FTC Staff Comment Before the Department of Justice Concerning Proposed Modification to the Network Syndication Consent Decree

V920013
UNITED STATES OF AMERICA 	COMMISSION AUTHORrZ£D
FEDERAL TRADE COMMISSION
WASHINGTON, D.C. 20580
BUREAU OF ECONOMICS
July 	21, 	1992
Constance 	K. 	Robinson, 	Esq.
Chief, 	Communications 	and 	Finance 	Section
Antitrust 	Division
Department 	of 	Justice
555 	Fourth Street, 	NW
Washington, 	DC 	20001
Dear Ms. 	Robinson:
The 	staff 	of 	the 	Bureau 	of 	Economics 	of 	the 	Federal 	Trade
Commission (FTC) 	submits this letter, 	and the attached analysis, 	in
response 	to 	the 	call 	for 	comment 	on 	the 	proposed 	modification 	of
the 	network 	syndication 	consent 	decrees. 	These 	decrees 	respond
to 	complaint 	allegations 	that 	the 	three 	major 	networks 	had
restrained trade, 	monopolized, 	or attempted to monopolize a 	market
comprising national commercial television prime time entertainment
programs 	and 	submarkets 	comprising 	each 	network's 	own 	prime 	time
entertainment 	schedule, 	in 	violation 	of 	the 	Sherman 	Act. 2 	The
proposed 	modifications 	would 	remove 	the 	injunction 	that 	prevents
CBS, 	ABC, 	and 	NBC 	from 	acquiring 	a 	financial 	interest 	ill' 	or
engaging 	in 	the 	syndication of, 	certain 	television programs.
The analysis attached to this 	letter was prepared by the staff
of 	the 	Bureau 	of 	Economics 	and 	filed 	with 	the 	Federal
1 This 	letter and comment represent 	the views 	of 	the
the Bureau of 	Economics of the Federal Trade Commission.
not 	necessarily 	the 	views 	of 	the 	Commission 	itself
individual 	Commissioner.
staff 	of
They are
or 	any
2 	See 	United 	States 	v. 	American 	Broadcasting 	Cos., 	1981-1
Trade 	Cases 	at 	64,150, 	United 	States 	v. 	CBS 	Inc., 	1980-81 	Trade
Cases at 63,594, 	United States v. 	National Broadcasting Co., 	1978-1
Trade 	Cases 	at 	61,855.
3 Order Establishing Notice and Public Comment Procedures 	for
Motion to Modify Consent Judgment, 	United States v. 	CBS, 	Inc., 	No.
74-3599-RJK 	(C.O. 	Cal., 	May 	8, 	1992), 	United 	States 	v. 	American
Broadcasting Cos., 	No. 	74-3600-RJK 	(C.O. 	Cal. 	May 8, 	1992), 	United
States v. 	National Broadcasting Co., 	No. 	74-3601-RJK (C.O. 	Cal. 	May
8, 	1992).

· .
Constance K. 	Robinson, 	Esq.
Page 	2
Communications 	Commission 	(FCC) 	in September 1990. 4 At 	that 	time,
the 	FCC 	was 	considering 	whether 	to 	revise 	its 	rules 	governing
network 	holdings 	of 	financial 	interest 	and 	syndication 	rights 	in
programming 	("Fin-Syn" 	rules). 	The 	Fin-Syn rules 	were 	adopted 	in
1970, 	prior to the 	filing of the network consent decrees. 	Like the
network 	consent 	decrees, 	the 	Fin-Syn 	rules 	barred 	television
networks 	from acquiring a 	financial 	interest in, 	or engaging in the
syndication 	of, 	certain 	television 	programs. 	According 	to 	the
brief 	submitted 	by 	the 	Department 	of 	Justice 	in 	support 	of 	the
proposed 	modifications 	to 	the 	consent 	decrees, 	"the 	decrees 	in
these cases essentia!ly incorporated the restrictions of the 	FCC's
1970 	Fin-Syn rules."
In May 1991, 	the FCC 	issued a 	report and order modifying, 	but
not 	abolishing, 	the 	Fin-Syn 	rules. 	The 	modified 	rules 	permit 	the
networks, 	with 	some 	restrictions, 	to 	acquire 	financial 	and
syndication 	interests 	in 	television 	programs 	not 	permitted 	under
the 	1970 	rules. 	The 	networks 	cannot 	exercise 	these 	new 	rights,
however, 	due to 	the prohibitions 	contained in the consent decrees.
The issue before the court is whether to amend the existing consent
decrees 	to 	permit 	the 	networks 	to 	take 	advantage 	of 	their 	new
rights 	established by 	the 	revised 	Fin-Syn 	rules.
The 	central 	economic 	issues 	before 	the 	court 	are 	virtually
identical 	to 	those 	before 	the 	FCC 	when 	it 	reviewed 	the 	Fin-Syn
rules: 	would 	relaxing 	the 	existing 	restrictions 	on 	network
ownership 	of 	program 	and 	syndication 	rights 	in 	prime 	time
entertainment 	programming 	enable 	them, 	either 	individually 	or
collectively, 	to exercise market power in distributing off-network
syndicated 	programming 	or 	in 	purchasing 	television 	entertainment
programming. 	These 	issues 	are 	addressed 	in 	the 	1990 	FTC 	staff
comment 	attached 	to 	this 	letter. 	I 	believe 	that 	the 	1990 	staff
comment 	could 	p~ove 	helpful 	in 	considering 	modifications 	to 	the
consent 	decrees.
4 	Comment 	of 	the 	Staff 	of 	the 	Bureau 	of 	Economics 	of 	the
Federal 	Trade 	Commission 	In 	the 	Matter 	of 	Evaluation 	of 	the
Syndication 	and 	Financial 	Interest 	Rules, 	MM 	Docket 	No. 	90-162
September 	5, 	1990.
5 	Memorandum 	of 	the 	United 	States 	in 	Response 	to 	Motion 	of
Defendant CBS, 	Inc. 	to Modify the Final Judgment, 	Civil No. 	74-CIV-
3599, 	page 	6.
6 	The 	staff 	of 	the 	Bureau 	of 	Economics 	submitted 	two 	other
comments 	to 	the 	FCC 	about 	the 	Fin-Syn Rules 	in 	1991. 	Those 	later
comments, 	which 	relied 	on 	the 	analysis 	in 	the 	September 	5, 	1990
comment, 	would be 	less relevant to the present proceeding, 	because
they 	were 	tailored 	to 	address 	details 	of 	specific 	regulatory
options 	that 	the 	FCC was 	considering.

,
'. ,
constance 	K. 	Robinson, 	Esq.
Page 	3
Thank 	you 	for 	taking 	the 	time 	to 	consider 	the 	analysis
contained 	in 	the 	1990 	FTC 	staff 	comment. 	Questions 	concerning
either 	this 	letter 	or 	the 	1990 	staff 	comment 	can 	be 	directed 	to
Timothy P. 	Daniel, 	Assistant 	Director, 	Division of Economic 	Policy
Analysis, 	(202)326-3520.
Respectfully,
JL 	/. 	&£c:::::::==--==--
John L. 	Peterman
Director