In the 1990s, a host of antitrust rules impacting the television industry were repealed. Vaughn Joy explains how today’s streaming giants are exploiting the rollback and vertically integrating, a trend that will reduce the quality of TV shows and send us back to the era of network giants.
In August 2023, the Writers Guild of America (WGA), the labor union for screenwriters, published a report entitled “The New Gatekeepers: How Disney, Amazon, and Netflix Will Take Over Media.” This report explained the current landscape of Hollywood and the dangers of the increasing vertical integration within the industry. Vertical integration is the structuring of a studio in which it owns the production, distribution, and exhibition of its products. Referring to the long-repealed Financial Interest and Syndication Rules (Fin-Syn) as historical precedent, the WGA called for antitrust rules to be put in place, particularly focused on the new Big Three in the entertainment industry: Walt Disney Company, Amazon, and Netflix.
History of Fin-Syn and 70’s cable shows
The Fin-Syn rules were first put in place by the Federal Communications Commission (FCC) in 1970 to address the vertical integration of the television industry. Until 1948, Hollywood itself was vertically integrated before the Supreme Court issued consent decrees forcing the dissolution of the exhibition arms of the largest film studios in the Studio System.
As Hollywood adapted to the new antitrust rules and the changing landscape of the entertainment industry in the 1950s, the television industry came to prominence led by three radio broadcasting companies. Throughout the 1960s, these three broadcasters— without the same antitrust oversight in the television industry as in the film— consolidated their power and mimicked the vertical integration practices of those prior studios leading to federal intervention and a renewed interest in breaking up entertainment monopolies in 1980. The Big Three broadcasters in 1970 were National Broadcasting Company (NBC), American Broadcasting Company (ABC), and Columbia Broadcasting System (CBS). These three companies produced syndicated television shows in in-house studios that they then showed on their own primary channels as well as their proprietary subsidiary networks. This allowed them to keep all exhibition profits— including advertising revenue— in-house.
The Big Three also enjoyed anticompetitive practices such as prioritizing their own shows over those from other companies, particularly during prime-time slots. These anticompetitive practices helped the Big Three corner the market: producing, distributing, and exhibiting television was far too expensive for independent companies to undertake, especially with the blocked scheduling reserved for the Big Three’s own syndicated television across networks. The disparity between the Big Three and any other studios in television gradually grew until the FCC stepped in and established the Fin-Syn rules and the subsequent Prime-Time Access Rules (PTAR) that often are rolled into the discussions of Fin-Syn.
Effects of Fin-Syn
First and foremost, the Fin-Syn rules made it so the Big Three broadcasters could not hold perpetual financial interest in their shows beyond their first run. This rule meant that broadcasters then had to license programs from producers for a right to air them a set number of times before all rights returned to the production company. Secondly, the FCC banned the formation of in-house syndication divisions. The broadcasters could no longer form production branches and instead had to focus on distribution and exhibition, breaking the vertical model. Additionally, PTAR limited the amount of prime-time airtime that shows financially affiliated with the network could fill to 50%. Regarding the importance of these interventions, the FCC said in the Federal Register published May 13, 1970:
“The public interest requires limitations on network control and an increase in the opportunity for development of truly independent sources of prime-time programming. Existing practices and structure combined have centralized control and virtually eliminated needed sources of mass appeal programs competitive with network offerings in prime time.”
In subsequent years, the FCC added more rules and reviewed those in place as they were challenged by the networks and their financial partners. Beginning in 1978, the Department of Justice required the Big Three to sign consent decrees solidifying their antitrust commitments.
Similar to the effects of Hollywood’s earlier consent decrees and subsequent breaking up of the vertically integrated industry, the television industry had seen an increase in independent productions and entered what the WGA calls a “golden era” of television. One reason for the Golden Era demarcation was that it showcased TV shows that challenged prevailing social and political narratives, a common result of increased competition, independent producers, more writers, and the shopping of ideas. When networks are forced to bid on shows rather than airing their own productions perpetually, not only are more jobs created, but there is also a diversification of the types of stories that are developed into final productions.
