and competition, the FCC PAGENO="0473" 469 adopted these rules as a check on network power. The Commis- sion's public interest obligation has not changed, although the tem- perament of those who set its agenda may have. The historical accident which has given three big companies con- trol over the video marketplace should not be ratified by an agency charged with promoting diversity and competition. When a regula- tory agency ignores its statutory mandate, congressional action may be compelled. Federal communications policy should not abandon the public in- terest to economic Darwinism, but should instead nurture competi- tion and diversity in media. To that end, the Committee Against Network Monopoly wholeheartedly endorses H.R. 2250 as a means of protecting procompetitive regulations. Thank you. [Testimony resumes on p. 659.] [Mr. Waz' prepared statement follows:] PAGENO="0474" 470 COMMITTEE AGAINST NETWORK MONOPOLY SUITE 600 1317 F STREET. NORTHWEST WASHINGTON. D.C. 20004 (202) 638-2121 June 1, 1983 Statement of Joseph W. Waz, Jr., Special Counsel, Committee Against Network Monopoly, before the House Subcommittee on Telecommunications, Consumer Protection and Finance, Los Angeles, California, June 1, 1983 The Committee Against Network Monopoly is an ad hoc non- partisan, single issue coalition whose 37 supporting organizations include representatives of consumer, religious, labor, minority, elderly and other significant interest groups. The Committee ~as organized in conjunction with the creative community and indepen- dent broadcasters. A roster of CANM's supporting organizations is submitted herewith. The Committee strongly supports H.R. 2250, a bill which would place a five-year moratorium on any action by the Federal Communi- cations Commission to modify the financial interest, syndication, or prime time access rules. The Committee believes that the retention of these rules would serve the public interest by offsetting the dominance of the three major networks in television broadcasting, and by enhancing diversity and competition in program production and distribution,*/ *1 This committee was organized expressly to respond to the FCC's proposed repeal of the financial interest and syndication rules. However, because of all three regulations which are the subject of H.R. 2250 were adopted by the FCC at the same time and for the same pro-competitive purposes, the organizations which com- prise the Committee Against Network Monopoly support the reten- tion of all the regulations in question. PAGENO="0475" 471 These rules have served the public well over the past twelve years. The rules have contributed significantly to increased com- petition in independent production for network and syndication, and to the steady improvement in the number and financial viability of independent television stations. More voices, nore ideas, and more options are available to the viewing public as a direct result of these rules. These rules are modest and self-enforcing regulations entirely consistent with the Federal Communications Commission's statutory mandate to regulate in the public interest. Were the rules to be repealed, the three networks would be poised to diminish or destroy their fledgling competitors in the broadcasting industry, and to constrain further the creative independence of program producers. Repeal would undo the gains achieved under the rules during the past decade. There are simple facts and figures supporting retention. The goals of the Communications Act and the First Amendment have been served by the proliferation of independent TV stations, program producers, and program distributors, all of which owe their existence in great measure to these rules. By placing those who create and produce television programming in an improved bargaining position vis-a-vis the networks, the f in- ancial interest rule has increased producers' financial and creative independence. Producers can more freely buck the "lowest PAGENO="0476" 472 common demoninator" attitudes of the networks when given that kind of independence. When producers can take their own creative and financial risks, they are better able to stick to their creative guns on issues such as casting and the coverage of controversial subject matter. And because of the syndication and prime time access rules, producers now have an outlet for shows which might not interest the networks, including a variety of mini-series and special audience programs. By reducing the networks' ability to restrict the availability of popular off-network syndicated programming to independent TV stations, the syndication rule has allowed independents to satisfy viewer needs, build larger audiences, and achieve financial stability. As independents have grown and prospered, Americans have been pro- vided with more outlets to which to turn for original programming, popular reruns, notion pictures, sports and community service programs. While these rules have helped open up competition and diversity in broadcasting over the past decade, they will also remain impor- tant as network dominance persists in the years ahead. Despite rosy predictions and buoyant rhetoric, we find that the vast majority of Americans do not yet share in the much-bally- hooed "video abundance." which new technologies are meant to bring. We need to confront the realities of the video marketplace, and to recognize that the video age of abundance is not, and may not soon be, within reach of most Americans. PAGENO="0477" 473 Most American TV households today still rely primarily on over-the-air broadcast services for most of their news and enter- tainment. Barely a third of the nation's TV households are wired for cable, and many of these cable systems are still merely retransmitting local broadcast signals, with a handful of distant signals thrown into the mix. Fewer than one in seven TV households subscribes to any form of "pay TV" service, whether STy, MDS, or pay cable. On an average night, over 80 percent of all American TV households are tuned to the three major networks. A growing percentage of TV households, currently estimated at 11 percent, are tuned to independent TV stations. The fractional remainder of sets are tuned to public broadcasting, or pay or basic cable. These numbers demonstrate compellingly the continued dominance of the networks as the primary source of video programming for most Americans. Independent TV stations, whose access to key programming is protected by these rules, currently provide the only real com- petition for audiences. These independents, whose continued exis- tence would be jeopardized by hasty repeal of these rules, have provided important new outlets for programming aimed at specialized audiences such as minorities, children and the elderly -- audiences which the networks have too often ignored. If network dominance is expanded further by repeal of these rules, American consumers stand to be deprived of their only current, genuine viewing options. PAGENO="0478" 474 Too many barriers stand in the way of real competition with the networks. Some of these barriers were erected by the federal government, particularly the FCC's Sixth Report and Order allocating TV channels. Some are the result of economics or technology -- neither has yet permitted the emergence of a delivery system which has achievea the critical mass of audience reach, viewership, and revenues which the three networks have attained. Yet, just as federal regulations intended to overcome some of these barriers to diversity and service are beginning to work -- just as independent broadcasting is becoming a viable enterprise the Commission proposes to pull the plug, leaving the programming marketplace entirely at the mercy of the networks. A reasoned view of the state of the video marketplace militates in favor of retaining these rules. But reason has not dissuaded the networks from waging a vigorous, and often misleading, campaign to remove these regulations, thus to reimpose their monopoly in full force. The networks have let loose a stream of hyperbole and myth intended to convince the public that retaining the rules will mean "the end of free TV", and that only with repeal of the rules will the networks be able to improve their programming to specialized audiences. Let us consider the first of these myths: that failure to repeal the rules will mean "the end of free TV". PAGENO="0479" 475 It is far more likely that repeal of these rules will mean the end of competition in advertiser-supported television. The rules have caused no neasurable financial harm to the networks. The. development of competition fostered by the rules has only modestly diminished the networks' overall dominance. The rules have brought -- and will continue to bring -~ more diversity to advertiser-supported television (and thus more "free TV" to the viewing public) than would be likely were the rules to be repealed. It must be recognized that the rules have nothing to do with the networks' ability to bid for major sporting events or feature films, or their ability to produce news and public affairs programs. The rules affect only the right to syndicate entertainment series and specials. The networks remain dominant in every sense of the word. As noted earlier, the networks today continue to draw over 80 percent of the total prime tine audience. Reduction in the networks' total prime time share will remain very gradual... CBS estimates that the networks will still have 70 percent of the.prime time audience in 1990, and that actually represents millions more TV households than they reach today. Additionally, the rules are causing no measurable financial harm to the networks. As CBS said in a recent study, "For the foreseeable future, at least, network television will continue to be the pre- dominant national advertising medium." Indeed, the networks enjoyed PAGENO="0480" 476 a "six billion dollar year" in 1982, based on total ad revenues. And network profits have risen precipitously during the years the rules have been in effect... a 550 percent climb between 1970 and 1980. The networks have suggested that they are in imminent danger of losing series programming and sporting events to pay cable and other competitive media. These "siphoning" arguments have a familiar ring -- they were frequently invoked by the networks during the Sixties in their effort to deter the coming of cable television. They are as improbable today as they were fifteen years ago. Those television series which the networks characterize as "taken away" by cable are in fact series which the networks discarded because they did not deliver the "numbers" the networks wanted. They resurrection of such series as "The Paper Chase" and "SCTV" by two of the largest cable program services hardly represents a raid on network programming. In both cases, the cable program services has committed to far smaller series runs than would the TV networks, at smaller budgets, according to press reports. But the key point is that these programs would have been denied to the American public because the networks were dissatisfied with their ratings performance; it appears that when the networks have played the executioner, they don't want anyone else to try to revive what they have condemned. PAGENO="0481" 477 Moreover, there is no indication that cable series develop- ment will begin to approach the networks any time soon. All of the original, "network-quality" (when measured by production cost) series programming currently on all cable channels combined would barely fill a couple of evenings on any one of the big three TV networks. With rare exceptions, cable programming is still a losing business proposition. The only viable outlet for the foreseeable future for the sort of series programming con- templated by the financial interest and syndication rules will be the three TV networks. A most peculiar assertion by the networks is that failure to repeal these rules will lead to the loss of local sports programming to cable. But a quick review of the TV listing in Los Angeles, Chicago, New York, Boston, or most anywhere else in the nation will show that it is independent TV stations who are responsible for home team basketball, baseball, and hockey coverage. And cable has not succeeded in creating a massive "shift" of sports coverage from ad-supported TV to pay. In fact, in a recent instance, the Detroit Tigers baseball team pulled out of its pay TV contract to stay with advertiser-supported television. For the foreseeable future, "free TV" and the networks in particular will go nowhere but up. Consider the recent statements of RCA chairman Thornton Bradshaw, speaking with regard to his subsidiary, NBC: "I don't believe in 100 channels any more... (T)here's not room for many narrow channels... (In 1990,) I do 32-540 O-84----31 PAGENO="0482" 478 believe three networks will be here and very, very strong... The networks are supplying basic P~znerican culture, and they're getting better and better at it." That is not the attitude of an institution on the ropes. That is the attitude of an industry giant with little to fear from growing competition. Now let's consider a second network myth: the assertion that if only these rules were repealed, the networks would be free to invest in "risk-taking" programming to serve specialized audiences. A look at the record deflates this promise. Under these rules and the networks' respective consent decrees with the Justice Department, the networks have been free to produce a substantial number of hours per week of entertainment and informa- tion programming in all dayparts, including prime time. And, of course, the networks were completely free to produce and control all program rights prior to these legal actions. But even with this freedom to produce, then and now, the networks have done precious little to serve minority, handicapped, children and other special audiences. In fact, the networks have increased the percentage of the broadcast day during which they provide feeds to affiliates... from 50 percent in 1970 to 69 percent in 1982. But even with this increased control of the broadcast day, the networks have left specialized audiences underserved. PAGENO="0483" 479 Organizations concerned with the failure of the networks to serve specialized audiences, and their failure to offer network access to new ideas and new faces, have recorded their concern that repeal of these rules cannot inprove the situation. Action for Children's Television told the FCC that the networks have evidenced "indifference" and "backsliding" on children's programming, and noted that limited public access to new media requires retention of the rules to encourage competition. The National Education Association expressed similar sentiments. The National Association of Black-Owned Broadcasters has observed: "(T)here is nothing in the record of programming pro- duction by the networks which would suggest that repeal of the rules will create any new diversity in programming, particularly for minority audiences. The networks have consistently adopted a policy of programming designed for attracting the largest number of total viewers without regard to the tastes and inter- ests of minority audiences. Repeal... would only permit the networks to continue this manner of programming on a large scale." Representatives of nascent competitive media, who wish to enter the marketplace and attempt to provide service for under- served audiences, support retention of the rules as an important adjunct to the development of this marketplace. The National Institute for Low-Power Television has told the FCC that repeal of the rules at this time would be premature, and should await the development of "an economic environment in which LPTV and other PAGENO="0484" 480 emerging technologies can compete and survive." Black Entertainment Television told the Commission: "(The rules) are a good example of federal policies which encourage more varied fare for the nation's television audience while placing minimal restriction on those who dominate the marketplace... The rules have helped pave the way for increased minority participation in network programming, and have helped open up the syndication marketplace to growing numbers of programs targeted at the Black audience by increasing the outlets available to syndicators." A great many other current and would-be entrants into the video marketplace, including the Hispanic Telecommunications Network, New Citizen Productions, Inc., Children's Television Workshop, Media Alliance, Mestizo Production Associates, and the Association of Independent Video and Filmmakers, Inc. have expressed similar sentiments. The networks have failed to serve special audiences, despite their ability -- indeed, their obligation -- to do so. Repeal of the rules bears no correlation whatsoever to the networks' ability to program for minorities, children, the elderly, and other significant elements of the viewing public. Repeal of the rules should not be a quid pro quo for the networks to provide the kind of service they and their affiliates are already obligated to provide. It is not for lack of opportunity, nor for lack of profits, that the networks have failed to provide special audience programs, PAGENO="0485" 481 They have been the gatekeepers to the nation's TV households, but they have thrown away the key when it comes to special audiences. Thus, their arguments that repeal of the rules will bring an abundance of such programs rings hollow. Only from the competition which the rules inspire are opportunities for greater diversity and service to special audiences likely to grow. Only by curbing network control over the programming markeplace will we give these new competitors an opportunity to succeed. The networks claim they are hamstrung by these rules from competing with new media not subject to the same regulatory limitations But one need only ask "where are the new media?" and `who owns them?" to appreciate just how non-competitive they really are. Where are the new media? The average American has yet to see them. As I have noted, barely a third of all American TV homes are wired for cable, and nearly 70 percent of all cable systems still have 12 channels or fewer. Single-channel subscrip- tion TV stations have been folding in. startling numbers in recent months. Single-channel MDS is available in only a handful of markets. Only a few dozen low-power TV stations have signed on to date. Direct broadcast satellites are still a long way off. In short, these competitive media the networks claim to fear are no more threatening to the broadcast giants than a flea to an elephant. Who owns the new media? Among the biggest investors in these emerging media to date are the three networks. CBS, and NBC's parent PAGENO="0486" 482 corporation (RCA), are applicants for DBS authorizations. All three networks have tried their hand at cable programming services. CBS has begun acquiring cable systems. RCA controls much of the satellite distribution system which make the new media possible. ABC will soon inaugurate TeleFirst, an overnight home video record- ing service. If and when these new media come, they will be wearing the same old faces. ***** Broadcasting remains a highly imperfect marketplace in which the three networks reign supreme. In, carrying out its statutory charge to promote diversity and cOmpetition, the FCC adopted these rules as a check on network power. By enhancing the financial and creative independence of the program production industry, and by assuring independent broadcasters access to the programming on which they have built their audience and financial base, the rules have worked efficiently, and caused no perceptible harm to the networks. In adopting these rules, the FCC attempted to carry out its statutory charge to promote diversity and competition. These remain vital public interest concerns. Federal action which would undercut the networks' only significant competitors and suffocate the video marketplace in its infancy would be anti-competitive and anti-consumer. When a regulatory agency ignores its statutory mandate, Congressional action may be compelled. The Committee Against Network Monopoly wholeheartedly endorses H.R. 2250 as a means of protecting pro-competitive regulation. Federal communications policy should not abandon the public interest to economic Darwinism, but should instead nurture competition and diversity in media. These rules contribute to that goal. PAGENO="0487" 483 COMMITTEE AGAINST NETWORK MONOPOLY SUITE 600 1317 F STREET. NORTHWEST WASHINGTON. D.C. 20004 (202) 638.2121 SUPPORTING ORGANIZATIONS June 15, 1983 Action for Children's Television (Newtonville, MA) American Association of University Women (Washington, DC) American Civil Liberties Union (New York, NY) Association of Catholic Television and Radio Syndicators (Chicago, IL) Association of Community Organizations for Reform Now (Little Rock, AR) Association of Independent Video and Filmmakers (New York, NY) Center for Non-Broadcast Television (New York, NY) Center for Population Options (Washington, DC) Chicago Consumer Coalition (Chicago, IL) Children's Television Workshop (New York, NY) Citizens Committee on the Media (Chicago, IL) Committee for Community Access (Boston, MA) Congress Watch (Washington, DC) Consumer Federation of California (Los Angeles, CA) Cooperative League of the U.S.A. (Washington, DC) Council for American Indian Ministries (Minneapolis, MN) Council of Churches of the City of New York (New York, NY) Fairfax Cable Association (McLean, VA) Hispanic Telecommunications Network (San Antonio, TX) Local 111, Communications Trades Division, International Brotherhood of Teamsters (New York, NY) Maryland Citizens Consumers Council (Baltimore, MD) Media Access Project (Washington., DC) Media Alliance (San Francisco, CA) Montanans for Quality Television (Missoula, MT) National Association for Better Broadcasting (Los Angeles, CA) National Association of Black-Owned Broadcasters (Washington, DC) National Coalition on Television Violence (Champaign, IL) National Council of Churches of Christ in the United States, Communications Commission (New York, NY) New Citizen Productions (San Francisco, CA) New York SANE Peace Council (New York, NY) North Carolina Consumers Council (Chapel Hill, NC) People for the American Way (Washington, DC) Public Media Center (San Francisco, CA) Seattle Consumer Action Network (Seattle, WA) Urban Elderly Coalition (Washington, DC) U.S. Catholic Conference, Department of Communication (New York, NY) Washington Area Film and Video League (Washington, DC) Association of Mexican-American Educators, Inc. (Los Angeles, CA) Mestizo Production Associates (Santa Ana, CA) International Association of Machinists and Aerospace Workers, AFL-CIO (Washington, DC) PAGENO="0488" 484 ~tJ ~ FOR RELEASE: Wednesday, January 26, 1983, 10:00 am. ACT SUPPORTS FCC SYNDICATION RULES Arguing that diversity of control promotes diversity of service, Action for Children's Television (ACT) has filed formal comments with the Federal Communications Commission (FCC) in support of the FCC's Financial Interest and Syndication Rules. Speaking today at a press conference in Washington, D.C., ACT President Peggy Charren stated ACT's belief that to repevi these rules and thereby concentrate more power in the hands of the three commercial networks is to reduce television program diversity and threaten the survival of programming for young audiences. Said Charren: "The Financial Interest and Syndication Rules cannot guarantee TV program diversity, but repealing the rules would automatically concentrate more power In the hands of the commercial networks. That can only lead to less diversity, less concern for the public. and less programming for young audiences. During the past decade, the networks have proved that, left to their own devices, they will maximize profits at the expense of program choice. All three networks have failed to demonstra*e that choice for children-- or, indeed, for any audience besides the 18- to 49-year-old consumer--is a priority.. CBS's treatment of `Captain Kangaroo' is a conspicuous example of the kind of network decision making that focuses exclusively on the bottom line; that children's show was juggled around the early morning schedule and eventually cancelled on Mondays through Fridays because in CBS's view it didn't have an audience. "ACT has always supported structural regulations that increase diversity in the television marketplace, because diversity of control leads to greater diversity in programming. Stronger independent stations and a greater variety of programming sources can, with luck, result in better service for young audiences; strongernetwork control never will. `ACT's vehement stand in this debate over the Financial Interest and Syndication Rules shows that this is not simply a battle between industry giants for a bigger slice of the pie but also an issue with important consequences for the public interest. If the public is to be served, the Financial Interest and Syndication Rules should stand," 0~I PAGENO="0489" 485 BEFORE THE FEDERAL COMMUNICATIONS COMMISSION AMENDMENT OF THE COMMISSION'S ) BC Docket No. 82-345 SYNDICATION AND FINANCIAL ) FCC 82-300 INTEREST RULE Action for Children's Television (ACT), a nation-wide advocacy organization deeply concerned with television programming for children, opposes the proposed repeal of the Syndication and Financial Interest Rule (SF1) under consideration by the Federal Communications Commission (FCC). Since i~ts inception, ACT has strongly advocated diversity in t~levision programming directed to children. ACT believes that the Syndication and Financial Inte~.est Rule plays an important part in ensuring that creative competition in television programming will not be unduly restricted. This rule constitutes the kind of structural regulation that promotes such diversity by encouraging the development of independent stations and of multiple programming sources. ACT is filing its comments to underscore that this debate on the SF1 Rule is not only a battle among giants for a larger share of the market, but is an issue with important consequences for the public and for young audiences. PAGENO="0490" 486 Although the Rule cannot guarantee program diversity, its repeal would concentrate even more control in the hands of the networks. Children's television programming on the three commercial networks, for example, is extremely limited. The elimination of `Captain Kangaroo,' the only daily network program for children, from the weekday television schedule is a conspicuous example of the indifference and backsliding that have characterized children's television in recent years. Repeal of the SF1 Rule will clearly limit even further the sources of programming available to th~ public. For children, this will turn a bleak landscape into a desert. Nor do the `mew technologies' such as videodisc, tape and cablevision offer a panacea. Today, two thirds of the country does not have access to cable. It is therefore premature to repeal the SF1 Rule because of illusory diversity from and access to the `new media.' The SF1 Rule was promulgated by the FCC after an in-depth study of the networks' television dominance. The Rule was not hastily adopted; rather, it was the result of a careful and thorough analysis of sophisticated problems which had long existed in the television industry. The underlying problem that the Rule was designed to address - the monopolistic control of television program production and distribution by the networks - has not vanished in the twelve years since the Rule's adoption. PAGENO="0491" 487 Indeed, if the problem has been partially ameliorated, it is because of the existence of the SF1 Rule. The FCC would be remiss in its duty to protect the public interest if it were to abandon carefully developed and designed regulation that minimizes network control. The public interest in telcommunications is best served by diverse programming from multiple sources. Thus, the FCC, pursuant to its mandate to protect the public interest, should retain the Syndication and Financial Interest Rule as it currently exists. Respectfully submitted, ACTION FOR CHILDREN'S TELEVISION By its attorneys, GITLIN, EMMER, KAPLAN & BONN Honora Kaplan, Esq. 160 Milk Street Boston, MasschusettS 02109 (617) 451-1380 Dated: January 25, 1983 PAGENO="0492" 488 AMERICAN BUSINESS MEDIA - COUNCIL 721 Second Street NE Capitol Hill Washington DC 20002 202-546-4088 April 25, 1983 Mark S. Fowler, Chairman Presl,~.nt&cEo Federal Communications Commission LYONS 1919 N Street, NW Room 814 Washington, DC 20554 ~oardof~r.cton Dear Mr. Chairman: MICHAELA VALERIO PAUL M WEYRICH We respectfully offer the following written comments for your consider- `OHN~' rATALDO ation and that of your fellow Commissioners in the matter of the Financial ~ Interest and Syndication Rules. GORDON J.HUMPHRE~ GEORGET RYAN In the less than one year that our Council has been working with the business community as a positive force to bring about fair and accurate NadonalAdvl,ory accountability by the media, we find that the three major networks (ABC, Commtttee CBS, NBC) almost daily display an anti-business bias in newscasts, public EDWINAANDERSON affairs shows and prime-time entertainment programming. We do not ANDREINAVRO~ advocate boycotts or censorship -- just fairness. se,, ` - While ABMC strongly favors most of the administration's efforts to bring about federal deregulation, we just as strongly oppose the repeal of the ~`~EDTURNER Financial Interest and Syndication Rules that now limit the three networks cs.s,.. further control over what we are fighting. Having looked at all aides of ~ the issue before your commission, we respectfully join those who favor retention of the Rules and suggest clarifying language that the rules are in place to keep ABC, CBS, and NBC from becoming a "monopsony" again. If the Commission, after years of study, felt it necessary in 1970 to adopt the Rules, and the Rules have proved to serve in the best interest of the public, then we cannot understand why repeal is necessary or even begin considered by FCC at this time. ABMC believes in the free market system, and we support any business system making a fair profit under that system, but not if it is against the public good and interest. Yes, we even agree that the three networks are `business,' but repeal of the Rules would be injurious to the very group the FCC was established to protect -- the public. We ask that each of you give due consideration to repeal of a regulation that has proved its effectiveness. By copy of this letter, we are also conveying our opinions to members of Congress should they become involved in the issue. Sincerely, Âme can Business edia Council Paul N. Lyons, President PML:jed Honorable Gordon 3. Humphrey Honorable John Warner Honorable Paul Tribble Honorable Prank Wolf Members of the Senate Communications Subcommittee Members of the House Subcommittee on Telecommunications PAGENO="0493" 489 ~Scuz ~aL~i.d~ q/aL'L'~~) ~/urnan d?d'aLIon~i eom,nILL~, ilizc. P.O. BOX 596 WEST COVINA, CALIFORNIA 91793-0596 May 31, 1983 Congressman Henry Waxman, Member Sub-committee Tele Communnications Consumer Protectors and Finance B331 Rayburn House Office Building Washington D.C., 20515 Dear Congressman Waxman, As an active organization in the San Gabriel Valley which addresses the concerns of the community at large, we are concerned about the current movement by the networks to repeal the financial interest and syndication rule of the Federal Communnication Commission. In order to insure a diversity of voices it is of extreme importance that the rule be retained. It is the only hope of the minority community as it affords them the opportunity to address issues of extreme importance. Your consideration and support of this request will by greatly appreciated. Sincerely, Richard F. Hernandez PAGENO="0494" 490 NATiVE AMERICAN MEDIA ~ *.~ ~ ~ ~ 11275 MASSACHUSETTS AVE. LOS ANGELES, CA 90025 May 27, 1983 (213) 475-6025 Congressman Henry Waxman, Member Sub-Committee on Telecommunications - - Consumer Protection and Finance B-331 Rayburn House Office Building Washington, D.C. 20515 Dear Congressman Waxman, I am writing to you with respect to the "Financial Interest and Syndication Rule", as this issue is o~ major concern.and interest to the American Indian community. We are in support of the Independent Producers and their efforts to keep the system working the way it has so successfully over these last ten years. Since approximately 1970, there has been more opportunities for Native Americans as actors, craftsmen, tec~hnicians, and creative staffing consultants. Prior to 1970, all the three major television networks have offered the American viewer, is the stereotype image of the American Indian - - fighting the cowboys and the cavalry, living in teepees, and behaving like savages. The Independent Producers have made a sincere contribution to showing the American Indian in a realistic and accurate portrayal, a far cry from the feeble and exploitative efforts of the major television networks. Please, Congressman Waxma~, support the Independent Producers in this fight, and you will help support more opportunities for Native Americans in the television industry. Mike Roberts Director, Corporate Communications MR/dc PAGENO="0495" 491 EASTERN GROUP PUBLICATIONS, INC. 509-1/2 EcHANDIA STREET Los ANGELES, CALIFORNIA 90033 (213) 225-2362 May 31, 1983 Mr. Joe Waz Committee Against Network Monopoly 1317 F. Street, N.W., suite 600 Washington D.C. 20004 Dear Mr. Waz, This letter is to support your efforts to retain the FCC's Financial and Syndication rules" which the FCC has decided to abolish. I also heartily endorse Hk 2250, which seeks to delay any change in these rules by the FCC for a period of five (5) years. It is my feeling that the best interests of Hispanics, along with the rest of the population are best served by fostering a greater number and diversity of those providing television programming for the television audience. Sincerely, //~ ~ N~GING EDITO /CHIEF EXECUTIVE PAGENO="0496" 492 June 1, 1983 Congressman Henry Waxman, Member Subcommittee on Telecommunications Consumer Protection and Finance B-33l Rayburn House Office Building Washington, D.C. 20515 Dear Congressman Waxman: I write to express my concern regarding the attempt to repeal the Federal Communications Commission's Financial Interest and Syndication Rule. As a Hispanic in the entertainment industry, and for many years involved in the community, I am concerned that the strides that have `been made by Hispanics in the media will suffer a seriOus setback, should the networks be successful in this attempt. The networks have had the opportunity to reach out to the community at large, but instead have chosen to follow their primary premise, that of making money. Their concern has not been of social issues, nor of encouraging young and talented minorities to pursue careers in the entertainment industry, but only to reach out when they have felt it would be in their own best interest. It is interesting to see the courtship currently taking place in my community by the networks and various Hispanic organizations. My only question to the networks is: "Where were you before?" The independent producers have been there. They have been reaching out into the community. They haiie addressed issues of concern to the community at large. We have afforded opportunities to young and talented minorities, and will continue to do so, because it's the right thing to do. I encourage you, Congressman Waxman, to help guarantee the diversity and the opportunities, for all within the entertain- ment industry, by your support of the existing Financial Interest and Syndication Rule. Sincerely, ~ /j~~ "Helen Hernandez PAGENO="0497" 493 MARTHA VELEZ JOHNSON MAY 27, 1983 Congressman Henry Waxman Member, ~ub Committee On Telecommunications Consumer Protection and Finance Dear Congressman Waxman, I am a staunch supporter of the retention of the FCC Financial Interest and Syndication Rules, Docket # 82-345. As a formet performer and a member of the Hispanic American community, I am aware of the twofold damage that Network control could impose. First.,by monopol- izing the taste of the country in general and having omnipotent power over who gets to perform. Second, by limiting the representation of minority groups, homogenizing their'across the board'appeal and ignor- ing the specific needs of specific communities. I urge you to do whatever is in your power to retain the existing rule and continue the hope for creative independence in television programming. Thank you for your attention to this letter. Sincerely, 32-540 O-84----32 PAGENO="0498" 494 ~SSOCIATION OF MEXICAN AMERICAN EDUCATORS, INC. _____ STATE OF CAUFORPIIA _____ 1148 Garsden Ave. Covina, CA 91724 19651983 May 27, 1983 Congressman Henry Waxman Member Subcommittee Telecommuni cati ons Consumer Protection, and Finance B 331 Rayburn House Office Building Washington D.C. 20616 Dear Congressman Waxman, On behalf of the Association of Mexican American Educators, Inc., California (AMAE), I am writing this letter of support for the re- tention of F.C.C. Financial Interest and Syndication Rules. AMAE reaffirmed its position at the May 21, 1983 Executive Board meeting to support these rules that have helped enhance the financial and creative independence of independent producers. As educators, working in the schools directly with youth, we feel the repeal of these rules would consequentially restrict, the competition and diversity needed in representing the Chicanos /Latinos experience - protection against imbalanced coverage is crucial. I appneciate your consideration in reviewing this most critical issue. If you have any further questions regarding AMAE's position, please dont hesitate to call me at 213-332-0321 or 213-967-6211 Ext. 343. Sincerely, Jimmy Benavides State President JB:jb cc: Joe Waz, Special Counsel PAGENO="0499" 495 Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of Amendment of 47 CFR § 73.658(j); ) BC Docket NO. 82-345 the Syndication and Financial Interest Rule REPLY COMMENTS OF AMERICAN CIVIL LIBERTIES UNION The American Civil Liberties Union is a non-profit organization organized in 1920 to protect the civil liberties of all Americans. In furtherance of that goal it has partici- pated in a numbet of proceedings before the Federal Conununi- cations Commission and in litigation relating to freedom of expression in the mass media. It has reviewed the comments filed in this proceeding and herewith submits these reply comments. The broadcast media, and television particularly, present unique First Amendment problems because of the strict legal restrictions on their use. In this respect they are fundamentally different from the print media. The ownership PAGENO="0500" 496 and operation of full-power television stations is limited in effect by law to less than a thousand persons. Competition for the limited number of facilities has inflated the prices of licenses. It is difficult for new enterpreneurs to finance the acquisition of licenses which has led to a high degree of concentration of ownership of television outlets. Virtually all of the television licenses in the top 50 markets in the United States are held by multiple owners. In First Amendment terms the result of ownership concentration is that the selection of programming is controlled by fewer persons in violation of the strong constitutional policy for maximizing program sources. Associated Press v. U.s., 326 U.S.l(l945). Commission licensing policies understandably place the highest priority on diversity of control of the mass media. Corn- p~rative Broadcast Hearings, 1 FCC 2d 393(1965); F.C.C. v. N.C.C.B., 436 US 75(1978). Nevertheless, the prohibition against compara- tive hearings on station transfers (49 USC S 310(d)) and the scarcity factors discussed above inevitably lead to greater and greater concentration of ownership, thereby frustrating Commission policies and First Amendment goals. The three networks are, of course, the archetypal multiple owners in that they control the finest technical facil- ities in the largest markets through their owned-and--operated stations and thus have significant control over programming even apart from their network operations. PAGENO="0501" 497 Television networking has important advantages in spreading the cost of producing and distributing programs to television stations and in marketing television audiences to advertisers. However, networking has serious disadvantages from a First Amendment viewpoint. During the most valuable (highest audience) hours the most desired channels throughout the nation are used for programs prepared to meet the requirements of only three programmers which closely regulate all aspects of their production. Moreover, it is inherent in the competition of ad- vertisers for mass audiences that minority tastes cannot be served. Thus the rich diversity of the American culture reflect- ed in its manifold regions and its distinctive ethnic groupings (not to speak of differences based on age, education, vocation, religion, etc.) is not adequately represented in network programminj. The network system is one in which enormous numbers of persons have access to a very small number of homogenized program choices. The Commission has acknowledged that its basic allocation structure effectively limits the number of networks to three. Sixth Report and Order, 41 FCC 148(1951). The networks have never hesitated to use their economic power to maintain the full lineup of affiliates for their entire program schedules)' In setting network reimbursement rates, The support of the affiliates in this case was openly pur- chased by a network commitment not to seek rescission of the Commission's Prime Time Access Rule. The very fact that affiliates feel the need for this Rule to retain access time is a demonstration of the n~'~"~rks' economic power. PAGENO="0502" 498 the networks can recognize the loyalty of affiliates who take the full network schedule and punish affiliates who preempt net- work programming for local or syndicated programs. Thus it is not surprising that the Commission has been conducting network inquiries, analyzing network studies and reports and reviewing network rules almost non-stop since the Communications Act was adopted. The Commission has long been concerned with the Networks inability to provide service to local needs and other special tastes and this is probably the principal reason it adopted its Chain Broadcasting Rules in 1941. Justice Frankfurther quoted the Commission in his opinion for the Supreme Court upholding the rules: Chain broadcasting makes possible a wider reception for expensive entertainment and cultural programs and also for programs of national or regional significance which would otherwise have coverage only in the locality of origin. Furthermore, the access to greatly enlarged audiences made possible by chain broad- casting has been a strong incentive to adver- tisers to finance the production of expensive programs. * * * [But] * * * A station licensee must retain sufficient freedom of action to supply the program and advertising needs of the local community. Local program service is a vital part of community life. A station should be ready, able, and willing to serve the needs of the local community by broad- casting such outstanding local events as community concerts, civic meetings, local sports events, and other programs of local consumer and social interest. National Broadcasting Co. vf U.S.,3l9 US 190 at 198, 203(1943) PAGENO="0503" 499 Almost nothing could be worse from a First Amend- ment viewpoint than a system in which the federal government licenses the right to speak to a minute number of persons representing a very narrow segment of American society. Clearly, constitutional principles require that such severe constraints on freedom of expression be accompanied with measures to assure that the favored few share their facilities with others so as to provide the public with access to a diversity of "social, political, aesthetic, moral and other ideas and experiences."21 For like reasons metwork control of programming should extend no further than necessary to provide mass audience service to the majority. First Amendment principles require that a reason- able balance be maintained between the demands of the majority for service to its tastes and the rights of the minority to diver- sity of service2! and that the supply of programming tome from as many sources as possible4 In practical terms, this means that network control of programming should be confined to network operations. If the Commission permits networks not 2/ Red Lion Broadcasting Co. v. FCC, 395 U.s. 367 at ~9O (1969). 2/ We note here that the print media are better adapted to the service of minority needs and interests. Thus daily newspapers are published in New York City in all of the languages used significant ethnic groups. Not so in broadcasting. For example, there are at least six daily newspapers serving the rapidly 9rowing Chinese community but no full-time broadcast service in Chinese. ± Associated Press, supra. PAGENO="0504" 500 merely to constrain diversity of service by their normal operations, but to use the leverage of their mass audience service and their owned-and~.operated stations to extend their progranuning hours and tO gain control of the programming available to independent stations and affiliated stations in non-network hours, the government implicates itself in private constraints in violation of First Amendment principles. The networks' and their affiliates' principal argument in this proceeding is that the rules under review impede compe- tition by penalizing three competitors in a free economic market. There are at least two major flaws in this argument. The first is that it deals with this rule exclusively in economic terms when the Commission's concern has never been economics but diversity of program sources and opportunities for local self- expression. The second is the assumption that the market for television programming is free. On the contrary, it is the networks which have foreclosed competition by establishing what amounts to exclusive dealing arrangements with hundreds of stations with the best available technical facilities. They have established effective control over the hours of maximum audience and reduced the role of advertisers and others in program selection. They have tightened controls over scripts,. casting and other details of program production. The rules under review were adopted to arrest these trends. At the PAGENO="0505" 501 time the rules were adopted syndication rights were worth a small fraction of what they are worth today. If pre-rule trends are taken as a guide, it can be confidently predicted that once the rules are removed the networks will establish control over parts of the television program markets which were not worth their attention in the 1960's thus dominating the production and distribution of programming even in station time. Whether the pre-rule network tactics were predatory, good business or "efficient" in an economic sense is irrelevant in terms of First Amendment policies. The critical considera- tion is that more and more programming was squeezed through the "network funnel." The opportunities for others to express their "social, political, aesthetic, moral and other ideas and exper- iences" were steadily reduced. That is the primary evil to which the rules are addressed. CONCLUSION Because the Syndication and Financial Interest Rule has opened the doors to a broader diversity of independent procedures and distributors it should be retained. Dated: April 25, 1983 Respectfully submitted AMERICAN CIVIL LIBERTIES UNION By: Alan Reitman Associate Director 132 West 43rd Street New York, N.Y. 10036 PAGENO="0506" 502 Association of Catholic blevislon and Radio Syndicators Chads E. Hinds, President (Cfl4/C CNe~ Jeenne Glynn, Vice President (csinewø~. New ~) Fr Paul Newpawsr Vice Prssiden$ (Mw~nid, New ~) March 22, 1983 As independent producers and syndicators of a wide variety of religious and general programming, we add our voices to those of other concerned Americans in urging the Federal Communications Commission to retain the financial interest and syndication rules. In .a climate of wholesale broadcast deregulation, we believe that it is possible for the Commission to lose sight of its mandate to safeguard the public interest. The financial interest and syndication rules were enacted solely to uphold this public trust, and we believe that they have proven to be both prudent and effective. They have fostered a healthy competition in the television programming marketplace and encouraged a lively diversity in program development -- at no detriment to any sector of broadcasting. We believe that the repeal of the financial interest and syndication rules would result in an unfair protectionism, restricting the financial and creative control of television broadcasting to those players which already maintain, by nature and history, a disproportionate share: the major networks. Those groups which have labored long and well to provide the American public with quality alternatives to the narrow universe of network-originated programming -- independent television stations, independent producers and syndicators, minority, educational, and religious broadcasters -- would be effectively disenfranchised by a sus- pension of the rules.. .as would millions of American viewers. We believe strongly that this issue must be regulated at the national level, because it is precisely the richness of broadcasting as a national resource -- to entertain, enlighten, educate and energize -- that is at stake. To limit or weaken that richness, to deny all players reasonable, equitable access to the programming and syndication universe, would be a flagrant denial of the public interest, a betrayal of the public trust. We urge the members of the Commission, then, to act as they have been directed to act by the voice of the public, and in the public interest. We urge that the financial interest and syndication rules be retained as they stand: fair, sensible, and simple regulations by which all of us are served. Cordially, Charles E. Hinds CEH : fk PAGENO="0507" 503 I ~: OAAM 9.0S*ti3SSllb 04$/26,'03 Id IPMRNCZ COP LOAB 11)90?buII MGM TORN AZUSA CA *9 09-16 oeae~ LOT HELEN HERNANDEZ, DIRECTOR PUBLIC AFFAIRS 100 UNIVERSAL CITY PLAZA UNIVERSAL CITY CA 91*00 THIS 1$ COPY OF ORIGINAL SENT TO MR FOWLER DEAR MR FOWLERI AP4AE SUPPORT THE RETENTION OF FCC FINANCIAL INTEREST AND SYNDICATION RULES. AS EDUCATORS WE FELL THE REPEAL OF THESE RULES WOULD CONSEQUENTIALLY RESTRICT THE COMPETItION AND DIVERSITY NEEDED IN REPRESENTING THE CHICANOS/LATINOS EXPERIENCE TO OUR YOUTH, PROTECTION AGAINST IMSALANCED COVERAGE IS CRUCIAL, SINCERELY YOURS JIMMY BENAVIDES, PRESIDENT ASSOCIATION OF MEXICAN AMERICAN EDUCATORS INC STATE OF CALIFORNIA 10199 LOT MG MC OMP TO REPLY BY MWLGRAM MESSAGE. SEE REVERSE SIDE FOR WESTERN UNIONS TOLL~ FREE PHONE NUMBERS PAGENO="0508" 504 April 25, 1983 ~: BC Docket No. 82-345 Doar Mr. Chairman: Black Entertairmant ~levision is a satellite delivered, basic cable service providing six hours per night (8 PM - 2 AM EST) of quality progralmling for Black audIences. BST began operation in 1980, and today reaches over 3.5 million cable householda nationwide. The growth of services such as BE'r has been in large part the result of pro-carpetitive federal policies which have opened up the vidso marketplace to new programing services. The arergence of cable as a significant national mediun in the mid-Seventies was directly related to a Cc~rmission decision to foster carpetition and diversity in media, in order to provide genuine alternatives to the three daninant ccnnercial television networks. The financial interest and syndication rules are a good exanple of federal policies which encourage tore varied fare for the nation's television audience while placing minimal restriction on those who daninate the marketplace. The rules spurred the growth of independent television stations, and kept the networks fran controlling the programing pipeline to the new media. The rules have helped pave the way for increased minority participation in network progranining, and have helped open up the syndication marketplace to growing nuirbers of programs targeted at the Black audience by increasing the o~ntlets available to syndicators. It should be clear to the Ccsrrnission that emerging ccspetitive media are striving to serve the audiences which the networks tend to ignore. We concur with the ccsment of the National Association of Black-Q~ned Broadcasters that "there is nothing in the record gf prograrrening production by the net~rks which would suggest that repeal of the rules will create any new diversity of programing, particularly for minority audiences." We also concur with the observation of the National Institute for Low-Power ~levision that the rules are needed to maintain "an eooncxnic envirorerent in which LPPV and other arnerging technologies can crnrpete and survive." m~M~ 1060 31st Street. N W. 2nd Floor Washington. D.C. 20007 (202) 3375260 1~he Honorable Mark Fowler Chairman Federal Oxsunications Ccxmrission 1919 N Street, N. W. Washington, I). C. 20554 PAGENO="0509" 505 As a ~petitor in the videc marketplace, we are no sore enanx)red of undue regulation than are our fellow oarpetitors. But we do recognize that this marketplace still has a long way to go until it is truly ocapetitive. Because the networks ranain the dczninant information and enterta.irurent source for the vast majority of Anrerican viewers, and because that daninance will persist at least through the end of this decade, this O~nnnission reeains obligated to pursne policies which will assure the growth and survival of new caiipetitors. Wtien the bargaining power of the three networks is not inordinately greater than that of their oc*npetitors in broadcasting and other nedia, and when the networks no longer have the power to control the nost popular programing in the syndication marketplace, these rules will be ripe for repeal. We look forward to the arrival of full and fair cczrpetition in the mass nedia. Until that day arrives, we strongly urge the Casnission to retain sensible regulation which helps correct an inperfect marketplace. We respectfully re~uest the Cczrnission to preserve its financial interest and syndication rules. Warns Regards, Bubert~ L. Johnson / President PAGENO="0510" 506 Cater for [bp~iation Options April 12, 1983 Mark Fowler Federal Communications Commission 1919 M Street, NW Washington, D.C. 20054 Dear Mr. Powler: The Center for Population Options (CPO) is a national non-profit organization based in Washington, D.C., which focusses on reducing the incidence of unintended teenage pregnancy both in the United States and overseas. For the past eight years, CPO has worked with producers, writers, actors and executives of the prime-time television industry to encourage programming with themes of responsible sexual behavior. The increasing use of sex and sexual innuendo on popular television, without portrayal of the need for responsible contraceptive behavior, is a significant influence on teenage sexual knowledge and values, a serious concern given the high rate of teenage pregnancy in this country. For the sake of program diversity and the encouragement of competitive and positive programming that does not pander to the mass market only, CPO supports the current FCC syndication rules. The elimination of these rules will further reduce the possibility for programming that is produced in the public, rather than in the profit, interest. Sincerely, th Sende itz ~xecutive Director JS/syd Board of Directors :>qr~ Stewart Mott `1 a, `,` Karen Mu.r'at,nr 0 u , :~r' B L " r~ iDs M D Jane 0 Rer'iy ic' c' r' (`:3 ,`,`Fr ` `a iche' Foreman Lynn Roth ii,3: 3'' .,~ Mary, ` F i,'", 3: ~ it'," ` in J.r'A W,lt,am 1,,rnh,,ii `a , Vice C i. Ma, A Cia F .rc L,Cberman MD a.:' ~. a PAGENO="0511" 507 STATE OF CONNECTICUT DEPARTMENT OF ECONOMIC DEVELOPMENT April 25, 1983 Mr. Joseph W. War, Jr. Special Counsel Committee Against Network Monopoly Suite 600 1317 F Street, N.W. Washington DC 20004 Dear Mr. Waz~ The Tourism Division of the Connecticut Department of Economic Development supports the effort of the Committee Against Network Monopoly to retain the FCC regulations described in your letter of April 11, 1983. In the interests of fair competition throughout the TV production industry, and optimum business and employment for independent producers and film makers, we agree with you that the proposed repeal of the rules against unfair competition by the networks will mean less, not more, opportunity" for Connecticut's producers, crafts people and allied service personnel. Sincerely yours, ~ ~ Barnett D. Laschever Director of Tourism & TV/Film Coordinator BDL :amd 210 WASHINGTON STREET * HARTFORD. CONN 06106 An Equal Oppor:unit.~ Employer PAGENO="0512" 508 Consumer Federation of Cal jfornia P.O. Box 27940, Los Feliz Station, Los Angeles, California 90027 April ~ 1983 President Mary Solow 827 Tigertail Road Los Angeles, Calif. 90049 To Members of `the Federal Communications Commission 472-5884 Mark Fowler, Chairman Secretary Dora Mitzi" Rodriguez James Quello Mimi Weyforth Dawson Treasurer Joseph Pogarty Jackie Walsh Ren~y Rivera Anne Jones Vice Presidents Albin J Gruhn Steven Sharp Regene Mitchell Gerald Rubin From: Mary Solow Pr Consumer Federation of li Policy Board Joe kelardi Frank Brown Re: Amendment of the Commission'S Syrx cation, Marjore Caldwell and Financial Interest Rule William Demers BC Docket No. 82-3~; FCC 82-300 Treesa Drury Barbara Erickson Ø~ behalf of the Consuitter Federation of California, Susan Giesberg a stat&wide federation of organizations and individuals, Shirley Goldistger representing millions of Californians working for Berneice Gord C. Annelle Grajeda program~ of consumer education and protection, I am Anne Greer fo~rding our comments against repeal of the Ruth Jernigan Financial Interest and Syndication Rules. Roy Kiesling John B. Kinnick Robert Medina We have studied this issue and ask you to work with Max Mont us to protect the public interest in the use of the Jim Patton air waves. James Quillan Belva Roberts George C. Soares In studying the available data, we have reached a Geri Stone conclusion that the existing rules have been of Dan Swinton great benefit to the American public since theil' Jeane Thom Jerry Vercruse ~ssage in 1970. The current rules have stimulated competition and diversity of progravmning in the marketplace. It has been good for the p~iblio, for the independent producers and television stations, and for the advertisers, as well as f or the networks. We ask that you resist any effort to repreal the existing rules because we think such action would be harmful to Californians arid, to all Americans, would eliminate competition and narrow the public's access to progranwiing. PAGENO="0513" 509 Consumer Federation of California P.O. Box 27940, Los Felia Station, Los Angeles, California 90027 President Beforetkc. Mary Solow Los Angeles, Calif 90049 472-5884 Secretary -- -. - Dora "Mitzi" Rodriguez Amendment of the Commission's ) BC Docket No. Jackie Walsh Syndication and Financial 82-3~5 Interest Rule Vice Presidents ___________________________________ FCC 82.300 Albin J. Gruhn Regene Mitchell Gerald Robin The Consumer Federation of California, a Policy Board Joe Belardi state-wide federation of more than 150 organiZations Frank Brown ~orie~aldwell and representing millions of CalitoThians interested Treesa Drury Barbara Erickson in programs of consumer education and protection, Susan Giesberg Shirley Goklinger is writing to ask that you not eliminate the C. Annelle Grajeda Anne Greer fixi~ncia1 interest and syndication rules. Ruth Jernigan ~ We support a regulatory policy of the broadcast ~obe.~M~dina media which enhances d.tversity of programming Jim Patton James Quillan cQntent and a competitive jearketplaoe for program Belva Roberts geor~e C. Soares providers, to provide service options available to Dan Swinton Jeane Thom all segments of our society. Jerry Vercruse The Consumer Federation of California has looked into the proposed repeal of the Syndication and Financial Interest Rule. We are concerned that the public interest is being overlooked and believe this rule would have the effect of squashing competition. It would be, we believe, bad. public policy, and would limit the choice of the public. 8ather than stimulating more diverse and better programming for all consumers, the repeal would narrow consumer choice. 32-~54O O-84--33 PAGENO="0514" 510 The fight involved in this repeal, we suspect, is control of, the product, not television versus cable. At the present time, a vast portion of America, perhaps as much as two-thirds, can't afford~ to be wired, for cable. Do we want to return to the pre-1970 period, when 97% of all evening television programs were controlled by the networks * We think not. This issue isn't just a case of the networks ABC, C~ and NBC - wanting the repeal, and the independent program producers wanting things to stay as they now are. The Consumer Federation believes that this repeal could determine what the public will be able to see when they turn on their television sets. We fear that access by the public into prograz~ing policies is slowly eroding and that the repeal would speed up that process. Before the 1970 rules were adopted, the networks dominated programming. Since that time, there has been a 26% increase in the number of independent producers, and a doubling in the number of independent television stations, If the three networks dominated all programming, we are concerned that advertising rates could rise. Under the current rule independent stations can bid for programs to attract viewers and advertisers * For advertisers the current rule has been beneficial and has meant lower costs because of more outlets, and therefore more competition. Since the rules were adopted in 1970, the networks have prospered; their revenues rose by 312 per cent and. their proftts by 550 per cent. We applaud that the three major networks have prospered and. believe they will remain the dominant cultural PAGENO="0515" 511 and informational influence in America at this time. The major ingredient to the success of the independent station has been progranuning. Shows such as nN*A~S*E" have attracted ~tewers and advertisers, and stimulated the market place conpetition. Before 1970, the independents had to deal with the networks, who dominated syndication rights on a significant part of the programming. Today, the independents can deal directly w~.tb the distributors and the producers. The Consumer Federation of California believes that the present rule is a healthy state of affairs, stimulating competition, offering vast consumer choice and developing an attractive advertising market. As a result, the independent stations can provide real competition and offer the consumer genuine choice. The proposed repeal of the Syndication and Financial Interest Rule would not serve the public interest, and. should be rejected. The benefits the consumer has received under the rule are genuine and real and should be continued. The Consumer Federation of California asks that you do what you can to protect all Californians in this issue, to keep the rules intact to protect t~e competition and diversity that the public interest renders necessary. PAGENO="0516" 512 Cooperative League of the USA A Vole. for America's Cooprativ*s March 3, 1983 Mr. Mark Fowler, Chairman Federal Communications Commission 1919 M Street, N.W. Washington, D.C. 20554 Mr. Fowler: I sin writing to express my grave concern regarding possible repeal of the financial interest and syndication rules established by the FCC in the late sixties. The Cooperative League of the USA is a national trade association repre- senting cooperatives of all types, and my own work has included efforts to establish cooperative ownership of cable television frat~chises and channels in major U.S. markets. One of the fundamental tenets.of the cooperative philosophy iS that of democratic representation, out of which stems another key pngoing belief in local initiation. We have concerns froin the standpont~both of pro- gramming diversity in general and single markets in ~a±ticular. The financial interest and syndication rules were"set up to prevent networks from gaining premature control of television programming. Everything I have read confirms that the rules are suc9eSsful. In the initial stages of programming production, the independent producer is able to take more of a risk in creating quality work,~for he knows that he will be able to recoup his investment through lat~e~ resale of his product. The independent television station which later'~purchases rights to air this progranuning increases the value of its advertising space, and this in turn helps provide financial resources for producing local programming. Evidence points to greater diversity in terms of the nunber of independent producers contri- buting to network programming, the quality of that work, and the increase in the nunber of independent television stations successfully competing with the networks in major urban markets. Diversity and local programming are desirable from the standpoint of the viewer, and later re-runs of network-produced shows provide advertising time that is desirable, yet not prohibitively expensive for the local merchant, including community-based cooperatives. Should the financial interest and syndication rules be repealed,, these relationships would be greatly skewed in favor of the networks. It would 1828 L Street, NW., Suite 1100' Washington, D.C. 20036 (202)872.0550 . Cable: CLUSA PAGENO="0517" 513 be less feasible for the independent producer to invest his own money in production, for he would have less assurance of returns on his investment through later resale. Producers would have to toe the line with the networks in~order to have their material produced, as the networks continue to have the major production studios. With regard to the independent television station, there is nothing to prevent the networks from buying up rights to and shelving new programming, this to some extent controlling the indepen- dents' ability to compete with them. Certainly the networks are bound to favor their own affiliates for the initial air rights. Neither of these situations benefit the viewer or the smaller advertiser. These developments will also have clear implications for local program- ming by independent television stations. Their advertising time will either drop drastically in value due to the non-availability of competitive programming, or will skyrocket in proportion to the fees extracted by the networks for broadcast rights of popular material. In either case it will be more difficult for the independent stations to fund programs targetted to the needs of the local audience, and local merchants will lose an important advertising outlet. Recently several new cable television cooperatives have been formed - at least two of them for the express purpose of providing community-based, local origination programming. It is important to the success of these fledgling efforts that they have access to many types of programs to present over these new community-controlled cable channels. We favor increasing programming competition rather than restricting it, as would be the result of your proposed action. I cannot support efforts to repeal the financial interest and syndication rules, but must instead protest this action vigorously. Respectfully, carol L. James Vice President Financial and Program Development ~rwt PAGENO="0518" 514 I ~ 4.0544445114002 O4~26/S3 ICS !PMRNCZ CSP L$AB I 2132251342 MOM TORN LOS ANGELES CA 04~lo 0413! UT EASTERN GROUP PUBLICATIONS INC 509.1~? EHANDIA ST LOS ANGELES CA 40033 THIS MAILGRAM IS A CONFIRMATION COPY OF THE FOLLOWING M5$SAGEi 213282342 MOM TORN LOS ANGELES CA 184 04.24 0413P ES? ZIP JOE WAZ 1317 F ST NORTHWEST SUITE 400 WASHINGTON DC 20004 (tHIS IS A COPY OF THE MAILORAM SENT TO COMMI$SIONER MARK FOWLER, CHAIRMAN, FEDERAL COMMUNICATIONS COMMISSION, WASHINGTON, DC) DEAR COMMISSIONER FOwLER, IT HAS COME TO MY ATTENTION THAT THE FCC IS ABOUT TO CONSIDER A CHANGE IN THE FINANCIAL AND SYNICATION RULES ADOPTED IN 1470, THE HISPANIC COMMUNITY ALONG WITH THE REST OF THE COUNTRY WOULD SE - BEST SERVED IF THESE RULES WERE TO REMAIN AS IS. THE HISPANIC COMMUNITY HAS HAD LITTLE OPPORTUNITY TO BECOME FULLY FAMILIAR WITH ANY HARMS OR REDUCTION IN PROGRAMMING AVAILABILITY WHICH WOULD SE BROUGHT ABOUT IF THE RULES ARE ELIMINATED, SINCE MOST HISPANICS WHETHER IN PRODUCTION OR PROGRAM WOULD MOST PROBABLY HAVE GREATER OPPORTUNITY WITH INDEPENDENT PRODUCERS THAN WITH MUCH LARGER NETWORK COMPANY, WE BELIEVE THIS MATTER REUIREB FURTHER STUDY. WE URGE YOUR HONORABLE COMMISSION TO DELAY ITS DECISION FOR THE TIME BEING. WE ALSO SUPPORT CONGRESSMAN HENRY WAXMAN'S HR.2250 WHICH WILL DELAY ANY CHANGE IN THE RULES FOR A PERIOD OF FIVE YEARS. I REMAIN SINCERELY, DOLORES G SANCHEZ, PUBLISHER EASTERN GROUP PUBLICATIONS INC EAST LOS ANGELES, CALIFORNIA SPECIAL 30.DAY OFFER GET $1.00 OFF ON YOUR NEXT MAILGRAM ORDER TO REPLY BY MAILGRAM MESSAGE. SEE REVERSE SIDE FOR WESTERN UNIONS TOLL FREE PHONE NUMBERS PAGENO="0519" 515 I~fTEN~7UL~i~armc c c/cc~1mmwI~ i1~ws ~~`iJrL'/I: April 25, 1983 The Honorable Mark Fowler Chairman Federal Communications Commission 1919 M Street, N.W. Washington, D.C. 20554 RE: BC Docket No. 82-345 Dear Chairman Fowler, The Hispanic Telecommunications Network strongly supports the retention of the FCC's financial interest and syndica- tion rules. HTN is a syndicator of programming intended primarily for the Hispanic-American audience. About 25-30 percent of our programming has been in English or bilingual, and the balance has been in Spanish. We have produced variety series, Christmas specials and documentaries which we have syndicated on a market-by-market basis both to independent TV stations and to local affiliates of the major networks. Currently, we distribute a half- hour weekly program, Nuestra Familia (Our Family) through SIN, the Spanish internationa1~Network. Nüestra Familia presents critical issues affecting the I{ispi~fc ~family today, including husband/wife communication, education, drug abuse, alcoholism, gangs, and immigration. We take pride in our programming and our message. But the only way we can communicate that message effectively to our potential audience is through access to the broad- cast medium. The greater the number of broadcast outlets in the marketplace, the better our opportunity to reach a substantial number of viewers. The significant growth of independent broadcast stations in competition with the three major networks has benefit ted us and numerous other syndicators of specialized programming. The financial interest and syndication rules have been an important component in the growth of independent TV stations--the only medium that is truly competetive with network affiliated stations in audience 1828 Grandstand Dr.* San Antonio Texas 78238 `(512)680-7777 PAGENO="0520" 516 reach. The financial interest and syndication rules help assure that independent stations will have access to the mass appeal programming that earns them most of their revenues. More and stronger independent TV sta- tions means syndicators with unique programs to offer have far greater prospects of reaching audiences nation- ~wide. According to a study of the Hispanic audience by Yankelovich, Skelly & White, Hispanics are very heavy viewers of television. On average, adult Hispanics report spending nearly twenty hours weekly watching TV, divided about half-and-Half between English and Spanish- language stations. Hispanic viewers are entitled to diverse and varied viewing fare, just like all American viewers. Spanish- language TV stations are not available yet in many markets with sizeable Hispanic populations. Program pro- ducers wishing to reach Hispanic or other specialized audiences must rely on the competitive desires of broad- casters in those markets to serve these audiences. The fewer competitors there are, the less likely Hispanic or other special audiences will be served. The financial interest and syndication rules will not be necessary forever, but they are needed today. Not until there is real competition in the video market, not until program producers have numerous, realistic alternatives to reach the viewing public with their wares, not until the dominance of the three networks gives way to real competition for viewers, would it be appropriate for the Commission to consider revoking these important public interest regulations. We join with scores of organizations representing all aspects of the communications industry, labor, religious groups, public interest groups, minority organizations, and many others in calling upon the Commission to keep its financial interest and syndication rules working for all of us, and for the entire American public. Very truly yours, Oja1~tJ~d Adán Medrano President AM: dv PAGENO="0521" 517 Local 111 s~1iated with the gaternational ~3rotAerAood of ccJeamsters CHAUFFEURS, WAREHOUSEMEN AND HELPERS OF AMERICA 111 BROADWAY, NEW YORK, NEW YORK 10006 * (212) 267-1374 ,~,I76 D. J. Kass Ptsssd.ø: March 4, 1983 A. SAsIIso Federal Communications Commission *cram~-Trsmstee Mr. William J. Tricarico, Secretary F M. Posemo Room 222, 1919 N Street, N.W. Ve.Pessds,u Washington, D.C. 20554 N. CHRISTENSEN Rs~ord,n~Ssc,.:.ry Re: FCC Docket 82 345 F Fox Financial Interest and Syndication Rule Pica Truis., R BOSALL This statement, opposing proposals to rescind the Financial Interest Sscoudl,*u., and Syndication Rule, is filed by Local 111, American Communications Association, International Brotherhood of Teamsters. Local 111, with Thi~dTruji,, offices in New York City, represents 1,200 telecommunications workers worldwide, employed by WUI Inc., TRT Telecommunications and NCR Corp. L.P. ELLIS Additionally, we speak for the families of our members who comprise eeJ4Agei; an incrementally larger group of television viewers and consumers. We join with the Committee for Prudent Deregulation, The National Council of Churches of Christ in America, Action for Children's Tele- vision, The Association of National Advertisers, The Caucus for Produ- cers, Writers and Directors, The Consumer Federation of America and The Inter-Guild Council of Talent Guilds of the Notion Picture and Television Industry, to oppose rescinsion of the Financial Interest and Syndication Rule which would, in our view: 1. Return to the three major networks economic and creative domination and monopoly control over production, distribution and financing of supplemental and syndication markets. 2. Undermine the public policy expressed by the FCC itself, "that it was not desirable for so few entities to have such a degree of power over what the American public may see and hear over so many television stations; and, that a diversification of economic interest and power in this area was a Cardinal principle of the public interest standard of the Communications Act." (47 FCC 32959) 3. Create a situation where the networls will be comp~ting with them- selves in a revenue race for first-run/rebroadcast pcQgrallfllliflg. 4. Foster a climate which crushes creativity and diversity in program content, lessens the diversity and financial renumeration of produ- cers, creative talent and the workers involved with such productions. PAGENO="0522" 518 Local 111 believes the public interest is being well-served by the Financial Interest and Syndication Rule. We note that network revenues are up 312% and network profits have risen 550% since 1970. The Rule haa worked well and we consider any move toward its' rescinsion unwise. Your consideration of our views in this matter will be appreciated. Yours truly, John lozia Legislative Director Local 111 ACA-IBT enclosures JI/ek PAGENO="0523" 519 ~ OR~G1NA'~ ~t~~=ngbOS ~«=!JJLIJ~2JJ LJr~*~k.~E23~ flI..F MediaFile Editor: Bernard Ohaniari Ccirrie Anders Nancy Hicks Mark Paul William Carlsen Ken McEldowney Amy Rennert Carolyn Craven Milton Moskowitz Ray Telles Tracy Gary Emiko Omori Michelle Ggnes Board of Directors Herb Chao Gunther Richard Parker David Weir April 17, 1983 Federal Communication Commission 1919 M Street, N.W. Washington, D.C. 20554 Dear Friends, I writing to express the opposition of Media Alliance to any attempt to repeal your financial interest and syndication rules. The rules, adopted in 1970, provide what little curupetition there still is in the production, distributi~n and broadcasting of programs. Without the rules the big three networks would be able to have even more control than they currently have over in- dependent productions. Without the rules independent stations would be at the mercy of the networks when they attempted to pur- chase the right to rerun shows that originally appeared on net- work shows. As part of the Committee Against Network Monopoly we urge that the rules stay in effect. Media Al]iancc is S 2r000 mcnsber organization of journalists working in radio, television and print. Sincerely, Ken McE 1 do,~ncy Presid:rrt PAGENO="0524" 520 MESTIZO PRODUCTION ASSOCIATES ALFREIX) UG() * LINA T. VASQUEZ S HARRY RATNER * JOSE LIIS SEDANO April 27, 1983 The Los Angeles Times Times-Mirror Square Los Angeles, CA 90053 Dear Mr. Editor: I write in response and to correct the glaring misinformation contained in David Ochoa's article of 4/3/83 "Bringing Minorities Back Into Focus." Mr. Ochoa stated that Reagan appointee FCC Chairman Hark Fowler's proposal to eliminate the commission's financial interest and syndication rule will benefit Hispanic interests. As an Hispanic film maker and video producer I am painfully aware that with every new season the networks have grown more contemptuous and unresponsive to Hispanic Americans. And before Alex Healy's~ "ROOTS" produced by an independent David Wolper Productions the networks did not show the least bit of concern with programming to any audience which does not fit their view of Corporate "middle America." If the FCC ruling is repealed the networks will be free to own and control virtually everything they air and we would no doubt lose what few gains we have made, real or imagined, and forfeit our opportunity for future gains. These federal regulations have really benefitted the public at large (and Hispanics) since 1970. By prohibiting the networks from taking a financial interest in shows made by non- network producers, -the rules have given producers greater financial and thus creative independence. Just at the time that a number of fledgling Los Angeles based Hispanic production companies like ours are about to break into the nation's prime-.time airwaves with progressive and original programming on, by and about Hispanics the repeal would mean sure death of these hopeful independent projects. The handful of minimal gains in minority casting and minority Hispanic Storylines in prime-time TV have largely been the result of independents like Embassy, MTh or Lorimar taking creative risks in the face of network resistance. And the independent non-Hispanic producers' willingness to innovate is very much a function of the ability of the Hispanic community to persuade or cajole then to be more sensitive to our needs and portrayals. Dare we count on network generosity in their windfall deregulated profits? 843 NORTH BROADWAY - a204 * SANTA ANA CALIFORNIA 92701 - (714) 83~8732 PAGENO="0525" 521 Mr. Ochoa points out that in 1969 the year before the current rules were adopted, there were 60 suppliers of prime- time entertainment programming, Today ~Eere are only 41. And maffana there would be a dramatic improvement only 3. T~e big three: NBC, CBS and ABCI Mr. Ochoa went on to say that the "networks operate under FCC regulations and that big entertainment producers in Hollywood do not." If the networks fail to meet their mandate to provide equal progrananing opportunities for minorities and women their broadcasting licenses are in jeopardy?" What mandate? The only mandate they seem to have is to make more money than the year before. For the record: networks have no mandate from the FCC of any kind only individual stations do. What Mr. Ochoa probably meant was that network owned and operated stations have a mandate for equal programmii~T~r minorities etc By prohibiting the networks from deciding which stations would get local syndication rights to off-network programs, the rules contributed to a dramatic growth in independent, non-network- affiliated stations over the past decade. These stations have built their audiences--and their revenues- - on offering popular off-network shows. As these stations have grown, this has meant more potential markets for programming aimed at specialized audiences--Hispanics, children, blacks, the aged--and more community service programming. The networks have done nothing to earn our faith. They have been free to produce or co-produce substantial hours of entertain- ment programming, yet the record shows they have done virtually nothing for specialized audiences. And the stories of network refusal to consider series or special programs with Hispanic lead characters and nonstereotypical portrayals of the Hispanic conanunity are legion. Mr. Ochoa based his support for repeal of these rules on the premise or should I say the promise that the networks would use their freedom to own and control programming to serve the minority market, and that the existence of other federal regulations would help assure the networks were responsive. But it is impossible to consider this piece of deregulation separate and apart from the broader deregulatory agenda of FCC Chairman Mark Fowler. PAGENO="0526" 522 The same man who favors repeal of these rules is slso on record as opposed to FCC oversight of equal employment opportunity and affirmative action by broadcasters; opposed to the fairness doctrine, the public's only protection against imbalanced coverage of important issues; opposed to reviewing the programming performance o~ broadcasters, to see if they have served the needs of their community; and opposed to virtually every other regulation intended to protect the interests of the powerless against those who enjoy monopoly control of the airwaves. Mr. Ochoa supports the abolition of the very same rules that along with his talent and hard work gave him access into the network positions he's held. The sort of deregulation Mr. Fowler proposes will not lead ~o greater competition or improved service. Those of us in the production community who seek increased opportunitites to demonstrate our wares to the Vublic recognize that reposing greater control of the nation s airwaves in three dominant companies cannot possibly increase those opportunities. There remains ample need for improvement in the ability of the Hispanic creative community to reach a wide diversified audience. Repeal of the financial interest and syndication rules is not the way. The greater the competition in broadcasting, and the more numerous the pressure points, the better our chances for progress, and the greater the chances for independent Hispanic producers to become an important supplier of prime-time programming. Sincerely, ~/ Jose' Luis Se~S~d~~ Los Angeles PAGENO="0527" 523 `~~iV1~ç~ nr FEB ?1O~~'CI4J~E `ww,.FJ BEFORE THE oF TH~ FEDERAL COMMUNICATIONS COMMISSION £ C. SECRETARY In the Matter of ) j BC Docket No. 82-345/ AMENDMENT OF 42 C.F.R. ~73.658(j); ) THE SYNDICATIOI~2 AND FINANCIAL INTEREST RULE COMMENTS OF THE NATIONAL ASSOCIATION OF BLACK OWNED BROADCASTERS, INC. INTRODUCTION The National Association of Black Owned Broadcasters (NABOB) by its attorneys, hereby presents its comments in the above- captioned proceeding. NABOB is a trade association which was formed in 1976 to represent the interests and concerns of Black broadcasters throughout the United States. It represents the interests of the licensees of more than 130 radio and tele- vision facilties across the country. Its membership is extremely diverse with respect to the size of the markets represented and the number of companies and individuals involved in media related activities, such as station brokerage, equipment sales, program and management consulting, and advertising. The purposes of the Association include fostering the development of broadcast ownership by Black entrepreneurs, promoting practices which will strengthen and maintain the operation of broadcast facilities by Blacks, serving as a resource for the dissemination of information about electronic PAGENO="0528" 524 media matters, participating before the FCC and other regulatory bodies on issues of concern to Black broadcasters, and promotin9 the regulation and operation of broadcast stations in the public interest. Black owned companies now own eleven television stations, four of which are independents. Several Black owned companies have construction permits for new UHF stations which will also be independents. Additionally, many Black entrepreneurs have applicatons pending for new UHF television stations and for low power television staions. In recent years, the members of NABOS also have begun to expand theareas of the communications industry in which they are involved. In April, 1982 NABOB amended its By-laws to permit standard membership in the organization to Black owned cable systems, satellite program suppliers and other operators of the new media delivery systems. NABOB now includes within its membership owners of cable television franchises and companies engaged in or becoming involved in the distribution of video programming via satellite. Consequently, the issues involved ~in the instant proceeding are of particular concern to NABOB. The central issue which the Commission must address in this proceeding is expansion of opportunities to increase the diversity of video programming to the viewing public. As entrepreneurs involved in all facets of providing video programming, the members of NABOB are very interested in assuring that the Commission develops policies which will further this important goal. PAGENO="0529" 525 SUMMARY OF POSITION Having reviewed the Commission's notice of proposed rulemaking in this proceeding, NASOB submits that there is ho record to justify repeal of the Syndication and Financial Interest Rule. The Commission suggests that repeal of the Rule would be consistent with its overall statutory obligation to assure diversity of programming. However, there is nothing in the record of programming production by the networks which would suggest that repeal of the rules will create any new diversity of programming, particularly for minority audiences. The networks have consistently adopted a policy of programming designed for attracting the largest number of total viewers without regard to the tastes and interests of minority audiences. Repeal of the Rule would only permit the networks to continue this manner of programming on a larger scale. If Slack audiences and other minority audiences are to ever receive programming designed to their particular tastes and interests it will come to them from minority controlled programming companies seeking to program directly to that audience. Repeal of `the Syndication and Financial Interest Rule will only permit the networks to continue their inordinate control over programming and will delay the day when minority controlled companies provide programming to minority audiences. The Commission should not consider repeal of the Rule until distribution systems and programming sources providing programming to minority audiences 32-540 O-84----34 PAGENO="0530" 526 have had an opportunity to develop and become viable in the marketplace. Repeal of the Rule at this time would be premature and would permit the networks to resume the anticonpetitive practices which thwarted development of diverse sources of progranuning prior to adoption of the Rule. DISCUSSION The Syndication and Financial Interest Rule reads in pertinent part as follows: CN]o television network shall: ["Syndication"] 573.658 (j) (1) (i) after June 1, 1973, sell, license, or distribute, tele- vision programs to television station licensees within the United States for nonnetwork television exhibition or otherwise engage in the business commonly known as "syndication" within the United States; or sell, license, or distribute television programs of which it is not the sole producer for exhibition outside the United States; or reserve any option or right to share in revenues or profits in connection with such domestic and/or foreign sale, license, or distribution; or ("Financial Interest"] §73.658(j) (1) Cii) after August 1, 1972 acquire any financial or proprietary right or interest in the exhibition, distribution, or other commercial use of any television program produced wholly or in part by a person other than such television network, except the license or other exclusive right to network exhibition within the United States and on foreign stations regularly included within such television net- work , , . The Commission adopted these rules because of the network domination of the supply of television programming. In its Notice PAGENO="0531" 527 of Proposed Rulemaking (NPRM)1 in this proceeding the Commission summarized the factors which led to adoption of the rule as follows: After reviewing comments filed in (the Network Program Inguir~y, 45 FCC 2146 (1965)] ~ié Commission concluded that the market was unbalanced to the disadvantage of independent producers and a freer, more diversified television production and distribution process. Network Television Broadcastin~g, 23 FCC 2d 382~ 3~T[l97O). ~is inequality in the marketplace was found to affect the terms of market entry even for such major motion picture companies as Metro~~GoldWyfl-Mayer, Paramount, Screen Gems, Twentieth Century Fox, United Artists, Universal Pictures, Walt Disney and Warner Bros., Id., at 388. The Commission found that the networks abilities to acquire subsidiary interests in the programs chosen for network distribution posed a conflict of interest for the networks in selecting between programs in which such rights could be obtained and potentially better programs in which such rights were not available. Similarly, we concluded that the presence of networks as significant domestic syndicators was inherently undersirable since it was thought that networks would thereby be in the position of selling programs to independent stations which would be competing for audience with local network affiliates. Id. at 394. 1 Amendment of 47 CFR ~73.658(j)7 the Syndication and Financial Interest Rule, BC Docket No. 82-345, Mimeo No. FCC 82-300, released July 21, 1982 PAGENO="0532" 528 NPRM at para. 18. The Commission went on to state: We concluded that it was not desirable for so few entities to have such a degree of power over what the American public may see and hear over so many television stations; and, that a diversification of economic interest and power in this area was a cardinal principle of the public interest standard of the Communications Act. Therefore, the Commission believed that a rule was needed to: broaden compe- tition in the market supplying television programming, remove the networks from the syndication market; and limit the networks' abilities to acquire financial interests in programs they select for presentation. This, the Commission believed, would promote a healthy independent production industry as well as diversify the sources of program production. NPRM at para. 19. The Commission, in its NPRM, however, suggested that there has been a significant change in the market place for television programming which justifies reconsideration of its Rule. NPRM at para. 32. specifically, the Commission noted that in 1964 only 26% of all television households received 7 or more signals and 78% received 4 or more. Today about 90% ~f all television households receive 4 or more `television signals and 65% receive 7 or more signals. The Commission also noted that the availability of cable television has grown rapidly. since 1964. Id at para. 33. Finally, the Commission noted the growth of cable television, STV, MDS, video c.assettes, video-disc players and the emergence of LPTV and DBS as being further outlets for distribution of video programming. Id at para. 34-37. Next the Commission pointed out that the concern of the Rule to address the inequitable bargaining position of independent pro- ducers in dealing with the networks may not be as significant as PAGENO="0533" 529 previOUSlY contemplated. The Commission noted that several major corporations such as Universal, Warner, Spelling Goldberg, Lorimar, MTM, Columbia, MGM, Paramount, Aaron Spelling and 20th Century Fox were the top 10 prime-time network program suppliers during the 1977-78 season. Id at para. 39. The Commission questioned whether companies of this size need any additional assistance from the Commission in obtaining an equal bargaining position in dealing with the networks. *The Commission further suggested that the smaller program suppliers are also not benefitted by the rule. Id at para. 40. The Commission suggested that the rule prevents a small producer from bargaining away the syndication rights or a financial interest in a project and thereby may force the producer to make other conces- sions, even though he would prefer to bargafn away those rights instead. Id at para. 40. Finally, the Commission suggested that other large communications companies, which are in the business of producing programming nay have an unfair competitive advantage over the networks. Those entities, such as 20th Century Fox, MCA, Inc., Walt bisney and Warner communications, can obtain syndication profits from their programming while the networks are barred from so doing. Id at para. 42. The above outlined concerns of the Commission appear to be based upon a misimpression of the overall state of the programming marketplace. The Commission's NPRM suggests that the three over- the-air television networks ABC, CBS and NBC no longer dominate the video programming marketplace. However, this is incorrect. The major networks continue to reach virtually all households in America and reach a large portion of those households through their PAGENO="0534" 530 owned and operated (0 and 0) stations. Further, the networks are still the principal source of almost all off-network programming purchased by independent television stations. As Commissioner Quello noted in his concurring statement to. the NPRM, the networks have every expectation that their dominance of the programming marketplace will continue unabated at least until the end of the decade. Commissioner Quello provided the following information: In May, the President of the NBC Television Network stated to an affiliates annual convention: `Today, the commercial television networks are the largest and most dynamic entertainment, information and advertising medium to ever exist. And they will remain the dominant comxuunica- tions medium of the future. . . . (T]he future is not passing us by. The future is ours to take. The lion's share (of the video business] will be our business.' Later in May, the President of CBS, Inc. was quoted at the CBS affiliates meeting: `I sin increasingly convinced that there is less change on the horizon than most are predicting. That is a theme that may sound a little different (these days]. I suggest that (changes in the media universe] will be not as large, not as threatening and not as soon as most predict.' The CBS/Broadcast Group VP in charge of research was paraphrased in Broadcasting stating: `Television network affiliates have nothing to worry about. They are now and will remain - at. least until 1990 - the dominant video medium of the United States. Indeed, in absolute audience and dollar terms, their dominance will be greater than ever eight years from now.' PAGENO="0535" 531 The growth of independent television stations over the years since adoption of the Rule is clearly related to the ability of those stations to receive syndicated series and other programming which have completed their network runs. However, independent stations and other buyers of syndicated programming are a long way from achieving the market position to bargain on an equal footing with the networks for programming in the syndication market. The networks would have no great incentive to sell syndicated programming to independent stations and other programming outlets which compete both with their 0 and 0 stations and their affiliate stations for audience share. Commissioner Rivera's concerns expressed in his concurring statement to the NPRM are well founded: The Commissioner stated: I do question, however, whether the structure of the television industry has changed materially since these rules were adopted. There may be a greater number of programming outlets today, but the mere existence of some additional competition for viewers does not mean that the dominant players no longer can exercise undue leverage in program procurement. There is considerable prospect for change, but today the three net- works are still the most pervasive television programming outlets; no other entity even approaches their audience levels or their buying power. Given that reality, I am troubled by the contention that repeal of the rules would jeopardize the viability of the independent television stations and other video service providers, by making it again possible for the networks to unreasonably withhold programs from general distribution. Commissioner Rivera's perception is quite accurate. There is no record to demonstrate t~iat the programming market place has PAGENO="0536" 532 changed so substantially since adoption of the Syndication and Financial Rules to justify their repeal. The competition discussed in the NPRM is much more future conjecture than established fact. At best, the Commission's proposal is premature. The Commission has set this NPRN for "fast-track" consideration with no need for such rapid action. The NPRM in this proceeding was released on July 21, 1982, and the Commission has indicated an intent to issue an order by mid-year 1983. However, other more needed iniatives, such as implementation of the Low Power Television decision, the FM Drop-In Rulemaking, and the UHF Drop-In Rulemaking continue to languish at the Commission. Nevertheless, there apparently is sentiment at the Commission for some modification oUthe Rule. Should the Commission move forward with modification of the Rule it should do so in such a manner as to maintain its ability to restrict network domination of syndicated programming. Further, the Rule, if modified, should be modified to require the networks to provide programming diversity in the syndication of any programming. For example, the Commission could require the networks ~to demonstrate over a period of 3-5 years that they have accomplished the objectives for which they seek Commission approval. The networks should be required to demonstrate that they have increased the diversity of program- ming available to all segments of the viewing public as a result of relaxation of the Rule. They should be required to demonstrate that they have provided programming to the Black community and other minority communities and have contracted with Black producers and production companies for creation of programming for the Black and other minority communities. PAGENO="0537" 533 CONCLUS ION The networks have done nothing to provide programming to appeal to the tastes and interests of Black and other minority communities or in working with Black and other minority producers and program suppliers which justifies this precipitous bow to their wishes. At a time when Black and minority programming suppliers are just beginning to develop new products, and are beginning to own and operate independent television stations, satellite distribution services and other distribution outlets, it would seriously disserve the public interest to unleash the major networks to engage in the fame anticompetitive policies which previously thwarted these diverse new programming sources. Respectfully, National Association of Black Owned Broadcasters, Inc. BY~~~tZ mes . Winston Executive Director and General Counsel 1730 M Street, N.W. Suite 708 Washington, D.C. 20036 202/463-8970 January 26, 1983 PAGENO="0538" 534 N/A~iONAL CO~'5LITIC'~ ON ~ v~CLE~1cE do~otYS *55~tS~S~tS.~ ....S.STVC....~TSTn uceC suoctor, * Natona! PTA Past Preoctent On R. Lion. 1 ~. De~tor, Vc!nne CInc Deyt. of F~,ctratry, lit of t.Toryland woes Osbo:n, Pe~ottnt Was!rnçtcn Assoc, for TeNsIons and Children * rlson PliTe. Sos dent Macta Acton Research Canter * im Smon. Eoen.tue Decor * Teie:o'tncricaticns Research and Actron Center esnart Holier. recta Cotsultant Church pf the 5ethren a'ly Steer'o'd. Consultant N tn ttottt TIne: It to,m~P" ID. 0.0 60*21St Chonpaign. 1L131c20 (217)3595225 W!.S'!gtllf 0111cc: ITtonal Ctihton or TV VOhirCo P.O. Nor 12335 1530 P. Slot NW. \iShirdtOn, D.C. 23335 (202)4620515 RE CE IV ED JAN 26~83 OFFICE OF THE SECRETARY Mr. William J. Tricarico Secretary Federal Communications Commnf.ssion Room 222 1919 N Street, N.W. Washington, D.C. 20554 January 26, 1983 S DUPLj~~j~ RE: Proposed Admnendment of Section 73.658 (j); (Docket No. BC 82:345.) Dear Mr. Secretary: The National Coalition on Television Violence (NCTV) hereby submits the attached formal comments in the above reference proceedings. Sincerely, SA~A~,&~ /~Le Sanira Ball Washington Director SB/sab PAGENO="0539" 535 NATIONAL COALITION ON TELEVISION VIOLENCE Jt~ 26 i~J3 U~FICE o~ liE BEFORE THE SECi~~T;~y FEDERAL COM-IUNICATIONS COIEIIS S ION WASHINGTON, D.C. 20554 In the Matter of Amendment of CFR Sec. 73.658 (j); the ) BC Docket No. 82-345 Financial Interest and Syndication Rule COMMENTS The National Coalition on Television Violence (NCTV) is a non-profit organization committed to reducing the present high levels of violence in the media. NCTV is,in:orporated in the District of Columbia and has offices in D.C. and Champaign, Illinois. NCTV has thousands of contributors from throughout the United States who are deeply concerned with the quality-of television and want to see significant reduc:ions in the amount :of violence on television. - Organized in 1980, NCTV has primarily devoted its efforts to monitoring prime time programnEing and Saturday morning cartoons for violence content. NCTV uses a scientifically based. method of monitoring which is an outgrowth of a system developed by a grant from the American Medical Association in the mid 1970s. Our purpose is to identify for the consumer high violence programs and their advertisers. Our goal is to help the public and the networks realizo the need for limited television violence PAGENO="0540" 536 in today's society. It is al~;o the goal of NCTV to encourage networks and producers to produce more non-violent programming. The National Coalition on Television Violence strongly opposes repeal of the proposed regulations. The networks, the primary proponents of reoeal, have clearly demonstrated that they do not have the capacity or responsiblity to produce high- quality, low-violence programming. Decades of unnecessary and gratuitous violence in prime time televisioi can not be erased in a few months of promises by the networks to do better in the future. NCTV believes that high quality, low-violence programming can be produced and can achicve high rating.s for the network. Ne also believe that such programming is mu:h more likely to be produced when it is not commissioned by net';orks. High-violence, lowest common denominator network programmi~g is viable only so long as the networks continue to have a monopo~ly control over distribution and audiences. The goal of thuse rules has been to increase competition to the r.etwoxks. Indeed, one of the ideas was to promote the production and distribution of programming that would increase the competition and reduce the market shares of the network. It appears that these rules, when combined with the tech~iology that makes distribution more economic, are having their intended effect. It would be wrong to repeal the rules right in the face of the sec-r~ing success of the rules. Finally, the networks simply continue i~o demonstrate an ir- PAGENO="0541" 537 responsible attitude toward the impact of their programming on the public. For example, in 1982 the National nstitute of Nental Health released a report on ten years of research on television and Lehavior. The conclusion of the study was that aggression in children and teenagers was increased after watching violent television. Nevertheless, the networks have either denied or ignored this study. Their reiction points to their callousness to this serious issue. This behavior is akin to the tobacco industries continued disingenuous claims that smoking is healthy. Simply, NCTV believes thut the networks are not qualified to receive any further control oi responsibility over programming. Respectfully s ibrnitted, NATIONAL COALI~ION ON TELEVISION VIOLENCE By4~7 Sandra Ball Washington Director Lawrence A. Pinder, Jr. Legal Intern Dated: January 26, 1993 NATION?