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If Paramount and Warner aspire to be networks, it's partly because they - think they must in order to survive as significant TV players. The reason can be traced to the demise of the so-called financial-interest and syndication rules. Instituted in 1970, these rather abstruse regulations limited the networks' ownership of the shows they aired and barred them from the syndication business. As a result, the networks were forced to acquire their shows from outside suppliers -- ranging from big studios like Universal and Warner to smaller, independent producers like Norman Lear (All in the Family) and Carsey-Werner (Roseanne).
The "fin-syn" rules have caused years of squabbling between the studios (which maintain that the networks, as gatekeepers of the airwaves, should not be allowed to own shows) and the networks (which view the rules as an outmoded relic of the days when the networks were the only game in town). The FCC has finally come down on the networks' side. "Broadcast television is doing great against all its competitors," says FCC chairman Reed Hundt. "((The agency)) wants to make sure they have the opportunity to exercise all of their competitive energies."
As the rules have been relaxed in stages over the past few years, the networks have increasingly moved into becoming producers as well as distributors of their programming. A growing number of prime-time shows, such as CBS's Dr. Quinn, Medicine Woman and ABC's Me and the Boys, are produced by the networks' in-house production units. The networks, meanwhile, are negotiating for an ownership share of more shows produced by outside companies. In one sense, these new arrangements are righting what has always been a skewed system of network economics. Typically, the network pays an outside company a license fee for the right to air its show, then keeps all the ad revenue that the program generates. The show's owner usually takes a loss in the early years of its run, as the network license fee rarely covers the entire cost of production. But if the show is a hit, its owner can reap huge profits down the road by selling reruns in the syndication market.
The new alliances between networks and producers at least apportion the risks and rewards more equitably. With an ownership stake in shows they air and the change in fin-syn rules, the networks for the first time can share in the money that a show generates in its afterlife. The producers, in the meantime, get the networks to take on more of the up-front costs. In a landmark deal last fall, ABC entered into a joint venture to create a new TV studio with Hollywood moguls Steven Spielberg, Jeffrey Katzenberg and David Geffen. ABC has a 50% stake in the company and, in an unprecedented move, has agreed to share directly with the studio the advertising revenue its shows bring in.