Due to financial pressures, routine undermining, and challenges, the rules began to be repealed in 1993 through 1995 and the FCC officially stopped enforcing them in 1996. One challenge to the rules came from the formation of Fox Broadcasting Company in 1986 when Rupert Murdoch leveraged his own media empire to purchase 50% interest in TCF Holdings, 20th Century Fox’s parent company. The FCC allowed this merger of News Corporation and the 79 affiliate stations that served 80% of homes in the United States.
Immediately following the repeal of the Fin-Syn rules, the Walt Disney Company exploited relaxed attitudes towards antitrust regulations in the mid-1990s and purchased ABC for $19 billion, making it a vertically integrated firm. This merger and the repeal of the Fin-Syn rules set the groundwork for the vertically integrated system in which the motion picture industry finds itself now and against which the WGA is calling for action.
Since 1995, Disney has acquired the intellectual property and studios of Pixar, Marvel, Lucasfilm, and 20th Century Fox – including partial ownership of their streaming service, Hulu – for a total of $86.75 billion. Disney then launched its own streaming service, Disney+, in November 2019. The debt from these acquisitions and mergers has resulted in a 65% decline in film output from Disney and its studios between 2009 and 2017.
The other two streaming giants named by the WGA are Amazon and Netflix, the companies arguably most responsible for the streaming era. Prime Video’s predecessor launched in 2006 and Netflix’s streaming service in 2007. Both companies have been strategically acquiring intellectual properties and studios while expanding their operations. Amazon, for instance, as the global marketplace, has taken to expanding laterally and vertically, opening Amazon Studios in 2010, creating the technology for Fire TVs and Sticks in 2014, launching their Amazon Channels in 2015 and Freevee in 2019, and ultimately purchasing MGM studios in 2022 for $8.5 billion. Netflix is fairly new to expanding their streaming operations but have made at least eight acquisitions in the last seven years, including intellectual properties, animation, production, and video game studios. By the second quarter of 2023, Amazon held 21% of the U.S. streaming market and Netflix held 20% (Disney has 13% and Hulu 11%).
Both Netflix and Amazon have been embroiled in union challenges in recent years. Netflix was forced to pay $42 million in unpaid residuals to the WGA in 2022 while Amazon paid over $4 million. The larger the companies become and the more vertically integrated, the higher their profits and the more opportunity to get away with exploitative practices that increase the disparity between these new Big Three and the rest of the entertainment industry.
Breaking up these streaming giants and addressing their anticompetitive practices that mimic the vertically integrated monopolies of previous iterations of the entertainment industry is imperative. While the WGA won their strike with an impressive contract that met their demands, and while the Screen Actors Guild (SAG-AFTRA) is still on strike, the labor movement cannot address these monopolies alone.
For instance, after saying earlier this year that the demands of the WGA and SAG-AFTRA are “just not realistic”, Bob Iger’s Disney announced on November 1 that it is prepared to pay $8.6 billion to acquire the remaining 33% of Hulu that it does not currently own. This news of Disney’s willingness to purchase the rest of Hulu comes just one month after a federal judge ordered Disney to address the consumer class action antitrust lawsuit brought against them last November specifically for their anticompetitive, monopolistic practices rooted in their partial ownership of Hulu. This suit addresses concerns that Disney, as the owner of ESPN (live sports content supplier) and partial owner of Hulu (live sports paid streamer), the company has engaged in anticompetitive practices by artificially raising the costs of their bundled streaming packages.
Without sufficient and thorough antitrust legislation or regulations, these vertically integrated companies will continue to grow, corner the industry, and pay off small penalty fees when they are challenged in court. Just as the Paramount Decrees forbade the producers from owning their exhibitors and Fin-Syn kept exhibitors from owning their productions, we need federal regulation to separate the producing studios and their streaming services. A balance of power in the vitally important cultural sector is essential to ensuring a diversification of thought in our entertainment media, as well as an industry in which artists, producers, and creatives can thrive.
Articles represent the opinions of their writers, not necessarily those of the University of Chicago, the Booth School of Business, or its faculty.