~L COALITION ON TELEVISION VIOLENCE P.O. Box 12038 Washington, D.C. 20005 PAGENO="0542" 538 COMMUNICATIONS SERVICES Pooer E ~ D~rec:or NATIONAL EDUCATION ASSOCIATION 1201 16tt~ St.. N.'.. WaLnr.gt~n. DC 2003~ * (202)8227200 WILLARD H. McGUIRE. Prestoent TERRY HERNDON. Euecutive Director BERNIE FREITAG. Vice President MARY HATWOOD FUTRELL. Secretary*Trea surer January 26, 1983 The Ibnorable ?~ark S. Fowler, Q'iairman Federal Cc*rsunications Ccztinission 1919 M Street, NW ~shington, DC 20554 Dear thaixinan Fowler: Ld~ National Education Association supports the retention of the network financial interest and syndication rules, 47 C.F.R. 73.658(j). These rules, which prevent the three television networks fran obtaining dcitestic or foreign syndication rights or any financial interest in the subsequent non-network broadcast of network television programs, are vital to the access opportunities of special interest producers who design television programs. As you know, the NE~ is concerned about the dearth of good television programs targeted to children and minority audiences. The Ccimnission has suggested that the availability of alternative broadcast sources, such as cable, SW, DBS, etc., will cczipensate for specialized programing that may be reduced or eliminated fran the networks as a result of the repeal of these rules. No evidence supports that suggestion. With only 30 percent of all `IV households wired for cable, and an unknown future for new technology penetration, it is unrealistic and premature for the FCC to eliminate current regulation. The very audiences who will be forced to seek programning on a pay `IV service instead of a free network are the trost disadvantaged and disenfranchised audience-low incate families and children. Since NEA presented concerns about children' s television last January, there has been a severe decline in the quantity of children's programs on network television. Indeed, the only sustaining programs designed for children which are broadcast in ccxrmunities around the country during the week are syndicated programs. If the financial interest and syndication rules are repealed, we believe that the independent producers, many of wixin are financially dependent upon the profits fran the distribution of their programs, will not be able to capete with the major networks in distrib- uting programs to local `IV stations. Since the networks have already proven their disinterest in producing good programning for children, we have little doubt that they will change that attitude in distributing to the child audience. The local stations, which have financially supported the syndication of "The Great Space Coaster," "Mr. Moon' s Magic Circus," "Lorne Greene's Adventure," to nane a few, may find that the nenu of children's programs offered to them by network syndicators are nerely a duplication of the programs which are currently available to children during the week on the networks-soap operas. ¶I~refore, the NEA would like to be included in the record of cclruents for FCC BC Docket No. 82-345 in support of the retention of the network finan- c3.al. interest and syndication rules. Sincerely, Robert E. Harman /1w CC: Honorable Henry A. Waxman Honorable Timothy E. Wirth PAGENO="0543" ~C:.~uJpj ~ ~ Dear Mr. TricaricO: On behalf of the Natioaal Institute for Low Power Television, enclosed please find an original and eleven (11) copies of the Institut&s Comments on the ~otice of Proposed Rule Making relating to the above-captioned ` matter. If you have any questions concerning this filing, ~ please contact the undersigned or Michael Glaser of this office. S~flcere~y, 539 GARDN~R,CARTON~DOUGLAS ) 875 LYE SrPELr.N.W.~ 5UITt 050 WASHINGTON, 0. C. zoooe - (202) 872-0200 £J~ 8ORMAN ~ATh4V J. BI~I.C January 26, 1983 William J. Tricarico, Secretary Federal Communications Cotnm:.ssion Washington, D.C. 20554 / Re: In the Matter of Amendzn~t of 47 CPR §73.638(j); th~/'Syndication and Financial Intere~t Rule BC Docket No. 82-34F~ E145/dle PAGENO="0544" 540 BEFORETHE /1 3J~irraI QInmmuxt~ratthn~ ~nmmt~thn~'. ~ WASHiNGTON, D.C. 20554 In the Matter of Amendment of 47 CFR Sec. BC Docket No. 82-345 73.658(j); the Syndication _________ and Financial Interest Rul~ TO: The Commission COMMENTS OF TEE NATIONAL INSTITUTE OF LOW POWER TELEVISION The National Instituta of Low Power Television (`the Institute") is an organization devoted to providing the low power television industry with a forum for education and in- formation. Presently, the Institute has over 1,000 members. Of the approximately 140 construction permits and licenses for low power television stations issued to date by the Federal Communications Commission ("the Commission"), nembers of the Institute have received almost two-thirds of these permits and licenses. The Institute is pleased to have this opportunity to comment on the significant issue involved in this proceeding. The development of low power television service is one of the most significant actions undertaken by the Commission in recent years. In its Notice of Proposed Rulemaking on low power television broadcasting, the Commission stated that low power television service is "the first new broadcast service *1 considered by the FCC in 20 years," - The Commission expressed */ Low Power Television Broadcasting, Notice of Proposed Rulemaking, 82 F.C.C. 2d 47 (1980). PAGENO="0545" 541 the hope that low power television service would "bring television service to locations that otherwise are unserved or underserved. . .by regular, full-service television eta- *1 tions" and "attract a new breed of.. .broadcast networks." - On April 26, 1982, the Commission released its Report and Order in "An Inquiry into the Future Role of Low Power Television Broadcasting and Television Translators in the National TelecommuniCationc System." 51 RR 2d 476 (1982) ("Report and Order"). This Report and Order was adopted by the Commission on March 4; 1982. The Commission's Report and Order also enphasi~es the potential importance of the new Low Power Television Service as an integral part of the newly burgeoning video transmission, entartainment and infor- mation delivery market: In today's telecommunications environment, we are witnessing. the rapid development of a multitude of new and competitive technolo- gies designed to deliver entertainment and information services to the public. The low power servic~ will permit fuller utili- zation of the broadcast spectrum in service to those ends. It is fitting that we engage in initiatives that will allow broadcasting to maximize its ~otential to maet the needs of consumers as ~ze also open the regulatory doors to purveyors of alternative technolo- gies that will attempt competitively to meet similar needs. FCC 2d at , 51 RR 2d at 480 (1982). In order for low power television service to participate in the effort to "allow broadcasting to maximize its potential," this emerging service must develop in an economic atmosphere */ Id. at 80 (separate statement of Chairman Ferris). 82-540 O-84---35 PAGENO="0546" 542 which will permit it to compete with other media of mass communication. It is for this reason that the Institute urges the Commission to proceed with extreme caution in its deliberations concerning modification or repeal of the syndi- cation and financial interest rule, 47 CFR S73.658(j) ("the rule'). The factors which bear on whether it is in the public interest to retain, modify or repeal the rule are numerous and complex. In addition, the potential impact of a change in the rule on a na.3cent service such as low power tele- vision is unclear. For th~se reasons the Institute believes that it is premature for i: to express a final position on the issues raised in this procaeding until after it has had an oppor- tunity to review the detailed economic studies which have been commissioned and will be filed by other principal parties sub- mitting comments herein. In the absence of complete economic data, the Institute is concerned about any change in the rule which would adversely affect the already tough market conditions which the low power television industry will be facing in its formative years. The Institute deems it significant that when the Commission adopted the rule, it was motivated by the television networks' "virtual *1 domination of television program markets." - Among the com- petitors, the low power television industry must face, will be all existing full-service television stations, including network-owned and network-affiliated. The Institute fears *1 Notice of Proposed Rulemaking, 45 FCC 2146 (1965). PAGENO="0547" 543 that any re~emergeflCe of network domination over programming would surely stunt, if not totally prevent, the development of a healthy low power television industry. The basis for the Institute's concern is the history of abusive practices by the wetworks prior to the rule and the absence of any mechanism to prevent or control such abuses if the rule is modified or repealed. Prior to the adoption of the rule, the three television networks misused their market *1 power to achieve "domination of television program markets." - In 1965, the Commission co~icluded that ...the three~ national network corporations not only in large measure determine what the American people may see and hear during the hours when most Americans view television, but also'would appear to have unnecessarily - and unduly foreclosed access to other sources of programs. ~/ In 1970, when the rule was finally adopted, the Commission hoped that the rule would "eliminate a potential for competi- tive restraint," and provide for "fairer competition." - Yet, just two years after the rule became effective, the United States Department of Justice filed antitrust suits against each of the three networks alleging the same anticom- petitive and abusive behavior which motivated the Commission to adopt the rule. The Institute also deems it significant *1 Notice of Proposed Rulemaking, 45 FCC 2146 (1965). **/ Id. ~ Network Television Broadcasting, Report and Order, 23 FCC 2d 382, 398 (1970). PAGENO="0548" 544 that when the Department of Justice accepted consent decrees from the networks in 1980, the Department insisted upon re~ strictions on network operations which, in part, include the restrictions imposed by the rule. The Commission now seeks to determine whether market conditions have changed so that it is in the public interest to modify or remove the rule. At this time, the Institute is not of the opinion that market conditions have changed sufficiently to ensure that the networks would not again control the vast majority cf programming if the rule were repealed. Although network audience share has declined re- ceatly, the networks still account for 81% of the viewing *1 market. - Moreover, while the Coimnission motes in its Notice of Proposed Rulemaking herein, that broadcast income of the three networks has declined from 1977 to 1980, the president of ABC, Frederick Pierce, recently stated that "ABC expects to report that 1982 was its second best year in history." In this regard it should be noted that 86% of ABC's 1981 reve- nues were from broadcasting and all of its profits were essen- tially from the same sourca. - The Commission's Notice of Proposed Rulemaking also raises the issue of whether the development of other television view~ ing outlets (cable, pay-TV, multipoint distribution service, video cassettes and video-discs, direct broadcast satellite ~/ Nielsen Report on Television, 1982. ~/ Washington Post, January 16, 1983, F3. PAGENO="0549" 545 service and low power television) has so changed the market- place for progra.miàiiig that the rule is no longer needed. The Institute believes that fOr low power television and most of the other developing technologies, it is far too early to re- move a restraint on the networks that was deemed necessary in 1970 by the Commission and in 1980 by the Department of Justice. Unless these emerging technologies can compete fairly with the networks, they will never~ fulfill the promise that they hold for the public as expressed by the Conimission when low power *1 television was first autho'~ized. - Furthermore, the networks are staking out positions in each of these new areas. In the January 16, 1983 (Sunday) edition of the Washington cost, the lead story on the first page of the Business and Finance section was entitled: ABC'S WIDE WOELD OF RISKS Network Boldly Moves Into Cable, Pay TV Ventures The article reports how ABC is moving "aggressively into its new media activities" which includes "new efforts in advertiser-supported cultural, sports and women's cable programming" and ` negotiations to purchase an interest in Showtine, the Viacom International Inc. cable service that is second only to Hone Box Office in the lucrative pay television world. ` The article also reports: *1 Report and Order, - FCC 2d , 51 RR 2d 476, 480 (1982). PAGENO="0550" 546 * since the ABC (new ventures) subsidiary was established 3-1/2 years ago, it has entered a joint venture with The Hearst Corp. to.produce the Alpha Repertory Television Service (ARTS)--a high-brow performing and visual arts service--and Daytime, a four-1-~our afternoon video `magazine' designed for women, which is set to double its air time this year. ABC also is operating--in a joint venture with Westinghouse Broadcasting & Cable Inc. --Satellite News Channel, a 24-hour cable headline news service. In conjunction with Getty Oil's Entertainment and Sports Pro- grainming Network (ES?N), ABC is sharing some of its sports programming and, more importantly, may offer later this. year a pay-per-view service, in which cable sub- scribers would be charged a fee for watching individual prize:!ights or other major events. Further, in an agreement with Cox Cable Communications, the fourth largest cable operator, ABC is testing a variety of in- formation, transactional and pay services, an operation about which little has been said to date. In perhaps ABC's most dramatic and risky new venture, the company has announced plans to launch The Home View Network, a service that will utilize the signals of ABC affiliates to transmit scrambled pay television to subscribers' video recorders during the statiDns' off hours, (On the East Coast, for axample, transmissions would occur between 2 a.m. and 6 a.m.) Testing of that venture begins this year, with ABC hoping to reach large numbers of the esti- mated 12 million to 15 million video record- ers expected to be in the market in 1985, a tripling of the current recorder count. As to the plans of CBS and NBC the article states: PAGENO="0551" 547 Meanwhile, CBS, I~aving abandoned CBS Cable, is diversifying in other ways, planning other vantures, including a proposal to start a pay-television micro- wave service. CBS also is making a major move into the movie business with its new $400-million studio venture, while RCA Corp., third-ranked NBC's parent, is a partr~er in a pay televisiOn network, The Entertainment Channel. And, both NBC and ABC have filed applications for low power television stations in New York, Los Angeles and Chicago as well as other major markets. ~`hey apparently recognize that low power television offers them an additional opportunity to deliver en- tertainment programs and other information services to the public. Finally, as to the motion that the new technologies will erode the network's audience the Post reported: The standard netuork line, however, is that even with the development of other technolo- gies, no other means will exist to reach that nuxnber~f people- (Emphasis added). In the Notice of Proposed Rulemaking in this proceeding the Commission notes that several producers of programming have grown to become "powerful actors in today's program *1 marketplace." - From the viewpoint of low power television broadcasters, however, there is a significant distinction between powerful independent producers owning syndication rights and powerful networks owning syndication rights. In negotiations between low power television stations and pro- ducers, the major issue would be price; but, as between low power television stations and powerful networks who control syndication rights, certain non-price, anti-competitive considerations would always be present. The Institute is *1 Notice, at Para. 39. PAGENO="0552" 548 concerned about the networks willingness to offer and sell syndicated programming rights to low power television networks whose affiliates may compete directly in many markets with net- work affiliates. In this regard, the Commission should note a recent statement by B. Donald Grant, President of CBS ~ntertainment: Producers should be aware it makes a Network uneasy when a show such as "M.A.S.H." is on as many as seven times a day in some independent markets as well as on the Network (CBS). It sure doesnt hel3 it. This is true industry-wide, not just at CBS, the exec cornnient3d, noting that other Network series in many instances are also in syndica- tion. */ The Institute intends to examine clcsely the economic studies and other comments which will be filed in this mat- ter. At this time, the Institute believes that it is pre- mature to repeal the financial interest and syndication rule. The issue, as framed by the Commission, is "whether the public interest would be served by the deletion or modification of the syndication and financial interest rule." The public interest will be best served by the maintenance of an economic environment in which low power television and other emerging technologies can compete and survive. ~/ Variety, April 27, 1982. PAGENO="0553" 549 The Institute believes that the current rule is justified and should be maintained so that the low power television in- dustry has the chance to develop to the limits envisioned by the Commission when it authorized low power television service. Respectfully submitted, THE NATIONAL INSTITUTE OF LOW POWER TELEVISION ~( ( Michael L. Glaler ~ B~Z~ - Elliot M. ~n~.tzer ~ Its Attorneys GARDNER, CARTON & DOUGLAS 1875 Eye Street, N,W. Suite 1050 Washington, D.C. 20006 Tel. (202) 872-0200 January 26, 1983 PAGENO="0554" 550 Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D. C. 20554 In the Matter of Amendment of 47 CFR Section ) Docket No. 82-345 73.658(j); the Syndication and Financial Interest Rule. To: The Commission COMMENTS These comments are submitted by Mark Litwak, Esq., an independent producer and President of New Citizen Productions, Inc., a California corporation. The following remarks will discuss how abolition of the Syndication and Financial Interest Rules will affect small independent producers. These comments will not attempt to comprehensively cover all objections that have been raised over abolition of the rule. PREFACE Despite the confident predictions made by parties on both sides of this issue, the truth of the matter is that it is very difficult to accurately foresee the actual impact of a change in these rules. The communicationa industry is in great flux due to a variety of technological, economic, social and regulatory changes, and the Commission must therefore assess not only the impact on the existing industry, but try to predict how such rule changes will mesh with many other possible changes in a rapidly evolving business. PAGENO="0555" 551 Notwithstanding, the uncertainty involved in making predictions, these comments will attempt to foresee the most likely consequences from a change in the Syndication and Financial Interest Rules. 1. In reviewing the Commission's Notice of Proposed Rule Making released on July 21, 1982, the Special Staff states at paragraph 30 that "the Syndication and Financial Interest Rule does not affect the potential for network exercise of undue influence in the purchase of network prograxnming". The Special Staff further concludes that the rule "could increase concentration in the program supply market by limiting involvement only to those entities large enough to bear the great risks involved". With all due respect to the Special Staff, these statements re- flect a naive view of how the network television business operates. The Special Staff would have gained a better practical understanding of how the industry works by spending a few afternoons at the Polo Lounge. In the network television business there is no competition between networks vis-a-vis the snail independent producer. There are over a hundred potential network suppliers and only three buyers. Much of the time am independent producer will find that there is only one network open to his program proposal. This situation arises because each of the networks have their own particular program needs to fill at any time, and these needs are often quite different. Granted all the networks desire programs that will be rating's hits. Nevertheless, each network has certain PAGENO="0556" 552 prior comittaents to studios and/or talent that it must fulfill, and only a limited number of timeslots available. Furtheri&re, a potential program must be compatible with adjoining programs in order to build good audience flow. Finally, a perfectly good program may be rejected by a network simply because talent attached to it is not one of its own, a similar program is already in development, or the program demographics or content are not compatible with advertisers. With only one network open to his project, a producer is often in a "take it or leave it" situation. Either the producer accepts the terms offered and agrees to any changes desired by the network, or the project dies. Contrary to the ballyhoo accompanying the growth of cable television, cable does not offer an alternative buyer for the product. Cable channels spend most of their money on pre~-existing programming. What little money is available for original product is spent on projects that are unique to cable. All of the pay cable channels want to give their subscribers programs of a type they cannot get on free T.V., usually because the program would not pass the network's Programs & Practices Department or because it is not a mass appeal program. Advertiser supported cable channels simply cannot afford network-type programming. With no alternative, an independent producer has to accept whatever the network offers. The network will usually allow the producer a respectable producer's fee in the budget for producing and developing the program but often will want the producer to deficit finance the show. Nowadays that means the producer makes PAGENO="0557" 553 an agreement (if there is no pre-existing one) with a studio to provide such funding, and the producer and studio wait to see their profits from syndication, if they should be lucky enough to have a product that can be successfully syndicated. It is this possibility of a lucrative syndication sale that drives a producer. It is the "gold at the end of the rain- bow". Granted, only one out of every hundred projects nay get developed by a network, with one out of four of these eventually produced, and only a few last long enough to syndicate, but if you have a piece of "I Love Lucy", or a "Happy Days", you will make millions from it. Now if the networks are allowed to hold onto syndication rights, what will happen? Why should the network give up these lucrative rights if it doesn't have to? Will the independent producer have to settle for a modest producer fee and maybe a small slice of the syndication rights? While it is difficult to predict how generous the network may be with producers in regard to syndication rights, it's apparent that the producer is in a vul- nerable position. It is in fact similar to the relationship that the networks have with new talent. When an actor first signs up for a network series he has no bargaining power and must accept whatever the network offers. Later when he is a star, he can negotiate his contract because the show camnot go on without him. The actor can get conveniently ill or difficult to deal with until he gets a better deal. While the actor may have been taken advantage of (sometimes by the producer) in his first deal, he can quickly make PAGENO="0558" 554 up for it later. However, how will th. producer fare again8t the network? Once a program is up and running, the producer can be easily replaced with littl. evident change on the screen. And the producer does not even have minimal guild protections in regard to royalties, residuals , etc., that an actor has when negotiating his deal. If a producer could so easily be taken advantage of by the networks, why is he not so exploited today by the studios, one may ask? The reason is that while there is no competition among the networks vis-a-vis the independent producer, the studios do strongly compete with each other for agreements with independent producers. An independent producer with a network committment for his program will be aggressively courted by all the studios, as well as larger production companies. In this situation, the independent producer can usually get 25-50% of the net profits from the show as well as lucrative producer fees and such in kind services as office space and secretarial assistance.. Even if the producer has not network committments, but only his reputation and experience to sell, many studios will be interested in affiliating with him. (Granted, studios may later try to cheat the producer through creative accounting, but the producer has legal remedies available to him.) Nevertheless, opponents of the rule contend that adding networks to the syndication game will only increase competition by bringing in three new players. But this is not so because the studios can- not compete against the networks, since they have to ultimately deal PAGENO="0559" 555 with the networks in order to get their programs distributed. If a network decides to keep 80% of all syndication profits for itself, then it is irrelevant what the studios and independent producers want. Only in the event that all program suppliers effectively unite to demand a larger share of profits, could they possibly succeed. Such unity is highly unlikely and would raise serious anti-trust issues besides. The networks point out that when they were in the syndication business, they owned on average, only 25% of such rights. While the industry has changed a great deal `since 1970, with syndication rights much more valuable today due to the growth of independent stations, cable television and home video markets, if the networks do not intend to acquire large financial interests in their programming, then they should not object to a limitation on the size of their interests. The Commission, likewise, if it believes that it is in the public interest to repeal the Sydication and Financial Interest Rule, should safeguard the independent producer's interests by promulgating a new regulation limiting network ownership of syndi- cation rights to 25% or less of all rights. 2. In determining whether to abolish the Syndication and Financial Interest Rules, the Commission should also consider what mpacø such a rule change would have on program diversity on network television. If a network owns syndication rights to a show, it will have an incentive to keep shows on the air until they have syndication value, which for episodic television usually occurs after the fourth PAGENO="0560" 556 or fifth year. Therefore, if a network has a marginally successful series that only needs another year or two to be able to be syndicated, the network will have a financial incentive to keep such a show on the air. With marginal shows kept on the network longer, there will be fewer slots for new programs. Likewise, the networks will have an incentive to prolong the life of long running series that have begun to drop in the ratings. Instead of dropping the show after eight seasons, the network may try to milk the show for another year to make it more valuable for syndication. How one feels about such changes will depend on one's attitude toward the ratings system and the present rate of turnover in the network programming. On one hand, those Who think the networks are too quick to axe a marginal series will approve of the change. On the other hand, fewer new programs each year may upset viewers. As for the producers, the decrease in new programs will adversely affect those who are trying to get a series on the air. Conversely, producers and studios who are already established as network suppliers, will benefit from a longer run of their programming. 3. The Commission must also consider the potential conflicts of interests posed by network ownership of programs to be syndicated to network affiliate and non-affiliate stations. Will the network favor its own affiliates when syndicating a popular series? Will the negotiations between the network and an affiliate be at arms length? Will studios and producers who share such rights with a network unfairly lose revenues if the network does not get the highest PAGENO="0561" 55? price that a fully competitve market could bear? 4. The networks argue that they need to throw off the shackles of regulation in order to get a share of syndication revenues that arise from shows they have funded. They contend that they are losing revenue and market share to cable television and need an additional source of revenue to remain healthy; and such health can only benefit the independent producer and the industry as a whole. The networks may be surprised to learn that most independent producers are not lying awake at night worrying about the network's health. Producers feel that while the networks may be facing some stiff competition from cable television, the networks are in no danger of going under and will remain the predominate distributors of television programming for the foreseeable future. Any increase in network profits will not necessarily benefit the independent producer. Only one who believes in such maxims as "What is good for GM, is good for the country", or agrees with such doctrines as the "Tricke-Down Theory", could make such an argument. 32-540 O-84--36 PAGENO="0562" 558 Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of Amendment of 47 C.F.R. BC Docket No. 82-345 S 73.658(j), the Syndication and Financial Interest Rules COMMENTS OF PEOPLE FOR THE AMERICAN WAY, NEW YORK CITIZENS COMMITTEE FOR A RESPONSIBLE MEDIA, THE RADIO AND TELEVISION COMMISSION OF THE NEW JERSEY COUNCIL OF CHURCHES, THE COUNCIL OF CHURCHES OF THE CITY OF NEW YORK, AND BLACK CITI ZENS FOR. FAIR MED IA Introduction and Summary People for the American Way, et al., hereby submit these comments on the Commission's proposal to repeal the financial interest and syndication rules. The rules were adopted in 1970 after years of study and after the television networks and every interested party had numerous opportunities to file arguments and supporting data. The statistics and other information persuaded the Commission that the rules were needed to overcome the dominant role that the networks played in determining the television programs made available to the American public. It is axiomatic that the Commission should not retain rules that were misguided in the first place or no longer serve a beneficial public purpose. As one court observed, "[A) `regulation perfectly reasonable and appropriate in the PAGENO="0563" 559. face of a given problem may be highly capricious if that pr~lem does not exist.'" Home Box Office, Inc. V. FCC, 567 F.2d 9, 36 (D.C. Cir. 1977) (citation omitted). Although the communications world has experienced many changes since the rules were adopted, none of those changes, either individually or jointly, undercuts the factual and policy bases for the Commission~s action. More specifically, the known facts show that (1) the Commission was justified in trying to maximize the diversity of television program sources, (2) the networks had exercised overwhelming financial and creative control over television programs, (3) since the rules' adoption, the number of participating producers has increased and the economic health of independent television stations has improved markedly, (4) the networks have continued to prosper despite the existence of the rules, (5) although there is some competition from new video technologies, most of those new sources are still in the embryonic stages, (6) the networks are still the overwhelming force in television programming and probably will remain so for at least the next five to ten years, (7) therefore, the networks could engage and probably would engage in the same kind of practices that led the Commission to adopt the rules in 1970, and (8) the public is likely to benefit from the rules for as long as the networks retain their dominant position. These conclusions are qualified by one overriding point. The FCC's notice contained few statistics and other PAGENO="0564" 560 facts to support its sweeping generalizations with respect to the rules' adverse impact on the networks and, ultimately, the public. To be sure, if the comments provide concrete data to show that the public interest will benefit by repeal of the rules, that course would be advisable. But the Commission should not accept parties' theories and general philosophies as a substitute for specific information. Otherwise, the Commission will be unable to know whether its action will in fact serve the public's interest. Parties People for the American Way, founded in 1980, is a nationwide, nonprofit, educational association designed to advance First Amendment interests and to assure that a diversity of views and opinions are presented on television to the American public. As the producers of a half-hour television documentary ultimately aired on independent stations last Fall, People for the American Way has a strong interest in the financial health of independent and diverse programming outlets. New York Citizens Committee for a Responsible Media is a coalition of civil rights, church, minority and professional organizations who have joined together in New York City to work on issues of common concern with respect tq telecommunications policy. PAGENO="0565" 561 The Radio and Television Commission of the New Jersey Council of Churches utilizes opportunities afforded by the broadcasting industry in the region to present the views of the New Jersey Council of Churches (an organization representing seventeen Protestant denominations and independent congregations) on contemporary social and ethical issues. The Council of Churches of the City of New York is an organization comprised of congregations and denominations who share an interest in assuring diversity of television program sources. Black Citizens for Fair Media is a voluntary citizens organization of more than 250 community organizations, which seeks to assure that the image of minorities portrayed in television is positive. Black Citizens for Fair Media, like the other four groups submitting these comments, has a strong interest in maximizing the diversity of television program sources and in assuring the economic health of independent television stations. I. The Basis and Purpose of the Rules The financial interest and syndication rules are contained in 47 C.F.R. § 73.658(j). They provide that no network shall (i) . sell, license, or distribute television programs to television station licenses within the United States for nonnetwork television exhibition or otherwise engage in the business commonly known as "syndication" within the United States; or sell, license or distribute television programs of which it is not the sole producer PAGENO="0566" 562 for exhibition outside the United States; or reserve any option or right to share in revenues or profits in connection with such domestic and/or foreign sale, license, or distribution; or (ii) * * . acquire any financial or proprietary right or interest in the exhibition, distribution or other commercial use of any television program produced wholly or in part by a person other than such television network, except the license or other exclusive right to network exhibitions within the United States and on foreign stations regularly included within such television network. In essence, the rules prohibit the three major television networks -- ABC, CBS and NBC -- from (1) syndicating network programs for broadcast by television stations and (2) obtaining any financial interest in programs produced in whole or in part by a party other than the individual network. The networks were, in effect, compelled to use their own production resources or to restrict their financial involvement in independently-produced programs to the purchase of rights for first-run showings. The financial interest and syndication rules were adopted when the Commission concluded, after years of study, that the networks dominated the television program production process. This dominance was made possible because the networks, through their affiliations with television stations across the country, controlled access to the overwhelming majority of television stations in the top fifty markets. Network Television Broadcasting, 23 F.C.C. 2d 382, recon. denied, 25 F.C.C. 2d 318 (1970), aff'd sub nom. Mt. Mansfield v. FCC, 442 F.2d 470 (2d Cir. 1971). PAGENO="0567" 563 The nature and scope of the networks' dominance here was reflected in the innumerable statistics cited in the FCC reports. For example, the data showed that the networks had a~financial interest in ninety-three percent of the programs they aired in one five-year period, that they were acquiring "an increasingly strong position in syndication," and that even "[tihe admitted great bargaining potential of major motion picture companies was inadequate to extract terms of entry to the network television market more favorable than those obtained by other producers." 23 F.C.C. 2d at 388, 392-393. The Commission was particularly disturbed by the conflicts-of-interest that suffused the networks' involvement in the production and syndication markets. As a theoretical matter, it could be expected that the networks would air whatever program was of the highest quality and offered to secure the widest audience; as a practical matter, however, the networks aired virtually no programs except those in which they had a financial interest. As a theoretical matter, the networks had an obligation and a financial interest in furthering the market positions of their affiliates; as a practical matter, however, the networks were selling off-network prog~rams to independent stations who competed with the affiliates. 23 F.C.C. 2d at 394. The Commission was not concerned with the profitability of the networks or the lack of profitability of program producers. Nor was the Commission interested in PAGENO="0568" 564 comparing the quality of programs produced by the networks with those that had been or could be produced by others. Rather, the Commission took a structural approach to the problem that was premised on First Amendment interests. By adopting the rules, the Commission hoped to maximize the number of independently-produced programs and the health of independent stations in order to provide the widest possible choice of programming for the American public. See 23 F.C.C. 2d at 400, citing Red Lion Broadcasting Co. v. FCC, 395 U.S. 367, 390 (1969); NBC v. United States, 47 F. Supp. 940, 945, 956 (S.D.N.Y. 1942). As the Commission explained on reconsideration, "The stated purpose of the rules proposed was to multiply competitive sources of programming and lessen network control by placing limitations on the network activities which tended to confine areas of competition." 25 F.C.C. 2d at 319. To this end, the rules were designed to serve three subsidiary purposes. First, by precluding the networks from obtaining financial and syndication interests in programming, the rules would eliminate the networks' conflicts-of-interest. Second, by decreasing the networks' financial control of the development and syndicated showings of programming, the Commission hoped to multiply the sources of television programming. And third, by increasing the sources of television programming, the Commission hoped to make available to independent television stations the kind of programming that would enable them to compete with PAGENO="0569" 565 network affiliates and network-owned stations. See especi~fly 23 F.C.C. 2d at 382, 397-98. II. The Need to Retaill the Rules A. The Rules Were Not Misguided In 1977, the FCC established a special staff to investigate network practices and to assess the wisdon of FCC regulations affecting the networks. Commercial Television Network Practices, 62 F.C.C. 2d 548 (1977). After two years of study, the special staff concluded that the financial interest and syndication rules were "misguided at best." Network Inquiry Special Staff, New Television Networks: Entry, Jurisdiction, Ownership and Regulation (Final Report, October 1980) ("Network Inquiry Report") Vol. I at 510. AlthOugh the special staff made a valuable contribution to an understanding of network practices, there are several shortcomings in the analysis it used to justify its conclusion here. 1. Networks' Retention of Leverage The special staff concluded that, as a theoretical matter, the financial interest and syndication rules could not undercut the considerable leverage the networks exercise in negotiating for programs from independent producers. The special staff emphasized that the networks' leverage reflected their control over access to the vast majority of television outlets in the top fifty markets. The PAGENO="0570" 566 special staff concluded, though, that nothing in the syndication and financial interest rules would affect the networks' control of that access or their ability to exploit tk~at power in extracting favorable terms from program producers. The only effect of the rules, according to the special staff, was to preclude the use of certain options when exercising that power. The networks would remain free, under the special staff's analysis, to compensate for that loss through other means. One obvious route would be to reduce the amount of money the networks would pay for the first-run showing of a program on the network. Network Inquiry Report, Vol. II at 607-08, 732. As a theoretical matter, the special staff is of course correct. The facts underlying the networks' leverage -- principally their control over access to affiliated stations -- was unaffected by the adoption of the financial interest and syndication rules. Theory, however, does not always comport with reality. While the networks might have the same potential leverage, that does not mean they were able to translate it into other contract terms that would totally compensate for the loss of profits derived from syndication rights and other financial interests in programs. Here it is important to emphasize that the special staff did not investigate the differences in network bargaining practices before and after the adoption of the financial interest and syndication rules. Therefore, the special staff was unable PAGENO="0571" 567 to offer any concrete evidence or analysis concerning the actual changes in network bargaining practices and the extent to which those changes enabled the networks to retain wt~atever financial benefit they secured prior to the adoption of the rules. The conduct of the principal parties also belies the special staff's theoretical conclusion that the networks' leverage was unaffected by the rules. The networks have made repeal of the rules their number one priority. One of their principal arguments is that the rules deprive the networks of vast resources needed to obtain quality programs. Thus, one NBC executive observed that "(t]he rules hinder the networks' ability to bid for programs because they limit what we can get out of the programs we finance." Robert E. Mulholland, "Drop the Rules," Advertisiflg Age (December 20, 1982). A CBS executive similarly obèerved that the rules deprive the networks of hundreds of million~ of dollars a year in revenue and that repeal of the rules is "financially imperative." Quoted ~ Jane Mayer, "Heated Battle Grows in TV Industry as Networks Fight for Rule Repeal," Wall Street Journal, November 5, 1982. The program producers are also expending substantial resources on a belief that the rules do have an impact on bargaining positions and financial rewards. These shared views are also reflected in the Commission's statement in its Notice of Proposed Rulemaking that the PAGENO="0572" 568 rules handicap the networks' ability to obtain quality programming. Amendment of 47 C.F.R. Section 73.658@), FCC 82-300 (July 21, 1982) ("Notice") at ft 41-42. Clearly, if the networks' leverage remained intact under the rules, the networks would not be concerned about the loss of revenue, the producers would not fight to retain the rules, and the Commission would not have any basis for concern that the networks were being unduly handicapped. In short, the conduct of parties driven by self-interest plainly shows that, contrary to the special staff's theoretical conclusions, the rules have had and do have an impact on the networks' leverage. 2. The Plight of Producers The special staff criticized the financial interest and syndication rules as reflecting a concern with the plight of program producers. More specifically, the special staff observed that a public agency should have no interest in protecting or advancing the profitability of private companies (here the producers), that the rules were economically inefficient because they excluded the networks from sharing in the financial risk of developing programs, and that the ultimate result would be to foster giant production companies. Network Inquiry Report, Vol. II at 726-31. At first blush these arguments have some appeal. PAGENO="0573" 569 Upon inspection, though, they all seem to rest on faulty premises or insufficient evidence. To begin with, the FCC did not adopt the rules because it was interested in making private companies richer. At the time the rules were adopted, Metro-GOldwin-Mayer, Paramount, United Artists, and other major production companies were already endowed with considerable resources. The Commission found, however, that even these giant companies were forced to bow to the networks' demands for a financial interest in programs -- even if the network did not provide any financing for the programming. Thus, the Commission found that between 1959 and 1964 the networks obtained financial interests in seventy-six programs produced by the major companies even though the networks did not offer any developmental financing for those programs. Here it bears repeating the Commission's conclusion about the power exercised by these giant production companies in negotiations with the networks: "The admitted great bargaining potential of major motion picture companies was inadequate to extract terms of entry to the network television market more favorable than those obtained by other producers." 23 F.C.C. 2d at 388. Accord 25 F.C.C. 2d at 324 n. 11 (" . .*. even the major motion picture companies, with their size and resources, fare little if any better than one-shot producers in bargaining with the networks"). PAGENO="0574" 570 The rules, then, were not designed to enhance the profits of major production companies. Rather, it was hoped that the rules would endow the production companies with additional resources to take risks in program ventures and to compete effectively with the networks as a source of programming. As the Commission explained, Relieved of the need to grant a network a large portion of his potential profit(,] the producer's ability profitably t~ operate in network television will be greatly enhanced. With the expanded syndication market as a feasible alternate to network exhibition his bargaining position will be improved and he can be expected to develop into a stable and continuing alternate source of programs and ultimately to compete for network time. 23 F.C.C. 2d at 398. In this context, it is unclear why the special staff criticized the financial interest and syndication rules as inefficient. The special staff was concerned that the exclusion of the networks from the risk-sharing business would increase the costs of programming because producers would be less able to bear the risk of production and, therefore, would demand more from the networks to compensate for their added burdens. Network Inquiry Report, Vol. II at 730-31. At the outset, this observation seems inconsistent with the special staff's other conclusion that the rules had no impact on the networks' bargaining leverge. For here the special staff seems to be saying that under the rules, the PAGENO="0575" 571 networks are obligated to yield to the producers' pressures. Aside from the inconsistency, the impact of any inefficiency here on the public interest seems negligible. The only public concern with inefficiency is that it will result in the production of fewer programs and/or programs of lower quality than would otherwise be possible. But there is no evidence that the rules have precluded the development of network programs or affected the quality of network programs. Nor is there any indication that the major production companies are unable or unwilling to assume the added risks of program development. Here it might be useful for the Commission to concentrate on the plight of the small independent producer. Prior to the adoption of the rules, the small producer could have approached the networks and, if his proposal were sufficiently attractive, obtained developmental financing from the network in exchange for syndication rights and/or a financial interest in the program. Now that door is closed to the small producer. But the small producer has the option of making the same deal with a major production company. And if that small producer is successful, he can presumably become sufficiently independent to deal with the networks directly. If programs are indeed costing more -- as allegd by the special staff -- the small producer should be the one to feel the pinch first. Therefore, the Commission should make PAGENO="0576" 572 particular efforts to determine whether the small producers' viability and independence has been jeopardized by the rules.1 It may be true, as the special staff observed, that the rules have not increased the production companies' profitability (although, given the number of factors that affect profitability, it is difficult, if not impossible, to isolate the impact of the rules alone on the companies' financial status). Network Inquiry Report, Vol. II at 729. Since the rules were not designed simply to advance a private company's profits, the rules cannot be criticized for their minimal impact on the production companies' net income. The real test is in the diversity of programming being developed, and it is here that the evidence before the special staff and the Commission is most equivocal. 3. Impact on Program Availability Perhaps the harshest criticism of the special staff is its claim that the rules failed to generate programming different from that produced by the networks. On this basis alone, the special staff concluded that the rules had had no public benefit and were unlikely to produce any public benefit in the future. Network Inquiry Report, Vol. II at 735-36. 1/ In its Regulatory Flexibility Act analysis, the Commission had no basis for concluding that repeal of the rules would in fact benefit small producers. Notice at § 43. PAGENO="0577" 573 There are two basic problems with the special staff's conclusion here: first, it misconceives the Commission's goals in adopting the rules; and, second, it ignores one of the primary bases for adopting them. a. The Production of Competitive Programming There is no formula that has been identified or that can be identified to determine the precise impact of the financial interest and syndication rules on program development. The variables that affect program production are too many and too complex. A producer's willingness and ability to finance programs could depend on the subjective judgment of individuals whether a proposal is sufficiently appealing to attract advertisers, to pass muster with television executives, and to deserve higher priority than other projects in the making or otherwise available to the producer. Other factors are also influential. General economic conditions, for example, can affect a producer's willingness to risk money in new programs, and those same economic conditions can affect the networks' and independent stations' receptivity to new programs. In this light, different people looking at the same developments in television program production can draw different conclusions as to the causes of those developments. Nonetheless, there can be no doubt that, whatever the cause, the television program industry is producing the kind of results that the Commission sought 32-540 O-84---37 PAGENO="0578" 574 when it adopted the rules in 1970. Among these developments are the following: (1) The number of program producers involved in the industry has increased dramatically. In 1981 there were 184 distributors providing programming to local television stations, a fifty-one percent increase over the 122 operating in 1971. Arbitron SPA (November 1971 & November 1981). In 1981 there were forty-two producers involved in the production of access programming, a 320 percent increase over the ten involved in 1971. Comments of NATPE, Docket No. 21049 (January 8, 1982) at 4. There were twenty-nine producers supplying network prime time programming in the 1981-82 season, a twenty-six percent increase over the twenty-three involved in the 1970-71 season. Variety (September 16, 1970 & September 30, 1981). (2) Independent stations are gaining access to off-network programs earlier than they would have if the networks controlled syndication rights. "M*A*S*H~ and "Happy Days" are two popular examples. These programs were made available while original episodes2were still being aired on the network. (3) The number and profitability of independent stations has increased dramatically. In 1970 there were seventy-seven independent VHF and UHF stations, only twenty-three of which reported a profit. Broadcasting (September 6, 1971) at 57. In 1980 there were 110 independent stations, sixty of which reported a profit. Broadcasting (August 10, 1981) at 44. The increase in profitability reflects the growth 2/ This earlier access may be a reflection of the exclusivity provisions in a contract. But the networks' ability to obtain favorable exclusivity protection is a function of bargaining leverage. As indicated above, however, the rules have diminished that leverage to some extent and this in turn might enable producers to limit the networks' exclusivity protection. PAGENO="0579" 575 of the audience share which independent stations now capture. As of 1981, independent station viewing in prime time had increased to seventeen percent, a seventy percent increase over the viewing share in 1970. (4) The major production companies have generated feature films and other specials of high quality that have been aired on independent stations. These programs include "A Woman Called Golda" (Paramount), "Dream Merchants" (Columbia), and "The Rebels" and "The Seekers" (MCA/Universal). This programming provides strong competition to network showings and is the very kind of program development the FCC hoped would evolve after the adoption of the financial interest and syndication rules. 23 F.C.C. 2d at 394, 398; 25 F.C.C. 2d at 322. It may be, as the special staff observed, that the programming generated for off-network showings is not materially different than the programming produced by the networks before or since the adoption of the rules. Network Inquiry Report, Vol. II at 735-36. All that, however, is irrelevant to the Commission's responsibilities and intentions. The Commission did not make any comparative judgment that programs produced by independent companies had been or would be "better" than those produced by the networks. Nor did the Commission state that it would make such comparative analyses in the future to determine whether the rules were working. Rather, the Commission's only goal was a structural one -- "to multiply competitive sources of programming and lessen network control . . . " 25 F.C.C. 2d at 319. PAGENO="0580" 576 This structural approach is premised on a belief that the creation of diverse sources of programming will ultimately benefit the public. This faith in diverse program sources is a matter of principle that can be debated; but there can be no question that there has been a dramatic increase in the sources and availability of independently-produced programs since the adoption of the rules. Here it may be useful to focus on the comments of independent stations. Diversity in programming ultimately requires diverse outlets and, for the moment at least, independent stations are providing the strongest competition to the networks. If the independent stations have reason to believe the rules help them obtain and retain audiences, that would be a significant factor. If, on the other hand, the independent stations assert that the rules are inconsequential, that would be equally telling. In either case, however, the Commission should demand that judgments be supported by fact -- not guesswork. b. Networks' Conflicts-of-Interest The special staff's conclusion about programming development in the 1970's also ignores the networks' conflicts-of-interest -- conflicts that provided a principal motivation for Commission action in 1970. The first conflict-of-interest concerned the networks' participation in the syndication market. Off-network programs had been and still are a principal source of programming for PAGENO="0581" 577 independent television stations. These independent television Stations are in competition with network affiliates. Therefore, the networks' participation in the syndication market meant that the networks were selling programs to stations who would be in competition with the networks' own affiliates. The Commission was appropriately concerned tnat the persistence of this conflict-of-interest could have an improper influence on the programming available to the public. 23 F.C.C. 2d at 394. Subsequent events seemed to confirm the Commission's concern. As mentioned earlier, off-network programming is now made available to independent stations even while original episodes are being aired on the network. If the networks controlled syndication rights, they would be unlikely to make such programs available so early -- and, if they did so, it would be at the expense of their own affiliates.3 It is possible to conceive of circumstances in which the networks could sell syndicated programming to independent stations without violating any ethical or legal obligation to their affiliates. For example, there would be very little, if any, conflict, if the independent agreed to show the syndicated programming during day-time hours when there was no network feed and before audiences selected a channel for evening viewing. However, it is unlikely that the Commission could formulate, let alone enforce, a rule that could account for and distinguish between situations in which there was no conflict from those situations in which there was a conflict. PAGENO="0582" 578 This conflict-of-interest is an inherent one that will necessarily be revived if the rules are repealed. Nothing in the special staff's report disputes that fact. Nor does the special staff's report provide any argument or evidence to undercut the Commission's earlier conclusion that the financial interest rule was necessary in order to prevent the networks from indirectly doing something that they were prohibited from doing directly. As the Commission explained, "[L]ittle would be accomplished in expanding competitive opportunity in television program production if we were to exclude networks from active participation in the syndication market and then permit them to act as brokers in acquiring syndication rights and interests and reselling them to those actively engaged in syndication." 23 F.C.C. 2d at 398. The other conflict-of-interest concerns the networks' reluctance to air programs in which they do not have a financial interest. As the special staff pointed out, from a theoretical perspective the networks should air programs of the highest quality that will command the largest audiences -- regardless of who has provided the financing. Network Inquiry Report, Vol. II at 733. Monies expended on program development, the theory goes, are sunk costs that PAGENO="0583" 579 can never be recovered; therefore, the network should always be willing to take ~ program that will generate the largest advertising revenues, even if it requires the rejection of a network-financed venture. In theory, this description of network program selection practices sounds reasonable. The circumstantial evidence, however, plainly shows otherwise. As one advertising executive explained, The networks generally took a 50 percent profit participation in programs they accepted for broadcast. Before the FCC rules, a standard question asked of an independent packager by the network was whether he was willing to give a piece of the program to the networks if the advertiser purchased it for exhibition. The networks attempted to justify this practice by claiming that they created the value of the show by putting it on the air. Statement of Norman Glenn, Young & Rubicam, United States v. CBS, Civil Action No. 74-3599-RJK (C.D. Cal. 1974); United States v. American Broadcastin9 Companies, Civil Action No. 74-3600--RJI< (C.D. Cal. 1974), Attachment 2 to Identification of the Evidence in Support of the Government's Contention that CBS and ABC Have Violated Sections 1 and 2 of the Sherman Act, at 2. After exhaustive study of data supplied by the networks themselves, as well as others, the Commission found that this observation had broad application: "[W]e believe on the basis of the record PAGENO="0584" 580 before us that networks do not normally accept new, untried packager-licensed programs for network exhibition unless the producer/packager is willing to cede a large part of the valuable rights and interest in subsidiary rights to the program to the network."4 23 F.C.C. 2d at 398. As a practical matter, it is not surprising that the networks favored programs in which they had a financial interest. Trying to predict a successful program is very tricky business. Moreover, human nature being what it is, people are likely to believe in things to which they have already made a commitment. Consequently, there is no ready formula for a network to say conclusively that a program Like the FCC, the Department of Justice concluded on the basis of this and other evidence that the networks improperly dominated the program production and selection process. Since the Department has the principal responsibility for enforcing the antitrust laws, and since antitrust policies are a vital concern of FCC regulation (see 47 U.S.C. ii 313), the Department's views are entitled to considerable weight. It may be, as the special staff observed, that the remedies sought by the United States are inconsistent, and present enforcement difficulties. Network Inquiry ~port, Vol. II at 713-14. Such observations, of course, affect the weight to be accorded the consent decrees ultimately obtained by the Department. But, in the end, the Commission should not become the arbiter of the legal theories employed by the Department. The Commission's responsibility extends beyond finding antitrust violations and goes to the broader issue of adequate diversity of programming for the public. PAGENO="0585" 581 of fered by an independent producer (even one with some network financing) is clearly better than one in which the network has a very substantial financial (and perhaps ethotional) interest. For all these reasons, then, the rules remain an effective vehicle for prohibiting conflicts-of-interest in network practices, and the special staff did not provide any evidence or argument to show otherwise.5 The issue, then, is whether there have been or are likely to be any changes which reduce the need to prevent those conflicts. S. Changes in Circumstaflc~ 1. Networks' Economic Position In its Notice, the Commission cites declining income For facts, the special staff had relied on an article by Robert W. Crandall, The Economic Effect~~ Television-Network Program "Ownersbj~p", 14 J.L. & Econ. 385 (1971). The article, however, neither argues nor shows that networks accthpted programs in which they had no financial interest. The article contends that the networks had an interest in maximizing their viewing audiences and that they would cancel programs that had low ratings. Nothing in the Commission's report is at odds with those observations. The facts before the Commission -- which the article does not dispute -- showed that the networks would rarely consider a program unless they had a financial interest in it; of course, they could still cancel the program if it proved unsuccessful and replace it with another one in which they also had a financial interest. PAGENO="0586" 582 and audience shares for the networks as a basis for concern that the financial interest and syndication rules have outlived whatever usefulness they may have had. Notice at 138. The Commission's concern here is misplaced for at least two reasons. First, if the financial interest and syndication rules were to have any impact, the Commission had to have expected that the networks' share in viewing audience would decrease. Obviously, if independent stations were to become an alternate source of viewing -- one of the primary goals of the rules -- it would necessarily have to mean a decrease in the viewing of network fare. And it necessarily would follow that, if there were a decrease in network audience shares, the networks would probably incur a loss of revenues. Consequently, contrary to the Commission's suggestion, a decrease in network audience share and network revenues is a sign that the financial interest and syndication rules have begun to have the very impact that was intended. There is a second problem with the Commission's reliance on the networks' declining audience share and revenues: the isolated figures cited ignore the fact that the networks are in extremely healthy financial condition. In 1980, the networks earned $325.6 million, a 550 percent increase over their earnings in 1970 when the rules were PAGENO="0587" 583 adopted. During that same interval, all television stations' earnings, collectively, increased only 229 percent. Broadcasti~g (August 21, 1972 & August 10, 1981). In other words, network profits equalled twenty percent of all industry profits in 1980, whereas in 1970 network profits accounted for only eleven percent of all industry profits -- hardly the basis for concern that the networks are in financial trouble now. Nor is there any reason to believe that network economic health is in any jeopardy in the near future. In July 1982, for example, the networks reported that advance advertising sales for the forthcoming Fall season had been very strong and that they amounted to a twenty-two percent increase over sales from the previous year -- a development all the more significant in light of fifteen percent rate increases and a lingering national recession. Jane Mayer, "Networks Expectup-FrOnt Sales Rise to Be 22% This Year," Wall Street Journal, July 28, 1982. As one network observed, "[T]hose of us who are riding the network dinosaur find the big beast very much alive -- and healthier than ever. The three television networks completed a strong 1981, with revenues estimated at $5.3 billion, following PAGENO="0588" 584 a decade of growth which saw advertising revenues expand from $1.7 billion in 1970 to $4.8 billion in 1980. In 1982, three-network sales growth is expected to continue at a significant rate. . . . You and CBS: a Market~g Partners~4p (March 1982). It should be emphasized here that there is no indication that the financial interest and syndication rules have had any adverse impact whatsoever on the nature or quality of programming available from the networks. There was, for example, some concern expressed that adoption of the rules would result in decreased news and public affairs programming; however, there is no indication that that is so -- indeed, the networks made attempts to increase the amount of news programming they would make available to their affiliates. See Marvin Barrett, Rich News, Poor News: Alfred I. DuPont - Columbia University Survey of Broadcast Journalism Chapter 3 (1978). In its Notice, the Commission concluded that the rules nonetheless restrict the networks' ability to obtain programming from independent producers. Notice at ¶ 40. The Commission did not cite any data or otherwise identify the factual basis for this conclusion. It was certainly not the Network Inquiry Report, though. After two years of investigation, the special staff stated (largely on theory) PAGENO="0589" 585 that the networks' programming-purchasing ability was not at all hampered by the rules. If the networks have concrete evidence of such impediments, it should be considered carefully. But the problem, if it exists, cannot be significant. For there is no indication that network program fare has deteriorated in the last ten years. Quite the contrary. Multi-million dollar productions like "Roots," "The Blue and the Gray," "Holocaust," and "The Winds of War" show that the networks are able and willing to improve the quality of programming being made available. One other matter deserves mention here. When the rules were adopted concern was expressed that they would have an unduly harsh impact on small market stations. However, this concern too proved to be unfounded. In 1980, 80.7 percent of all VHF stations and 46.4 percent of all UHF stations in markets 100 and below reported a profit. Broadcasti~q (August 10, 1981) at 43. This compares favorably with the profitability of all stations in 1970, when 82.3 percent of the VHF stations and 32.2 percent of the UHF stations reported profits. Broadcasting (September 6, 1971) at 57, In sum, there is no evidence whatsoever that the financial interest and syndication rules have undermined the programming abilities of the networks or the nation's television stations. PAGENO="0590" 586 2. New Technolog The remaining question is whether the emergence of new video technologies undercuts the need for the financial interest and syndication rules, whatever the status of the networks' economic health and the programming being made available to the public at present. The Commission has already concluded that the rules have created an "imbalance in the ability of networks and nonnetwork outlets to compete for the products of independent producers." Notice at §S 41-42. This conclusion echoes the criticisms voiced by the networks themselves. One executive, for example, observed that many sporting events are already offered by non-television sources and that popular events, like the Wimbledon Tennis Championship, were almost lost to cable. Robert E. Mulholland "Drop the Rules," ~ There may of course come a time when the evolution of new technologies warrants a relaxation or repeal of the financial interest and syndication rules. But that time is not now. None of the new technologies cited in the Commission's Notice is mature now or poses any threat to television viewing patterns in the immediate future. For example, cable, perhaps the most mature of all the new technologies, is estimated to serve only twenty-seven percent of all television households in the country and will reach only fifty percent by 1985. Notice at ¶ 34. According to recent Nielsen Reports, however, most cable households spend far more time viewing television than they PAGENO="0591" 587 do cable. And most viewers in prime time watch network programs. Thus, in November 1980 networks and their affiliates had a 54.1 rating, as compared to a cumulative 2.3 rating for pay cable programs and other cable originations. And, in 1981, networks and their affilaites had a 51.5 rating, as compared to a cumulative 3.3 rating for pay cable and cable originations. Nielsen Televisi~zi Report, 1982. Subscription television and Multipoint Distribution Services (SMDS~~) command even less of the market. As the Commission itself noted, subscription television reaches only 1.3 million subscribers, and the total number of MDS subscribers is only approximately 550,000. In a country with almost 100 million television households, the networks cannot reasonably view these developments with alarm. The other new technologies are also in the embryonic stages, and it is unclear to what extent, if at all, they will pose any economic competition for networks. Low power television stations, for example, are not yet operative, and it is very uncertain to what extent they will prove commercially viable. The same is true of direct broadcast satellite service, which is not even scheduled to become operational until the mid-1980s. The inchoate nature of competition from new technologies is reflected in a recent congressional report: We are headed for a competitive video market; we are not yet there today. Many scoff at PAGENO="0592" 588 the scarcity rationale as no longer being valid. Yet their claims that it has been overcome are based on sweeping generalizations regarding a "revolution" in video communication services, rather than any thorough analysis of the availability of video conduits on the local level. The revolution has clearly started, but the fighting is just now moving to most of the major urban centers. To claim a new order at the outset of the revolution may rally the troops, but it does not mean the lot of the public has yet been changed. Telecommunications in Transition: The Status of Competition in the Telecommunications Industry, Majority Staff Report of the Subcomm. on Telecommunications, Consumer Protection, and Finance, Comm. on Energy and Commerce, House of Representatives, 97th Cong., 1st Sess. 376 (1981). No doubt, the fact that the competition from new technologies is still in the potential rather than actual stage helps explain why network executives are able to remain optimistic about the economic health of their particular companies. CBS, for example, stated that "[f]or the foreseeable future at least, network television will continue to be the predominate national advertising medium. . . . By the end of the decade, the television landscape will look significantly different. But the CBS Television Network believes that the predominate share of television audiences, and the bulk of advertising revenues, will continue to be where they are today -- in commercial broadcasting." ~ and CBS: a Marketing Partnershsip (March 1982). PAGENO="0593" 589 In this setting, it is difficult to understand the networks' concerns, which are reflected in the Commission's Notice, that they are placed at a disadvantage with cable programmers and other nonnetwork sources in bidding for independently-produced programs. The networks' financial position is far superior to those of any cable programmer, including HBO (apparently the only cable programmer that is turning a profit now). In other words, the networks have the financial resources to match any bid advanced by a cable programmer or other nonnetwork source. For the Olympic Games, movies, and other offerings which are not syndicated, this is especially true. It is equally true for programs like Wimbledon, where the producer does not need financing to develop the project. Therefore, if a nonnetwork source outbids a network for a programs like these it is not because of any handicap created by the financial interest and syndication rules but because one bidder (the nonnetwork source) places a higher value on the product than the other bidder (the network). The situation may be different where the independent producer wants to sell both the syndication rights and the first-run showing rights simultaneously. In those circumstances a producer might reject a high network offer for first-run showings in favor of a package deal that provided less for first-run showings but included a substantial amount for syndication rights. Theoretically, 32-540 O-84--38 PAGENO="0594" 590 substantial amount for syndication rights. Theoretically, this kind of situation could deprive the networks of access to programming that they would otherwise like to purchase. However, neither the Network Inquiry Report nor the Notice presents any data to indicate that this is a real problem, let alone a serious one requiring remedial action by the Commission. C. The Need For a Record If the Commission wants to change its policies with respect to network financial interest in and syndication of programs, it must provide a reasoned explanation why such changes are necessary. See, ~ CBS v. FCC, 454 F.2d 1018, 1026 (D.C. Cir. 1971); Greater Boston Television Corp. v. FCC, 444 F.2d 841, 844-45 (D.C. Cir. 1970). The Commission is not required to provide irrefutable evidence that it can, with certainty, predict the future and identify all the problems that will arise if any course of action is or is not followed. Telocator Network of America v. FCC, No. 78-2218 (D.C. Cir. October 5, 1982) slip op. at 27-35. Nonetheless, the Commission must make an effort to find some evidentiary basis for its public interest judgment and must take into account evidence that runs contrary to its proposals. Home Box Office, Inc. v. FCC, ~ Here the Commission should be wary of the proverbial "parade of horribles" that interested parties can proffer to PAGENO="0595" 591 urge a particular course of action on the Commission. The Commission should require that parties with the facts -- e~pecially the producers and the networks -- provide specific case histories and other data to support their conclusions. It is worth recalling here that virtually none of the risks advanced by opponents of the rules in 1970 have come to pass. ~ at 27-28. In this context, the Commission should give particular attention to the views of independent television stations and small independent producers, like People for the American Way. They are among the intended beneficiaries of the financial interest and syndication rules. If they have evidence and otherwise express concern about retention of the rules, it would indicate that the rules may not be working as intended. Conversely, if those groups urge retention of the rules, it would indicate that the rules are having their intended effect. Finally, the Commission should not act now merely because there is a possibility such action would be appropriate in the future. Many network executives and authorities believe that, by the end of the decade, the network share of audience will stabilize at about sixty percent. See, ~ Speech by Thornton Bradshaw, Chairman, RCA Corporation, to the Academy of Television Arts PAGENO="0596" 592 & Sciences (April 12, 1982). If this forecast materializes, it may -- or may not signal that the networks have lost their dominant position and that the rules are no longer necessary. Any judgments on that score, though, should rest on established facts -- not speculation about future developments. The need for facts is especially important since the nature of any corrective action should depend on the specifics of the actual circumstances. For example, a future record might warrant only modification rather than total repeal of the rules. Thus, the Commission might allow the networks to obtain passive financial interests in syndications and other off-network runs. Under this type of proposal, the network would have no role in determining the timing or contractual terms of any off-network sales; that would remain within the producer's domain. This kind of proposal would minimize the networks' conflicts-of-interest but still allow them to share in the profits of programs that they thought were "good bets." Conclusion WHEREFORE, in view of the foregoing, it is respectfully recommended that the Commission retain the financial interest and syndication rules unless the record evidence overcomes indications that the rules are benefiting the production and availability of programs from diverse sources. Respectfully submitted, Grove, Engelberg & Gross, P.C. 2033 M Street, N.W. Washington, D.C. 20036 202/452-1930 Attorneys for People for the American Way, et al. By:_____ Lewis Pap laudia Ribet January 26, 1983 PAGENO="0597" 593 I RVECEN;ER ~ ~ a.o)SBSeslloooS 04/28/53 ICS IPMRNCZ CSP LSAB 1 113$b28791 MSM TORN WEST COVINA CA 04.28 GUlP 1ST SAN GABRIEL VALLEY HUMAN RELATIONS SI. WEST CAMERON AVE WEST COVINA CA 91790 THIS NAILGRAM IS A CONFIRMATION COPY OF THE FOLLOWING MESSAGEt 1139818791 TORN WEST COVINA CA 29 04.28 0221P UT PMS HONORABLE MARK FOWLER, CHAIRMAN FEDERAL COMMUNICATIONS COMMISSION RPT DLY MOW, RUSH PLEASE, *DLR 1919 M ST NORTHWEST WASHINGTON DC 20534 REI DOCKET 052.343 INDEPENDENT PRODUCERS AND INDEPENDENT TELEVISION STATIONS HAVE SERVED THE PUBLIC INTERESTS, DON'T JEOPARDIZE OUR ACCESS TO THIS IMPORTANT MEDIUM. RETAIN THE FINANCIAL INTERESTS AND SYNDICATION RULE CNUZ L RAMIREZ, CONSULTANT SAN GABRIEL VALLEY HUMAN RELATIONS 51$ WEST CAMERON AVE WEST COVINA CA 91790 SPECIAL 30.DAY OFFER GET $1.00 OFF ON YOUR NEXT MAILORAM ORDER TO SEND YOUR MAILORAMC5), CALL 500.217.2241 AND ASK FOR OPERATOR 33. WE'LL AUTOMATICALLY DEDUCT $1.00 FROM YOUR TOTAL SILL. OFFER GOOD ON EACH ORDER PLACED DURING THE NEXT 30 DAYS. 11,22 UT MGMCOMP TO REPLY BY MAILGRAM MESSAGE, SEE REVEBSE SIDE FOR WES~ERMUNIONS TOLL- FREE PHONE NUMBERS PAGENO="0598" 594 Before the T Federal Communications Commission Washington, D.C. In The Matter Of: Amendment of 47 C.F.R. ~ 73.658(j); ) BC Docket No. 82-345 the Syndication and Financial Interest Rule ) COMMENTS OF THE COMMUNICATION COMMISSION OF THE NATIONAL COUNCIL OF THE CHURCHES OF CHRIST IN THE U.S.A. AND THE OFFICE OF COMMUNICATION OF THE UNITED CHURCH OF CHRIST Introduction On July 21, 1982, the Commission issued its Notice of Proposed Rulemaking to review the network financial interest and ~syndication rules, 47 C.F.R. ~ 73.658(j). These rules, adopted in 1970, prevent the three television networks from obtaining domestic or foreign syndication rights or any financial interest in the subsequent non-network broadcast of network television programs. The Commission invited comment on whether the rules should be repealed. modified, or retained. It cited the analysis of the Network Inquiry Special Staff ("Special Staff"), who argued in their 1980 Report 1/ that the rules were misguided and had not achieved their intended results. The Commission also noted the impact of tech- nological developments in television since the adoption of 1/ An Analysis of Television Production, Acquisition, and ~istribution, Preliminary Report in Docket No. 21049, June 1980 (hereinafter, "Staff Report"). 1609 CONNECTICUTAVENUE NW. WASHINGTON, D.C. 20009 (202)232-4300 PAGENO="0599" 595 Dear Friend: Media Access Project considers the pending rulemaking concerning pos- sible repeal of the FCC's network financial interest and syndication rules to be one of great potential significance. Our comments, filed on behalf of the Communi- cation Commission of the National Council of the Churches of Christ in the USA and the Office of Communication of the United Church of Christ may well be of interest to you. Broadcasters are licensed to serve the public interest, which the Supreme Court has equated with the right to receive information about the moral, esthetic and cultural diversity of elements which make up American society. The FCC's financial interest and syndication rules are not perfect, but they have worked. As a direct consequence of their adoption in 1970, the American public has received television programming which better reflects the values of the many different communities in our culture. The rules have also contributed to the strength of independent television stations. For all their weaknesses, the inde- pendents have proven to be more responsive to community needs, and only they have sought to serve the special audience segments - such as minorities, the old and the young - which have generally been ignored by the networks and their affiliates. Sincerel Andrew Ja17~~Ertzman Executive D~ector 1609 CONNECTICUTAVENUE, N. W. WASHINGTON, D.C. 20009 (202)232-4300 PAGENO="0600" 596 the rules, and solicited comments on whether these develop- ments made the rules unnecessary. The Communication Commission of the National Council of the Churches of Christ in the U.S.A.* and the Office of Communica- tion of the United Church of Christ,** by their attorneys, Media Access Project, oppose repeal. The rules were adopted to promote competition and diversity in the television pro- gramming available to the public. The Commission quite properly recognized this as a matter of public interest concern; without competitive and diverse sources of programming, television -- the most pervasive communications medium in our society -- impairs the fundamental First Amendment "right of the public to receive suitable access to social, political, esthetic, moral, and other ideas and experiences." 2/ * The National Council of the Churches of Christ in the USA is a cooperative agency of 31 Protestant and Orthodox communions in the United States. Its menber communions have charged the NCC "to study and to speak and act on conditions and issues in the nation and the world which involve moral, ethical and spiritual principles inherent in the Christian Gospel." The governing board does not claim to speak for all the members of its member churches, but they express the considered judgment and position of the representatives of those churches sitting for that purpose as the governing board. The Communication Commiss- ion is the agency of the Council which speaks for the Council in the area of communication in the mass media. ** The Office of Communication is a national instrumen- tality of the Church which is charged by the Church Constitution to conduct a ministry in the mass media. The Office of Communication has participated in numerous pro- ceedings of the Federal Communications Commission over several decades to further the goals of equity and diversity in broadcasting and cable television. 2/ Red Lion Broadcasting Co. v. FCC, 395 U.S. 367, 390 (1969). PAGENO="0601" 597 The National Council of the Churches of Christ and the United Church of Christ consider it vitally important that the television program marketplace be structured to. insure maximum protection of this right. Repeal of the rules on the basis of pure speculation would be dangerously disruptive. PAGENO="0602" 598 I. Factual and Theoretical Basis For The Rules Any discussion of 1~ow the financial interest and syndi- cation rules have worked during the past decade requires a careful assessment of what they were intended to do. Critics of the rules have claimed they were "misguided" from the start. But the argument is based on a subtly slanted view of both the problems which gave rise to the rules and the intent of the rules themselves. This allows for a theoretical "crit- ique' of their function which quickly becomes little more than tautological. A. The Commission's 1970 Factual Findings Were Conclusive The FCC adopted the financial interest and syndication rules after over a decade of inquiry into the networks' role in programming and syndication. In its initial Notice of Proposed Rulemaking 3/ and its eventual Report and Order, 4/ the Commission described in great detail the evolution of network power in these areas. It relied upon data supplied by the networks themselves, as well as by other sources, to document the harmful effects of this power. The evidence was conclusive: 3/ Competition and Responsibility in Network Television Broadcasting, 30 Fed, Req. 4065 (March 27, 1965). 4/ Competition and Responsibility ~in Network Television Broadcasting, 23 FCC 2d 382 (1970), modified on reconsidera- tion, 25 FCC 2d 318 (1970). PAGENO="0603" 599 (1) With the decline in advertiser-licensed pro- gramming on the networks, producers were compelled to bargain directly with the net- works to get their programs on the air. 5/ (2) I~etworks used their monopoly powers in the bargaining process to extract valuable rights from producers, and then systematically se- lected programs in which they had obtained those rights. 6/ (3) This not only prevented producers from recoup- ing costs, but also allowed the networks to exercise extraordthary predatory power in the syndication market at the expense of their major competitors, the independent television stations. 7/ The Commission's conclusions were strongly stated, well grounded and decisively adopted. The action withstood comp- rehensive judicial review. 8/ It was further buttressed by the Justice Departments similar assessment of the evidence, 5/ 23 FCC 2d at 387. See also, 30 Fed. Reg. at 4067-4069. 6/ 23 FCC 2d at 389, 393. 7/ Id. at 392-394. 8/ Mt. Mansfield Television, Inc. v. FCC, 422 F.2d 470 (2d air. 1971). PAGENO="0604" 600 which led to lawsuits against the three networks and consent decrees forbidding anticompetitive practices. 9/ Notwithstanding this history, the Commission's current rutemaking seems to raise the whole question all overagain. The Special Staff suggests that the Commission was theor- etically misguided in its perception of the television in- dustry. Similarly, the networks now argue that they did not wield any pernicious power over programming and syndication before the rules were adopted. This is an exercise in historical and regulatory revis- ionism. It is both misleading and inappropriate. Any Com- mission attempt to second-guess its own factual findings of twelve years ago flies in the face of an overwhelming record. It requires the Commission to overthrow carefully considered precedents for the sake of theories which are at best murky and sometimes suspect. This can only detract from efforts to maintain stability and predictability in the regulatory environment. 9/ U~iited States v. National Broadcasting Co., 449 F. Supp. 1127 (C.D. Cal. 1978), aff'd mem., No. 77-3381 (9th Cir. April 12, 1978), cert. denied sub mom, CBS, Inc.v. U.S. District Court for Central District of Calif., 48 U.S.L.W. 3186 (1979); United States v. CBS, Inc., Civ. No. 74-3599-RJK (C.D. Cal. July 31, 1980), reprinted in 45 Fed Reg. 34,463, 34,466 (1980); United Statesv. Ameri~in Broadcasting Companies, Inc., Civ. No. 74-3600 RJK (C.D. Cal.) reprinted in 45 Fed. ~ 58441 (1980). PAGENO="0605" 601 In fact, the suggested reasons for reexamining the pre-rules environment were addressed directly by the Commis- sion twelve years ago. A number of these claims share an important flaw -- they ignore that the rules were designed to stop incipient problems before they got worse. For example, the networks have argued that they did not "dominate" the syn- dicatiori market before the rules, noting that there were many programs in which they did not acquire full syndication rights. 10/ This raises a false issue because the Commission did not claim that such total domination had yet occurred. Nonetheless, it found the situation to be extremely "unhealthy~'. The networks ~`accepted virtually no entertainment program in which they did not have financial interests in syndi- cation and other subsequent use," even if they did not obtain the rights in full. 11/ Even more disturbing, the situation was deteriorating. Commission action was needed because network involvement in syndication was increasing rapidly and app~rent1y without limits. In the 1960's, syndication was still a relatively small part of the program industry, but the Commission was 10/ See, Network Syndication - Financial Interest_Rules, CBS ~ pa~ presentation to the Commission, June 1982. 11/ 23 FCC 2d at 394, 392. PAGENO="0606" 602 well aware that the growing market would make future syndica- tion rights even more valuable to the networks. If syndica- tion were to become more profitable, nothing would stop the networks from taking as big a share as they desired. 12/ Sound policy is predicated on preventing harm before it happens: the Commission did not have to await catastrophe before taking action. Similarly, the Special Staff argues that the networks did not "extort" program rights and interests from the pro- ducers, but legitimately paid for them by supplying more up-front financing and reducing producer risks. 13/ Quid pro quo arrangements of a sort did exist, 14/ but the Commis- sion found that in practice producers got very little in 12/ The Commission's concern about the future was evident in 1965: "CI]t . . . appears that the potential expansion of both domestic and foreign markets for American television programs is great. . . . Unless more competitive opportunity is provided for independent television program producers, it seems inevitable that network corporations will expand their control of these markets." 30 Fed. Reg. at 4070. In 1970, the Commission again noted: "While they do not con- stitute a principal part of overall revenues, revenues accru- ing to networks from syndication acitivities are substantial and are increasing." 23 FCC 2d at 392. History has justified the Commission's apprehension. If anything, the potential for network domination of the syndi- cation market is greater now than ever before, because of the tremendous explosion in revenues from syndicated programs -- a tenfold increase in the last decade. 13/ Staff Report at 253, 474-475. 14/ 30 Fed. Reg. at 4068. PAGENO="0607" 603 exchange for what they gave up. Even when the networks had the incentive to pay more "up front," according to the theory, producers still could not recoup their costs from network exhibition alone. 15/ Even more damning, the Commission found "no necessary relation between networks providing developmental financing and their acquisition of syndication * . . and/or profit-sharing rights." 16/ The socalled "risk sharing," which the rules now prevent, worked less well in reality than in theory: the networks took more of the profits without meaningfully reducing the producers' risk. B. The Rules Are Modest In Scope And Not Overly Intrusive. Given the strength of the Commission's own findings, and the vast amount of evidence subsequently amassed by the Jus- tice Department, the Commission cannot credibly conclude that network power over programming and syndication was not a problem in the first place. However, there has also been theoretical criticism of the rules on a different, and some- 15/ 23 FCC 2d at 398. The Special Staff argues that the networks must have been paying enough for the producers to survive on, making it irrelevant whether they paid enough to make up the producer's costs after the network exhibition. Staff Report at 265. However, the issue is no whether producers can somehow survive on the network's terms, but whether producers will be able to generate more quality and diversity in programming if they cannot retain rights in their programs. As the Commission stated: "The fact that over the years the producers have perforce adjusted their methods of doing business and have learned to live with this situation in no way changes the essentially oligopolistic nature of the situation." 23 FCC 2d at 389. 16/ 23 FCC 2d at 388. PAGENO="0608" 604 what inconsistent basis. The Special Staff argues that if the networks were exercising monopsonistic power in the program market, the rules could not alter this fact. *The rules remove several issues from the bargaining table, the Staff asserts, but they do not affect the fundamental bargaining power of the networks. Interestingly, the Staff Report suggests that the only way to reduce network power over programming is to go to the source of that power -- i.e., to break up the network monopoly. 17/ This argument has some merit. The networks have an inherent advantage as buyers of programs because of their historically unique access to virtually the entire universe of television viewers. Only the networks have been able to use simultaneous interconnection of affiliates in all major markets, supported by a nationwide advertising base. This structural advantage has little to do with the free market, but is the result of regulatory decisions made by the Commis- sion thirty years ago which effectively limited the possible number of permanent television networks to three. 18/ For better or worse, the rules (and the Justice Department's 17/ Staff Report at 226, 270. The Special Staff voices similar criticism of the Justice Department approach: "If the network practices attacked in the decree reflect the exercise of monopsony power, the only sensible remedy is to strike at the source of that power." Id. at 461. 18/ See Fowler and Brenner, A Marketplace Approach to Broad cast Regulation, 60 Texas L. Rev. 207, 223-224 (1982). PAGENO="0609" 605 consent decree) do not tamper with the structure of the networks themselves. No one disputes that the networks have retained much of their inherent power under the present regulatory scheme. However, it is a mistake to fault the rules as "mis- guided' for not being able to bring about more fundamental alterations of the television marketplace. This incorrectly implies that the Commission intended to stimulate radical change. The structure of the rules themselves and the Com- mission's statements upon adoption suggest otherwise. This does not mean that the rules have worked exactly as intended, or that all the Commission's objectives have been realized. But it is easy to turn the argument into a tautology: asser- ting "objectives" which the rules were not expected to achieve, and then faulting the rules for failing to achieve them. The Commission adopted the financial interest and syndi- cation rules as part of a package, which also included the prime time access rule ("PTAR'). (Although PTAR is not an issue in this proceeding, it is important to remember that the Commission considered all three rules to be essential to the accomplishment of its objectives.) The simultaneous adoption of the three rules, the Commission hoped, would lead to a more vigorous and independent program supply indus- try, able to provide diverse and creative programs both on the networks and in first-run syndication. Network control 0 O-84--39 PAGENO="0610" 606 of its own programming would be reduced, and competitive non-network alternatives would develop as well. 19/ These goals may seem far-fetched. In hindsight, it appears that the Commission on occasion indulged in wishful thinking: e.g., its speculation in 1965 that the rules might lead to creation of a fourth network. 20/ But the Commission was certainly not as woolly-headed as some have made it out to be. It defined its actions as "modest" 21/, and it care- fully noted that the three rules were not intended to tamper with the basic function of networks as programmers. 22/ If one examines the rules in this perspective, their suitability to the Commission's objectives becomes much clearer. Just as important, the rules are compatible with current regulatory theory and objectives. The Commission did not attempt massive interference in the marketplace, or highly technical and complex rules which would create serious enforcement problems. Instead, it adopted a modest, self- enforcing, structural approach, which would redirect the forces of the marketplace without trying to transform them. 19/ 23 FCC 2d at 398. 20/ 30 Fed, Reg. at 4071. However, there was at least one serious attem~p~ to create a fourth broadcast network in the 1970's by Paramount and Hughes Television. The attempt was considered feasible in large part because the rules were in place. 21/ 23 FCC 2d at 395. 22/ 30 Fed. Reg. at 4071. PAGENO="0611" 609 respect to their competitors' programming, they should have no influence çver program selection or content at all. 24/ Therefore, the Commission eliminated these built-in conflicts. Once again, the intent of the rules is limited: the Commis- sion did not tamper with the networks' prerogative to select their own programming and make content-based decisions about it. 25/ But even a limited rule could circumscribe still greater creative interference by the networks, and give diversity in programming a fighting chance. This aspect of the rules must be stressed because so much theoretical criticism of the rules has been based exclu- sively on free market theories and currently fashionable considerations of economic efficiency. The Special Staff and others have argued that the rul~es were economically unnecessary because supply and distribution of the "product" 24/ "[T]he presence of the networks as domestic syndicators Ii inherently undesirat4~. They are in the position of selling programs to independent stations in competition with their . . . affiliated stations, and they compete against independent syndicators in the affilliated-station market where they have a permanent advantage...." Id. (emphasis added). Even if the networks do not dominate the syndication market, their very involvement inevitably affects the avail- able supply of programs which stations can select as non- network alternatives. Not only can the networks use their position to affect competition, but they also have a poten- tial role in deciding the content and diversity of all over- the-air programming, not just original network programming. The Commission felt these were decisions best left ot others, free from network influence. 25/ 30 Fed. Reg. at 4071. PAGENO="0612" 610 -- television programs -- already met conventional standards of market competition and efficiency. 26/ Aside from the merits of this argument, it completely overlooks the Commis- sion's other, larger concerns in adopting the rules. The Commission did not enter the program arena merely to promote economic competition for its own sake, but to protect the public's right to receive diverse and competing ideas in its television programming. To do so, it was necessary not only to regulate the networks' economic power, but to insu- late creative competition from the possible effects of that power. If the Commission were dealing with soybeans or silicon chips, such considerations would be irrelevant, and the conflict of intex~est rationale would make little sense. But the Commission is responsible for protecting the market- place of ideas, in which diversity and competition are ends in themselves, not just the means to a more efficient system of distributing a "product." The public interest in receiv- ing competing ideas is not necessarily served by the pur- chase of programs from the lowest bidder in a market which responds only to economic forces. Other values must be protected, both in the promotion of competition among poten- tial suppliers of programs, and in the process by which programs are selected, 26/ Staff Report at 272-301. PAGENO="0613" 611 The present Commission can, of course, decide that the public interest would be adequately protected by a "pure" free mat~ket approach. However, such an approach must be openly declared and justified for what it is: a major departure from the policies and objectives upon which the Commission based the rules in 1970. This is not done by restating the objectives of the rules to fit current theoretical predelic- tioris, so that they can then be superficially dismissed as "misguided." If the Commission does not deal squarely with the rules in terms of their original purposes, it substitutes sophistry for policymaking, and conceals the fact that many of those purposes have been achieved. II. Im~pact0f The Rules The question of whether the financial interest and syndi- cation rules have worked is strenuously debated. Various par- ticipants in this proceeding argue that the rules have had a positive effect, a negative effect, or no effect at all. Although the question is in many respects highly technical, several general conclusions may be drawn which indicate that the rules have made an appreciable difference for the better in the television industry. They have accomplished some, though not all, of the Commission's objectives. In contrast, the negative consequences predicted by some opponents of the rules, these simply have not occurred. Had the rules not PAGENO="0614" 612 been in existence, the state of diversity and competition in the industry would be considerably worse. 27/ A. The Rules Have Contributed To A Changed Marketplace. There is considerable dispute about whether the rules have worked in the public interest, but there should be little disagreement that the television industry has changed considerably since they were adopted -- and that some of these changes are directly attributable to the rules them- selves. In a strictly mechanical sense, the rules have "worked~ -- that is, they have been adhered to by the net- works. 