May 12, In the Matter of 2002 Biennial Regulatory Review and Related Dockets (MB Docket No , MM Docket Nos , , )

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1 Representing the Independent Motion Picture and Television Industry Worldwide The Honorable Michael J. Copps Federal Communications Commission th Street, S.W. Washington, D.C May 12, 2003 In the Matter of 2002 Biennial Regulatory Review and Related Dockets (MB Docket No , MM Docket Nos , , ) Dear Commissioner Copps, This letter is a follow-up to our invitation to you to attend the 2003 American Film Market in February in Santa Monica. We are grateful to you and to your counsel Paul Margie for your effort to join us despite schedule changes and snowstorms. We look forward to meeting with you in Washington, DC in the not-too-distant future. AFMA, formerly the American Film Marketing Association, is the trade association for independent film and television producers and distributors. AFMA has 160 members, including such well-known independent film companies as Lakeshore, Morgan Creek, New Concorde, Miramax and New Line. AFMA members films include some of the most honored motion pictures of recent years, as well as box office surprises like My Big Fat Greek Wedding and Crouching Tiger, Hidden Dragon. These successes, a source of pride for all of us, should not be allowed to obscure the fact that most of our members are small companies operating on very tight margins. It is no exaggeration to say that many of our members bet the company on each film they make. The independent film and television industry has an enormous stake in the outcome of the FCC s biennial review proceeding examining media ownership rules (MB , et al.). I summarized our concerns for you at the USC/Annenberg School Media Ownership Forum on April 28, Given the importance of media consolidation to AFMA members, and given the Commissioner s June 2nd deadline for your proceeding, we thought it best to apprise you of our concerns in writing. The attached memo describes the situation of the independent film industry today, the significance of this proceeding to our membership, and our recommendations for action. On behalf of the entire AFMA membership, I thank you for your interest in this subject and in our views specifically. Sincerely, Jean M. Prewitt cc: Chairman Michael K. Powell and Members of the Commission FCC MB Docket No and MM Docket Nos , and Wilshire Boulevard, 9th Floor Los Angeles, California Telephone: (310) Fax: (310) info@afma.com Website:

2 AFMA s Concerns on the Impact of Media Consolidation Arising from The Biennial Regulatory Review of Media Ownership Rules MB Docket No ; MM Docket Nos ,01-317, AFMA Represents the Independents AFMA, formerly known as the American Film Marketing Association, is the trade association for independent 1 film and television producers and distributors. AFMA has 175 corporate members, including such well-known independent film companies as Lakeshore, Morgan Creek, New Concorde, Miramax and New Line. AFMA members films include some of the most honored motion pictures of recent years, as well as box office surprises like My Big Fat Greek Wedding and Bend it Like Beckham. These successes, a source of pride for all of us, should not be allowed to obscure the fact that most of our members are small companies operating on very tight margins. It is no exaggeration to say that many of our members bet the company on each film they make. Summary: Consolidation is Squeezing Independents out of TV The burgeoning media consolidation of recent years has almost entirely closed off the television industry to independent producers and distributors. Media ownership policies ostensibly designed to promote competition have had precisely the opposite effect, concentrating ownership of almost all television channels in the hands of a few giant conglomerates conglomerates that have also incorporated movie studios, thereby creating a closed circuit from production to exhibition. We believe that to loosen the ownership restrictions under review would be to silence independent voices and eliminate diversity in programming. Indeed, we believe that the FCC needs to take the lead in restoring competition to the television industry. If balance is not restored to this playing field then the immediate victim is the independent film and television industry, but the ultimate victim is each and every member of the viewing audience. Background: 1948 Consent Decree AFMA members have a special perspective on competition issues. The creation of the modern independent film industry was made possible by decisive government action. A series of antitrust cases brought by the Justice Department against the major film studios culminated in 1948 in a consent decree that severed production and distribution of films from exhibition of films (i.e., theater ownership). Once movie theaters were transferred to independent ownership, and were freed from studio-imposed strictures like block booking, competition opened up so that independents could distribute their films theatrically in the United States. The Rise of the Independents 1 AFMA defines independent producers and distributors as those companies and individuals apart from the major studios that assume the majority (more than 50%) of the financial risk for program production costs and control program exploitation in the majority of the world.

