Financial Interest and Syndication Rules

The Financial Interest and Syndication Rules, widely known as the fin-syn rules, were a set of rules imposed by the Federal Communications Commission in the United States in 1970. The FCC sought to prevent the Big Three television networks from monopolizing the broadcast landscape by preventing them from owning any of the programming that they aired in prime time.^[1] The rules also prohibited networks from airing syndicated programming they had a financial stake in. The rules also led to the networks spun-off their syndicated divisions, like CBS' CBS Enterprises was later renamed as Viacom in 1971 and later spun-off, ABC's ABC Films was sold to its five executives and later renamed as Worldvision Enterprises and NBC's syndicated division NBC Films was later sold to National Telefilm Associates (NTA) for $7.5 million, both occurred in March 1973.^[2][3][4][5]

The rules changed the power relationships between networks and television producers, who often had to agree to exorbitant profit participation in order to have their shows aired. Some argue the rules brought about a golden era of independent television production by companies such as MTM Enterprises (The Mary Tyler Moore Show) and Norman Lear's Tandem Productions (All in the Family).^[6] Others argue the rules made the work of independent television production companies much more difficult because smaller companies could never afford the deficit financing required unless they received network assistance.^[7] The rules also led to the destruction of numerous older television tapes in the 1970s; what could not be sold or given away to an independent syndicator was thrown out or recycled to recover silver content.^[8]

Controversial from the very beginning, the fin-syn rule was relaxed slightly during the 1980s.^[9] Following the severe changes in the television landscape, such as the rise of the Fox network and cable television, the Financial Interest and Syndication Rules were abolished completely in 1993.^[10]

It was the repeal of fin-syn that ultimately made newer broadcast networks such as UPN and The WB financially interesting for their highly vertically integrated parent media conglomerates Paramount Pictures (Viacom) and Time Warner, respectively.

On average, the number of shows that have been broadcast during prime time by the three main networks (CBS, NBC and ABC) per season has ranged between 63 and 75 shows between the 1987-88 and 2001-02 seasons. In the 1987-88 season, out of a total of 66 primetime shows that were broadcast, there were no such shows in which the network was either a producer or a co-producer. This number rose steadily to the point that during the 1992-93 season, there were about six shows out of a total of 67 shows produced or co-produced by the network; however as a result of the repeal of the fin-syn rules, this figure jumped to 11 the following year, whilst the total number of shows was barely 73. For the 2001-02 season, this figure rose to 20 shows that were network produced – a change from 0%, to 9%, to 15% and from there to 20% – over two decades.^[11]

Today, each of the five major networks has an affiliated syndication company:

• ABC – Disney Platform Distribution/Disney-ABC Domestic Television
• CBS – CBS Media Ventures/Paramount Worldwide Television Licensing & Distribution
• NBC – NBCUniversal Syndication Studios
• The CW – Warner Bros. Domestic Television Distribution
• Fox – Fox First Run

Closely related to fin-syn, the Prime Time Access Rule sought to strengthen local and independent producers by preventing affiliates from airing network programming during much of the early evening hours. This rule was eliminated on August 30, 1996. However, the period remains largely unclaimed by the networks due to the success of syndicated programs such as Entertainment Tonight and Wheel of Fortune.

Deficit financing

Before the fin-syn rules, the networks attained greater control and less risk by forcing production companies to deficit finance their programs while also demanding a percentage of the syndication revenues.^{[citation needed]} Deficit financing is an arrangement in which the network pays the studio that makes a show a license fee in exchange for the right to air the program. The license fee is in exchange for the right to air an episode a few times (as a first-run and rerun episode), and does not cover the complete cost of production. The studio remains in ownership of the show. Before the fin-syn rules were established, networks would put into practice "profit participation." With this, they gained greater control and avoided the risks by forcing the production companies to deficit finance their programs. Such practice led multiple production companies into financial hardships. Independent producers and those not signed with major working studios were hit the hardest because most of the profit revenue went to the networks. Author Amanda D. Lotz explains in her book The Television Will Be Revolutionized that, by the mid-1960s, the networks gained as much as 91% of the programming revenue from profit participation. It was at that point that the government stepped in and got involved with the fin-syn rules in the 1970s.^[12]