28/ As a result, the networks are no longer involved in syndication or foreign distribution of programs. The `vacuum' left by the networks has allowed producers, syndi- 27/ Some of the comments in this section are based on inter- views by the Media Access Project with producer, syndicators, and distributors of television programs. The repsonses by no means represent a statistical cross-section of the industry, but many of the issues addressed in this proceeding require more than statistical analysis -- if indeed statistical anal- ysis is even possible. If the Commission is to thoroughly understand the impact of the rules and the possible impact of their repeal, it must look beyond theory to the actual exper- iences and attitudes of those who will be providing the public with programs. 28/ This does not mean there has been no disagreement over interpretation or application of the rules. Current program contracts routinely include long-term option and exclusivity clauses, which producers contend should be prohibited by the rules. See Staff Report, Appendix B. Notably, the Cominis- sion hasiimited the effectiveness of the rules by adopting a narrow interpretation of their scope. See CBS, Inc., 87 FCC 2d 30 (1981), aff'd sub nom, Viacom International v. FCC, No. 814119 (2d Cir., Feb. 9, 1982); Christian Broadcast- i~ Network, 87 FCC 2d 45 (1981). PAGENO="0615" 613 cators, and competing stations to benefit from the distribu- tion of successful network programs in the foreign and domes- tic syndication markets. Under the rules, the economic poten- ti~l of these markets has burgeoned. In particular, the independent television stations have increased in number and competitiveness, especially in cities where network owned sta- tions have been dominant, further improving the market for both new and off-network syndication. 29/ Obviously, other factors besides the rules have contri- buted to the changed environment. As the Commission intended, the expansion of first-run syndication has been aided primar- ily by affiliate prime time access programming. PTAR has also enhanced the position of independent stations by giving them a respite from network competition (though it should be pointed out that the prime time access period is also the most lucrative daypart for network affiliates). The inde- pendent stations have benefitted from advances in technology, the growth of the overall television audience, and increasing advertiser acceptance of independent stations. Similarly, the foreign television market has expanded in part for independ- ent reasons. Still the rules have contributed significantly the to im- proved marketplace. They have made off-network programming 29/ Staff Report at 148. PAGENO="0616" 614 more freely available, particularly to independent stations. Before the rules, the networks could determine when to release syndicated programs, could channel them to affiliates instead of independents, and could control the time and frequency of broadcast. Now, however, the market is open, and the result is much improved sources of program supply for the independ- ents. This has contributed vastly to their ability to com- pete on fair footing with the networks. In turn, greater competition has contributed to the expanded value of the syndication market, which magnifies the impact of the rules further. Of course, the more pertinent question is whether these developments have furthered the Commissions higher object- ives. The rules were not adopted merely to reallocate prof- its for the sake of private interests, but to protect and generate diverse sources of programming in the public inter- est. The Commissjbn intended reallocation as a means to certain ends, and it is on the accomplishment of those ends that the rules must be judged. Not suprisingly, opponents of the rules contend that none of the Commission~s higher objectives have been achieved. In particular, the Special Staff argues that the rules have* not improved program diversity or competition in the supply mai~1cet. 30/ In the wake of the rules, a great deal of syn- 30/ Id. at 468-469. PAGENO="0617" 615 dicated programming (outside the prime time access period) has continued to be off-network reruns, with less new devel- opment of first-run syndication than the Commission had hoped. In the network programming market, the networks claim producers have been harmed by the rules. Because the networks no longer offer a `premium" for syndication and subsidiary rights, it is asserted that smaller producers have been squeezed out of the industry for lack of adequate financing. The major beneficiaries, argue the networks, have been the major Hollywood studios, who have grabbed a greater share of the market because only they have the where- withal to sustain the enormous risks of production. 31/ These argunents distort both the intended and the actual impact of the rules. In the first instance, they overlook the rules' preventive function, discussed previously. 32/ It is misleading to confine the issue to how the rules have changed the program industry. The other half of the issue is what would have happened without the rules in place. By definition, the networks have been unable to continue prac- tices that they were using with increasing frequency during 31/ See Network Syndication - Financial Interest Rules, CBS ex parte presentation to the Commission, June, 1982. 32/ See pp. 13-17, supra. PAGENO="0618" 616 the 1960g. But there is ample reason to believe that the competitive situation would have worsened substantially if no-action had been taken. Certainly there was nothing to prevent the network from engulfing the competition in the syndication industry. Syndi.- cators in business before the rules went into effect remain adamant about the threat which the networks posed. Some com- petitors went out of business, and others faced a very bleak future. The networks could take as much as they wanted, and they had increasing incentive to take more and more. Sim- ilarly, producers who dealt with the networks before the rules lacked the leverage to protect their syndication rights, even as these rights were becoming more valuable and attract- ive to the networks. Of course, as the Staff Report suggests, producers could always "threaten" to go out of business rather than accept network terms. 33/ Unfortunately, this is the sort of "leverage" that operates more effectively in econ- onists' classrooms than in the actual marketplace. Speculation about "what would have happened' has its risks, but the pattern of the network behavior before the rules were adopted could not be clearer. With syndication becoming more valuable and competition from independent stations increasing, it would be naive to assume that the net- works would not have tightened their grip on the production and syndication market -- no one had the power to stop 33/ Staff Report at 334. I- PAGENO="0619" 617 them. The rules eliminated this risk entirely. Simply by protecting these markets from further depredation, they "worked" to preserve competition and alternatives to the networks. Beyond this, though, the rules have generated substan- tial positive changes in television programming. Not only have they improved economic diversity and competition in the program industry, they have improved the creative climate in which producers operate. Both indirectly, by aiding independ- exit syndicators and stations, and directly, by aiding produc- ers themselves, the rules have moved the program production industry in the direction intended by the Commission. The networks remain strong, of course, but they no longer threaten the public with an economic and creative stranglehold over television. B. Today's Independent Syndication Market Is Vigorous And Diverse. The independent stations, clearly, have reaped a direct benefit from the rules. Whatever the role of other factors, the independents would be in considerably worse shape if the rules had not made network programs more freely available for off-network syndication. The ability to obtain programs such as "Barney Miller" and "Happy Days' without network interfer- ence has contributed vastly to their competitive position. The availability of these programs is in itself a signifi- cant accomplishment of the rules: they are generally programs of higher-than-average quality and are clearly a popular PAGENO="0620" 618 alternative for much of the public. But it is a mistake to assume that this is the 2!~~ real consequence of the rules --: and a questionable one at that, given the Commission's misgivings about off-network syndication at the time it adopted the rules. 34/ In fact, the importance of off-network syndication, as it has developed under the rules, lies as much in the second- ary consequences it generates. Under the rules, more of the benefits of off-network syndication have been diverted to independent stations, instead of the networks and their affiliates. This is essential in order to promote a better market for other types of syndication as well. As the Com- mission accurately noted, the independents are necessarily the "backbone" of the syndication industry. 35/ To the degree that they become healthier and more competitive, they will be more able to buy better quality original pro- gramming to compete with the networks. Thus, the freeing up of off-network shows has not simply forced the networks to compete more often with their own schedules of five years before; indeed, it has allowed the independents to foster other forms of competition. As evidence of this, one need only look at the present state of the syndication industry. The advent of PTAR and 34/ 23 FCC 2d at 385. PAGENO="0621" 619 the departure of the networks from syndication left a consid- erable 0vacuum" for others to fill. The vacuunt was filled by a wide variety of established and new syndicators, all competing in a more wide-open environment because of the absence of network competition. Although there has been some "shakeout' among syndicators since the early 1970s, the en- vironment remains vigorous and competitive. 36/ Furthermore, the increase in competition has had important consequences. Many syndicators are providing first-run syndication in the improved market provided by independent stations. Some of these are off-network syndicators as well, who can in effect use off-network revenues to finance original programming. 37/ This would not have happened if syndication were controlled by the networks instead of independent syndicators: they are hardly likely to underwrite programming for the competition. 38/ 36/ Staff ~eport at 293-301. 37/ The number of off-network syndicators who produce first- run syndication as well is still small. Universal and Para- mount have produced programs for syndication. and others such as Norman Lear have experimented with it. The fact that this is happening at all, however, is significant. Furthermore, there is the possibility for first-run syndica- tion to expand as long as the independent stations maintain a secure revenue base from off-network programs. 38/ Perfect examples of this are Viacom and Worldvision, created from the syndication arms of the networks when the rules required the networks to divest them. Both are now producing first-run programming, which competes against that of their former network `parents.' PAGENO="0622" 620 It is difficult to assess the qualitative changes that have taken place in syndicated programming since the rules were adopted. However, independent stations are not simply filling their schedules with off-network programs; original syndication has occurred, and indeed has diversified. Be- sides off-network, independent stations are running talk shows, documentaries, specialized music shows, original specials, and other formats with greater frequency than was likely before the rules were adopted. In a non-regulatory framework, one can quibble about the quality of some programs -- for example, the much-maligned game shows -- but the in- crease in diversity is the best indication of higher quality over the long run. Obviously, the rules have not been totally successful. The Commission most likely would have preferred less reliance by independents on off-network syndication and more develop- ment of first-run programming. Another Commission goal that has run up against obstacles is the development of first-run syndication on network affiliates (outside the prime time access period): although ventures such as Operation Prime Time and Mobil Showcase Network have made headway, affiliates remain highly unlikely to desert their network suppliers on more than an occasional basis. But the existence of unreal- ized objectives should not obscure the changes that have occurred. The financial interest and syndication rules PAGENO="0623" 621 have aided independent stations and stimulated a more vigor- ous syndication industry. In conjunction with PTAR, they have created a stronger program market for first-run syndica- tion, creating more opportunities for program producers. This has led to a greater diversity of program types, and considerably more flexibility in the non-network program "menu.~'. The general trend is in the direction intended by the Commission, and there is room for change and experimenta- tion in the future. C. The Rules Protect Creative_Incentives For Producers. The rules were intended not only to stimulate non- network programming alternatives, but to promote competition and creative diversity in network programming as well. In fact, the rules have benefitted network producers directly in several ways which have furthered the public interest. Although critics of the rules insist this is economically impossible, it is important to remember that more than pure economics is at stake. The economic changes brought about by the rules are significant not only for their own sake, but for the creative consequences which ensue. The Staff Report may be accurate in depicting one way in which the rules have affected the network-producer rela- tionship. 39/ Under the rules, the producer cannot use syndication and subsidiary rights as a means of spreading 39/ See generall_y Staff Report at 347-359. 32-~4O O-84--~-4O PAGENO="0624" 622 the risk" with the networks. By retaining these rights the producer retains the risk that they will be worthless, preventing him from recouping production costs and turning a profit. The risk is substantial: only a small percentage of program ideas are developed into network series, and only a small percentage of those series become suitable for syndication. Superficially, the inability of the networks to pay a premium in advance and share this risk would appear to make the producer market less attractive and therefore less competitive, than it was before the rules. However, reality has apparently ignored the theory. For a variety of reasons, the advent of the rules has not brought about less competition among network program producers. One reason is that very little meaningful risk-sharing went on in the first place. 40/ From the producer's point of view, pro- ducing network programs has always been a fantastioally speculative business. The network could take a share of the profits before the rules, but this did not make produc- tion a "safe bet" for the producer. For the financially prudent and cautious, program production has never been a low-risk investment, even when the networks supposedly could take away some of the risk. For those willing to compete as producers in spite of the odds, there was really very little to lose by the rules. Quite the contrary: the 40/ See pp. 7.~8, supra. PAGENO="0625" 623 creative community seemed to welcome whatever additional risk it was taking on, and it continues to flourish in spite of, or perhaps because of it. This suggests another reason why the rules have not brought about the predicted negative consequences. With the possible exception of casino gamblers and professional sports team owners, there is perhaps no group less likely to behave like the ostensibly rational beings of economic theory than the people who create and produce television programs, par- ticularly those who have not firmly established themselves. The odds against being successful are such that, facetious- ness aside, one has to be a little bit crazy to try. 41/ Nonetheless, indications are that there are plenty of people 41/ The Staff Report generally assumes that program produ- cers and the three networks are -- to use standard economic jargon -- equally risk averse. The Report cites no evidence of this. Indeed, it appears to ignore the simple fact of life that producers must take risks of an entirely different magnitude from those which the networks take. For producers, the obstacles to success are such that they simply cannot afford to be risk averse. For the networks, even an unsuc- cessful program is not an extraordinary risk, because adver- tising revenues will absorb much if not all of the cost. The Staff Report briefly considers that producers night not be risk averse, and argues that the rules have "rio effect" in such a case because the networks will certainly allow pro- ducers to take all the risk -- i.e., retain syndication rights -- if they really want to. Staff Report at 474, note 2. This misses the point entirely: syndication rights do not carry unwanted risk which the networks assume out of generos- ity; they are a valuable commodity which the networks are eager to take even from producers who willingly take the risk inherent in keeping them. PAGENO="0626" 624 who do try. This includes minorities, women, and purveyors of nontraditional or sensitive ideas: underrepresented groups who have traditionally had trouble breaking into pro- gram production. It also includes a large number of small, independent producers, some of whom have had intermittent success getting programs on the air, but all of whom still face considerable obstacles. Cost/benefit analysis alone does not dictate the decisions of these people. Such non- economic considerations as prestige, ego commitment to a cause, and desire for exposure, even in a money-losing yen- ture, also motivate their conduct. For the Commission's goal of diversity in programming to be realized, these are the people who must have the incen- tive to remain in the business. Without them, there is a loss of creative ferment in the industry, and a diminution in the number of ideas competing to become programs. This is exactly what the rules have prevented. They have helped a few small production companies to become well-established and successful, because they were able to translate initial network success into substantial returns in syndication and subsidiary markets. Even more important, though, it is the possibility of such success --- despite the odds -- which has encouraged many others to stay in competition. Without the rules, the networks would be able to buy programs out- right, and would be particularly likely to do so when dealing PAGENO="0627" 625 with a small or untried producer. The rules,guarantee that no producer need give up full ownership of a program idea in order to get it on the air. According to many people in the creative community, this is an essential protection. 42/ Without the guarantee of a proprietary right in one's work, there would be no prospect of capitalizing on its success. Although the networks would still be able to obtain program- ming, the incentives for producers would be such that fewer of them would compete to supply it. D. More Financing Alternatives Are Available To Producers. The rules have provided an incentive to the creative community by making entry more attractive, notwithstanding that economic theory insists it should not matter. Of course, incentive alone is not enough to sustain creative competition; financial support is necessary as well. In 42/ A prominent producer is quoted as saying: "I would rather take the risk and get the reward than go into a system where they own my soul, protect my down side, but there's nothing meaningful on the upside." "Repeal Worries Hollywood," Electronic Media, Dec. 23, 1982, at 3, 22. This was the overwhelming consensus of producers interviewed during the preparation of these comments. The prospect of more finan- cial support from the networks was greeted with considerable skepticism. While the networks might finance a few new ventures if allowed back into syndication, this would amount to little more than the creation of a small "stable" of house producers, and far smaller chances for entry by anyone else. Furthermore, increased support from the networks means increased dependency upon them. If the network owns the subsidiary rights in a successful program from a new producer, the producer remains dependent on the network per capital if it is to become a continuing supplier. PAGENO="0628" 626 this area, too, the rules have had an impact. Even if the availability of network financing has diminished somewhat, other sources have arisen to provide support for producers. In4eed, the producer has many more options than before, because the departure of the networks has led to greater competition among potential bankrollers of creative ven- tures. Without question, entry into the market and procurement of financing remains extremely difficult for smaller, less- established producers. But the networks have made much of the supposed "squeezing out" of smaller producers since the rules went into effect. In fact, there is no evidence that this has happened. The Staff Report, cited in support of this proposition, actually found no significant decrease in competition among producers of network prime time programs after the rules took effect. 43/ Moreover, the Special Staff acknowledged the difficulty of ascertaining the full scOpe of competition: they necessarily focused on successful producers, and had no data to calculate the number of poten- 43/ The Staff Report cites precious little hard evidence of the harm to competition supposedly caused by the rules. It finds only the slightest increase in concentration among suc- cessful producers, most of which it attributes to the coinci- dental increase in the number of programs provided during a given year by a single supplier. Staff Report at 286. While the Report goes on to insist that the financial interest and syndication rules may have had a "small" impact on concentra- tion, it undercuts this conclusion by noting the instability of the market and the lack of barriers to new entry. Id. at 286-287. PAGENO="0629" 627 tial entrants into the marketplace. 44/ Yet the latter is critical to determining whether the marketplace is foster- ing creative competition and diversity. Some members of the creative community think that there are more potential entrants than would exist without the rules in place. The question is not easily susceptible to statistical proof. But the networks present a distorted ver- sion of events by claiming that the only competitors left are the major Hollywood studios, the networks attempt to obscure the true nature of competition in the industry. Institutional labels are deceptive in Hollywood; while there are certain companies who are clearly "major players" in production, the actual flow of creative talent is much more fluid. The major studios have their own "in-house's creative staffs, but a great deal of production is done by joint ventures between the studios and smaller independent produ- cers. It is seriously misleading to categorize these differ- ent types of transactions as representing economic and creative monopolization of production by a few monolithic studios. 44/ "[C]ompetition in the development stage is more extensive than that for exhibited programs and . . . by focusing on exhibited programs, we may be overstating the extent of concentration in program supply." Id. at 288. PAGENO="0630" 628 Quite possibly, the amount of major studio involvement in joint ventures has increased under the rules. 45/ For some small producers, this is not an attractive prospect: inevitably, they will lose some financial control and crea- tive autonomy to the larger partner. Nonetheless, there are advantages as well -- particularly when the alternative for a small producer is total dependence on one of the networks. Even the Hollywood "giants's are essentially producers and promoters of programs, not selectors and buyers. As well- established suppliers, the studios have both the resources and the credibility to take some creative risks and aggres- sively promote them to the networks. 46/ Moreover, there is some tradition of their doing so -- more so than the net- works, who are inevitably more susceptible to the pressures of advertisers and ratings. Undoubtedly, established producers have not done all they could to foster and promote the entry of new ideas and original sources of network programming. They are of course 4~t If this is the ca~, the networks must bear some of the responsibility. Much as\they may deplore joint ventures, it is often the networks whc~ insist on them in order to insure that an untried producer will producer a "network quality" program. See Id. at 26.-2\7. 46/ Id. at 53. PAGENO="0631" 629 affected by what the networks are willing to buy, not moti- vated by pure idealism. 47/ Nonetheless, some producers find joint ventures with even the largest studios to offer creative advantages. One reason for this is that all pro- ducers, large and small, operate in a competitive market- place. There is more than one major studio to deal with, and they are all quite competitive with each other. There are also small and middle-sized production companies, which have flourished, not disappeared, under the rules. Finally, there is the large network of syndicators and distributors, also beneficiaries of the rules. For the independent producer trying to sell a program, the road is still difficult, but the marketplace under the rules offers a variety of options and a little leverage. Instead of having no choice but to render syndication rights to the networks on demand, the producer can use them to seek financial support from larger, more established producers, or from independent syndicators. Similarly, foreign distri- bution can bring a direct return to the producer, rather 47/ Many of the major studios are themselves the subject of legitimate criticism for their failure to address the con- cerns of minorities, women, and other groups which have traditionally been ignored or disparaged in film and televi- sion. But the fact remains that the networks are primarily responsible for selecting mass-appeal, "lowest common denom- inator" programming which satisfies national advertisers but not the interests of underrepresented groups. PAGENO="0632" 630 than more profits for the networks. 48/ These rights are no longer hostage to the networks~ demands, but valuable commod- ities that can be offered in a competitive market. A produ- cer can solicit many sources of support instead of just one, making it far more likely that the terms will be equitable and financial control not completely centralized. All of this could easily disappear if the rules were repealed. The Commission did not take syndication rights away from the networks simply because they were large and powerful institutions, but because they were the 2!i~ insti- tutions with the ability to control nationwide programming. The networks can and will use this leverage on small and large producers alike, to the detriment of the creative mar- ketplace. Instead, the rules have enhanced the competitive- ness of producers at all levels. Large producers have cer- tainly benefited, but not at the expense of their smaller competitors. The entire industry has benefited at the expense of network power. By generating additional revenues for the creative marketplace, the rules have had subtle but important effects on creativity and diversity in programming. There are, of course, the "success stories: small producers who have 48/ Staff Report at 149, 120. PAGENO="0633" 631 have become well-established sources of programming with the help of syndication revenues. But there is also a broader pattern of creative competition which the rules have encour- aged. They provide an important incentive to producers, and they reduce the likelihood that producers will depend on a single concentrated source for their livelihood. It is of course hard to measure qualitative changes in television programming -- though even some of its critics insist that television quality has improved since the rules were adopted. 49/ That aside, however, the marketplace seems to be doing just fine under the rules. There are many sources of pro- gramming and an equivalent variety of program types. There is no indication that creative competition has declined, and the creative community has clearly benefited from the elimination of predatory network practices. 49/ See, ~ Stein, "How To Make TV Worse,' Washington Post, Dec. 5, 1982, at A24. PAGENO="0634" 632 III. The "New Medias" and the Rules In its 1982 Notice of Proposed Rulemaking, the Comnii.s- sion suggested an alternative rationale to the Staff Report arguments for repeal. Noting the wide variety of new tech- nology which has entered the television marketplace, the Commission posed the possibility that the rules are no longer necessary. The emergence of new competitors for programming, such as cable, STy, and DBS, could make it impossible for the networks to dominate the program market. Thus, the artifi- cial protection offered to producers would be superfluous: if the networks continued to use predatory or oppressive tactics, the producers could always take their programs elsewhere. 50/ The three networks have taken this rationale one step further. Not only are the rules superfluous, they argue, the rules are counterproductive and harmful to the public inter- est because they undercut the ability of the networks to compete for quality programming. Cable and other new media can pay more for programs because they are allowed to pur- chase syndication and subsidiary rights in those programs. Therefore, they can pay the "premium" which the rules prevent the networks from paying. This allegedly draws creative talent away from "free" -- that is, advertiser-supported -- 50/ Amendment of the Syndication and Financial Interest Rule, Docket No. 82-345 (rd. July 21, 1982), at 14-16. PAGENO="0635" 633 television to various forms of viewer-supported television The networks contend that if they are not allowed to compete for programs on the same terms as the new media, the best programming will soon be unavailable to those who cannot afford to pay for what they watch. 51/ This argument raises serious public interest concerns. If advertiser-supported television is indeed superseded by viewer-supported television, many segments of the American public could be threatened with virtual exclusion from the informational benefits which television provides. The threat would be greatest for the poor, and would have a dispropor- tionate impact on underrepresented groups such as minorities and the elderly. 52/ At the same time, the apocalyptic rumblings of the net- works bear close scrutiny. Historically, the networks have worked hard to retard the development of legitimate forms of 51/ See, ~ "The Unsettled Future of Free Television," NBC Memorandum (Oct.8, 1982). 52/ The networks display considerable hyposcrisy in champ- Taming interests for which they have had little concern historically. It is also demagoguery to cast the new broad- casting, and other technologies have vastly enhanced the prospects for specialized and diversified programming respon- sive to the interests of many different segments of the popu- lation. Thus, whatever the dangers that cable could deprive some of programming they now can see for free, such efforts as the Black Entertainment Network or the Spanish Interna- tional Network would not exist without cable. PAGENO="0636" 634 competition, even when network power was not seriously threat- ened. 53/ The same question arises in the present instance: is this a threat to "free television," or simply a challenge to the overwhelming dominance of the networks? The former is a serious concern, but the latter is a primary objective of the rules. The Commission must take great care to dis- tinguish the public interestfrom the networks interests. A. The Networks Indisputably Dominate the Current Television Marketplace. Without question, the overall structure of the televi- sion industry has changed considerably since 1970, and has done so in many ways the Commission could not foresee at the time. The emergence of new technology is a major part of this story, particularly in the past several years. However, nothing about the present state of the industry suggests that the rules are superfluous or counterproductive. The networks are indisputably the dominant institutions in tele- vision, as they have been for thirty years. It is simply ludicrous to contend that the rules have already outlived their usefulness because of the anticipated or postulated emergence of the new media. The facts and figures cited by the Commission in its 1982 Notice suggest a very different conclusion. In terms 53/ Pearce, The Economic and Political Strength of the Television Networks, reprinted in Sotein and Rice, Network Television and the Public Interest. PAGENO="0637" 635 of competition to the networks, the most significant devel- opment over the last decade has been the emergence of the independent stations, not the proliferation of new technol- ogies. 54/ The independents, of course, are no "threat" to free television -- they are a valuable addition to free television. As discussed previously, the growth of the inde- pendents is consistent with the spirit of the rules and is a sign of their success. 55/ The development of new technologies has, up to now, made much less difference to the networks' competitive posi- tion. The dizzying array of new transmission nodes is im- pressive, but technological potential has not yet translated into economic reality for many of them. Some of the "alter- natives" mentioned by the Commission, such as DBS and lower power television, have not even reached the marketplace; others such as MDS are mere infants. 56/ To suggest that these are already alternative markets for program producers is absurd. To predict their future impact on the marketplace is for soothsayers, not regulators. 54/ At a recent conference on the future of television, sponsored by Television Digest, "[ijt was agreed that today the primary beneficiary of [the networks' gradual loss of audience share] is not cable, but rather the independent television stations." "The Future of Television," Access, Oct. 8, 1982, at 8. 55/ See pp. 17-19, supra. 56/ Amendment of the Syndication and Financial Interest Rules, at 15. PAGENO="0638" 636 Even the proliferation of cable has not yet seriously threatened the networks. Clearly, both basic and pay cable have made a difference in the marketplace; their expansion haè been significant and rapid. At this point, though, three quarters of the television households in America still have no form of cable. 57/ The quarter that do have it can of course watch a wide variety of channels besides the net- works. But so far, many of these channels have competed more with each other then with the networks -- indeed, a great many cable services are in financial trouble. Only a few have clearly established footholds in the marketplace. There are several areas in which cable has made signif- icant inroads against traditional broadcast television. Most obvious of these areas is the first-run movie market, which has been for the most part captured by Hone Box Office and several competing pay services. 58/ The networks have also faced serious competition for sports programming, al- though they still carry most sports events of national sig- nificance. But in both of these areas, the financial inter- est and syndication rules have had little to do with the competitiveness of cable against the networks. The primary 57/ The Commission cites estimates of 23 million cable subscribers as of June 1982, or 27% of all U.S. television households. Id. at 14. 58/ Perhaps more accurately, cable has created a market where the networks could not. it is not the rules which have led to this development, but the ability of cable services to run movies without editing or commercial interruption. PAGENO="0639" 637 value of both movies and sports events comes from their initial or "live" broadcast. This is especially true for cable, which builds its subscriber base by providing movies and sports before they appear on the networks. The ability to obtain syndication or subsidiary rights is of little consequence to cable, and probably adds little to the price tag it is able to pay. In original programming, particularly series program- ming, cable has made much less headway. In this area, syn- dication and subsidiary rights can be considerably more valuable, because the success of the initial broadcast is much more speculative than it is for first-run movies and live sports events. However, cable has devoted a relatively small portion of its resources to the development of original programming, particularly network-quality programming. De- spite the advantage supposedly conferred on cable by the rules, cable services can normally pay only a fraction of what the networks pay for original programs. 59/ Some tele- vision producers have gravitated to cable for the creative freedom it offers, 60/ but few if any have left the networks because they could make better money elsewhere. Despite 59/ Producers interviewed said they could receive between a fifth and a tenth of what the networks normally pay for programs of the same length. 60/ See, ~ "Programming Shift Seen," Electronic Media, nov. 11, 1982, at 1 [comments of HBO producer who prefers creative autonomy in pay TV]. 32-540 O-84---41 PAGENO="0640" 638 several well-publicized attempts to take already established series away from the networks -- in two cases after a net- work had already cancelled the series -_ cable has simply not become a competitive alternate market for network program producers. 61/ The networks, meanwhile, show many signs of continuing health and dominance in television. In spite of a slight decline in their audience share over the past several years, largely due to independent stations, the networks continue to take the lion's share -- over 80% during prime time. 62/ In spite of a slumping economy and greater competition for advertisers, the networks have dramatically increased their advertising revenues each year. 63/ At the moment, the net- works spend about eight times as much as all of cable on programming, and they attract much of their audience from 61/ HBO has tried to obtain "Taxi" and "Hill Street Blues," while Showtime made a bid for "Paper Chase" after its network cancellation. Notably, all three efforts were unsuccessful, in spite of the fact that the bids were substantial. However, these attempts are widely interpreted as symbolic, and not indications that cable intends to produce original, untested programming on a scale comparable to the networks. 62/ Amendment of the Syndication and Financial Interest Rule, at 16. 63/ Even in a recession period, the networks are expected to increase their advertising revenues 12% to 14% this year. "Paine Webber Media Seminar Searches for Answers," Broad- casti~, Dec. 13, 1982, at 78. PAGENO="0641" 639 people who have cable or other alternatives available to them. 64/ Taken as a whole, the present state of the television industry seems to make a -case `for retention, not repeal, of the rules. The networks remain essentially healthy, as the Commission insisted they would in 1970. At the same tine, both broadcast and non-broadcast alternatives are emerging which have chipped away at network dominance but have not yet firmly established themselves. Some of this change should be attributed to the rules; some is the result of developing technology. However, the initial appearance of competition does not eliminate need for Commission concern: adninistrative remedies are not self-cancelling at the first sign that they are succeeding. Moreover, technological change cannot accomplish everything the rules were supposed to do. This argument mistakes consistency for redundancy: the rules have primarily promoted one type of competitoin, through independent stations, while technology offers an entirely different type, through cable and its companions. The two are not mutually exclusive. In facta, the claim that new technology has obviated the rules sounds suspi- ciously like a network stalking horse -- an argument which 64/ "Cable to Dominate Hollywood Buying,'~ Electronic Media, Dec. 9, 1982. at 1, 21. Even in pay cable homes, the net- works retain better than 60% of the audience during the first-run portion of their season. PAGENO="0642" 640 disguises the princapal network goal of undermining inde- pendent stations. B. ~he "New Media" Face An Uncertain Future The absence of a present threat to network strength -- much less network survival -- clearly reveals how much the question of "new media" deals with the future. This is of course perfectly legitimate: the Commission can look at trends and projections -- as it did in 1970 -- as a basis for action. However, policymaking based on projection should be carried out cautiously. In 1970, the Commission adopted the rules based on over a decade of careful monitoring of the television industry. The current debate over the impact of new media, by contrast, is very recent, because technological development has been so rapid in the last several years. The Staff Report hardly dealt with these issues; the Commis- sion first considered them in the context of the rules in its 1981 CBS decision. 65/ The Commission, therefore, is entering an area where speculation abounds and hard data is scarce. No one disputes that the new media will continue to expand: more households will acquire cable, more people will subscribe to pay ser- vices, and numerous alternatives to both traditional broad- cast and cable will become more available in the marketplace. 65/ CBS, Inc., 87 FCC 2d at 39 (Statement of Commissioners Fowler, Lee, Fogarty and Quello). PAGENO="0643" 641 In all likelihood, the changes which occur in the next sev- eral years will have an important effect on the long-term future of both the networks and their competitors. However, knowing that change is likely is a poor substitute for know- ing what form that change will take, or what consequences it will have. The proliferation of new technologies is still in such an early phase that the range of future possibilities remains wide open. This is not the picture painted by the networks, of course. In dramatic terms, they are proclaining the inevitable demise of free television as we know it in a matter of years. The major reason for this, they argue, will be the rapid ex- pansiort of pay cable, which will become the dominant purch- aser of high-'quality programs because of its disproportion- ate market power. 66/ According to studies commissioned by the networks, the gap in earnings between pay cable and the three networks will be about $3 billion in 1990. This means that all pay services combined could spend as much as $l/5 billion more on programming than the three networks com/~ined. 67/ A major factor in this gap, the networks claim, will b~ their 66/ "Free television is facing the greatest challe e in its ~many years of contributions to American culture and/society. The chalI~en~ge of this competition may be healthy, t~&it only if free ~and pay TV are placed on a fair footing. . . ~f not, the federal' government bias for pay television wi]/l increas- ingly diminish the service now av~ilable to all A$tericans." "The Unsettled Future of Free Tele ision," at 10/ 67/ "Cable to Dominate Hollywood uying," Elec~(ronic Media, Dec. 9, 1982, at 1 [citing ABC stu y]; Communic~~ions Da~y, Nov. 29, 1982, at 2 [citing NBC at dy]. // PAGENO="0644" 642 their inability to offer more to producers because the rules prohibit their acquiring syndication revenues. The result will be a siphoning of quality programs away from the net- works for the sake of a narrower, more exclusive audience which can afford to pay for them. These arguments and projections should certainly be taken seriously, but there is ample cause for skepticism about them. First, they disingenuously ignore the role the networks are themselves playing in theexpansion of new media. Each of the entworks is investing heavily in various types of new technology, and all three are exploring joint ventures with major film studios and pay television companies. This is perfectly appropriate, for it is to the networks' advan- tage to "buy into" potential competitoin and thereby control its development. But such activity undercuts the notion that the networks face monolithic opposition by forces beyond their control. Judging by the current business climate, the networks may have as much interest as any one else in devel- oping pay television at the expense of free television. Setting aside the networks' new media investments, their projections of future competition against them are inconsist- ent depending on their audience and the issue under discus- sion. In the first place, their arguments .are significant for what they exclude. Whatever the future of network com- petition with pay cable, the networks are consistently opti- mistic about their own overall future in terms of audience PAGENO="0645" 643 share, ability to attract advertisers, and profitability. They appear unconcerned with many of the other new technol.- ogi~es cited by the Commission as possible alternate markets for programs. The networks generally assume that their share of the audience will continue to decline, but very slowly -- perhaps to 70% by 1990 -- and with the overall size of the audience expanding at the same time. 68/ In short, the networks have no doubt that they will continue to be "the networks," the only institutions capable ~f consistently reaGhingthe_entire nation through televi- sion. The independents, advertiser-supported cable, low- power television and other potential competitors will largely be left tofight among themselves for the remainder of the market. Moreover, newmedia programming will by and large be more specialized than network programming, making them less l~Lkely to compete for producers of network-quality programs. This view of the future certainly does not suggest that the proliferation of technological alternatives is going to have a salutary effect on the networks, making the rules somehow superfluous. The networks profess not to be 68/ See, ~ comments of Grant Tinker, Chairman of NBC: 1Tw]e all know we're talking in our business about a smaller piece of the whole, a declining share [of audience], but because that universe is growing, we're going to absolutely [stand] about as well in 1990 as we do now. And it's going to be a dynamite business." Communications Daij~y, Dec. 6, 1982, at 8 [brackets in original]. PAGENO="0646" 644 worried by many competitors, only by one. Their new media rationale boils down to the competition they expect from pay cable. C. The Networks Are Inconsistent About The Threat Of Pay Television. However, in this area also, the networks have not been consistent. At the same time that they have been touting studies which show the apparent threat of pay cable, they have released projections which tell quite a different story. The "worst case" suggested by the networks so far projects revenues of a little over $16 billion for pay cable in 1990, compared to about $13 billion for the networks. 69/ Yet the Chairman of NBC, which commissioned the study, predicted $29 billion in revenue for advertiser-supported television in 1990, of which the networks would take the lion's share. 70/ This inconsistency is compounded by CBS' figures, which ~` project no more than $8 billion in 1990 pay cable revenues, N and perhaps as little as $5 billion. This would not put the networks in serious danger, because CBS projects their reven- ues at a healthy $15 to $20 billion. 71/ Similar inconsist- encies crop up when the networks translate revenues into 69/ Id., Nov. 29, 1982, at 2. 70/ Electronic Media, Oct. 28, 1982, at 2-3; Communications Daiiy, Nov. 8, 1982, at 7. 71/ Communications Daily, Sept. 17, 1982, at 4: Id., Oct. 20, 1982, at 2. PAGENO="0647" 645 purchasing power. One network study gives cable a $1.5 billion margin in purchasing power by 1990 -~ although it does so by lumping together both basic and pay cable. 72/ Another study flatly says that the economics of original production by pay cable are "`not encouraging'" because,~ costs will go up without "`a corresponding increase in rev- enues. " 73/ These wild variations in network projections suggest that the networks are manipulating their numbers to present an alarmist scenario for the purposes of this debate. At the very best, they suggest that the networks know less than they claim about what is going to happen, because of the large number of variables and assumptions which go into these pro- jections. However, the networks have no cause for the sort of unbridled pessinism they are professing. It is worth noting some of the assumptions that are implicit in their gloomier projections. First, cable and pay cable must in- crease their penetration at a rapid rate -- with pay cable reaching about thre'~ times its present number of subscribers by 1990. This is probably a reasonable assumption, but the networks' revenue projections then assume that all of these 72/ Electronic Media, Dec. 9, 1982, at 1. 73/ "CBS Eyes Future pole in TV World," Broadcast Week, Dec. 13, 1982, at 26 [quoting CBS study]. PAGENO="0648" 646 subscribers will pay perhaps six times as much as current subscribers do for pay service. 74/ Even if this assumption is reasonable, there is the question of how revenues will translate into buying power. Aggregate revenues will be divided among different services. How many pay services will there be, and how will they com- pete? The more services there are, the more likely that pay cable revenues -- and therefore buyi~ng power -- will be fragmented, not concentrated. Furthermore, these competing services will have to contend with each other as well as the networks. Even if viewers are willing to subscribe to more than one service at a tine, there still will be considerable competition among different services for the subscriber market. In sports and first-run novies, the limited amount of available material makes fierce competition especially likely. This casts doubt on the assumption that pay cable will be able to use its buying power collectively as a mono- lithic force against the'networks. At least one network study predicts just such fragmenta- tion in the competition, making it difficult for any pay-cable service "to challenge the networks on a regular basis.'~ 75/ 74/ An HB0 subscriber currently pays about $100/year. Assuming that there are 100 million television households by 1990, and that 45% of them are pay cable subscribers, it requires an average payment of over $700/year per subscriber to generate $16 billion in revenues for pay cable services. 75/ The Video Marketplace in 1990: Diversity and Growth in Perspective, CBS Broadcast Group report, March 1982. PAGENO="0649" 647 Aside from this, there is little evidence that the presence of the rules will make any more difference to pay cable -- or any other new technology, for that matter -- than it has in the past. Movies and sports are likely to be the continuing staples of pay-cable fare. 76/ While the amount of made-for- television programming may also increase, it takes a major leap of logic to assume that pay cable will be able or an- xious to take over from the networks in this area as well. Realistically, there is little reason for them to invest heavily in original program development, with or without the possibility of acquiring syndication rights, since their competitive position is better served by other formats. 77/ Conceivably, cable could make further attempts to "pirate" successful network series, but their ability to acquire syndication rights will not be attractive to producers, since success on the networks will give producers incentive to retain those rights. Given the contradictions in the networks' view of the future, their claims of an imminent threat to ` free televi- sion" are clearly overwrought, and more than a little suspi- cious. There is a distinct undercurrent of network optimism 76/ Id. 77/ Even if cable does invest in original programming, acquisition of syndication rights makes sense only if the programs are suitable for over-the-air broadcast. This would seem to exclude any program with "adult" content, such as nudity, extreme violence, or profanity. If cable does seek network producers and talent to produce programs which are unmarketable in broadcast syndication, the rules will give cable no advantage over the networks. PAGENO="0650" 648 present and many corresponding signs of tentativeness and pessimism among the new technologies While there continues to be rapid evolution in the new media it is interesting to note how quickly conventional wisdom about the future changes Talk of a video revolution several years ago has been replaced by talk of slow growth and shake-outs For net- work producers the prospect of a strong competing market provided by new media seems to have receded The uncertainty of the marketplace suggests another reason for retaining the rules Even if the Commission concludes that network projections are credible it cannot ignore the fact that they are no more than projections. The threat to the networks and to the public is still a thing of the future based largely on speculation in an industry that is undergoing constant and rapid technological change This change may well bring about significant shifts in the marketplace but predicting those shifts is inevitably risky when so little solid information is available. As.has happened in the past unexpected technological or economic developments can make the most reliable projections instantly obsolete Therefore the Commission should consider not only the apparent direction of future events but also the wisdom of taking action of any kind based largely on projections and speculation The pattern of rapid evolution in the market- place creates a strong argument for regulatory stability PAGENO="0651" 649 changing the rules in the middle of f fas~-moving game can contribute to further uncertainty an~ confusion. Repeal of the financial interest and syndicatio~i rules is likely to have just such an effect in the present marketplace. It will eliminate a purely speculative threat from new technol- ogies which still offer more promise than performance. At the same time, the obvious benefit conferred on the networks will enhance the uncertainty which already exists among their competitors. If the Commission wishes to promote competition, as it professes, it should consider the advice of one of its members and stop reacting to assumed dangers. 79/ As the marketplace develops, there will be ample time to deter- mine whether new technology truly threatens free' television, and to take action accordingly. 78/ Cf., Comments of Commisioner Anne Jones: `[It's) high time that the Commission stop overregulating . . . new ser- vices on the basis of their assumed threat to established services." Quoted in CommunicatiO~ Da4y, Nov. 22, 1982, at 9. Conversely, it is not necessarily wise to deregulate the networks in the face of a purely speculative and prospective challenge. PAGENO="0652" 650 Conclusion Twelve years ago, the Commission determined that the three networks were using their immense power in the program ma~ketplacce to increase their dominance over television programming, and not to serve the needs of the public. Existing marketplace distortions were increasing because networks wielded this power anti-competitively. Since the networks had benefited from the Commission-enforced reglatory structure, which inhibited competition, the Commission recog- nized the necessity for another form of regulation to protect competition. These principles apply as much today as they did twelve years ago. The dominance of the networks remains the funda- mental fact of life in the television industry. Thus, main- tenance of the current regulatory scheme promotes diversity and is in keeping with the Commission's current objectives. Repeal does not open up greater competition through the "magic of the marketplace"; it would simply allow the primary anti- competitive force in television to operate more freely. The financial interest and syndication rules have demon- strably aided the climate of competition. They have promoted more open entry into the program industry, and have created alternatives to total dependence on the fletworks. The rules can be faulted for not fully realizing t1~eir objectives, but this merely highlights the continuing power which the networks hold. The gains realized under the ruleS have been import- PAGENO="0653" 651 ant, but they are still comparatively fragile. If the rules are repealed and the networks allowed to reestablish their historical position in syndication, the progress of the last decade could easily be reversed. By contrast, the asserted public interest benefits of repeal do not hold up under careful scrutiny. These bene- fits. depend exclusively on a tenuous web of theory and specu- lation. The public interest will be proteccted, repeal proponents argue, through the largesse of the networks, who will use their expanded power to nurture new and competitive sources of programming. This analysis ignores the past history of network behavior. Alternatively, assert the rules' critics, the presence of new forms of competition will insure the networks' good conduct in the marketplace. This argument assumes a "new media" marketplace which does not now and may not ever exist to seriously challenge the networks. If the rules are repealed, the only certain benefit is to the networks, not the public. The networks will be able to monopolize another portion of the program market, while the public is left with the less than comforting assurance that private economic benefits will translate miraculously into the public good. The proponents of repeal have the burden to come up with a clear public interest justification for repeal. By advancing suspect theories and projections riddled with dubious assumptions, they have conspicuously failed to do so. PAGENO="0654" 652 Balanced a~ainst the improbable benefits of repeal, retention of the rules protects known benefits to competition and diversity. These benefits have worked in the public interest as the Commission intended. At the same time, there is no evidence that the rules have worked against the public interest in any way: they have not harmed the networks or reduced competition among producers. The asserted "costs" of retention are as illusory as the "benefits" of repeal. Current conditions in the television program marketplace argue decisively against repeal of the rules at this time. However, there is no need to resolve the questions permanently. As both critics and supporters of the rules have recognized, the television industry is in the midst of rapid and dynamic change. This evolution has not so far made the rules any less necessary, but future developments may justify their re-evalulation. Indeed, the Commission should carefully monitor the development of the marketplace, and particularly the evolution of the "new media" as competitors with the networks. The best available evidene currently points to continued network dominance, but that picture could change. As discussed previously, it is good policy to promote regulatory stability when the marketplace is volatile or uncertain. In keeping with this principle, the Commission should proceed cautiously rather than reacting to changes which have not yet occurred. For example, it needs to define more fully the competitive conditions which, if realized, would justify modification or repeal of the rules. More PAGENO="0655" 653 comprehensive analysis of new industry developments, prefer- ably by supplemental rulemaking, will help the Commission recognize and respond to any genuine threat to quality net- work programming. Similarly, gradual modification is preferable to sudden repeal of the rules. If conditions change to make the rules less necessary, a gradual response will adequately compensate for the change without disrupting the regulatory environment. Thus, the rules can be modified on a phased or contingent basis, tied to the amount of competition for programs actu- ally faced by the networks. The Commission can set limits on the networks' share of the syndication market, and then adjust those limits if it is warranted by new competition. This approach will serve the public interest far better than a hasty repeal based on ill-considered assumptions. Respectfully submitted, Andrew Jay Schwartzntarl Law Student Intern; MEDIA ACCESS PROJECT 1609 Connecticut Avenue, N.W. David Furth Washington, D.C. 20009 Stanford Law School (202) 232-4300 Attorneys for The CornmuniCa- tion Commission of the National Council of the Churches of Christ in the U.S.A. and the Office of Communication of the United Church of Christ January 26, 1983 32-540 O-84--42 PAGENO="0656" 654 I I1~4~ URBAN EUtL.I ELDERLY L~ I COALiTION April 26, 1983 Mark Fowler, Chairman Federal Communications Division 1919 M Street, N.W. Washington, D.C. 20554 Dear Mr. Fowler: The Board of Directors and membership of the Urban Elderly Coalition, on March 14, 1983, voted against the elimination of the financial interest and syndication rul es. The television networks, have in UEC's judgement, inappropriately alarmed the aging community of the alleged impact upon older television consumers if the rules are not repealed. Suggestions that the end of `free' television is close at hand, or, that programming for special audiences is not possible under the rules, are not only misleading but have frightened many elderly persons un- necessarily. We object to that kind of approach to gaining support of the aging community. The Urban Elderly Coalition is in support of the retention of the rules which have proven effective in providing opportunities for creative programming and which allow smaller production companies to participate in the program produc- tion and distribution business. This is an instance where deregulation will not encourage competition or enhance programming; it would allow for greater network control and dominance of the in- dustry. UEC's membership is made up of urban based organizations, agencies and City Of- fices on Aging serving older persons in our nation's largest cities. For many, the television is their major source of information, education and enjoyment. In the future, we believe, all forms of media, but particularly television may become increasingly important as a means of communicating special information to older people within the context of the aging service delivery system. We do not favor any resfrictions on the exploration of unique and special programming on behalf of older people. We add our support to the many consumer groups and aging organizations which have notified you of their oppoisiton to the elimination of these rules. Thank you for your attention to this letter. Sincerely, Pearl Somaini-Dayer Executive Director 600 Maryland Avenue, S.W * West Wing 204 * Washington, D.C. 20024 * 202/554-2040 PAGENO="0657" 655 ATTACHMENT III At the FCC'S oral arguments on the Financial Interest and Syndication Rules on March 14, there was a particularly Interesting exchange among Commissioners Dawson, Jones & Rivera and Chairman Fowler commenting on statements by several public interest representatives who express concern over the potential demise of free television and, therefore, the need to repeal the rules. Participants in this panel were: Favoring repeal Pluria Marshall, National Black Media Coaltion William Hutton, National Council of Senior Citizens Bill Guilford, Comma/OCC Media Department Emma Bowen, Black Citizens for Fair Media Bill Juie, Office of Media Communication for Presbyterian Church in the U.S. Peter Bommarito, United Rubber, Cork, Linoleum and Plastic Workers of America 9pposing Repeal Joseph Waz, Committee Against Network Monopoly Mary Ledding, Women in Film Samuel Simon, Telecommunications Research & Action Center A transcript of the exchange among the commissioners follows: PAGENO="0658" 656 Commissioner Dawson - I'm absolutely astounded by the: amount of education that must have gone on to get this group together to talk about the immediate demise of the three networks. I'm just astounded. I mean the scare tactics we have seen today are rather frightening. And the networks themselves talk about having a dominate position into 1990. If they're going to be in new technologies their competitors are going to be themselves. I didn't come here to take sides one way or the other in this issue. I'm here to learn from you, but I'm concerned in terms of the information that has been given out on this subject matter. Unless the information that I have on this subject is totally wrong and what we have been doing in all the new services and what I know to be the financial viability of the new technologies and how long it takes to launch them and who the major investors are likely to be there's some very wrong information going around here today,and I would urge everyone here to look further into these questions. Commissioner Jones - I would think even some of the comfl~ents by network executives today would allay alot of the fears that are expressed by this group. I admire Commissioner Dawson for raising it. I think someone has been doing a hard sell in the guise perhaps of an educational program. I think there is more fear than there need be. PAGENO="0659" 657 Commissioner Fowler - I think though that just to state the other side and just compare we heard many of the CPD people talking about the dominance of the networks we ye heard that all day too and I think that dominance may be -- there are different ways of defining dominarce Looking at the map over here where NBC reaching 68 million TV homes each week ABC 69 and I think CBS is something like 71 and some would say that that dominance is another word for efficiency Efficiency means that you provide services to people at the lowest cost and the highest quality and some would say that the networks with that dominance actually have served the peonle poor people median income people and yes wealthy people very, very well over the years And I think what they `re saying here is that some of them are very concerned at the lower end and Mr Stigler the noted economist makes the point that when you re talking about large entities that are very efficient such as automobile makers or in this case the networks and efficiencies are dominance the poor may be the ones that lose the most if you either eliminate those efficiencies or through regulation preclude them from being as efficient as they could be because that translates into a lower quality of service or higher prices And I think therefore what I m picking up from some of these people here is not scare tactics but simply an honest concern on their part We may or may not agree with that and that's uo to us to evaluate that But I think we do a diservice if we say that they're being used necessarily as tools for their scare tactics and I think we ought to be careful of that PAGENO="0660" 658 Commissioner Dawson - I didn't call them tools. Commissioner Fowler - I'm not saying that you said that, but I'm just saying that we need to be careful the other way too. I think it's valid of you to bring that point up, but I just wanted to state the other side. I don't want then to think that we're just brushing off what they're saying. Commissioner Dawson - Well, I'm rather concerned about what they're saying. I'm very concerned by what they're saying. I think that reasonable people can differ over what network dominance is, what exists and whether we are not intruding ourselves into a marketplace situation, but I'm concerned about the suggestion that the demise of over the year free television is before us and I think sugcxesting that is a much stronger statement than the economic argument about what is dominance and what a relevant market is. I think that's a much Commissioner Rivera I agree and I think that that's way Mr. Simon's points were very well taken if we uncover in this proceeding that the free television system as we know it is about to collapse then we should institute a proceeding to look into that. Comissioner Jones - I think that's the message I would want to give you too. I really don't think that you should sit here or leave here with the feeling that we are not mindful of your concerns. I think that what we're saying is we don't think that that is necessarily involved in this proceeding and as Commissioner Quello said the day that we see that as a real threat will be the day that a lot of us will be very concerned. We're not dismissing it, and we don't really think it's involved here and we don't want you to be concerned whatever action we take, that that's going to deprive you of free, over-the-air television. Commissioner Dawson - Absolutely. PAGENO="0661" 659 Mr. WIRTH. Thank you very much, Mr. Waz. Ms. Asselin. STATEMENT OF DIANE ASSELIN Ms. ASSELIN. Thank you. It is a pleasure to be here today and I would like to start off by saying that I was very touched by the pre- vious panel, their human concerns, and I know your concerns in trying to sort out exactly how these rules apply to that finally much larger issue. I know there are people in the room here who do take the posi- tion, from what they have said-I have previously been in conver- sations with Mr. Esparza, who I see in the audience, and I have read what Mr. Ochoa has said they feel about the financial interest and syndication rules. As I sat here listening to those very articu- late gentlemen, I continue to feel so strongly that their concerns are not going to be answered by the change in this particular rule and that comes out of my own experience. I am here officially today as the owner of a small independent production company which sells television programs to the net- works and as an officer of Women in Film, an organiiation of 900 professional women working in the film and television industry in Los Angeles. In those two roles I very much appreciate your efforts here in Congress to pass H.R. 2250, which would place a 5-year moratorium on the repeal of the financial interest and syndication rules. Women in Film have gone on record by filing comments and reply comments to the FCC strongly supporting the retention of the rules from the standpoint of their membership. That was a well thought out, much discussed decision and our membership cuts across the various job categories within the industry. We as an or- ganization felt strongly that we wanted to be on the side of the Committee for Prudent Deregulation. Congressional interest in this issue underlines the importance of promoting program diversity and healthy competition within the broadcast industry for the good of the general viewing public and I know the public interest is what you people are mainly concerned with here. Let me talk about my own experiences in my own production company and the business experience that I have had since the rules have been in effect. In fact, my company is only 6 years old and so I have only been in business with the rules in effect. Asselin Productions concentrates its efforts in the area of chil- dren's dramatic specials, such as ABC After School specials, which deal with social issues important to teenagers. I have also produced CBS Library specials, which encourage children to read and CBS Mystery Theatre series, which encourages deductive reasoning through the story lines that are presented. Because of the rules, I am guaranteed ownership of the programs which I sell to the networks and which I produce. I have had with the rules in force an incentive to continue to speculate on the de- velopment of these specials. What I mean by "speculation" is-let me give you an example. PAGENO="0662" 660 I produced the premiere broadcast of both the CBS Mystery The- atre series and the CBS Library specials. It meant that I participat- ed in the shaping of these program concepts with the networks and I spent a lot of time and energy before the programs were commit- ~ted to production in that effort. Both those series proved successful in terms of attracting an au- dience and they went on to win Emmy awards. These films now have a value in the foreign market, in the educational market and in domestic syndication for my company. Because of the revenues that they earn, I can reinvest in the development of future chil- dren's programing. The rules as they now stand have worked for me and as an inde- pendent I do not seek the protection that was offered on the earlier panel this morning from the networks. I believe Mr. Dunham said that small companies such as mine would be more protected under the rules and when we grew up, if we ever did, to be MTM, we would no longer want the rules. I don't feel that. I don't want that protection now. I would rather submit to the competitive arena as it stands. I believe that the rules have fostered the growth of numerous production companies like my own whose business it is to develop a variety of programs reflecting diversity of taste and style, in my case, an emphasis on children's programing. It is true that the networks continue to select which programs actually appear on the airwaves. That has been well-documented here, but if the networks were allowed to become totally free to control content, cost, production, distribution and ownership of the programs, there just would be no incentive for independent produc- ers like myself to present program ideas from which the network executives would select. I simply would go out of business. There would be no reason to continue. The number of independent producers have increased under the rules, as well as the number of independent television stations. I view that as the free marketplace. That is the way I see freedom in terms of this particular issue. I believe it creates diversity and it is in the public interest. The issue of cable has come up here and I have been asked why I can't simply sell the films that I make to cable or sell ideas in that arena. Today, my own experience is that if I were to do that, the budgets would be less than one-sixth of what the network offers me to make a film. This would make a project not economically feasi- ble for me to produce. But in the larger issue of whether-going on beyond whether my company could exist under cable as it stands now in terms of what I could sell there, I think it is more important to say that the qual- ity, because there would be fewer dollars on the screen, that what- ever positive message we are trying to pass along to children in terms of their viewing habits, it just wouldn't be feasible, just be- cause of the pure dollars offered. I obviously believe that children's specials fill a need and have a right to continue at the budgets that they now are produced at, even though those are considered low budgets in terms of the television industry and certainly very low in terms of prime time numbers. PAGENO="0663" 661 I started by saying that I have a small production company and I want to be specific about that, so you understand the kinds of people you are dealing with in terms of the broader scope of the economics of the business. The company is myself, an associate, and a secretary. I employ writing help when I need it and a pro- duction team when I am actively filming a show. But I believe this company has made a difference by initiating children's programing in the last 6 years and I look forward to a healthy industry where I can continue to do the kind of work that I have done and compete for the air time as I have done in the past. I appreciate your efforts. [Testimony resumes on p. 767.] [The statement of Ms. Asselin follows:] PAGENO="0664" 662 ASSELIN PRODUCTIONS, INC. Oral Presentation by Diane Asselin, President, in Support of H.R. 2250 before the Subcommittee on Telecommunications, Consumer Protection and Finance, Los Angeles, June 1, 1983. As the owner of a small independent production company which sells television programs to the networks and as an officer of Women In Film, an organization of 900 professional women working in the film and television industry in Los Angeles, I appreciate your efforts in Congress to pass HR 2250 which would place a five year moratorium on the repeal of the Financial Interest and Syndication Rules. Congressional interest in this issue underlines the importance of promoting program diversity and healthy competition within the broadcast industry for the good of the general viewing public. Let me use my production company as an example. Asselin Produc- tions concentrates it's efforts in children's dramatic specials such as ABC After School specials which deal important to teenagers, CBS Library specials children to read and the CBS Mystery Theatre ages deductive reasoning. Because the Rules of the programs which I sell to the network, incentive to speculate on the development of these specials. As an example, I produced the premiere broadcasts of both the CBS Mystery Theatre and the CBS Library series. This meant that I speculatively participated in the shaping of these programming concepts with the network. They proved succesful in terms of attracting an audience and they went on to win Ernmy Awards. These films now have value in the foreign market, the educational market, and in domestic syndication. Because of the revenue they with social issues which encourage series which encour- guarantee ownership I have an economic 8489 WEST THIRD STREET * LOS ANGELES, CALIF. 90048 * (213) 653-6190 PAGENO="0665" 663 earn I can reinvest in the development of future programs. The Rules as they now stand have worked for me and have fostered the growth of numerous production companies whose business it is to develop a variety of programs reflecting diversity of taste and style. It is true that the networks continue to select which programs appear over the public airwaves but, if the networks are allowed to become totall~' free to control content, cost, production, distribution andownership of programs, there will be no incentive for independent producers to present diverse possibilities from which the networ]~ may select. The number of independent producers has increased under the Rules as well as the number of independent television stati4ns. I believe this diversity is in the public interest. I started by saying I have a small production company. Let me be specific. The cc~mpany is myself, an associate and a secretary. I employ writing help when I need it and a production team when I am actively filming~a show, but I believe my company has made a difference by in4tiating children's programming in the last six years and I woulc~ like to look forward to a healthy industry where the kind of work~I have done can continue to compete for airtime. DIANE ASSELIN DA/ 5 8489 WEST THIR STREET * LOS ANGELES, CALIF. 90048 * (213) 653-6190 PAGENO="0666" 664 i~i~U~L~ NON-PROFrr CORPORATION WOE WuIERSON BOARD OF DIRECTORS ANNE1TE WELLES EVANPWES.WANIFFIANU.As. April 25, 1983 CINDY DUNNE Sn~sey JOU'INEOANTONO Chairman Mark S. Fowler Federal Communications Commission Room 814 - 1919 M. Street N.W. Washington, D.C. 20554 MARCANESATS Re: Financial Interest & Syndication Rules 5-,'- Dear Chairman Fowler: Before you complete your evaluation of the Financial Interest and Syndication Rules, I would like to underscore two points which were raised on the panel on which I spoke at the oral arguments March 14, L983. First, contrary to the views of some members on the panel the - retention of the Rules will not mean the losa of `free' television. As was apparent that day, it appears that many special interest groups, including the elderly and some black viewers groups have been convinced that the issue before the Commission relates to the life or death of network television. This simply is not the case. The networks themselves have indicated that they are economically strong. Their profits and income bave increased over the years that the Rules have been In effect. They all have a sufficient economic base to participate extensively in the new media, Including pay cable. There has been no evidence presented In this proceeding to indicate that any of the three networks are facing economic ruin. More importantly, none of the networks has indicated, were they to be permitted to become involved In the syndication of television programs, that they would reinvest the profits into network broadcasting. On the contrary all have indicated a desire to participate more fully In new media. It is irony for those who fear the loss of free TV, if the Rules are not repealed, that the windfall of income received by the networks from such syndication rights would most likely be reinvested not in network televison but In cable, subscription, and other pay services. 8489 West 3rd St.. Los Angeles, California 90048 * (213) 651-3680 PAGENO="0667" 665 But the greater irony for such minority groups would be the effect on the strong independent stations that have grown up over the years. Repeal of the Rules would render such stations defenseless against the monopoly power of the three networks-turned-syndicators. "FreeS televisors has flourished as a result of the Rules by fostering the growth of them now would be, as someone has said, like taking down a stoplight at an intersection just because there has been no accident during the years the stoplight was in place. Secondly, the Rules have promoted program diversity by promoting the growth and entry of program producers in the market place. The commission has been told that the Rules have failed to promote diversity because the networks are still the `gatekeepers5 in the selection of what programs get made and what do not. The argument goes on to conclude that since the networks continue to pick the programs the Rules do not achieve their stated goal of promoting diversity of content and therefore they can and should be repealed as surplus government regulation. The argument fails in the shallowness of its approach. The content of programming is much more than a network executive choosing among three or four items an a menu of prograths served up to him by the producers. Network executives are no longer limited to picking their fare from limited program menus, like some fast-foods junkie. The Rules, through their economic incentive to producers, have fostered the development of many new producers who bring their own taste and style to the programming menu. These producers include companies like Lorimar, MTM Enterprises, Tandem and the independent producers who affiliate with them who distinguish themselves in the creation of quality programming that audiences enjoy. As the number of producing companies has grown so has the number of individuals who are involved in creating programs for network consumption. The number of women employed in the television industry and the number of women producers has increased dramatically over the years the Rules have been in force. Women in Film's women producer members fear that repeal of the Rules will impact directly and adversely on the creative content of network programming. We believe that the repeal of the Rules will create a concentration and uniformity of creative approach to program content by forcing all but the very powerful producers to work `in-house' at the networks. (Many of our producers have already noticed an increase in `in-house' production, presumably in anticipation of repeal,) Independent producers Will be rendered mere employees, carrying out network-dictated content guidelines and concepts. The independent thinker in a bureaucracy is not rewarded because she doesn't fit in with the PAGENO="0668" 666 corporate mentality and corporate goals. It is true that the networks continue to select which programs ap~pear over the public airwaves. But the proliferation of producers has increased the variety of programs from which the networks may select. Many of Women in Film's producer members have been network executives themselves and they believe that their work is more creative and diverse once they were freed of the status of `employee' and became independent, entrepreneurial voices. Much has been made in this proceeding about the efficiency of production risk-taking which might be gained by repeal of the Rules, permitting the networks to participate in program production. Aside from the serious issue of whether there would in fact be any true compensation paid to the producer in return for givin~up syndication rights and ownership, the major oversight of this `efficient risk-taking' argument is that what may seem economically efficient will not be qualitatively beneficial. Bigger is simply not better when it comes to content. To allow the networks, with their vast resources, to become totally free to control content, cost, production, distribution and ownership of programs will silence the small independent voices of producers who might otherwise become the MTM, Tandem and Lorimar of tomorrow, serving up diverse and varied fare for the public to enjoy. TheRules have worked. They have increased the number of producers supplying programs and thereby the number of viewpoints reflected in such programs. They have increased the number of independent stations and the variety of programming available to such stations. They cost very little, if anything, to enforce and the networks have not been financially harmed as a result. The Rules were promulgated in the public interest and we believe it Is in the public interest that they be retained. Sincerely, Mary S. Ledding 2nd VicePresident MSL:cr cc: William S. Tricarico, Laurence Harris PAGENO="0669" 667 Before the Federal Communications Commission Washington, D.C. In the Matter of: BC Docket No.82..3145 Amendment of 247 C.F.R. Sec. 73.658(j) the Syndication and Financial Interest Rule) These comments are submitted for' consideration in this rulemaking process by and on behalf of Women in Film of Los Angeles (hereafter "WIF"). WIF is a non-profit organization comprised of qualified professional women with at least three years' experience in the entertainment industry. It's purpose is to serve as a support group for such women and to educate and Inform Its members and the general public regarding professional women in the entertainment industry. WIF has been in existence since 1972 and since that time has grown from a group of twel~re women to a major organization with over 800 members in 65 job categories.1 Many members have experience in more than one category and have worked in all areas of the television industry, including on screen, in development, in independent production as well as studio-affiliated PAGENO="0670" 668 production, and in executive positions at the networks and at studios. Our membership includes women who earn their living on the technical, behind-the-camera side of the business such as production managers, editors and sound recordists as well as women who are involved in the executive and conceptual side of the business (such as network and studio executives, story editors, writers and producers). Independent groups of WIF (which are not party to these comments) exist in New York, Atlanta, New England, Northern California and Washington, D.C. as well as in 15 foreign countries. Despite its size WIF is an entirely voluntary operation, funded by membership dues and fundraising events which are run during the year by member volunteers. Except for an office administrator *and her part-time assistant, no one involved in WIF is paid and there are no corporate members of any kind. Since WIF is not in the business of producing or buying television product it perhaps is unique in its participation in this, rulemaking proceeding. The outcome of this proceeding will not directly affect the continued existence of WIF as a voluntary support organization. PAGENO="0671" 669 However, the Board of Directors of WIF believes that the issues of network ownership of profits and/or syndication rights in television programs are ones which will have a direct and detrihental impact on a majority of WIF members. For the reasons outlined below the Board urges that the Commission act to retain the existing Financial Interest and Syndication Rules now under examination. In preparing these comments, the Board sought the input of those members whom it felt would be most directly impacted by the elimination of the Financial Interest and Syndication Rules. The three largest categories of membership in WIF are performers, writers and producers. Both performers and writers are covered by the provisions of collective bargaining agreements which insure that their services are paid for at not less than prescribed minimum rates of compensation. These members therefore would not be immediately affected by a change in the Financial Interest and Syndication Rules (although their ability to obtain jobs and their earnings from syndication residuals may be a~ffected). WIF's producer members, however, do not have such protection. There is no recognized union providing for minimum compensation to be payable to producers. Because of this and because producers are the ones whose profits and syndication revenues will be diminished if the Rules are abolished, WIF 32-540 O-84--43 PAGENO="0672" 670 decided to survey certain of its producer members for their comments on this rulemaking. Thirty-two producer members were selected who were chosen because of their extensive backgrounds in the television industry. Most had been in the television and motion picture industry at least 10 years, had produced both movies for television and series, and all had direct contact with the networks, many having worked as network executives themselves. These comments do not purport to provide the type of economic analysis that will be presented in other comments before the Commission. They are instead the personal comments and fears - of individuals whose livelihoods are affected daily by the networks and whose very existence may be threatened by the abolishment of the Rules. We do not speak for any corporate entity, but for the individuals who create the product which the networks accept or reject. Unfortunately, because of their dependence on the networks, many producers felt vulnerable in participating in our survey, fearing reprisal from the networks. Because of this, some agreed to participate only on the basis of anonymity. That, in itself, is a comment on the power the networks already wield. They not only control the content of programming that goes out over the public airwaves but they exert such substantial economic control over program PAGENO="0673" 671 suppliers that there is a perceived threat of retribution against those that speak out in opposition to network goals. One such producer could see the obvious extension: "My biggest worry (in the event of deregulation) is censorship. It will lead to ~~j-' censorship (on the part of the network employees)." New or controversial ideas may never be raised if employees believe they are at odds with the network's corporate philosophies or guidelines. The independent voice will vanish. In most cases, our producers were independent and unaffiliated with any studio or network on an exclusive basis. The independent producer lives, normally, from project to project. Her livelihood depends upon having enough projects in development that, hopefully, there will be at least one or two projects picked up by a network during the year. In most cases they have their own production companies (usually consisting solely of an office and perhaps a secretary and script reader) which, on a project by project basis may affiliate with a studio or a network once a production commitment has been obtained from the network. In between productions, however, they must fund their own operations from the profits they obtain from prior productions. They are not guaranteed salaries like an employee but are, instead, independent contractors. PAGENO="0674" 672 The distinction between being an employee and being an independent entrepreneur was mentioned many times in our survey. Producers take financial risks; just as in any business, their day-to..day overhead is not covered by anyone except themselves; when they make a deal with the network to produce a show, the license fee is fixed and if the production costs exceed the license fee, the producer must provide the deficit, whiøh could amount to hundreds of thousands of dollars. The potential of having to supply such deficit funds is a very real risk that producers face day-to-day. To actress-turned-producer Susan Clark2 it meant she and her husband had to mortgage their house, their cars and their savings to provide the completion bond for the television movies they produced. They were literally risking the roof over their heads to create projects about which they felt strongly and which they could own and control. Yet the elimination of the Rules will mean that the profits and program ownership from such risk-taking will now have to be shared with the networks who don't assume such risks. Producer Naney Malone3 put it "Why should our business be different (from other businesses). We need profit for research and development just like other businesses. If you make shoes you use the profits to buy leather to make more shoes. Anyone who knows anything about how American business is run understands PAGENO="0675" 673 this.. .you must have profit to continue. You need money for raw material and our raw material is developing new ideas for shows." Another producer stated "If the rules are overturned, the less powerful producers will suffer. You risk so much along the way in developing product that doesn't succeed, that when you finally get a winner it's only fair that you should be able to reap the profits, not have the networks take it away." Many producers pointed out how the networks are currently increasing the risks that producers have to assume in order to get a show on the air. As indicated above, the networks do not assume the risk of production costs exceeding the license fee. There may be a multitude of reasons why a production may go overbudget, including weather, performer disputes, creative delays and simply underestimating the cost. Lin Bolen,~ a former network executive turned producer, pointed out that it is very hard to make a pilot these days without deficit financing on the part of the producer, the studio, or some other independent sour~e. The networks have reduced the size of their pilot fees, she says, and because a single unsuccessful pilot is impossible to be used in syndication it means the risk a producer takes is all the greater. PAGENO="0676" 674 Bolen also pointed out another increased risk in that the networks have made numerous deals with their series actors, guaranteeing them acting commitments in unnamed television movies. The commitments often include commitments to engage the actor's manager or associate as executive producer, for example, and commitments for costly perquisites. When a producer develops a project for such stars, Bolen says, the networks often do not cover the cost of these additional commitments; the producer must absorb them within a fixed license fee, again increasing the risk of going into deficit. Since such commitments to stars are really a cost incurred by the network in connection with obtaining the stars' services on a series it is another instance of the networks' current business practice of increasing the risk which producers are required to assume. Rather than absorb such costs the networks would rather lay them off on the producer. Another example of how the networks increase the risk to a producer is the increased use of short~~orders (e.g. an order of four to six episodes) on television series. Fern Field5 pointed out that orders for fewer than 13 episodes of a series preclude a producer from making long~term deals for facilities and performers, thereby increasing the cost of production and the risks associated therewith without a corresponding increase in the license fee. PAGENO="0677" 675 Produces a'so pointed out that a network will increase a producer's costs by involving itself in the engagement of actors on series. A network may, for example, direct a producer to hire a particular star for a role against the producer's wishes. Even if the network agrees to pick up the differential In salaries between that star and the one the producer wanted, the network may have in fact taken away the producer's leverage and ability to control the star. Once the actor is aware he or she is "indispensible" to the network, he can become unreasonable, arriving late, causing production delays, making creative demands, all of which can lead to production overages which the producer must bear. The Commission has requested input on whether the rules restrict the ability of the networks and producers to freely allocate risks and rewards in program production and distribution. As can be seen from the above comments, none of the producers surveyed expressed the opinion that the risks were fairly shared with the network. Most felt just the opposite, that a network would take every opportunity to lay-off risks on the producer. No one that was surveyed expressed any belief that the networks, if entitled to participate in ownership, profits and syndication rights, would increase producer fees up front in PAGENO="0678" 676 return for participations in those areas. Instead, the feeling was that "The networks want it both ways, they want it all. It's contrary to the free enterprise system" according to one producer of a 1~it television series (who asked not to be identified for fear of network reprisal). "No matter what they get in advertising revenue, no matter what they save in deficit, THEY WANT IT ALL.. .. .The networks don't reward you if the series sells you don't get a greater license fee now if it succeeds." She believes that since you can judge the future by what has happened in the past, there is no reason to expect that greater financial benefits would be offered to her by the networks in return for profits or syndication rights. "You have to judge the future by the past and we know they take all they can get". Many producers surveyed felt the elimination of the Rules would mean that the networks would take away the profits these producers had struggled so hard to achieve. "It's anti..incentive in a sense, anti-entreprenuerial. almost un~.American" said one. "It you take 90% of the risk and do all the work, you should be able' to take the profits," said producer Bonny Dore6. "By repealing the Financial Interest and Syndication Rules, the FCC is striking a blow against free enterprise" echoed producer Cynthia Cherbak7. Participation in profits was, as Cherbak put it "My only form of residual as a producer. Participation in PAGENO="0679" 677 profits Is my future.. .participating more fully in profits is my goal. To deny me this opportunity by returning the entire control of profits to the networks denies me the goal that I have been working for my entire career." Producer Lillian Gallo8 put it "I believe in the American dream. On my first two films I worked `in-house' for the experience. But as you accumulate knowledge and experience your efforts should let you grow and develop and profit." Most producers felt that the elimination of the Rules would result in their either going out of business or else in their becoming employees of the networks, producing network-owned shows. They did not believe they would continue to operate as independent producers because they felt the networks would take 100% of the profits. In their minds, the distinction between being independent and being an employee has a qualitative Impact on the resulting television programs. As Malone put it "If you give birth to a project you must see it to adulthood. If deregulation oocurs the network development employees will produce all the shows and even in the best of circumstances a few employees just can't be as committed or get quality when they are overseeing several projects at once." Gallo said: "If you take the initiative and take the creative gamble - working with a passion - It makes a difference In the product. This involvement PAGENO="0680" 678 and commitment to television is in the public interest." Bolen saw a direct impact on the public: "The FCC must look at the impact on the community. If they care about what goes over the air and about the people in this country who cannot afford to pay for cable services arid only have the network supplied programming, they cannot deregulate. We will see a reduced interest on the part of the networks for supplying quality programming. It will be a cost-control business at the expense of quality." Gallo added,"The number of network executives will increase but the ideas from which programming originates won't come from as broad a base of people. The ideas will be restricted to the point of view of the few executives at the network. With the rules there are opportunities for larger numbers of professionals to come to the networks and have their ideas heard." The positive effect that the profit incentive can have on the qualify of programming was pointed out by one producer with respect to the television series "Paper Chase". The series was created for a television network as a spinoff from a theatrical motion picture. The network series was a critical success but fell upon low ratings and was cancelled. If it had been owned or controlled by the network it probably would never have been syndicated since too few episodes were produced by normal PAGENO="0681" 679 syndication standards. Yet the profit motivation on the part of the studio which produced it, led to the series being re-run on the Public Broadcasting System, thereby reaching a different audience than that nf the networks. Now the same series concept has been sold to cable television as the basis for a series produced directly for cable thereby reaching still another audience. In view of the hundreds of series that have been produced and cancelled never to rise again, the three lives of the "Paper Chase" series can only be attributed to an astute and persistent evaluation of the program concept on the part of its producers, coupled with a profit incentive. If the series had been created originally by a network in-house employee whose major objective was to get ratings it never would have gotten further than cancellation. All of the producers responding to the survey felt they had benefited both directly and indirectly from the Financial Interest and Syndication ~ulez. Some had overall deals with studios and, through the studios' increased syndication revenue, were guaranteed by the studio an annual salary in return for exclusivity on all of their projects. Others did not participate directly in profits from shows they produced but participated indirectly through employer profit sharing plans. Most however, were truly independent, with numerous affiliations with a variety PAGENO="0682" 680 of companies that have prospered from syndication revenue or have only recently entered the syndication or production business, enticed by the expectancy of future profits.9 Many pointed out that in addition to greater opportunity for producers such as themselves, the rules had created more jobs for other women - and men, of course in such areas as story development, creative and business affairs executives, and distribution executives, since all of these new companies had to staff their operations. WIF has, for example, over 50 members in the development/story editor job category, the majority of which work for small, independent companies. Abolition ofthe Rules would mean the loss of many of these jobs, since many production companies would go out of business. Most producers felt that the majority of programming would then be produced "in~~house" by the three networks, on a purely cost..criented basis. Many producers noted that the networks were already expressing a desire to produce projects "in-house". One producer (who did not want to be identified) related "At a network's insistance I was told they wanted a new project of mine `in- house' and would give 25% of the revenue (this was for a movie of the week and possible series). It was made very clear that they did not want to work with a company. I understand that mine is not an isolated case - that the networks are anticipating PAGENO="0683" 681 deregulation and most orders going out Eire `in-house'." Another producer, had the same experience. Having produced two movies of the week, *the network wanted the next project to be "in-house", saying "Two for you and one for us would be a nice way to go." In her case the network offered her 25% of the profits. (We assume that in both cases the arrangements proposed by the networks were consistent with the Rules and applicable oonsent decrees. The technicalities of how much profits or revenues were to be computed and how syndication rights were to be disposed of were not made available to WIF). We believe it is important to note that in both cases the network had determined that 75% of the profits was an appropriate share. for the network to retain and indicated no willingness to negotiate a greater share for the producer. In adopting the Rules in 1970, the Commission based its action in part upon the fact that the networks were participating in the profits from syndication of series shown on their air in 65% of the programs examined.10 The percentage of interest in profits in such cases varied but the average domestic and foreign profit shares obtained by the networks were less than 35% of the profits". Today, the networks are retaining 75% of the profits. We cannot understand how the Commission could believe that twelve years ago PAGENO="0684" 682 an average of 35% of the profits was too large a share for a network to retain yet can consider eliminating the Rules today when networks are already demanding 75% of the profits on "in- house" projects. If the Rules are eliminated there is no reason why the networks will not continue to reduce the percentage of profits offered to producers. Before acting upon the instant rulemaking, we ask that the Commission examine more closely the current business practices of the networks regarding "in-house" programming as an indication of the manner in which networks will conduct their business if the Rules are eliminated. One thing that hasn't changed since the adoption of the Rules appears to be the networks' preference for their own programming over programming owned by third parties. In 1970, the Commission noted a direct relationship between new programs chosen for network schedules and network acquisition of profits and syndication rights.12 Today the same relationship appears to exist with "in-house" programming. Dore relates "The networks listen to an idea for a MOW from an independent, then say `Would you like to do it `in-house'?' If you say `no' you get no pick up. If you say `yes' you magically get picked up." Still another producer who declined to be identified mentioned the increase in "in-house" development. PAGENO="0685" 683 "It's terribly unfair" she said. "It means they stand to make more profits from their own shows so they will choose their `in- house' program over third parties' projects. You can't be a buyer and a seller at the same time and remain truly competitive." The producers' worry over "in-house" production of programs was not merely financially based. All feared that the quality of programming - the variety and diversity of programming - will deteriorate if the networks are allowed to control the profits, ownership and syndication of programs. The general reasons for this fear were that so few people had the ultimate power tø make decisions at a network. One former network executive who is now a producer put it "There are about six to seven people at each network making the final determination .. . The networks will rule out entire areas or topics which may be important issues. (If deregulation occurs) you would have to pander to what these six to seven people want to see." She felt that her ownership interest in her series made her fight hard for issues or characters she believed in. If she were forced to give up ownership to the networks and become their employee she would have no incentive to fight; she would end up in a position of self-censorship since there would be no reason to fight against corporate policy - a team player plays by the PAGENO="0686" 684 team's rules. For example, one producer related how, on a show she was line producing, a dispute had arisen with the network over changes the network required in one scene which the executive producer/owner felt were necessary to the content of the scene. The executive producer elected not to deliver the program rather than make the change the network requested. Ultimately the program aired without the change. Had the producer been an employee of the network he would not have had a choice in the matter, he would have had to follow instructions from upper management. The difficulty of selling a network on a new or controversial project already exists, but most producers felt that the situation will worsen if the Rules are abolished. "The networks go for the bland, the non-controversial.. .to them, an empty record is the best record. To say `no' is safe." Another ex-network executive, now producing, felt that currently the networks.are predominately interested in titillating subject matter. "Only sexually related `hot topics' get picked up. Also single people and marriages-in-trouble are `hot' but solid. marriages are not. Good projects get cancelled if another network does a project on the same topic (albeit poorly) and the first project doesn't do well in the ratings.. .You can't do projects featuring blacks or senior citizens, for example, unless PAGENO="0687" 685 you have a major star attached to it." Another producer had a project involving a Mexican as the main character which was turned down: "Tacos don't get numbers" was what the network executive had said. If the Rules are eliminated and if as feared by the producers we surveyed, many of the smaller independent producers go out of business, in addition to the loss of jobs that will result will be a consequent loss of diversity in programming. If 50 development personnel, story editors and producers lose their jobs it is the loss of 50 different points of view as well. It is the diversity in approach and outlook that allows for creativity and quality in programming. This is most often mentioned in the theatrical side of the business, in stories relating to how many studios passed on projects that became block..buster motion pictures such as "Star Wars" and "Jaws". But the same principle applies in television. Today, network television projects can be developed by any one of a number of independent producers and studios in large part due to the financial independence created by the Rules. There are simply more places a writer or producer can take his project in the hope of finding the best creative development approach. If many of these independent producers and studios go o~t of, or diminish their involvement in network television, the number and variety 32-540 O-84--44 PAGENO="0688" 686 of places where ideas may be taken will be much more limited, resulting in a more limited variety of programming on he public airwaves. Coupled with the fear that controversial or creative programming will be lost is the feeling that the networks already exert excessive control in the creative process (in addition to the control *exerted in financial areas). If the Rules are eliminated one producer felt that the resulting decisions by committee which are in effeot at the network will result in bland programming. The current process is more healthy, she said, since at least the more powerful independent producers and studios can bargain more freely and "fight it out". Many producers believed that the networks currently function as executive producers on shows produced for their network. In casting, directing and writing areas the networks already exert substantial power. Mutual approval of casting by both the network and producer is normal, often resulting in the loss of bargaining power by the producer, as discussed above. Networks can and do demand changes in the screenplay, the writers and the director. If the Rules are eliminated and the incentive of the independent producer thereby struck down, WIF believes there will be a resultant impact on other categories of WI? membership, PAGENO="0689" 687 including writer, director and performer members. The proclivity of the networks to rely on statistics such as Nielsen ratings and concept/personalitY testing in determining the selection of artists and the existence of so-called "network-approved" creative personnel is well-known. Without the independent advocacy of the independent producer/owner, arguing with the network for new faces, new directors and new writers, we fear that access into network television will be diminished for such newcomers. The networks will, of course, desire to develop new talent as they have in the past, but without independent voices spurring them on, we fear that the rate of change and growth in the number of performers, writers and directors who are "acceptable" to the network will diminish, with a resulting impact on the quality of programming. The inherent and beneficial conflict between independent producer and network was summed up by one producer who left the network because of differences of opinion with upper network management: She thought the producer should control the productiøri of a show and her management thought the network should control it. She said: "Now the networks have total creative control. If they were to own (programs) too they would have even greater control. Even if the networks call themselves partners with the producers it would not be a true partnership PAGENO="0690" 688 because the precedent of total control already exists." We believe this points up the fallacy in the Commission's approach that elimination of the rules will better allow the parties to allocate the risks and rewards of program production. An individual producer is simply not powerful enough to negotiate on an equal basis with a network. It is an unequal situation now. The comments above illustrate that the networks have not shown any interest in bearing any of the attendant risks of production, and have in fact shown a tendency to allocate those risks to the producer. Given that inequality, none of the producers surveyed expressed any belief that the networks would step back from their position of power in negotiating deals in the future. The networks already command 75% of the profits on "in...house" deals, and no one expects the networks will bargain for anything less than all they can get. With an independent producer, all the networks can get is everything. WIF believes the existing Financial Ir~terest and Syndication Rules serve the purpose for which they were intended. We believe independent producers have become stronger and their numbers have increased over the years that the Rules have been in force. As a result the quality and variety of programming has also increased both in terms of its creation for network telecast and its subsequent availability for independent syndication. We believe PAGENO="0691" 689 the Rules therefore, have benefitted the American public by creating more and better quality programming and we urge the Commission to act to retain the Rules in full force and effect. Date: January 2Z, 1983 Respectfully submitted, WOMEN IN FILM, LOS ANGELES -~ L - Phylis Geller, President 8~489 4. Third St. #149 Los Angeles, Ca. 900148 By~~~4 ~ Mary S.'