3 Led by American International Pictures, new independent film companies rushed into the breech. Open competition also led to the exhibition in the U.S. of outstanding foreign films, which previously had been unable to obtain access to U.S. screens. For decades after the promulgation of the 1948 Consent Decree, a special combination of creativity, entrepreneurship, and government policy enabled the independent film industry, and eventually the independent television industry, to flourish. But as proud as we independents are of our creativity and ingenuity, we believe that today s independent film industry would have never been born but for the federal government s good work in separating producers from exhibitors. The Feds Switch Sides How the times have changed. It is impossible to imagine today the Attorney General of the United States arguing before the Supreme Court that producers should divest themselves of distribution venues. Indeed, the government has taken the opposite approach, beginning ten years ago with the repeal of the financial interest in syndication rules (Fin-Syn). Repeal of Fin-Syn: The Broadcast Networks Unbound Under Fin-Syn, the broadcast networks were barred from owning their programs. Instead the networks obtained programming from independent producers. This system worked for networks, who profited from advertising revenues, for independent producers and distributors, who profited on the back end through syndication deals, and for audiences, who benefited from a fierce competition among creators to offer compelling programming to the networks. In 1993 Fin-Syn was allowed to expire, in part because the networks insisted that their entry into the production business would increase the number of competitors in this field, a claim that proved to be inaccurate. What has happened is that the networks have consolidated and expanded their hegemony over a much larger territory. Today a network orders up a new program from its captive movie studio, broadcasts it on its broadcast network in prime-time, then reruns it er, repurposes it - a few days later on one of its cable networks. Consolidation is Bad for the Television Audience What does industry consolidation mean for viewers? In the old regime, when producers vied to produce stimulating programming, viewers were treated to meaningful programs like All in the Family and Mash. However, conglomerates rarely produce prime-time programming that challenges its viewers. The current prime-time lineup demonstrates that the shrunken pool of captive producers are most likely to imitate each other s programming, however awful it may be. The cost cutting that inevitably comes with consolidation, has the networks focused on acquiring inexpensive programming such as the ubiquitous reality shows versus the more expensive (and substantive) hour-long dramas, mini-series and movies-of-the-week. Self-Dealing in Prime-Time Today the networks prime-time schedules are focused on reality programming and other formula programming. The rest of the schedule is filled by internally produced programs for example, ABC began the season with nine new programs, seven of them produced by Disney s Touchstone movie studio. The networks do not have an economic

4 incentive to compete; consolidation means that they have only an incentive to purchase their own programs. The loser is the viewer. Loss of Infrastructure The harm to the television audience goes beyond the lowering of quality standards that comes when competition is eliminated. Dozens of production and syndication companies have been eliminated in the last ten years, destroying an infrastructure of independent production, a training ground for future producers, directors and writers of programming with an important perspective. A Look at the Broader Picture While this review by the FCC will address media consolidation in the U.S., it should be conducted in a broader context and with the understanding that consolidation exacerbates an already bleak picture for the independents, which find they are being systematically squeezed out of critical distribution outlets. First, the independents were squeezed out of the U.S. theatrical market, relegated to releasing solely through distribution deals with the studios. In the early days of home video (and only after the studios refused to embrace the home video format), the independents did find shelf space for their product. However, any gains made by the independents were eventually lost as the video retail business consolidated from mom and pop stores to a few entities, including CBS/Viacom owned Blockbuster Entertainment, controlling much of the video retail space. Accelerated concentration in the free television and cable market and closure of those outlets for independent product may very well be the final blow to the U.S. Independents. Why We Need the Indies: The Roger Corman Story To take our discussion full circle, consider the career trajectory of Roger Corman, the legendary independent film producer. Corman began making independent films for theaters opened by the consent decree; once he was firmly established, Corman became the top U.S. distributor of prestigious foreign films. Corman took advantage of every distribution avenue available, making films for the straight-to-video-market (at one time Corman had the largest library of video titles in circulation), then producing Showtime original movies and a Sci-Fi Channel television series, all the while continuing to independently produce feature films. Like other AFMA members, Corman has moved back and forth between theatrical films and television productions to AFMA members these are two markets for distribution, not two distinct industries. And like other AFMA members, Corman finds it virtually impossible to sell programming to television in the U.S. today. Corman s career is significant to the viewing audience for another reason. As an independent, Corman was able to nurture iconoclastic young filmmakers who were reluctant to submit to the constraints of the studio system. Francis Ford Coppola, Martin Scorsese, Gale Ann Hurd, Carl Franklin, Ron Howard, James Cameron, and Jonathan Demme are among the esteemed directors and producers who made their first films for Corman. Eliminating independent production companies means eliminating independent attitudes.

5 The Stakes The current outlook is bleak for independent television producers and distributors and for audiences who appreciate quality programming. The choice between independents on the one hand and conglomerates on the other is not simply a decision about which group increases its share of revenues; rather, this is a choice between All in the Family and MASH on the one hand and Survivor and The Bachelor on the other. Restoring Balance: Remedial Measures We call upon the FCC to take decisive steps to level the playing field. Specifically, we urge the FCC to do the following: -Maintain current restrictions on cross-ownership. Do not raise ownership caps; -Engage in stricter and more in-depth reviews of media and entertainment industry mergers, whether or not those mergers would trigger specific proscriptions such as ownership caps: -Short of restoring Fin-Syn, carve out a market for independent television producers and distributors by requiring the broadcast networks to purchase at least 25% of their programming from independent companies. Independent companies must be defined as companies that have no common ownership with the broadcast networks. If the FCC resolves, despite all the testimony to the contrary, to raise ownership caps, then we request that the FCC immediately initiate a new proceeding for the specific purpose of determining and implementing a suitable system to guarantee independent producers access to the prime-time broadcast airwaves.