Deficit financing minimized the substantial risks and costs of developing programs for the networks while initially affording the studios considerable benefits as well. In successful cases, the studio receives a large return on its investment when it re-sells the show in a combination of syndication windows because the sales provide nearly pure profit: no additional work typically goes into the program and the network receives none of the payment.^{[citation needed]} However, if the show is cancelled by the network before producing enough episodes to be syndicated, or if no syndication buyers want the show, the production company must absorb the difference between the cost of production and the original license fee, which can now amount to millions of dollars for each season.^[13]

As of 2004^[update], most reality television producers believe that deficit financing will never be financially viable because the vast majority of reality production companies are too small to wait long enough for the big payoff (and, because most reality shows are relatively poor performers in reruns, such a payoff is less likely to materialize anyway). Instead of syndication, producers have been covering gaps between license fees and rising production costs by selling shows' formats to foreign territories and developing integrated marketing deals with advertisers.^[14][15]

Rule changes

The fin-syn rules created two well-defined periods that might be considered characteristics of the multi-channel transition. First, the rise of independent studios provided a competitive environment. Second, The Walt Disney Company, Viacom, News Corporation and Time Warner made purchases that combined studios and networks to create new kinds of corporate entities.

Throughout the 1970s into the mid-1990s, the fin-syn rules broke a few network-era norms that created programming well before the adjustments to the multi-channel transition. This also led to the creation of a fluid competitive environment between network and studios; however, this did not last long.

In 1983, the FCC, by this time in a deregulatory mode inspired by President Ronald Reagan, had received demands from the networks to end the fin-syn rules. In 1991, these had officially materialized, and the agency's commissioners voted to eliminate the rules in 1993. After the rules were eliminated, networks began populating their schedules with new shows purchased from studios owned by the network.

Throughout all this, the audience began to have more choices and control over entertainment options, and networks were pressured to offer fewer reruns to keep viewers' attention, leading networks to create programming.^[16]

References

1. D. Croteau; W. Hoynes (2006). The Business of Media: Corporate Media and the Public Interest. Thousand Oaks, California: Pine Forge Press. p. 85.
2. "Sudden halt to Viacom spin-off" (PDF). Broadcasting. January 1, 1971. Retrieved September 25, 2022.
3. "Worldvision Enterprises, Inc. v. American Broadcasting Companies, Inc. (1983)". Retrieved September 9, 2016.
4. "Price of film" (PDF). Broadcasting. March 19, 1973. Retrieved September 25, 2022.
5. "Sale of NBC Films completes exodus of networks from syndication" (PDF). Broadcasting. February 12, 1973. Retrieved September 25, 2022.
6. Amanda D. Lotz (2007). The Television Will Be Revolutionized. New York City, New York: New York University Press. pp. 85–86.
7. Matthew McAllister. . Museum of Broadcast Communications. Archived from the original on 2012-04-08. Retrieved 2012-04-02.
8. Marx, Andy (March 2, 2013). "The day my grandfather Groucho and I saved You Bet Your Life". BoingBoing.net. Retrieved January 11, 2019.
9. D. Croteau; W. Hoynes (2006). The Business of Media: Corporate Media and the Public Interest. Thousand Oaks, California: Pine Forge Press. p. 91.
10. D. Croteau; W. Hoynes (2006). The Business of Media: Corporate Media and the Public Interest. Thousand Oaks, California: Pine Forge Press. pp. 100–101.
11. Allen J. Scott (2005). On Hollywood: the place, the industry. Princeton, New Jersey: Princeton University Press. p. 66. ISBN 978-0-691-11683-9.
12. Amanda D. Lotz (2007). The Television Will Be Revolutionized. New York City, New York: New York University Press. p. 85.
13. Amanda D. Lotz (2007). The Television Will Be Revolutionized. New York City, New York: New York University Press. pp. 83–85.
14. Christopher Lisotta (2004). Reality Gets Reworked for Prime. Television Week. Vol. 23. pp. 40–41.
15. Amanda D. Lotz (2007). The Television Will Be Revolutionized. New York City, New York: New York University Press.
16. Amanda D. Lotz (2007). The Television Will Be Revolutionized. New York City, New York: New York University Press. pp. 86–90.