~edding, 2nd VicPPresident 10202 W. Washington Blvd. Culver City, Ca. 90230 PAGENO="0692" 690 FOOTNOTES 1 A list of Women in Film job categories and members who have experience in such categories is attached hereto. 2 Susan Clark is an actress and producer who has been in the TV business since 1967. With her husband, actor and producer Alex Karras they have produced 3 movies of the week, "Jimmy B. and Andre", "Word of Honor", "Maid in America". Clark has also appeared as an actress in over 20 motion pictures. 3 Nancy Malone is a producer, director and actress. She has produced numerous television movies including "Sherlock Holmes in New York" and "Like Mother, Like Me". She has also produced such television series as"The Nurses" and began her career as an actress at the age of 11. Lin Bolen has been an independent producer for 6 years. During her career she has developed and produced TV series, movies~of.the week and mini~.series for all day parts of the TV day, i.e., daytime, primetime, late night. She was Vice President of daytime programming with NBC from 1971 to 1975 and has been in the business for 20 years. As an independent producer she spent one year in association with Fred Silverman's Intermedia Entertainment Co. 5 Fern Field - has been a writer and producer since 1975. Her credits include after school specials, the syndicated series "The Baxters", the CBS TV movie "Eleanor, First Lady of the World", and the ABC Emmy Award program "The Wave". She has also worked as a staff producer for Tandem/TAT since 1975. 6 Bonny Dore - is President of the Grief-Dore Company, an independent TV and motion picture production company. She was an executive with ABC from 1975 to 1977 and thereafter a VP of Kroft Entertainment and Centerpoint Productions. She has developed and produced network primetime series, MOW's and children's programming, as well as syndication programming. 7 Cynthia Cherback is a writer and producer who has been involved in the TV business since 1973, during which time she has written MOWs, mini-series and pilots for NBC and CBS. She has also served as supervising producer of the TV series "Harper Valley PTA" and associate producer of "Switch". S PAGENO="0693" 691 Lillian Gallo has produced numerous MOWs including "I Take ir~ese tlen" (a humorous look at married relationships), "Fun and Games" (an examination of sexual harrasement); "Hustling" (an expose of prostitution), "A Stranger Who Looks Like Me" (which chronicled adopted childrens' search for their biological parents), as well as many others. She was also Director of Movies of the Week for ABC and an executive at 20th Century Fox, as well as a producer for MTM Enterprises. 9 A partial li5t of such companies is as followa: EMI Television Krof ft Entertainment Inc. Viacom Enterprises Tandem Productions Inc. Group W Tisch/Avnet Productions Inc. PolyGram Television Alan Landsburg Productions Lorimar Productions Metromedia Producers Corp. Chuck Fries Productions Playboy Productions 10 FCC Report and Order, FCC 70.-1466; 146636 paragraph 8. ~ See Table 143 of Television Program Production Procurement and Syndication: "An Economic Analysis Relating to the FCC's Proposed Rule in Docket No. 12782, Vol II. which was submitted by the networks in connection with the FCC's 1965 notice of Proposed Rulemaking considering implementation of the Rules (FCC 65.227, 30 F.R. `065). 12 FCC Report and Order, FCC 70-1466; 146636 paragraph 19. PAGENO="0694" 692 WOMEN IN FILM I~OB CATEGORIES Acc~inting/FinanCe Advertising/Market inp Agent Literary Agent Music Agent Talent Agent Other Animation Art (liiecticn Assistant/AssoCiate flirector Assistant/Associate Producer Attorney Business Affairs Network Business Affairs StUdiO Business Affairs OtP~r Camera Film Camera Tape Casting Chore~raDher Coath cow~oser/flrra'~gcr Costt~ne Design/Wardrobe ~ve1oDment/Story £d~tor Director Editorial Film Editorial Tape Editorial - Music Editorial So~'d Educator/Lecturer/Librarian Electrician/Gaffer Event Coordinator Executive Cab1e/~ay TV Executive Network Executive Studio Executive Indep. Cev./~ruductiofl Executive 0tf~r Film Conm~issiOnerS Graphic Oesigrs/ArtiSt GriP Guild/thirln/Org. RepresAntat !ves Hairstylist Journalist Film/Tare Journalist Print Lyricist/SOnGwriter Makeup sanagement/Persoflnel Musician Performer Personal Manager Pt~oto9:3Pher Pioducer Production Manager/SLVerViSot ~todct Inn Personnel/Coorc4./ASSt. Project iuni St Publicity/Pro.'~OtiOfl Publishing Radio Research SaJeA/DiStributiOn Script Supervisor Set Oecorat ion Spund Recording stage Man~ger/rlOOr P4gr. Stuntwoman Talent Coordinator Theatre Writer Writers Services PAGENO="0695" AGCOUIrIM'/FINRPCE Albert, 1'udrey Childress, Joyce OeThcseas, Anita Dyson, Charlotte Fields, Lilian Golden, Paulyne Gonzales, Martha Crosso, Nikki Allyn leveriaie, ~arv~tne Kennedy, Beth Lyle, Barbara Mastro, Joyce Robbins, Joni Wakefield, Carol ADVFRTISINC/MARI~ETIPG Alexander, Stephanie Bo~ert, Zepha Buzzell, Linda Carfart, Linda Den Hartog, Pam Ergeison, Dale Fox, Kara Joseph, Sandra Klausner, Willette Lane, Camille Miller, Freyda Mudge, Barbara Peterson, Eileen ~~1man, Karen Rose, Sharon:. Rubin, Sharon Sutton, Mel 1ssa~ Travil Lion, C~rinne At~NT LIITERAPY Berneechi, Shauna BLitmen, Nsn Brown, Juanita Carol, Jo~Ann Chandler, Rita Chssman, Tanya Cornell, Polly Gary, Lorraine Hirsch, Sylvia Iser, Oeverly Joseph, Flo Karlan, Patricia Lake, Candace Lam~reeht, Marcy Strick, Shirley Wallerstein, Michele AGENI. MUSIC Faith, Carol Joseph, Flo Llr*e.E1li~, Maci AGENT TALENT Blanchard, Nina $lit"Wn, Nan Chandler, Rita Davis, Diane Mutchirson, Beverly Joseph, rip Joseph, Sandra Uchtman, Terry Penman, Laurie Preston, Maggie Rr,ber~s, Uancy Ross, Eleanor Schoen, Judy Wltkln, Francine AGENT OTtER J"seph, .F1O Ror,erts, Nancy ANIMATION Dennis, 3. .Ncél~ Dixon, Dianne.. K~rry, Margiret *R1 DIRECTIO~1 Abbott, Cami~1e (thus.) Runney, Sharon Cotwin, Alexandra Hadfleid, Perwy Miller, Freyda Roth, Dena Sh~e1ds, lie Blecter, rlorcnce Dobrow, Joelle Dowrey, Cheryl Fox, Maredith Ellen Gerber, D3Isy Grigg, Ginger Gzuber.Blackmafl, Karen 693 ASSISTANT/ASSOCIATE DIREITOR PAGENO="0696" ~!~YA~T/ASSOCI~rE DIRECTOR (cont'd) Kim, OkSL$~ Maffco, Cayle Nelson, Janis Rothenberg, Betty SInv'~ons, Linda Wal~iian, Leslie Wigie, Shari Lynn 694 ~S1S1AN!LAS$GCIMTE PREX$LtER (cont'd) SL.mnels, Cathleen Thornton, Corthita Weintraub, Amy NUde, Dorothy Anderson, Adrienne Chia Arc, Kathleen Austin, Stephanie Baharic, Carol Ballard, Christine Bennet, Barbara Allyne Bigelow, Penny ~leehar, Florence Brown, I. Bonnie Carv~n, Hana Carter, Beverly Carter, Pamela Charles, Sandy Cha'~1n, Perrj Chaulnaid, Carole Crchran, Lisa Demiery, Yvonne Dillon, Rita Elman, 8art~ra cImiay, Dolores Foiter, Su~ana fez, Meredith El1~n Gilbert, Irene Galand, Marlene r.ruber_alackman, (a zen Hartley, Doris ~kin~, Anne ~tatch1n~~n, Canny Caruso Jarian, Bonita Bonnie' Karrin, Bonnie Kl~*y, Carol Kim, C~s~.r l.enti, Susan Llnke.Eli1s, P4ancI LwNard, Pa'4a HaUeo, Cayle Horea, Darien Nelson, Donje Nick, Betty O'Neill, Susan *Ockett, Elaine ~tUy, Sara ~5S, £lear~ $~IJKifl, Jasaica ~ Marilyn SlrC1*t~, Dorothy Smith, ~ Aciand, Nor'na Baldwin, June Beredek, Melinda Bfltman, Nan Contes, Carol Denkert, Darcie Dornstein, Judith Cohen Free~an, Fran Gottesfeid, Sharon Grode, Susan Heath, Leanna Johnson Munt, Jan Kalins, Dayna Keller, Micheline Kennedy, Beth Landau, Edie Levin, Evanne Lynn Lichter, Linda Marshall, Meryl Merians, Judith Murphy, Midge Noddirqs, Sarah Richards, Leslie Shaffer, Tobey Snyder, Jacquelyn Gail Surpin, Shelley Warshaw, Christine Weller, Elizabeth Wilson, Heavenly Koh Wilson, Margaret (Mnlly) Zolt, Nina Baldwin, June Hood, Valerie Sage Merians, Judith Murphy, Micige Razo, CamIUIa Sny~1er, Jac~uelyn Call Denkert, Darcie (.arzilli, Jane Mealy, Patrj'~1a HLmt, Jart Jurist, Lorrayne ASSISTANT/ASSOCIATE PRCOL~%IR ~JSDESS AFFAIRS NETWORK ~JSDE!S AFFAIRS STICID PAGENO="0697" 695 BUSINESS AFFAiRS - STWIO (cont'd) ç~T!P4 (cont'd) Ledding, `Wary Lesser, Su Levine, Jotvina Pamkowski, Yikki Sledlecki, Agnes Wilson, Margaret (Molly) JS1PfSS IFFAIRS Albert, Audrey Carrell, Martha Chaobers, Arline DeThornas, Anita Golden, Paulyne Kerry, Margaret Klein, Barbara Richards, Leslie Warshaw, Christine Bahoric, CArol Midas, Lida Mill, Leslie Zheutlln, Cathy CAtERA FILM CNERA 1N~E Le$4oven, Dinah McCor~nick, Mary Marsall, Jacqueline Reidel, Jody Zheutlin, Cathy CASTING Appingate, Phyllis Bennet, Barbara Allyne Bigelow,. Penny Brown, Jeanne de Vi vier Glucksman, Margie Guest, Jell) Holle, Merita Hoistra, ~idith Majston, Labame Jotvson, Kathleen Kay Kelsay, Carol Long, Beverly Mclean, Doreen (Dodic) Newell, Claire Remsen, Barbara Dodd Robinson, Joyce Ross, Eleanor Ross, Marcia Shelehov, Ursula Soskin, Carol Watson, Robyn Korwin, Oevra Indrews, Jennifer Bennett, Fran Bridges, Betty Chauvin, Lilyan Dietrich, Dena 0cm, Dolores Edwards, Rona Fury, Loretta Gobetti, Maria Kanter, Abbe Kiechie, Suzanne Kondazian, Karen. Korwin, Devra Mancini, Joyce Pointer, Priscilla Roberts, Tracy Rose, Laura Lea R~ln, Brady Tobias, Marice elide, Meta C0,'#CSER/MRRNGER Belle, Barbara Connors, Carol Donovan, Lisa Ann Greene, Nancy Lee, Beth Morley, Angela 5~~~rof F, Andrea Schock, Harriet Schwartz, Nan CDSTt~ DESI~4I'WARDR~ Doctor, Jane Ewatt, Carolina Jenssen, Elois Marcher, Jane Miller, Freyda Phillips, Erica Roy, Hazel PAGENO="0698" 696 ~y~LOP.~NT/5TORY EDITOR ~IRECTOR Arandjelovich, Karen Arc, Kathleen Arnoldi, Natasha Austin, Diane Barrett, Karen Bigelow, Penny Brantlinger, Dolores Breese, Eleanor BrnccoU, Dana Wilson Brnokt~, Hind! Brown, Piona Parnselee Brun.Ccttan, Francoise Chasm, Perri Ch.icerman~Saperstein, Irene Cobb, ~nny Craig, Susan Daniels, Lani Davis, Andrea De4coven, Lindy Dillon, Maria Doratahoo, Terry farnsworth, Teresa Clibert, Irene G~mf~1no, Lee Schafr Horton, Winter Howard, Cwendolyn Wyman, Terry Isenberg, Lynn Johnson, Kathleen Kay Jordan, Bonita "Bonnie" Kanter, Abbe Kerry, `~rgaret Liowan, Carol Sue MoCord, Gloria Walone, Nancy Merle, Sara Meyer, Nancy Ner',a, Darien Nelson, Donje Nelson, Janis O'Neill, Susan Peterson, Eileen Rahtnowieh, Ellen Roc1~ett, Elaine SCIURan, Jessic* Sger, Ur~ia $etloee, Beverly Slenker, Marilyn Sl'lelde, ha Sloan, Dolores SQi~~, ldRy SUMrs, Cathimen ~~Off, $Xsala 1.tson Rnbyn 1ilO,, Dorothy `t'Chestar Nargot Albrecht, Joie Allen, Penny Apick, Mary Back, Karen Ballard, Christine Binder, Judith Birch, Miriam Brickell, Beth Carr, Betty Ann Carter, Lynne Cason, Barbara chaikin, Judy ch~uvin, Lilyan cho, Renee Clearfield, Anita Dallwitz, Ann Dean, Margo Deitch, Donna DeKoven, Lindy Dobrow, Joelle Feinstein, Lisa Field, Fern Fury, Loretta Gardner Don Jean Gerber, Daisy Gibbs, Ann Gilbert, Sue Gobetti, Maria Greene, Nancy Names, Randa Harwood, Raven Haymer, Susan Miii, Leslie Hoffs, Tanar Simon House, Karen Houske, Marta Houston, Labame Howard, Karin Jassiin, Llndi Kahn, Ilene Kanter, Donna King, Claudia Korwin, Devra Laird, Marlena Lander, Diane Lavin, Linda Lee, Joanna Littman, Lyrne Litin, Natash3 Lucchesi, Jasmine Luck, Thu HoCormick, Mary Malone, Nancy Marlyn, Audrey Martei, Tasha Mock, Freida Lee Morgan Mossman, Merrily Nervig, Sandra Oliver, Susan Perreau, Gigi PAGENO="0699" DI~CTOR (cont'd) 697 kPIT_CRIPL TAPE (cont'd) Rar~x~, Timrm Reldel, Judy Roberts, Tracy Rus~ll, Pat ScPw,ltz, Barbara Shoshana Shar*lin, Una Sha,*s, Ann ZarW 9~rwood, Celia Shirwi, ~4ar~aret Shi(~ey, Susan Smitaan, Susan Sol~n, J.T. Stevis, Stella Stratton, Susan Krauss Tobias, Marice Tyler, Gmmy Wiser, christine Zurbach Wolf, Rhnett Zheutlin, Cathy ~iTCRIAL. FILM Allan, Dede Carollo, Sylvia D'Antanio, Joanne Oeitch, Donna Dennis, Baa Finkle, Claudia Grand, Eleanor Hanson, Ellen Model, Terry I~arato, Noelle Jotnsai, Christie London, Helyn Spears Marcit*us, Susan Marks, Barbara Moore, Millie Nervig, Sandra Paul, Millie Pettit, Suzanne Pokras, Barbara Reidel, Judy Roland, Rita Pettlt, Suzanne Reldel, ).idy 81.1, Joan Marks, Barbara Nervig, Sandra EDITORIAl. MUSIC EDITORI*J. - D'Antonio, Joanne Finkie, Claudia Model, Terry Marks, Barbara Bacal, Nancy Barry, Patricia Brown, Mona Parmelee Carrell, Martha Chambers, Arline DU1T~hOO, Terry Feinstein, Usa Mause, Sharon Wilkinson .~nssen, Elois Kazadi, Camille McCord, Gloria Marks, Barbara Marsall, Jacqueline Miller, Pat Myles, Betty O'Brien, Sharon (Sam) Peyser, Lois Ross, Eleanor Shepard, Wendy Slain, Dolores Soskin, Carol Tyler, Robin Williams, Rhoda ~p~TORt~., . TPFE Carollo, Sylvia O'Antonto, Joaive Finkle, Claudia Grand, Eleanor Ia~~arato, Noelle Karrin, Bonnie Narcir~aJs, Susan Paul, Millie ~ECTR!CIAN/CArFER EVENT COORDI!$JDR Davids, Mollace G. Finlay, Dolores EC*TOR/LECTLPER,tIBRARI~ Day, Jo Ann PAGENO="0700" EXECUTIVE CPBLE/PAY TV 698 EXECUTIVE - STWIO (cont'd) Loreen Benedek, Melinda Boone, Gebrielie Castiart, Unda Deknatel, Jane ~qoi, Iris Fitzpatrick, Cathy ~rar~(iin, RiCki Gallagher, Sarah Cray, Elizabeth Kern, Ilene Luger, Lois Nerea, Darien PurceU, Madalyn Ulil 5hv~ks, Ann Zane Turtle, Cindy EXECUTIVE P~TWORK BoLen, Un Brut~,, Joyce Corday, Barbara rester, M. christine Celier, Phylis Click, Phyllis Coast, Jean Marshall, Meryl *~lcai~y, Joarne Neww~an..Minson, Latasa RaIn,an, Karen SOChs, Barbara Turner Slrqer, Carla Wiriart, Cthel EXECUTIVE STUDIO ~`arboth, Jane ~ Barbara ~ Barbara I'Ilrman, Brooke ~`~oaci,, Sheila Boran, Lindsay rne, Cir~y N~ker, Neler~ GIant, Willie Kvr~,~k Deborah IIImsdy, Beth Lar~sirq, Sherry L~rence, Candace Mary Anne ~tzbaeh, Susan `~aat1r, Marcia Un d~ee~1 Dean Tenser, Marilyn warren, Madeline Welles, Annette Whittaker, Susan Mcoargh E~CUTIVE - DCEP.. DEVELOPtNT/PROULCII( Au, Deborah Alexander, Barbara Arthur (Bartolazzi), ~X*iith Austin, Diane Austin, Stephanie Bernhardt, Sharon Brown, I. Bonnie Brown, None Parmalee Cannon, Hans Dailey, Diane des Lauriers, Michelle Dixon, Dianne ~jbrow, Donna Gotand, Marlene Haynes, Roberta Hc~kins, Anne Lenti, Susan Leve, Harriet Loring, Lynn L~bard, Paula Maffeo, Gayle Merlis, Iris Nelson, Donie P&aell, Faye Pettit, Carol Fisher Price, Susan Purcell, Nadalyn LUll Rees, Marian Romilly, Sara Swiderson, Auriel Shatel, Barbra Siieaons, Linda ken'ers, Cathleen Trube, liene Lehrman Ulene, Priscilla Van HarUngen, Darlene Winchester, Margot Wittn, Ellen EXECUTIVE OTHER Annerterq, Wallis Arandjelovich, Karen Buzell, Lit~ chambers, Az-line Den Harteg, Pam Dyson, Charlotte ]elhaldt, Roth Evans, Pat Ferren, Peg PAGENO="0701" EXECUTIVE OT~R (cont'd) Garen, Kayla Greening, Judy Conway Joseph, Alexis Kelly, MeryCarol "t4arcy~ O'~rien, Sharon (Sam) Pubin, Ronnie Shepard, Wendy Wilkerson, Tichi FILM CDP44ISSlOP~ERS De Lauer, P4ar~jel (Tt~son) KItzrnlller, Laura (Florida) GRA~1IC DE3ID~/ARTIST Orti2, Loille Wayne, June Bernay, t4arjo Golden, Paulyne Jackson, Lyn Strasser, Carole 699 JGJRNAL1ST PRINT kinerterg, Wallis Asselin, Diane Birch, Miriam Bogert, Zepha Elman, Barbara Garfield, Kim Gelgur, Donna Hoffs, Tamar Simon Kael, Pauline Lee, Shirley Lipton, Sandy Marshall, Jan Peterson, Monica Rose, Sharon Rwth, Marianne Schoenberger, Frances Sutton, Melissa Treloar, Dorothy Williams, Gall LYRIC1ST/SONCWRI ICR Belle, Barbara Carr, Betty Am Claire, Judith Connors, Carol Donovan, Lisa Ann Feldman, Na~yni Frances, Helene Cripoo, Joelyn Leikin, Molly~Am Ruchala, Leslie Saparoff, Andrea Sauceda, Lora Kayo Schock, Harriet Waxevterg, Jon Wayne, Dorothy Anson, ~jth 8rooks, Nellie Foster, Susana Haymer, Susan Kanter, Donna King, Jocqueline MacRae, Meredith Meyer, Carla 3choenberger, Frances Smith, Sunde Westersan, Chantal Williams, Gail Forrest, Susan MANACEMENT/1'ERSONNEL Biye, Marjorie Gary, Adrienne Iaçeniale, Je*nnine Links-EllIs, Nanci GRIP Day, Jo Ann GUILD/UNION/ORG. ~PRESENTATIVtS JOLPNALIST rTLM/IPP PAGENO="0702" 700 WJSIC1AN ~~OR~ER (corit'd) Donovan, Lisa Ann Jec1~son, Lyn Kiechie, SUzanne Macintosh, Jay Dohoa, Beth SaQaroff, Andrea ~RrCR~ ~erson, Barbara ~rews, Jennifer ~nan, Ruth Abkk, Mary ~olegate, Phyllis Arc, Kathleen Archer, Kate Bacalla, Donna Backes, Alice Baker, Sally Barry, Patricia SeT~et, Barbara Allyne Bennett, fran Bev~ett, Meg linUsy, Savannah Bantam, fran ~ Zina Batten,, Mary Bisset, Jacqusline Blake, ahitney onllla..Clannini, Roxanna S~idges, Betty Brown, Jeanne de Vivier BEOwn, Judy ~jrn.tt, Carol Carr, Betty Ann Carter, Lyrre Cason, Barbara a~iauvin, Lilyan D%lnea.Varela, Migdia COrvioUy, Noziaa Connors, Carol Dollwit~, P411% Dovi~, ft4~fle~Marle Oletricri, Dana ~van, Eriri Barn, Dolores Doyle, P~Qgy £øward~, Rama £stl,r, Ruth 1ll~n, Naowj Z. ~l*1ds, Lilian H. `tan, Lisa ~ ~l~Tejla ~ ~ ~d, Jean Melon. Polly ~TY, Laretta Cam, Rita Gelgur, Donna Gibbs, Ann Gilbert, Irene Gish, Lillian G~etti, Maria Golaner, Molly Graham, Lyla Grant, SPerry Greer, Ann Griffin, Julann Crippo, Joelyn Hackett, Joan Hansen, Danna Marwood, Raven Holle, Merita $4jtchlnson, Beverly Hutchinson, Canny Caruso Hyde, Jacquelin Janis, Norma Jaress, 3111 3orden, Jan Kanter, Abbe Kasica, Meryanne Keller, Susan Kellogg, Kathie King, Jact~ieline Kim, Oksun Kondazian, Karen Ladd, Diane Lander, Diane Lavin, Linda Leeds, Regina Lewis, Marcia Lightstafle, Marilyn Lipton, Sandy Lowell, Sondra Lyle, Barbara Macintosh, Jay MacRae, Meredith MacRae, Sheila MoCord, Gloria McCarmack, Patricia MoKnight, Sandra Lee Mackenzie, Patch Malone, Marcy Malooly, Maggie Mneini, Joyce Mannix, Julie Hawthorne Marlow, Judy Marlyn, Audrey Marlyn, Jan Marst*il, Jan Meyer, Carla Miles, Joanna Meiahan, Kate Myles, Betty' Nolan, Kathleen Oliver, Susan PAGENO="0703" (cont'd) 701 Parrish, Julie Perrea~, Olgi Peterson, Monica Pfeiffer, Constance Pflug, Jo Ann Pointer, Priscilla Potter, Carol Price, Patrician Raymond, Beverly Redgrave, Lynn Remsen, Barbara Dodd Roberts, Tracy Rose, Laura Lea Rasher, Laurie Burton Rubin, Brady Ruchala, Leslie Rye, Patricia Schock, Harriet Seguev, Shoshana Shinn, Margaret Silvern, Bea Solanon, 3.1. Stapleton, Jean Stephens, Marcy Stevens, Stella Strawn, Linda Thornton, Corchita Tucker, Sandee Turner, Janet Tyler, Robin Tyson, Cicely Van Dam, Gwen Van Harlingen, Darlene Vanderbilt, Nanette Wakeley, Marged Waters, Lila Wax, Ruby Westerman, Chantai Williams, Rhoda Young, Dry Zeiher, Barbara PERSONAL MA Belle, Barbara Best, Barbara Carol, Jo~kw~ Chasman, Tanya Danto, Joan Dayton, Arlene Os Lauer, Marjel Endler, Estelle Hutson, Nancy Nester McQueefley, Patricia Mirell, Henrietta Thowas, Judy Adlen, Joan A~e~son.Hervey, Vera Qjterman, Steryl Levine Hadas, Lida Lowell, Sandra Marsall, Jacqueline Morrow.aergean, Linda Stelehov, Ursula Terry, Susan PRODUCER ~Albrecht, Joie Alexander, Barbara Allen, Jay Presson Allen, Penny Anderson, Adrienne Ohio Andre, Blue Andreola, Silvia Apick, Mary Applegate, Phyllis Arsndjelov1CP~, Karen Archer, Kate Assefln, Diane Atlas, Barbara Attlas, Elaine Bacal, Nancy Back, Karen Baker, Sally Bartlett, Juanita Begelman, Gladyce Bell, Mary Belle, Baroara Bettune, line Blgelow, Penny Binder, Judith Birch, Miriam Blake, Whitney Biectar, F'lorence Bolen, Lin Boone, Cabrielle Brown, JoAnn Brown, Mona Parmelee Brun~Cottan, Francoise Buce, Barbara Buzzell, Linda Caddell, Jaclyn Carrel, Wendy Jane Carter, Lyrre Carwin, Linda Chek1cP~, Elaine Clerbak, Cymthia ho, Renee ChIicerman~SaPerstei", Irene Clearfield, Anita Corday, Barbara Corman, Julie Corwin, Alexandra Cattle, Anna Curley, Joanne 32-540 O-84--45 PAGENO="0704" 702 CUCE~R (cor't'd) O'~tonio, Joanne Oavies, Patricia Bean, Margo des Lauriers, Michelle Dillon, Maria Dillon, Rita Dobrow, Joelle Bere, Bonny ~Jbrow, Donna Oisme, Cindy Endler, Estelle Esqelson, Dale (vans, Patricia Fafet, Liv field, Fern Flanagan, Fi(~'Inula Fleischer, Mary Fonda, Jane Frances, Helene `tV~~ aarbara Franklin, Ricki Franklyn, MeQ Cailo, Lillian Car~er, Don Jean Garen, Kayla Geller, Phylis Gather, Daisy Giffond, Gail Gilbert, Sue GOianer, Molly Gaidrich, Sybil Niden Graha.n, Lyla Ctant, Sherry Gnene, Nancy Greene, Varessa Greening, Judy Conway Creer, 94%fl Gt1ffj~, biann Gross, Marcy ~arEsino, Lee Schaf? Gan.tte, Frances Hell~r, P*jla Lee Mavwc*,~j, Raven Ma~~er, Susan Maynes, ~berta Komessy, Gay~A~~aj~ Kill, Leslie Mat r5, Yamar ~1eon Matt~~, Vthter Mauske, Marta ~ars~, Gwer~~,~ Na,d, Cole D4vm l$Ivteng Lynn ~5sl., Linda ~t!Cies, Georgia ~`t5On, Kathleen Kay ~ Sonita "Bonnie" Ka~n, 1lere PRLJDUCER (eont'd) Kalish, Irma Kanin, Fay Kanter, Donna Keller, Micheline Keller, Susan Kim, O~ungm1 King, Claudia Kiausner, Willette Klein, Barbara La Brie, Alice Faye Ladd, Diane Landau, (die Lander, Diane Laura, ~a Lee, Joanna LeHoven, Dinah Lava, Harriet List, Shelley Littean, Lynne Loring, Lynn LL~1n, Natasha Lucchesi, Jeannine Lukk, Thu MacRae, Meredith MacRae, Sheila McCormick, Mary MoKeand, Carol (van Maffeo, Gayle Malone, Nancy Malooly, Maggie Mancini, Joyce Mannix, Julie Hawthorne Mansfield, Barbara Marlyn, Jan Nartel, Tasha Martyn, Elizabeth Maynor, Asa Merlis, Iris Miles, Joanna Miller, Pola Mirell, Henrietta Mock, Freida Lee Korea, Darien Marrow..8er~aan, Linda Myles, Betty Masitir, Marcia Malson, Janis New'mn.Minson, La.s~a O'Naii, Justice Ortiz, Lollie Osborne, Lynre Oshins, (.3. Owens, Joan Papp, Ten Parsons, Yvonne Perillo, Patricia Paterson, Eileen Petrie, Oorothea Pfei?fer, Carolyn Price, Sus~n Pruss, Nancy Avis PAGENO="0705" PROOU~XR (cont'd) 703 f~U~UCfl(J4 MkNAG~R/SLP~RVISUR Quinlart, Doris Ranon, Tjnmo Raymond, Beverly Rees, Harlan Roberts, Nancy Roth, Lynn Rothstein, rreyda Rubin, Sharon Russell, Pat Sackett, Nancy Salant, Lynn Sanford, ~1idge Sct~.a1tz, Barbara Shanklin, LIna Shanks, Ann Zare Shapiro, Esther Shields, ha Shim, Margaret Shippey, Susan Shotel, Bart,ra Shjler, Lauren Slnvaons, Linda Sloan, Dolores Smith, Sunde Smitman, Susan Sneider, Caryn Spielberg, Anne Spiller, Jane Stayden, Gail Stephens, Nancy Stern, Kardy Stevens, Stella Stratton, Susan Krauss Su'uaers, Cathleefl Tenser, Marilyn Tivers, Cynthia Turner, Janet Tyler, Gmmy Ulene, Priscilla Van Harlingen, Darlene Vanderbilt, Nanette Verbit, Helen Waldaan, Leslie Warsham, Christine Wayne, June Weinstein, Hannah Weintraub, Amy Wells, Donna Cox Weston, Ann Wigle, Shari Lynn Winchester, Margot Wiser, christine Zurbach Wittman, Ellen Wolf, Annett Zaoata, Carmen Ticker, Laura Caddell, Jaclyn (jackie) Carrel, Wendy Jane Carter, Pseela Consigilo, Marie Davies, Patricia Day, Jo Ann Gerber, Daisy Goidrich, Sybil Niden Kim, Oksun Lent I, Susan Luv~ard, Paula Mimes, Kathleen Nelson, Jan15 Smith, Donna Thornton, Conchita Wejntraub, Amy Wigle, Shari Lynn ~O~JCTION PER L/COO,~D./ASST. Anderson, Adrienne Chio Applegate, Phyllis Barrett, Karen Amira Caddell, Jaclyn (Jackie) Cannon, Hans Carrel, Wendy Jane Childress, Joyce Clearflelvl, Anita Oallwitz, Ann Downey, Cheryl Elman, Barbara Grand, El,anor Guber~Bla~kman, Karen Hartley, Doris Holle, Merita Mood, Dana Greet LinkevEilis, Mmci Long, Kathleen LylYi~ThOflsWS, Annie Milnes, Kathleen Nick, Betty O'Neill, Susan Rothenberg, Betty Sanderson, Auriel Schu'iwn, Jessica Setiowe, Beverly Smith, Donna Watson, Robyn PROJECT IONIS1 P4arlow, Judy PAGENO="0706" 704 eLlCITv/~CI4OT1aI RADIO Alesandar, Stephanie *lscr~jIer, Susan ~erson, Adrienne Q~1o ~dreola, Sllvia *rmel, Paula *ArtPsjr, Vicki Barrle, Lee &~qert, Zepha Cof~n, Paulette Cuvner, Jane El~n, Barbara E~itein, Jeckie Neiman Flniay, Dolores ~oib, Phyllis Pretzin, Julie Carfield, Kim Green, Jacgueflne Phuse, Sharon Wilkinson Isenberg, Lynn kleiner, O~ickL Llpstone, Jane ~ Gloria Marcus, Barbara Menahan, Kate Mallen, Jane Paterson, Eileen POllock, Sandy Baese, Mjcheje Rockett, Elaine Rose, Sharon Masher, Laurie Burton ~ibtn, Sharon Sherwood, Celia Sinclair, Dorothy Sutton, Melissa Taylor, Jeyce Elaine Thomas, Maxine Anson, Ruth Bacal, Marcy (Jeurnl.) Grief in, Jul~v~ (Dener) Model, Terry (Prod/Parf/Ed) Marshall, Jan (Writer/Prod) Paterson, Monica Solowon, 3. 1. (Airier.) Strawn, Linda (Journi.) Ulius, Betty Deborah (Prod/Dir) RESEARCH Alexander, Stephanie Brown, Mona Parmelee Carollo, Sylvia Casser, Lynn Choulnard, Carole Dillon, Maria Gardner, Dan Jean Gray, Elizabeth Mouston, Laba'ne Kazadi, Camille MoCord, Gloria Meehan, Diane Meyer, Marcy Milnes, Kathleen Nick, Betty O'Neill, Susan Sager, Unda Schuxan, Jessica Sher*er, Marilyn Spiller, Jane Svitil, Torene Thornton, Conchita Watson, Robyn ~~LISHTI~ S*,ES/DISTRI~JTIO~ ,etle, Barbara Blys, Marjorie Boric, Marcia Dernis, 3. Noel Endler, Fst*lle Cow, ~ Coren, ICayta Garlanci, Carol, lreton, Asia Ust, Shelley ~ Barbara ~in, ~ Terry, 3~ VSy~, Dorothy Wilkerson, Tlchj Zol., Marion kiderson-Marvey, Vera Arthjr (Bartolazzi), Jt~ith Benedek, Melinda Carroll, Mrtha Cataiane, Marianne Cha~n, Abble DeLoach, Sheila ~erren, Peg Grant, Sherry Noelacher, Jean Leeper 1a~eriale, Jearrilne ~e, Barbara Parsons, Yvonne Sia,ons, Linda Spiller, Jane Si*ton, Melissa PAGENO="0707" !~RIP1 5LrERVISO~ Broccoli, Dana Wilson Miller, Pat Morgan Shanklin, Uris Wilde, Mets Bonney, Sharon Miller, Freyda !E~ DECORA1~ SWND RECDRD1N~ Arandjelovich, Karen Carollo, Sylvia Joseph, Alexis K~*, Oksun Carter, Pamela Dobrow, Joelle rosdick..Stever5on, Virginia Gr~ter..Blackman, Karen Mizrahl, Lillian Sinclair, Dorothy Watson, Robyn T~ATRE Andreola, Silvia Andre'ws, Jennifer Apick, Mary (Prod/Dlr/Perf) Applegate, Phyllis (Prod/Perf) Bernet, Barbara Allyne (ProdlPerf) Beth~s~, Zina (Artistic Dir/Dance) Bridges, Betty (Pail/Coach) Brooks, Mmdi (writer) Carter, Lyrne Chalkin, Xidy (Dir/Writer) Chambers, Arlirie (meat. Mgt) DsUwitz, Ann (Perf/Dir) Oletz, Susan (Artistic Dir/Prod) Fury, Loretta (Dir/Perf) Girford, Call (Prod) Gray, Elizabeth (writer) 1tEAj~ (cunt'd) Hansen, Danna (Prod/Writer) Houston, Labame (Dir) Keilogq, Kathie (Parf) Kiect~le, Suzanne (~`¼aSical Coord) Kondazian, Karen (Prod/Perf) Korwin, Devra (Dir/Choreo) Ku.*iri, Sarah Sappington (?ounder) Lenti, Susan (VideotapinQ) Leve, Harriet (Prod) Lewis, Marr~ia (Perf) Marlyn, Audrey (Exec Prod/Dit/Perf) Msrlyn, 3an (Perf/!ljsic*ls) Martyr, Elizabeth (Prod/Dir/Perf) Merlis, Iris (Prod) Meyer, Carla (Prod) Monahan, Kate N'jell, Faye (Prod/Exec) Perreau, Cigi (Dir/Perf) Peterson, Monica Pfeiffer, Constance (Perf') Pflug, Jo Ann Roberts, Tracy (Dir) Seger, Linda Seguev, Shoshana Sinclair, Dorothy Solomon, J.T. (Perf) Strawri, Linda Van Dam, Gwen (Parf) Wittman, Ellen Zeiber, Darbara (Prod) Zucker, Laura (Prod/Dir) W Allen, Jay Presson Allen, Penny Ans~'n, Ruth Arbus, Loreen Arc, Kathleen Arcrer, Kate Attias, Elaine Bacal, Nancy Back, Karen Baker, Sally Barnes, Kathleen Bartlett, Juanita Barzman, Norma Baskin, Susan Begelman, Cladyce Bennett, Meg Benton, Fran Birch, Miriam Blake, Whitney Blarchard, Nina Boric, Marcia Browse, Eleanor Brickeil, Beth Broo~'s, Mmdi Brown, JO~wt 705 STAGE MANAGER/FLOOR M~ TALENT COORDINATOR PAGENO="0708" 706 ~ITER (c~t'd) ~astany, Judith &azzell, Linda Cannon, Nina Carol, Jo~Arm Carter, Beverly Casser, Lyrr~ Ousikln, Judy Omotin, Zamira D~erbak, Cynthia Oiinea.Vareta, MI gdia cho, Renee Düermsn.~Saperstein, Irene Claire, Judith Coho, Jenny Corday, Barbara ~iley, Diane Oa~iaru, April Anson ~vids, Hoilace ~KOv~n, Lindy ~La~er, MarJel ~nnls, 3. Noel De~~res, brain, ~sv~ahoo, Terry Oyrector, Joyce Elfman, Blossom (lain, Barbara Elstad, Linda E'qelson, Dale Epstein, Jackie Neiman Evans, Pat Fader, Sonia (&iiny) Feldemn, Naomi Field, Fern Flanagan, Fionrijla F'leisctier, Nary Ford, Jean Forrest, Susan `aster, Susana Frarces, Helene Frarcis, Polly Frar~dyn, Meg Fretzin, Julie Ci~~er, Don Jean Celgur, Donna Clbbs, Ann Gilbert, Sue Golaner, Mojjy CoWrica, Sybil Njt~n Ceidmaith, Gloria Gadd, Diana Cray, Elizabutpi Ciiane, Marcy Gregory, Molije Crlf fin, .Aalann Ctigpo, Joelyn Cutermin, Sheryl Levine Mansom, Ellen Marwood, Ri.~n Mayn~, Roberta NUI, Leslie $ire, Lois WRITER (cont'd) HefTs, Tamsr Simon Holle, Merita Henigsberg, Gail Hood, Dana Greer Hauske, Marta Howard, Gwendolyn Howard, Karin ttsnphreys, Martha (Marty) ttjrd, Gale Ann Hutchinson, Canny Caruso Isehoerg, Lynn Jaress, Jill Jef fries, Georgia Jordan, Bonita "Bonnle Kael, Pauline Kalish, Irma Kanin, Fay Kanter, Abbe Kanter, Donna Kanter, Doris Kasica, Maryanne Keller, Susan Kim, ChIJrI9ITU King, Claudia King, 3ac~uelIne La Brie, Alice Faye Lander, Diane Laura, An~ Lee, Joanna Lee, Shirley Leikin, Molly.Arn bevin, Audrey Davis Levis, Marcia Lipton, Sandy Liss, Stephanie List, Shelley Ltttman, Lynne London, Helyn Spears Lowell, Sandra Lubin, Natasha LixcPesi, Jeannine Lukk, Thu McCormick, Mary HoKeand, Carol Evan Plancinl, Joyce Mannix, Julie Hawthorne Mansfield, Barbara Marks, Barbara Nirlyn, Jan Marshall, Jan Martei, Tasha Martyn, Elizabeth Matson, Donna Marie Meehan, Diana Niric, Sara Marl, Judy Meyer, Marcy Miles, Joanna Miller, Melissa PAGENO="0709" Mock, Freith Lee Monahan, Kate Morrow~Ber911an, Unda Myles, Betty Newman-Mlnson, Launa O'Brien, Sharon (Sam) Oliver, Susan Owens, Joan Papp, Ten Parrish, .Julie Petnle, Dorothea Peyser, Lois Pfeiffer, Constance Price, Susan Rabinowich, Ellen Ranon, Timna Raymond, Beverly Robinson, Sylvia Roper, Carol Ruse, Sharon Rosenzweig, Carol Roth, Lynn Rubin, Brady Ruchala, Leslie Russell, Pet Ruuth, Marianne Sachs, Barbara Turner Sackett, Nancy Sauceda, Lora Kaye Schafer, Darlene Sctiock, Harriet Schoerterger, Frances Setlowe, Beverly Seven, Marilyn Shanklin, Line Shapiro, Esther Shea, Patt Shepard, Ellen Sherwood, Celia Shippey, Susan Shotel, $arbra Siegel, Sandra Kay Sloan, Dolores Spielberg, Anne Spies, Amy Stern, Kandy Sullivan, Beth Taylor, Joyce Elaine Tables, Manice Tucker, Sandee Tyler, Ginny Tyler, Robin Ulius, Betty Deborah Van Narlingen, Darlene Vanderbilt, Nanette Wakeley, Marged Warshaw, Christine Wax, Ruby Wayne, Dorothy Wayne, June Weiss, Harriet Westermark, Victoria Wigle, Shari Lynn Nude, Meta Wiser, Christine Zurbach Wittman, Ellen Wolf, Annett Zala, Nancy lola, Marion Elman, Barbara Peters, Joan 707 WRITER (cont'd) WRITCR (cont'd) WRITERS' SERVICES PAGENO="0710" 708 CHAIRMAN FOWLER: Next is Mary Ledding, representing Women in Film. Mrs. Leddlng. MRS. LEDDING: I am a member of the Board of Direc- tors of Women in Film, Los Angeles, which is a non-profit, professional women's organization which began about ten years ag~ with 12 women and has grown to over 900. Our membership includes women from the executive and the creative areas as well as those in the technical and craft side of the business. We also have members in -- from all areas of racial minorities. Well over half of our members work predominantly in the television industry. In view of the rise in our membership, it's clear to us over the last ten.years that the rules have been in effect the increased number of strong, independent production companies has, in turn, opened up employment opportunities for women. If the rules `are repealed, we believe many of these small in4ependent companies and producers will go out of business or be submerged within the networks, creating a loss of jobs for many of our members. But more important than the loss of jobs will be IN1W4A11CNAL 1~M$~IPflON SERV1c~. INC PAGENO="0711" 709 the loss of diversity in program content which will result. I believe that even the networks this morning acknowledged that through the period of the rules diversity has been im- proved. In preparing my comments I spoke with many of our producer members, particularly those who have been in the business for a number of years. These are the women who earn their living pitching ideas and story concepts to the networks with the hope that a project will have that certain something which a network executive will think worthy to be aired. Remember that at each network there are only a handful of people, maybe six to seven, who have the power to say yes. The rest can only say no or maybe. For example, one experienced producer who created one of today's top 10 television shows told me about an idea that she had for a movie of the week based on the life of a Mexican maid in Beverly Hills. The concept she pitched to the network was to examine the day-to-day dreams and problems of a woman who as a woman and an ethnic minority employed in a menial and thankless task nonetheless had goals and aspirations. On hearing the idea the quick reply frnm the net- work executive, and I quote, "Tacos don't get numbers." His reply is all the more devastating when you know that this network executive was himself a member of a minority group. IN1~NA11ONA1. TMNS~R$PTION SER'vla3, IN~ PAGENO="0712" 710 The simple truth is that program selection at the networks is a numbers game, the numbers of ratings and audience share. The networks have always had the power to select programming that reflects minority points of view. They have that power right now, but they don'.t pick minority oriented shows because they believe that mass audiences won't be interested. It's not because minority ideas and contro- versial subjects are not being presented to the networks. For example, one former network executive who is now a producer quoted to me the following two rules of net- work program selection which she had been told by various network executives. The first, TV audiences don't want to see female leads in TV shows. The second, Blacks don't work on TV. As an example of how the latter rule is applied, she related the situation of a TV movie called "Crisis at Central High" which starred Joanne Woodward and she was depicted as a teacher in a predominantly black school. The show got low ratings, so thereafter black oriented projects were turned down. Another rule that she mentioned to me was that topics with senior citizens don't work unless they star Bette Davis. Things that are too con- troversial or appeal to small audiences simply are not in the networks' best interest. If the rules are repealed, it will only get worse. The current system provides an incentive for independent IN1Pi4AT~ONAL TPANSOJPTION SE~1~& INC. PAGENO="0713" 711 producers to create a product that is their own. Since most of Woman in Films' producer members are small and independent, they don't have any bargaining power when it comes to nego- tiating with the networks. Many, in fact, do not even want their names mentioned in this proceeding for fear of network reprisal. For example, one producer of children's programming was surprised to see that when the network sent her her con- tract they had arbitrarily increased the license term for her new show by one additional year. When she questioned this the network said it was their new policy to require four- year terms instead of three-year terms, and they refused to negotiate the issue. With that kind of leverage, no one is kidded into believing that if the rules are repealed and networks will allow small producers -- that the networks will allow small producers to retain anything but a very minor percentage in ownership of their programs. By the way, I have not heard today anywhere of any network person or representative stating that they would undertake, were they to receive syndication revenues, that they would agree to invest those 100 percent into free TV. I suspect that instead they will see their way into other and new media. But don't discount the impact of ownership and 1NTE~NA11ONM. 1~ANS~JPT1ON sERvicEs. INC PAGENO="0714" 712 profits on creative content. There is a correlation between the profit incentive and the creative process. Independent producers feel the urge to fight for my show, my star, my cast. Those I spoke with said they'd go to battle with the networks in areas such as casting, script content, selection of writers and directors because they felt the need to create the best possible program which, in turn, would create the most profitable product in syndication. i see my time is up, and I will try to finish as quickly as possible. cHAIRMAN FOWLER: How much more do you have there? MRS. LEDDING: Two sentences. CHAIRMAN FOWLER: All right. That sounds good. MRS. LEDDING: If the rules are repealed, such producers see themselves because of their lack of leverage as becoming merely emloyees of the network, team players carrying out team policies. The network team policies are numbers and ratings, and the independent producers are inde- pendent voices which should not be silenced. CHAIRMAN FOWLER: All right. Thank you very much, Mrs. Ledding. N1W~4AT1ONAL MJ.ISOJPTION 5ERV1~. INC. PAGENO="0715" 713 Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of ) ) Amendment of 47 C.F.R. ) S 73.658(j); the ) BC Docket No. 82-345 syndication and Financial ) Interest Rule COMMENTS OF THE UNITED STATES DEPARTI'~T OF JUSTICE IN RESPONSE TO TENTATIVE DECISION AND PROPOSED RULE I. INTRODUCTION AND STATENENT OF POSIflON On August 4, 1983, the Commission adopted a `Tentative Decision and Proposed Rulew, ~/ in its reevaluat~ofl of the financial interest and syndication rules. The Tentative Decision contained an extensive analysis of the legal and policy justifications underlying the existing rules, their effects on the program supply and syndication markets, their possible costs, and changes in the industry since adoption of the rules. The Tentative Decision concluded that the existing rules promote neither competition, diversity, nor efficiency in the program supply market. It also determined that the only competitive issue implicated by the rules was the risk that the networks might withhold off-network programming from the 1/ 48 Fed. Reg. 38020 (Aug. 22, 1983). PAGENO="0716" 714 syndication market (so-called "warehousing") to the detriment of independent television stations. The Commission's proposed rule woulç! eliminate the financial interest rule, but retain a narrow syndication rule designed to prevent "warehousing." The Commission requested comments focused on the proposed. rule to ensure that its "mechanical aspects" are workable and to address any additional problems of application. The Department generally agrees with the Commission's analysis of the effects of the present rules and with the fundamental approach of the proposed rules. The proposed rule is a reasonable one, consistent with the goals of protecting competition in the syndication market and of avoiding regulations that may reduce economic efficiency~and competition. By prohibiting the networks from engaging in any domestic syndication of off-network prime time entertainment series, the rule should eliminate any serious risk of "warehousing." We believe, however, that the FCC should make certain minor modifications to the proposed rule to give the networks some measure of control over off-network syndicated programming during the `network run of a series. In addition, as a corollary to the proposed rule, we also suggested that certain additional information should be supplied to the Commission under its proposed reporting requirements. Such modifications would help ensure that the proposed rule does not reduce economic efficiency. Finally,' we also support the Commission's decision to include `a "sunset" provision in the proposed rule. PAGENO="0717" 715 II. THE TENTATIVE DECISION A1~D PROPOSED RULE The Tentative Decision found that the extent of network monopsony power over program suppliers is "very much in doubt," and, in any event, that the rules are unlikely to reduce any such power the networks might have. 2/ The Commission also found "no credible evidence" presented in the proceeding that the rules have fostered the production of first-run syndicated progralTuting. ~/ The Tentative Decision concluded that the only possible competitive issue implicated by the rules was the risk that the networks would "warehouse" off-network programming, as a strategy to increase program license fees and possibly advertising rates. The Commission proposed eliminating the financial interest rule but, to protect against the risk of "warehousing," also proposed to retain a narrow rule that would prohibit domestic syndication of prime time entertainment series by the three major television networks. The proposed rule would require the networks to transfer all syndication rights to such series by the earlier of two dates: (1) no ~/ Tentative Decision at ¶11 12332, 195. jg. at ¶11 195. PAGENO="0718" 716 later than six months after a series completes its network exhibition run; or (2) no later than the end of the fifth year of a series' network run. The networks could control no term or condition of syndication, nor impose any restrictions on syndication decisions after selling a program. The rule would reguire the networks to notify the Commission of all such transfers of syndication rights and to provide certain data on the terms of the transfers. Finally, the rule would contain a "sunset" provision providing that the rule would terminate in August 1990. III. DISCUSSION A. The Department Agrees With the Tentative Decision's Major Conclusions on the Effects of the Existing Rules The Tentative Decision makes clear that the Commission does not intend in this round of comments to reconsider its fundamental analysis of the effects of the present rules. The Commission has already developed an exhaustive record on that issue. Suffice it to say, that the Department generally agrees with the Cornmission~s analysis of the effects of'the present rules on the program supply and first-'run syndication markets. ~/ We agree with the Commission that the original ~/ The Department's analysis of the rules differed from the Commission's in several minor respects. The Department's comments reached no conclusion on whether the networks possess monopsony power. The comments were also much more skeptical Footnote Continued PAGENO="0719" 717 purpose of the rules to promote diversity and competition in the program production and first-run syndication markets was ill-founded. ~/ We also agree with the conclusion.that the only credible competi-tive issue raised by the rules involves "warehousing" of off-network syndicated programming. ~/ B. The Proposed Rule Will Eliminate All Serious Risk of "Warehousing" The Department's comments recognized the risk that complete elimination of the rules could, at least in theory, enable the networks to withhold off-network programs from syndication with a resulting increase in license fees. They noted that if this conduct were the result of tacit collusion, itmightbe difficult to prosecute under the antitrust laws. The Department's reply comments recommended that, to be cautious, the Commission should keep in place a narrow prophylactic measure designed to guard against the admittedly small risk that the networks would "warehouse" off-network series. ~/ Continued than the Tentative Decision on the effect of new video distribution technologies on any market power held by the networks. Moreover, the Department argued that the networks' positions as "gatekeepers" over network television made it possible for them to be monopolists in the sale of off-network series without having inonopsony power. ~ Reply Comments of the Department of Justice at 14. ~/ Tentative Decision at ¶11 191-97. ~/ ~ at ¶ 202. 32-540 O-84----46 PAGENO="0720" 718\ We believe that the Commission's proposed rule will effectively prevent any credible risk of varehousing.N The Tentative Decision recognized that the rule may be subject "to various types of technical criticisms for their potential inability to address every market practice or situation that might 1be~ hypothesized." ~J However, the rule should handle most, if not all, of the possible scenarios. Indeed, given the minimal likelihood of "warehousing" even without the rule, the proposal is intended "to provide only an additional measure of protection (against warehousing.]" !/ The Department supports this approach. Antitrust law enforcement and Commission monitoring should effectively prevent any unanticipated anticompetitive network strategy after the proposed rule takes effect. The Commission should not expand the rule in an attempt to prevent every anticompetitive possibility no matter how unlikely it is to occur. It has been argued, for example, that allowing the networks to hold syndication rights for even a limited time poses the risk that they would sell those rights to a few syndicators, creating market power in the syndication market. !/ Although ~/ ~4. at ~ 205. !/ See, ~ Reply Comments of the Committee for Prudent Dere~iTation at 79-80. PAGENO="0721" 719 there are reasons to believe the networks vould not adopt such a strategy, ~ such a scenario cannot be ruled out completely. At the same time, market power in the syndication market would be highly visible and could be detected by the Commission through the reporting mechanism it intends to establish. Similarly, it is possible that network acquisition of financial interests could become a vehicle for "warehousing." Of course, any attempt to use a financial interest to exercise direct control over syndication decisions would violate the rule and would be difficult to conceal. A conceivable indirect "warehousing" strategy, however, could involve manipulation of the fees paid to syndicators. By reducing syndicators' fees, networks might diminish syndicators' incentives to distribute programming. Programs that are marginally profitable for syndicators to distribute under standard agreements today might become unprofitable under the terms of such network syndication contracts, In theory, such a strategy could be used as an extremely crude instrument for "warehousing." It is doubtful, however, that such a scheme could make network collusion profitable. It could not be used to ensure that programs were "warehoused" on a market by market basis in such a way as to maximize network profits from any collusion. ~ Reply Comments of the Department of Justice at 34. PAGENO="0722" 720 Moreover, it would be difficult to amend existing contracts with independent syndicators to reflect changing circumstances or new information about the optimal contract terms necessary to effect successful Nwarehousing.h In addition, independent syndicators of off-network programs would likely inform the FCC or the Department if the networks attempted such a strategy. Although the competitive risk is slight, to help ensure that no such problem arises, the Commission should require each network to include in its reports on sales of syndication rights an additional, non-public filing that discloses the terms negotiated by each network with the syndicator of each off-network program. fl/. These data would verify that, programs in which networks hold a large financial interest do not feature systematically different and possibly anticompetitive syndication terms. finally, it may be argued that narrowing the scope of the proposed rule to a restriction on domestic syndication of prime time entertainment series by the three major networks will create certain competitive risks. For example, syndicators may argue against allowing the networks to do first-nm syndication; :to syndicate all programs in foreign markets; and 11/ Of course, this would be sensitive proprietary I~formation, the disclosure of which could reduce competition in the syndication market. The Commission should'take appropriate precautions to ensure that it does not become public. PAGENO="0723" 721 to syndicate any programs broadcast outside of prime time or programs other than series broadcast in prime time. The Department believes that an overwhelming record has been developed that there is no justification for preventing the networks from competing in these areas. Reducing the present rules' overbreadth raises absolutely no credible competitive risks and it could increase competition in some segments of the syndication market. C. The Department Supports the Proposal to Prohibit All Domestic Syndication of Prime Time Entertainment Series by the Networks The Department's proposal was intended to narrow the present rules to eliminate any serious risk of ~warehousing" while imposing no substantial costs in economic efficiency. It would have permitted the networks to acquire financial interests and syndication rights in any network program and to. syndicate any network program during its network run. This provision would have required the three major networks to sell domestic syndication rights to prime time entertainment series within a fixed time after cancellation of the program's network run. After the end of the network run, the networks could be no more than passive profit participants in the syndicated programs, unable to exercise any control over any term or condition of syndication distribution. The FCC's proposed rule, on the other hand, would prohibit any network syndication of such programs. The Department has concluded that the FCC's PAGENO="0724" 722 proposal with the modifications suggested below would be preferable to our original proposal. because it would clearly allow syndication contracti signed during the network run to extend beyond the end of the run without competitive risk. A 0forced sale' rule mandating termination of all. syndication contracts at the end of the network run could have the unintended effect of impeding syndication of programs by the networks, irrespective of any anticompetitive purpose. According to syndicators~ representatives of the networks, and independent station managers, syndication rights are often sold to local stations in multi-year contracts, several years before they become available. Apparently, local stations often rely on such early acquisitions to plan their programning schedules. If all contracts signed by the networks during the network run were required to terminate at the end of the run, stations could never know the exact length of syndication contracts with networks. This could reduce stations' efficiency in promoting their schedules and could increase the difficulty of planning program schedules, thereby reducing the value to stations of programs sold on such terms. The result could be that some programs might not be syndicated solely because of this uncertainty. One possible solution to this ~,problem would be to allow the networks to comply with the forced sale rule simply by assigning their contracts to non-network syndicators. Although this would eliminate the problem of uncertain termination, it PAGENO="0725" 723 would not eliminate the competitive risks. The networks could still sign long~term syndication contracts with their affiliates and owned-and-operated stations that would run far beyond the end of the network run. Payments to affiliates or owned-and-operated stations in the form of adjustments in compensation would be difficult to detect and might induce these stations to ~`warehouse" the programs. ~/ Another possible alternative would be a rule allowing the networks to assign contracts signed with independent stations, but regLliring termination at the end of the network run of any syndication contract signed by a network with an affiliate or owned-and-operated station. The problem with this solution is that it could put affiliates and owned-and--operated stations at a competitive disadvantage with respect to the independent stations that would be able to buy syndication contracts with fixed termination dates from networks. Given the difficulties presented by the problem of assignment and termination of syndication contracts at the end of the network run, the FCC's proposal with minor modifications would be' preferable to the solution we previously advanced. Barring the networks from syndication of off-network prime time entertainment series at this time should not impose ij/ The problem would be particularly acute in the case of each network's five owned-and-operated stations. PAGENO="0726" 724 substantial costs. The networks' ability to acguire financial interests in conjunction with the modifications to the proposed rule discussed below will substantially reduce any costs of inefficient risk-sharing, 13/ and possible costs of inefficient program coordination. 14/ It will increase networks' `incentive to bear risk by financing programs in return for financial interests in syndication. It will also allow the nitvorks to capture profits from successful syndicated programs, thereby giving them the incentive to promote first-run programs to the optimal levels. - Moreover, prohibiting network syndication of off-network prime time series is not' likely to have significant effects on the competitiveness or efficiency of the business of syndicating off-network progr~ams. Although the networks would be three additional entrants jnto this market, there is no evidence that they would be more efficient,than any other firms in that market. Moreover, although the market is moderately concentrated, j~/ it appears to be workably competitive. ~/ Tentative Decision at Iii 133-44. 14/ 14.~ at 1 134. IV jj. at 1 110. PAGENO="0727" 725 D. The Proposed Rule Should Not Prohibit the Networks From Placing Certain Restrictions on Syndication During the Network Run Nor Require Forced Sale Within Five Years The Department has argued consistently that the networks should be given control over syndication of programs that are in their network run. This will ensure that the networks are able to capture any efficiencies available from coordinating first-run and syndicated episodes of the same series. ji/ Such coordination would promote efficient use and promotion of the programs. Therefore, the Commission should modify its rule in two ways to give the networks some limited control over syndication of programs during their network runs. First, the requirement in the FCC's proposed rule that the networks can exercise absolutely no control over syndication of programs once they are sold to an independent syndicator should be modified to allow.the networks to restrict the time of day in which a program is broadcast, or the frequency with which it may be broadcast, during the network run. This modification would allow the networks to capture any efficiencies resulting from coordination of new and syndicated episodes,~ thereby giving the networks an incentive to put programs into syndication most efficiently. Failure to allow such network controls may lead to effects counter to the Commission's intent ~/ Comments of the Department of Justice at 20-21, Reply Comments at 32. PAGENO="0728" 726 by causing networks to refuse to syndicate programs that they otherwise would have released had they been able to exercise such control. me most obvious restriction of this type is the right to exclusive exhibition of a program's episodes in prime time. It has long been standard industry practice for the networks to obtain such rights to assure that syndicated episodes do not "free ride" on the network's prime time first-run exhibitions. Thus, at a minimum, the rule should be modified to enable the networks to obtain exclusivity in prime time during the network run. Second, there is no need to reguire that the networks relinguish. syndication rights five years after a~prograzs begins its network run rather than at the end of the network run. There is no basis in the record suggesting the existence of a serious competitive risk of "warehousing" between a program's fifth year on the network and cancellation. The credible "warehousing" models predict that the networks would withhold marginal programs in order to drive up the prices of the more popular programs. The syndication values of programs are highest while they are still in their network runs. Withholding such programs would require the networks to forego substantial revenues. At the seine time, it is possible that a network could promote the efficient scheduling of its programs, without any anticompetitive purpose or effect, by holding syndication. rights to certain prograi'ns beyond their fifth PAGENO="0729" 727 year. Thus, the five year "forced sale" provision in the proposed rule should be deleted. Modifying the proposed rule in these ways could help ensure that the rule does not reduce economic efficiency. Moreover, since any such restrictions imposed by the networks would have to terminate at the end of the network run, they would raise no risk of "warehousing." i!/ E. The Department Supports the "Sunset" Provision and Proposal to Require the Networks to File Reports on Sales of Syndication Rights The proposed rule contains a "sunset" provision that would eliminate the rule in 1990. The Tentative Decision argued that "sunset" is appropriate since there are going to be "significant changes" which may make the "warehousing" 17/ The Tentative Decision also requests comment on how to ~ifine the end of the network exhibition period for purposes of the forced sale requirement. Th~ exhibition period should be considered completed when a program is no longer exhibited by a network in its weekly prime time schedule. Occasional preemption of a series would not trigger "forced sale," as long as the series continued to be exhibited regularly by a network. Nor would a program be considered "completed" during normal summer reruns of its episodes. This definition of network run would be keyed to highly visible network practices and would thus be easily enforceable. In addition, the proposed rule correctly does not require "forced sale" of any series with fewer than 22 episodes. A series with so few episodes is not likely to have sufficient syndication value to justify imposing the cost on the networks of having to dispose of the program. Moreover, the 180 days allowed for sale after the end of the network run should be adequate to allow the networks to sell syndication rights efficiently. PAGENO="0730" 728 scenarios "increasingly unrealistic." The Tentative Decision noted that "the independent stations viii be much stronger, the networks' audience share viii be much lover, and the expanding communications marketplace viii make anticompetitive activities in the syndication market significantly more difficult." j~/ Commissioner Rivera dissented on the proposed "sunset," arguing that if the proposed rule is necessary to the continued veil-being of independent stations today, it is illogical to decide now, based on little more than a guess about future competition, that the rule viii not be necessary at an arbitrary future date. Commissioner Rivera cited a section of the Department's reply comments in support of the proposition that the best projections about the effects of new technologies on the networks' ability to "warehouse" are only speculative. i!/ The Department agrees with Commissioner Rivera's assessment that predictions about the effects of change are speculative. It is simply impossible to know whether changes caused by new technologies will have any significant impact on the networks' incentive or ability to "warehouse." For this reason, the Department opposed an immediate complete repeal of the rules. j~/ Tentative Decision at ¶ 209. ~/ 48 Ted. Req. 38053 (Aug. 22, 1983), citi~nq Comments of the Department of Justice at 28. PAGENO="0731" 729 We believe, however, that the Tentative Decision to adopt a "sunset" is justified as a matter of regu2atory policy in this instance because (1) the networks never "warehoused" programs before adoption of the present rules; ~/ (2) the competitive risk of "warehousing" today ii small; ~j/ and (3) development of the new video distribution technologies will tend to reduce the networks' control over the supply of syndicableseries, even if it cannot guarantee that this risk will be eliminated entirely. ~/ Given these factors, the Department would not want the rule to be retained in perpetuity due merely to institutional inertia. The "sunset" will force the Commission to consider the efficacy of the rule and either act to continue it as adopted, to modify it, or to allow it to expire by inaction. Moreover, if the rule is terminated and a problem were later to develop, the Commission could act to reinstate an appropriate rule. Any Commission proceeding to consider extending the rule beyond 1990 would be facilitated by the proposed rule's reguirement that the networks file reports with the Commission containing the names of series with syndication rights covered by the rule, and identifying the programs involved and the ~ Tentative Decision at I 172-73. j~, at ¶ 200. Jj~ at ¶ 122. PAGENO="0732" 730 party to whom thi rights were transferred. 71/ These data should give the Commission helpful information on the competitive risks of network "warehousing." 2j/ As discussed above, the reports filed by the networks should also include data on the terms of payment to syndicators. IV. CONCLUSION For the reasons discussed above, the Department urges the Commission to adopt its proposed rule with the modifications suggested. Respectfully submitted, William P. Baxter Assistant Attorney Douglas . insburg General Deputy Assistant Attorney Antitrust Division General Antitrust Division 71/ The proposed rule recp.iires the networks to notify the Commission within thirty days of the transfer of syndication rights and to certify that the terms of the transfer comply with the requirements of the rule.., Proposed Rule, 47 C.P.R. S 73.658(j)(3). 24/ Of course, the conduct of the networks while the rule is iii effect may not fully foreshadow network conduct after the rule is removed, but it will give the FCC at least some information on which to anticipate such conduct. PAGENO="0733" 731 Gorinson, Chief ~ Regulated Industries 6~etion ~ arren Attorney, Special Regulated ,Xr~dqstries Section Timothy Economist, Economic Policy Office gG~çI4~ A~/ he don Kimrnel f~.1 Economist, Economic Policy Office Department of Justice Antitrust Division Washington. D.C. 20530 202/724-6693 Dated: September 20. 1983 CERTIFICATE OF SERVICE I, Phillip Warren, hereby certify that a copy of the foregoing Comments of the United States Department of Justice was served this 20th day of September. 1983. by United States mail postage prepaid. on all parties of record. Ph~4 ~ - hip arren Attorney, Antitrust Division Department of Justice 202/724-'6774 PAGENO="0734" 732 Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of Amendment of 47 CFR S73.658(j); the ) BC Docket No. 82-345 Syndication and Financial Interest Rule COMMENTS OF THE UNITED STATES DEPARTMENT OF COMMER~ The United States Department of Commerce, as the Executive Branch department principally responsible for national telecommunications policy, respectfully submits the following Comments in response to the Commission's Notice of Pr'oposed Rulemaij~q ("Notice") in this proceeding released July 21, 1982 (FCC 82-300) INTRODUCTION. AND SUMMMX The Commission's Notice requests comments on whether the Syndication and Financial Interest Ruler is necessary and appropriate given changes in the marketplace since its adoption and whether the public's interest in a more diverse and competitive programming marketplace would be furthered by the Rule's deletion. The Rule, in essense, currently prohibits the three major television networks (ABC, CBS, NBC) from engaging in television program syndication and/or acquiring any financial interest in 1/ 47 CFR S73.658 (j). PAGENO="0735" 733 television programming produced by another entity (i.e., they are prohibited from producing television programming for broadcast in which they are not the sole owner). The Commission has asked for comments on a number of specific matters related to the Rule: 1. whether there is a continued need for Commission restriction, based on a 1964 view of the networks as the overwhelming force in the program marketplace (138); 2. whether the Network Inquiry Special Staff (Special Staff)a/ was correct in stating that the rule was misguided in the first place (139) 3. whether program producers need to be protected from the possibility or exercise of undue influence by the networks (139) 4. whether the rule restricts the ability of the networks and producers to spread financial risks and rewards (140); 5. whether the rule achieves any balancing of bargaining power between the parties involved (140); 6. the impact of any bargaining imbalance on the ability of the networks and competing non-network outlets to acquire different types of programming (142); 7. the impact of rule deletion on independent television stations where networks, acting as syndicators, would be in the business of selling program rights to be used in competition with their network schedule or the local schedules of affiliates, or their owned and operated (0 & 0) stations (142); 8. whether protection of program producers from undue influence is an appropriate subject of Commission concern (142); and 2/ In 1977, the Commission issued a Notice of Inguir~y, Commercial Television Network Practices, Docket No. 21049, 62 F.C.C. 2d 548 (1977) and appointed a Network Inquiry Special Staff ("Special Staff") which issued a report, New Television Networks: Ent~y~ Jurisdiction, Ownership and Regulation ("New Television Networks") in October 1980. 32-540 O-84--47 PAGENO="0736" 734 9. the nature of the relationship between the rule and the network antitrust consent decrees3/ (1142). Except for the last two matters which will be dealt with separately, most of these questions can be grouped into four major issues for purposes of discussion and analysis: (1) Risk/Reward Sharing; (2) Producer versus Network Contol; (3) Network Ability to Compete with New Technology; and (4) Program Warehousing. Summary of the Department's Recommendations The Department of Commerce believes strongly that the Commission should not seek to regulate the contractual arrangements between program suppliers and the networks. In our view, it is inappropriate for the Commission to concern itself with allocating revenues and profits among individual firms and industry segments, particularly as no clear public interest purpose has been demonstrated. There also is convincing evidence that the Rule was uncalled for when it was promulgated and, in any case, has not achieved the goals articulated by the Commission at that time. We appreciate the competitive concerns some have raised. It is the Department of Justice and not the Commission, however, that 3/ United States v. National Broadcasting Co., 449 F. Supp. 1127 (C.D. Cal. 1978), aff'd, No. 77-3381 (9th Cir. April 12, 1978), cert. denied sub non; CBS v. U.S. District Court for Central Division of Calif., 48 U.S.L.W. 3186 (1979); United States v. ~ Inc., Civ. No. 74-3599-RJK (C.D. Cal. July 31, 1980), reprinted at 45 Fed. Reg. 34,463, 34,466 (1980); United States v. ABC, Inc., Civ. No. 74-3600-RJK (C.D. Cal.) reprinted at 45 Fed. Reg. 58,441 (1980); (hereinafter referred to as "consent decrees"). PAGENO="0737" 735 is primarily responsible to monitor anticompetitive behavior and enforce the antitrust laws against any abuses of market power. Indeed, the Department of Justice and each of the networks previously have entered into consent decrees restricting network program acquisition, production, and distribution which are still in effect. Although these consent decrees and the Financial Interest and Syndication Rule have much in common, they are separable. Further, it would be inappropriate to encroach upon the court approved decrees by examining them in this proceeding. Even if it were appropriate for the FCC to regulate these activities in the past, we believe that there are signficant reasons why the Commission now should repeal its Rule. First, the Rule precludes efficient sharing of risk by the networks by prohibiting their participation as partners in the production process. Second, the notion that the Rule in some fashion protects producers' creative control over their programs is significantly flawed because the ultimate power to select programs for broadcast, remains with the networks no matter who owns them. Third, because of the restrictions on risk and reward sharing placed on the networks, the networks may in the near future find themselves unable to compete effectively with other program distributors and exhibitors who enjoy the ability to participate as full partners in program production. Finally, if the Rule is repealed, it is unlikely the networks would in fact harm independent stations by withholding off-network syndicated programming from the syndication market. In any case, the Department of Justice, as the PAGENO="0738" 736 appropriate government agency is well equipped to monitor such activities and take any appropriate actions. Fundamental to the efficient performance of our free enterprise economy is maximum reliance on free and unregulated competition Unless it can be clearly demonstrated that the public interest would best be served by retaining the present outmoded restrictions on network participation in program production and distribution, therefore, the Department of Commerce believes that the Commission should repeal its Financial Interest and Syndication Rule DISCUSS ION Appropriateness of Commission Action Before evaluating the efficacy of its Rule in redressing alleged abuses by the television networks the Commission should first address the issue of whether it is appropriate for it to regulate the contractual relationships between program suppliers and exhibitors (networks and/or stations) There are several reasons why the Commission should question the appropriateness of promulgating the Rule in the first place and whether to retain it First, allocative issues such as the redistribution of revenues and profits from the networks to program PAGENO="0739" 737 suppliers should not be a concern of the Commission. Second, and related to this first concern, it is simply inappropriate for the Commission to be concerned with success or failure of individual firms in a market as long as the market overall remains co~npetitive. Finally, if, as has been alleged, the issue is not allocative, but rather, protection against anticompetitive conduct as a result of network market power, then antitrust enforcement by the Department of Justice and not the Commission is the appropriate remedy. A primary intent, and result, of the Rule is re-distribution of profits from the networks to the major Hollywood producer:3.~ This, however, is an inappropriate topic for Commission concern. As the Network Inquiry Special Staff correctly points out: Indeed, neither the statutory nor the constitutional mandates under which the Commission operates can fairly be construed to authorize intrusion into the program supply business solely for the purposes of enhancing the profits of suppliers. It is at the very least quite difficult to comprehend how the interests of television viewers are affected by the division of advertising revenues between networks and program producers.5/ 4/ Amendment of Part 73 of the Commission's Rules and Regulations with Respect to Competitiveness and Responsibility in Network Television Broadcasting, Report and Order 23 FCC 2d 382, 399 (1970) (herinafter "Report and Order"); See also discussion in Federal Communications Commission Network Inquiry Special Staff, Background Report, "An Analysis of Television Program Production, Acquisition and Distribution," (hereinafter Special Staff Analysis) in New Television Networks, Vol. II, 293 at 725-31. 5/ Id. at 726. PAGENO="0740" 738 It is widely agreedW that the Commission should not be concerned with the division of revenues or profits in a healthy competitive market Nor should the Commission be concerned with the success or failure of any individual firm as long as the overall market remains competitive In this regard the Network Inquiry Special Staff analysis Nunambiguously demonstrates that the program supply business is competitive and adaptable Moreover, in reexamining pre-Rule market data the Special staff found that the networks did not have market power in syndication prior to the Rule - Our analysis of the structure of the 1968 syndication market indicates that none of the networks controlled a sufficient portion of the syndication rights to programs to exercise market power 8/ Further in its overall evaluation of the Rule the Network Inquiry Special Staff concluded The financial interest and syndication rules [sic) can Only be characterized as misguided at best. At the cost of disrupting an efficient risk-sharing arrangement between networks and program suppliers and increasing 6/ In preparation of these comments dozens of persons were interviewed including independent producers independent distributors studio executives, network executives and managers of both network affiliates and independent stations Virtually all agreed that it was inappropriate for the Commission to concern itself with purely allocative issues or individual firm financial health Although there was expected disagreement over what constituted a purely allocative issue, the fact remains t~at there seems to be broad consensus that the Commission should not ordinarily concern itself with firm or industry segment revenues or profits. jj Special Staff Analysis supra n 4 at 726 8/ Id at 733 PAGENO="0741" 739 concentration in network program supply, the rules [sic] diverted business from the existing networks' syndicated distribution arms. The rules have done little to further the Commission's goals of diversity or increased competition in the program supply market. Diversity remains largely unaffected because the number of available outlets and viewing options remains unchanged. Competition in the syndication market has not been fostered by the rules, for that market was competitively structured prior to their imposition.~/ Even if the Special Staff was wrong and the networks could distort the market by exercising market power, it is the Antitrust Division of the Department of Justice and not the Commission that is the primary enforcer of the nation's antitrust laws. Unless a compelling case can be made to the contrary, the Department of Justice, rather than the Federal Communications Commission, is the appropriate body to oversee, to the extent necessary, the relationship between television program suppliers and exhibitors, whether networks or stations. ~Ih addition to the appropriateness of the Commission's activity in this area, there are major questions about the Commission's ability to enforce detailed restrictions on business practices. Even the Commission's Network Inquiry Special Staff concluded that "the Commission lacks the resources and expertise necessary to" evaluate claims "that networks collusively impose contract terms on program suppliers."~'1 Instead, the Special Staff suggests that the Commission rely upon "government antitrust authorities." There is 9/ New Television Networiç~s, supra n. 2 at 510. 10/ Special Staff Analysis, p~ n. 4 at 508. PAGENO="0742" 740 no reason to believe that the Commission would be any better equipped to detect evaluate, and pursue antitrust claims against the networks with regard to any of the alleged practices under discussion Relationship to Consent Decrees In 1972 the Department of Justice filed antitrust complaints against the three television networks charging violations of Sections 1 and 2 of the Sherman Act. The suits were dismissed without prejudice on procedural grounds11' but ref iled in late 1974 charging that (1) ownership and control of prime time programming was concentrated among the networks (2) the networks unreasonably restrained competi$~ion in the production, distribution, and sale of entertainment programming (3) program supply to the networks was unreasonably restrained and (4) the public had been deprived of the benefits of free and open competition in the broadcast of television entertainment programming In late 1976 NBC and the Department of Justice filed a stipulation providing for the entry of a consent decree to settle the litigation A little more than one year later a modified 11/ United States v National Broadcasting Co 65 F D R 415 (C D Cal 1974) 12/ United States v National Broadcasting~~, Civ No 74-3601-- RJK (C D Cal , 1974) United States v CBS, Inc Civ No 74- 3599-RJK (C D Cal , 1974); and United Stat~e~ V American Broadcasting Companies Inc , Civ No 74-3600-RJK (C U Cal 1974) PAGENO="0743" 741 version of the proposed consent decree was entered by the District Court.1~'1 Slightly more than two years after that, in mid-1980, first CBS, then 1~BC followed by entering into similar consent decrees with the Department of Justice.~" The consent decrees incorporate the major provisions of the Commission's Syndication and Financial Rule, and thus restrict network program production and distribution. In addition, the consent decrees provide for further limitations on network program acquisition activity not addressed by the Commission's Rule. Thus, with very detailed provisions, the decrees govern and limit the timing and terms of network-program supplier agreements concerning program production, distribution, options, and exclusivity. Fo\~ example, the ABC consent decree limits to four years the length of time the network can initially,negotiate for exclusivity to keep a program out of daily (stripped) syndication.1~" Thus, as the CommissIon noted in its Notice, "in all significant respects, the requirements of the consent decrees are more restrictive than or equivalent to the restrictions of our syndication and financial 13/ United States v. National Broadcasting Co., 449 F. Supp. 1127 (C.D. Cal. 1978), aff'd mem., No. 77-3381 (9 Cir. April 12, 1978), cert. denied sub nom; CBS v. U.S. District Court for Central Division of Calif., 48 U.S.L.W. 3186 (1979). 14/ United States v. CBS, Inc., Civ. No. 74-3599-RJK (C.D. Cal. July 31, 1980), ~printed in 45 Fed. Reg. 34,463, 34,466 (1980); United States V. ABC, Inc., Civ. No. 74-3600-RJK (C.D. Ca]..) reprinted in 45 ~ed. Reg. 58,441 (1980). 3.5/ United States v. American BroadcastinQ~CompaflieS, Inc., supra, 45 Fed.. Reg. at 58,443. PAGENO="0744" 742 interest Although the consent decrees incorporate the major provisions of the Commission's Syndication and Financial Rule, they are neither identical to the Rule nor should they be thought of as such. The decrees build on the Rule, accepting its premises, and provide for additional restrictions, especially by governing the negotiations and relationship between a network and program supplier and the length of time a network may control the use of a television program. Any discussion of the consent decrees, therefore, must include an analysis and discussion of these additional provisions. This current proceeding is an examination of the Commission's Rule and not the consent decrees, regardless of their relationship or similarities. Although the two sets of limitations on network activities have much in common, they are separable and should be evaluated separately. This proceeding is not the proper forum within which to debate the appropriateness of the consent decree~. Rather, the Commission should focus on the appropriateness of its own intrusion into the networks' business practices and relationships with other entities. Only if it can be demonstrated that these issues involve public interest concerns related to communications policy beyond the normal jurisdictional scope of the Justice Department's antitrust interests, should the Commission continue to regulate the contractual relationships between networks and program suppliers. 16/ Notice at 126. PAGENO="0745" 743 Risk/Reward Shar~g The Financial Interest and Syndication Rule was, in part, "designed to eliminate the networks from distribution and profit sharing in domestic syndication . . . and designed to "prohibit networks from acquiring subsidiary program rights and profit shares"1~1 in order to make "for fairer competition."~" What the Commission did not foresee in its attempt at "fairer competition" is that the Rule prohibits an efficient risk-sharing arrangement between producers and the networks in the production of new television programming. Contrary to its intent, the Rule appears to have stabilized or increased concentration in the program supply industry by making it more difficult for unknown independent producers to find partners with which to share their risks. As the Special Staff. study points out, these small independents, may either leave the industry, or merge with other suppliers or participate in ventures jointly with large suppliers [major Hollywood studios and producers] in order to facilitate pooling of risks. The result will be for the size of the average supplier to increase and for measures of industry concentration to rise4Q/ The net result of the rule, therefore, has been to force small independent producers into "umbrella" arrangements with major Report and Order, sup~ m. 4 at 397. Id. at 398. Id. Special Staff Analysis, su~p~ n. 4 at 621. PAGENO="0746" 744 studios and producers in lieu of the networks. If the Rule is repealed then these independent producers will be able, should they so desire, to enter into a risk-sharing arrangement with a network rather than a studio. To the extent that the Rule eliminates such choice and this prevents efficient risk-sharing arrangements, it serves to shift revenues and profits from the networks to the major Hollywood producers. Producers claim that the networks now are able to "share in the profits" from a successful program, by virtue of the significant advertising revenue generated from selling time during and adjacent to prime time programs. In addition, producers claim that the networks are even able to recoup their investment in pilot programs not developed into series by airing them in the summer and offsetting some of their inves~inent with advertising revenues such programs generate. Because of this revenue, the studios claim that the networks are not taking the bulk of the risk when financing a new series but, rather, are merely end users of a product. This is an oversimplified view, however, and it ignores the significant investment that each network makes in new programming annually as well as the enormous uncertainty of success in the process. As an example, of the 113 prime time scripts and stories commissioned by ABC for the 1981 season, only 32, were ever produced as pilots (see Figure 1, page 14). The experience at CBS is similar. For the 1981-82 season, CBS commissioned 158 scripts of which only 31 became pilots. Of these, only nine were developed PAGENO="0747" 745 FIGURE 1 1981-82 TV SEASON -- ABC Percentage of Scripts Number and Stories Commissioned Number of Scripts and Stories Commissioned 113 100.0% Number of Pilots 32 28.3% 1981-82 TV SEASON -- LBS Percentage of Scripts Number and Stories Commissioned Number of Scripts and Stories Commissioned 158 * 100.0% Number of Pilots 31 19.6% Number of Series 9 5.7% Number of Renewals 2 1.3% 1978-82 TV SEASONS (CUMULATIVE) - - CBS Percentage of Scripts Number and Stories Commissioned Number of Scripts and Stories Commissioned 805 100.0% Number of Pilots 160 19.9% Number of Series 51 6.3% Number: of Renewals 12 1.5% Source: ABC and CBS~ PAGENO="0748" 746 into series and only two were renewed For the four seasons from 1978-1982, CBS commissioned a total of 805 scripts of which 160 were made into pilots and only 51 became series Only 12 of these less than 1 5 percent of the original scripts, were successful enough to be renewed for at least one season. Contrary to the producers' assertions, the networks make a significant investment in programming and take a substantial risk in the program development process It is also questionable to assert that the networks can cover their investment in program development by airing or "burning of f pilots and failed series during the summer Shortly after Grant Tinker became president of NBC, that network wrote off apporoximately $38 million in programming that could not be used. Likewise, for 1981, ABC wrote off approximately $29 million in direct program development costs that could not be recouped (~g through summer Jroadcast) It should be noted that these costs reflect gross figures and do not include provisions for overhead or lost opportunities resulting from preemption of other (more popular) programs To say that the networks do not take significant risks in the program development process is not accurate. To prohibit them from sharing in the potential rewards not only is unfair but also threatens their future ability to compete effectively with unregulated competitors (~g, cable and pay networks) for new programming As it stands now the networks are limited to paying program suppliers a -license fee for a program's initial network run. If, PAGENO="0749" 747 on the other hand, the networks were permitted to have a financial interest in programming or to acquire syndication rights, they would be able to pay producers more than just a license fee at the time of production. Producer Versus Network Control Program producers (both studio and independent) claim that if the networks are permitted to obtain a financial interest in programming and re-enter the syndication business, producers will be at a critical disadvantage in bargaining and negotiating with the networks. First, they claim they would be unable to resist network demands for financial participation and syndication rights. Second, and more important for some, producers fear losing creative control of their programs if,, the networks regain a financial interest. Experience does not support these fears. Prior to adoption of the Rule, the networks did not obtain a financial interest in all programs. While they commonly obtained syndication rights from producers who did not operate their own syndication business, this was not typically the case with programs produced by the major studios or other producers operating their own syndication business. Further, any independent not desiring to negotiate directly with the networks could always enter into an "umbrella" agreement with a studio, much as they do today. PAGENO="0750" 748 Regarding fears about creative control, with or without a financial inthrest in a program, the networks already have ultimate or final control over the nature of the programs they purchase for broadcast Indeed as a licensee (each with five owned and operated stations) with a responsibility to its affiliates each network properly oversees the content of each program it broadcasts It is in the mutual interest of networks and program suppliers to have successful programs Disagreements about how to achieve that commercial success exist today and inevitably are part of the television program development and production process. It would be unfair, however, to characterize the network-producer relationship as an adversary one in which all producers are in conflict with all three networks To the contrary, most producer- network relationships are mutually beneficial Repeal of the Financial Interest and Syndication Rule will not significantly alter this process The Commission has inquired about the imbalance in bargaining power between producers and the networks Most producers as well as network representatives agree that while there may be an imbalance in favor of the network in initial negotiations once a program qualifies as a hit (ie, the network wants to renew it), the advantage shifts to the producer Indeed, the Network Inquiry Special Staff found that among the network-producer contracts that they examined, all had been amended for series appearing on the PAGENO="0751" 749 network for more than three years.11~" They concluded: Although it is true that the network entertainment program development process is characterized by multi- year agreements that usually specify prices and at least a few other provisions to be effective several years hence, these agreements are themselves a part of that evolutionary, dynamic development process. . . . It would be erroneous to conclude that any one agreement made during this evolutionary process, no matter how long-term or ironclad the contract may appear to be, is the sole or the last deal that will be made. The parties are not only legally free to amend their contracts; they do so with regularity .22/ Therefore, to assert that the relationship between a network and a producer is one-way and imbalanced is to ignore industry practice. If the fear on the part of producers is that they will be forced into unfavorable contracts with the networks, they do not adequately recognize the shift in bargaining power that occurs when a program is successful enough to be renewed. If a program does not succeed and subsequently is cancelled, then nothing is lost; i.e., whatever the producer gave up turned out to have no value. On the other hand, if a program is successful, the producer has the opportunity to renegotiate the contract (and commonly does) and to negotiate better terms for subsequent projects. While the question of program control is an important one for producers, it is not addressed by the Rule in question. The networks today, with the Rule in place, appropriately control the 21/ Special Staff Analysis, supra n. 4 at 463. 22/ Id. at 465. 32-540 O-84--48 PAGENO="0752" 750 programs they license and broadcast. Repeal of the Rule will not change the fundamental buyer-seller relationship between network and producer in which the networks have the ultimate control of choosin~ to broadcast or not to broadcast a particular program. Network Ability to Compete with New Technology It is widely recognized that we are in a period of dramatic change in the communications and entertainment industries. For the first time in their history, the networks are facing significant competition for prime time audience attention. A multiplicity of cable networks already are available to viewers and dozens more are planned or scheduled for operation. Satellite communications have enabled ad hoc broadcast networ)~s to compete with the networks for audience. The combined television network prime time share fell from 91 percent in 1977-78 to 80 percent in 1981-1982 and is predicted to reach only 60 percent by the end of the decade. Although it has been predicted that, because of growth in the general population and number of households, the networks' audience in terms of households and viewers will remain relatively constant and not decline along with their shares, it also is predicted that network costs for programming will increase significantly. Without the increases in audiences they have enjoyed over the past thirty years, the networks will find it increasingly difficult to compete successfully for new programming. PAGENO="0753" 751 The networks' inability to share in syndicat~on and other subsidiary rights because of the Rule has therefore become more than just an inconvenience In order to pay the high prices prime time programming demands, the networks need to be able to share in the non-network revenues generated through exploitation of subsidiary rights The only alternatives are either to raise advertising rates or purchase less expensive programming Given the increasingly competitive nature of the advertising business it is unlikely that the networks would be able to raise their rates sufficiently to cover their increasing program costs An undesirable alternative would be to increase the number of minutes devoted to advertising each hour This would likely be counter- productive since advertisers would resist increased "clutter" and viewers would have additional incentive to desert the networks for advertising-free subscription services Nor is purchasing less expensive programs a viable solution It is difficult to envision producers being able or willing to provide the kinds of network prime time drama and comedy that comprise the bulk of the networks schedules for very much less than they now charge It has been suggested that, in order to cut costs the networks may have to begin scheduling game shows and other low budget programs in prime time One potential outcome of Rule retention therefore is that the producers objecting to repeal might find themselves without customers for the very programming they argue needs protection Not only would the networks and producers suffer from such cutbacks, but so too would the independent stations that depend on PAGENO="0754" 752 expensive off-network programming for much of their schedule. The ultimate loser, of course, would be the public. Program Warehousing The most difficult issue raised by the Commission's Notice is whether independent television stations require special protection from potential network "warehousing" of programming, if they are permitted to re-enter the syndication business. While the three preceding issues appear to be allocative and therefore outside proper government action, this issue potentially involves important competitive issues more appropriate for government concern. However, as discussed below, there is little reason to believe that the potential for warehousing is a real threat and, more importantly, if it were to become a problem, the proper remedy lies more appropriately with antitrust enforcement by the Department of Justice rather than by Commission Rule.~V Independent television stations fear that if the networks are permitted to obtain syndication rights for network series and re- enter the syndication business, there will be a "conflict of interest" where the networks will control sale and use of programs used to compete with their network affiliate and 0 & 0 schedules. The independents claim that the networks would withhold popular programs from syndication in order to limit this competition. This 23/ See supra pp. 9-11 for discussion of Department of Justice ~nsent decrees with each of the networks. PAGENO="0755" 753 claim goes on to argue that the result would be a lessening of competition in the program syndication business, weaker independent stations, and, therefore, higher overall advertising costs. There is no support, however, for these claims, all of which hinge on the desire and ability of the networks to withhold programming. This alleged potential for withholding is based upon three rather questionable assumptions about network activity that, while theoretically possible, do not reflect the reality of sound business practice. First, the withholding argument is premised on the networks' ability to control virtually all off-network programming. In order to accomplish this, the networks would either have to buy syndication rights for all programs they develop or, since this would be prohibitively expensive, buy syndication rights only for those series that become hits. The problem with this assumption is that no one can predict which programs will be successful. One only has to look at the extremely high failure rate of program development to see the difficulty involved.~" The notion that the networks could control even a majority of syndicated programming is thus totally at odds with the state of the industry. The program syndication market is competitively structured and was so before the networks were restricted by the Rule. Indeed, the Network Inquiry Special Staff found that the combined network share of the syndicated program business was only 24/ See Figure 1, supra p. 14. PAGENO="0756" 754 18.5 percent,~~' concluding, "there is no evidence that the syndication market was concentrated in the hands of the networks as a result of their ownership of distribution rights. Their share of that market was relatively sinall."2-~' In addition, if the networks re-enter the syndication business, they will begin with zero market share. The second questionable assumption underlying the alleged withholding threat is that the three networks will collusively form an undetected cartel to coordinate their syndication activities. Given the highly competitive nature of the television programming and syndication businesses, such coordinated action is highly improbable. Not only would the networks have t9 avoid Justice Department detection and enforcement, they would have to avoid detection by potential private litigants. The latter problem would be particularly acute since the television distribution industry is extremely fluid with personnel moving among firms and industry segments many times during a career. Finally, the most difficult task for the cartel would be to enforce its agreements since the incentives to violate the agreement would be extremely high, given the assumed demand for scarce off-network programming. Those who argue that the networks would not have to act collusively, but only in parallel, fail to recognize the significant incentives to enter the syndication business, especially if there is a shortage of product. 25/ Special Staff Analysis, p~ n. 4 at 578. 26/ Id. at 532. PAGENO="0757" 755 The third questionable assumption is that the networks will engage in irrational business practices. That is, they would purchase, at considerable expense, program syndication rights and then choose not to exercise those rights. A primary reason the networks desire to re-enter the syndication business, however, is to be able to share in the rewards associated with a successful television series by participating in syndication revenues. For the networks to "sit" on these rights, failing to exploit them, would be acting against their own and their stockholders' own best interests. Further, since the networks would rarely be the sole owner of a program, they would open themselves up to lawsuits from partners if they were to act contrary to their partners' (and their own) interests. To argue that the networks would pay for rights they would not use is to ignore the fiscal necessities of the highly competitive television entertainment business. Because of the highly unlikely event that the networks would have the desire or the ability to withhold programming, it is not even necessary to address claims that independent station viability would be harmed and therefore advertising rates would increase if the networks were permitted to engage in program syndication. It should be noted, however, that even if a convincing showing can be made that independent station strength is related to local market spot advertising rates, linking station health and advertising rates to any particular program or program type is a separate issue. PAGENO="0758" 756 CONCLUSION Although producer fears about repeal of the Commission's Financial Interest and Syndication Rule are genuine, they do not appear to be justified. Although some independent producers may find it difficult to remain "independent" ~ outside an "umbrella" arrangement with either a major studio or a network), it is unlikely that the business of producing television programs, especially prime time series, will become any more concentrated. Although it is likely, as was the case before the Rule, that the networks will be able to obtain syndication rights from independent producers, there is no evidence such arrangements will do anything but shift a portion of the syndication business from the studios to the networks. However, if producers would rather work with the studios, there would be nothing preventing them from doing so through an "umbrella" arrangement giving the studios syndication rights. Producer concerns about "creative control" are understandable but again unsupported. The networks already have significant control over program content and if producers fear network intrusion they will always be able to seek "insulation" by working through the studios as they do now. Likewise, if individual program distributors fail because of the entry of more efficient competitors, this will not result in significant increases in concentration and, in any event, PAGENO="0759" 757 should not be the concern of an independent regulatory agency If, on the other hand business failure is the result of anticompetitive behavior and undue market power then there are sufficient existing antitrust remedies available to the Department of Justice and private litigants Based upon available evidence the only issue raised that may be more than allocative is the impact of eliminating or modifying the Rule on the availability of programming to independent television stations If eliminating the Rule resulted in withholding popular off-network syndicated programs from syndication, then questions would have to be raisea about network behavior However, such an outcome is unlikely And if the networks were able to create an effective cartel they certainly would find themselves subject to Department of Justice and private antitrust litigant scrutiny and action The ability of the networks to withhold programming from the syndication market is based on three seemingly implausible assumptions (1) networks would be able to control the vast majority of "important~ programs in syndication (2) networks would be able to maintain the cartel and avoid detection and (3) networks would act irrationally and not exploit a valuable property Summarizing, the Commission $ Financial Interest and Syndication Rule never had the intended effect of increasing both PAGENO="0760" 758 the number of producers and the amount of programming available for both network broadcast and syndication. Both program supply and program syndication markets are competitively structured today and were so before the rule was promulgated. Overall, therefore, the rule appears to have had little impact on the program market other than skewing market shares in the direction of producers, and permitting entry by some new firms. Repeal, however, would have the positive effect of promoting competition in program supply by permitting independent producers to work directly with the networks if they so desire. Repeal also would permit increased competition in program distribution by permitting three additional entities ~ the networks) to compete for business. Perhaps most importantly, to the extent that the Rule is concerned with allocating revenues and profits among firms and industry segments, it is an inappropriate activity of a government agency. In addition, to the extent that protection against anticompetitive behavior and undue market power is required, sufficient remedies re~t with the Department of Justice and private antitrust litigants exercising their rights under existing law. PAGENO="0761" 759 Therefore the Department of Commerce urges the Commission to act on its Notice and repeal the Financial Interest and Syndication Rule Respectfully submitted, ernard under, Jr Assista Secretary for Communications and Information U.S. Department of Commerce Washington, D C 20230 January 26 1983 Pro3ect manager for this filing was Robert Pepper, NTIA, Office of Policy Analysis and Development, Suite 4725, U S Department of Commerce, Washington, D C 20230, (202) 377-1880 PAGENO="0762" 760 * RECEIVED SEP20 1983 I~LC Before the Office of the Secretary FEDERAL COMMUNICATIONS COMMISSION Washington, D. C. 20554 In the Matter of Amendment of 47 CFR Sec. 73.658(j) ) BC Docket No. 83-345 (1) (i) and (ii), the Syndication and Financial Interest Rules. COMMENTS OF TEE NATIONAL TELECOMMUNICATIONS AND INFORMATION ADMINISTRATION The National Telecommunications and Information Administration (NTIA), as the Executive agency principally responsible for the development and presentation of telecommunications policy, respectfully submits the following brief comments to the Commission in general support of the "Tentative Decision" released August 12, 1983 (FCC 83-377, 48 Fed. Reg. 38020). We previously submitted extensive comments and reply comments in this important proceeding, and also. participated in the Commission's March 14 oral arguments. NTIA's Views on the principal Issues NTIA consistently has recommended comprehensive rescission of the Commission's Syndication and Financial Interest Rules in its earlier submissions to the Commission, and we continue to believe this would be the soundest, most procompetitive approach. We have adopted this position, essentially, because we believe the proponents of the rules have not yet adequately demonstrated that the kind of *Government intrusion into the programming marketplace these rules represent is needed to further any clearly defined public interest, or that the obvious economic costs the rules impose outweigh any likely future gains. PAGENO="0763" 761 All parties to this proceeding agree that virtually all sectors of the "video marketplace" today are workably competitive, or clearly have the potential to become so, especially given the rapid technological and commercial changes that are occurring. Once dominant, the three national television networks, for example, have seen their commercial leadership increasingly challenged, indeed, eroded by the rapid development of both independent broadcast stations and cable television in particular. Although there is some diversity of views regarding how quickly any residual "network power" will dissipate, there is little disagreement that a very substantial reduction has taken place and will continue to take place in the future. The programming busjness, moreover, has also experienced major recent changes, by virtue of new technology (e.g., videotape and satellite distribution), shifting and growing demand, and new competitive entry as well. Competitive Imperatives We generally start from the fundamental premise that Government intervention into competitive markets is not desirable, and ordinarily is likely to generate more economic costs than societal gains, particularly when those markets are being reshaped by technological forces. Competition, as the Supreme Court has repeatedly noted, constitutes our "fundamental national economic policy"; reliance upon competition, not intrusive Government regulation, should thus be our "Magna Carta of free enterprise," "comprehensive charter of economic liberty," and the "polestar" by which all agencies including the Commission should be guided. */ Absent clear and persuasive evidence that regulatory intrusion is warranted to further a clearly defined ~/ See United States v. Philadelphia Nat'l Bank, 374 U.S. 321, ~63 (1963); United States v. Topco Associates,T05 U.S. 596, 610 (1972); Northern pacific R. Co. v. United States, 356 U.S. 1, 4 (1958); City of Lafayette v. Louisiana Power & Light Co., 435 U.S. 389, 406 (1978) PAGENO="0764" 762 public purpose, we believe both our traditional national policy biases in favor of competition and historical experience would dictate that the public's interests are most likely to be efficiently furthered by relying upon unfettered marketplace forces. Given our traditional, strong commitment to competition, those urging detailed and intrusive regulations and constraints on competition bear an especially heavy burden of proof. Cf. Connell Construction Co. v. Plumbers & Steamfitters Local, 421 U.S. 616, 623 (1975); National Assoc. of Professional Engineers V. United States, 435 U.S. 679, 692 (1978). We appreciate some of. the theoretical concerns the proponents of retaining the Financial Interest and Syndication Rules have advanced. Even assuming any validity to these theoretical concerns, however, in our view the proponents have simply failed sufficiently to buttress their arguments with adequate or credible facts. That being the case, we believe rescinding the rules and relying on an unregulated marketplace is both desirable and fully warranted as a inktter of law. For as the courts have stated, "A regulation perfectly reasonable and appropriate in the face of a given problem may be highly capricious if that problem does not exist." C.ity of Chicago v. FPC, 458 F.2d 731, 742 (D.C. Cir. 1972). Financial Interest Rule Repeal We fully support the Commission's proposed rescission of the Financial Interest Rule. As indicated both in our earlier pleadings and in our oral presentation in this proceeding, we see no good reason for continuing, among other things, to deny particularly smaller, independent program producers a broader range of financing and risk-sharing alternatives than they enjoy today. One practical consequence of this rule, which prohibited network investment in entertainment programming, was that it PAGENO="0765" 763 tended to limit those alternatives and thus, as a consequence, to discourage new, competitive entry into the program production business by precisely that group of smaller, possibly more innovative and creative, programmers who might otherwise make a substantial contribution to greater diversity. Eliminating the Financial Interest Rule should foster new entry and greater competition in program production, and thus work ultimately to the benefit of the viewing public. We believe, in sum, that the Commission would best serve the interests of the public in a more diverse, competitive, and efficient program production business by rescinding the Financial Interest Rule, as we have previously urged. This is the soundest approach, in our view, and given the Commission's careful review and analysis, is a timely action likely to be sustained easily on appeal. See, e.g., NAACP v. FCC, 682 F.2d 993, 998 (D.C. Cir. 1982). Modifying the Syndication Rule While we support the changes in the Syndication Rule the Commission has proposed, we believe the FCC should have gone further and proposed rescinding this rule altogether. We appreciate the legitimate concerns that some have raised regarding possible adverse effects on some independent stations at some indefinite future time. We do not believe, however, that the proponents of this rule have adequately demonstrated the reasonable probability of such hypothetical harms, nor the ineffectiveness of alternative, less costly, and less anticompetitive remedies should such hypothetical harms materialize. Given that a firm, fact-based basis for such a rule is lacking, we believe the wiser course for the Commission would have been to decline completely to intervene in the workings of the syndication marketplace. PAGENO="0766" 764 The easy assumptions upon which this rule is based do not bear close analysis, as we have noted. The notion that the networks might hypothetically "warehouse" syndicated programming, for example, rests on the assumption that any "deep pocket" these ~companies currently enjoy will persist indefinitely; a~nd that the kind of collusive, consciously parallel, anticompetitive conduct which might run afoul of the antitrust laws, and thus the Communications Act, will be undertaken, and succeed, undetected. This, as we pointed out, is an invalid assumption: any abuses, to begin with, are most likely to materialize only in the far future -~ and at precisely that time when competition from new media (and hence the pressures on any network monopoly rents) is likely to be most intense. Similarly, any competitive abuses will arise, if at all, only over time, and not all at once. Were the Commission to rescind the Syndication Rule altogether, it would retain full authority under the Communications Act to take ad hoc, remedial actions. The Commission, in addition to its general authorities under. the Act (see, e.g., 47 U.S.C. Sec. l54(i),303(g)) retains authority over station licensing, for example; for more than 30. years established FCC policy has been to hold licensees accountable for anticompetitive conduct even when such conduct does not rise to the level of a fu.llfledged antitrust violation. See, e.g., NCC~ V. FCC, 436 U.S. 775, 814 (1978); "Report on Uniform Policy as to Violations by Applicants of the Laws of the United States," P.& F. Radio Reg. (part 3) at p. 91:495 (1951). We believe the realistic likelihood of any anticompetitive conduct on the part of the national networks in this instance is remote and that, in any event, safeguards and remedies other than special Commission regu'ations are more than sufficient. PAGENO="0767" 765 "Warehousing" and "Preferential Licensing" Forestalled We recognize that some independent television entrepreneurs are less confident of the adequacy of antitrust and other ad hoc safeguards. Indeed, even the Department of Justice has expressed reservations in this proceeding concerning its ability to deal with potential anticompetitive developments. We do not share these concerns, but even conceding for argument's sake their validity, it seems to us that the Commission's revised Syndication Rule goes far to negate any legitinate basis for concerns. The revised syndication~ Rule will impose uncertain and, to a considerable degree, unquantifiable costs. Although "sunsetted," for example, the revised rule will nevertheless run through 1990. Given the pace at which changes are occurring in this field, we are chary of regulations premised on already shaky marketstructure and performance assumptions that by the end of this decade may have even less empirical support and validity than they enjoy today. If the genuine concern of the independent television stations and the Antitrust Division is the possibility of "warehousing" or its variant, "preferential licensing" to affiliates, the revised Syndication Rule should be ample to deal with those concerns. Conclusion We start from the basic policy assumption that Government intervention into the workings of effectively competitive markets should not be undertaken except for very sound reasons. Among such reasons would be the high probability of adverse developments taking place too rapidly for other remedies to be effective, or the high probability of such developments, coupled with the absence of adequate ad hoc remedies aThogether. 82-540 O-84--49 PAGENO="0768" 766 In this proceeding, we believe that even if there ever were a legitimate risk of undue "network power" adversely affecting the diversity and abundance of programming choices available to the public, this risk has been ameliorated, if not eliminated altogether, by tbe major changes that are affecting the "video services" marketplace. Not only is the risk of harm to the public thus remote, but any such harm could materialize, if at all, only over time. During such time, moreover, any number of remedies would be available to correct the situation, remedies including vigorous private enforcement of the antitrust laws. In conclusion, we continue to believe the Commission should promptly repeal the Financial Interest Rule. Although there is not clear evidence of a need for a prophylactic restriction on network syndication, we recognize the Commission's concerns and thus do not oppose the proposed rule change. Respectfully submitted, David. J. Markey Assistant Secretary for Communications & Information __________________________ Kenneth Ro5inson policy Adviser to the Richard H. Shay Assistant Secretary Chief Counsel National Telecommunications and Information Administration September 22, 1983 Project manager for this filing was Dr. Robert Pepper, Office of Policy Analysis and Development, NTIA, Room 4725, U.S. Department of Commerce, Washington, D. C. 20230 ((202) 377-1880). PAGENO="0769" 767 Mr. WIRTH. Thank you very much, Ms. Asselin. We appreciate your being here. Mr. Ochoa. STATEMENT OF DAVID OCHOA Mr. OCHOA. Mr. Chairman, first of all, I want to thank you very much for this opportunity and the invitation to testify and I want to give credit, especially to our own Congressman, Congressman Waxman, for his leadership in encouraging having this hearing here in Los Angeles. It is of great benefit to all of us in the indus- try. My compliments to you, sir. My name is David Ochoa and I am the president of Buenavision Cable Co. I got my start in television as the founder of "Via Alle- gra," a children's television show on PBS and with NBC, which I left several years ago to form my own production operation, which is a very small firm here in southern California. I now have an ownership interest in four cable companies and as a businessman I have to meet a 72-person payroll every 2 weeks. I am very proud of the nine Emmy nominations I have received and the two Emmy's I have won. As an independent film and television producer, I am pleased to inform you that my second feature film, "The Ballad of Gregorio Cortez," will soon be released for national theatrical distribution. In short, on the basis of merit, I wear the title of television and film producer. In addition, I am proud of my Hispanic heritage but ashamed at the failure of America's major television and film stu- dios to produce prime time and syndicated programs, which reflect Hispanic life, themes, and experience. Earlier this year I testified before the FCC urging the repeal of the financial interest and syndication rules. Today, I am here before you because passage of H.R. 2250, in my opinion, which, if enacted, will provide a 5-year moratorium. In short, a 5-year delay to persons like myself who are convinced that dealing directly with the networks can result in having minority-produced and Hispanic- themed programing on network prime-time television. My colleague, Topper Carew, a black, and president of Rainbow Television Workshop, has conducted a 15-year study of prime-time television. The study, which is included in the appendix of my testi- mony, reveals that black producers have supplied 188 hours of prime-time programing in the past 15 years. In many cases these black suppliers were in partnership with nonminority companies. This paltry 188 hours compares with a total of 21,780 first-run, prime-time hours. The total volume of minority business represents 0.0086 percent of the overall total for the last 15 years. The 1982- 83 television season is a clear case in point. Of the 1,452 prime-time hours available, Motown is producing one 2-hour 25th anniversary special and one movie-of-the-week. This translates to 0.0026 percent of the 1982-83 network schedule. If the situation for blacks on prime time, as we heard earlier in the previous panel, is inadequate, for Hispanics on prime time, it is a disaster and 5 more years of the same won't help. In short the rules discourage the television networks from invest- ing in projects with new and small independent producers, leaving PAGENO="0770" 768 us only one option: Trying to convince major studios to provide funding for us. For Hispanic producers the reply has been, as Mr. Leland has learned on his visits to the west coast-their reply has been "No," "No thanks, can you call me back?" "Send me a treat- ment, will you, please, or a script," which of course is neither read nor returned. Hispanic independent producers have not fared well under these rules. We are nonparticipants in 1983 and for the past 15 years. In fact, for outstanding producers, such as Jose Luis Ruiz, Jesus Tre- vino, Moctesuma Esparza and others, success has been limited to public television and, on occasion, network O&O's. Until Hispanics become 20 percent stockholders in Warner Bros., Universal, Paramount, Columbia, Syndicast, Lorimar and others, we have no reason to believe that things will change and no way to change them. We simply lack the leverage with Hollywood. And by the way, the record of the networks is about as bad, but there we have a little bit of leverage. The leverage? Each network owns sta- tions in major metropolitan areas. In Los Angeles there are 2.1 mil- lion Hispanics, constituting 22 percent of the area's population. In New York there are 1½ million Hispanics making up almost 15 percent of that city's population and growing. No one can dispute their television audience share. Eighty-eight percent of the Na- tion's Hispanics are concentrated in metropolitan areas where in many of which networks have owned stations. Hispanic viewing trends, whether or not we watch CBS, NBC, or ABC is a good market lever to assure the networks are responsive and if they are not, we will turn them off. And, as always, the matter is money. Repeal of the rules will provide the networks a second good business reason to consider our programing tastes. In summary, I want to support the comments that were made by the preceding panel, because if there is a Hispanic viewpoint on this issue, they stated it much better than I. Protecting the public interest of 20-million American Hispanics is in the public's interest. The Pentagon tells us that Hispanic Americans serving in World War II, Korea and in Vietnam far out- numbered any other group of Americans in terms of casualties and heroism. No other group, Mr. Chairman, has won more Medals of Honor than Hispanic Americans. Somos Americanos Y Tenemos Patritismo Para Nuestro Pals. We are proud to be Americans and we are proud of America. We have served our country and made the ultimate sacrifice. We have the same determination and skill to make our rightful contribution to the American experience via the medium of film and television if the FCC and the Congress gives us that opportunity. I join Mr. Poitier in asking for fairness. Please allow the FCC to remove the largest single obstacle, in my view, that prevents us from achieving this success and repeal the financial interest and syndication rules now. Thank you very much. [Mr. Ochoa's prepared statement follows:] PAGENO="0771" 769 STATEMENT OF DAVID OCHOA PRESIDENT BUENAVISION CABLE COMPANY My name is David Ochoa and I am President of BUENAVISION Cable Company. I got my start in television with NBC, which I left several years ago to form my own production operation, a very small firm in Southern California. I now have an ownership interest in four cable companies. As a businessman, I have to meet a 72-person payroll every two weeks. I am proud of the nine Emmy nominations I have re- ceived and of the two Emmy's I have won. As a small independent film and television producer, I am pleased to inform you that my second feature film, "THE BALLAD OF GREGORIO CORTEZ", will soon be released for national theatrical distribution. In short, on basis of merit, I wear the title of television and film producer. In addition, I am proud of my Hispanic heritage but ashamed at the failure of America's major television and film studios to produce prime time and syndicated programs which reflect Hispanic life, themes and experience. Earlier this year I testified before the Federal Communi- cations Commission urging repeal of the Financial Interest and Syndications Rules. Today, I am here before you because passage of H.R. 2250, which if enacted, will provide a five year moratorium. In short, a five year delay to persons like PAGENO="0772" 770 myself who are convinced that dealing directly with the net- works can result in having minority produced and Hispanic- themed programming on network prime time television. My colleague Topper Carew, President of Rainbow Television Workshop, has conducted a 15 year study of prime time television. The study, which is included in the appendix of my testimony, reveals that Black producers have supplied 188 hours of prime time programming in the past 15 years. In many cases black suppliers were in partnership with non-minority companies. This paltry 188 hours compares with a total of 21,780 first-run, prime-time hours. The total volume of minority business represents .0086% of the overall total. Added to this is the fact that of the 188 hours, 72% are comedy! musical or variety shows . . . represented by 88 hours of "FLIP WILSON," 18 hours of "REDD FOXX," 22 hours of "BILL COSBY'S VARIETY SHOW," 5 hours of Motown music specials and one hour from Diana Ross Enterprises. Of the remaining 28% in the dramatic or comedy category, 22 hours are from Bill Cosby's 1969-70 series and 24 are from Alex Haley's partnership with Norman Lear which resulted in "PALMERSTOWN." The balance, eight hours, consists of two-hour movies-of-the-week . . . two from Bill Cosby's Jemmin Productions, one from Motown and one from a Motown! Universal partnership. PAGENO="0773" 771 The 1982-83 television season is a clear case in point. Of the 1,452 prime time hours available, Motown is producing one two-hour 25th Anniversary special and one movie-of-the- week. This translates to .0026% of the 1982-83 network schedule. Fifteen years of prime time television represents 18,480,000,000 - 21,780,000,000 dollars of activity. The dollar volume of activity for Black suppliers is approximately $159,800,000 - 188,000,000 . . . or .0086%. It should be noted that this report has not even addressed the issue of daytime and Saturday morning television . an area of programming where minority suppliers have ex- perienced total non-participation. If the situation for Blacks on prime-time is inadequate, for Hispanics on prime time, it is a disaster. Five more years of the same won't help. The rules were initially aimed at increasing competi- tion in the program supply business, but they haven't worked that way. According to industry sources, in 1969 -- before the rules were adopted -- there were 60 suppliers of prime time entertainment programming. In the 1981-82 season there were only 41 -- none of whom were Hispanic and all of whom failed to support Hispanic-themed programming with any degree of consistency. PAGENO="0774" 772 We can see in the experience of one network where the top eight program suppliers provided only half that network's prime time entertainment series in 1970 but eight program suppliers provided almost all 97% by 1980! In short, the rules discourage the television networks from investing in projects with new and small independent producers, leaving us only one option: trying to convince major studios to provide funding for us. For Hispanic producers, the reply has been "no." "No thanks, can you call back?" "Send me a treatment or script" which, of course, is not read or returned. How, then, does repeal of the rules assure, as Commissioner Rivera points out, that recision does "NOT AFFECT ADVERSELY THE PUBLIC INTEREST BY LIMITING PROGRAM CHOICES AND DIVERSITY OF VIEW POINTS ON THE AIR"? Hispanic independent producers have not fared well under these rules. We are non-participants. In fact, for outstanding producers such as Jose Luis Ruiz, Jesus Trevino, Moctesuma Esparza and others, success has been limited to public television and network-owned stations. Until Hispanics become 20 percent plus stockholders in Warner Brothers, Universal, Paramount, Columbia, Syndicast, Lorimar, and others, we have no reason to believe that things will change and no way to change them. We simply lack the leverage with Hollywood. PAGENO="0775" 773 Under the present rules, the major production companies have no reason to consider us as anything other than a nuisance. Repeal of these rules, however, brings us and other independent producers, including women, native Americans, Blacks, and Asians increased opportunity to deal directly with the networks who are also public licensees of television stations. Then and only then, will we have the necessary leverage to make sure that some prime time and syndicated programming includes Hispanic themes and can be produced by Hispanic companies. The leverage? Each network owns stations in major metropolitan areas. In Los Angeles, there are 2.1 million Hispanics constituting 22 percent of the area's population. In New York there are one and one-half million Hispanics making up 15 percent of that city's population and growing. No one can dispute their television audience share! Eighty- eight percent of the nation's Hispanics are concentrated in metropolitan areas where, in many of which, networks have owned stations. For Hispanics, repeal of the rules and the open competition which would follow, provides new opportunities. Few among us dreamed for this enlightened policy during the Reagan Administration. But credit must be given where it is due. It was President Reagan who appointed the nation's first Hispanic to the FCC, making it clear that the Hispanic PAGENO="0776" 774 Agenda on telecommunications matters must be represented and have a voice! Experience makes us confident that a new relationship can be worked out with the networks and that the networks will respond to our programming tastes and needs for good business reasons. First, they must keep and expand on viewer shares. Hispanics watch and enjoy lots of television. Hispanic viewing trends whether or not we watch CBS, NBC or ABC is a good market lever to assure the networks are responsive. And, as always, the matter is money. Repeal of the rules will provide the networks a second good business reason to consider our programming ideas. Program development is costly, and having the opportunity to share in syndication profits will add incentive to networks to give added consideration to Hispanic produced programming. The National Black Media Coalition put it this way: "REMOVING OBSTACLES POSED BY THE SYNDICATION AND FINANCIAL PROHIBITIONS WILL PERMIT THE NETWORKS TO POOL RISK EFFICIENTLY FOR THE PURPOSE OF BROADENING THEIR PROGRAMMING CHOICE. THE RESULTING INNOVATION AND DIVERSTIY WILL BENEFIT NOT ONLY THE BLACK COMMUNITY, BUT THE AMERICAN PUBLIC GENERALLY." PAGENO="0777" 775 I could not have put it better. Mr. Chairman: Protecting the interest of 20 million American Hispanics is in the public's interest. The Pentagon tells us that Hispanic American serving in World War II, Korea, and in Vietnam far outnumbered any other group of Americans in terms of casualties and heroism. No other group has won more Medals of Honor than Hispanic Americans. `SOMOS AMERICANOS Y TENEMOS PATRITISMO PARA NUESTRO PAlS." We are proud to be Americans and proud of America. We have served our country and made the ultimate sacrifice. We have the same determination and skill to make our rightful contribution to the American experience via the medium of film and television if the Commission gives us the chance. Please allow the F.C.C. to remove the largest single obstacle that prevents us from achieving this success, and repeal the financial interest and syndication rules now! Thank you very much. PAGENO="0778" 776 4 March 1983 ~R: Topper Carew~j~i/ttAA(~ Rg: Prime-Tine Television Suppliers This research is designed to establish one pertinent fact . . . minorities have been excluded from participation in the business of television. We suggest that minority actors, writers, directors and producers are denied some emtloyment opportunities. We also suggest that minority companies have historically been denied an opportunity to supply programs directly to the three co~ercial networks. Why even bother with this question? First, because Black leadership has consistently pushed for employment rather than entrepreneurship. Secondly, to be an entrepreneur in the television business is to be a television sup- plier . . . to be a supplier can be worth millions of dollars. For example, if a Black company was contra~ted by a network to p~oduce a weekly one-hour dramatic program for the network's prime-tine schedule, the minority company would have a contract worth $22 million (22 hours x a li- cense f cc of 1 million per hour). This $22 million does not include any additional income that might be derived from syndication or other forms of ancillary income. But, as you can see, one series by itself would put a Black company on BLACK ENTERPRISES' list of the Top 100 Black Corporations. Thirdly, each network presents 22 hours of prime-time fare each week. There are three co~nercial networks. This represents a total of 66 hours of prime- time prograning available to the viewing public. Since the types of pro- gra~ning vary, I will use an average per-hour cost of $850,000-l,000,000. $850,000-l,000,000 x 66 hours - $56-66 million of business per week. If you multiply the per-weekly volume tines a season of 22 weeks, you get $l,232,000,000-l,452,000,000 per annum. This, in fact, is a conservative estimate since it does not take year-round prograimning into consideration. Now what percentage of this business activity goes to minority companies or suppliers (as they are customarily called)? The research included herein looks at the last 15 years of prime-time television. In all of that time, the volume of activity represented by Black suppliers is lS8 hours. In many cases, the Black suppliers were in partnership wIth non-minority com- panics. PAGENO="0779" 777 This paltry 188 hours compares with a total of 21,780 first-run, prime-time hours. The total volume of minority business represents .0086% of the overall total. Added to this is the fact that of the 188 hours, 72% are comedy/musi- cal or variety shows . . . represented by 88 hours of "TLIP WILSON," 18 hours of "REDD POXX," 22 hours of "BILL COSBY' S VARIETY SHOW," 5 hours of Motown music specials and one hour from Diana Ross ~nterprises. Of the remaining 28% in the dramatic or comedy category, 22 hours are from Bill Cosby's 1969-70 series and 24 are from Alex Haley's partnership with Norman Lear which resulted in "PALMERSTOWN." The balance, eight hours, con- sists of two-hour movies-of-the-week . . . two from Bill Cosby's Jeimnin Productions, one from Motown and otis from a Motowc/Universal partnership. The 1982-83 television season is a clear case in point. Of the 1,452 prime- time hours available, Motown is producing one two-hour 25th Anniversary spe- cial and one movie-of-the-week. This translates to .0026% of the 1982-83 network schedule, Pifteen years of prime-time television represents 18,480,000,000 - 21,780, 000,000 dollars of activity. The dollar volume of activity for Black sup- pliers is approximately $159,800,000 - 188,000,000 . . . or .0086%. It should be noted that this report has not even addressed the issue of daytime and Saturday morning television . . . an area of programming where minority suppliers have experienced total non-participation. In our view, we are due equitable participation in the television business. Hopefully, this docuxqent will further enlighten our community of concern, and encourage Black leadership to broaden their issue base. PAGENO="0780" 778 Mr. WIRTH. Thank you, Mr. Ochoa. Ms. Sanchez. STATEMENT OF DOLORES SANCHEZ Ms. SANCHEZ. Good morning. I think it is still morning, Mr. Chairman, Congressman Waxman and Congressman Leland. I want to thank you for the opportunity to address you this morning. I would like to offer my testimony for the record, but with your permission, I would like to digress a few moments from it. Mr. WIRTH. We will include your testimony in full in the record. Ms. SANCHEZ. Thank you. Some observations that I have seen this morning. One of the things is that if you will turn and look at the audience, you will see the depth of the interest that this industry holds not only for blacks, minorities, but especially for Hispanics. I am afraid the lim- ousines are gone and so are the heads of the studios, perhaps. I be- lieve some of the network representatives may still be here. They were at the time that I sat down. We have been ignored. We are a people who really settled this country, first on the scene and, yet, we remain an absent kind of population as far as the electronic media in this Nation is con- cerned. I can't see where network television, the networks, have any right to stand up and say that we are worried about minorities and Hispanics-I have never felt so wanted, considering the fact that there are few, if any, Hispanics on television today both by the net- works and by the independent producers, since they are notorious for ignoring our needs, our wants and even our presence. But I feel that of all the communities, because we have so little media, so little involvement in media, we need the opportunity that Con- gressman Waxman's bill H.R. 2250 allows us and that is an oppor- tunity-we look at this bill as an opportunity, as a moratorium, in which to catch up with the issues, to really see how the intentions of the studios and the networks will be carried out in the next 5 years. We are a growing population. We are not taking a boat any- where or a train. We intend to stay here. Our population is young. They will, therefore, be in the next 10 years many of the decision- makers in public policy, hopefully, in the Congress and in the Senate and, again, in other avenues of life, in daily life. We do belong in the mainstream. We are part of the main- stream, whether people like to admit it or not and, therefore, I would like to urge you to continue with H.R. 2250 at the risk of perpetuating a stereotype and that is that Hispanics are, No. 1, ill prepared, disorganized, and not always together. I believe that David and I share the same concerns, but we look at it from two different areas. I have spent now, as the publisher of the only all-Hispanic-owned chain of community newspapers in the Nation, which has a circulation of 44,000-have spent years trying to influence how the media, how the people who advertise in the media and who support it and give it the resources it needs to pro- vide programing, newspapers, magazines, how they interpret the wants or the needs of Hispanics, and that is that Hispanics view PAGENO="0781" 779 only Spanish television; therefore, a commercial thrown on a Span- ish language TV will suffice. It will reach and service that commu- nity. That is not true. The majority of us are English speaking. We have been here for 500 years. We are not recent arrivals on the scene nor are we com- posed of all gangs in a subculture of recently arrived aliens. We are American to the core, starting from our Indian blood to our His- panic blood and we share two cultures very proudly and hope to be able to share this with a nation, which has really been kept igno- rant of our existence Mr. WIRTH. Thank you very much, Ms. Sanchez. We thank you all. Again, it is the procedure of the subcommittee to first ask if any of the panelists have comments that they might like to make on the comments made by other members of the panel. Mr. Waz. Mr. WAZ. I concur again completely on behalf of the members of the Committee Against Network Monopoly with the viewpoints ex- pressed by Mr. Ochoa and Ms. Sanchez concerning the need to inform the broader public of the Hispanic contribution to Ameri- can culture and to improve opportunities for Hispanics in media. One thing that perplexes me in Mr. Ochoa's presentation is his suggestion that somehow the minority community would have in- creased leverage with the networks as compared with that they hold with the independent production community currently. In an article that Mr. Ochoa had in the Los Angles Times just a couple of months ago, he used a phrase "equal programing opportu- nity" to which the networks could be held. It is not a phrase that I have encountered previously. I know the networks are held to a level of public trusteeship as licensees. Their O&O's are held at such a level of trusteeship. The networks, as such, of course, are not regulated. The particular concern I have is that there is some hope here that the elimination of these rules by the FCC, given their current attitude toward the public interest, is somehow going to be followed with an aggressive assurance that licensees are going to provide programing for the Hispanic community and create minority pro- duction opportunities. I think there is a gross inconsistency there. I don't see, in the proposed repeal of the financial interest rules and in certain other deregulatory efforts by the Commission, anything that is going to tend to enhance opportunities and portrayals of mi- norities in broadcasting. I think, if anything, it is the independent production community, broadly defined-not just the MPAA members, not just the MTM's and Embassy's of the world, but also the smaller production enti- ties producing for local broadcast, for syndication, for new media- those are going to be the places where I think the pressure points are going to exist. Again, it is the point Mr. Waxman raised earlier, decentraliza- tion of power or decentralization of decisionmaking. Mr. WIRTH. Mr. Thomopoulos. Mr. THoMopouLos. Gentlemen, if I could just take a couple of minutes because I found this morning's hearing to be informative, to be illuminating and the different points of view are worthy of PAGENO="0782" 780 discussion. I only take exception with one remark this morning on the second panel that the gentlemen and ladies that were testify- ing this morning may have been lying or not honest people. I be- lieve the people up here who were testifying do portray honest points of view and sincere points of view. But with regard to the overall picture we are discussing here, it would be foolhardy for me to sit here and say that there is not room for improvement and I am talking specifically in the area of minorities and in the area of programing for the minorities. However, it would be foolhardy as well for me not to say here and point out examples of positive steps that have been taken by the networks, and I will only deal with ABC, over the years. I believe that you gentlemen had a presentation recently by my vice president in charge of children's programing, Mr. Squire Rush- nell, who from 1972 to the current showed you what was being done in children's programing in dealing with the minority issues, in dealing not only with the black minority issues, but the Hispan- ic issues, et cetera. In the area of prime time, we were the network and that is the past, but we should mention, that did "Roots," and "Roots, the Next Generation." Looking to the future, we are doing a 5-hour miniseries which will be on next year, called "Mystic Warrior," that will deal with the American Indian. It is the American Indian "Roots." As far as performers on our network and the portrayal of performers in mi- nority situations, staples of our network have been Ricardo Montal- ban, Rita Moreno, Robert Guillaume. Next year, we will have a medical show on "Trauma Center," Dorian Harewood will portray a surgeon. We had a medical show on this year called "Ryan's Four," in which Albert Hall portrayed an intern who was a very outstanding medical man. In a show we had on this year called "High Performance," one of the key members of that group was a black scientist, who was re- sponsible for devising all the scientific paraphernalia used. We had a show on this year called "Condo." "Condo" was-we worked very closely with Nasotros. They were very pleased with the show because it portrayed the Hispanic family as they felt it should be. Tonight starts a programing service that we are offering, Span- ish language radio simulcast of two ABC programs on an experi- mental basis in five markets. We are starting with that on a 3- week period. If it is successful, we will extend that throughout the country. We are starting it in the markets that have heavy Hispanic pop- ulations, New York, Los Angeles, Chicago, Miami, San Antonio. There are many, many other examples that I can illustrate. I do believe there is room for improvement; however, I think it is very important that we do discuss what has been accomplished and what is continuing to be accomplished. Just bear with me a couple of more minutes. One of our people in our programing department in dramatic de- velopment is a gentlemen who is on the California Commission for the Handicapped. Last year, we put on a show called "Gold Monkey," and in that program we had a gentleman who was phys- PAGENO="0783" 781 ically handicapped. He was in a wheelchair, but we did not play him as a handicap. We played him as an able-bodied person. That is the first time in network television that was done. Next year, we are putting on Lou Ferrigno, who has a speech im- pediment due to a hearing failure that he received as a child. We are playing that as a hearing-impaired person so that we are not making excuses that he isn't in everyday life. There are numerous examples. Thank you for listening. Mr. WIRTH. Thank you, sir. All of us commend you for those ef- forts. I think it is important to have that on the record. Mr. Ochoa. Mr. OCHOA. Just a brief response to the comments made by Mr. Waz. First of all, I am not here to defend the networks. They are going to need someone much more adequate than I to explain away Mr. T and Condo, which is an insult to Hispanics, as far as I am concerned, but that is a matter of my opinion. The more important thing is that the primary rationale for having the ability to talk about leverage in terms of repeal of these rules is that we simply don't have any kind of leverage with the studios. But in the major marketplaces each of the networks has made a commitment to urban programing and we are urban. Blacks and browns are urban in this country and if we don't get what we want, then we will go elsewhere to get it. It could be cable. It could be an independent TV station, but the reason that the NAACP and Ben Hooks has been able to sign agreements with some of the studios in terms of employment. That is a strategy that makes commonsense to us. It is based on good faith and the net- works know it. Mr. WIRTH. Ms. Sanchez. Ms. SANCHEZ. I don't know if-do you think that is why they put us at the end of the table, David, because of argument? Well, I must say I am very pleased to hear all these fantastic plans that are now on the planning boards for Hispanics and other minorities. You can imagine how I feel about a woman and a mi- nority, Hispanic, even worse-if you give me a microphone, I won't ever let go of it. I am sensing what is really true and that is the fact that the net- works and the producers have finally come to the realization that they must address the needs of different segments of the popula- tion. Now, they seem to be doing quite well with the rules in place as they are. I can't really see, David, and honorable panel, where they intend to change their plans unless there is a change in the way things are done. That is to say, if the regulations on syndication and financial in- terest are changed, it may bode ill for these marvelous plans that all these lovely people have in store for the television audience. I don't see where it would hurt to wait 5 years. It can be a useful time to judge these organizations by their actions. We will then have a historical track record. The last one is abysmal and I don't think they want to be held to it. So, we will give them an opportu- nity now to show that they have come to a point of enlightened self-interest by really retaining the FCC's rules. Thank you. 32-540 O-84----50 PAGENO="0784" 782 Mr. WIRTH. In the few minutes remaining, let me see if I can get one issue that was raised at the first panel more clearly on the record. Addressing myself to Mr. Price and Mr. Thomopoulos, I have read the data on how shows get on the networks and how programs are financed. It seems to me that the data clearly indicated that the networks make a good deal of money on its shows. Over a suc- cessful 5-year run, a network could typically make $300 million in network advertising revenues. If over this 5-year period, 110 programs were produced at an av- erage cost of $500,000 an episode, that would bring total network production expenses to $55 million. That is against then $300 mil- lion in revenue. Perhaps, Mr. Price, given the experience of MTM, you could ex- plain to us and for the record the financial arrangements for a hit show, say, such as "Hill Street Blues." Mr. PRICE. I am not quite sure what you mean by financial ar- rangements. If you want to know the structure of how a deal is put together starting from a concept, I can answer that. A production company, such as MTM, comes into a network, pre- sents them with an idea. Let's assume for the purposes of this con- versation that the network likes the idea and they say, OK, let's go develop it and write a script. At that point the network puts up the money for the script. One aside: MTM, and I think this is true of almost all the compa- nies in town-MTM usually works with writers or producers that they have under contract. We have writers and producers under contract to whom we pay yearly guarantees. Sometimes we get very lucky and they get a show on the air. Sometimes we don't get lucky and that person has cost us x dollars and then they go away at the end of whatever the term is. So, that is a total loss to us. Anyway, let's go back. Let's assume the network likes the idea. They pay for the writing of the script. If the script is not done to their satisfaction at that point, yes, the network is exposed to what- ever the price of that script is. But if they like the script and we go forward and make a pilot, they pay for the financing of the pilot. In MTM's history, we have never brought a pilot in for the li- cense fee. We have always deficited pilots. I think we deficit every- thing. If the show fails,. if the pilot fails, the network has the right to play it twice on its air. We have been compensated, so they keep the advertising revenue. In most cases the network is able to put that pilot on the air, that broken pilot on the air and make most, if not all, of its invest- ment in that pilot back. MTM is at loss whatever its deficit was on that pilot, plus probably the remainder of the salary for that indi- vidual who created the idea for the rest of the year because the making of a pilot is a rather long term process and it is very un- usual for a creative artist to get more than one pilot off the ground in a season. Mr. WIRTH. What does it cost you to produce each weekly seg- ment of "Hill Street Blues"? Do you know? PAGENO="0785" 783 Mr. PRICE. In this season, the 1982-83 season, it cost us $865,000 to produce the segments. Mr. WIRTH. What is the license fee? Mr. PRICE. The license fee is $800,000. So, we lost $65,000 a show. The rerun pattern that we have on "Hill Street" with NBC-- Mr. WIRTH. How many segments will there be in a year? Mr. PRICE. There were 22 originals and there will be 26 repeats. Mr. WIRTH. So what you will have lost in the first year of "Hill Street Blues" is a little over a million dollars. Is that right? Mr. PRICE. We anticipate at the end of the run of "Hill Street," at the end of a hundred episodes, that MTM will have deficited about $6 million. Mr. WIRTH. About $6 million. OK. Then on the other side, how much do the networks sell that for? Mr. PRICE. Our information from talking to advertising agencies in town a couple of weeks ago was that the average price, between the high and the low, the rate for a 30 second spot varies during the time of the year, but the average spot for "Hill Street Blues" is around $125,000 a spot, between the high and the low. Now, re- member something, in the reruns, we sell the reruns to NBC for the actual out-of-pocket to MTM. We don't make a profit on the rerun. The network makes a great deal of profit. Mr. WIRTH. Let me stay with the first run. How much then, do they make on each episode? Mr. PRICE. There are 12 30-second spots in a 1-hour program. They gross up to $1½ million. Mr. WIRTH. The license fee for that-- Mr. PRICE. You deduct the license fee-- Mr. WIRTH. So, they are making on the first run of the pro- gram-- Mr. PRICE, After their expenses, their program profit is about $250,000 an episode on "Hill Street." Mr. WIRTH. Then, when you get to the reruns, what happens? Mr. PRICE. I can't remember. I think the actual out-of-pocket on "Hill Street" was around $90,000, if I remember correctly, per epi- sode and it worked out when we did the math for the FCC hear- ings, it worked out that the networks made $550,000 profit, pro- gram profit, per rerun of each "Hill Street Blues" show. According to our figures, they wind up with a profit at the end of the 1982-83 season of about $20 million. Mr. WIRTH. On "Hill Street"? Mr. PRICE. On "Hill Street." Mr. WIRTH. And during that time, what will MTM's---- Mr. PRICE. Slightly in excess of a million. Mr. WIRTH. You will have made that? Mr. PRICE. I have lost that. Mr. WIRTR. You will have lost that? You will have lost the $1.4 we talked about earlier. The networks will have made $20 million. Is that correct? Mr. PRICE. That is correct. That is why I say they do share in the profits-they do get the profit of a hit show. Mr. WIRTH. Earlier, the suggestion was-- Mr. PRICE. Let me say one thing. In one sense, "Hill Street" is a loaded example because it is a hit show. There is also the other PAGENO="0786" 784 side. The industry, during one of the strikes, did some homework on the number of shows that get into syndication. About 10 percent of the shows that get onto the network get into syndication and not every show that gets onto the network makes that "Laverne and Shirley" kind of profit. Those are the aberrations. We did the "Lou Grant" show, where at the end of the produc- tion of the "Lou Grant" show, when CBS cancelled the show, we were in deficit about $6 million. Right now, we can't sell it and if we do sell it, we are going to be very lucky if we get the residual back out of it. Mr. WIRTH. We are discussing the aberration because "Hill Street Blues" is a hit. There is an enormous amount of money that is being made on that. But there are also failures. They have the right to run them twice and I assume they sell advertising revenue for those, right? Mr. PRICE. Of course they do. Mr. WIRTH. So, do they break even on shows that never make it into syndication? Mr. PRICE. I couldn't answer that, but my hunch is that if they don't break even, they come so close to it as to be meaningless. Mr. WIRTH. Let's turn the successful shows. The networks appear to be very anxious to share the profits of MTM-the producer-on the syndication of "Hill Street Blues." Correct? Mr. PRICE. Correct. Mr. WIRTH. They want to share those profits. Why shouldn't you then, going back to an issue that was raised this morning, be al- lowed in a reciprocal sense to obtain a share of the network's reve- nue? Mr. PRICE. I would make that deal with NBC anytime they want to sit down and make that deal. I would be more than happy to create a proportionate sharing of their advertising revenue. I have a feeling Mr. Thomopoulos would get very upset at that suggestion. Mr. WIRTH. That was going to be my next question to Mr. Tho- mopoulos. What is wrong with the logic of that option that we just outlined? What happens with a hit show, the cost of that, what the revenues are, and the sharing of the producer's revenues versus the sharing of the network's revenues? Mr. THoMopouLos. I would like to put it in a little sense of per- spective with the example "Hill Street," which is an aberration be- cause it is a hit show and we know what the failure rate on all three networks has been over the last couple of years. The cost of doing business is extraordinary. We had a show on the air called "Soap," which was a commer- cial success. It was on for 4 years and it lost $3 ½ to $4 million a year for the network. That show is an enormous success in syndica- tion and has made an enormous amount of money for the syndica- tor. Mr. WIRTH. Let me go back and understand this. "Soap" is a suc- cess. "Hill Street Blues" is also a success. There was a great deal of money that was made by NBC on one hit. How with "Soap" can you lose? How does that work? Mr. THoMoPouLos. Because the advertisers were afraid of the program. Mr. WIRTH. They didn't advertise? PAGENO="0787" 785 Mr. THOMOP0ULOS. They didn't advertise. We kept it on the ~ir because we thought it was a quality program, a diverse program with very good comedy, one of the best comedy writers in television in Susan Harris and we were dedicated to keep it on the air. But at the same point in time, I would like to just put some sense of per- spective into this in the sense that MGM, UA, in its 10-K in 1982. It said in general that properties are developed at the request of the network and the network license fees cover substantially all the cost of development and production of the pilots and resulting series. In their annual report in 1981, they said television has the poten- tial of being a very rewarding and profitable business. The cost of production is essentially assumed by the networks. Television can produce a high return on investment with a modest amount of funds at risk. Lorimar in its prospectus in 1981 says that the license fee is a flat sum payment by which Lorimar generally attempts to cover its production costs and overhead. Mr. WIRTH. Let me go back to the question, if I might. I under- stand that there are risks involved for you all and there is risk in- volved for MTM or the independents. That continually gets harped on. I think that there is noting wrong with the networks showing their profits on the successes with the producers. Mr. THOMOPOULOS. Can I just interject there for a moment, if I may? The risks that are portended by the studios and I am not doubting Mr. Price. We haven't done business. We have one pilot and we are trying very hard to do business together over the last ten years, but the risk-I question the risk. I think there are situa- tions where studios do deficit to a certain amount and I think there are situations, many situations, where studios do not deficit. They are not taking risks and I believe that there are situations wherein their deficit figures are overhead, administration, which cover the operation of their entire studio, not that one specific series only. Mr. WIRTH. But that is part of their risk. Let me go back again to the up side. That when you do have a hit, doesn't it make sense that the producers gets a piece of the profits? Isn't that consistent since they share in the losses? Mr. THoMoPouLos. Well, then you must look at the other side of the question. Is there a request on the part of the producers to share in the negative side of our business as well? What is their position where shows fail and where we lose money on shows? Do they want to share in the risk and give us money back? Mr. WIRTH. Let me ask Mr. Price to respond to that question. Mr. THOMOPOULOS. There are two sides to that question. Mr. WIRTH. How would you respond to that, Mr. Price? Mr. PRICE. Someone once told me, and I don't know if it is true or not, but I have a feeling it is, that in radio I admit that the dol- lars we are talking about are slightly different, that in radio shows were sold to advertisers or networks, depending on the case at min- imum amounts of money and that the packager of the radio show was then rewarded to an extra degree based on the success of that show. PAGENO="0788" 786 If the networks wanted to work out a formula where there was some kind of equalizing of the jeopardy involved, I personally, on behalf of MTM, would take that deal. I want to go back to something that Mr. Thomopoulos said when he read the prospectuses-- Mr. WIRTH. From my perspective, I think it is a lousy deal. I am concerned that we should be doing everything we can to encourag- ing more MTM's and more Diane Asselins to produce innovative shows. Mr. PRICE. I understand, Congressman, but you could work out a situation-you are not starting from zero. You are starting from a point where there is an equity in the deal, the equity being that the supplier of programing is being brought home. There is no doubt that some suppliers in town, and have from time-to-time, and do make money on the first run of a network show. That is a fact. Talking of Mr. Thomopoulos' reading of the prospectuses, MTM is private,, so we don't have to tell anybody how well we are doing or how well we are not doing. Companies that are public, especial- ly, for example, Lorimar, who just went public, have to present the best case possible in their prospectuses as to their economic viabili- ty. Networks do the same thing. On the one hand, all three net- works are crying about how they are being hurt by the onslaught of pay television, and by the increase of effectiveness of the inde- pendent television stations, and the high cost of production, and then they turn around and tell you in their prospectuses or in their statements to the Security Analysts Commission how well they are doing and how wonderful the broadcast business is. I think that is a trait of all public companies, both production companies and networks. Mr. WIRTH. Let me just close this by saying this involves another part of our jurisdiction-the Securities and Exchange Commission. We are looking at great length at book, as it is called in the trade. However, let me just ask you if you have any other comments on this. I am just trying to search through the logic of this, Mr. Tho- mopoulos. We are running out of time, and I have taken much more than my share. Let me ask Mr. Waxman and Mr. Leland if they have further questions of the panel. Mr. WAXMAN. Just a few very quick questions. Mr. Thomopoulos, I assume that "Soap" is an unusual case. It isn't often you run a commercially successful program and lose money. Mr. THOMOPOULOS. No, as I stated, sir, yes, it is unusual. Mr. WAXMAN. How about the programs that do not succeed com- mercially? You put up the money to underwrite a program and it doesn't do well. Does the network lose money on that or does the network still come out even? Mr. THoMopouLos. In certain instances we do lose money. Mr. WAXMAN. Under all circumstances do you lose. money if a program is not successful? Mr. THoMopouLos. I would not say in all circumstances, no, but in most instances we do. Mr. WAXMAN. In most instances you lose money. I was interested to note that NBC is bringing a show that failed back on to the air. PAGENO="0789" 787 They did it a couple of years ago. It was a police show, 1979, "Eis- chied" or something like that. It wasn't a success. They purchased the program and now they can bring it back on. People can think it is a fresh new show and they can sell commercial advertising for all the time that would be available for that purpose and then they can recoup more money out of a program that otherwise did not succeed. Mr. THOMOPOULOS. I don't know the workings of that deal, but I would assume that if it were on in 1975, they would have had to renegotiate for the rights, because I would assume that their li- cense period was concluded. Mr. WAXMAN. 1979. Mr. THOMOPOULOS. That is 4 years ago. I assume their rights to that-they must have gone back to the producer and renegotiated a new deal and paid a license fee for it. So, I don't know what the financial arrangements are. Mr. WAXMAN. We hear from some of the proponents of keeping the rules that the networks don't lose all that much money. They are not taking that great a risk because they still sell advertising to recoup the investment that they made, even if a show is not suc- cesssful. The independent producers tell us that their biggest incen- tive is to hope they have a success because then they can make- not only become whole, but realize the potential profit that drives them to continue in this business. Do you disagree with that? Mr. THoMopouLos. Well, I think that there is a problem from the networks' standpoint, and I believe these figures have been made available to you-that in a recent 5-year period net return on reve- nues of the three networks went from 16 percent down to 8 per- cent. With regard to the syndication market, I think it is an accepted fact in the business and we can argue the merits of both sides with regard to profitability on the network run or deficit on the network run, that a successful showing in syndication is a bonanza for the producers and I think you can look at the various shows, whether they be "Happy Days," "Laverne and Shirley," "Three's Compa- ny"-I am referring to ABC shows-"Hart to Hart," et cetera, "Love Boat," and go through the schedule are enormous financial bonanzas to the producers. But there is one point that I think we did not mention this morn- ing that is worth mentioning and that is the question of relief. Pro- ducers and studios fail to mention that after they negotiate a li- cense fee with the networks at the end of each year, they come into the networks and say we couldn't make enough money. We had too many additional costs. Would you please cover those costs for us? Handle those additional costs for us? Cover our deficits? And I would say in most instances-and I can only speak for ABC-we have always been equitable and fair with the producers in paying them moneys that they have said they have lost or portions of those moneys which they claim they have lost. Even this year, ironically enough, we set two shows on our sched- ule. We set a license fee. We announced the schedule and before the shows had gone into production, the producers had come back to us and said we can't produce those shows for the money just PAGENO="0790" 788 agreed to. We haven't started producing them yet, but we can't produce them for the money. So, give us more money. So, I think the question of relief is a very important question for the subcommittee to look into. I think it is an area that would be illuminating and put some further information into the financial picture. Mr. WAXMAN. One of the concerns is over the independent televi- sion stations ability to get reruns and you mentioned ABC supports a Justice Department intervention in some way, a regulation in some way that would prevent a disadvantage to the independent television stations. Are you aware of the fact that CBS would not support that position? Mr. THOMOPOULOS. Well, I have heard that, but I am only here speaking for ABC. In addition to which I will say that the prime- time access rule, which no one is asking to be changed, effectively prevents the network from selling those programs in the Top 50 markets to any network affiliates. So, in effect, with the Justice Department's-- Mr. WAXMAN. The fear is not that the networks will sell it to their affiliates or not sell it to their affiliates. The question is whether they will prevent the sale to the independent stations that are competing. Mr. THoMoPouLos. In the top 50 markets the only logical custom- er is the independents. If you are prevented from selling to your affiliates, then where-as I said in my opening remarks-but that is one of the time periods that is most profitable. Mr. WAXMAN. Evidently, the independent television stations are not assured about their fears when they have come before us to ex- press their doubts that they are going to be in the same position they are in now. Mr. THOMOPOULOS. We said in our statement a narrow based rule governing that would be more than acceptable to us. Mr. WAXMAN. I appreciate ABC's position. I just point out that that is not CBS's. I don't know where NBC stands on it. Mr. Ochoa, just one last point with you. You talk about your dis- appointment with what television production people have done in terms of Hispanic community. Are you proud of what the networks have done? After all, I don't think you can tell us a single program they produced prior to the rules when they had complete control over TV programing, which you would now want them to return to have, and I don't know what you can tell us in terms of what they have done today, even with these rules, whether they are still able to go out and produce TV programing on their own. Mr. OCHOA. You are right, Mr. Waxman. There is nothing that I can recount in my experience at NBC or as an independent produc- er that I could point with pride vis-a-vis Hispanic minority pro- graming, let alone Hispanic programing, either from the idea stage to the despicable employment pattern. As a public licensee, however, I feel I have an opportunity with some leverage and some equity. With the existing system I have now, I have less leverage. That is all. Mr. WAXMAN. You still have leverage. They still license each TV station and you can challenge the license if you as a citizen feel that they are not living up to their responsibilities. You still have PAGENO="0791" 789 the leverage that you say would exist with the 20 percent of the market being Hispanic and, therefore, having an influence. That leverage is there whether we change the rules or not and, yet, we see with the networks' ability, without any change in the rules to respond to that leverage, that they are not responding to that le- verage. Yet, your statement to us is that the single-and I almost want to quote it-"largest single obstacle to the Hispanic communi- ty on television are these rules." I can't understand how you make that statement. Mr. OCHOA. Let me respond this way. The status quo of the past 15 years has given us a dismal record in production as minority proc~ucers. That is No. 1. The existing rules do not provide the climate, the opportunity, that we feel we should have in terms of getting our ideas read, let alone produced. Our experience of independent producers, and mine in particular, has been very difficult with the Big 8 independ- ent companies of this country. Mr. WAXMAN. Have you had more success directly with the net- works? Mr. OCHOA. Yes, we have. Substantially more. As a matter of fact, of the minority producers, of the Hispanic minority producers in this country who have won Emmy's, 90 percent of them have won them for the O&O stations or PBS. Mr. WAXMAN. So, you are saying that you have had more suc- cess-- Mr. OCHOA. In some areas. Mr. WAXMAN. Then why do you think it makes any difference? You are in a position of an independent producer and if you are successful now with the networks, you will continue to be success- ful. Why do you want to change the rules? Why do you see that as a-- Mr. OCHOA. The reason for the change is very clear. We are not able, as my black colleague producers indicated today in an earlier panel-we are not able to get our ideas read, considered or funded by the existing structure that exists now in the industry. We think-it is only a hunch-it is a calculated risk admittedly-we think we are going to have a better opportunity if we can go direct- ly to the networks-- Mr. WAXMAN. You can go directly to them now. Mr. OCHOA. Well, they only have 2 hours a week of programing now. Mr. WAXMAN. Well, I don't see them filling those 2 hours of pro- graming right now with the kinds of programs you think ought to be on TV. Mr. OCHOA. That is true, but at the moment they only have-- Mr. LELAND. Mr. Ochoa, you are not saying, though, that after you roll the dice that, in fact, if we repeal the rules or the FCC repeals the rules, that that is the save-all for minorities. Mr. OCHOA. No way. Not at all. Especially if you look at, as Mr. Waxman pointed out, on the basis of experience. There is very little that I can show-- Mr. LELAND. That is the point I raised earlier. Mr. WAXMAN. Do you stand by your statement that these rules are the single largest obstacle for minorities on television? PAGENO="0792" 790 Mr. OCHOA. I reaffirm it, Mr. Waxman, at this point, that that is the single largest obstacle to me and my colleagues for getting our ideas read and considered and on prime-time television and syndi- cation. Mr. PRICE. The ones that makes the decisions on those rules are the guys you are bringing your ideas to, the networks. You bring your ideas to a network executive for approval. That approval auto- matically translates itself into a pilot and if it is good, it gets on the air. I have a feeling, Mr. Ochoa, without being insulting to you that maybe the networks don't like your idea, which happens to an MTM also. We bring ideas that do not go-- Mr. OCHOA. It has happened to all of us. Mr. LELAND. Mr. Chairman, if I might have a little bit of time. Mr. WIRTH. I have to leave, so I would like to leave this in the hands of Mr. Waxman. Mr. WAXMAN. If you will yield to me, Mr. Thomopoulos, will ABC go along with at least that part of our legislation and then we will prime-time access rule? Mr. THOMOPOULOS. I believe that we have stated that we have had no real desire to change the prime time access rule. Mr. WAXMAN. You would support legislation? Mr. THoMopouLos. I would support the fact that we are not wanting to change the prime time access rule. Mr. WIRTH. You might like to clarify that statement in huddling with these other individuals on what is happening with the prime time access rule. We will leave the record open so that the question of the history of where various networks were on the prime time access rule can be clearly on the record and not misunderstood by anybody. Mr. WAXMAN. Mr. Leland. Mr. LELAND. Thank you, Mr. Chairman. Mr. Thomopoulos, you have heard Mr. Ochoa and I can appreci- ate where he is coming from because he has benefited from the re- lationship that he has developed with the networks, but I would suggest that he is probably speaking of isolated incidents of circum- stance in the industry and that, indeed, there are not that many people like him who have benefited from that kind of relationship. I am really concerned, if I can whip a dying horse to death-I am really concerned about this issue that minorities have expressed today and that I expressed as a minority, in dealing with not only ownership and how that ownership benefits, but also the imagery and the participation of minorities in your programing, ABC, NBC, CBS, and ultimately those programs that are bought by independ- ent television and networks, et cetera and also cable and all the rest of it. You have programs like "Dynasty," "Happy Days," or had, "Fall Guy," "Matt Houston," all those programs. No minorities featured in the series. No minorities participating. Yet, they are very much hit programs and I would suggest probably watched by many, many minorities. Why is it that you have not put blacks and His- panics and other minorities in a program like "Dynasty," for in- stance? It is an incredible hit. My best friend is a guy who owns night clubs, in Houston, Tex. He owns about 17 of them, a very successful business person. He PAGENO="0793" 791 watches religiously "Dynasty." He came to me and he said, man, why the hell are there not any black people in "Dynasty," because they do exist wherever it is that "Dynasty" is played. Why don't you have black people in shows like that? Mr. THOMOPOULOS. First of all, Mr. Leland, I don't think you are whipping a dead horse, because I think it is a very important issue and I think your question is-- Mr. LELAND. I said "dying horse." Mr. THoMopouLos. Dying ~iorse, OK. Each program has to be looked at as a separate entity and to sa7 to you why there is not a black person or minority on "Dynasty,' I cannot give you a legiti- mate answer. I can only tell you that-- Mr. LELAND. Is "Dynasty" still yours? Mr. THoMoPouLos. Yes, it is. Mr. LELAND. Can you go back and tell those folks to put some black people in? Mr. THoMopouLos. We can certainly look at it. Mr. LELAND. Put a Hispanic in "Dynasty." Mr. THOMOPOULOS. We can certainly look at it. Mr. LELAND. One or two or three or five or six. Mr. THoMopouLos. We can certainly look at that and at the same point of time we could look at other shows that have been success- ful that I mentioned and that you mentioned that have minorities and some that don't. But the most important point is that I believe, and I can speak for the people at ABC, who are sensitive and aware of this, and as I stated earlier, there is room for improve- ment. But I think the important thing is that we are on that road. There is legitimate movement for that arena of representing the minorities. It is not a perfect world and it is not a perfect system. Mr. LELAND. I know, Mr. Thomopoulos. But we as minorities are very frustrated in this country. We are at the bottom rung of the ladder. Everybody is stepping on us. Nobody is giving us a shot and you are telling us, once again, just wait, just continue to wait. I mean, we are making progress, step by step. Mr. THOMOPOULOS. What I am saying to you is look at what is happening and the facts speak for themselves. Mr. LELAND. But we are. Mr. THoMoPouLos. But there is improvement. Mr. LELAND. Wait a minute. A lot of white actors got jobs in "Roots" on ABC. Right? Mr. THOMOPOULOS. Yes. Mr. LELAND. A lot of white actors. A black show, sure. A lot of white actors watched "Roots" and learned a lot. Mr. THOMOPOULOS. That is correct. Mr. LELAND. Then you come back and put-I don't how much- $40 million-into "Winds of War." How many black people were in "Winds of War"? Mr. THoMorouLos. With due respect, sir, we-- Mr. LELAND. How many blacks? Mr. THoMoPouLos. None, but we did not write "Winds of War." Mr. LELAND. I understand that, but-- Mr. THoMopouLos. That was written by Mr. Wouk. Mr. LELAND. But wait now, wait, wait, wait, wait, wait. Did you have any rights whatsoever? PAGENO="0794" 792 Mr. THoMopouLos. To change a character? Mr. LELAND. Yes. Mr. THOMOPOULOS. No, not to change his characters. He wrote the book and he wrote the scripts. Mr. LELAND. Could you not have placed black people in some of those roles that they were playing in that-- Mr. THOMOPOULOS. I would doubt it, sir. Mr. LELAND. You would doubt it or are you saying-- Mr. THOMOPOULOS. I would say I would doubt it. I did not-- - Mr. LELAND. You had no right to review and no right to say that a black person ought to be here and a Hispanic ought to be here? Mr. THOMOPOULOS. Yes, we do. Mr. LELAND. You can't say to put a streetsweeper somewhere when the movie took place in America or put what is his name- what is the guy's name-a black guy who was the gunner at Pearl Harbor, who was the hero. I can't think of his name right now. I am sorry. My history is failing me. Mr. THOMOPOULOS. When we did the presentation of "Pearl," we had black performers in "Pearl" as well as Asian performers. With regard to minority performances, we do make a conscious effort and I think the facts do speak-they are not where they should be, but they are beginning-- Mr. LELAND. But a lot of your statistics are in comedic roles. I mean, you know, that is-I understand that you are making an effort. My point is-- Mr. THOMOPOULOS. There is nothing wrong with the comedic role of Robert Guillaume in "Benson" who became a terrific role model for the black minority community because what he did is he start- ed off as a butler. He moved to the Governor's mansion and he then became the budget director and one of the most influential men in the Governor's committee. Mr. LELAND. Thank God for him. Mr. THOMOPOULOS. That is a direct result of being conscious and aware of how to portray minorities on television. Mr. LELAND. I understand that, but what is the strain to do a lot more of that as opposed to evolving this in a very slow, developing process? I hear Mrs. Sanchez over here and she was almost brought to tears and she almost brought me to tears. I heard David Ochoa. I heard that panel of black people. I am really concerned that noth- ing is really happening fast enough to satisfy our future for that matter in terms of imagery of black people. In ABC are there blacks and Hispanics making decisions in terms of programing and that kind of thing to say, to rule on poli- cies that you develop as to whether or not there would be a black or a Hispanic or other ethnic minority person to fill a role? Mr. THoMopouLos. We have a very active EEO and affirmative action plan at ABC. There are minorities. There are strong women and minorities in our programing department and I think what we are discussing here, Congressman, is the fact of the speed in which you are requesting this to be accomplished. I just, after 5 years, got a Greek on one of our shows, so I am very pleased with that. Mr. LELAND. Well, that is fantastic, but I-and I would just like to say, Mr. Chairman, that I can appreciate your statements, all of them. I am just really concerned that if you don't move fast PAGENO="0795" 793 enough, something chaotic is going to happen, not in the industry, but in America, because, you know, you have the responsibility of challenging the future where blacks and Hispanics and other people are concerned If we continue on this road, financial inter est, by the way, or not, if the rules are appealed or not, we are going to still be living here Mr Ochoa, Ms Sanchez and I are all going to be here suffering the same kinds of atrocities that racism has imposed on us So, all we are asking and begging, I guess, of both the independ ent producers and the networks is give us a break Do some real affirmative action and let there be more Hispanics and blacks and other people on television doing dramatic and romantic roles, in place of, if you will, some of these white shows and I think that given a chance, let them run 22 weeks or however long a season is, just giving them a chance to show their wares Mr WAXMAN Will the gentleman yield? Mr. LELAND. Be glad to yield. Mr WAXMAN One final comment A network executive who can decide to put more black characters in a program can also decide not to put them in I would think the past history was more likely the latter than the former Whether a network executive is going to require more violence on TV programs or more sexually explicit roles will depend on what the networks see their role to be and their role is to attract a mass audience and by nature, even if that network programing executive is a minority person who is sensi tive, I think that just the fact that there are only three outlets, the creativity on television is going to decrease because the networks are not interested in the quality of programing and appealing to different audiences They are trying to appeal to the sameness in all audiences For that reason, Mr Chairman, I would just conclude that I don't want three people, whoever they may be, deciding all the pro- graming on television Mr WIETH We will have our host have the last word Congressman Waxman, thank you very much for hosting us in Los Angeles Congressman Leland, thank you very much for being with us and for your help with the panel Thank you very much The committee will stand adjourned [Whereupon, at 1230 p m, the subcommittee was adjourned] [The following letter was received for the record] PAGENO="0796" 794 ABC Entertainment 2040 Avenue of the Stars Century City, CA 90067 Telephone 213 557-6549 Anthony D. Thomopoulos President June 23, 1983 Honorable Timothy E. Wirth Chairman, Subcommittee on Telecommunications, Consumer Protection, and Finance Committee on Energy and Commerce House of Representatives Washington, D.C., 20515 Dear Mr. Chairman: At the June 1, 1983 hearing of the Subcommittee on Telecommunications, Consumer Protection, and Finance in Los Angeles, you requested that I provide additional information on two points. At Transcript pp. 187-90 you raised the question of program suppliers sharing in revenues from hit programs. Of course, suppliers already share in these revenues through the license fees which networks pay. And such fees do tend to rise for hit programs. Apparently, however, you have in mind some form of percentage participation. I believe the answer to your question is that the Government should not attempt to dictate the financial terms of any contractual relationships between networks and program suppliers. The terms of network program supply arrangements should be decided ma free negotiation between the parties, as they are in program supply arrangements involving network competitors. In supporting repeal of the FCC's Financial Interest Rule, ABC seeks removal of a current barrier to such free negotiation. At Transcript p. 199 you asked for a further statement regarding ABC's position on the FCC's Prime Time Access Rule. As I indicated in my testimony, ABC does not seek repeal of this Rule. In fact, ABC has advised its affiliates that it will not seek repeal unless both ABC and the affiliates agree upon some different utilization of the access time period. Further, the FCC has no proceeding pending which looks toward repeal, and, so far as we are aware, none is contemplated. Under these circumstances, ABC does not support H.R. 2250 as it pertains to the Prime Time Access Rule. Please associate this letter with my testimony, for the record. Very truly yours, U ANTHONY D. THOMOPOULOS PAGENO="0797" FINANCIAL INTEREST AND SYNDICATION RULES MONDAY, AUGUST 1, 1983 HOUSE OF REPRESENTATIVES, COMMITTEE ON ENERGY AND COMMERCE, SUBCOMMITTEE ON TELECOMMUNICATIONS, CONSUMER PROTECTION, AND FINANCE, Washington, D.C. The subcommittee met, pursuant to call, at 2:07 p.m., in room 2322, Rayburn House Office Building, Hon. Timothy E. Wirth (chairman) presiding. Mr. WIRTH. Good afternoon. Today the Subcommittee on Tele- communications, Consumer Protection, and Finance holds further hearings on H.R. 2250, and the immediate issue of the FCC's pro- posal to repeal the financial interest and syndication rules. The financial interest and syndication rules were adopted in the early 1970's to address the problems posed by the dominance of the three commercial television networks-ABC, CBS, and NBC. At that time, the FCC outlined its reasons for implementing the financial interest rules by declaring: We propose to encourage and increase competitive forces-both creative and eco- nomic-in television program production and procurement through limitations on the capacity of network corporations to confine network schedules to programs in which they have financial and proprietary interests. I happen to believe that retention of these rules is still necessary for three fundamental reasons: to protect the incentives of inde- pendent producers to come forward and produce programming; to assure greater diversity with respect to creative and editorial con- trol of program content; and, to preserve the competitive vitality of the Nation's independent television stations. Congressman Henry Waxman, along with Congressman Moor- head and I, introduced H.R. 2250 in order to strip the FCC of au- thority for a 5-year period from repealing the financial interest, syndication, and prime time access rules. I note, with great displeasure, I may add, that the FCC will be meeting this Thursday to take further action toward repeal of the financial interest and syndication rules. I would also like to note, and I do so with great pleasure, that there are over 120 cosponsors of H.R. 2250 to date, and I applaud the efforts of Mr. Waxman in bringing this issue so clearly and carefully to the attention of so many of our colleagues in the House. I have consistently stated that there are two fundamental -com- munications policy objectives which must be addressed above all (795) PAGENO="0798" 796 others. The first. is to promote and encourage competition in the marketplace. The second is to provide the American public with the widest possible diversity of programing sources. The financial interest and syndications rules have accomplished these goals, and should be al- lowed to continue to accomplish both goals. We are all very aware of the contributions the networks have made to American television. Network news and much network en- tertainment have added significantly to the richness of our culture and our lives overall. But the dominance of the networks goes to the very heart of the issue of diversity of information sources in a democratic society to a fundamental first amendment value. Encouraging a diversity of program suppliers; furthering diversi- ty and competition among broadcast stations; and, promoting diver- sity in the creative process are the goals underlying H.R. 2250 and first amendment rights, as described initially in the Federalist Papers. Assuring the public such diversity should be the focus of these hearings this morning. I ask unanimous consent to have a letter from Grant Tinker in- cluded in the record at this point, the president of NBC. [The letter referred to follows:] PAGENO="0799" 797 NBC National Broadcasting Company, Inc Thirty Rockefeller Plaza NewYork,NY 10020 2126644555 Grant A Tinker Chairman of the Board and Chief Executive Officer July 26, 1983 The Honorable Timothy E. Wirth Chairman Subcommittee on Telecommunications, Consumer Protection and Finance U. S. House of Representatives Washington, D. C. 20515 Dear Tim: I have been informed that you have announced hearings in Washington on }LR. 2250, a bill which would prohibit the Federal Communications Commission for five years from considering changing in any way several of its network rules especially the Financial Interest and Syndication Rules. Although the hearings were called on about one week's notice, NBC does wish to appear and ~ we will be represented by our Vice Chairman, Irwin ~egelstein. I do want to share with you and your colleagues some thoughts of my own on one aspect of the subject; hopefully they will be helpful. As you know, I have spent some fifteen years in Hollywood as a producer and the last two years as Chairman of NBC and have had the opportunity to experience the networks' relationships with the production community from both sides. The reality is that the networks' share of the total audience pool is inexorably shrinking. This will inevitably impair our ability to pay for the steadily rising costs of programs we buy from program producers. A significant solution to this problem would be the ability to partici- pate on a negotiated, risk-bearing basis in the after- market profits from later syndication of programs shown 32-540 0-84--Si PAGENO="0800" 798 r~c The Honorable Timothy E. Wirth July 26, 1983 Page 2 on the network. The problem is inflamed by the fact that the pay media, which are bidding against us for creative talent, are not limited by government rule. We believe that without repeal of the Financial Interest and Syndication Rules, the networks, and the program services they present, are at serious risk -- and that is not just a network problem. It is a problem for the audiences who wish to continue their free access to the programs we present. And it is a problem for the con- tinued success of those who supply the programs, who do not want to lose the vigorous network marketplace for programs which now exist. I know that claims have been made that the repeal of these rules will somehow increase the ability of the networks to exercise "creative control" over those who produce programs. As a person who has seen both sides of the process, I can assure you that would not be the case. The networks have every reason to want producers to be creative - it is exactly for that creativity that the networks pay such great sums of money. It would be folly for networks to attempt to stifle the very creativity for which they pay and on which their own success depends. The fact is that elimination of these rules would enable the networks to make direct investments in the creativity of talented producers, writers and performers. By being permitbed to share in their success, networks would have a greater ability to finance their creativity. This would be particularly helpful to the newer creative talent for whom it would provide an additional source of financing. I sincerely believe that the intervention of the Coi~gress into the exhaustive investigation of these matters being conducted by the Commission would be unwise and contrary to the public interest. Sincerely, Grant A. Tinker PAGENO="0801" 799 Mr. WIRTH. The Chair recognizes the gentleman from California, Mr. Waxman, for an opening statement. Mr. WAXMAN. Thank you very much, Mr. Chairman, for holding this hearing and for recognizing me to speak on the financial inter- est and syndication rules. Today marks the fourth time our sub- committee has focused all or part of a hearing on the rules. For my part, I find it extraordinary that despite our extensive deliberations, FCC Chairman Mark Fowler and others favoring repeal have not answered the most fundamental question in this debate. That is, what public interest considerations compel the FCC to repeal the rules? No answer has been given because none exists. The rulemaking is inspired not by the public's interest, but by the networks' inter- est. Today's witnesses will focus on the implications of repeal not only for the television industry, but for the vast American viewing public. They will tell us that if we fail to preserve the rules, televi- sion will get blander, more monotonous, and less inspired than ever. Their warnings about this threat to creativity is even more sig- nificant in that even now the greatest single complaint against tel- evision programming is "it is all the same.' Since Chairman Fowler continues to give every indication he will vote on the rules as soon as he finds a third commissioner support- ing repeal, we have no choice but to act decisively to save competi- tion and diversity in television. A consensus has emerged that the FCC must be stopped. The bill I introduced last year, H.R. 7347, did not have a single cosponsor. But this year's bill, H.R. 2250, already boasts over 120 cosponsors, including 10 of the 16 members of this subcommittee. My bill enjoys overwhelming support because it strikes a middle ground. It neither allows for immediate repeal, nor permanently prohibits the FCC from taking action. Instead, it sets a 5-year moratorium. This respite will provide ample time to assess the needs of the television industry and give the network's fledgling competitors an opportunity to survive. Moreover, the bill's support reflects a growing awareness of the significant diversity and competition the rules have brought to tele- vision viewers. The dramatic rise in the number of independent tel- evision stations across the Nation has brought alternative program- ing choices to millions of Americans. That rapid growth, from 73 stations in 1970 to over 190 today, has increased the independents' viewing audience share from 10 percent to 17 percent. Similarly, the number of truly independent program producers, the people who actually supply prime time programing, has in- creased by 26 percent. The number of autonomous companies distributing programs to local independent stations has increased by 51 percent. Even the networks have impressive numbers, with their profits increasing by 550 percent; and their percentage of industrywide profits nearly doubling. Indeed, the only declining statistics are in advertising costs. Ad- vertising rates in television markets with strong independent tele- PAGENO="0802" 800 vision stations are much lower than in those markets with weak or no independents. So why, with all those positive trends, should the FCC look to repeal the rules? Perhaps there are~two answers. First, the FCC is in the midst of an irrational frenzy of deregulation. Just as sharks at a feeding don't pause to look at their meal, the FCC is not pausing to consider what it is deregulating. Everything is fair game. I am just grateful the first amendment is outside the Commission's power. Otherwise, I fear that Chair- man Fowler would be telling us it too could be repealed because the marketplace would provide the public with ample safeguards. Second, the networks, who have profited handsomely with the rules in place, believe they can do even better with fewer restric- tions. They are probably right-by tightening the stranglehold they already have on the industry, their profits will go even higher, and their power and influence will reach new heights. This is one reason public interest groups are virtually unanimous in opposing repeal. In reviewing this issue, I have found it especially instructive to heed the warning given by Supreme Court Justice William 0. Douglas. Shortly before he died, Douglas sadly noted that "looking ahead, the days seem dark to me. Great wealth controls most of our news outlets. * * * A Society of the dialog, as espoused by the first amendment, will be increasingly difficult to stimulate." Douglas' instincts and intellect told him that no matter how hon- orable corporate conduct, we should not be lulled into thinking our communications giants are benevolent despots. Here, the networks are asking for the power to determine their competitor's survival, on the premise that they can be trusted not to harm those competitors. By repealing the rules, we are handing the networks a loaded rifle, and we will be left hoping they don't pull the trigger. Instead of following that course, we should opt for the more sen- sible guidelines Douglas set. Very simply, Douglas wrote that in our search for truth, a "medley of voices is essential. That is why the first amendment is our most precious inheritance. It gives equal time to my opponents, as it gives to me." Douglas' medley of voices is really a diversity of sources, and that diversity is as fundamental to the freedoms of speech and press as is government restraint. The key question becomes: How diverse will our sources of information be? Will it be sufficiently diverse to allow alternative programing that may not cater to the lowest common denominator? Will it be diverse enough to feature minorities in dramatic as well as comedic roles? Will it allow for something other than stereotypical portrayals of women? If just three network programers continue to be responsible for these decisions, then we will have little diversity. Their yardstick for success is imitation, not innovation. The industry's tight concentration of power has bred sameness. Just consider how many Tom Selleck carbons graced our television,. sets this past season. PAGENO="0803" 801 Safe, successful, and boring program formulas come back year after year. Why? They bring in the ratings numbers and keep the networks very profitable. But network profits should not be the standard for our public policy decisions. The rules have decentralized the industry and changed its landscape. Now local independent television stations can feature special pro- gramming, as a Boston station did for "Black History Month," to meet the needs of its community. Minority producers don't have to settle for being network employees-they can start their own com- panies and tailor their programs to their own themes, not those of an advertising formula. The networks don't need tailor-made rule changes to prosper. Their profit record is the envy of most businesses. Yet the independent and small television producers and stations need the rules to survive and flourish. Thank you very much, Mr. Chairman. Mr. WIRTH. Are there further opening statements? Mr. Markey. Mr. MARKEY. Thank you, Mr. Chairman. Mr. Chairman, this subcommittee has many bills under its juris- diction. Today we consider our only bill which gets full page cover- age in the style section of the Washington Post, brings Alex Haley and Alan Alda to town, and has the wholehearted endorsement of J. R. Ewing: H.R. 2250, the bill to preserve the financial interest and syndication rules, as well as the prime time access rule. The rules, in place since 1970, have had a significant impact on the television industry. Since their imposition we have seen an im- pressive increase in the number of independent television stations and the audience they reach, as well as the development of a made- for-syndication programming market. As a result, the diversity of programming available to the public on free TV has been expanded, while innovation and creativity in the production community have been encouraged. Yet this market, the industry, remains only nascently competi- tive. The networks still control the gateway to 85 percent of the Nation's television viewing audience. By lifting these rules now, we would move regulation at a pace faster than the growth of competition. Someday it may be time to lift the rules-that day has not yet arrived. I am distressed by some of the arguments which the opponents of H.R. 2250 are raising. They contend that the future of free TV rests with repeal of the rules. They warn that if we do not repeal these rules, the networks will fall rapidly behind the new pay tech- nologies. If this were the case, my position would be a very, very different one. Indeed, I would argue that the question which divides the two sides in this debate is not: "Are you for or against free TV?" but instead should be posed, "Where does the future of free TV lie?" I believe that the future of free TV lies with the retention of the rules. By encouraging a healthy and independent production com- munity, we provide needed support to those who will be creating the programs for the medium. PAGENO="0804" 802 By encouraging the development of independent television sta- tions and syndication networks, we secure the future of an impor- tant outlet which brings these programs to millions of homes on free TV. The future of free TV lies with those who would bring such pro- graming to our home sets, not with network executive who-in one official's words-are made "uneasy" by this distribution. The financial interest and syndication rules, and the prime time access rule, have worked to serve the public and free TV over the past decade. That is why I am a cosponsor of H.R. 2250, and why I urge its passage. Mr. WIRTH. Mr. Tauke. Mr. TAUKE. Thank you, Mr. Chairman. Mr. Chairman, members of the committee, I did not prepare an opening statement, and I hesitate to sound a discordant note in this happy harmony that I have heard since coming to the meeting this afternoon, and I am not particularly anxious to get into a debate at the moment about the substance of the measure before us or the substance of the rules that the FCC has promulgated in the past. What bothers me, however, is the fact that I received a notice today that we are going to have a markup on this legislation on Wednesday morning. If there is a rush to judgment, it seems to me it is a rush to judg- ment not on the part of the Federal Communications Commission, but a rush to judgment on the part of this subcommittee. The FCC, we are told by the gentleman from California, is pro- posing to repeal the financial interest and syndication rules. I hadn't known that. To the best of my knowledge, the FCC isn't scheduled to make a decision until, ironically, Thursday of this week, and the best rumor mills suggests that repeal is not going to be the order of the day. In any event, at that time the FCC will be merely making a pro- posal. It is not going to be terminating or officially changing the rules, simply putting something out there for those in the industry and in the public to take a look at and to offer comments on. The FCC, unlike this subcommittee, has held extensive hearings on the issue. We asked the agency to make decisions about critical issues in the broadcasting and communications field and yet it seems when there is a major issue, one that is extremely complex, that we want to jump into the fray and act before they have even had a chance to make their recommendations. We have not heard in this subcommittee, nor-the chairman may correct me if I am wrong-I don't believe we are scheduled to hear from the Justice Department, which has a major interest be- cause of the antitrust implications; from the Commerce Depart- ment, which has a major interest because of the communications policies involved; from the FTC, which has spent a lot of time look- ing at this issue; and from the FCC, itself. We have not spent any time to date, and we have very little time to do so before we had spent any time looking at the implications of not just repeal or nonrepeal, but various other possibilities on independent stations. PAGENO="0805" 803 We haven't had any time to look at what the impact will be on independent producers. We haven't had much ability to look at the claims or counterclaims about the impact of changes in these rules on diversity of programing. It seems ironic to me that those who are condemning programing on TV are those who want to maintain the status quo. We haven't had any ability or time to look into the issue of pay TV versus free TV. I may well come down on the same side as the gentleman from California on these issues. In fact, I would have to say to him right now that certainly I have heard a lot more on his side of the ques- tion than I have heard on the other side of the question, but it seems to me that it is unfortunate that the subcommittee makes its decision on the basis of a lot of visits from a lot of well-known lob- byists, instead of making the decision on the basis of a carefully compiled record. So I hope that we take some time to study this issue carefully, see what the FCC has to say about the question, before we rush in and try to undo the work that they have begun without even knowS. ing what kinds of conclusions or suggestions they might have to offer. In any event, Mr. .Chairman, I am glad you have called this hear- ing today to give us a chance to begin to sink our teeth into the issue. I hope that this won't be the last hearing we have on this question because I think we have a lot to learn on an issue that is one that is going to have very substantial impact on the future of television and the future of broadcasting in this country. Mr. Swirr. Will the gentleman yield? Mr. TAUKE. I would be happy to yield. Mr. Swivr. I think the gentleman makes a superb point in terms of the process. This is a subcommittee that has developed over the years, I think, a justifiable reputation for being a stickler for proc- ess, for not wanting to function until it has full information on which to base actions that it would take legislatively. The surprise to me of having the markup scheduled for Wednes- day seems to cut across both of those principles which this subcom- mittee has fought very hard over a considerable amount of time to establish as basic policy. The gentleman mentioned in particular the depth of Commerce, the Federal Trade Commission, arid the Department of Justice- three agencies who have researched, studied, and reported on this particular proposal. They are not on today's hearing schedule and apparently we have scheduled a markup before we will get to them. It just seems to me that this is totally inconsistent with policies that have been established soundly by this committee, policies I have defended, and will continue to defend as a proper way to handle important legislation. I thank the gentleman for yielding. Mr. WAXMAN. Would the gentleman yield to me? Mr. TAUKE. Yes. Mr. WAXMAN. I hope when the gentleman looks into this issue, he will end up on our side. Our subcommittee has held two over- PAGENO="0806" 804 sight hearings with the FCC and each time we raised with them why they were pursuing changing the rules. We have gotten no response that I consider adequate. This is the kind of issue that we shouldn't let a regulatory agency decide for the people of this country. It seems to me we want to say to them, before you act precipi- tously, let's stop and evaluate whether we need to change the rules. This subcommittee is a deliberative body. I think we have a reputation for acting as carefully as we should, and it seems to me we have heard a great deal of testimony, today's hearing will add more to the record. If we move this legislation, we will be saying that, as elected Representatives, this kind of decision ought to be made by Congress after we hear from everyone involved as to why the rules ought to be changed. But if we allow the FCC to move without explaining a public interest purpose that would be served by repealing the rules, then we will have put aside our responsibilities and let the Com- mission act as if they were the Congress of the United States. Mr. TAUKE. Reclaiming my time for just a moment, I think there are two separate issues. The first question is, Does the FCC have reason for acting? I might just say, I really don't know. I know the gentleman has raised this issue. I can't say that the answers from the FCC were particularly forthcoming either. However, I do know that this huge volume, there are two vol- umes of a report that were an inquiry of the special staff of the Federal Communications Commission put together a couple of years ago, a group headed by Charles Ferris, a distinguished group that spent a lot of time looking at the issue. They recommended that the FCC should repeal the rules. I don't know whether the arguments that they offered for repeal are meri- torious or not, but it seems to me that gave the FCC adequate reason to look into the issue. We don't even know now whether or not the FCC is going to repeal the rules or what they are suggesting, and I think it is a little premature to jump the gun and say simply because they are looking at the question we are going to pass legislation in the area. Second, we don't know anything about the issue yet as a subcom- mittee. We have virtually nothing on the record and all we have on the record is what the FCC has put there through its hearing. We don't have anything that we have put together on the basis of testimony from witnesses and so on, and I guess it just seems to me we ought to look at all the facts as hopefully the FCC is doing before we take action. The gentleman has done a terrific job of pushing the issue and of orchestrating efforts on his side. I am not sure, however, that I want to jump to his side without hearing from those who might represent a different viewpoint. Mr. WAXMAN. If the gentleman would yield further briefly, it seems to me that this is not an issue that is so very difficult and complicated that it is hard for us to make up our minds about. It is not hard to see what the FCC is about to do. Chairman Fowler has made his position clear. He has scheduled oral hearings before he got written comments. PAGENO="0807" 805 The FCC is rushing to judgment in my opinion to adopt a par- ticular point of view and when the Congress has asked what he is doing and why he is doing it, he has refused to comment because the matter is pending before him. Mr. TAUKE. He doesn't have the votes either. Mr. WAXMAN. We have had hearings on the issue. The members of the subcommittee for the most part have had a chance to evalu- ate the comments made. I am glad to say that most members of the subcommittee are joining in sponsoring the bill. I hope the gentleman will also, maybe after this hearing when he hears the paucity of comments on behalf of changing these rules. I hope we move forward with the bill. Otherwise, Congress won't be making the decision, it will be a FCC that has its mind made up that will be deciding the question. Mr. WIRTH. The gentleman's time has expired. Mr. Rinaldo has an opening statement that he would like to make. Mr. RINAu0. Thank you, Mr. Chairman. I want to say at the outset that I have the greatest amount of respect for the chief sponsor of this legislation, but I have to dis- agree with him when he says that this is not a complicated issue. It may not be complicated for him, but I think it is for everybody else. It is probably one of the most complicated issues to come before our subcommittee this year. If it is not complicated, I can't understand why the Federal Com- munications Commission has been investigating, it almost continu- ously for the past 6 years. In 1980, a team of FCC investigators published an 813-page analysis of the rule after more than 2 years of work. Early this year, members of the public submitted literally thousands of pages of written testimony to the FCC on the intrica- cies of the rule and on what, if any, changes should be made to it. Now we are holding our first hearing on the legislation, and I am not saying-and I don't want the gentleman or anyone else to con- strue this as a speech on my part in opposition to the legislation. I haven't taken a position yet. But the legislation, of course, would statutorily codify the FCC's financial interest and syndication rule, and I favor hearings on the issue. I just received a written notice a few hours ago stating that we are going to mark up the bill on Wednesday morning. So I think that means that this is going to be our first and our last hearing on the legislation. I think in all' due respect that it appears that this is somewhat of a rush to get the bill through the committee. Now the issue is too complicated, I think, for most of us to fully absorb and understand after only half a day of hearings, especially with a markup, supposedly based on these hearings, now scheduled to occur in less than 48 hours. It is difficult for me to believe that our committee can make every Member an informed decision, and that is what I want to make, an informed decision. I want to study the issue carefully. We simply cannot make an informed decision on a complicated issue after only a couple of hours of hearings, when the FCC has spent over a period of 6 years studying the issue. PAGENO="0808" 806 It is my understanding that several important groups are not being permitted to testify even at this hearing. I am particularly interested in the views of the administration, for example. At least three U.S. Government agencies have been intimately involved in the FCC's investigations-the Justice Department, the Commerce Department, and the Federal Trade Commission. All three of these Federal agencies have submitted major studies to the FCC, yet none of them is here to testify before our subcommittee this after. noon. Moreover, I was told just a few minutes ago that Senator Pete Wilson of California requested permission to testify this afternoon, and I always thought it was customary for Members of Congress and members of this committee to honor requests of other Mem- bers of Congress to testify. However, Senator Wilson was denied an opportunity to appear. Third-and this is probably the most troubling and baffling aspect on the expedited procedure that is being followed in this committee-we are being asked to vote on the Waxinan bill only 24 hours before the FCC is scheduled to propose a compromise solu- tion. I haven't read that, solution. I haven't seen it. Other people claim they know about it. Well, God bless them; they are in better shape than I and have better connections than I have. I am asking the gentleman from California to take a look at the FCC proposal after it is made on Thursday. If he thinks for 1 minute that by marking up this bill on Wednesday he is going to influence what they come out with the next day, he is wrong. Let's take a look at their decision. I may very well, after I look at it, say I agree with you 100 percent. I might sign on as a cosponsor and I might be the most vocal proponent. But let's not rush through the thing. It seems like some sort of a shotgun marriage here, and I have always been afraid of those things. In view of the FCC's long involvement, its expertise in these mat- ters, and its attempt to come out with a compromise, I can't under- stand why we have to vote on the bill this week. And I think it would stand the gentleman who is very much in favor of thjs-and I have attended his meetings and I have worked with him on other legislation in the past, and he knows I have been very supportive of many of his efforts in many different areas. I think he would be in better shape if he would have the markup at a later date. I think it would influence the members of the full committee more and would give him an edge, because then they would feel he was fairer. I think he would stand out in better shape on the floor. I know he doesn't want to hear me say this in front of the full committee and on the floor. I would hope that he would say to me in a spirit of good faith, in a spirit to resolve this issue that is so critically important to the American people-and not one constitu- ent has written to me about it-that we would then take care of this matter at a later date, maybe after the recess, when we can come back well-rested, listen to both sides, and then come out with a decision that is going to make the American people rally to our cause and say Congress is finally doing a great job on the most pressing issue of the day. Thank you, Mr. Chairman. Mr. WIRTH. Is there further discussion? PAGENO="0809" 807 The gentleman from Washington, Mr. Swift. Mr. Swi~"r. Thank you, Mr. Chairman. I want to compliment the gentleman from California for his dry humor when he suggests this iSn't complicated. I also want to sug- gest that we have only had a hearing and a half on this, plus a little discussion at the oversight hearing. It is a horrendously complicated piece of legislation that has caused me a great deal of difficulty in trying to decide on the merits. But what perhaps is more disturbing than anything else-I would add that when the gentleman suggests that the FCC has a lot of temerity to consider changing this rule and the Congress must thrust its body between it and the public interest, I would point out that the FCC created the rule in the first place without help from Congress. It seems to me that it has some proprietary interest. It was action the FCC had taken rather than action that they may per- haps take a day or two after we act. But most importantly, it seems to me that it goes to the integrity of this subcommittee. I understand what the gentleman is trying to do. It is very clear, very obvious, and it is simple. But the fact is, this subcommittee has for many, many months now, since new leadership. took the Chair, has insisted that this committee go through a rigOrous proc- ess of information gathering. The subcommittee has been subject to considerable criticism for taking that policy. It did so on telephones in the past Congress in which there were many who said it was simply a ruse to try and prevent there from being legislation. That was wrong then and it is still wrong. It was demonstrably wrong because we did move, but we did so on the basis of a thor- ough understanding of the information. We are currently undergo- ing requests for a great deal of information with regard to broad- casting deregulation before we can move with legislation there. There is a long questionnaire that has gone out to television and radio stations all over this country, and I have supported that, the purpose being that we need the information with which to legislate properly. I don't believe that anybody can seriously argue that we have had sufficient hearings or collected sufficient information to make an expert and proper judgment on this issue today or tomor- row or Wednesday. Now, we are probably going to. Not only would I not bet the ranch that we are not going to pass this on Wednesday, I wouldn't bet a cigar. I wouldn't bet a cheap cigar that we are not going to pass this on Wednesday. But I think it is totally inappropriate and it is totally inconsistent with what is sound policy on the part of this committee. And this committee, when this issue is long gone, will rue the day that it broke its own policy in this regard. I thank the Chairman. Mr. WIRTH. Is there further discussion on the legislation? Mr~ Bates. Mr. BATES. I would just add that the gentleman from Washing- ton, Mr. Swift, his comments about the FCC's involvement with the AT&T issue, the telephone issue, is precisely the reason that I don't think we can wait for their decision; that they have, I think, in that instance shown a philosophy really that goes against the American consumer and disturbs me very much. And I have just PAGENO="0810" 808 recently signed on as a cosponsor on this legislation after a great many months studying it, and I would have to agree that it is not a simple issue. It is very complicated. But I think that the proposal is simply not to make a decision. The 5-year moratorium is warranted. And I would hope that we could pass this legislation as soon as possible. Thank you, Mr. Chairman. Mr. WAXMAN. Would the gentleman yield? Mr. BATES. Yes. Mr. WAXMAN. I thank my colleague for yielding. I just want to point out to those of our colleagues who have ex- pressed some concern about our rushing to judgment, this subcom- mittee has generally worked on trying to develop a consensus before we do report a bill to the full committee. I don't think we have seen much of a stronger consensus than we have behind this legislation. We have 10 out of the 14 regular members of the sub- committee backing this legislation. If we just do nothing and let the FCC act, I point out, then when we come back here after this August recess, we may find that it will be too late for Congress to assert itself. Maybe that is what some would have us do. But I don't think that is the responsible position for the committee of Congress that has jurisdiction over telecommunications. I think it is important for us to have this hearing today. I point out it is not the first time we have discussed this issue. Since last December, we were asking the FCC representatives why they were looking into this issue and what they hoped to accomplish, and we couldn't get a reply from them then, and we really can't now. I don't think they are going to be any more forthcoming here what- ever rule they come up with, whether it is a so-called compromise or the original proposal floated around to repeal the rules. In 1970, the FCC adopted rules that provided for competition and diversity. We have seen the success of those rules. It is in the public interest that we not let those rules be swept aside. For those who agree with that position, we ought to assert our- selves as lawmakers; for those who don't agree with that position, they should oppose it. For those who haven't made up their minds, I hope the hearing today will give us more information to sort through what may seem complicated to some and not so complicat- ed to others. But I think the debate ought to go forward and the subcommit- tee, after this hearing, be prepared to send a bill forward so when we come back we can move forward with it. Mr. WIRTH. The Chair recognizes himself for a reading of the H.R. 2250: A bill to provide a moratorium until June 30, 1988, on changes to the Federal Communications Commission rules regarding network television syndica. tion, network television financial interests, and prime time access. Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, that, in order to maximize competition in the tele- vision broadcasting marketplace and to promote diversity of programming sources for the public, the Federal Communications Commission shall not have authority to take any action before July 1, 1988, to repeal, amend, or otherwise modify the provi- sions or applicability of any of the following: PAGENO="0811" 809 (1) section 73.658(j)(i) of title 47, Code of Federal Regulations (commonly known as the "Syndication Rule"; 23 F.C.C. 2d 382); (2) section 73.658(j)(ii) of title 47, Code of Federal Regulations (commonly known as the "Financial Interest Rule"; 23 F.C.C. 2d 382); and (3) section 73.658(k) of title 47, Code of Federal Regulations (commonly known as the "Prime Time Access Rule"; 23 F.C.C. 2d 382). This enormously complicated bill I just read in 90 seconds. It is here available for perusal of all the members of the subcommittee, and has been for some time perused carefully by 120 of our col- leagues who had thought it was appropriate to cosponsor this enor- mously complicated 90 seconds long bill. It is not a complicated piece of legislation. It is an enormously simple piece of legislation designed to do one thing: To make sure that it is the Congress of the United States, not the FCC, not Mark Fowler, not the NAB and not the broadcasters of this country, who are going to make telecommunications policy. It is imperative that we not abdicate our responsibility. Now, there are those who believe that we should abdicate respon- sibility, and that is fine. I mean, they have a vote in this Congress, they have votes on the subcommittee, they have votes on the full committee, and that is just fine. But as long as I am chairman of this subcommittee, we will not abdicate our responsibility. We will collect the necessary information as we have done or amended to do in two oversight hearings on this issue when we got little re- sponse from the FCC. We asked the FCC not to rush charging ahead with this, but they insisted on doing it anyway, despite their alleged accountability to this subcommittee and to the Congress, We collected information at great length in the competition report which was published by this subcommittee in the fall of 1981, prob- ably the most rigorous analysis of competition in the whole arena, as we did in hearings that were held in California in early June, of which a record has been made available to the members of the committee since that time. It is the opinion of the Chair that it is the obligation of this com- mittee to make important telecommunications policy, and it should not be delegated to others. And that is what this vote and this issue is going to be all about. I just wanted to make it very clear. And I will not rue the day in any way, shape or form that this subcommittee attempted to exer- cise its jurisdiction and not abdicate that to somebody else. With that, the Chair is delighted to have as witness our panel today, and we welcome Mr. Roger Colloff, the vice president for policy and planning of the CBS Broadcasting Group in New York; Mr. Irwin Segelstein, vice chairman of the board of the National Broadcasting Co. in New York; Mr. Norman Lear of Embassy Pro- ductions and Tandem Communications in L.A.; and Mel Blu- menthal, the executive vice president of MTM Productions in Studio City, Calif. Gentlemen, I think you are familiar with the rules of the sub- committee which have been so carefully reflected so far this after- noon in which we ask everybody to summarize their statements and testimony in 5 minutes, and the rest will be included in full in the record. We would like you to be able to do that perhaps in the PAGENO="0812" 810 order in which I introduced you, starting with you, Roger, and moving from your right to your left. If you would summarize your statements, we will include them in full in the record. We would then like you to respond to what others may have said as a way of exchange among members of the panel before we get into questions from the subcommittee. Thank you for being here. STATEMENTS OF ROGER COLLOFF, VICE PRESIDENT, POLICY AND PLANNING, CBS/BROADCAST GROUP; IRWIN SEGELSTEIN, VICE CHAIRMAN OF THE BOARD, NATIONAL BROADCASTING CO., INC.; NORMAN LEAR, EMBASSY PRODUCTIONS AND TANDEM PRODUCTIONS, INC.; AND MEL D. BLUMENTHAL, EX- ECUTIVE VICE PRESIDENT, MTM ENTERPRISES, INC. Mr. COLLOFF. Thank you, Mr. Chairman. This is probably going to come as a terrible anticlimax after the vigorous debate the last hour. I appreciate the opportunit~t given me by the subcommittee to present CBS's views on the financial in- terest and syndication rules. As the subcommittee is well aware, the FCC's review of the rules has been long and thorough. The FCC's pending rule-making repre- sents a culmination of a 5-year effort designed to determine the best means of encouraging competition and diversity in television. That effort began with a $2 million, 2-year study by an independ- ent special staff. This study was mandated and appropriated by Congress. It recommended a regulatory policy with two major ele- ments: first, changing the structure of the television industry by encouraging new methods of program distribution; and second, re- pealing a wide variety of anachronistic rules, including the finan- cial interest and syndication rules. The FCC, under both Democratic and Republican administra- tions, has begun to implement this policy of encouraging new forms of competition, while removing regulations which have hampered diversity and choice. As part of this effort, over a year ago the FCC began its rule-making proceeding concerning the financial interest and syndication rules. In this proceeding, a massive record has been compiled, including over 225 initial and 35 reply comments. Forty parties have expressed their views in oral presentations. Other economists who are expert on regulatory issues support repeal. These include those who serve at both the American Enter- prise Institute and the Brookings Institution. Further, the major Federal departments and agencies-the De- partment of Commerce, the Federal Trade Commission and the De- partment of Justice-have all advised the FCC to repeal the rules. All of these parties found that the rules have failed to achieve their objectives, and that the rules have had the unintended, anti- competitive effect of making it more difficult for new firms to enter the television production business. I would like to comment briefly on the interesting course of the arguments against repeal. Opponents of repeal originally argued that the rules continued to be* needed to check the monopsony-or unfair buying-power that CBS, ABC, and NBC were believed to have over their suppliers. Indeed, this was the fundamental reason used by the FCC to promulgate the rules in 1970. PAGENO="0813" 811 But in recent years, a wide range of students of the issue have concluded that the networks do not possess such power. Yet, with- out network monopsony power, the rationale for prohibiting net- work financial interests in programing, for prohibiting network syndication of first-run programing or made-for-television movies, or for barring the foreign distribution of off-network programing all fall of their own weight. Therefore, opponents of repeal abandoned this structural under- pinning to the rules as the focus of their arguments against repeal, and began to tell us that the real rationale of the rules was to insure a steady flow of reruns to independent stations. In fact, wit- nesses for the six major Hollywood studios, television program syn- dicators, and independent television stations stated at the FCC hearings in March that the only real issue left in this whole debate was the effect of repeal on independent stations. So, the argument shifted-and narrowed substantially-away from the broad prohibi- tions of the rules to the very specific issue of the role of networks as syndicators of off-network prime-time entertainment series. And yet, in reply comments to the FCC, numerous commentators reviewed the new presumed rationale for the rules, and concluded that theories of potential anticompetitive network behavior in the syndication business were not sound and did not justify retaining the rules. Given the history of these changing arguments against repeal, I suggest that opponents of repeal would continue indefinitely to shift their defense of the rules. The pattern of opposition to repeal is clear. When one rationale can no longer withstand serious public policy scrutiny, another is invented. When that one is discredited, yet another rationale becomes the focus of the antirepeal efforts. I appreciate the opportunity to reiterate the reasons why CBS supports repeal-and these are the reasons that CBS has put for- ward consistently since the beginning of the FCC's proëeeding. CBS believes that repeal will increase competition and diversity in the television program supply and syndication business. If the rules are repealed, the networks would be able to invest in television produc- tion, thereby increasing the financing available for independent program- development and production. This, in turn, would stimu- late new, additional sources of programing to the networks. The record is clear that the rules have led to a significant reduc- tion in the number of sources of prime-time entertainment series programing. If the rules were repealed, an increasing number of in- dependent production companies would gain access to three impor- tant sources of financing for new series development: the three net- works. This would increase diversity in the sources of prime-time entertainment series programing. CBS believes that an exclusionary approach to the television pro- duction and syndication business-one that eliminates additional potential participants-is unsound public policy. We believe that an inclusive approach-one that includes as many participants as possible-is sound because it maximizes com- petition and diversity. That is the fundamental reason why we favor repeal of the financial interest and syndication rules. Thank you very much, Mr. Chairman. [Mr. Colloffs prepared statement follows:] PAGENO="0814" 812 CBSTe)evusonNetwork.CBSEnlellaulment.CBSSp0IIs CBSNews.CBSTe)eveonSlat,onsCBS Ratho CBS)nc 51 Wesl52Slreel.N,wYork. NewVo~k 10019(212)9754321 Statement of Roger Colloff Vice President, Policy and Planning CBS/Broadcast Group Before the Subcommittee on Telecommunications, Consumer Protection and Finance U. S. House of Representatives Washington, D. C. August 1, 1983 I would like to thank the Subcommittee for this opportunity to present CBS's views on the the financial interest and syndication rules. As the Subcommittee is well aware, the FCC's review of the rules has been long and thorough. The FCC's pending rule-making represents a culmination of a five-year effort designed to determine the best means of encouraging competition and diversity in television. That effort began with a $2 million, two-year study by an Independent Special Staff. This study was mandated and appropriated by Congress. It recommended a regulatory policy with two major elements: first, changing the structure of the television industry by encouraging new methods of program distribution; and second, repealing a wide variety of anachronistic rules, including the financial interest and syndication rules. The FCC, under both Democratic and Republican administrations, has begun to implement this policy of encouraging new forms of competition, while removing regulations which have hampered diversity and choice. As part of this effort, over a year ago, the FCC began its rule-making proceeding concerning the financial interest and syndication rules. PAGENO="0815" 813 In this proceeding, a massive record has been compiled, including over 225 initial and 35 reply comments. Forty parties have expressed their views in oral presentations. For its part, CBS has submitted the analyses of a number of eminent economists, including Alfred Kahn, former Chairman of the CAB, and Bruce Owen, former Chief Economist of the Antitrust Division of the Department of Justice, who both served during the Carter Administration. Other economists who are expert on regulatory issues support repeal. These include those who serve at both the American Enterprise Institute and The Brookings Institution. Further, the major Federal Departments and agencies -- the Department of Commerce, the Federal Trade Commission and the Department of Justice -- have all advised the FCC to repeal the rules. All of these parties found that the rules have failed to achieve their objectives, and that the rules have had the unintended, anti-competitive effect of making it more difficult for new firms to enter the television production business. In short, the rules have been debated and studied for over five years. They have been thoroughly reviewed by leading public policy experts of opposing ideological and political backgrounds. Support for repeal of the rules is clearly a non-partisan issue. And, as is frequently the case in deregulatory proceedings, those who wish to preserve the status quo are those who benefit from limiting competition and the entry of new companies in the television supply business. :J2-540 O-84---52 PAGENO="0816" 814 -3- I would like to comment briefly on the interesting course of the arguments against repeal. Opponents of repeal originally argued that the rules continued to be needed to check the monopsony -- or unfair buying -- power that CBS, ABC and NBC were believed to have over their suppliers. Indeed, this was the fundamental reason used by the FCC to promulgate the rules in 1970. But in recent years, a wide range of students of the issue have concluded that the networks do not possess such power. Yet without network monopsony power, the rationale for prohibiting network financial interests in programming, for prohibiting network syndication of first-run programming or made-for-television movies, or for barring the foreign distribution of off-network programming all fall of their own weight. Therefore, opponents of repeal abanonded this structural underpinning to the rules as the focus of their arguments against repeal, and began to tell us that the real rationale of the rules was to ensure a steady flow of reruns to independent stations. In fact, witnesses for the six major Hollywood studios, television program syndicators and independent television stations stated at the FCC hearings in March that the only real issue left in this whole debate was the effect of repeal on independent stations. So, the argument shifted -- and narrowed substantially -- away from the broad prohibitions of the rules to the very specific issue of the role of networks as syndicators of off-network prime time entertainment series. And yet, in reply comments to the FCC, numerous commentators reviewed the new presumed rationale for the rules, and concluded that theories of potential anti-competitive network behavior in the syndication business were not sound and did not justify retaining the rules. PAGENO="0817" 815 -4- Given the history of these changing arguments against repeal, I suggest that opponents of repeal would continue indefinitely to shift their defense of the rules. The pattern of opposition to repeal is clear. When one rationale can no longer withstand serious public policy scrutiny, another is invented. When that one is discredited, yet another rationale becomes the focus of the anti-repeal efforts. I appreciate the opportunity to reiterate the reasons why CBS supports repeal -- and these are the reasons that CBS has put forward consistent~y~ since the beginning of the FCC's proceeding. CBS believes that repeal will increase competition and diversity in the television program supply and syndication business. If the rules are repealed, the networks would be able to invest in television production, thereby increasing the financing available for independent program development and production. This in turn would stimulate new, additional sources of programming to the networks. The record is clear that the rules have led to a significant reduction in the number of sources of prime time entertainment series programming -- from 65 before the rules to 47 today -- and to a reduction from 66 percent to 48 percent in the percentage of series supplied by independent production companies to the networks. If the rules were repealed, an increasing number of independent production companies would gain access to three important sources of financing for new series development -- the three networks. This would aid considerably in - increasing the opportunities for fledgling firms to get established in the production business and for talented individuals to break into the production business. This would increase diversity in the sources of prime time entertainment series programming. Because of these reasons, CBS believes that an exclusionary approach to the television production and syndication business -- one that eliminates additional potential participants -- is unsound public policy. We believe that an inclusive approach -- one that includes as many participants as possible -- is sound because it maximizes competition and diversity. That is the fundamental reason why we favor repeal of the financial interest and syndication rules. PAGENO="0818" 816 Mr. WIRTH. Thank you very much. Mr. Segelstein. STATEMENT OF IRWIN SEGELSTEIN Mr. SEGELSTEIN. Thank you, Mr. Chairman. My name is Irwin Segelstein, and I am vice chairman of the board of the National Broadcasting Co. I was sorely tempted when I listened to the debate within the committee to pass my 5 minutes. However, I suppose I must resist that temptation. I am here today to present NBC's strong view that H.R. 2250 is an unsound bill. This bill would prohibit the Commission, despite its expertise and despite the voluminous evidence that has accumu- lated, from repealing and modifying rules which it adopted over 12 years ago and which have resulted in inhibiting competition and diversity of program sources. We are not here today to present the detailed reasons why the rules should be repealed and modified. NBC and others have done that extensively in comments and economic presentations to the Commission. I would be glad to leave copies of ours with this sub- committee. Rather, we wish to emphasize NBC's view that it would be inap- propriate for Congress at this point to prevent the FCC from ex- pressing its judgment on this issue. I note that the item is on the FCC agenda this week. The FCC proceeding has been neither hasty nor ill-considered. Nor has it been a partisan effort. It started over 6 years ago and continued through the administrations of Democratic and Republi- can chairmen. The FCC has compiled a voluminous record. There is absolutely no reason now to reject all that evidence and yet that is what H.R. 2250 would do. During the 2-year study specifically funded by Congress, the FCC formed a special network inquiry staff, interviewed representatives of virtually every possible view, and obtained and analyzed volumi- nous facts and documents about every segment of the industry. Based on this extensive evidence, the special staff concluded that the financial interest and syndication rules should be repealed since they interject the Government into risk sharing arrange- ments between private parties without any public interest benefit. A year ago, the FCC issued a notice of proposed rulemaking. Re- sponding to that notice, thousands of pages of additional comments and reply comments were filed by every segment of the industry. With the Chairman's permission, I should like to submit for the record a list of the more than 150 parties that have participated in this comment procedure. Mr. WIRTH. Without objection, that will be included in the record. Mr. SEGELSTEIN. Additionally, the FCC heard oral presentations. The result was widespread support for the repeal of the current rules. Significantly, Government agencies with special expertise on the issues of competition-the Department of Justice, the Federal Trade Commission-found that the rules were anticompetitive. The PAGENO="0819" 817 same conclusion was reached by the Department of Commerce's National Telecommunications and Information Agency. Numerous public interest groups representing diverse minorities, the elderly, religious organizations, retired people, labor organiza- tions and many lower income Americans have also supported repeal of the rules because of their adverse effects on free televi- sion's ability to purchase quality programming. Mr. Chairman, we should be glad to make available to each member of the committee a list of the organizations I refer to. The rules simply do not accomplish any public interest purpose and, in fact, affirmatively harm the public interest. Put briefly, the reasons are as follows: First of all, the rules have the practical effect of putting a cap on the ability of broadcast net- works to invest in program development and production for the free television system. Second, the evidence demonstrates that the rules decrease com- petition in the program supply marketplace, disadvantaging the viewing public and advantaging only the major studios and produc- tion companies. Third, they inject the Government into the business negotiations between buyers and sellers without any public interest benefit. And, fourth, the rules provide an unfair advantage to pay media in the acquisition of programing and talent to the detriment of viewers who depend on free television. These and other public interest reasons for repeal have been es- tablished over and over in the FCC's proceedings. For Congress now to stop the FCC from making use of the extensive evidence that has been accumulated at great effort and expense would be wasteful, I believe, and unwise. Mr. Chairman, this is a time when there are dynamic changes overtaking the telecommunications industry almost on a daily basis. If the bill forces the Commission to a freeze, the Commission will be unable to respond to these changes. Indeed, the effect of the bill will be to block Commission action and establish a regulatory vacuum in this area for many years, probably to the 1990's, at a time when the Commission is charged with regulating, is undergo- ing radical transformation. For these reasons, we oppose the bill and urge that it not be adopted. I read in the trade papers this morning and I read in the con- sumer press that this week the Commission will offer a new pro- posal for comments and responses, perhaps a compromise. None of us, of course, has seen it. But I would urge this committee to allow the process to continue until you have a chance to look at the pro~ posal and the comments of all the interested parties. I would like to thank you, Mr. Chairman, and members of the committee, for allowing me this opportunity to speak. [Testimony resumes on p. 833.] [The statement of Mr. Segelstein and attachment follow:] PAGENO="0820" 818 STATEMENT OF IRWIN SEGELSTEIN My name is Irwin Segeistein, and I am Vice Chairman of the Board of the National Broadcasting Company. I am here today to present NBC's strong view that H.R. 2250 is an unsound bill. H.R. 2250 would prohibit the FCC from taking any action to repeal or modify the Commission's own Financial Interest or Syndication Rules for five years. This Bill would prohibit the Commission -- despite its expertise and despite the voluminous evidence that it has accumulated -- from repealing or modifying Rules which it adopted ovet 12 years ago, and which have resulted in inhibiting competition and diversity of program sources. We are not here today to present detailed reasons why the Rules should be repealed or modified. NBC and others have done that extensively in Comments and in economic presentations to the Commission and I shall be glad to leave copies of ours with this Subcommittee. Rather, we wish to emphasize NBC's view that it would be inappropriate for Congress at this point to prevent the FCC's expert considera- tion of the question of repeal or modification of the Rules. PAGENO="0821" r19 -2- The FCC's proceeding has been neither hasty nor ill considered. Nor has it been a partisan effort. The FCC began itS consideration over 6 1/2 years ago. Since then, it has accumulated an enormous public record consistin.g of some 30 volumes of evidenc? and analyses, plus all the materials of its own Staff Inquiry. Its examination is now virtually complete. There is absolutely no reason now to reject all of that evidence and to disregard the substantial time and effort that have been devoted to comprehensive analyses of the industry, of the changes in the marketplace, and of the public interest. Yet that is what H.R. 2250 would do. Mr. Chairman and members of the Subcommittee, let me briefly highlight how thoroughly and objectively the Commission has considered these Rules. It is important to emphasize that the FCC study has been a bipartisan one -- involving three different Commission Chairmen. In January of 1977, when the Commission initiated its Network Inquiry, Rich~trd Wiley, a Republican, was Chairman. Then, when the Further Notice of Inquiry was issued in the fall of 1978, Charles Ferris, a Democrat, was Chairman. A two-year special study costing about $2 million and specifically authorized by a Democratically-led Congress, was conducted by appointees of Chairman Ferris, headed by Thomas Krattenmaker and Stanley Besen, two highly regarded experts in law and economics. PAGENO="0822" 820 -3- The Special Staff that they put together was unquestionably impartial and apolitical. It consisted of expert industry analysts, economists, and attorneys chosen especially to study the television industry. During its two years of study, the Special Staff interviewed representatives of virtually every possible view and obtained and analyzed voluminous facts and documents about every segment of the industry. Based on this extensive evidence, the Special Staff concluded that the Financial Interest and Syndication Rules should be repealed since they interject the Government into risk-sharing arrangements between private parties without any public interest benefit. A year ago, the FCC issued a Notice of Proposed Rulemaking looking toward possible repeal or modification of the Rules. Responding to that Notice, thousands of pages of additional comments and reply comments were filed by representatives of every segment ~of the industry. With the Chairman's permission, I should like to submit for the record a list of more than 150 parties that have participated in the comment procedure. Additionally, the FCC heard oral presentations on this matter from individuals representing many diverse viewpoints. The result was widespread support for repeal of the current Rules. PAGENO="0823" 821 -4- Significantly, all of the expert government agencies that have studied the Rules agreed with the Network Inqt&iry Staff's conclusion.that repeal was in order. The Department of Justice and the Federal Trade Commission, the governmental bodies with special expertise on issues of competition, found that the Rules are anticompetitive and do not serve the public interest. The same conclusion was reached by the principal spokesman for the President on national telecommunications policy -- the Department of Commerce's National Telecommunications and Information Agency. Furthermore, numerous public interest groups representing diverse minorities, religious organizations, the elderly, retired people, labor organizations and many lower income Americans also have supported repeal of the Rules because of their adverse effects on free television's ability to purchase quality programming. Mr. Chairman, we shall be glad to make available to each member of the Subcommittee a list of such organizations. NBC strongly agrees with these citizen representatives and with the government bodies and impartial commentators that have studied the Rules who have called for their repeal. The Rules simply do not accomplish any public interest purpose, and in fact affirmatively harm the public interest. Put briefly, the reasons why the Rules disserve the public are as follows: PAGENO="0824" 822 -5- First, the Rules have the practical effect of putting a cap on the ability of broadcast networks to invest in program development and production for the free television system; Second, the evidence demonstrates that the Rules decrease competition in the program supply market- place, disadvantaging the viewing public and advantaging only the major studios; Third, they inject the Government into the business negotiations between private buyers and sellers in the program marketplace without any .public interest benefit; and Fourth, the Rules provide an unfair advantage to pay media in the acquisition of programming and talent to the detriment of viewers who depend on free television. These and other public interest reasons for repeal have been e~tablished over and over in the FCC's proceedings during the past 6 1/2 years. The FCC's information about these Rules is as comprehensive and as current as it can be. For Congress now to stop the FCC from making use of the extensive evidence that has been accumulated and the analyses that have been made, at great effort and expense after specific Congressional authorization, would be PAGENO="0825" 823 incredibly wasteful. In our view it would be an unwise and inappropriate interference with an expert administrative agency for Congress now to order the FCC to halt its normal processes. The consequences of enacting H.R. 2250 are clear: it would require the Commission to ignore the facts it has developed; it would waste the money and effort already expended pursuant to specific Congressional authorization; it would prohibit the expert agency from determining the public interest; and it would protect the economic interests of one group -- the major producers. Mr. Chairman, this is a time when dynamic changes are overtaking the telecommunications industry on almost a daily basj~s. If H.R. 2250 forces the Commission to a freeze, the Commission will be unable to respond to these changes. In fact, the Commission will be unable to recommence the administrative process until after the five-year period of the Bill ends. It will be the 1990's before any Commission decision on this matter can be rendered. And even after repeal, there will still be a number of years before the effects of the Rules are undone. Indeed, the effect of the Bill will be to block Commission action and establish a regulatory vacuum in this area for many years. The FCC would be put in a strait jacket and forced to maintain Rules that have been proven to be counterproductive and anticompetitive - - at a time when the industry that the Commission is charged with regulating is undergoing radical transformation. For these reasons, we oppose this bill and urge that it not be adopted. PAGENO="0826" 824 COMMENTS FILED IN FCC DOCKET BC 82-345 ABC Television Affiliates Association Action for Children's Television American Association of Advertising Agencies American Broadcasting Companies, Inc. American Family Corp. American Federation of Grain Millers American Legal Foundation American Television Syndication, Inc. Andrews & Associates Association of Independent Television Stations, Inc. Association of National Advertisers, Inc. Association of Program Distributors (Victory Television and Wolfertz Associates) Association of Talent Agents Bane, Tom, Asst. Speaker pro Tempore, California Assembly Barry & Enright Productions and Colbert Television Sales Bolter & Nilsson Buford Television Inc. Busby, Finch, Lathan & Widman Carlini, Ulysses A. Carrera, ~arbara Caucus for Producers, Writers, and Directors PAGENO="0827" 825 CBS, Inc. Cedar Rapids Television Co. Channel Two Television Co. Chicago Coalition Chronicle Broadcasting Co. Coalition of Labor Union Women Columbia Pictures Industries, Inc. Comma/OCC Media Dept. Committee for Prudent Deregulation Connecticut Broadcasters Association Cowles Communications, Inc. Cox Communications, Inc. Robert W. Crandall & Glen Robinson Department of Commerce Department of Justice Walt Disney Productions Duhamel Broadcasting Enterprises Embassy Communications & Tandem Productions, mc, Family Focus Federal Trade Commission Fetzer Television Corp. Fort Meyers, Florida Broadcasting Co. Forward Communications Corp. Charles Fries Productions, Inc. -2- PAGENO="0828" 826 Gay-Bell Stations & WLEX Gilson International Glasser, Richard D., Member of IATSE Golden West Television, Inc. Gray Communications Systems, Inc. Guaranty Broadcasting Corp. Harron Communications Corp. Haupt, Laurence, Member of IATSE Hearst Corporation Hispanic Republicans of Michigan, Inc. IATSE Local 1 IATSE Local 193 ICF, Inc. Illinois Institute for Applied Economics, N.Y. Inter-Guild Council of the Talent Guilds of the Motion Picture & Television Industry James, Kevin, Member of IATSE Alfred E. Kahn, Special Consultant to National Economic Research Associates, Inc. KAKE-TV KARK-TV KAUZ-TV (Wichita Falls Telecasters, Inc.) KBIM-TV KFNB-TV, WCIA, WMBD, & WSPA-TV -3- PAGENO="0829" 827 KGMC KID Broadcasting Corp. KMPH & WHNS (Pappas Telecasting Inc.) KOAT-TV KPLC-TV KPLR & KRBK (Koplar Communications, Inc.) KQTV KRBC-TV & KACB-TV KTRV KVOA-TV KWWL-TV (American Family Corp.) KZTV La Prensa of Miami Lexington Broadcast Services, Inc. Lorimar Productions, Inc. Loyola University (WWL-TV) Mandelu Enterprises, Inc. MCA, Inc. McCullough, Brian & Jim Meredith Corporation Metromedia, Inc. Mexican-American Opportunity Foundation MGM/UA Entertainment Co. Midcontinent Broadcasting Co. -4- PAGENO="0830" 828 Motion Picture Association of America, Inc. Mt. Mansfield Television, Inc. MTM Enterprises, Inc. National Association of Black Owned Broadcasters, Inc. National Association of Independent Television Producers and Distributors National Association of Television Program Executives National Black Media Coalition National Broadcasting Company, Inc. National Coalition of Hispanic Mental Health and Human Services Organization National Coalition on Television Violence National Council of La Raza National Council of Negro Women, mc, National Institute of Economics and Law National Institute of Low Power Television Nationwide Communications, Inc. National Council of the Churches of Christ NBC Television Affiliates New York State Department of Commerce Northern Television, Inc. Paramount Pictures Corp. Park Broadcasting, Inc. People for the American Way Polygram Television Corporation Presbyterian Church in the United States PAGENO="0831" 829 RCA Corp. Roberti, David, President Pro Tempore, California Senate Roadrunner Television and Galaxy-Southwest Television Rohrs Television, Inc. Shamrock Broadcasting Company, Inc. Shooshan & Jackson, Inc. Springfield Television Corporation Summit Radio Corp. D. L. Taffner/Limited Taft Broadcasting Co. Teleco Indiana, Inc. Telecommunications Research and Action Center Telefilm Sales II Telepictures Corp. Teleworld, Inc. Thirty-Three, Inc. Tribune Company Broadcasting, Inc. Turner Broadcasting System, Inc. United Rubber, Cork, Linoleum & Plastic Workers Viacom International, Inc. Warner Communications, Inc. -6- 32-540 O-84---58 PAGENO="0832" 830 WBBH-TV. WCYB-TV 5 WDRB-TV WEEK-TV 25 WHNS WICU-TV Williman, Earl C., Sr., Member of IATSE Winnebago Television Corp. & Plains Television Partnership WI S-TV WKRG-TV WLEX-TV WMKW WNNE-TV World Hunger Year Women in Film of Los Angeles WOWL-TV (Television Muscle Shoals Inc.) WPTY-TV WPTZ-TV WRBL-TV Center WEST-TV Writers Guild of America, West, Inc. WSLS-TV 10 WTVZ, WRLH, WJTM, & WMKW-TV WXXA Ziff-Davis Broadcasting Co. -7- PAGENO="0833" 831 REPLY COMMENTS FILED IN FCC DOCKET BL 82-345 ABC Television Affiliates Association Advertising Club of Fort Worth American Broadcasting Companies, Inc. Association of General Merchandise Chains, Inc. Association of Independent Television Stations, Inc. Association of National Advertisers, Inc. Association of Program Distributors Capital Cities Communications, Inc. Caucus for Producers, Writers, and Directors CBS, Inc. Chicago Convention & Tourism Bureau, Inc. Citizens Communications Center Committee for Prudent Deregulation Cox Communications, Inc. Department of Commerce Department of Justice Fast, William M., Representative of MEBA Federal Trade Commission PAGENO="0834" 832 General Mills Inc Henry Geller & Donna Lampert ICF Inc Idaho Advertising Federation IATSE District 2 Metromedia Inc Motion Picture Association of America Inc National Association of Independent Television Producers and Distributors National Institute of Low Power Television NATPE International National Broadcasting Company Inc Paramount Pictures Corp Penthouse Presentations Inc Presbytery of Newark Public Broadcasting Service Senior Citizens Club of New Milford N J Shooshan & Jackson Inc SIN Inc Station Representatives Association Inc Storer Communications Inc Taft Broadcasting Co Union Theological Seminary Viacom International Inc Westinghouse Broadcasting and Cable Inc (Group W) WGHP-TV 8 PAGENO="0835" 833 Mr. WIRTH. Thank you, Mr. Segelstein. Mr. Lear. STATEMENT OF NORMAN LEAR Mr. LEAR. Mr. Chairman, members of the subcommittee, I am here in strong support of H.R. 2250, which would place a 5-year moratorium on repeal of the financial interest syndication and prime-time access rules. Chairman Fowler and the FCC seem intent on repealing or substantially modifying the rules regardless of the fact that the networks have not demonstrated that the rules should be changed. I am interested, as I hear Mr. Segelstein now talk about that the networks have accumulated all the voluminous, as he called them, volumes of research, graphs, statistics, and so forth, to make their point. But they have had through these years 2~/2 hours of programing per week that they could program, and I have not heard among those voluminous statistics, the graphs, the proud allusion to one single show which they have fielded as networks--any of the three of them-that would help religious groups, women, elderly, and all* the other groups that Mr. Segelstein just took pains to mention. * We in the production, creative advertising, and independent sta- tion communities are at serious risk if the rules are repealed. Accordingly, it is critical that Congress, in view of Chairman Fowler's apparent prejudgment, make the public policy involved in this area very clear. The rules are working for the benefit of the public and should not be changed at this time. If the rules are re- pealed, I would like you to understand that I believe and the cre- ative community in California and elsewhere in the country firmly believes it would diminish and destroy the strength and vitality of independent companies. Those independent companies are made up of writers, directors, actors, producers, they are comprised largely of the creators who happen to have created sufficient programing to then run their own companies. There is a basic difference between networks and the creative community of writers, directors, and producers. The networks are not in the business of nurturing innovation. They can't. They can't because the name of the game-I don't think one has to have all that much information to understand just to participate in Ameri- can life, to understand that the name of the game for three net- works is how do I win Tuesday night at 8 p.m.? That is what it is about. There are no villains, no villains sitting at this table; there are no villains in network programing. They are men and women with contracts to deliver important ratings in the very short term. I would submit to you that that is antithetical to the spirit of in- novation and to creativity. I would ask you to place yourselves for just a moment in the mind, the spirit and the heart of a network programing executive who, since the New York Times and newspa- pers across the country some 6 or 8 years ago began to print each week the standings of the three networks, his half-hour by half. hour across the board. PAGENO="0836" 834 This executive in New York, say, wakes up one morning and his New York Times is at his door and he reads it over coffee, and he doesn't have one show in the to~ 10. I would submit that he has a little difficulty catching his wife s conversation or taking too much more of the grapefruit. He goes downstairs and picks up a copy of the Wall Street Journal which has taken to projecting earnings based on ratings, and he finds that the projected earnings for his network are down. And when he walks into his desk, a little palpitating in the heart, there is a warm Xerox on his desk that has last night's rat- ings, and he doesn't have a show that won. It was a complete defeat that night. Let's say that at 10 o'clock in the morning this executive has a meeting with tomorrow's Rod Serling or Paddy Chayefsky, some 26-year-old young man, young woman, with a terrif- ic new piece of television entertainment, an idea. Also sitting on his desk with the notation of the 10 o'clock ap- pointment is a note there will be a meeting at 11 o'clock upstairs to discuss the New York Times, the Wall Street Journal, and the warm xerox. I mean no joke in this. Just some understanding of humanity, of what that man or that women might be going through would sug- gest that he, she, is in no mood to listen to a new idea because when the name of the game for you is to win Tuesday night at 8 o'clock, that is antithetical to risk-taking and risk-taking is innova- tion, and I would suggest that if something is working on the other network that has two young women on motorcycles who practice law, that if you have to win that quickly in 6 weeks, perhaps, you are going to come up or see to it that somebody else comes up with or passes on something that someone else suggests that has two women on motorcycles who practice law, but do it in braless sweat- ers and jump rope at the same time. That is the way it goes. It is the need to win, the need to trans~ late those wins to ratings and ratings to profits and quarterly earn- ings which is the system, and no one is to be faulted. We must face the fact that risks are not taken in such a climate and, therefore, we see more clones, more carbons, more white bread, and more pabulum. Now, yes, writers and producers and directors wish to succeed, too, but their motivation doesn't come the same way. They are re- porters on the scene of life. They are in the business of listening to and observing their children, their wives, reading their newspa- pers, watching the society about them, finding out of the fabric of American life those things they wish to dramatize or satirize or, de- pending on what part of the business they occupy. They are not seeking, though they wish to succeed, of course, they are not-the name of the game for them is not how do I get an idea that wins Tuesday night at 8 o'clock; it is how do I express what is in me because that is what I know I can do best. So, as the competition accelerates, so does the competitive net- work practices. Though the networks, for example, are and have been for some time, into warehousing talent. By warehousing talent, I mean they sign up the actor, they sign up the writer; one can have a hit show and find that 3 weeks into a successful series, network people are PAGENO="0837" 835 in the halls of one's own company seeking to sign up the writers who were responsible. There is a very severe competitive disadvantage to being an inde- pendent producer when a network can come to that writer or actor and say, "We would like to sign you exclusively, and we will give you an on-the-air commitment;" or "We will give you a guaranteed pilot;" or "We will guarantee you three episodes on the air." An independent company can make no such guarantees. We have to compete in the marketplace without that very unfair ad- vantage of being able to offer the theater with the play. There are any number of stories that would indicate all this. Red Foxx was on a show called "Sanford & Son" a good many years ago, and that was on NBC. The gentleman running ABC at that time wanted Redd Foxx. This was one of the early beginnings of warehousing. He approached Redd Foxx and made him an offer. Because it was a network he could not refuse. He guaranteed him on the air, I forget how many episodes, 1-hour weekly, a variety series. Now, that successfully defeated our opportunity to keep Sanford & Son on the air for a public on NBC that wished it perhaps for 2 or 3 more years. We could not do it because Mr. Foxx had an offer he could not, in all conscience, refuse because there was so much money involved, and on the air for 1 hour was involved. Speaking of "Sanford & Son," that was one of the early, I think the first all-black, comedies on television. The networks had been there for a great long while. I would submit to you that if a network wishes to put a Latino show on the air next fall, it has only to decide it will do so. It will then, if it wishes to-with its 2½ hours of programing-to do it itself it may do so. It never has. But it may go to an independent producer and say "Will you do this for us?" To my knowledge it never has. In the fall, Embassy will be fielding a situation comedy with a Latino family. It will be the first time, in this case a Mexican- American family will be on the air. But we will be doing it. The networks I repeat have had the opportunity and do have the oppor- tunity any day they decide to say "We will do this," because they have the stage, they have the theater, they have the access to 85 percent of American homes. I am very well aware of my time. There is so much one could say, but suffice it to say that the American people I believe sincere- ly are better served by a strong independent community of writers and actors and directors, people whose life's work is to observe life and reflect it as really authentically as they can. I would suggest, ask you not to diminish the strength of those people and pass that strength on to the networks who are all but omnipotent already in my opinion and whose only business is-and I repeat, there are no villains here, that is the system-it is their business to win only and win quickly, not to innovate and not to serve the American people by vi±tue of that innovation. I thank you. [The statement of Norman Lear follows:] PAGENO="0838" 836 Oral Presentation Norman Lear, of Embassy Communications i~Tandem Productions, ic.~~n Su~prt'of H.R. 2250 Before ~ ~~~b~mittee ~n Pelecommuni~ations, Consumer Prote~tion and Finance of' the Committee nn Energy and Commer~e, U .*S. House ~pres~a*tives, Wasi~ngton, D.C., August i,T~3. Mr. Chairman, members of the Subcommittee, my name is Norman Lear. I am with Embassy Communications and Tandem Productions, Inc. Embassy is a diversified entertainment company involved in the production and distribution of television program series. Tandem is an independent pro- duction company devoting itself exclusively to the televis- ion market. Both companies support H.R. 2250. I am primarily a writer, but I have always had an entre- preneurial instinct. The Financial Interest and Syndication rule has enabled a company like Tandem to grow over the last decade because with the syndication and ownership rights to own our own programs we can control our destiny and plan for the future. Embassy and Tandem are experienced producers of tele- vision series, having licensed more than 20 series to the networks for exhibition during prime time over the past 12 years. Several series are now on the networks' prime time schedules, including "Archie Bunker's Place," "One Day at a Time," "The Jeffersons" and "Diff'rent Strokes." Embassy and Tandem are experienced in syndicating off-network pro- grams, including "All in the Family," "Maude" and "Good Times," and we have produced and distributed several first- run syndicated programs, including "Nary Hartman, Mary Hartman." PAGENO="0839" 837 -2- My experience, then, which began with the inception of television in 1950, includes writing, producing and syndi- cating network series and first-run syndicated programs, and spans the time period before the Rule took effect through the period when the Rule has been in force. I believe that the Rule offers producers of prime time television series more financial stability and creative freedom, and therefore benefits television viewers. Spec- ifically, broadcast television networks are extremely reticent to take new approaches to programming, whether that means different program ideas, new characters or innovations in production techniques. For example, I had tremendous difficulty bringing "All in the Family" to network television. It was too different from the "Petticoat Junction," "Green Acres" and "Beverly Hillbillies" type of situation comedy that was popular at that time. After pouring much creative energy into the development of "All in the Family," it took me three years to get the show on the air. We made pilots and went to all three networks until, finally, CBS, under a new network president, elected to put it on the air. Because these negotiations took place before the Rule became effective, CBS was able to condition its agreement to broadcast "All in the Family" on a grant to the network of all distribu- tion and syndication rights in the program. When the Rule came into effect those rights were spun off to Viacom. PAGENO="0840" 838 -3- Similarly, the networks displayed considerable resist- ance to scheduling series featuring minorities as the lead characters. "Sanford & Son" had a British antecedent with white actors playing the two lead roles. We believed that Redd Fox and Demain Wilson were best for the parts. Per- suading the networks, however, took. a considerable amount of time. We finally had to do a half-hour live show for net- work executives using Fox and Wilson to demonstrate to the networks that it would work and that those two actors were appropriate for the roles. Since the Rule came into effect, and producers have found financial strength through being able to retain syn- dication rights, we have been better able to negotiate with the networks over the creative questions. The networks remain insistent that series appeal to a certain basic level among viewers and are very hesitant to allow deviance from this norm. Retention of off-network rights allows producers to withstand some of these pressures. However, producers remain at the mercy of the networks for broad distribution of their products. The networks are the bottlenecks. Without network distribution, a producer's series will have a limited--if any--audience. Thus, pro- ducers have limited negotiating leverage at the program development stage. If networks were permitted to purchase syndication rights from producers, they would be in a very strong PAGENO="0841" 839 -4-. bargaining position to do so. And they could purchase those rights at a relatively low cost because of their trump card - if the rights are not sold to them, they will not put the program on their prime time schedule. Without network exposure, the syndication value of a program drops enormously. Would the networks play that trump card? They did before the Rule took effect. I had no opportunity to retain the syndication rights to "All in the Family." The networks argue they should be able to purchase syndication rights. Since they cover the costs of develop- ing potential series -- through the story idea, script and pilot stages -- they should be able to share the risks and rewards with the producer. This is a specious argument. First, the risk was not "shared" before the Rule and would not be shared if the Rule were repealed. The networks assumed all the risk, making the producer no more than a salaried employee. But the network's risk was a protected one. Because of the highly unequal bargaining positions of the network and the producer at the program development stage, networks were able to obtain syndication rights for a relatively low amount. The networks then reaped the re- wards, but incurred little actual risk. Second, producers take the risk, and want to do so. While networks may cover some of the production costs once they accept an idea, there is a considerable amount of PAGENO="0842" 840 -5- creative time and energy that goes into development of the program before the network even sees it, and producers' profits if any will only come from successful syndication If the program is a hit the network is able to charge higher advertising rates and make a considerable profit during the network run If the prograr~ fails, the network quickly recoups its investment and earns profits from the advertising revenues available even from a low-rated pro- gram, while the producer is left with nothing Third producers do not see an advantage to sharing risk with the networks There are other sources of financ- ing for producers -- including small and new producers -- all of which do not impose the creative constraints that the networks do New producers can come to Tandem, to MTM, to a major studio or to smaller production entities such as D L Taffner We are not in the network business of selling advertising time rather we too strive to create the best possible product The Producers Guild of america, with its thousands of members, support the Rule because they would rather work independently or in conjunction with another producer than become a captive employee of a network The viewing public also is better served by allowing producers to retain syndication and ownership rights and prohibiting networks from owning them The producer is better able than the network to make a straightforward PAGENO="0843" 841 -6- business decision as to when the program should be syndica- ted. A network has many considerations, most having nothing to do with the particular program or viewers' best inter- ests. For example, networks must consider whether syndica- ting a program while it is still on the network's schedule will have an adverse impact on other of the network's pro- grams, or whether the program will be aired during prime time by independent stations which purchase exhibition rights. The producer is more likely to put the program into syndication at the optimal time for gaining revenues, almost certainly an earlier date than a network would. Thus, viewers will have access to the program in syndication at an earlier time. I would like to speak to two other important points. First, having dealt with all three networks and sold pro- grams to two of them, it is clear to me that the conduct of all three networks is very similar. The manner in which they determine scheduling, contract terms, number of series ordered and creative constraints, are remarkably parallel. Finally, I would like to state unequivocally that the new media -- cable, MDS, DBS, LPTV, cassettes -- are not substitutes for network television. The new media do not often seek the types of television series seen. on commercial broadcast networks, and when they do, their offers are not comparable to those of the networks. PAGENO="0844" 842 -7- The new media may challenge the broadcast networks for certain unique products -- theatrical movie releases, cer- tain major sports events and the like. But this Rule does not relate to that question. This Rule is concerned prin- cipally with prime time television entertainment series. Currently, the new media are not seriously competing with the networks for these. I am deeply troubled by the FCC's potential action to structure a so-called "compromise" doing away with the Financial Interest Rule. Allowing the networks to have ownership rights to our programs will severely impact the creative integrity of American television. Producers need the incentive to create the best possible product -- that incentive only comes when the producer owns the fruits of his labor. I would like to conclude on a personal note that I hope you will understand. I am the father of three daughters. One out of three is coming into this industry. Her name is Kate Lear. She started with Readers' Digest Productions in New York very recently. I would wish for her the oppor- tunity her father had which was not simply to write and produce a television show as an employee of a network, but with a little entrepreneurial instinct, to build her shows into a viable company which hires other creative people who wish to operate in a climate that allows for innovation and PAGENO="0845" 843 -8- creativity. I hope such a company could become economically viable and eventually strong enough to withstand network pressure when the network executives say, "This will not play in Peoria," or "They will not salute this in Des Moines." I have learned the hard way that very often we are right and they are wrong, and it is constructive to be strong enough to make it a real competitive battle. So I would urge you to pass H.R. 2250.. The interesting thing about the Financial Interest and Syndication Rule is that it frees the marketplace rather than restricting it. To remove the Rule is to restrict the marketplace and prevent the future Tandems, the future Lorimars and MTM's, the Whit Thomases, and others .from growing in a free enterprise system. To conclude, I want to stress that program producers have developed greater financial strength and creative autonomy under the Rule. This has benefitted everyone, I believe, but particularly the television viewer. Thank you for allowing me this time. Mr. WIRTH. Thank you, Mr. Lear. Mr. Blumenthal. STATEMENT OF MEL D. BLUMENTHAL Mr. BLUMENTHAL. Mr. Chairman, members of the subcommittee, I am Mel Blumenthal, executive vice president and one of the three principal shareholders of MTM Productions, Inc. MTM urges your support of H.R. 2250, a bill which in our view will encourage continued creativity and diversity in television programing. In the period of the existence of the syndication, this enabled us to bring to television the "Mary Tyler Moore Show"; the "White Shadow"; "WKRP in Cincinnati"; and "Hill Street Blues". Because of this fact, MTM may be considered an important example of how a wide variety of high-quality, television programing does result from the combination of the efforts of one, unique creative talents; two, sound business management which functions synergistically with the creative talent; three, profit motivation through owner- ship and a degree of control over the creative process and the re- sulting product; and four, a regulatory atmosphere which has given MTM a "fighting chance" in dealing with the networks. Some of the MTM's programs have been successful and profitable and some have been unsuccessful and have cost MTM enormous sums of money which have never been recouped. MTM's successful programs have varied widely from the "Mary Tyler `Moore Show"~ PAGENO="0846" 844 and the "Bob Newhart Show" to "Rhoda",. a half-hour comed~r which evolved out of the original "Mary Tyler Moore Show', "WKRP in Cincinnati", a half-hour comedy placed in a radio sta- tion and generally regarded as out of the same mold as the "Mary Tyler Moore Show", providing comedy with a social message; the White Shadow, a 1-hour drama about an inner-city high school and its white basketball coach who must deal with the problems of mi- nority teenagers, their parents, teachers and others in the commu- nity; "Hill Street Blues', a totally unique undertaking which came on the air to an initially passive response from the mass audience while at the same time earning 14 Emmys, the George Foster Pea- body Award, and numerous other awards; and this season, "St. Elsewhere", another unique 1-hour drama set in an inner-city hos- pital in Boston, which is meeting resistance from the mass audi- ence, but which has received general praise from critics. Our most recent show, "Bay City Blues" was picked up for net- work broadcast next season. This series about a minor league base- ball team was created, developed, and produced by the same cre- ative team that created and produced `Hill Street Blues". To the best of my knowledge, this new series will be the most expensive series produced for television. Although NBC did in fact agree to pay a very fair license fee when compared to license fees generally, their license fee does not come anywhere near covering the cost of production. MTM will deficit finance in excess of $100,000 for each episode of this series. MTM has undertaken this substantial risk in order to stretch the quality of television programing to new heights and to give the television audience a show which is innovative and enter- taining. If our judgment is correct and the audience responds favor- ably to this new series for at least 5 years, hopefully MTM will be able to recoup its investment and profit from the sale and syndica- tion. The recent "St. Elsewhere" and "Bay City Blues" experience demonstrates MTM's philosophy and belief that the American au- dience deserves quality programing and MTM is willing to invest its capital to bring such programing to the networks. Without the ability to recover its investment and make a reasonable profit, there would be no motivation for MTM or any other production company to create and produce unique, expensive, and hi~h-quality series such as "Hill Street Blues", "St. Elsewhere", and `Bay City Blues". The long-term upside potential now available in television is due to the rules and has afforded MTM the ability to attract, support and retain the high quality creative personnel needed to produce its shows and to have the resources available to develop and sup- port new writers, producers, directors, and new innovative pro- graming. It has come to our attention that the FCC may be issuing an order later this week proposing retention of some version of the syndication rule and outright repeal of the financial interest rule. I would like to make it absolutely clear from a creative standpoint such a compromise would be untenable. First, it is pure fallacy to allege that the networks will negotiate for a financial interest. Be- cause such terms are finalized before a show is aired, networks will PAGENO="0847" 845 simply extract the maximum permissible rights as the price of get- ting your program aired. If anyone believes otherwise, he is living in an Alice in Wonder- land fantasy world. Second, repeal of the financial interest rule will rob production companies and their creative staffs of their incentive to invest the time, effort, and money required to produce expensive high-quality programing. The viewing public benefits when MTM is willing to reshoot "St. Elsewhere" in order to improve the quality of the series. Three, based on MTM's experience, to allow networks any financial inter- est or syndication rights into our program will encourage intoler- able network interference in creative development. Finally, reversion to pre-1970 days where three entities totally dominated all phases of the television industry is anticompetitive. In conclusion, MTM is convinced that the degree of independence that exists between the networks and producers under the rules is vital to the quality of American programing. Eroding the interest of the creative community can only discourage retention of experi- enced and established creative talent as well as entry of new pro- duction companies and new creative talent and homogenize the re- sulting programing and reduce the quality of product that reaches the viewers. MTM urges your support of H.R. 2250. Thank you very much for your time. [Testimony resumes on p. 856.] [The statement of Mr. Blumenthal follows:] 32-540 O-84----54 PAGENO="0848" 846 Oral Presentation by Mel Blumenthal, Executive Vice Presi ~ MTM Enterprises, Inc., in support of H.R. 2250 before ~~Subconimittee on Telecommu~ications, Consumer Protection ~ Finance of the C~mmittee on Energy and Commerce, U.S. House of Rep~es~i~atives. Was1~Tngton, D.C., ~9ust 1, ~ Mr. Chairman, members of the Subcommittee, I am the Executive Vice President and one of three principal share- holders of MTM Enterprises, Inc. The period of the existence of the Syndication and Financial Interest Rules directly coincides with the period of growth and prosperity of MTM as an independent production entity supplying prime time television programs to the networks. Because of this fact, MTM may be considered an important example of how a wide variety of high quality television programming does result from the combination of the efforts of (1) unique creative talents; (2) sound busi- ness management which functions synergistically with the creative talent; (3) profit motivation through ownership and a degree of control over the creative process and the re- sulting product; (4) and a regulatory atmosphere which has given MTM a "fighting chance" in dealing with the networks. Some of the MTM's programs have been successful and profitable and some have been unsuccessful and have cost MTM enormous sums of money which have never been recouped. MTM's successful programs have varied widely from "The Mary Tyler Moore Show" and "The Bob Newhart Show,," to "Rhoda", a half-hour comedy which evolved out of the original "Mary PAGENO="0849" 847 -2- Tyler Moore Show;" "WKRP In Cincinnati," a half-hour comedy placed in a radio station and generally regarded as out of the same mold as "The Mary Tyler Moore Show," providing comedy with a social message; "The White Shadow," a one-hour drama about an inner-city high school and its white basket- ball coach, who must deal with the problems of minority teenagers, their parents, teachers and others in the com- munity; "Hill Street Blues," a totally unique undertaking which came on the air to an initially passive response from the mass audience while at the same time earning fourteen Emmys, the George Foster Peabody Award and numerous other awards; and this season, "St. Elsewhere," another unique one-hour drama set in an inner-city hospital in Boston, which is meeting resistance from the mass audience, but which has received general praise from critics. Our most recent show, "Bay City Blues," was picked up for network broadcast next season. It is vital for members of this subcommittee to real- ize that, at present and for the foreseeable future, there has been and will continue to be only three viable theatres (ABC, CBS and NBC) for the type of entertainment programming produced by MTM. With their enormous mass audience, these three networks generate billions of dollars of advertising revenue each year which support a large portion of the PAGENO="0850" 848 -3- enormous production costs of this type of programming and which still provides very healthy profits for the networks. Because there are so many program suppliers all competing to get into the same three theatres (ABC, CBS and NBC), these networks have acquired enormous power and control over the production community. The networks have historically exer- cised this power and control to the fullest extent allowed under the applicable rules in effect at any particular point in time. Since the founding of MTM, the Syndication and Financial Interest Rules and the recent Network Consent Decrees have operated to create a delicate balance to the unrestricted power and control of the networks in the nego- tiation process between the networks and program suppliers. If the Financial Interest and Syndication Rules are altered in any manner, the notion that the networks will "bargain" for syndication or ownership rights ignores the realities of the broadcasting marketplace. At the point that MTM and other program suppliers are negotiating their license fees with the network, the program supplier is at its most vulnerable point in the creative process to the network's exercise of power. If MTM wants to be on a network, it will have to accept the network terms which the network will exact to the maximum benefit of the network. For the producer, there is no alternative. For a show to acquire ~ value, it must be accepted by a network. They hold all the cards. PAGENO="0851" 849 -4- Since the inception of the Financial Interest and Syndication Rules, MTM has produced several series which it has put into syndication such as "The Bob Newhart Show," "Rhoda," "The White Shadow" and "WKRP in Cincinnatti" and several movies for television. MTM has, had the freedom with respect to these programs to choose its own distributor and to maintain a voice and decision making authority over all aspects of the selling and distribution process. The rev- enues derived from the syndication of these shows have been used to help offset the deficits incurred in production of these shows and others which have not been successful enough to reach the syndication market. The profits which remain are used to carry the substantial current deficits of series such as "Hill Street Blues," "St. Elsewhere," "Remington Steele," and "Newhart," and to fund the hiring of estab- lished writers and producers under long term contracts to develop new programming and to employ and support relatively new and unknown writers so that they may learn and develop their craft in order that they may ultimately develop and produce new programming. MTM believes that the Financial Interest and Syndication Rules play a vital role in encouraging the creative integrity of our programs. Our recent program, "St. Elsewhere" has been the most expensive program in NTM's history in terms of PAGENO="0852" 850 -5- initial startup costs. A license fee was negotiated with NBC, and MTM received an order for 13 episodes. Because of the complex creative structure of the series it was essen- tial that the first episode clearly set out the format of the series and introduce a very large number of continuing characters while at the same time telling an entertaining story, all in one hour. After filming of the first episode was completed, MTM realized that the initial episode did not successfully meet MTM's expectations. MTM informed NBC that MTM wished to revise the script and re-shoot substantial portions of the first episode. NBC agreed with MTM's cre- ative evaluation of the first episode and NBC indicated they would like the changes made but they were unwilling to pay for these changes. Because MTM firmly believed that these changes were essential to the success of the series, MTM undertook these improvements at its own expense. Thus after producing one episode of "St. Elsewhere," MTM had incurred additional costs in excess of $1,000,000 and has since incurred further substantial episodic.deficits with the only hope of recoupment being that the series would become suc- cessful and remain on the air for at least four years, thereby allowing MTM the opportunity to sell the show in syndication. The "St. Elsewhere" experience demonstrates MTM's philosophy and belief that the American audience deserves quality programming, and MTM is willing to invest its capital PAGENO="0853" 851 -6- to bring such programming to the networks. Without the ability to recover its investment and make a reasonable profit, there would be no motivation for MTM or any other production company to create and produce unique and expen- sive series such as "Hill Street Blues", and "St. Elsewhere." The loss of such profit potential would result in more programs which are of low quality -- the type of programming which far too often appears on the networks today. MTM is aware that the networks contend that they will be able to provide the program suppliers with larger initial license fees if the networks are given a financial interest or syndication rights in the programs. It is MTM's opinion that it may indeed receive, for some short period of time, a modest increase in license fees. However, with the networks in absolute control of the three theatres, they will un- doubtedly revert to their pre-1970 position of extracting, as a condition of putting a series on the air, a signficant financial interest and/or syndication rights. Repeal of the Rules would deprive MTM and the creative personnel who develop, write, direct, produce and perform, of the long-term upside potential now available in tele- vision. This upside potential has afforded MTM the ability to attract and retain the high quality creative personnel needed to produce its shows and to have the resources PAGENO="0854" 852 -7- available to develop new writers, producers, directors and new programs. MTM makes it a point to hire several promising young writers each year, and to encourage their professional development and allow them the greatest creative freedom possible. We hope that one or two of them will become the Norman Lear's of their day. Established writers are willing to stay with MTM in the television production industry because innovation and c~eativity are encouraged and f in- ancial rewards are significant. Without the Rules, much of the top creative talent in the industry will have no incent- ive to work in television -- they will write feature films, dramatic plays, or strictly literary works. Historical evidence shows that neither the networks nor the program suppliers can predict with any certainty the reaction of the 2\merican public to a new television series. It is also important to note that only between 5% to 10% of the programming produced for the networks ever gets into syndication. However, it is MTM's belief and corporate philosophy that quality programming will ultimately survive and prosper and MTM is willing to invest its capital in support of this theory. Without the potential profits from syndication, companies like MTM are not likely to evolve in the future to support this belief in quality programming. PAGENO="0855" 853 -8- The networks already have multiple exclusive options on our series, exclusivity clauses, control of spin-of fs, and other controls. The networks do not lose money on even their unsuccessful shows, while the independent production companies such as MTM bear substantial deficits on the same shows. Because of the pricing structure of network adver- tising time and the fact that the networks do not share advertising revenues with the program suppliers, the burden of a failed series is placed on the suppliers such as MTM. MTM is willing to assume that risk because the incentive for potential future profits encourages it and the creative personnel working with it to create new and diverse pro- gramming to obtain such profits. Please allow that incent- ive to remain. I understand that the Federal Communications Commission may be considering a "compromise" position which would leave the syndication rule intact but allow the networks to attain any amount of financial interest in independently produced programs. While in theory, permitting network profit par- ticipation in the shows they air may appear acceptable, to those of us in the creative community such a shift would be untenable. First, permitting networks to "negotiate" for a finan- cial interest is simply not fair. Because such negotiations take place before a show is on the air, producers are power- less. Networks will simply extract the maximum permissible PAGENO="0856" 854 -9- rights as the price of getting your show on the air. Anyone who believes otherwise is living in an Alice in Wonderland world. Second, permitting the networks to have ownership rights in our programs will significantly reduce producer incentive to create the program we believe best. Under the rules, MTM is willing to invest considerable time, effort and money into shows because they are ours. Without the incentive that outright ownership creates, the quality of American programming will suffer. Third, the practical effect of any degree of network ownership in independent programs will be a reduction of the creative integrity of the ultimate product reaching viewers. Quite simply, networks and program producers are in two very different businesses, each with its own set of goals. The networks strive to fill their air time with programming most attractive to advertisers. The networks focus particular attention on capturing the most viewers, in order to maxi- mize advertising revenues. By contrast, the producers, writers, directors and actors involved in developing a program from idea to ultimate broadcast, are concerned with creating the best program possible. The production industry spends inordinate amounts of time and energy producing shows because we believe in them. As creators, we are convinced that the degree of independ- ence that exists between the networks and producers is vital PAGENO="0857" 855 -10- to the quality of American programming. Based on our own experiences, to allow networks any involvement in the finan- cial interest in a program will encourage intolerable net- work interference in creative development. It is important to remember that the networks already interfere in the creative production process. Permitting them to own even a small share of a program, however, will make them our financial "partners" with license to control decisions both financial and creative. Eroding the measure of independence the creative community has to do its job can only homogenize the resulting programming and reduce the quality of the product that reaches viewers. And finally, a return to the days before the rules will be downright anticompetitive. As you are aware, the rules were promulgated to help ameliorate the networks' unfair bargaining advantage over producers. The three networks had the leverage to demand significant rights from producers, because without access to the network stage, a program could never attain value. The network potential to extract the maximum rights permissible still exists in a negotiation that no one would consider to be "arms length." Merely limiting the equity share for which the networks may "negotiate," does nothing to vitiate the fundamental imbal- ance of power that led to implementation of the rules in 1970. Networks still, in 1983, have the power of financial coercion over producers. The potential FCC compromise ignores that fact. PAGENO="0858" 856 -11- In conclusion, I feel very strongly that network fin- ancial interest in programming, regardless of the size of their participation, will stifle creativity in the televis- ion industry. Allowing network equity participation in our shows will not only exacerbate the current dominance of the three networks, but it will also facilitate greater network involvement in and control over the content of our tele- vision programming. If the Financial Interest and Syndi- cation Rules are modified, then the networks will not only control the pipelines for free television programming into American homes, they will also have the unfettered ability to unilaterally shape the content of programming reaching the American public. If diversity of mass media outlets and ideas reaching those outlets is important to this Subcommittee, MTM urges you to pass H.R. 2250 in order to assure that the Rules remain intact. Mr. WIRTH. Thank you very much, Mr. Blumenthal. I would ask any members of the panel if they have comments on other people's testimony. Mr. Colloff. Mr. COLLOFF. I would like to respond to a couple points made by Mr. Lear and Mr. Blumenthal. No. 1, I thought Mr. Lear's somewhat humorous examples were interesting. The only problem-- Mr. WIRTH. You will have to share the mike. I guess that one doesn't work. Mr. COLLOFF. The problem with the example given is that the Rod Serling of tomorrow would not be in the office of the network executive because the networks are not in a position to be able to offer anything to that Rod Serling of tomorrow. We can not fi- nance development of a show like that. Therefore, the options of that Rod Serling of tomorrow are reduced by three and what we are saying is if you repeal these rules, if the rules are repealed, it will allow those independent creative talents to have more poten- tial options, more potential people to whom to attempt to sell their ideas. PAGENO="0859" 857 No. 2, Mr. Blumenthal mentioned that it is a fallacy that net- works won't negotiate for financial interest, they will simply demand it. First of all, that does not comport with the historical record. In the 1960's, before the financial interest and syndication rules went into effect, the networks acquired syndication rights in only a s~nall percentage of programs that aired on their networks, in only about 20 percent of the programs did they acquire syndication rights. This was not and would not be a question of the large mono- lithic networks somehow extorting rights from the poor, independ- ent producers. We are dealing with people who are perfectly capable of protect- ing their own interests. This is a negotiation. It would be a negotia- tion. We are now prevented from entering into that negotiation. All we are asking for is the opportunity to be allowed to enter into that negotiation. Thank you. Mr. WIRTH. Mr. Lear. Mr. LEAR. Just to respond to Mr. Colloff. I don't know quite where he works in network television. He cer- tainly doesn't work where we do. Not only would that Mr. Serling be in the office of the network vice president for programing, but if Mr. Serling, the young Mr. Serling, happened to be in my compa- ny, I might have to be there, Allen Horn might have to be there with him, too, all of us on our knees to knock on and get through one of only three doors that are access to 85 percent of everything. Mr. COLLOFF. But you pose a different situation. You are posing a Rod Serling that comes in under the formidable umbrella of Tandem. That is different. Tandem is not a fledging corporation today. Tandem is a well-established-and for very good reasons- well-established producer. Mr. LEAR. We are the result of the efforts of the syndication and financial interest rule without which we never could have been in being. Mr. COLLOFF. If the Rod Serling of tomorrow didn't want to go to Tandem and instead wanted to go to the networks, he could not. Mr. LEAR. He might have made an exclusive arrangement just yesterday with ABC, NBC, or CBS, because that is what is happen- ing. If he doesn't come with us, you have him by exclusive right because you have offered him the world. Mr. COLLOFF. The Redd Foxxes and the Tom Sellecks are not the hypothetical Rod Serling of tomorrow that you posited, if I may say so. Mr. WIRTH. Mr. Segelstein. Mr. SEGELSTEIN. Yes. I guess I am addressing some of the things Norman said, maybe Mel, as well. We have taken advantage of the opportunity to produce shows- not necessarily to the limit in every year-at NBC but the shows that we have produced, within our opportunities, like "Little House," are shows that we are not embarrassed about; indeed, we are quite proud of them. Father Murphy was a very well-made show. It was not as successful as we would have liked. As for innovation, another show did innovate, changed the com- plexion of the time period; indeed, caused discussion and perhaps even controversy, and some heat, and that is "Saturday Night PAGENO="0860" 858 Live," which was something that did take place entirely within NBC. I did have a feeling that although, it is very hot out today, that we are dealing with some Christmas Carol notion that, but for these rules, all these wonderful shows simply wouldn't get on the air. I am not sure how that accounts for the presence on the air of "All in the Family" and "Hill Street Blues." These are shows that did go through the process of network program executives being of- fered the shows and being willing to schedule them though they were risks. Some of them, incidentally, predated these regulations. Norman worked early on in the heat, as did I, with "All in the Family," because ABC rejected it and I, as a programer at CBS, was one of the two people who did see the show early and took it. "St. Elsewhere," for the investment made, has been renewed, though it was not, by any definition, a very successful program that commanded renewal. An opportunity will be given to the show to have another year of finding an audience and, perhaps, the pay- back on "St. Elsewhere" will be as lucrative for MTM as the `Hill Street" payout is. There are some shows that are not deficit financed. A number of our friends don't lose money on every show. So, I think there is a sort of investment-a commitment-on the part of networks to worthwhile programs. The renewal of "Taxi"-as it departed ABC-by NBC can hardly be considered one of the wisest moves of all time. Yet, it was bold enough because we believed in the pro- gram. I could go on but perhaps Mel and Norman or Roger have some- thing else to say. Mr. BLUMENTHAL. Mr. Chairman, I think there are a couple of misconceptions that I have just heard from Mr. Segeistein and Mr. Colloff. Mr. Se~elstein, I think-I wasn't quite sure I heard the word "lucrative' when he mentioned "Hill Street Blues." The word "lucrative" is what I think he said. At this present point, I have finished producing three seasons of "Hill Street Blues," and about entering into the fourth season. We are well in excess of $8 million in deficit for the first three seasons, and will generate somewhere between $75,000 to $80,000 per show negative in deficit this coming season. Mr. Colloff, I think, is not familiar with the fact that his business affairs department at CBS might indicate to him when MTM got started, it was with "The Mary Tyler Moore Show." We were given absolutely no opportunity after a great struggle on our part to retain any portion of the syndication rights to our show. It was made very clear by management of CBS that if we wanted, and if Mary wanted to be on the air, she would have to give 100 percent of the syndication rights, plus merchandising rights and various as- sorted other rights, to the network. And after a long, long hard struggle, they made it real clear we were not getting on the air, those rights were given to them and assigned, when FCC rules came into effect, to a distribution company. Mr. SEGELSTEIN. As the gentleman there said, will the gentleman yield? I was at CBS when "The Mary Tyler Moore Show" started. It was a series commitment to a performer without any scripts and PAGENO="0861" 859 any writers and that was its origin. Now, I was a programer so I am not privy to the nuances of the deal, but I do think you may be giving the wrong impression in saying that CBS retained 100 per- cent of the syndication rights. What you mean is that MTM owned the show and that CBS distributed it for a fee. Mr. BLUMENTHAL. For a nonnegotiable fee, Mr. Segelstein. Mr. SEGELSTEIN. That is not 100 percent of the syndication rights. There is some confusion in that. Mr. BLUMENTHAL. They owned, controlled and effectively through the assignment still do today through Viacom control the syndication rights to that. We have absolutely nothing to say, no consultation rights, no advice as to how, when and where that show is sold. Mr. Cou~o~. I would note, Mr. Blumenthal, that in the second show which MTM sold, that is the "Newhart Show," CBS did not acquire any syndication rights nor any financial interest. Mr. LEAR. Because the rule is there. Mr. COLLOFF. This is prerule. Mr. BLUMENTHAL. Mr. Colloff, I will correct that. The rule was about to be passed. Mr. CoILo1~. The rule had not yet gone into effect. Mr. LEAR. It was about to be passed, Mr. Colloff. Mr. COLLOFF. There was a prerule negotiation that went on. Mr. BLUMENTHAL. I negotiated the deal, Mr. Colloff. Mr. WIRTH. This is better than a discussion among the Members. Perhaps we could-we greatly appreciate the back and forth there, but maybe I could just briefly start the questioning if I might. Mr. Colloff, in your first point you were making to which Mr. Lear responded, you suggested the networks cannot do any of their own programing for prime time? Mr. COLLOFF. No. I suggested that most of the best talents in the creative community do not want to be network employees. They want to have production companies of their own or coproduction deals. Mr. WIRTH. Are you free to do programing now in prime time? Mr. Cou~op~. Yes, we are. Mr. Wmm. How much can you do now? Mr. Cou~opp. We can do 21/2 hours a week.. Mr. WIRTH. Of prime time. How many hours of prime time is there? Mr. Cou~oni'. Excuse me? Mr. WrnTH. How many hours of prime time a week are there? Mr. Cou4oi~. Twenty-two hours of prime time. Mr. Wntni. Under the rule, you can do 2½ hours, which is your own production and you control it? Mr. COLLOFF. That is permissible. Yes. Mr. WIRTH. Out of the 2½ hours, how much do you do? Mr. COLLOFF. We produce a number of made-for-television movies each year. We do not exercise our quota of 2½ hours, but I don't think that is the issue, with all due respect. Mr. WIRTH. Mr. Segeistein, do you all use your 2½ hours? Mr. SEGELSTEIN. We are not currently using it. We have recently, when "Little House on the Prairie" and "Father Murphy" and PAGENO="0862" 860 some original movie production was on, yes. We thought that we were using it. We thought we were using it well. Mr. WIRTH. Neither CBS nor NBC are using the total prime time programing you are allowed to do now. Do you know what ABC does? Mr. SEGELSTEIN. No, I don't. There is an upside rule for us. I am suggesting we are and have tried, and I am not sure that it relates precisely to the other issues here, but, yes, we are not using our full quota at the moment. Mr. WIRTH. Mr. Waxman. Mr. SEGELSTEIN. Maybe we will get lucky. Mr. WAXMAN. Thank you, Mr. Chairman. One network argument that I have heard is that to continue to offer and to create programing on free television, the networks need to have the rules repealed. As I understand it, cable and other new technologies pose new competition. But isn't it true that cable is not your competition, rather it is the independent television sta- tion which is offering vigorous competition in many markets? By CBS' own admission, cable will not be a factor until the 1990s. My question is, what is the fact in this area? Is free television at stake and if the rules are not repealed, will you be unable to com- pete for quality programing? Mr. COLLOFF. Well, a number of points I think should be made. First of all, the bulk of the audience loss which the networks have incurred over the past several years has gone to cable, not to inde- pendent stations. There are studies that we have that will docu- ment that fact, that well over half the audience loss has gone to cable as cable penetration has increased over the past several years. Mr. WAXMAN. How do you account for the increase in independ- ent television stations? Mr. COLLOFF. The increase in independent television station viewing is indeed partly the result of that very same increase of cable penetration. What happens is as follows, before a cable system is built in a given area, you have VHF and UHF stations, and, the UHF are usually at a severe receiver handicap because their signals are not as strong. When cable comes in, the FCC "must carry" rules say that that independent station must be car- ried on the local cable system. That provides access to that independent station to all those cable subscribers and indeed that and not the financial interest and syndication rules is one of the primary reasons for the growth of independent television stations over the past decade. Mr. WAXMAN. In 1970, the cable audience was 10 percent; in 1981, it is 17 percent. Do you believe that is solely because of cable? Mr. Cou~orF. No, not solely cable penetration. It is the result of a number of factors. It is a result of the increased market for televi- sion advertising which has encouraged development of a number of new UHF independent stations. It is the result of increased and im- proved technologies so UHF receivers are built more comparable to the VHF portion of the receiver and the viewer can receive that UHF station more easily. PAGENO="0863" 861 It is a result of the cable penetration, which I mentioned, which has increased since 1970 from 5 million households to approximate- ly 30 million. Mr. WAXMAN. That is 3 percent, isn't it? The cable share is 3 per- cent. Mr. COLLOFF. That is not the issue though, Congressman. I thought we were talking about the independent stations' increase in viewership and what I argue is that indepen~ent station viewer- ship has increased because of these factors, one of the most impor- tant being the strength of cable and increased reception' capability that the spread of cable has granted. Mr. WAXMAN. If I might stop you to challenge, to understand you, what you are saying is we have seen an increase in the view- ing audience of the independent television stations. I understand your testimony to be that that is not a shift over to the independ- ent stations; it is a shift over because of cable bringing in the inde- pendent stations. If cable is only 3 percent of the viewing audience how can you maintain that the success of the independent stations is because of cable? Mr. Cou4o~. They are separate numbers, Congressman. The per- centage of cable and percentage of independents viewing is sepa- rate. Mr. WAXMAN. Do you think your competition is from independ- ent television stations and isn't that your fear and why you want the rule changed? Mr. COLLOFF. Competition for the networks is coming from all sorts of sources. It is increasing at a ever increasing rate. Indeed that is one of the reasons that we believe that these rules are anachronistic, because there is an increase in competition, there is an increase in competition from cable, from independent stations, from pay cable, from a variety of sources. And I might note that the comparisons have sometimes been made to the issue of adver- tising rates and continued network share of prime time viewing as a way of saying that cable really isn't an issue. That is not the question, though. Mr. WAXMAN. I have only a limited period of time. It is your con- clusion that because of competition from an array of sources that you therefore need repeal of these rules so that you can accumu- late more money in order for the networks to compete for quality programming. Mr. COLLOFF. I wouldn't put it quite that way, Mr. Congressman. Mr. WAXMAN. Isn't that what you are saying? Mr. COLLOFF. No, we are not saying that. Let me respond. Mr. WAXMAN. Be brief because I only have a short time. Mr. COLLOFF. We are saying the competition from increasing sources means that in order for networks to be able to compete in the quality of programming, we need to have the benefit of the same downstream revenues that the motion picture production companies and everyone else in this business has. Mr. WAXMAN. That translated, to everyone who might not follow it carefully, is downstream revenues meaning more money to the networks because you would have the syndication rights and have a financial interest in the program and the network will accumu- late more money. 32-540 O-84--55 PAGENO="0864" 862 Mr. COLLOFF. It means the ability to put better quality program- ming on the air. Mr. WAXMAN. That may or may not be true. All you say is the networks need the rules to accumulate the money and then you say we should trust you because you will put it into quality pro- gramming. That is the issue we need to test. I would like to hear Mr. Blumenthal's response to that and I would like you to particularly address that factor in terms of the impact the programming people can expect. Mr. BLUMENTHAL. Something Mr. Colloff was saying was confus- ing and it sounded like a slightly different network position. Their position has been that they are a competitive disadvantage in buying programs vis-a-vis the various pay systems. That is what the line has been up to this point. I see here something different being said today, that cable is now a competitive threat because it is allowing in some fashion the independent stations to reach the marketplace. Mr. COLLOFF. No. Mr. BLUMENTHAL. Let me finish; that is very healthy for the competitive marketplace. I will also vehemently disagree that pay cable now or for the foreseeable future in terms of acquisition of original programing is anywhere near competitive with the net- work levels of buying and what they can afford. I would also like to say that I sit in on many creative meetings and meetings that relate to economics of networks and there is constant pressure at the networks for us to revise shows such as "Hill Street Blues" to meet the economics that the networks can afford now, to simplify, to remove cast, to make it more the same as other shows. We are investing a lot of money in that show that is not covered by the network because we believe in doing something that is dif- ferent and we will continue to do that as long as we have an eco- nomic incentive to control our own destiny with this product. Mr. WIRTH. The time of the gentleman has expired. Mr. Markey. The Chair will be recognizing members in the order in which they appeared, and the record is that it is Messers Waxman, Markey, Oxley, Tauke, Bryant, Rinaldo, Swift, Bates, Broyhill, and Collins, in that order. I just thought I would let the members know what the order would be. Mr. Oxley. Mr. OXLEY. Thank you, Mr. Chairman. Tom Shields wrote an interesting column in the Washington Post last week, I think, in which he made the point that despite the now famous comment by former chairman Minow that television was a vast wasteland, in retrospect the late 1950's and through the 1960's-at least comparing that television quality to today's qual- ity-Shields came down on the side of the fact that it was perhaps the golden age of television back in the 1950's and 1960's and things have gone downhill since then. He didn't specifically mention the rule that we are discussing today. I wonder if you gentlemen would care to comment on that particular column. And second has the rule itself had any effect on the quality of television programing in the last several years? PAGENO="0865" 863 Mr. COLLOFF. I did not see the column. Are you indicating Mr. Shales advocated the view that indeed the golden age of television was in the fifties and sixties? Mr. Oxi~y. I believe that was the gist of his comments. Mr. COLLOFF. That is very interesting because Mr. Shales has in other columns said the rules should be retained. It strikes me as a bit of a paradox if one believes that the golden age of television was in the era before the rules were in effect to then say that "We want the rules retained." Mr. OxLEY. Just to clear that up, he never made a reference in the column to the rule whatsoever. It was simply a comparison of what he considered quality versus quality in the different decades. Mr. COLLOFF. Without dealing with Mr. Shales because he has written prior to that in strong advocacy of retention of the rules-- Mr. OxI~Ex. I am aware of that. Mr. COLLOFF. But without dealing with him in particular, I think this irony is there, that there are many who say the golden age of television was 10, 15, 20 years ago and they are the same people who say, "We have to retain the rules." If the rules have had all these wonderful effects which supposedly they have had, why was the golden age of television in the fifties and sixties? Mr. LEAR. Because, Mr. Colloff, the networks didn't control the golden age of television. It was in the hands of the advertising agencies who were more or less in control of the creative process and there was no important syndication. In the fifties-I was in tel- evision in the fifties-what we did was live, there was absolutely no syndicatable product from it, there was no syndication and my destiny was controlled by the J. Walter Thompson agency. Mr. COLLOFF. When the networks could acquire the rules-be- cause there were no rights-but the networks by and large did not acquire the rights. They acquired syndication rights in only a small minority of programing. Contrary to some of the scare stories that have been thrown about during this debate, the networks will not acquire syndication rights in all programing if the rules are re- pealed. These are, as I said before, these are big healthy companies, per- fectly capable of taking care of their own interests. Mr. LEAR. CBS was not interested, as you say, in acquiring syndi- cation in their benign fashion because as the rules were coming into place, "All in the Family" was just about going on the air and as a matter of fact, we were in court for 3 years over this, and before we could have control of our destiny in terms of syndication, they spun it off to Viacom and "All in the Family" is still, for 35 percent fee off the top, off the gross for the handful of telephone calls it takes to sell "All in the Family," Viacom retains all of that income. Mr. Oxu~y. Mr. Segelstein. Mr. SEGELSTEIN. I think the fifties were a lot more golden be- cause we were 30 years younger and I was in television, too. They were different and to a very large extent, except for the few dramatic shows we remember, "Playhouse 90," which was not-incidentally, I was in an advertising a~ency so I mi~ht accept Norman's comment as a positive one, but `Playhouse 90' was not PAGENO="0866" 864 an agency-supplied show and neither was "Studio 1," if I recall, but there were some others. Except for those few dramas and live drama at that, within the limitations of what one could do in a TV studio most of the other stuff was not as good as the kind of stuff that MTM and Norman Lear's company produces today, nor was it adventurous, although they were golden because a great many young people came into the industry out of theater and out ofschool and became the drama- tists and producers of today. Mr. OxiFY. The talent was better then, you mean? Mr. SEGELSTEIN. No. I think we are getting good new people. But some of those who came from that period are the kingpins of today. Day in and day out, prime time television is better today than it was in the so-called golden days. Maybe we ought to look at sched- ules to compare them. Mr. Oxi~y. Thank you very much, Mr. Chairman. Mr. WIRTH. Mr. Tauke. Mr. TAUKE. Thank you, Mr. Chairman. You cannot serve on this subcommittee very long under the leadership of the chairman with- out having a lot of discussion about diversity. His comments about diversity earlier struck me and then I noticed in the testimony from CBS, "The record is clear," they say on page 4: That the rules have led to significant reduction in the number of sources of prime time entertainment series programming-from 65 before the rules to 47 today-and to a reduction from 66 percent to 48 percent in the percentage of series supplied by independent production companies to the networks. First of all, if I understand correctly, if only 48 percent of the series are supplied by independent production companies, that would seem to suggest the rest are from the networks. Obviously that is not the case. What is the problem? Mr. C0LL0FF. What I meant to imply was the rest are from the major motion picture producers, MPAA members either alone or in combination with independents. I was trying to draw the distinc- tion of those coming from truly independent production companies as opposed to those funneled through the major studios. Mr. TAUKE. How do you define independent versus a major studio? Mr. COLLOFF. The six major studios are members of MPAA. Mr. TAUKE. What are those six? Mr. COLLOFF. Columbia, Fox, Warner, Universal, Paramount, 20th Century, I guess. Mr. TAUKE. Mr. Lear or Mr. Blumenthal, how do you react to those statistics? Mr. BLUMENTHAL. Well, I don't know where the statistics came from, over what period of time they came. My understanding is that they were a snapshot of a week of programing, an isolated week of programing. Mr. TAUKE. Let's ask. Mr. COLLOFF. I can tell you, the figures came from ICF, the con- sulting firm hired by the Committtee for Prudent Deregulation, which supports continuation of these rules. They were not a snap- shot. As I understand it, they were comparing the situation during the period from 1964 to 1971, which was before the rules came into effect, and from 1972 to 1982. So they were a broad period. PAGENO="0867" 865 I would say that we did not generate this information. This infor- mation came from the other side on this debate. Mr. TAUKE. Thank you. Let me get back to Mr. Blumenthal. Mr. BLUMENTHAL. I have two points. One, my understanding is they are a snapshot of 1 week. Two, Mr. Colloff is also not report- ing that over the period of time that he is showing us that inde- pendent production supply has gone down, so have the prime time network hours available to outside program suppliers gone down. Now, I don't have at hand the percentages, but it has gone down substantially over that period of time. Mr. COLLOFF. These are percentage figures; which would be re flected---- Mr. TAUKE. Mr. Colloff, he is talking about percentage of series supplied. It seems to me the strongest case that you have made today and in other discussions is that you are getting creativity from independent people. You get diversity. This seems to fly in the face of that. Mr. BLUMENTHAL. Well, again, I am not a numbers man. I can tell you in terms of the number of people and individuals going into independent production companies. I can rattle a number off on my hand to you that were not around 2 or 3 years ago. Mr. TAUKE. You are saying this conflicts with your assertion? Mr. BLUMENTHAL. In terms of practice out in California where I am based, I can tell you that it conflicts with the operational prac- tice out there. There are people that I assume their names would mean things to you by their programing, people like Gary Gold- berg, Steve Kennell. Mr. TAUKE. Let me interrupt and go to another thing that trou- bles me and this is this whole financial interest business. I under- stand you are concerned about the syndication, but I don't under- stand how the financial interest rules, the change in 1~hose rules fundamentally affects your bargaining position as a producer with the network. As I understand it today, you have to go in and get the network to run your program. If the network is going to run, say, "Hill Street Blues,' you are going to have to meet all their requirements about appealing to various groups and so on or I take it they won't run your program. How does their desire to have a financial inter- est or their ability to have a financial interest affect them? First, why in the world would they want a financial interest in a program losing $100,000 per series? Maybe I should be asking possi- bly that naive question. Mr. BLUMENTHAL. I think it is a very good question. Because they have no intention of sharing in that deficit. I will continue, and they will make sure I will continue to pick up the full deficit. Down the road 5 or 6 years from now, if there is a marketplace that will buy "Hill Street Blues" in syndication and that deficit is recouped, and they may not even let me recoup the deficit before they start taking their piece of the action-- Mr. TAUKE. Let me-- Mr. BLUMENTHAL [continuing].-I venture to say they will be in a very enviable position of not sharing the deficit and reaping the benefits probably before I do. PAGENO="0868" 866 Mr. TAUKE. How do you get a financial interest without sharing the deficit as well as the profits? I have been looking for that kind of deal myself. Mr. BLUMENTHAL. I think you ought to look at some of the prac- tices that existed prior to the rules. That is exactly how it turns out. They did not share, they do not offer to share advertising reve- nue with the supplier. We might be talking a whole different ball- fame here if they would ever take us up on any requests to say, `Let's throw ad revenue in the pot and you guys throw back in syndication revenue and let's split it up." I venture to say if you ask Mr. Segelstein or Mr. Colloff whether they would ever think of sharing ad revenue, they would probably look at you like you were crazy, as they look at us. Why don't you ask them that question-or I will ask them that question. Mr. TAUKE. I am still a little confused but let me back up a moment to the original part of the question. That was a tangent, and I know I am going over time, but just explain to me why, how the financial interest rule, repeal of that rule changes the bargain- ing position that you have vis-a-vis the networks. Mr. BLUMENTHAL. I would tell you what it does on a day-to-day basis. If you or the FCC lift the financial interest rules, they will acquire it. I am telling you it is a given. With that given, they will now be in greater control of our programing than they now are. We will basically be their ploys. Right now, Norman, us, other in- dependent producers have a fighting shot at independence because we have some clout. When we are their ploy, we will not have it. Mr. TAUKE. Where will they get the program if they don't get it from you? Mr. BLUMENTHAL. They will get it from us, from Norman or from whoever will supply it but it will not be as diver~e as it is now and as we are trying to make it in the future and believe me, all of the economics will turn out to be that every half hour show will be pro- duced for the same cost because they are not goi~g to spend any more money, all half hour programs will be the saii~ie cost and they will all look the same. Mr. LEAR. Another reason, Congressman, why it is analemma to me that a network would seek financial interest, "All. in the Family," I might say and I believe that "All in the Family" took me 40 some years living with that father to know who Archie Bunker was. I prepared all of my life as a writer to write that show and anything else I may come up with. Why should the network which makes its money, which is in the business of conducting the operation of the theater and selling the advertising revenue and doing its business that way and has profits escalating year after year after year, at public knowledge, why should that company come to me and ask me-not ask, insist upon because I have only one of three places to go, insist on a piece of my show? Mr. TAUKE. Is your bargaining power so weak that you would have to give them a piece of your show? I guess that is what I have trouble understanding. Why is your bargaining power changed so substantially? Mr. LEAR. Because the chances are very good that when you go to one network, two others have already turned it down. "All in the Family"-the gentleman on my right neglected to say that Mr. PAGENO="0869" 867 Segeistein, when he was one of the two or three people that picked up "All in the Family," that same network had turned it down 3 years before. They picked it up 3 years after I had been pounding the pavement with only three doors to go to. Mr. TAUKE. There is more programing than there are slots? Mr. LEAR. You bet there are, and there are people willing to give 100 percent of anything to get it on the air. If the network can have 100 percent of something, my guess, and based on experience, is that they will look for it. Mr. COLLOFF. Based on experience, that will not happen. Based on experience, the networks acquired virtually no syndication rights from the major studios, and I would assume that at this point Tandem and MTM have similar bargaining power to the major studios. The networks acquired virtually no syndication rights from the major studios before these rules came into effect. When we acquired financial interest, we acquired a financial in- terest which averaged about 25 percent. Again we are being given stories that if the rules are repealed we will acquire everything; we will own everything which presumes that we are going to have an unequal bargaining posture with our program suppliers. Everybody who looked at this issue, including economists hired by the studios to defend their position, have conceded the networks don't have that type of buying power. If we are going to be in open and fair negotiations with these folks, repeal of the rules will not mean we will suddenly control everything. Mr. WIRTH. The time of the gentleman has expired. Mr. Rinaldo. Mr. RINAUO. Thank you, Mr. Chairman. I would like everyone to respond to the following question, the program producers have argued that the network will suppress cre- ativity if the rules are repealed and that the quality of network programing will decline as a result. Don't the rules really help producers fight off network demands? Mr. Coloff? Mr. COLLOFF. I would argue that the issue of creative control is not really related to the financial interest and syndication rules, al- though those on the other side of the debate have wanted to create that connection. The fact of the matter is that there is and always has been and always will be a certain amount of tension between program producers who have a specific objective and networks which have to worry about an entire schedule and satisfying tastes of a broad audience. Now there is going to be that tension, that tension was there before the financial interest rules were in place, that tension has been there during the financial interest rules and that tension would be there if the financial interest rules were withdrawn. The fact of the matter is that we, the networks, have and will continue and frankly, in my view, should continue to have a role in creative development of network television series. We put up the money for it. We may hear a lot of talk about deficit financing on the part of MTM, but if you look at what the major film studios say when they talk to the SEC in their 10-K reports or reports to shareholders, that is not the story. PAGENO="0870" 868 What they are saying is the networks basically put up all the money that is needed to develop the series. Columbia Pictures' 1981 report says, "In general, properties are developed at the request of the network and the network's license fees cover substantially all of the cost of development and production of the pilot and resulting series." Lorimar: "The networks generally finance the development and production of concepts and programing accepted by them. The com- pany has been able to secure network financing for the develop- ment and production of many of its properties." We have a large financial stake in these programs. Therefore, we have to have some creative involvement. Mr. RINAu~o. I would like to go down the line because I only have 5 minutes. Mr. SEGELSTEIN. I will be brief. I think the concept that the net- work inhibits creativity just doesn't apply. If anything, the network would insist on the best creative people and on the most creative shows, and I think it has been that way, and I think the people sitting at this table are creative people who profited by that net- work approach. Mr. LEAR. If I understand your question, you are interested to know why the rules help our bargaining power. One walks into the network with all kinds of things contributing to one's strength. The fact that Tandem, now Embassy, is a very successful independent company, the fact that it has control for some years since of "All in the Family," its future in terms of syn- dication, it walks in with the strength of a corporate power. There are so many things that go into that, though. One of them is that particular fact. It also has the strength as a result of that to make its own financial decisions. I was in a situation, Congressman Leland and Congressman Col- lins were part of a situation some years ago with CBS, as it hap- pens in a show that we made that we thought CBS ill-advised to air. We didn't think it was at all proper and worthwhile and would do harm, as a matter of fact, to black people, certainly to black people serving in the Congress, because it was about Congressmen. We came in and decided to swallow that show and pay the costs of that, and have the network not run that show. We were able to do that by virtue of the fact that we were a little bit more of a Go- liath to their Goliaths and this happens time and again. We have swallowed other episodes that we didn't think were right to put on because we didn't think they should go on. Mr. RINALDO. The more I hear the testimony, the more I am coming to the conclusion that what Congress is doing here is legis- lating a business deal and, frankly, it isn't within my power, but I wish I could take the four of you or four of somebody else and lock you in a little room and say "Come out with something that is fair." Nobody here really-we are talking about the American public. I think the chief sponsor of the legislation would agree, I don't hear much about what benefits the American public from either side, quite frankly. Mr. LEAR. Mr. Rinaldo, that is all I consider I am here talking about. We are talking about the diversity in television-- PAGENO="0871" 869 Mr. RINAIADO. Excuse me, I am reclaiming my time here. It comes down to the bottom line which is-and I don't think we should mince words about it-which way does which side maximize their profits. And you know, I would have hoped that it could have been worked out instead of going from one point to what we are doing with the legislation, going 3600 right around to the other point. I would have hoped-I always thought before this bill came out that all you guys were friendly, nice people who got along with one another. But I am finding out it is something like the Mideast situ- ation almost. Mr. COLLOFF. If I might reply on the public interest issue because I think it is important, and we have addressed it in our statements, but if you look at it from our point of view, I can cite you example after example of programming, not necessarily at the network level. I will cite the example of a children's program which our sta- tion in Philadelphia, a quality innovative children's program that our station in Philadelphia wanted to put on the air. They tried it, they found they couldn't continue it because they were not allowed to syndicate that in a regional network to enable them to get the financial base that they needed to produce a pro- gram of that quality. Now, that is an example to me of a specific public interest bene- fit where the public is not now being served by the existence of these rules and where the public would be served by the repeal of these rules. I can recite numerous examples of this type of pro- gramming which we cannot do because it is not economically viable given the existence of these rules. Mr. RINAU0. Yes. Mr. SEGELSTEIN. We have had some time constraints, and you may think that we are using the same words-and indeed we are- differently from the gentleman here and the gentleman here. I think maybe we are losing sight of where we started out, as I would like to remind you. I don't know that we will find answers today as to whether diver- sity in programming is different from diversity in product and talent pools, whether warehousing for independents which emerged earlier is going to be resolved in this session today, whether crea- tivity lies in joint ventures or in separate companies, whether the siphoning of audience for cable is different from siphoning of the talent pool et cetera, and that is why I was trying to suggest it is complicated, and there has to be a great deal of work and evidence accumulated, and it might be that if some of the things we say are at odds with one another, it might better be left to a kind of analy- sis and judgment and looking at the proposal and getting some time to study some of the things and some of the seeming contra- dictions here today. Mr. WIRTH. The time of the gentleman has expired. Mr. Swift. Mr. SwIFT. Thank you, Mr. Chairman. I think the independent producers really put their best feet forward. Take you two ~entle- men and your outfits and people that produce ~~M*A*S*H.~ You have delighted me for hours and years. Who produces all the junk that is on television? Is that all pro- duced by the networks? PAGENO="0872" 870 Any of you who know? Mr. LEAR. Can I speak to that, Congressman? Mr. SWIFT.. Yes, please. Mr. LEAR. A lot of the junk is produced by the same people who produce the things you care about and a lot of the junk is produced by people who don't have the talent to produce anything better, and some of the junk-and it is important junk-evolves as a result of the way the networks conduct their business. I will hypothecate one example. This is not a matter of charts and graphs. You will find no figures in any book for this, but I will tell you how the system works. Somebody has been hired to write a very good episode of a series or a movie of the week. The network programing executive is sit- ting with the writer or producer and suggests that in this scene, we are going for 8 minutes here, and there just is no action. The writer may say, here are two people sitting in an automobile having an intense conversation, everything we know about the characters comes to a head here and the plot is going to take a fast turn at the conclusion. The programing producer says, but they are sitting there for 3½ minutes. Mr. SWIFT. I think you are describing the situation I am in. You are using up my time, and I am willing to let you complete this 8-minute scene with no action-- Mr. LEAR. The writer, in order to supply the action, will have the driver of the car go off the side of the road for a moment, cause an oncoming car to spill over the side of ~the precipice, bodies flying into the air and a car in flames. This kind of thing happens for the need to provide action all the time in dramatic fare and that is the way things evolve. More violence than you care to see, more sex or smarm than you care to see often comes as a result of the network's need to have something sensational on the air. Mr. SWIFT. You are saying there are independent producers who do that, but you are blaming the network? Mr. LEAR. If I were running a theater, I would put in that thea- ter what I wish to run. Mr. Swin~. But you are describing the influence that is there now, are you not? Mr. LEAR. Yes. I am saying they are responsible for the things put on the air. Mr. Swirr. If we have good programs and bad programs under the present system, and we go back to the golden age of live drama and we found some were produced by networks-who was it sug- gested the great arbiter of our taste was J. Walter Thompson? The golden age of variety, and there were rotten programs, what we get down to it seems to me is it certainly benefits your particu- lar side of this argument to couch it in the network's profit need versus your intense interest in creativity. That is the way I would try to postulate the argument, but what this is about is money. Nothing comes before this committee that doesn't have to do with somebody who wants a lot of money and somebody else who has got it. PAGENO="0873" 871 Mr. LE4R. I have no shame in saying that in this free enterprise ~ystem, I have gone as far as I can to build a company called Tandem. I couldn't be more proud of it. Of course, I am talking in addition to quality and taste and judg- ment. Mr. Swivr. There is nothing wrong with that. The point I am trying to make is what we see before us are four honorable men who are not objective presenters of information, but are advocates for positions on which a lot of money rides. That is perfectly appropriate. We have that kind of testimony all the time. We usually add to that testimony independent testimony that can provide us with information about what those economics are, what the form of the industry is going to be changed to, when we have that information and when we fully understand it. My point, again, is we are having none of that testimony present- ed to us. Your testimony is helpful, it is a part of the story. I really hesitate to disagree with my chairman when he says this is simple. Certainly the bill is simple, but what it is going to do, the imple- mentation of that bill may or may not do to the industry is not simple to understand at all and I, for one, really am in a very diffi- cult position to call it. I don't know how those economics break down. I don't know what the effect is going to be on the industry and I don't have the information on which to base a judgment as to how the public in- terest is best served in that regard. Mr. WIRTH. The time of the gentleman has expired. Mrs. Collins. Mrs. COLLINS. I have sat and listened to the testimony, but before doing that I happened to have done a little traveling and investi- gating this matter myself before I decided which way I wanted to go on this piece of legislation. As a result, I talked to independents and networks and tried to get some kind of feeling for the importance of the legislation. As I talked to both those groups, one thing stood out in my mind, the systematic visibility of ethnic minorities among both of them. It seems that is something that ought to be worked on. I see very few programers who are ethnic, minority ethnic; anyway, very few programers, very few suppliers, very few writers. It goes on and on. So my first comment, rather than a question, is going to be, I hope that this will change in the future, and that is one reason I think I decided to cosponsor this. I think in another 5 years, we will see what is going to happen, if anything, so a 5-year moratorium, I think, is a good idea at this time. I have heard reports that the repeal of the rule is going to be an impact on the growth of a number of independents. Is that accurate, Mr. Segeistein? Mr. SEGELSTEIN. I believe there will be-that these rules have re- stricted the number of independents, by putting them under the major producers, and I believe that repeal of these rules will allow some new producers with network risk sharing to come into the marketplace-yes. Repeal of these rules will help in increasing new, young, inde- pendent producers. PAGENO="0874" 872 Mrs. COLLINS. Mr. Lear, is that your view-either of you? Mr. BLUMENTHAL I am absolutely on the opposite side of Mr. Se- geistein. Right now, the networks are financing under our very noses the talent that we developed. They are right behind us every time we developed a new writer in making exclusive deals with networks. As has been said before, they have the right to program right now 2½ hours of time that they can produce themselves. They are in the posture of beginning to do that. They have all made recent deals with talent, putting them under exclusive net- work holds. I would ask how many people of ethnic minority they have put under contract to the networks to support that they can do right now. I would ask you what goes on in casting sessions when you are in the pilot development stage. The guild several years ago instituted collective bargaining agreements to prevent us from delegating approval series actors and directors to the networks. The networks disavowed that and paid no attention to it which creates problems in the area that you are interested in at the moment. We all have great difficulty and we are all working on the in- crease of minority employment and programs to develop and train creative people in that marketplace because they haven't been given that opportunity. Mrs. COLLINS. Mr. Lear, do you think that there is a fear among independents that if there is this repeal that the networks will withhold programs from independents and engage in conspiracy or antitrust action? Mr. LEAR. I don't know that I would care to be that harsh. I think three people making the decisions for what will appear with- out equally-weighted or heavily-weighted independent writers, pro- ducers, directors, who have their own ideas, their own thinking, their own diverse views is a situation that does not bode well for the American viewer. Mrs. COLLINS. Why was the rule made in the first place in 1970? Had this kind of action happened prior to that time? Mr. BLUMENTHAL I am sorry. I didn't understand the question. Mrs. COLLINS. Before 1970, there was no syndication rule; is that correct? Mr. BLUMENTHAL Correct. Mrs. COLLINS. Was it the antitrust suit brought by the Justice Department in the early 1970's that brought about the need for the kind of' rule that we are talking about? Mr. BLUMENTHAL I think the fact that the marketplace was not working in a competitive fashion vis-a-vis the network and the sup- pliers to the network caused the FCC and then the Justice Depart- ment later to get into this. You must remember that the ad agencies, when they were the buyers of the programing, and the networks were a common carri- er sellin~ time, it was a competitive marketplace. I won t comment on what we might have thought of the pro- graming, whether it was the golden age or not, but it was a com- petitive marketplace. When the networks pushed the ad agencies PAGENO="0875" 873 out as buyers and there became only three buyers is when the com- petitive marketplace ceased. These rules became an island of competition in a vast sea of reg- ulations vis-a-vis regulations. Mrs. COLLINS. I think you have hit on an important rationale for the Commission action in 1970. It was not a retrospective action. It was a prospective action. They feared that network dominance over their suppliers would lead to some distortions in the program buying marketplace. Whether or not it existed at the time, in 1983 virtually everyone who has looked at these rules, as I mentioned before, including the economists hired by the motion picture studios, and independent television stations, virtually everyone agrees that network buying no longer exists if it ever existed. So whether or not that rationale was a correct one in 1970, virtu- ally everyone agrees it is no longer a correct rationale in 1983, and that undercuts the need to retain these rules. Mr. LEAR. Mrs. Collins, we are talking about independent produc- ers and companies, and you may have some interest in independent stations and on the next panel Lucy Salhany will give you some great expertise in that area. Mr. SEGELSTEIN. May I add, because I sensed that you were asking about independent stations, and it touches on warehousing, NBC is clear that it has no intention of warehousing and we will not be warehousing. Personally, I have always thought that the issue of warehousing is a phantom threat and fear, and there is no evidence that there was any warehousing or lack of sale to independents. Mr. WIRTH. Mr. Leland. Mr. LELAND. Thank you, Mr. Chairman. I wish that I could be as kind as some of my colleagues have been on the issues that have come before us. I am particularly in- terested because of the lack of diversity in programing. We are talking about children of ethnic minorities, and I am very con- cerned, as I have expressed to you individually, and in another forum like this, I am concerned that nothing is really being done. The people who I have been working with out in Hollywood are black writers, producers, directors. They are owners of independent production companies themselves. They have not the opportunity that Mr. Lear and Mr. Blu- menthal have. They are concerned that nobody really cares about them, and they are putting pox on both houses. I am on the side of the independent producers because I think, as I have stated before, that the independent producers are the lesser of the evils. I hear you pointing your fingers at each other. The independent producers are saying that the networks don't want to show any dramatic series with black actors and actresses in leading roles, Hispanic actors and actresses in leading roles, because-well, I don't know why. For whatever reason. The networks are saying, well, the inde- pendent producers don't produce or don't create these roles for these folks and then we get word that the networks are hiring these people who are saying-these independent consultants who PAGENO="0876" 874 are saying that the audiences won't watch a dramatic series where there is a black actor or a black actress or Hispanic actor or actress in a leading role. Who is to blame? What is going on? There is a lot of garbage on television. I get upset with what I see on those three stations. The independ- ent stations are just showing what has been produced for the net- works and has failed for one reason or another because of Mr. Neil- son, whoever he is. I am concerned about what is going on in television, because in the future generations are going to be affected by the most power- ful medium in the society. Young black and Hispanic children are going to grow up thinking that their only role models are serious white people or performers like Mr. Jefferson. Where is the balance? Engage your colloquy on that. What is going on in television? Young white kids are going to grow up believing that all black people can do is shuffle and scratch their heads and make. jokes like Mr. Coleman on "Different Strokes." It really bothers me. I got on this subcommittee to address this very issue, as a matter of fact. Mr. Segelstein. Mr. WIRTH. Would the gentleman yield? Mr. LELAND. Be glad to yield. Mr. Wia~m. I found myself so sympathetic with the position of the gentleman from Texas and the gentlewoman from Illinois. What we have forgotten about in too much of this debate is the impact of television and the possible positive impact that television can play. An enormous amount of research has been done on the impact of television on kids, and the television people come back and say it really doesn't have a negative impact. Why aren't they talking about what kind of a positive impact TV has? If kids are spending more time in front of a television set than in school, wouldn't you think there would be a feeling of pride for the television people to say we are having a positive impact, not a negative impact? Mr. LELAND. I have a young kid sitting in my office now who-I belong to the Big Brothers program, and he is sitting in my office and making bad grades in school. The reason that he doesn't study is because his mother is handicapped and she doesn't have a lot to say about what he does when he gets home. He says he doesn't do his homework because he likes to watch television all the time. In light of what the gentleman said, I am concerned about what was happening to the youth of our country and what is going to happen to the youth of the future. Mr. WIRTH. Would the gentleman yield? Here we are in a situation where we . have one report after an- other coming out condemning American education for what is going on. They focus on the quality of the teachers or the teacher/pupil re- lationship. How many of those reports are also looking at what other influences are so predominant in these kids' lives and the po- PAGENO="0877" 875 tential enormous impact of this particular medium has not been addressed. I thank the gentleman for yielding. Mr. Lear is getting very itchy and scratchy. Mr. LEAR. I have a 5:30 plane to catch. Mr. LELAND. Mr. Lear, if Mr. Segelstein doesn't mind-- Mr. LEAR. My wife is waiting downstairs. There are no heros in this area. Everybody should be ashamed, independent producers, networks, we should all be ashamed. Nobody has done enough. I can only say, too, that I know where the trying has occurred. Our company is one that has tried. You can quarrel, if you will, with the Jeffersons, but it is there. Nobody quarrelled with it very much the first few years. Nine years, everything becomes cliche, stereotype. In 9 years when an actor is exercising his vital abilities the same week after week, because he has only so many and it gets to be stereotypical. I love George Jefferson. Good Times was another attempt. We are with NBC doing a movie of the week starring Howard Rollins. It is a back door, as they say, pilot for a series. He plays a geriat- ric specialist dealing with the problems of the elderly, so there are two problems we had hoped to cope with, one, a strong black male lead, serious, and the whole question of geriatrics, and the prob- lems of the elderly. We tried for several years to get a black soap opera on the air, did not even-went past the business of causing a script to be writ- ten, caused a script to be written and the bible for an entire season and then staged it and invited ABC, CBS, NBC to look at it, totally cast, totally staged. Couldn't sell it~ That decision is a network decision. I know other areas in the creative community where people have tried to do things and per- haps the networks have, too, but they will have to say so. I can tell you where I know the trying has occurred. They will have to tell you that they have tried and failed, too, as I perceive it and as I have experienced it these years, I haven't seen them try. Mr. LELAND. Mr. Segelstein? Mr. SEGELSTEIN. Obviously, some of the trying Mr. Lear talks about did take place on the networks so there is evidence of the networks cooperating. Fundamentally, without the ad hominem attack at the end, it is hard to say that anybody is a hero in this matter. I think I see, as I suggested to you in a conversation we had not long ago, that there are changes, and I suggested that Fame was different and Hill Street was different-- Mr. LELAND. Fame has been cancelled. Mr. SEGELSTEIN. It was on for 2 years and I hear it will be on again. Its auspices are not so important if it is on the air. It is now recorded and if it works, it will be available to play, but I do think it represented a major step in our willingness or ability to use a bunch of attractive young kids. I don't want to make that an illustration of the wonderful things we are doing every day-- Mr. LELAND. That is the point. Years ago there was a program hosted by Bill Cosby and it showed all the stereotypes. It was spon- sored by Xerox. PAGENO="0878" 876 This is when black people were burning down communities be- cause they were upset because they didn't have the same civil rights that everybody else did. The response of a network was to give an uninterrupted series sponsored by Xerox, hosted by Bill Cosby, and they showed the stereotypes of black people, absence of black people in advertising and programing on television. All of a sudden that network had made a statement-this was in the sixties-had made a statement that, well, maybe things are going to be better. Sure, black people have gotten token jobs on television, in series, token jobs in advertising, bit parts and that kind of thing, and there have been substantial changes in the area of advertising be- cause the advertisers realize that 20 percent of the viewing audi- ence is black and the buying audience is black and black people are spending $145 billion a year in this country. The question is why is it such a big deal to have one show like Fame, and that is a giant step in the 1980s? Mr. SEGELSTEIN. I don't know that I want to add much to what Norman said. In fact, more can be done, and yet I mentioned Fame. There is a morning show hosted-I don't want to seem de- fensive about it; it is beginning to sound like I am-Bryant Gumbel is the chief host of the Today Show and that is another example. Mr. LELAND. Fantastic, but Jesus Christ, how long do we have to wait to be on an even keel? We have a survey that shows that 94 percent of NBC's 1,145 roles with white actors and white actresses, 94 percent were white actresses and white actors, 6 percent were black. God knows what happened to the Hispanic. Are you really reflecting what life in American society is all about? I picked up some kid who had just gotten back from Israel from my district in New York. They told me that people over there are still rather befuddled that black people would show up in Israel. The issue is that they were asking when they said that they were from Texas, are you from Dallas, and how can you be from Dallas if you are black, because they have watched "Dallas" on television and there has never been a black actor on "Dallas" or "Dynasty." The only thing that people can remember where black people played significant roles was "Roots." "Roots" made millions of dollars for ABC, and all of a sudden ABC tried to outdo it with another white show and failed miser- ably with "Winds of War." Not one black actor, not one black face in the whole series of "Winds of War." So what is the big deal? Why is it that you guys are not really doing what is necessary to reflect American life, and I do not mean a shuffling, scratching black person on television or a guy you have to knock out who needs to fly in an airplane every time like Mr. T? Mr. SEGELSTEIN. I think that you are asking two questions here, and I was responding to the incidence of reality based minority characters on television, and I believe that in some of the things that all of us here at the table, there are some things we agree on. As Norman said, perhaps we are all guilty. I then added that there have been some very notable changes in the MTM productions, and I do not know, Mr. Leland, to what extent you get a chance to watch the entire 22 hours on all three schedules of prime time. But PAGENO="0879" 877. I think the use of characters in a reality situation in "Fame" and in "Hill Street" and hopefully in "Bay City" and in "St. Else- where" does augur a change in the use of minority characters in drama. As I once said to you, it is a lot harder in comedy, where there are certain other kinds of dramatic variables at work. So I think there is change. As in the world, we have not really come to a wonderful solution. The second part as to the availability of access for young produc- ers, I think that is a lot tougher, and there I think we have done a worse job than with performers and with shows. It is tough to break in. It is tough to break into the big leagues anywhere. I think perhaps in some cases we are as culpable as the major stu- dios. In other areas I think we have done a better job. There are black programers at NBC and they are in important decisionmak- ing roles and I think that will help. Mr. LELAND. My time is up, and I hate to have had the emotional response that I gave you, but let me say that I have been meeting with Sidney Poitier and Brock Peters and those guys who are struggling not for themselves but for all Americans, Sidney Poitier said 15 years ago when he was hot if he had been as aware as he is now maybe he could have made a difference. He is going to spend the rest of his life working to make it different for writers, direc- tors, people behind the cameras even. Are you guys willing to sit down and talk? You guys are power- ful people. You program America. Are you ready to reprogram America, is my question. Mr. SEGELSTEIN. I think we should give it a shot. Mr. LELAND. Let us give it a shot. Let us go for it. Mr. WIRTE. I thank the gentleman from Texas. The Chair now recognizes one of the prime sponsors of the legis- lation, the gentleman from California, Mr. Moorhead. Mr. MOORHEAD. Mr. Segelstein, you made a comment a while ago that interested me. You said that you believed that if these finan- cial-interest rules were done away with, more producers would come into the business. I cannot understand how taking part of the money out of the producers' share and also taking control of the programing to a greater extent would encourage more people to come into the business. Mr. SEGELSTEIN. Well, I do not know that I would characterize it quite the same way. What I was saying is that if there were more players to help new producers in addition to the major studios and the major production companies as auspices for new young produc- ers to seek risk-sharing arrangements, three or whatever, more players should make it better than fewer players in the business of helping. Now, I think that when an independent goes to a major motion picture studio it is hard to say that he retains syndication, because I think that is the first thing that he gives up to the major motion picture studio. But he does have some participation, and I do not think there will be much of a difference in the way a young, independent producer, wherever and however he is housed will make a deal. He will just have more choices to make those deals. Mr. MOORHEAD. I wonder just exactly how much choice he will have. Right now the networks already have a tremendous voice in what goes on television. You make your choice among the pro- 32-540 O-84--56 PAGENO="0880" 878 grams that the various producers come to you and try to sell to you. If you actually had a financial interest and you were perhaps making more of the shows yourself and had greater control, would that not restrict the number of people that were willing to venture out and try to come up with new concepts and new ideas and a greater variety of shows? The decisions would all be made by a very tight group. Mr. SEGEISTEIN. Well, it is not the way I saw it operate preregu- lation, for example, and indeed I was a programer in the years prior to regulation, and none of these-none of these were the proc- esses. A group of us stood in front of a board and selected the best among the shows we had, with our limited ability to make that judgment; and the implications of who owned what, who brought the shows, what were the profit shares on a deal basis, never en- tered into the picture at all. The schedule was constructed entirely in creative scheduling terms. Mr. MOORHEAD. You mean you do not think that where there is a financial interest that there is greater control than there would be if there was not? Mr. SEGELSTEIN. I think the nature of the network business is that the best hit schedule, if you will, is the best thing in spite of partial ownership or a piece of the syndication rights or of joint shared-risk interest. Mr. BLUMENTHAL. Mr. Moorhead, if I may, we are still talking about, as somebody indicated before, an economic marketplace. I find it very difficult to believe that network programing people, who sit very, very close with their business affairs department when schedules are getting set every year, and the figures are run, that a show in which the network has a financial interest will not be given greater credence than a show in which they do not. I think you can bring in the business people of various types from each network and find out how closely the heads of those depart- ments sit in the programing decisions. They watch the pilot films, they are involved in the programing decision, and they are sitting there costing out an evening of programing and what it means to the network when program selections are made. I think you can find that out very directly from them. Also, I do not understand how removal of the rules will allow the networks any greater free- dom than they now have to bring in more independent writers and producers to the business. If they want to do it now, they can, with the rules in place. Mr. MOORHEAD. Mr. Colloff, do you not think there is a lot of what has just been said, that if there was a financial interest in one particular show the networks held and there was another show, perhaps of a little better quality, but not much, would the networks not want to put on their own show or that that they had a financial interest in? Mr. COLLOFF. As Mr. Segelstein said, that was not what hap- pened in the sixties before the rules took effect. The simple fact is that the decisions being made by the networks as to which shows they will put on their schedule are being made on the basis of their expectation of getting an audience. The stakes are high, everyone admits that, but the possibility of holding a small financial interest in a given show is not going to tip that decision. What is going to PAGENO="0881" 879 make that decision is what the networks believe will be an attrac- tive show to the general audience which we are programing to. That is what we are attempting to do, that is the basis upon which the decision will be made, not whether a financial interest is or is not held in a particular show. Mr. SEGELSTEIN. Mr. Moorhead, may I-when Mel says he finds it hard to believe, that is a kind of argument, I suppose. I am saying something stronger, that in my years as a programer, some- thing I no longer do, we never did make a decision that was based on whether the network had a financial interest or did not, or had syndication rights or did not, and frequently, almost entirely, we never knew. The question as to whether we would make that kind of decision-"Father Murphy" was a wholly owned NBC program, and, when it failed to achieve minimum acceptable audiences it was canceled in spite of the total ownership. So there is some evi- dence that not every decision is based entirely on the financial in- terest, but on the larger potential. Mr. TAUKE. Would the gentleman yield? Mr. MOORHEAD. Yes. Mr. TAUKE. When we are talking about a financial interest of an effort, how would the financial interest in a program stack up against the amount of money you get from ratings? Would it be worth your while to go with a less successful program even if you had 100-percent financial interest in it? Mr. SEGELSTEIN. I think obviously not. Our primary business, and we are dealing with subtleties of aftermarket usage, the primary business we are in is the business of the basic network schedule, and decisions are usually made for that basic network schedule that override all the other considerations. Mr. TAUKE. How much money are we talking about-let us say you have a successful series. It runs 6, 7 years. How much money are we talking about if you have a financial interest, say 50 per- cent in that series? Mr. SEGELSTEIN. Mr. Blumenthal might be better able to tell you than I. Mr. BLUMENTHAL. Mr. Segelstein ought to be able to tell you more accurately than I do, because he has shows like "Little House on the Prairie" where he has 100 percent. They will dictate the def- inition of profits. They will tell me how to define profits. So if he tells me the ground rules for how that profit definition will read, I can tell you. Mr. TAUKE. You tell me how we ought to define the ground rules-how much money are we talking about in a successful series with a financial interest? Mr. COLLOFF. I cannot give you a specific estimate, but the point Mr. Segelstein made before is the key point, that whatever the ab- solute numbers, the relative numbers are clear. The relative cost of failure of a show on a network schedule is significantly higher, by many times, as compared to whatever gain would be arrived at from having a financial interest in that show, so that the program- ing decisions are going to be made based on the success or lack thereof of a particular show on a network schedule, not on whether a network has or does not have a financial interest in that show. PAGENO="0882" 880 Mr. BLUMENTHAL. That is just not the fact as it works now in programing. Mr. MOORHEAD. Then why are you so anxious to get that finan- cial interest? Mr. Cou~oFF. Because as I indicated before we believe that the Government is imposing a restriction for which there is no existing rationale, that there is no longer network buying power to coerce the suppliers into doing things that the suppliers did not want to do. I mentioned the example of the children's programing in Phila- delphia, where the rules prevent us from doing things that are in the public interest. The rules do not promote the public interest. There is no economic basis in fact for those rules and therefore, in fact, they should be repealed. Mr. MOORHEAD. Can you tell me when there are dozens of these companies all of which would give anything they could to sell a show to you that you cannot control basically what the format and a great deal of the content will be? Mr. COLLOFF. I am not sure I understand your question. Mr. MOORHEAD. There are lots of people that want to sell you shows that are producing shows that no one ever buys. They are anxious to sell them. Are you going to tell me that you cannot con- trol to a great extent the content or the format of those shows? Mr. COLLOFF. The control of the content of those shows is a col- laborative process. Sometimes it is a smooth process, sometimes it is not, but the goal is that it be a collaborative process. Mr. MOORHEAD. You said a few minutes ago that you no longer had the influence over the shows you would like to have. Mr. COLLOFF. I do not believe I indicated that. I said that the issue of creative control was not related to the existence or absence of the financial interest rules, that there are other issues involved in the question of creative control apart from the fact of whether these rules are on the books or repealed. Mr. WIRTH. The time of the gentleman has expired. Gentlemen, we appreciate your being with us for a long and in- teresting panel. We will keep the record open for any comments you might like to make. Our second panel this afternoon includes Mr. Paul Bortz, a con- sultant to the American Broadcasting Co. He is now with Browne, Bortz, and Coddington. Mr. Wade Hargrove, counsel, ABC Televi- sion and Affiliates Association, Raleigh, N.C. Ms. Lucille S. Sal- hany, vice-president, TV and Cable Programming, with Taft Broad- casting. And Mr. Joseph Waz, Jr., Committee Against Network Mo- nopoly, Washington, D.C. Thank you for being here. We ask you to summarize your testi- mony. We will include it in full in the record. We would hope that you will take no more than 5 minutes. If we could begin with you, Mr. Bortz. PAGENO="0883" 881 STATEMENTS OF PAUL BORTZ, CONSULTANT TO AMERICAN BROADCASTING CO.'S, INC.; WARD HARGROVE, COUNSEL, ABC TELEVISION AFFILIATES ASSOCIATION; LUCILLE S. SALHANY, VICE PRESIDENT, TV AND CABLE PROGRAMMING, TAFT BROADCASTING CO.; AND JOSEPH W. WAZ, JR., SPECIAL COUN- SEL, COMMITTEE AGAINST NETWORK MONOPOLY Mr. BORTZ. My name is Paul Bortz, managing partner of Brown, Bortz, and Coddington, financial and economic consultants active in the telecommunications industry. I appreciate the opportunity to testify on H.R. 2250 and the financial interest and syndication rules. Our firm prepared an analysis of these rules for ABC as part of the FCC proceeding. My testimony today is on behalf of ABC and based on that analysis. We have heard a lot in the first panel about the quality and di- versity of programing, and that certainly is a public goal to be en- couraged. The question before this subcommittee, though, is wheth- er freezing into immobility some rules passed more than a decade ago would assist in meeting that goal. So far today I have heard nothing that suggests that it would. Let me address three major areas where the financial interest and syndication rules might impact the quality and the diversity of programing: first in the production and distribution of broadcast network programing; second in syndication of that programing; and third, quality and diversity as might be achieved through new pro- gram distribution channels provided by cable and related technol- ogies. With respect to the first, network programing, this topic has been studied repeatedly by many different groups, not at interest to the deal that we are talking about here between producer and distributor. They include the FCC network inquiry staff, the De- partment of Commerce, and the Department of Justice and they have all concluded that the rules did not foster diversity and qual- ity of programing, but simply intervened in what should be a pri- vate marketplace, shifting revenue to producers from the networks and their affiliates. Even the production community's own analysis in this area is vague and inconclusive, and most of their data sup- ports the contention that the rule does nothing to foster diversity and quality. What the rules have done is to further increase the leverage that naturally accrues to production and talent. For example, from 1973 to 1983 prime time programing expense for the American Broad- casting Co. increased from 63 to 73 percent of net prime time reve- nues; hardly is the production community without leverage under such a situation. The seller of product has increased prices faster than the distributor can recover revenues. Another example: for successful ABC series the price increases that producers were able to extract average 18 percent a year compounded. When we look at the success of the series and look at a better measure, price per new episode per rating point, this has increased for a successful series at 24 percent a year, and for a series running 4 or more years, the best syndicated product, almost 30 percent per year. Yet the revenue increase to the network is 14 percent a year. PAGENO="0884" 882 I would say the production community is in a good situation there. Financial interest and syndication rules have only intensi- fied what is naturally a seller's market. It has denied the real pro- viders of risk capital their fair reward, and it can only stifle the growth in quality and diversity of network programing and contin- ue to concentrate the power in the hands of a few producers. With respect to syndication, the second area I want to explore, it is clear that by breaking the production community's total control of syndication, by providing rewards to the real providers of risk capital, syndicated product will improve and expand. They have protected markets. With protected markets now secured by these rules where the risk capital is provided by others, the producers have shown that they seldom seek to reach out to provide viewers anything more than off-network syndication. When the fields are so rich to be mined in terms of the network programing and then going into off network, why risk capital? If you want diversity, let us try and channel those producers into first-run syndication prod- ucts. A modification of the financial interest and syndication rules, not a freeze on a failed set of rules, is the appropriate approach in this situation. Finally, consider the effects of new video distribution modes on quality and diversity of product. Two-thirds of all households are now passed by cable. Thirty million households subscribe. Network prime time shares have dropped below 80 percent, and we project as submitted to the FTC 1990 shares as low as 60 percent. This is not a new-technology situation. Diversity via new video distribution is here and here now. It is not something to halt and wait 5 years to happen. Well before 1988 all households in the United States will have access to multichannel premium television. The produc- tion community is already reaping its rewards. This year, 1983, their revenues in the aggregate, program revenues, producer reve- nues will approach a billion dollars. By 1985 it will double or triple, and by 1990, it will be on the order of $10 billion, more than the three networks combined at that point. Here in these new areas is the opportunity to seek quality and diversity improvements, yet H.R. 2250 would retard this growth by maintaining artificial barriers in the programing marketplace, al- lowing producers to play it safe using other companies' risk capital and by limiting the networks in participating in the development of these markets. I can only conclude that H.R. 2250 is protectionist legislation. It would have no impact on quality and diversity of programing, and it would freeze into place special-interest rules to benefit a narrow constituency under a public interest guise of encouraging diversity that has no basis in fact. [Mr. Bortz' prepared statement follows:] PAGENO="0885" 883 American Broadcasting Companies, inc. 1330 Avenue of the Americas New York, New York 10019 Telephone 212 887-7200 Everett H. Erlick Executive Vice President and General Counsel Dear Mr. Chairman: Thank you for your letter of July 27, 1983, inviting ABC to testify at the hearing of the Subcommittee on Telecommunications, Consumer Protection and Finance on the FCC's Syndication and Financial Interest Rules and H.R. 2250 scheduled for August 1. Mr. Paul I. Bortz, of the Denver-based consulting firm Browne, Bortz and Coddington, will be ABC's witness. Mr. Bortz has been a consultant to ABC in connection with the FCC's Syndication and Financial Interest Rules proceeding (BC Docket No.~ 82-345), and his January 1983 report, "An Analysis of the Television Program Market," filed with ABC'S Comments in this proceeding, is part of the public record. We believe the Subcommittee will find Mr. Bortz' views of significant interest. As you will recall, Mr. Anthony D. Thomopolous, then President of ABC Entertainment and now President of the ABC Broadcast Group, was a witness before the Subcommittee at its hearing on these Rules in Los Angeles on June, 1. Mr. Thomopolous ex- pressed ABC's strong view that the Rules should be repealed or significantly modified. It follows, of course, that ABC is opposed to H.R. 2250, which would perpetuate them for at least another five years. In the interest of conserving the Subcommittee's valuable time, I am taking the opportunity of this letter to expand upon ABC's opposition to both the Rules and H.R. 2250. The Syndication and Financial Interest Rules are gradually eroding the quality and diversity of entertainment programming which the ABC Television Network and, we believe, the other two national networks can offer to the American public. This is because the Rules deny to ABC, CBS and NBC, but not to any of our compet- itors in offering national program services such as the emerging direct pay networks, the opportunity to bargain for syndication rights and interests in the programs whose production we largely, if not entirely, finance. Not only does this make for unfair competition in the program acquisition market to the detri- ment of ABC, CBS and NBC and their more than 600 local affiliates (the great majority of whom support repeal of the Rules), it denies to these companies revenue opportunities which are needed to keep pace with sharply rising program costs. As we have documented before the FCC, for a number of years three-network costs -- particularly program costs -- have been rising much more rapidly than three-network revenues,. The effect has been a significant profit squeeze; three-network income as a percentage of revenues fell from 16% in 1977 to 8% in 1981 (the last year for which FCC-compiled data are available). Obviously, no network company can continue indefinitely to have its costs increase at a significantly greater rate than its revenues. Yet that is the difficult prospect which the three traditional networks face. As the competition for the best programming intensifies, costs of that programming will almost certainly continue to rise in substantial measure. At the same time, ABC, CBS and NBC are experiencing steadily declining aud- ience shares, as more and more programming alternatives are PAGENO="0886" 884 available to viewers from sources such as cable television. Our need is to offer better programming, and more original episode programming, to meet this competition. ABC seeks only a free and unfettered market for programming. At present, the Syndication and Financial Interest Rules are artificial barriers to such a fz~ee market. Government has no rightful place at the bargaining table where program rights are negotiated. It has no proper business tilting the bar- gaining process in favor of the Hollywood producers, as these Rules do. Not only do the Hollywood producers have no legit- imate need for such assistance, the effect is' to deny the public, at least those members of the public who rely upon' advertiser- supported television, the best quality and the most diverse programming which only a free and unfettered market can supply. Five agencies of government have commented in the FCC's current proceeding to consider repeal or changes in the Syndication and Financial Interest Rules -- the U.S. Departments of Justice and Commerce, the Federal Trade Commission, and the States of New York and Illinois. All have reached essentially the same conclusion as the FCC's Special Study Staff, which was appointed and reported during the chairmanship of former Chairman Ferris: the rules in their present form are anti-competitive and work to the disadvantage of the television public. A great deal of the comment in the current FCC proceeding has been directed to one narrow concern. That is the continuing availability of certain programming to independent (not net- work-affiliated) television stations in the event the Rules are repealed. ABC believes this concern is misplaced because marketplace forces will dictate the continuing availability of programming to these stations. We have also made a public commitment that we will not withhold programs or discriminate against independent television stations. Moreover, we have indicated that we would have no objection to some form of narrowly focused regulation to insure that independent stations continue to have the same kinds of opportunity to acquire programming as at present. There is another, and perhaps more fundamental, reason why H.R. 2250 is an unsound approach. This proposed legislation amounts to a judgment on possible FCC action without knowledge of what the action will be. The filings before the FCC make clear that the agency's options are not limited to outright repeal or total retention of the Rules, as some co-sponsors may have once be- lieved; for example, the Department of Justice Reply Comments, at pp. 30-31, propose a specific substitute rule. It seems to us that the Congress would want to know what the FCC decides before it makes a judgment to exercise its prerogative to override that decision. Please associate this letter with the record of the Subcommittee proceeding, and thank you for considering ABC's views. Very truly yours, ~f. ~LL Everett H. Erlick PAGENO="0887" 885 Mr. WIRTH. Mr. Hargrove. Mr. TAUKE. Do we have a copy of Mr. Bortz' testimony? Mr. BORTZ. This is the extent of it, handwritten notes. Mr. TAUKE. Thank you, Mr. Chairman. Mr. WIRTH. Mr. Hargrove. STATEMENT OF WADE HARGROVE Mr. HARGROVE. Thank you, Mr. Chairman. The ABC Television Affiliates Association consists of over 200 local commercial television stations that are affiliated with the ABC Television Network. The association favors repeal of the FCC's network syndication and financial interest rules. I might point out that while I am here on behalf of the ABC-TV affiliates, the affiliates associations of the CBS and NBC Television Networks also support repeal of these rules. In short, close to 600 local televi- sion stations across the Nation believe these rules are harmful to the interest of local stations and to the interests of consumers and viewers these stations are licensed to serve. The affiliate associations favor repeal of these rules for one reason: they are convinced that the rules adversely affect the qual- ity of over-the-air television programing. To the extent the rules impair the ability of the networks to achieve the natural profits de- rived from their programing, the rules discourage networks from producing innovative, expensive, and high-risk programing for net- work broadcasts. That in turn has the effect of undermining the quality of over-the-air television programing both for network-affili- ated stations and nonnetwork independent stations. The Federal Trade Commission has observed that an unfortunate result of the rules has been "reduced purchases by the networks of relatively high-cost programing and increased purchases of lower- cost programing." Economist Alfred Kahn describes the adverse effect the rules have on television viewers as follows: Anything that limits the ability of the networks to compete in the development and acquisition of desirable programing must weaken the ability of the large majori- ty of the viewing public to receive the kind of entertainment on which it continues principally to rely. This it seems to me is the most important dimension of the social cost of continuing these rules. As you know, the syndication and financial interest rules do not prevent the networks from acquiring financial interests in and syn- dicating programs that are not produced for network broadcast. Therefore, if Congress and the FCC continue to impose regulatory constraints that make it less attractive financially for networks to direct their resources to the production of programing for over-the- air television, the networks will be tempted to divert more and more of their resources to the production of programing for less regulated and in turn financially more attractive delivery systems such as pay cable, DBS, MDS, and video cassettes. All three of the major television networks are involved in the new technologies, and obviously intend to employ them to distrib- ute programing. The CBS Network, for example, recently disclosed plans to join with HBO and several major studios to produce pro- graming for pay television. That is not surprising, because CBS can share in the residual rights in programing it produces for pay TV. It cannot, of course, share in the downstream profits of programs PAGENO="0888" 886 produced for the over-the-air television system. Thus the syndica- tion and financial interest rules are unwittingly encouraging a mi- gration of more expensive and high-quality network programing to pay TV delivery systems. Concern has been expressed by independent stations that if the networks are permitted to reenter the syndication market the net- works will somehow extend preferential treatment to their affili- ates. Ms. Salhany I see from her prepared remarks is going to ad- dress that, and I would like to respond to her comments at the con- clusion of the panels' presentation. The ABC Television Network has made it very clear to its affili- ates that they can expect no favoritism in the acquisition of off-net- work programing if these rules are repealed. The affiliates had no such advantage prior to adoption of these rules in 1970, and they really ~have no reason to feel they would now. The simple truth is that the networks will maximize their profits in their programs, and to do so they will sell their programs as they did before the rules were enacted to those stations willing to pay the highest price for them. Independent stations have also expressed concern that if the rules are repealed the networks will warehouse programing. If af- filiates believed that would occur, they too would oppose repeal of these rules. While the prime time access rule precludes stations in the top 50 markets from running off-network programing during the access period, the prime time access rule does not preclude the below top 50 market stations from doing so. Affiliates derive con- siderably more income from their access period programing than from compensation paid to them by the networks for network pro- graming. So if the below-top-SO market stations-and that is the bulk of the television stations-who are now allowed to carry off network programing in the lucrative access period, felt for a moment that repeal of the rules would cause the networks to warehouse pro- graming, they would favor retention, rather than repeal of these rules. If the rules are repealed and the Justice Department's consent lifted, the networks' syndication practices would be subject to un- precedented scrutiny by the Congress, by the FCC, by the FederaL Trade Commission, the Justice Department and the private sector, including independent program producers and independent and network-affiliated television stations. Therefore, if the networks should in the future attempt to ware- house programing, appropriate regulatory measures could be adopt- ed. To the extent competition and diversity presently exist in the tel- evision programing marketplace, the prime time access rule, not the syndication and financial interest rules, is responsible. PTAR, not the syndication and financial interest rules, provides the crucial window in prime time for independent .produced and syndicated programs. PTAR, not the syndication and financial in- terest rules, has spawned so much of the highly acclaimed and in- depedently produced television programing now available in prime time. PAGENO="0889" 887 The FCC network inquiry special staff reinforced this conclusion by noting, "The growth in syndicated programing has occurred as a result of the prime time access rule," not as a result of the syndica- tion and financial interest rules. Network-affiliated stations favor repeal of the syndication and fi- nancial interest rules in the belief that so long as the prime time access rule continues to be in effect, Congress overall public policy objective of assuring competition in the production, distribution, and exhibition of television programing will be achieved. Thank you. Mr. WIRTH. Ms. Saihany. STATEMENT OF LUCILLE S. SALHANY Ms. SALHANY. I am Lucie Salhany, speaking as vice president, TV and cable programing, for Taft Broadcasting. I oversee program- ing for four Taft Network affiliates, three affiliated with ABC, and one with NBC. I also oversee programing for three major market independent stations and a cable venture. I have been on the board of the Na- tional Association of Television Program Executives for over 7 years and in 1980, I served as its president. The three television networks are now pressing for elimination of the syndication and financial interest rules. It is important that these rules continue in force at least until 1988 in order to see if sufficient competition develops in the marketplace so that the net- works will no longer have monopolistic power over television pro- gram producers. The first point I would like to address is network dominance over affiliates. While we talk about the partnership that presently exists between the networks and their local stations, it is only so because each has equal power. If an affiliate preempts the network, it can now choose from a myriad of programing: Programing with no time period restric- tions, programing which by contract can be run anywhere, pro- graming not controlled by the network. On the surface, that sounds perfect. But the story behind the scenes is really quite different. The networks are continually fight- ing for control. Each preemption goes against the station's record and has a bearing on our compensation as affiliates. If you doubt this, let me give you an example. Last February, one of our affiliates had cleared two local sporting events which con- flicted with a highly promoted two-part miniseries on their net- work. The station notified the network and asked for a 7-day delayed broadcast. The station said it would run the miniseries late night on the weekend or over 4 hours on Sunday afternoon. The network turned the station down with, "It is not our policy to allow delays on movies." The network then suggested the station try and move the local sporting events. When the station was unable to do so, it was forced to preempt and thereby deprive the viewers in that market of the right to see PAGENO="0890" 888 the miniseries. All the network could say was, "We are making a note of this on your record." The station knows that this preemption and every similar occur- rence is noted and will be brought up during our network compen- sation review meeting. Thus, the choice to preempt, despite its price, exists today for network affiliates. However, if the networks gain control of the flow of product to the stations, this choice will be destroyed because stations will have to cease to have popular network programs such as "Barney Miller," or "The Jeffersons" to run instead of network programs. Or, programs such as these may be available, but with time period restrictions. If you don't believe that the networks will put time period re- strictions on their programs, let me give you a very recent exam- ple. Mr. Segelstein talked about "Saturday Night Live." "Saturday Night Live" was held back from syndication because NBC would not let it run late night. When they finally put it into syndication, our contracts guaranteed them simulcast protection. That means the station cannot run "Saturday Night Live" on Sat- urday night. So, we have to run it Monday through Friday. Another example is the syndicated half-hour "Johnny Carson Show." It was offered with the condition that it not run late night. Not only could it not run at 11:30 against the network "Johnny Carson Show," but even worse, it couldn't run at 11 on independ- ent stations. I would now like to talk about the impact of repeal on the role of an independent station. Independent stations provide a viewing al- ternative to the public; they are an alternative to the networks. Independent stations exist because they can buy off network pro- graming. Independents have become so successful that they are now a threat to the networks, so the networks want to control the independents' main source of supply, the foundation of their pro- graming, off-network product. If this happens, the networks can and will prevent the independ- ents from maximizing rating and revenue potential. Networks will be the thwarting the independents' growth and limiting competi- tion. I would like to carry this one step further. Suppose an independ~ ent developed an off-network show into a hit in syndication? Also, suppose the indy runs the show against the network news? When it is time to renew that contract, if a network owns the syndication rights, does anybody honestly think they will renew the indy's con- tract? If I were the network, I sure wouldn't. I would make sure my affiliate got the program and thereby pro- tect my network news. Then, I would put the squeeze on that same affiliate to stop preempting me in prime time where I make my money. Would the independents have anyone else to buy from? Not if the networks controlled the syndication marketplace, because there would be no D. L. Taffner, no Embassy, no Jim Victory, no Lorimar Telepictures. PAGENO="0891" 889 Independent stations like WDCA and WTTG in Washington are thriving because the viewers want a choice. The same networks who have cried that their audiences are being eroded because of cable are really being hurt more by independent stations, not only here in Washington, but all over the country. If real, viable, significant competition to the networks ever comes about, then the rules should be repealed, because the marketplace would be available to protect the public values this rule was writ- ten to provide: competition in terms and pricing of product; creativ- ity and diversity in programing; and local responsiveness to each market. The rule has allowed our industry to move towards these goals. H.R. 2250 will give us enough time to hope to achieve them. Thank you. [The statement of Ms. Saihany follows:] PAGENO="0892" 890 TESTIMONY OF TAFT BROADCASTING COMPANY BEFORE THE SUBCOMMITTEE ON TELECOMMUNICATIONS, CONSUMER PROTECTION AND FINANCE ENERGY AND COMMERCE COMMITTEE UNITED STATES HOUSE OF REPRESENTATIVES August 1, 1983 My name is Lucie Salhany. I an speaking today as Vice President, TV and Cable Programming, of Taft Broadcasting Company. I oversee programming for four Taft network affiliated stations; affiliates, by the way, which did not agree with their affiliate boards. Three of them are affiliated with ABC; one with NBC. I also oversee programming for three major market UHF independents and a cable venture. Additionally I have been on the Board of the National Association of Television Program Executives for over seven years and in 1980 served as its President. I am here to express Taft's support for H.R. 2250, a bill which would place a five-year moratorium on repeal or modification of the Federal Communications Commission's existing regulations known as the Syndication and Financial Interest Rule and the Prime Time Access Rule. These rules were adopted by the FCC in 1970 to promote competition and diversity in the television programming marketplace. The Financial Interest part of the Rule prohibits the networks from acquiring any interest in the syndication or distribution PAGENO="0893" 891 Of programs produced by anyone other than the network itself. The Syndication part of the Rule prohibits the networks from selling or `syndicating" re-runs of programs initially aired on a network for later non-network exhibition. The Prime Time Access Rule effectively prohibits the networks from selecting the programming to fill a specific half hour during the prime time schedule on their affiliates in the top 50 markets. The Syndication and Financial Interest Rule was also included in Department of Justice antitrust consent decrees against each of the three networks as recently as 1978 and 1980. Action to modify or eliminate those decrees is expected shortly. The three television networks are now pressing for elimination of the Syndication and Financial Interest Rule. Under the banner of "deregulation," the FCC initiated a rulemaking procedure last year which threatens repeal of the Syndication and Financial Interest Rule. The Commission appears likely to move toward repeal or substantial modi- fication of the Rule and soon may issue an order to that effect. It is important that these Rules continue in force at least until 1988 in order to see if sufficient competition develops in the marketplace so that the networks will no longer have oligopolistic power over television program producers. "Deregulation" when adequate competition does not exist would: cripple independent stations by restricting -2- PAGENO="0894" 892 the flow of programming available to them; discourage creativity, diversity, and localism by increasing network control over program content and production; and increase network dominance over affiliated stations. The first point I would like to address is network dominance over affiliates. While we talk about the partner- ship that presently exists between the networks and their local stations, it is only so because each has power. If an affiliate preempts network programming, it can now choose from a myriad of programming: programming with no time period restrictions, programming which by contract can be run anywhere, programming not controlled by the network. Right now affiliates preempt day tine and prime time network programs to air off-network programs for local news and public affairs specials. On the surface that sounds perfect, but the story behind the scenes is really quite different. The networks are continually fighting for control. Each preemption goes against a station's record, and if the station preempts too frequently, we know we will get a visit or a phone call reprimanding us. And, while no one admits it, this preemption record has a direct bearing on our compensation as affiliates. If you doubt this, let me give you an example. Last February one of our affiliates had cleared two sporting events which conflicted with a highly promoted two-part mini-series on the network with which it is affiliated. The station notified the network and asked for a seven-day delayed broadcast. The station said it would run the mini- -3- PAGENO="0895" 893 series late night, on the weekend, or over four hours on a Sunday afternoon. The network turned the station down with "It's not our policy to allow delays on movies." The network then suggested that the station try to move the sporting events. When the station was unable to do so, it was forced to preempt and thereby deprive the viewers in that market of the right to see the mini-series. All the network could say is, "W&re making a mote of this on your record." The station knows that this preemption and every similar occurrence is noted and will be brought up during the network compensation review meeting. Thus, the choice to preempt, despite its inevitable price, exists today for network affiliates. However, if the networks gain control of the flow of product to the station, this choice will be destroyed, because stations will cease to have popular off-network programs such as "M*A*S*H," ~sBarney Miller," or "The Jeffersons" to program instead of network programs. Or, programs such as these may be available to affiliates, but with time period rOstrictions. If this happens, the affiliates lose control of their future program- xning and simply become conduits for the networks. They are going to be forced to buckle under to the network blackmail, and control over program decisions will move from the stations to the networks. If you do not believe that the networks will put time period restrictions on their programs, let me give you some very recent examples. "Saturday Night Live" was held back from syndication because NBC would not let it run late 32-540 O-84---57 PAGENO="0896" 894 night. When they finally put it into syndication, in our contracts we have given them simulcast protection. This means that we cannot run "Saturday Night Live" on Saturday night, so we run it Monday through Friday. Then there is the case of "Family Feud." The network runs their show in the morning; but there is a syndicated show of a version which some stations run in access, and according to our contracts, stations cannot run the show before 5:30 p.m. Why this restriction? Because the network demanded that the producer give them daytime protection. This restriction is even worse when you consider that these syndicated shows are different from the network shows. Once again, the networks have shown that they want to control the marketplace. They are simply afraid of competition. If they are not afraid, why was the syndicated half-hour "Johnny Carson Show" offered with the condition that it could not run late night? Not only could it not run at 11:30 against the network "Johnny Carson Show," but, even worse, it could not be shown by independents at 11:00 o'clock. In 1974, "Match Game" was held back from syndi- cation for two years because CBS did not want syndication competition. When it was finally offered on the marketplace, there was a provision that it could not run before 6:00 p.m. We contend that the networks have and are still using their control to prevent programs from being offered with unrestricted licenses. As you can see, the networks really have not left syndication. -5- PAGENO="0897" 895 I would now like to talk about the impact that repeal of the Syndication and Financial Interest Rule will have on the independent station. Independent stations provide a viewing alternative to the networks. Independent stations exist because they can buy of f-netw9rk programming. As you have heard, the success of shows like "M*A*S*H," "Barney Miller," and "The Jeffersons" has given independents the financial base to acquire rights to local sports franchises, to co-produce first-run programs like "Solid Gold" and "Star Search," and to participate in the operation of prime tine projects. Independents have become so successful that they are now a threat to the networks, so the networks want to control independents' main source of supply, the foundation of their programming: off-network product. If there is any doubt in your mind, just remember "Saturday Night Live," "Match Game," "Family Feud," and the "Johnny Carson Show." If the Syndication and Financial Interest Rule were not in effect today, that list would be much longer and would include "M*A*S*H," "The jeffersons," and "Happy Days." After all, if a network will not allow "Match Game" to compete, why would it allow a program like "M*A*S*H" to run against its daytime, its news, its prime time, or even its late night programming? If this Rule is repealed, anticompetitive restric- tions will follow. A network could conceivably offer a program in syndication with the following stipulations: (1) it cannot run before 4:00 p.m.; (.2). it cannot run between -6- PAGENO="0898" 896 6:00 and 7:00 p.m. on an independent because that would compete with network news; (3) it cannot run in prime time until after the last network run;' and (.4) it cannot rurx late night. Even with these conditions, there nay be buyers for product. And maybe independents will have to buy the product with those restrictions. The result remains that the networks will be preventing the independents from maxi- mizing rating and revenue potential. Networks will be thwarting the Indies' growth and limiting competition. I would like to carry this one step further. When a show is a hit, the renewals are more important than the original contract. Let me use `M*A*S*H" as an example again. If a network affiliate had ~`M*A*S*H" leading into the network news, the ratings for the news would be stronger and a lot more valuable. So, if I were the network, I would make sure my affiliate got that program, and then I would put the squeeze on them to stop preempting me in prime time. In markets where network owned and operated ètatioms are located, there would be no doubt that the hits got on net- work stations and less popular shoes would be offered to the Indies--if they were made available at all. Would the independents have anyone else to buy from? Not if the networks controlled the syndication market- place, because there would be no D.L. Taffner, no Embassy, no Jim Victory, no Lorimar Telepictures; and without the profits from syndication of "Happy Days," "Laverne and Shirley," "M*A*S*H," "Barney Miller," etc. we might not have -7- PAGENO="0899" 897 risked investments in programs like "Entertainment Tonight," which my company co-produces, "Solid Gold," "Allen Fix," "Salute," "Blood and Honor," "Golda," or "Blood Feud." If first run programming and local co-productions like those I have mentioned are important, then so is the retention of this Rule. The networks claim that they would not be able to control the market without illegal "collusion." This simply is not true. Collusion would not be necessary to cause serious harm to the television market. Networks would merely have to act in their own best interest. The following scenarios provide just a few examples of potential network manipulation of off-network pro~raniming if the Rule is repealed: 1. Networks could require full syndication rights or a controlling financial interest in the programs they air as the quid pro quo for getting on the network. 2. Networks could give their affiliates a "right of first refusal" option on syndicated programs. 3. Networks could offer price "discounts" to their affiliates. 4. Networks could refrain from putting a show into syndication until it has completed its network run. 5. Networks could place time restrictions on the use of programs. 6. Networks, by becoming active participants in the syndication market, will have advance knowledge of which -8- PAGENO="0900" 898 programs might be available to any given independent station for the next several years. If independents are forced to buy off-network programming from the networks, they are effectively notifying their competition of their future programming plans and needs. This gives network owned and affiliated stations a tremendous edge in planning their schedules. They know what the competition is planning and can schedule programs accordingly. 7. Independent stations could be used as the "test bed" for what is successful in the syndication market. none of these scenarios would require collusion with the other two networks. If a 10:00 o'clock news service in Miami or in Philadelphia is important, if local coverage of sporting events is important, and if a public service special like "Job Fair" in Washington is important, then so is this Rule. Repeal of the Rule would tip the balance of power in favor of the networks and slow down the growth of the independents, thereby stifling independent profit potential and preventing investment in projects, as I have mentioned. Independent stations like WDCA and WTTG here in Washington are thriving because the viewers want a choice. They want the opportunity to watch "The Jeffersons" at 6:00, "Alice" at 6:30, or "Sanford and Son" at 7:30; and if the opportunity to watch these programs in those time periods disappears, then everyone suffers, everyone except the -9- PAGENO="0901" 899 networks. The sane networks who have cried that their audiences are being eroded because of cable are really being hurt a great deal more by independent stations, not only here in Washington, but all over the country. While Taft agrees with the overall concept of deregulation, in this instance the regulation has created the present free competitive marketplace. What we cannot understand is, if the system is working, if the checks and balances are in place, and if we are all thriving, why repeal this Rule and allow a shift in power that lets the networks regain their control? If real, viable, significant competition to the networks ever comes about, then the Rule should be repealed because the marketplace would be available to protect the public values this Rule was written to provide: competition in terms and pricing of product; creativity and diversity in programming; and local responsiveness to each market. The Rule has allowed our industry to move towards these goals. E.R. 2250 will give us enough time to hope to achieve them. Thank you for giving me the opportunity to appear before you today. I would be happy to try to answer any questions you may have. Mr. WIRTH. Thank you very much, Ms. Saihany. Mr. Waz. STATEMENT OF JOSEPH W. WAZ, JR. Mr. WAZ. Thank you, Mr. Chairman, and to the heartier mem- bers of the subcommittee, good afternoon. I had the pleasure of addressing this subcommittee in support of H.R. 2250 at its June 1 hearings in Los Angeles. At that time, I noted that the FCC rules affected by this legislation have helped make more and diverse viewing options available to the public by allowing greater financial and creative independence to the cre- ative community and by reducing the three major networks' con- trol over what Americans may view. I further suggested the rules retain their validity and impor- tance. The dominance of the three major networks-an historical accident aided by the FCC's misguided channel allocation policies- persists to this day. PAGENO="0902" 900 These rules, in conjunction with technological advances and other forces, are just now bringing real competition to the video marketplace, but repeal of the rule at this critical time would be detrimental to the hopes of American consumers for more diverse and competitive video services. Mr. Chairman, the public support for H.R. 2250 continues to grow rapidly. I would like to submit for the record, if I may, a roster of the 40 organizations now affiliated with the Committee Against Network Monopoly. Mr. WIRTH. Without objection, it will be included in the record. Mr. WAZ. And a separate list of organizations inside and outside the television industry who also support retention. Mr. WIRTH. It will be made a part of the record as well. Mr. WAZ. In my presentation in Los Angeles I discussed the com- petition in the video marketplace from the consumers' perspective, and found it wanting. I also noted that while a reasoned view of the marketplace mili- tates in favor of retaining the rules, the three networks were ag- gressively pursuing a campaign of public misinformation to sway your constituents to their point of view. The networks are rather like a strolling orchestra in a restau- rant. They have a different song for every table. However, they tend to play all their songs at once, all in a different key, depend- ing on what their audience wants to hear. Members of this subcom- mittee have expressed a desire for a full factual record on this issue, but in the cacophony of the networks' songs, it is impossible to know what is fact and what is fiction. Let me give a few examples if I may. At the Los Angeles hear- ings, Mr. Colloff of CBS sang a song of sorrow. He lamented the networks' alleged inability to compete with the new media. But CBS TV Network President Tony Malara chirped a different tune a few weeks ago, telling the New England Broadcasting Association that the three networks' ratings are up four-tenths of a point this year, while HBO's ratings are declining, and that the 35 basic cable services' collective audience represents only a 1.4 rating of the total viewing audience. The networks are also singing a plaintive aria intended to scare the public into believing that failure to repeal these rules could mean "the end of free TV." Even the members of the FCC, who are usually a friendly audience for the networks, threw tomatoes at that performance. Several commissioners joined Mimi Dawson in criticizing "some very wrong information going around." But these bad reviews have not stopped the networks. Here is a recent letter from NBC Enter- tainment President Brandon Tartikoff to a member of the Califor- nia State Senate, in which NBC purports to be interested only in protecting "the poor, the elderly and the infirm, many of whom depend on free television as their primary source of entertain- ment." Well, of course, Mr. Chairman, the financial interest and syndi- cation rules have given new life to advertiser-supported TV, allow- ing independent stations to bloom into significant competitors for viewing audiences, and giving American viewers more choices and PAGENO="0903" 901 more diversity. But the networks will audition their "end of free TV" song wher&ver they think it will succeed. When they talk with minority and other small producers, the networks whistle a happy tune of new opportunities for network exposure and funding sources. But CBS' Mr. Colloff almost ran out of adverbs qualifying those "promises" before this subcommittee in Los Angeles. Mr. Colloff said "hopefully" there will be more minority produc- ers, and that minority and children's programing "may result indi- rectly from increasing the diversity of production sources general- ly." Unfortunately, Mr. Chairman, the networks~ ignore the efforts which independent producers have made in programing for special- ized audiences, and the contribution which independent TV sta- tions have made in providing outlets for these programs. I must agree with the statement by Mr. Moorhead that one can only marvel at the networks' insistence that opportunities will im- prove if they are free to grab off all the rights and revenues they want-particularly in the face of the overwhelming sentiment of producers large and small against repeal of these rules. I was interested in the story by CBS of a desire by its Philadel- phia station to put a children's program on the air. That same con- cern for the children's audience doesn't seem to extend to "Captain Kangaroo," which was banished to the wee hours of weekend mornings and the fact that there is no regularly scheduled daytime programing aimed at that audience. Mr. Chairman, virtually no organization of consequence which is knowledgeable about media issues has accepted the network line on this issue. Groups as diverse as the ACLU, the National Council of Churches, the International Association of Machinists, the American Business Media Council, the National Association of Black Owned Broadcasters, the Association of Mexican American Educators, and Action for Children's Television, all supporters of the Committee Against Network Monopoly, have all gone on record in opposition to the networks' efforts to entrench their monopoly status. They are all aware that the networks will continue to dominate prime time audiences until at least the end of this decade. They are all aware that network TV advertising revenues continue to grow faster than bluegrass in Kentucky, and are projected to in- crease by 11 percent this coming year to nearly $6.9 billion. They are all aware that the "new technologies" the networks claim to fear will not soon be available to most Americans, and that when they do come, the networks will continue to be domi- nant players. And they are fully aware that sensible regulation of these domi- nant entities, against whom all other video media combined are but a minor nuisance, is necessary if genuine competition is ever to emerge. Mr. Chairman, CBS has thoughtfully provided many Members of Congress with a report, two gray volumes as I recall, which among other things suggests that deregulation in other industries some- how mandates removal of these particular restraints from the net- works. PAGENO="0904" 902 While CBS liberally cites some of its favorite lawyers and econo- mists, one authority seems to have escaped the attention of its re- searchers: this subcommittee's own exhaustive report, "Telecom- munications in Transition," to which you alluded, in which the subcommittee observed that "We are headed for a competitive video market but we are not yet there today." The average consumer has access to a very limited number of communications channels. The bright future which advancing tech- nology portends is not within immediate reach, and provides no justification for setting free the giants. As the report concludes, "Altering a regulatory scheme, based on a premise which the data clearly does not support, is a total abdication of responsible policy- making." The FCC proceeding which necessitated this legislative response calls into question that Commission's responsibility. While the Commission's Chairman rushes this item before the Commission for its August 4 meeting, thousands and thousands of applications for low-power television languish in Commission files. While the Commission carries the ball on this issue at the behest of the networks, it fumbles proposals to add as many as 700 new AM radio stations, and is at a virtual standstill on the question of adding new VHF "drop-ins" to the television marketplace. Mr. Chairman, it appears the FCC is willing to abdicate its obli- gation to regulate for today, while moving diligently to open up the marketplace of tomorrow. That is why it is so important that Con- gress step in to clarify its intention that the creation of new outlets should be the FCC's first priority. When Americans can at last enjoy a tube of plenty, with vigor- ous competition from diverse and independent sources, then and only then might revision of the regulatory framework become ap- propriate. For this reason, the Committee Against Network Monopoly renews its strong support for H.R. 2250 and its companion legisla- tion in the Senate, S. 1707. Thank you. [Testimony resumes on p. 922.] [Supplementary materials follow:] PAGENO="0905" 903 SUPPLEMENTARY MATERIALS SUBMITTED IN SUPPORT OF TESTIMONY OF JOSEPH W. WAZ, JR. (COMMITTEE AGAINST NETWORK MONOPOLY) BEFORE THE HOUSE SUBCOMMITTEE ON TELECOMMUNICATIONS, CON- SUMER PROTECTION, AND FINANCE, AUGUST 1, 1984. A. Committee Against Network Monopoly--List of Supporting Organizations B. Supporters of Retention of the Financial Interest and Syndication Rules (drawn from review of filings with the Federal Communications Commis- sion, copies of letters to members of Congress, and other sources) C. Letter from Brandon Tartikoff, President, NBC Entertainment, to mem- bers of the California State Senate, urging opposition to efforts in sup- port of retaining the financial interest, syndication and prime time ac- cess rules (NB: p. 2, discussion of "loss of free TV," a discredited line of argument which the networks are loath to defend In public forums-- see, e.g., network testimony at June 1 hearings in Los Angeles) D. Letter from James S. Bennett, Vice President/General Manager, KNXT Television, Los Angeles, CA (a CBS owned-and-operated station), to members of the California State Senate, urging opposition to efforts in support of retaining the financial interest, syndication, and prime time access rules. (Of particular interest is the "list of supporters of repeal" attached to the letter. Among other irregularities, CBS claims the support of the Association of National Advertisers.., who voiced their opposition to the networks' position before the FCC and before both hearings of this Subcommittee on the subject. CBS also lists the "support" of two paid consultants, Alfred E. Kahn and Shooshan & Jackson, Inc. Conspicuously absent from the list is the CBS Network Affiliates organization.) E. Article, "Malara pronounces networks healthy," from ~ Maga- zine, June 20, 1983, at p. 104. F. Article, "Upfront buying: The bubble breaks at last," from Broadc~~ Magazine, July 18, 1983, pp. 23-24 (NB sidebar "More bullish than ever," citing projections by McCann-Erickson senior vice president Robert J. Coen of network advertising revenues for the coming season of $6. 895 billion, an 11 percent increase over the previous season). G. Portion of transcript from FCC open meeting on the financial interest and syndication rules, March 14, 1983, highlighting Commissioners' dis- cussion of irrelevance of arguments that repeal of financial interest and syndication rules could mean "the end of free TV." PAGENO="0906" 904 COMMITTEE AGAINST NETWORK MONOPOLY SUITE 600 1317 F STREET. NORTHWEST WASHINGTON. D.C. 20004 (202) 638.2121 SUPPORTERS OF RETENTION OF THE FINANCIAL INTEREST AND SYNDICATION RULES Advertisers Advertising Club of Fort Worth Advertising Club of Metropolitan Wash- ington, Inc. American Association of Advertising Agencies Arnold, Harwell, McClain and Asso- ciates, Inc. Association of General Merchandising Chains Association of National Advertisers Atlanta Ad Club Gene Clark Advertising, Inc. General Mills, Inc. East Bay Advertising and Marketing Assn. Gillis, Townsend & Riley Advertising Greater Jacksonville Ad II Hoffman, York & Compton Nashville Ad 2, Inc. Retail Advertising Conference Broad-Based Coalitions Association of Independent Video and Filmmakers, Inc. Association of Independent Television Sta- tions (INTV) Association of Program Distributors Caucus for Producers, Writers and Di- rectors Committee Against Network Monopoly Committee for Prudent Deregulation Connecticut Broadcasters Association National Association of Independent Tele- vision Producers and Distributors National Association of Black-Owned Broadcasters National Association of Television Pro- gramming Executives National Institute for Low-Power Televi- sion Women in Film (Los Angeles) Children's Organizations Action for Children's Television Children's Television Workshop National Education Association Guilds and Labor Organizations Association of Talent Agents International Association of Thea- trical Stage Employees locals (Local 1, New York, NY; Local 52, New York, NY; Local 70, Youngstown, OH; Local 80, Holly- wood, CA; Local 164, Milwaukee, WI; Local 193, Bloomington, IL; Local 249, Dallas, TX; Local 409, San Mateo, CA; Local 431, San Jose, CA; Local 611; Local 685, Concord, NH; Local 728, Simi Val- ley, CA; Local 728, Hollywood, CA; Local 731, Rapid City, SD; Al Pan zen, Regional Vice President) Inter-Guild Council (Directors, Pro- ducers, Screen Actors, and Writers Guilds) Local 111, Communications Trades Di- vision, International Brotherhood of Teamsters (New York, NY) Make Up Artists and Hair Stylists, Local 706 (Hollywood, CA) Producers Guild of America Writers Guild of America Independent Television Stations Cox Communications, Inc. Golden West TV, Inc. KGMC (Oklahoma City, OK) KJTV (Amarillo, TX) Koplar Communications, Inc. (K PLR, St. Louis, MO; KRBK, Sacramento, CA) (continued) PAGENO="0907" Independent Television Stations (cont'd) KTRV (Nampa, ID) Meredith Corp. Metromedia Corp. Pappas Telecasting, Inc. (KMPH, Vi- salia/Fresno, CA; WHNS, Asheville, NC) Roadrunner TV & Galaxy, et al. Taft Broadcasting Co. Teleco Indiana, Inc. Tribune Co. Broadcasting, Inc. (WPIX, New York, NY; WGN, Chicago, IL; WKGN, Denver, CO) Television Corporation Stations (WTVZ, Norfolk, VA; WRLH, Richmond, VA; WJTM, Winston-Salem, NC; WMKW, Memphis, TN) Viacom International, Inc. WDRB-TV (Louisville, KY) WPTY-TV (Memphis, TN) WXXA (Albany, NY) Producers Alan Enterprises, Inc. AIlwhit, Inc. Bud Austin Productions, Inc. Phillip Barry Productions Barry & Enright Productions, et al. Brandman Productions, Inc. Carsey-Werner Co. Public Interest/Consumer Gro~ps Center for Non-Broadcast Television Centro de Comunicacion Oblato American Association of University Women The Dick Clark Co., Inc. American Business Media Council Compass Productions, Inc. American Civil Liberties Union Comworld Productions Association of Community Organizations Columbia Pictures Industries, et al. for Reform Now E.C. Productions, Inc. Association of Mexican-American Educa- Embassy Communications and Tandem tors Productions, Inc. CAFE de California Flipper Animation Filmmakers Corp. Center for Population Options Fremantle International, Inc. Chicago Consumer Coalition Charles Fries Productions Citizens Committee on the Media (Chicago, Gilson International IL) Samuel Goldwyn Co. Citizens Communications Center Goodson -Todman Productions Committee for Community Access (Boston, Hispanic Telecommunications Network MA) Alan Landsburg Productions Congress Watch Bruce Lansbury Productions, Inc. Consumer Federation of California Lilac Productions Cooperative League of the U.S.A. Lorimar Productions Fairfax Cable Association Mandelu Enterprises, Inc. Grey Panther Media Watch Communications MCA, Inc. Maryland Citizens Consumer Council MGM/UA Entertainment Co. Media Access Project MTM Enterprises, Inc. Media Alliance (San Francisco, CA) Motion Picture Association of America Montanans for Quality Television (Missoula, New Citizen Productions MT) David Paradine Television, Inc. National Association for Better Broadcast- Paramount Pictures Corp. ing Penthouse Presentations, Inc. (continued) Polygram TV 905 Public Interest/Consumer Gr~2~ (cont'd) National Coalition on Television Violence New Jersey Coalition for Fair Broadcast- ing New York Citizens Committee for Respon- sible Media New York SANE Peace Council North Carolina Consumers Council People for the American Way Seattle Consumer Action Network Urban Elderly Coalition WNCN Listeners Guild, Inc. (continued) PAGENO="0908" Producers (cont'd) Public Media Center Rattlesnake Productions, Inc. Roach Studios, Inc. Rohrs TV, Inc. Mark Santo (Arnold Shapiro Productions) D.L. Taffner, Ltd. Viacom Productions, Inc. Walt Disney Productions Warner Communications, Inc. Washington Area Film and Video League Worldvision Enterprises, Inc. Jose Luis Sedano (Mestizo Production As- sociates) Religious Organizations Council for American Indian Ministries Council of Churches of the City of New York National Council of Churches of Cht~ist in the U.S.A., Communications Com- mission New Jersey Council of Churches United Church of Christ U.S. Catholic Conference, Department of Communication ~ypdicators /Distributors Alcare Communications, Inc. All American Television Andrews and Associates Association of Catholic Television and Radio Syndicators Black Entertainment Television Colbert Television Sales Crystal Entertainment Corp. Gilson International Henry Jaffe Enterprises, Inc. Lexington Broadcast Services Co. Paulist Productions Syndicast Services Telefilm Sales II Telepictures Corp. Teleworld, Inc. Turner Broadcasting Victory Television Wolferz Associates Other Organizations Eastern Group Publications, Inc. Katz Television MMT Sales Olvera Street Merchants Lynn Pleshette Station Representatives Association, Inc. TELEREP 906 6/20/83 PAGENO="0909" 907 A Division ol 3000 WeS A1ameda Avenue Nation& Broacicaslng Company. Inc Buroani. CA 91523 213.840-3453 Brandon Tartilcoll President June 24, 1983 The Honorable State Capitol Sacramento, CA 98415 Re: Senate Joint Resolution No. 26 Dear Senator - it has come to my attention that Senator Rosenthal has proposed Senate Joint kesolutiOfl No. 26, re- questing that the President and Congress enact H.R. 2250, now pending before Congress, which would prohibit the Federal Communications Commission from repealing the Financial Interest, Syndication and Primetime Access Rules for five years. NBC is opposed to SJR 26, and would like to send appropriate spokespeople to be heard by the Senate and Assembly committees which will consider the bill. NBC feels that the underlying assumptions of SJR 26 are erroneous, and that neither the Joint Resolution nor fl.R. 2250 should be enacted. SJR 26 is premised, in part, on the proposition that the Financial Interest and Syndication Rules "have protected the public interest and have encouraged di- versity and competition within the production commun- ity". Nothing could be further from the truth. The fact is that, since the rules were imposed, a handful of the major Hollywood production studies have come to dominate network primetime series production and the syndication of off-network programming. As of 1982, six of the leading eight firms in the syndication business were Paramount, 20th Century-Fox, Columbia, ZICA, Warner Bros. and NGM/UA. These firms also dominate the market for network programming, which is the major source of syndicated programming. Since the rules were adopted, the major producers share of network primetime series programming has in- creased substantially, to the exclusion of smaller and newer producers. PAGENO="0910" 908 Page Two. SJR 26 is also premised on the fact that "netwc(k affiliated stations have consistently opposed repeal of the Primetime Access Rule which is addressed by B.R. 2250". The inclusion of the Primetime Access Rule by the authors of H.R. 2250 creates a non-issue. The fact is that the FCC is not considering any change whatsoever in the Primetime Access Rule, and NBC has made it absolutely clear that it does not seek and is not proposing a change to the Primetime Access Rule. Thus, the only issue facing the FCC, and the only issue relevant to SJR 26, is the repeal of the `Finan- cial Interest and Syndication Rules. Every governmen- tal agency which has considered the question agrees that the Financial Interest and Syndication Rules are outmoded and anti-competitive, and should be repealed. This includes the Department of Justice, the Department of Commerce, the Federal Trade Commission and the FCC's Network Inquiry Special Staff. The Rules make it im- possible for the television networks, the major source of free, over-the-air television, to compete freely and fairly with pay television in acquiring programs. The fast-growing pay television industry already outbids the free television networks for popular movies and sporting events and, increasingly, pay television is going after series programming. If the free television networks cannot compete, then the public will be the loser because, in the near future, most of these pro- grains will be available only to those who can afford pay television. The victims, of course, will be the poor, the elderly and the infirm, many of whom depend on free television as their primary source of enter- tainment. NBC strongly urges you to consider the implications of SJR 26 before you vote for its passage. We hope that you will take the time to read the attached materials, which will give you some additional i~easons for re- pealing the Financial Interest and Syndication Rules. NBC will present these and other arguments in greater detail at the hearings which will be held. on SJR 26. Thank you very much. Sincerely, Brandon Tartikoff PAGENO="0911" 909 p J.\L! ~ CBS T~5"~or~ Stat tYit A ~ o' C)~ 6121 Su~o~ B~ut~~a't~ Los A~oe~es C to~a S0025 (213)4503421 James S SenseS Vjce Pesa,rst, Genera) Mana~n' Dear Senator July 6, 1983 This letter is to oppose in the strongest possible terms the adoption of Senate Joint Resolution No~ 26. Repeal of the financial interest and syndication rules will serve the public interest and will not be a~dvers e to the i it er es ts of Cal if orni a A mor at on tin on F CC consideration of repealing the rules is simply not justified by any substantive or procedural concern. The FCC adopted the rules in 1970, but the rules have been under criti ci ss vi rtua'lly since they were adopted by econocni c scholars, teleccnmunications experts, industry practitioners and now the departments and aoencies of goverrrnent. In the mid-1970's the Brookings Institution conducted an extensive analysis of the rules and concluded that they were unjustified and ineffective and should be repealed. In the late 1970's Congress appropriated funds for a special FCC study of the rules. That study 1 asted two years, cost millions of dollars, collected massive amounts of evidence and concluded unequivocally that the rules were unfounded, ill-conceived and counter-productive and should be repealed. Recently, the Departments of Ccrnrnerce and Justice and the Federal Trade CaiimissiOn conducted extensive, independent investigations of the practical effects of the rules. All concluded that the rules were unwarranted and should be repealed. After years of examination, and debate, the overwhelming weight of expert opinion is that the rules should be repealed. The State of California should not support congressional action which would prevent the FCC frau acting on the record of expert opinion before it. Senate Joint Resolution No. 26 is predicated on a number of assertions which are inaccurate. In the interests of presenting the Senate with a bal anced view of the i ssues involved in repeal of the rules, I would like to coni'nent individually on several of those assertions. The. assertion that "These rules ~have Erot he p~Uc~_~~a ~ encoura d diversit and can etition within the roduction ccrrinunit is no rue. sing a a compi e y e coa u ion o pro ucers an syndicators urging retention of the rules, it is clear that the supply of prime time entertairrnent series to the three major networks has decreased in diversity and, accordingly, the industry has beccrne more concentrated and less competitive. (See Chart 1 attached.) As the Department of Justice concluded in its filing with the FCC: "In sum, the Department believes the current rules do not increase the diversity of prograoming supplied to the networks. The production market is competitive and the networks' position as arbiters of the common taste is unchanged. In our vie~, proponents of the rule have failed to justify retenti on of the rules on `diversity' grounds ." 32-540 O-84--58 PAGENO="0912" 910 July 6, 1983 Page 2 Indeed, sound arguments have been advanced that repeal of the rules will actually increase diversity and ccxnpetitiofl by providing addi ti onal sources of ii nanci ng to so all, ri sk- averse producers and by permitting networks to participate in the production of first-run syndi cati on progranmi ng. For exampl e, the CBS Owned stati on in Philadelphia, WCAU-TV, produced two 18-part children's dramatic series entitled "Candy Apple News" and "Star Stuff." Hc~iever, an inability to cover costs through regional syndication prompted WC~U-TV to curtail the series In favor of less costly programming. The st atanent that "These FCC r4e~ ..were ~ i~~~tu~d ~ concluded that the ublic interest re uires limitation of network contro an an increase in the opportunity or ey~9~~9t ~ independent sources of prime time roqrallmin " is misleading. First, it is clear fran the history of the origina rulanaking that the Commission's concerns were mostly prospective and that the rules were adopted as a prophylactic measure to ensure that, in the future, networks were not in a position to act anti_competitively. In recorrinending that the rules be repealed, the special FCC staff noted that the Commission's conceT~ns when the rules were adopted proved to be unfounded because competition in the telecomunicationS marketplace gr~ at an unexpected pace, acting as a natural curb on any anti- competitive conduct by any player in that marketplace. Second, the concensus of experts who have studied the rules is that they have not achieved their intended result. As the Departiirent of Ccmiierce found: "Contrary to its intent, the rule appears to have stabilized or increased concentration in the program supply industry by making it more difficult for unknown independent producers to find partners with which to share their risks." "These financial interest s dication and rime time access rules rovi e rerun ri ts to ro ucers ena in t an to increase revenue and inde endence and roduce tru innovative ro rairs." After extensive investigation the epartment of ustice conc uded that this was not true: "There is no evidence that the rules have increased the profitability of producers." And after similar inquiry and analysis the Federal Trade Ccnimission totally rejected the argument: "...sane conmentators have suggested that repeal of'the rule will lead to decreased supplier profitability which, in turn, will reduce the amount of innovative programming which is produced. This prediction, however, does not withstand economic scrutiny. Even if the rule has had the effect of increasing supplier profitability, it is extremely unlikely that continuation of the rule would promote innovative programming developments. If innovative programs are profitable to produce, then there is a reasonable expectation that such programs will be produced. If such programming is not profitable, by contrast, it Is unlikely that stockholders of Gulf-Western (Paramount) or MCA (Universal) would assent to reinvesting those profits fran successful programs in programs that promise to be less lucrative than other programming ventures." PAGENO="0913" 911 July 6, 1983 Page 3 The assertion that "The FCC is resentl considerin the re a) of the financial interest, s dication and rime time access ru es at t e re uest of the networks that dominate the te evi sion industr " is inaccurate, he FCC is considering repeal of the ru es because a 2-year FCC speci al staff study recommended the Ccmmi ssi on repeal the rules. Further, the position of the networks in the progran supply marketplace must be clarified for the record. Before the rules were adopted the networks accounted for approximately 75% of television progran purchases. Today, networks account for approximately 50% of television progran purchases. The asserti on that "The nati on' s network aff ii iated stati ons have ~ prime time access rule. However, the Chairman of the FCC has stated emphatically that the prime time access rule has nothing to do with the current proceeding considering the financial interest rule. As a result, the affiliate associations of' all three television networks have supported repeal of the financial interest and syndication rules and would accordi ngly oppose H. R. 2250. SJR 26 lists sane of the groups who would be expected to oppose repeal of the rules. Attached is a list of sane groups who ~ypp~t repeal of the rules. You will see that they include minority, religious, senior citizen, labor and other groups. Support for repeal is, indeed, broad-based. As the foregoing indicates, the resolution eiibodied in Senate Joint Resolution No. 26 simply does not rest on a sound foundation. We urge that it not be passed. Sincerely, The Honorable State Capitol Sacranento, California 95814 Enclosure PAGENO="0914" 912 ABC ABC TV Affiliates Assoc. Abel 1 CcxTnuni cati ons, Bal timore, Maryl and Alfred E. Kahn & Robert Julius Thorne Anal gam~ted Clothing and Textile Workers Union American Association of Hones for the Aging American. Family Corporation American Federation of Grain Millers American GI Fortin of the United States Association of National Advertisers Atenu Luso Americano Black Citizens for Fair Media Buena Vista Cablevision Buford TV, Inc. Busby, Finch, Lathom & Wi~nan ~BS Inc. Caballero Spanish Media, Inc. Carriere, Joseph A., KBJM-TV, New Mexico Carter, Richard W. Cedar Rapids TV Co. Central Minnesota Television Co. Chronicle Broadcasting Co. Coalition of Labor Union Wanen Commissioners, Broward County, Florida Congressional Hispanic Caucus Congressman Claude Pepper, Florida Congressman John Myers, mdi ana Connecti cut Broadcasters Associ ati ons Cosmos Broadcasting Corp. Cowles Conrnunications, Inc. Daily Telegraph Printing Co. Eagle Coomunications, Inc. Fort Meyers Broadcasting Co. Forward Coirmunications Corp. Gannett Broadcasting Group Garryowen Corporation Gateway Ccinmunications, Inc. Gilmore Broadcasting Corp. Greater Washington Ibero-Ameri can Chamber of Commerce Gross Telecasting, Inc. Guaranty Broadcasting Corp. Gulf Coast Broadcasting Co., Corpus Christi, Texas Guy Gannett Broadcasting Services Harron Coninunications Corp. Hearst Corporati on IATSE-Local 1 IBEW-Local 1430, New York, New York Intern atial Longs horonen' s Associ ati on International Union of Elec., Radio and Machine Workers PAGENO="0915" 913 KARK-TV, Little Rock, Arkansas KBIM-TV, Roswell, New Mexico KCBT-TV, Harlingen, Texas KCEN-TV, Waco, Texas KCRL-TV, Reno, Nevada KFBM-TV, San Diego, California, et al. KID Bro~dcasting Corporation KIEM-TV, Eureka, California KJAC-TV, Port Arthur, Texas KNOP-TV, North Platte, Nebraska KOBC-TV, El Paso, Texas KOLR-TV, Springfield, Mississippi KQTV, St. Joseçk~, Missouri KRBC-TV, Abilene, Texas, KACB-TV, San Angelo, Texas KRCG-TV, Jeff erson City, Missouri KTTC-TV, Rochester, Minnesota KTVC, Dodge City, Kansas KTVL-TV, Medford, Oregon KVDP-TV, Tucson, Arizona KWTV-TV, Oklahoma City, Oklahoma KZTV, Corpus Christi, Texas King Broadcasting Co. La Raza National Lawyers Association League of United Latin American Citizens Lee Enterprises, Inc. Loyola University, New Orleans & The Abellor Corp. Maine Broadcasting Systom Mexi can Amen can Opportunity Foundati on Midcontinent Broadcasting Co. Mount Mansfield TV, Inc. tBC NBC TV Affiliates NOE Enterprises, Inc. NWG Broadcasting Co. NY State Department of Corrrnerce National Black Media Coalition National Coalition of Hispanic Mental Health, et al. National Congress of American Indians National Council of La Raza National Council of Negro Wanen, Inc. National Hispanic Arts Endowi~ent National Urban Indian Council Nicolas and Barrera Northern TV, Inc~ Palmer Coarnunications, Inc. Portal Ccrnrnunications, Inc. Presbyterian Church in the United States Rural American Wcmen, Inc. PAGENO="0916" 914 SER-Jobs for Progress Inc Santiago Raquelle Scuro Vincent Shooshan & Jackson, Inc Sierra Cascade Communications Springfield Television Corp State Of Illinois The Chicago Coalition The Church of Jesus Christ Latter-Day Saints The Evening News Association United States Department of Commerce United States Department of Justice United Communications Corp United Marine Div International Longshoromen'S Association AFL-CIO United Rubber Cork, Linoleuu & Plastic Workers of America Vega Francisco M Hispanic Republicans of Michigan Inc WBBH-TV, Fort Myers, Florida WBOC-TV Salisbury Maryland WcBi-TV WBOY-TV KDUB-TV Columbus Mississippi WCTV, Thomasville, Tallahasee, Florida WCYB-TV Bristol Virginia WGEMTV Quincy Illinois WHMA-TV Anniston Alabama WJCS-TV Springfield Illinois WICU-TV Erie Pennsylvania WKJG-TV Fort Wayne mdi ana WKRG-TV Inc WKYT-TV Lexington Kentucky WLTX-TV Columbia South Carolina WO~&-TV Florence Alabama WRBL Columbus Georgia KRBT-TV, Baton Rouge, Louisiana WSLA-TV, Selma, Alabama WSLS-TV, Roanoke, Virginia ~*ffWO-TV Terre Haute mdi ana WVVA-TV, Bluefield West Virginia Wichita Falls Telecasters II Winnebago TV Corp & Plains Televi sion Partnership Wyneco Corimunications Inc (KYCU KSTF KTYS) Ziff-Davis Broadcasting Co PAGENO="0917" Midare pronounces netoiorks heoltny~ 7;:' i, ``1'! sins fdriwcio P~esidrnl Toni'fdaia:a said 102 Thn:coxv f-Jr coo a Idea' Ençnnnd Eroudcastmf Association meeroig ic boston r.hattheresa `haiorai cap on the extent is whichcanicpesetio Lion can goon' "Station execntiven sfionld beconcerneil anon: audience erosion. lienaid. bnithalproblemis `roanagrabie. not likely to connone at no present rate and ynur mast important target audiences are the leant affected MaJa.ca expanded on that pmnt toBso,sor:us'rvirn Ifenaidthe audience segment least affected by cable is the 2554-year-old demographic c-loch he said has the mont dispmable income and doesa dinpropornon' aie share of me tarring I-ic derended CBS n new pohc,v o)nw giving adrernners demographic guarantees on their buys (Boo,sncAsnlNo. Ictay 23) by calling it `fealty cram" to take in money only to bare to pay ii out again i-fe said his mum challenge into linda wIno pace eprodnct tnmakeir attractive to all aocernsers, an matter how the:- fiance their Costa in his Boston talk. he said the three networkss catingv as far ABCis sharplyeeducingnumberof hoursof mini'ser,es dutttio 1983' thin yea' are up four-tooths of a paint while their share is 84 season, pnmardy toaceommodatesportsand specialeenri'ts ~ holding at last years level lie said HBD ratings ace qechning etage on network, according to Brandon Stoddard ptesident of and that the 35 basic cable seni'ivev cohecrive audience repre- ABC Motion Pictures Stoddard told television rellorters hi Los senrs only a 1 4 roring Cahlenimpast will wane in the future Angeles last Thursday (June 16) Mystic Warnorand TheLast Days he said, because its prime growth will be in mojsr cities where of Pompeii will be longest programs no rsmi-setieo slate, tormer sreong independent and subdci'iptisn television already corn scheduledfor hve hours aodfattet posoibfy longer Thiodlong-form pare with the nerworks "Viewers don't choose techootogy, project, The Day After Tcrnity, has been reduced tn two and a half they choose programs." Malifd'BlfTB~5hiii&hdlng that the irbT hours and slated for this season, possthly airing or October. Stod' : tsidf'lW"~7ogoaioiirig eypecience and resources cannot be daid said ABC hon no current plans to repent Winds of War or matched Thorn Birds, its highly rated mist-series from last season. butts - cossidering rerun of Masoda. Stu Samuels, ABC s vice presideot for novels, limited series arid motion pictures for television, said mill be reconsidered if. as result of DBS plan ultimately adopted, network iv scheduling about 25 movies f or television thrs season any country is accorded less tfian four "satisfactory channels." (up slightly from the 1882-83 seoson( to rsclude Cash Grande Otherwise, cosfetenve activity was concerned largely with nrga- (starring Robert Mitchum) and The Dollmakec starring Jane niaatinnul mutters Mexican, Luro Valencia, was unopposed for Fonda) lltoddard said ABC iv currently negotiating with Para' electron as chairman of conference, and U S delegation head, mount Television regardIng possible sequel to Winds of War Abbott Washburn, was one of three vice chairmen named Others based on Herman Wosh's follow-up novel, "War and Remem- were Cuban and Argestinian brasce" "We hoØv to do this project," Stoddard told reporterS, 0 Heritage Coestousic,atians Inc., Des Mcones, Iowa-based MSO, has ta L 01 we 01 H y d N h I Cl y St dd d ~° h lb if fist I d CM Co p 62 000 b y dm qt5 d Tb D gAfteT Y y th mt Ip hI if b I ly tp tfrgu tab t$5Omll n F d f put film we've ever dnne" that "deals,visth an entremely important chase were tamed by ltgitted partnerohrp offertng throsgh 6 F possible event" Movie for tefev n wilt be completed next Hutton add bash borrowIngs. Seller is owned by brothers, Gerald, month, at reported cost of mote tl~~ $6 milk with 291,641 basic subscribers Indiana Cablevision passes ABC Teleefsfon President John Seserino would neither nentirtn ~- 120,800 homes Daniels & Assoctateo brokered sale deny published reports that Entertainment Division President An. 0 thonyD.Thomopoutoswouldsoonbe esitinghispost, tobesucceed- Actfon for Chftdrens `I'eteeision, I'fewtonville, Mass, along with ecf bydtvtston s wee presrdest for prime time programing, Low California pub5c interestlawlirm, Pubfic Advocates Inc has asked ABC In Pt in w if lyp ph aff d by FCC t lh tech t gy h w Id mlr p ibl test h t Th m p f 0 m os p if t f diem d 1 g ly w to mm 0t ~ ~ I d b) ACT pa bI f no e th p 1 y T yho ~ cc dbl I q I ItS b if if I rymp coax old ytnthlut f ABC Ash tdt ilyd all mm if cc g ci r~°at hId Th ACT tb through fall season, Sevenno replied "I don't know." parents could attach to television set to automatically block out 0 commercials ..."Parents who choose to will soon be able to weed U.S. delegation Ii, Western Hemisphere conlereece in Geneva on out those mesnages with the aid of an inexpensive attachment to direct broadcast satellite service was left at end of Oust week on the TV set." ACT Piesudent Peggy Charren noted, `For yearn. Friday with two teoubteseme issues to think about over weekend broadcasters have been stoughing off their rospossibulty for doecr- One wusfatlurethaslarto rearbagreenrentw'dhCasadaostecbeiCal mg ado to young audiences. claiming that it's the reoponvibulity rf parameter's each b ptoposmg for 050 systems Two sides were to parents to monitor their children's viewing. The technology is at csntmue working ovet v'eehvsd, as thcy faced Monday deadline hand to do that ettectivefy, nod 1 s up to the FCC so give porevt.n for Ming DBS requttements Other ivsuv involves bne robe used lot the chance dieidfng 12,1.12.3 afro betmeen fined s,atetfile and DII 5 n.oevices, D Planning committee on Thursday recommended to plenary san' Weld C.etnwaotcations suboidary of Robert Wolf Co. wsll star: sron that tine be at 12 2123 ghz set aside for DBS U S had traosmiOiisg rio satsli.te Lion cenorage of FCC open nteelings nb:: proposed that division But committee added quafifier Dtvtsion mg J,tne 23. Ar',yooo interetied us receivuvg Iced s from Woud 915 Fioistsn Purioa Cu, p,:~ t:,;o Iirst kuyee ol eetrnerk pregrarus Inn 16) Ic: tkb3-b4 season Major uplroc: buys were maoo' lot Foo:oior. thrcugh Paul Schuimuc Co - New York division of Gardser Adver tuning. llt Louis MaloI commitments are on ABCs Dyonsty, 20 20, Hart te Had, Hold and Weboior "a sleeper hit." accorduoll to Schulman), no CBS's 60 Minutes. Dallas, Alice. Magnum P.1 and Scarecrow and Mrs Krog("a hot"(, and on NBC'nA Team. Reming- ton Sceele, Cheecn, Hill Street Blues and YellowRosel"besi cantos telewsron"( Schulman said pricing is "nery lair" but iferboed to drvslge specukcs and noted that negotiations were "tosgh bit ran smootMy." F.L Zingale. media conumurocatloos director for Ral- ston Purina upon his return from busineso Dip tO New York, said company was "close in hnmshing" burys. He woslifn't say how much company ms spesding, but noted it was "not a tremendous change' over last season Ralston Purina tnvested more than 182 mithon th network television or 1982, according to Television Bu' roan of Advertising Atari and Chesebrough.Ponds are also report- ed to have sal ball rolling and submitted plans to networks last week E. 104 PAGENO="0918" ~~S1~A ~ 916 __________________ F: ~ ~c~ftJtJD ~E~3 VoL 105 No. 3 / Upfront buying: The bubble breaks at last Buyers finally stopped sweating the key factor in the sudden surge in upfront omy as an incentive spumng early and the sellers out last week as activity was agency realization that the pric- strong sales. He also cited reports that appli- orders for network placements ing had reached a level that advertisers con- ance sales are on the rebound-purchases mounted at NBC and ABC; sidered acceptable. Keever estimated that that usually occur when consumers have cx- CBS still playing it close price increases were in the 10% to 14% tea money to spend. to the vest; daytime neat range. As for total upfront purchasing by the According to Keever, ABC-TV has more three networks, Btackmore estimated that The upfront baying season, pent up since the than 45 advertisers in the fold (with ordersor this year it would hit $1.9 billion, up from July 4 holiday, finally burst open last week "on hold"), including Ralston Parina (signed the $1.7 billion total of last year. By early with activity described as "strong" and cost- last month), Pfizer, iC. Pauney, Quaker this week Blackmore estimated already $1.3 per-thousand average increases reported is Oats, Helene Curtis, Krufi, AT&T, Mazda, billion in advertising woatd be committed in the 10% to 14% range. Colgate-Palmolive, Coleco, Revlon, Ameri- upfront purchases to the networks. Network salesman and agency buyers- can Motors, ColambiaPictures, Papsicoand He declined to identify who was baying, formerly at odds on pricing-in many cases Wrigley's. bat indicated big spenders were the informtr seemed to have reached compromises last "And now the upfront daytime is starting tion, communication, financial and phone week. So far, network sales executives re- to perk," Keever said, "I think all network service companies. Also high on the list are port, the flurry is'ahead of last year's. TV is strong-alive and well." theatricals, fast food and beverage and aUto- H. Weller (Jake) Keever, vice president, NBC is "heading into the $500 million motives, which "all appear 10 be up." He TV network sales, ABC-TV, said the sales area," reported Bob Blackmore, NBC senior described the activity as "very close to last explosion erupted when agencies decided vice president, sales. As of late last week, he year's paco... We're in good shape." that the time and prices were right. He noted said, NBC had signed up about 60 adver- CBS-TVofficials do not discuss sates per that many of his salesman and associatell users. He described itas a "double digit mar- gress as a matter of policy, bat word from personnel worked until I am. to organize ketptace." and looked to having three-quar- other sources-including competing net- the details of the orders. tees of the upfront season sold by the end of works-was that CBS was sharing in the Keever said the sates pace now is torrid, last week. prottferating sates. One agency executive Counting orders and plans "on hold" (orders Although traditionally about 50% to 70% estimated Friday that CBS had written $350 requiring only advertiser approval), ABC- of a network's commercial inventory is sold million to $400 million in upfront business. TV had about $450 million in upfront sales through upfront sales, Blackmore noled,this A high CBS source would not talk figures as of Friday (July 15) morning. year "people are looking in the 60% to 65% but said the market had become "very ac- "ByJuly 15 of last year, we had only $149 range." In general, he observed, upfront nyc" and "everybody here is very excited million," Keever volunteered. "That's an buying is running a "couple of weeks ahead about what'shappening." Jerry Dominus, idea of how quickly sales are moving." this year." CBS-TV sales vice president, said. `We Keever expressed the view that perhaps Blackmore pointed to the improved econ- think yesterday [Thursday, July l4[ was the 23 Morebullish Ihan ever. Total media udvertisivg eopendiiures are eopecied to increase 11% ihis yearover 1982 and hit nearly $74 billion, greaterthanthe protected 8% increase in gross national product. This estimate came from Robert J. Coon, senior vice president. McCann- Erickson, iou briefing for analysts and business press in New York last week Coen revised upward his December 1982 estimute of 9.2% because "the aconomic recovery has arrived sooner than eopected and it has been accompanied by a cleat improvement in advertising spending, particularly by retailers and for classified newspaper iisting,' he naid. Coon said rietworkielevision advertising tevenuesforthefirstfive months sf1983 were up an average of 11% over 1982 with NBC panting he largesf gain 8118%: ABC was second at 11%. and CBSwasthird at 4%. Spottelevision advertising increased 10% in the first quarter of 1983. he said. and is eopected to rise 8.5% for the whole year. First-quarter 1985 spot television safes also posted gains over network television sales, Coos reported, intouroulof sevenlop productcafegories. fnlhe candy/soft drink category spotlVadvertising increased 25%inthetirsf quartetotthisyear.while networkadvertising in thatcalegory decreased 5%. The cleaners/wanes category showed a 52% increase on spot `t'4 comparedlo 12%for network. Automobiles, however. posted a 33% increase on neiwork versus an 8% increase in spot. CoonS outlook for 1983 included an 8.5% increase in spot TVadvertising to $4.73 billion; 11% increase in networkTVadverbsingto$6.895 billion; 11% increase in magazine advertis- ing to $4.12 billion: 8% increase in nulionol newspaper advertising to $2.65 billion; 20% increase in network radio to $305 million and 9% in spot radio to $1 billion. PAGENO="0919" 917 biggest [nales]day in ourlnistory We're right to demonstrate their dispteasure, are consid- on tatget." ering buying time on onty two networks. Butthe ageectes appearlest sanguinrthan The networks appearto have responded to the networks. Negotiations were described thepressare. Buyers at the othermajor agen- as "much tougher" than previous years, and rica report increases in the low doabte dig- the tones of reports often hinted at strain, its. "At this point it appears the networks are Robert (Back) Buchanan, executive vice more reatisttc this year than tast," said one. president and U.S. media directorof,l. Wat- Although some advertising agencies are tsr ThompsonlUSA, confirmed the upfront predicting a dire future for network televi- season opened taut week bat noted adver- nion, ABC-T\~ for one, is jubilant over ad- 05cm are "restating the increasen." He said vertising prospects. It's undeestood that for advertisers are increasingly considering oth. l9~3-g4, ABC-TV already is coasting on er media considerations. $1.2 billion including upt'ront prime time "No, we're not going to pay the 15% to ($450 million), nummer and winter Otym- 20% [as) the networks Were originally ask- pica ($600 million and 96% sold) and the ing," Buchanan said. Advertisers, he said, remainder for World Series and Monday Night Faatbait. ABC-TV's second quarter reportedly finished up with results second only to the ftrst qaarterof this year-despite agency critics who were pointing to a slug- gish second quarter in daytime, the second quarter was the best in ABC-TV history According to one agency buyer, NBC set the events in motion by taking a "very ag- gressive" position early in the week. The rent of the week, he noted, ABC and CBS tpent "aggressively trying to catch up." An- other buyer said he has actually, in some eases, seen "C-P.M's go down from last year," but in other instances has seen them rise. He called the puoemn of events unfold- ing last week "kinky, weird." 0 PAGENO="0920" 918 At the FCC'S oral arguments on the Financial Interest and Syn~dication Rules on March 14, there was a particularly interesting exchange anonig Commissioners Dawson, Jones & Rivera and Chairnan Fowler commenting on statements by several public interest representatives who express concern over the potential demise of free television and, therefore, the need to repeal the rules. Participants in this panel were: Favoring repeal Pluria Marshall, National Black Media Coaltion William Hutton, National Council of Senior Citizens Bill Guilford, COrnma/OCC Media Department Emma Bowen, Black Citizens for Fair Media Bill Juie, Office of Media Communication for Presbyterian Church in the U.S. Peter Bommarito, United Rubber, Cork, Linoleum and Plastic Workers of America Opposing Repeal Joseph Waz, Committee Against Network Monopoly Mary Ledding, Women in Film Samuel Simon, Telecommunications Research & Action Center A transcript of the exdhange among the commissioners follows: PAGENO="0921" 919 Commissioner Dawson - I'm absolutely astounded by the amount of education that must have gone on to get this group together to talk about the immediate demise of the three networks. I'm just astounded. I mean the scare tactics we have seen today are rather frightening. And the networks themselves talk about having a dominate position into 1990. If they're going to be in new technologies their competitors are going to be themselves. I didn't come here to take sides one way or the other in this issue. I'm here to learn from you, but I'm concerned in terms of the information that has been given out on this subject matter. Unless the information that I have on this subject is totally wrong and what we have been doing in all the new services and what I know to be the financial viability of the new technologies and how long it takes to launch them and who the major investors are likely to be there's some very wrong information going around here today,and I would urge everyone here to look further into these questions. Commissioner Jones - I would think even some of the comments by network executives today would allay alot of the fears that are expressed by this group. I admire Commissioner Dawson for raising it. I think someone has been doing a hard sell in the guise perhaps of an educational program. I think there is more fear than there need be. PAGENO="0922" 920 -2- Commissioner Fowler - I think though that just to state the other side and just compare we heard many of the CPD people talking about the dominance of the networks we've heard that all day too and I think that dominance may be -- there are different ways of defixiing dominarce. Looking at the nap over here, where NBC reaching 68 million TV homes each week, ABC 69 and I think CBS is something like 71 and some would say that that dominance is another word for efficiency. Efficiency means that you provide services to people at the lowest cost and the highest quality and some would say that the networks with that dominance actually have served the peoole, poor people, median income people and yes wealthy people very, very well over the years. And I think what they're saying here is that some of then are very concerned at the lower end and Mr. Stigler the noted economist makes the point that when you're talking about large entities that are very efficient such as automobile makers or in this case the networks and efficiencies are dominance the poor may be the ones that lose the most if you either eliminate those efficiencies or through regulation preclude them from being as efficient as they could be because that translates into a lower quality of service or higher prices. And I think therefore what I'm picking up from some of these people here is not scare tactics but simply an honest concern on their part. We may or may not agree with that and that's up to us to evaluate that. But I think we do a diservice if we say that they're being used necessarily as tools for their scare tactics and I think we ought to be careful of that... PAGENO="0923" 921 -3- Commissioner Dawson - I didn't call them tools. Commissioner Fowler - I'm not saying that you said that, but I'm just saying that we need to be careful the other way too. I think it's valid of you to bring that point up, but I just wanted to state the other side.. I don't want then to think that we're just brushing off what they're saying. . Commissioner Dawson - Well, I'm rather concerned about what they're saying. I'm very concerned by what they're saying. I think that reasonable people can differ over what network dominance is, what exists and whether we are not intruding ourselves into a marketplace situation, but I'm concerned about the suggestion that the demise of over the year free television is before us and I think sugaesting that is a much stronger statement than the economic argument about what is dominance and what a relevant market is. .1 think that's a much Commissioner Rivera - I agree and I think that that's way Mr. Simon's points were very well taken if we uncover in this proceeding that the free television system as we know it is about to collapse then we should institute a proceeding to look into that. ComisSioner Jones - I think that's the message I would want to give you too. I really don't think that you should sit here or leave here with the feeling that we are not mindful of your concerns. I think that what we're saying is we don't think that that is necessarily involved in this proceeding and as Commissioner Quello said the day that we see that as a real threat will be the day that a lot of us will be very concerned. We're not dismissing it, and we don't really think it's involved here and we don't want you to be concerned whatever action we take, that that's going to deprive you of free, over-the-air television. Commissioner Dawson - Absolutely. PAGENO="0924" 922 Mr. WIRTH. Thank you, Mr. Waz. I could not agree with you more in the final statement you made about the priorities of the FCC. The gentleman from Iowa earlier cited the emphasis by some on the subcommittee to the question of diversity and some of us have also encouraged competition, figuring that is the best way to govern the marketplace. It is strange to me that such enormous time and effort is spent while low-power television languishes, as you point out, the fear of competition in radio seems to dominate. It is extraordinary to me, but I think that points up one of the reasons why we are here. Let me ask you, if I might, why do you think that the networks are pushing this so hard? That may seem like a simple question. One answer might be that they would think there would be better programing available in prime time if they were responsible for that. That is one possible answer, isn't it? But presumably, that is not an answer, because they are not using all of their prime time pro- graming anyway, as they suggested in the earlier panel. Is there any debate on that? That is not the reason they are pushing that? Mr. HARGROvE. I think the reason they are interested in this issue is because it will enhance their profits. There isn't any ques- tion about that. But it is the hope of local television stations, specif- ically affiliated stations, that those profits will ultimately be re- flected in better programing. The concern that local stations have is that with all the new technologies available to siphon off funds, talent, resources, that if you encumber the over-the-year distribution system with this kind of constraint, artificial constraint, that the networks will be tempt- ed to divert their resources into producing programming for the non-over-the-year system and that-let me say, Mr. Chairman, the ABC affiliates spend most of their time at war with ABC. One of my responsibilities is to make sure that the network deals fairly with its affiliates and those are the kind of confrontations we have as an affiliate body. The affiliate body spends a considerable amount of time looking at this issue. I might add that its initial reaction was, if anything, was hostile to repeal of the rule, but the more the affiliates learned of the sub- leties of how programs are produced, sold, marketed and distribut- ed, the more they became concerned that artificial regulations such as these that impair the networks' ability to maximize its profits in the programing it acquires will ultimately be reflected in an inferi- or product. Mr. WIRmi. Wouldn't that same argument hold for repealing the prime time access rule? Mr. HARGROVE. No. The FCC has not proposed to repeal the prime time access rule so it is not in issue. But let there be no mis- take about the position of network affiliates that they very much favor the prime time access aspect of this legislation. Mr. WIRTH. It seems to me that what is good for the goose ought to be good for the gander. Mr. HARGROVE. No. you are confusing the rules. PAGENO="0925" 923 Mr. WIRTH. The concern, as I understand, in the repeal of the rule, you say that is necessary to maximize the profits of the net- works for the purpose of maintaining a high level of programing in the face of an enormous amount of competition. Wouldn't the networks be very happy to have control over all prime time and have no prime time access? Mr. HARGROVE. I am sure they would. Mr. WIRTH. But to be consistent, if, in faót, you all are arguing for the repeal of the rules on financial interest and syndication for the purpose of increasing the financial standing of the networks, you should also be supporting the repeal of the prime time access rule, shouldn't you? Mr. HARGROVE. Not at all. Mr. WIRTH. Oh? Mr. HARGROVE. I understand the point you make, and it is not without validity. But these are entirely separate rules with sepa- rate purposes. They deal with separate problems. We feel the prime time access rule, not the syndication and financial interest rules, is chiefly responsible for the diversity of program sources that we now have and for that reason, we support the prime time access rule. We very much favor that diversity of sources. If network affili- ates thought for a moment that repeal of the syndication and fi- nancial interest rules would ultimately compromise the availability of diverse sources of programing for them in the access period, as I pointed out in my statement, they would be very much opposed to that. Mr. WIRTH. The argument made relates to network dominance, right? That is how-it seems to me the consistency is not there from your perspective. I understand completely. You are affiliates of ABC, NBC, and CBS, and you have to be nice on the one hand; but on the other hand, you have a good deal with the prime time access rule so consistency doesn't necessarily have to be there. I understand your position. I just want to point out that that is the case. My time is expired at this time. Mr. Tauke. Mr. TATJKE. Thank you, Mr. Chairman. Mr. Waz, earlier, we had some discussion about some statisticS which allegedly came from your organization and were those which purported to show that during some period of time, there was a shift in the amount of programing coming from independent pro- ducers, a shift that would seem to suggest that financial interest and syndication rules actually have not improved access of inde- pendent producers to the airwaves, but rather decrease that access. Do you have any comments on that study and those statistics? Mr. WAZ. Yes, sir. Some of what Mr. Blumenthal referred to in the study done by ICF For the Committee for Prudent Deregulation is in fact my un- derstanding of the way that data was developed as well. What ICF did was to take a given week at the beginning of the TV season through each of the seasons and developed a total number of-- Mr. TAU1~E. Let me interject. Was it your committee that did it, or was it another committee? PAGENO="0926" 924 Mr. WAZ. Yes, the Committee for Prudent Deregulation of which Mr. Lear and Mr. Blumenthal are members. But I am quite well acquainted with it. Mr. TAUKE. OK; go ahead. Mr. WAZ. The point Mr. Blumenthal made first about the fact that it was a snapshot of a given week in time, does not take into consideration the fact that over the course of a broadcast year, a number of series could be canceled and new programs with new producers put in their place; that over the course of the year a va- riety of mini series from a variety of producers are brought in; similarly a number of movies of the week are brought in with dif- ferent producers. Mr. TAUKE. I am sorry for interrupting but let me ask you, are those statistics for the week looked at? Are those statistics mislead- ing? Is it true that independent producers have less access to pro- graming time than they used to or is the opposite true? Mr. WAZ. Well, the point you make about there being less access to broadcast time is the function of the fact that networks make less time available in prime time. Mr. TAUKE. These figures were on a percentage basis, percentage of time available. Maybe I will just ask you directly, do independ- ent producers have more access or less access than they did before the rules were put into effect? Mr. WAZ. Rather than debating the ICF study which I think raises a number of questions of the sort you discussed, I did look at Weekly Variety. A few weeks ago they did their annual review of the programing the networks took options on for the coming year, movies of the week they have put in orders for, commitments for network programing as midseason replacements, and then I totaled up the number of producers represented. These are now representative of the total marketplace of produc- ers who are competing for network broadcast time. Not necessarily those that the networks ultimately give a slot to, but who are able to compete for the time because in many cases they have built their profitability on the financial interest and syndication rule. I counted 97 different production entities, plus the networks who *happened to be coproducers of movies of the week, all budgeted for broadcast time, all with some time from the networks. On top of that there are many more that did not get a pilot idea accepted by the networks this year. There are many more that had programs this year or last. Mr. TAUKE. This is all very interesting but I am not getting an answer to my question which I seem to have a hard time getting today. I still don't know how much a program is worth. But Mr. Bortz, do you have any comment? Mr. BORTZ. I am interested to see how quickly the supporters of the work done by the Committee for Prudent Deregulation are run- ning away from its methodology. What the committee did was take a given week in a season and look across a number of years, I be- lieve going back to the mid-1960's for the same week. That really, is an appropriate approach. If we assume that year-to-year the initial week of the season isn't going to be terribly different we can com- pare year-to-year. By using the committee's numbers, it is clear PAGENO="0927" 925 that indeed there has been a decrease in the number of producers over time. So I can understand post facto why people are wanting to go back to anecdotal stories rather than to data they developed. Mr. TATJKE. Mr. Waz. Mr. WAZ. If I may return to that point, too. There has been devi- ation in the number of producers represented in prime time during these snapshot weeks over the course of the years. I do understand that during the 1981-82 season that the total number of program suppliers in the snapshot week was 67 which represented the lowest concentration figures in a decade. The Heffendahl index was 309, according to information I have seen, which is the lowest since 1967-68, and it represented the second highest number of programers ever. Obviously while there may have been a lull in that sort of-while there may be a lull in the programing of independents for a period of time, there is dem- onstration in the marketplace of today that there are indeed as many programers represented in prime time as ever. The second difficulty in counting the number of producers repre- sented in prime time, as was done by our friends interpreting ICF, was to lump any producers who had a coproduction deal with one of the MPAA members as that being a production of one of the MPAA companies. Obviousl~r coproduction deals are a way of life, networks routine- ly "lay off, as I believe they call it, a program brought to them by a small independent on one of the larger producers. Mr. TAUKE. Ms. Salhany, a quick question for you assuming you represent independents. Are the independents more concerned about the financial interest rule or the syndication rule? Ms. SALHANY. They are concerned about both. Mr. TAUKE. If the syndication rule were retained, maintained by the FCC, and the financial independence rule were changed, what impact would that have on independents? Ms. SALHANY. We are concerned because we don't know how you would legislate that. We don't know what percentage of control there is in financial interest and what kind of deals might be made for the syndication marketplace. No one knows about that. How do you legislate that? How do you find that out? Mr. TAUKE. It is pretty tough if you don't know what the FCC will propose. I agree with that. Yes, Mr. Hargrove. Mr. HARGROVE. Mr. Tauke, I think the concern of independent syndications springs from a concern that networks will warehouse programing. Mr. TAUKE. That is my understanding as well. Mr. HARGEOVE. That they will keep it off the market. Mr. TAUKE. So that is the syndication aspect. Mr. HARGROVE. That is the syndication problem. Some of the net- works have publicly stated that they would have no objection to a narrowly drawn rule that would preclude them from warehousing or engaging in abusive practices. Now, if affiliated stations thought for a moment that their ability to acquire off-network programing in the access period-which is the most profitable period for them-they would be against repeal. They are not convinced that 32-540 O-84-----59 PAGENO="0928" 926 the networks would do that in the first place because historically they did not. There was evidence that the FCC adduced in hearings from the manager of the NBC affiliate in Paducah, Ky., who said that NBC which owns the rights to "Little House on the Prairie," sold that program to his competitor across the street. And in all of the pro- ceedings at the FCC there has been a lot of concern by independent stations about warehousing but there is no evidence of it. Mr. TAUKE. Are you in the same boat as the independents on that question? Mr. HARGROVE. Well, me? Mr. TAIJKE. Yes. Are you in the same boat? Mr. HARGROVE. We would be very much concerned about ware- housing, yes, sir, very much so. Let me-Ms. Salhany made reference to some-- Mr. TAUKE. She is about ready to respond. Ms. SALHANY. I just want to answer, it is not only warehousing, sir. It is a time period restriction. It is already going on. You cannot run "Saturday Night Live" on Saturday night. Mr. HARGROVE. That has nothing to do with these rules. M5..SALHANY. I know, obviously. You cannot-- Mr. HARGROVE. That is an exclusivity question. Ms. SALHANY. They pulled the "Johnny Carson Show" out of syn- dication, Columbia may have to eat all those shows because they could not syndicate. We could not run "Johnny Carson" late night. So I cannot figure out-it is not only warehousing, believe me, it is time period restriction. That will hurt everybody. Mr. TAUKE. Could I just ask a question, and I know I am over my time. I guess it strikes me as-I am not sure I am offended by the fact that you cannot run "Johnny Carson" at the same time NBC is running "Johnny Carson." I am not sure 1 should be upset. I wouldn't expect McDonald's to put Big Macs over at Hardees to sell. Ms. SALHAIS~Y. I am not concerned with 11:30, but what about 11 o'clock? "Johnny Carson" isn't on at 11. It is the half-hour version of "Johnny Carson." Why can't independents run it at 11 o'clock? That is a program alternative. Mr. TAUKE. I was thinking you were saying at the same time. Ms. SALHANY. No, I said 11. The restriction was not only for 11:30. Mr. TAUKE. Mr. Chairman, I think I will need help in ending this. Mr. WIRTH. Mr. Leland. Mr. LELAND. Thank you, Mr. Chairman. Mr. Bortz, you were saying that diversity will be encouraged if the financial interest rules were repealed; is that correct? Mr. BORTZ. What I was saying first of all, is that diversity and quality of programing is not maintained, is not encouraged by the financial interest and syndication rules. They are essentially unre- lated, unrelated to diversity and quality. If we have a free market- place in which the producers come out from the shelter of this highly protected highly leveraged network marketplace that has been legislated or mandated by regulation, if they no longer had PAGENO="0929" 927 such protection, it is my view that we would see more diversity for programing. Mr. LELAND. Let me ask you about the diversity of programing. You heard my questioning before or my comments anyway. I am concerned about what is happening with ethnic minorities in tele- vision. The networks have had the ability in the past to put them on television, to produce dramatic series, miniseries if you will, and place the moneys that they did behind "Roots," for instance. But they have not done that. How is it that-why should a person like myself who is a minori- ty who sits on this committee, who does indeed have a subjective interest if you will, but a subjective interest that is probably justi- fied some justification if you will. How am I supposed to look at the networks? Mr. BORTZ. If your evaluation is that they have not done that and they have not done-- Mr. LELAND. You agree with me that they have not done that, Mr. BORTZ. We certainly would-we are seeing more diversity as we have new channels of distribution. We have a mass advertising medium here and people like to ignore that. The point I would like to make is the concerns you express are concerns that have occurred during a period when the financial in- terest and syndication rules were in effect and there is absolutely no basis when you say that retention. of the rules would somehow change that. Mr. LELAND. Wait a minute now, Mr. Bortz. Before the rules were in effect there was television, right? Mr. BORTZ. Yes. Mr. LELAND. There were no blacks for all practical purposes then on television doing anything. Nat King Cole tried desperately to stay on television but he was black so eventually they had to take him off. So the networks had control of that if I remember correct- ly. I was a little boy at the time. Mr. BORTZ. But it had no relationship at all to the financial in- terest and syndication rules. Mr. LELAND. Are you saying this has no relationship whatever, that I should not be considering these matters in this whole light? Mr. B0RTz. You should be concerned about quality and diversity and I agree with you. There is absolutely no relationship that has been established in an extensive record between quality and diver- sity and the financial interest and syndication rules. This is simply a Government intervention in the marketplace. Mr. LELAND. And I am in the Government, I was elected by some 70,000 or 80,000 people, or however many people voted for me in my last election, and I am trying to get a handle on what we are going to do about rights of people who have been denied those rights, opportunities for people who have been denied opportuni- ties. What purpose would it be for us to have a Voting Rights Act to provide opportunities for black people and other ethnic minorities to serve in the U.S. Congress? That is a law. That is a Government intervention into the affairs of our society in order that we can fa- cilitate those opportunities. I serve for that reason. Otherwise the legislature of the State of Texas could have drawn me out of a dis- PAGENO="0930" 928 trict and a white person could have come here to serve the inter- ests of the people of the 18th Congressional District. OK? So I have come with a certain set of problems from my dis- trict to try to resolve them. The only way I can resolve them is to use the tools that I have available to me as a Member of Congress. Mr. BORTZ. But I believe with all respect that you have picked up the wrong tool. I think this tool, the financial interest, and syndica- tion rules, is unrelated to the objectives and I tell you~-- Mr. LELAND. But if I supported repeal then I am rewarding the networks. As far as I am concerned the networks have been the perpetrators of the real problem, the real problem is that there has been no facilitation of opportunities for minorities in television. Now you have to agree with that. The networks themselves have agreed with that, ~the independent producers have said that they are at fault, too. So you have to agree with that, right? Mr. BORTZ. I think we have all agreed on basic principles and goals. The point I repeatedly `make is that the legislation under consideration, H.R. 2250, would do nothing to address your con- cerns. Mr. LELAND. Except I have gotten the networks' attention and at least some of them are saying, well, Mickey, we ought to sit down and talk about it. If that is all I have got that is all I got, brother. That is all I got. Mr. BORTZ. If you acknowledge that that is your intent, then I cannot disagree with that. I think it is important to get on the table that the rules themselves do not directly address your issue. Mr. LELAND. I don't know if I necessarily agree with that because I hear the argument and I have not been convinced yet that cre- ative latitude is not given if the rules.are repealed. I am concerned about that. If that creative latitude is not given, then in fact there will be less opportunity' for minorities to participate in the productions of these series or these programs on television. So why further re- strict opportunities by giving the networks the ability to say, OK, we are going to have only white people in major leading roles on television; or we are only going to produce dramatic series like "Dallas" and "Dynasty" and those programs where they are going to be literally white. Mr. BORTZ. With all the investment that the production commu- nity has made in this series of proceedings they have been unable to relate the quality and content of programs to the financial inter- est and syndication rules. Mr. LELAND. I further challenge you, why is it that we ought to reward these people when they have not done what they ought to be doing? Mr. BORTZ. I cannot recommend your policy approach, if you want to use these rules, unrelated to your goals, as a weapon to achieve your goals. Mr. LELAND. I don't think they are unrelated. Let me relate them then. I sit on this subcommittee, right? I am going to do what I can to change the circumstances that prevent blacks, Hispanics, Asian- Americans, native Americans, to participate in a medium that re- flects or should reflect the American way of life-and it doesn't PAGENO="0931" 929 now. I realize we get into a problem of first amendment rights and all that kind of stuff. You know, but maybe that ought to be chal- lenged to some extent. God save me if I have ventured to try to solve that problem. But my problem-do you understand my frustration? Mr. BORTZ. I understand your strategy cOmpletely, Mr. Leland. Mr. LELAND. Thank you. Mr. BORTZ. I understand that completely. Mr. LELAND. Mr. Hargrove, would you comment on that? Mr. HARGROVE. I understand what you are saying very much and I would have to agree with Mr. Bortz that quite candidly the con- cerns that you have really are not a part-they are really not a part-they are very proper concerns. Mr. Lear who sat here today, who is responsible for much of the programing on television today, except in responsibility, and we all heard the network people accept responsibility, and I would respectfully urge you not to ap- proach the issue in terms of punishing the networks-- Mr. LELAND. I am not trying to punish them, I am just trying to give them a 5-year probation period if you will. I intend to be in Congress 5 years from now and I want to review what they have done in 5 years in light of the fact that they have agreed that this is a problem. Mr. HARGROVE. As Mr. Bortz pointed out, Mr. Lear and Mr. Blu- menthal and those people sitting here earlier today are chiefly re- sponsible for what we have on television. Mr. LELAND. Now wait, we also know and we have heard them to say in California and Los Angeles that they are as responsible as their producers. Now, I understand, too, that the networks have some control over what goes on the air. I understand, too, that they have hired consultants. We know of evidence of at least two con- sultants that have been hired and reported to the networks to say that you should not hire black people to serve in leadership roles and in programs. Now, let me ask you one question that I failed to ask them-you and Mr. Bortz-and can I ask, are the networks racist? I would like to know. Are they racist? You know the effect is that they are. I am just asking if the people who run the networks are racist? Mr. BORTZ. That is not a question I think that I can answer. I can say certainly I know network people. But this is not related. It is totally unrelated to the hearing today. Mr. LELAND. Let's be irrelevant to the hearing then and answer the question~ Are they racist? Are the people who run the networks racist because the effect is that the programs that they put on don't illustrate or reflect the real society that we live in in Amer- ica today. We find that the statistics don't bear out that they give the same opportunities to blacks, Hispanics, and other ethnic mi- norities that they give to white people, particularly white males. Are they racist and are they sexist? Mr. BORTZ. This is a "have you stopped beating your wife" kind of question. Mr. LELAND. No, it doesn't have anything to do with that. Mr. BORTZ. I think the situation we have is an increasing, a bur- geoning growth of alternative video distribution modes. It is not in the future. There are two-thirds of all households passed by cable. PAGENO="0932" 930 There are opportunities to program for smaller audiences, to try and take-- Mr. LELAND. Wait a minute. Let me ask you something about those smaller audiences. Twenty percent of an audience, is that ap- preciable enough to pay attention to it and to project what the characteristics of that 20 percent represents? Mr. BORTZ. For certain types of programing, but as you intervene in the marketplace and force programing up in terms of price I would say no. I would say that the effect of this rule which allows producers more leverage is to force the networks to seek larger and larger audiences in an attempt to regain the margins that they had in the past. Mr. LELAND. They are going to ignore the 20 percent? Black people spend disproportionately more money in buying the prod- ucts that are advertised on television than anybody who views tele- vision in America today. Do you realize that? Mr. BORTZ. Absolutely. We have a diverse set of programing. What you want is more diversity. Mr. LELAND. You have a diverse set of programing. You have "The Jeffersons" and "Mr. T" and you have Gary Coleman and all of those comedies. How many dramatic series truly reflect the real- ism of black life in. American today? To balance off-- Mr. BORTZ. Who is going to interpret that? Mr. LELAND, To some extent I am a standup comedian myself. I can get in the well of the Congress and make everybody laugh, but that does not say very much if in fact there were not 20 other Members of Congress who are black who presented themselves in a dramatic way to reflect the real character of black life in America. The same thing is true in television. What we are doing is poison- ing the minds of the American people to believe that black people only understand comedy. And Sidney Poitier disagrees with that and I would suggest to you that Lou Gossett, a lot of other black actors and actresses, disagree with that. Hispanic actors and ac- tresses have not even had a chance to approach what black actors and actresses are, and yet you folks are not projecting the real image of what they represent in America. I do not care how irrele- vant you think this is to financial interest and syndication, the fact is that it is relevant to the American people and its future. Do you think that the effect is racism? Mr. BORTZ. I think that we are not in a position, I am certainly not in a position to support your approach saying that by withhold- ing an ability to return to a free marketplace that we are going to affect your choice of programing. Mr. LELAND. You are going to tell me the networks do not par- ticipate in a free marketplace. The competition among the three networks themselves is a matter of their participating in the free marketplace. Mr. BORTZ. The program marketplace is a regulated marketplace, regulated by the financial interest and syndication rules in support of the production community. Mr. WIRTH. Would the gentleman yield? You would support then the repeal of prime time access as well; is that right? PAGENO="0933" 931 Mr. BORTZ. In our work for the American Broadcasting Compa- nies we did not even address it. I do not believe that it is an issue at this point. Mr. WIRTH. What is the difference between a free marketplace that has prime time access as a rule and a free marketplace that has syndication rules or financial interest rules? Mr. BORTZ. Mr. Chairman, I think that as we all know, none of us are going to foresee the future exactly. Let us see what develops. Mr. WIRTH. No, tell me what the difference is. What is the differ- ence between a television marketplace that has prime time access as a rule and a television marketplace that has prime time access and financial interest and syndication? Mr. BORTZ. Prime time access is a matter primarily between the networks and the stations. The financial interest and syndication rules address the relationship between the networks and the pro- ducers. Mr. WIRTH. But if you are going to argue for a "free market- place" then you are arguing to get rid of the prime time access rule too. Mr. BORTZ. I believe it is unrelated to what is being considered here. The prime time access rule dealt with the issue of prime time programing in an attempt to achieve diversity. At least it directly addresses diversity. Financial interest and syndication does not ad- dress diversity. Mr. Wrnm. The whole purpose of all of those rules goes to the question of network dominance, does it not? Mr. BORTZ. We are talking about a different relationship. You have I think no basis to say that the prime time access rule which deals with the relationship primarily-- Mr. WIR'rii. Where did the rule start from to begin with? Mr. BORTZ. The FCC special inquiry staff, the Department of Jus- tice and the Department of Commerce all concluded, and looking at the record at the time the decision was made, that there was no basis for it. It was based upon supposed behavior for which there was no documentation. It has never been shown that indeed that behavior existed and so it was passed in anticipation of something that might happen. These are independent people, independent agencies with no stake in this deal and they concluded that there was no basis in fact-- Mr. WIRTH. This goes back to the seventies, does it not? Mr. BORTZ. To the sixties. Mr. WIRTH. What was the problem that the Department of Jus- tice is concerned about? Was that network dominance? Mr. BORTZ. To be candid, I think there is a knee jerk reaction, assuming we have these three networks programing our minds and whether a rule was related to it or not, it was passed in anticipa- tion that it addressed it. Careful examination showed that it did not address it at all. Mr. WIRTH. Was it a knee jerk reaction on the part of the net- works when they signed a consent decree with the Justice Depart- ment? Mr. BORTZ. If you had been a party to the consent decree negotia- tions, I suppose it is a knee jerk when the hammer hits your knee. PAGENO="0934" 932 Mr. WIETH. It was a knee jerk reaction, they should not have signed the consent decree? Mr. BORTZ; `I personally was not supportive of it. Mr. WIRTH. Are you talking about yourself or are you talking about your client? When did the networks sign the consent decree? Mr. BORTZ. In 1979 or 1980. Mr. WIRTH. 1980, about 2 years before then, they came back to repeal this. That was their knee jerk reaction, was to sign the con- sent decree and then to come around the other direction. There was no sense of network dominance. Network dominance was the original reason the Justice Department got interested; is that right? Mr. BORTZ. The Department of Justice said that there was no basis for financial interest and syndication rules with one narrow exception and they, are on record and have proposed to deal with the issue of warehousing. Mr. WIR'rii. I am talking about how this came about in the con- sent decree that was signed by the networks in 1979 and 1980. It was focused on the question of network dominance, is that not right? Mr. BORTZ. That was the theory behind it. Mr. WIRTH. That was the theory behind the syndication rule and the theory behind the financial interest rule. What was the theory behind the prime time access rule? Was that also network domi- nance? Mr. BORTZ. These were theories that have been analyzed and shown to have no basis. Mr. WIRTH. What was the theory behind prime time access? Was* that network dominance? That was why the prime time access rule was put into effect, was it not? Mr. BORTZ. I fail to see the connection to try to link prime time access to. financial interest and syndication. Mr. WIEm. It all has to do with the sense of network dominance. That is why the three are on the book. I am trying to get you to be consistent in the alleged analysis that you were making to say that if in fact you want to get rid of the financial interest and syndica- tion rules because you ought to let the free market work, then the same thing should be said about the prime time access rule. If you are going to get rid of the others because of network dominance, you get rid of the prime time access rule because of dominance. But you are not willing to say that because you do not want to al- ienate your affiliates out there who like the prime time access rule, as Mr. Hargrove has pointed out. I just want to make that point for the record. If I were sitting where you are, being paid by ABc, fine, you can make that point. I just want to point out for the record that there is a certain amount of consistency we would like to keep in this and we could point to the linkage between these various items, which are very important. Mr. BORTZ. Why has this committee ignored the work done by the Department of Justice, by the special inquiry staff, and by the Department of Commerce, where these people should have a dis- passionate and public interest position. They have analyzed the issue and found it wanting. PAGENO="0935" 933. Mr. WIRTH. I will recommend to you some very good reading, a good bargain from the Government Printing Office, and that is the competition report done by the subcommittee in 1981, in which we thoroughly analyzed and included the data from the special in- quiry. That is available and we can probably get you a copy. Mr. BORTZ. It has not been introduced in consideration of these rules. That data has not been introduced here, the work that was done by these different parties. Mr. WIRTH. There are a vast number of people on this committee who were deeply involved and we can remember what was there and what was not there. It is not difficult to do to remember that particular set of issues. Mr. LELAND. Mr. Chairman. Mr. WIRTH. It is the gentleman's time. I am sorry. Mr. LELAND. I know I have run out of time, but if the Chair would indulge me. I am not trying to browbeat you, Mr. Bortz. Sometimes in these hearings we find that issues are raised that we think are relevant to those issues and give rise to ideas about legis- lation. You have suggested that my concerns are irrelevant to fi- nancial interest and syndication. Would you support in your vast experience with ABC, would you support and come and testify on behalf of a piece of legislation that would be something similar to the Civil Rights Act, but the Civil Rights Act for the network in- dustry or the television industry? Mr. BORTZ. No, I believe that Government intervention in pro- graming decisions is something I would not support., Mr. WIRTH. Then you would not support the prime time access rule. What is the difference? Mr. BORTZ. There is a tremendous difference, because we are talking about program content. Mr. LELAND. Wait a minute, now, Mr Bortz. We are talking about people who historically have been deprived of opportunities in this country. We are talking about truly fulfilling the goals and aspirations of the Constitution of this country. We are talking about making this society's elements of participation available to everybody. Are you telling me that if in fact the networks have failed, and we have exhausted all other kinds of efforts, you are not interested in solving the problem? The NAACP, LULAC, and other organizations have been at the negotiating table with the networks and they have tried to get some sense out of the networks and de- velop some contractual agreements in the spirit and framework of the free enterprise system. They have tried all those things and those things have failed. We are finding that fewer opportunities exist for minorities today in 1983, which does not make any sense to anybody. Are you telling me that Government should never get involved?. Mr. BORTZ. I support your objectives very definitely. I think that by getting into specifying program content, that is something that I simply could not support. Mr. LELAND. Let us quantify programing content, let us quantify characteristic content or participation. Can we do that? Mr. BORTZ. I speak only on my own behalf. Mr. LELAND. Then we get into problems with quotas, right? Mr. BORTZ. Absolutely, in terms of programing on the media. PAGENO="0936" 934 Mr. LELAND. Do you think that is fair and just, that when an in- stitution like the broadcast institution of particularly television has failed and has not met its responsibilities of fulfillment of the dreams and aspirations of a vast segment of American citizens, that we should do nothing, we should stand by and watch the future pass us by and deny these beautiful, intelligent, very talent- ed people from gaining access to that theater called the networks? Mr. BORTZ. I think I have a much more exciting and much more dramatic view of the future than you are painting, because as I pointed out in my testimony, the dollars devoted to programing off of the networks and onto the new forn~s such as cable are going to equal or surpass what the networks have. Mr. LELAND. Wait. We are talking about the networks now. Let us get back to your boss. Let us talk about ABC, let us talk about "Dynasty." Is it "Dynasty" on ABC? I get them confused because they look alike to me and it really bothers me. Your boss did a beautiful thing. Your boss put on "Roots" and created opportunities, but you know "Roots" had stars whO were white and black and otherwise, I guess. That was a beautiful pres- entation of American history, if you will. But then you go back and you try to beat up on "Roots" with "Winds of War," and all of .a sudden all you show is white faces, not even a black janitor any~~ where. You know, we had Dory Gray-Dory Miller, who was a hero in World War Il-a black gunner-somebody sitting on the side- lines. The Spook Who Sat by the Door was not even on "Winds of War." It appalls me to realize what you are saying, what your bosses are doing. They are not giving our folks an opportunity. If you cannot stand up and tell a joke or make people laugh on televi- sion and you are black, then you are out of a job. You do not have. the same opportunities that everybody else has. Does that not bother you? Mr. BORTZ. I think you are correct in expressing those concerns and you have done it to network executives and to program produc- ers. I think, again, that your approach of trying to use these rules to bring that about is not going to be what does it. We are talking about the structure of the program marketplace. That is what you are discussing. These rules are not going to touch your concerns. Mr. LELAND. If I have got to use a two.by-four to hit the donkey across the nose to get his attention, I am going to do it. I don't pre- sume any kind of power. I am just one person and one vote on this subcommittee, one person with one vote on the full committee and one~ person with one vote on the floor of the Congress. That is all I represent. I don't presume any real power in this Congress. I am relatively new to it. But I will tell you that I am going to raise this issue. I don't care how irrelevant you think it is. I think it is very relevant.. If we are talking about the future of the networks and its rela- tionship to the people of America, then this is a relevant issue as far as I am concerned. PAGENO="0937" 935 I beg to differ with you. I would hope that you would go home and search your soul to determine exactly where you are on this matter, because I think it is a problem for everybody. I am jumping on the independent producers, too. Just the other day I asked Larry Hagman why was it that there were no blacks in "Dallas." He said there are no blacks in Dallas, there are no Jews in Dallas, there are no Hispanics in Dallas. Well, in Dallas, Tex., there are all of the above. Dallas ought to reflect what that represents, if, in fact, it is going to be not just a good dramatic series making money for a lot of people, but one that commits the networks to fulfilling the goals and aspirations of those people who are citizens of this country. I am sorry, Mr. Chairman. Mr. WIRTH. The gentleman's time has expired. Mr. Waxman. Mr. WAXMAN. Mr. Chairman, I think we have discussed the issues thoroughly, and I am pleased that we have had this fourth opportunity in the subcommittee to go into this question. But I would submit that there is a relationship between these rules and the diversity and creativity that we want to see more of on televi- sion and if we eliminate these rules, and eliminate the prime time access rule, and eliminate the fairness doctrine and equal time rules, we will provide the opportunity for the networks to become even more dominant than they already are. There is virtually nothing on televison today, particularly with the three network affiliates, that hasn't gone through some kind of screening by the networks and hasn't met their approval. What is at stake is power. It is a question of power, a question of whether the networks are going to have power over independent TV stations so that they can control the syndication of successful televison programs, deny those programs to independent stations and thus get a competitive advantage over them, and the question is power over the creative community, those people who work on making the programs, and who have an ongoing struggle at the present time where they have all the disadvantages because they must deal with the three behemoths in the broadcasting industry, the three networks who even today without changes in the rules pretty much call the shots. If we eliminate the financial interest and syndication rules, then there is no end to the amount of power that the networks will be able to accumulate. The best arguments we have heard from the networks is that if they can accumulate more money, they will produce more good shows. That is a major risk that we would be taking to rely on their promises alone that television programing would improve. There is no evidence for it. I don't think that anyone would be- lieve it. In effect, we would be allowing absolute network domination of all televison programing. I note with interest that even the news director of NBC talked about Roger Mudd as one of the best politi- cal reporters in the country, a consummate journalist, while the same time dumping him as an anchor for "NBC News," and only because, as Roger Mudd indicated, they were receiving pressure PAGENO="0938" 936 from the corporate side and the affiliates that the ratings were not high enough. The ratings are dominating the .industry. We have talked totally about televisons' golden age, But in the fifties, we didn't have rat- ings calling all the shots as to what would be and would not be on television. Now that ratings are the sole determiner for what the corporate people and the networks think are appropriate or not appropriate for the American people, we have, I think, a deterioration of qual- ity of television programing and we ought not let that deterioration continue by allowing the networks and their ratings dominate their decisions even further as to what will be available to the American people. I have no questions of this panel. If anybody wants to respond to what I said, I welcome it, but I think that we are all sort of ex- hausted after today's 4 hours of discussion. I thank the chairman, again, for holding this hearing. What is at stake is a major question of public policy and public interest con- sideration, and that for the future of television broadcasting, free television broadcasting, whether three program producers will make the decisions for all of the American people or whether there is going to be competition because,there can be a prosperous, inde- pendent television station market and that television producers can battle for an opportunity now and then to come up with a creative idea and get that idea on TV. Mr. WIRTH. Mr. Hargrove. Mr. HARGROVE. I wanted to comment on Ms. Salhany's observa- tions that she supposedly made on behalf of broadcasting. I would like tO point out for the record that Ms. Salhany works for a multi- million dollar program production company, so it is not surprising in the least that she would like to tilt the marketplace in favor of her production company, and that is understandable, but it is quite clear she does not speak-when she favors retention of the syndica- tion of financial interest rules-for the majority of local television affiliated stations in this country. She talked about restrictions on when certain programs can play and when they cannot play. It would be. interesting to see if the programs that her company produces and syndicates do not have the same kind of exclusivity restrictions that preclude those pro- grams from playing in the same market at the same time. The complaint she makes is not quite a proper complaint. I mean ithere is nothing sinister about exclusivity. She is talking about exclusivity, and exclusivity is part and parcel of the program syndication market. Exclusivity is one right among the bundle of rights that Mr. Lear, Mr. Blumenthal, and Ms. Salhany's company and the net- works all, bargain for when they acquire, market and distribute programing. There is nothing wrong with exclusivity and it is not addressed by these rules. I think it would be unfortunate if somehow the im- pression were created that retention of these rules would somehow enable "Saturday Night Live" to be played on Saturday night when it is in syndication. Mr. WIRTH. Ms. Saihany. PAGENO="0939" 937 Ms. SALUANY. I speak on behalf of the Taft Television Station Group and NATPE. As far as exclusivity, I am not sure exclusivity and restrictions are the same. I clçn't know what our company has in its contracts because World Vision and the Taft Station Group are really at odds, because they are selling and we don't always buy from them. That is separate. When I talk about restricticths, I go back to things like "Match Game" which wasn't allowed to be run before 5:30 because the network was afraid it would compete with them. They are afraid of competition. I could talk about "Family Feud." The netw9rk version is separate and then there is a syndi- cated version but the syndicated version can't run in the daytime against ABC programing because ABC is worried about competi- tion. So 1 think that is a little different than exclusivity, Mr. Har- grove. Mr. WIRTH. Are there any further comments for the good of the record? Mr. HARGROVE. Thank you very much, Mr. Chairman. Mr. WIRTH. Thank you very much. Let me ask you finally, Mr. Bortz, as you were concerned about interference with programing, do you also think we ought to get rid of equal time and the fairness doctrine? Mr. BORTZ. I believe that you would like to open this into a com- prehensive hearing. Mr. WIR~m. No, I want to get out the consistency in this. You say why is there an equal time and fairness doctrine. Because of net- work~dominance, a few stations' dominance, not enough competi- tion. Would you argue for getting rid of that, too? Mr. BORTZ. I can only return to the subject of this hearing, which are the rules at issue in H.R. 2250, and all I have heard today is a discussion over here on quality and diversity with very excellent public interest goals, and no linkage established between the rules and those public goals. Mr. WIR~1. I just want to give you the opportunity to make your position thoroughly consistent and see what it was. I remain confused about that anyway. Thank you all very much. We are very glad to have you here. We appreciate it. The subcommittee will be adjourned. [Whereupon, at 6 p.m., the subcommittee was adjourned, subject to the call of the Chair.] 0 PAGENO="0940"