Broadcasting Telecasting (Oct-Dec 1960)

PROGRAMMING Film packages for tv have about had it COURT DECISION SHOULD SAVE BROADCASTERS MONEY, END "DOGS" Television stations will be able to buy feature film by the picture — and perhaps save money in the bargain. This is the way it's supposed to work as soon as a New York federal judge puts out an injunction prohibiting the forced sale of theatrical motion pictures to tv stations in blocks or packages. The injunction will be issued by U. S. District Judge Archie O. Dawson after the Dept. of Justice files proposed specifications of the decree and, undoubtedly, after lawyers for the six tv film distributors argue over the content. No date has been set for this action. In his opinion Judge Dawson found instances of forced, tie-in film sales by the distributor defendants. The court denied, however, the gov ernment's demand that the film distributors be forced to renegotiate current contracts. If individual tv stations want to collect refunds, the judge stated, they can sue for treble damages in a civil antitrust suit. The ruling brings to a close a threeyear-old antitrust suit which charged violation of Sec. 1 of the Sherman Act. It was instituted in 1957 by the Justice Dept. against the big six of tv feature films — Loew's Inc. (MGM), Associated Artists Productions Inc. (Warner Bros.). C&C Super Corp. (RKO), National Telefilm Assoc. (20th CenturyFox), Screen Gems Inc. (Columbia) and United Artists Corp. (independents). No Comment ■ Spokesmen for the film distributors declined to comment on the opinion. They pointed out they are still examining the document, but said consideration is being given to an appeal. It was indicated that a meeting among the attorneys representing the six companies may be held within the next few weeks to decide what legal steps, if any, should be taken. The opinion, lawyers point out, apparently brings television under the 1948 Paramount consent decree umbrella. The Paramount case, which resulted in the forced divorcement of producers from their owned theatre chains, prohibits the required purchase of motion picture film in groups. This is considered a significant ruling Federal tax officials take off their blinders Federal tax officials are starting to take a realistic look at the practical side of tv film production and exhibition. The first break in the Internal Revenue Service's traditional approach to the taxing of income from tv films appeared last week in a ruling that affects tv film producers. IRS took notice in its decision that tv film showings have different values at different times. This recognition of the vagaries of the film production business raised hope that IRS would be equally realistic in deciding a series of cases involving the amortization of tv station film libraries. There was indication at the weekend that a west coast ruling by the IRS regional office in San Francisco would be issued by yearend. At issue is an appeal by a Seattle tv station from an IRS district decision refusing to recognize the station's claim that the first-run showing of a film should be amortized at 60% of the film's value (Broadcasting, May 18, 1959). Similar appeals have been filed by tv stations in Los Angeles, Salt Lake City and Denver, but all three have been laid aside by IRS district or regional offices pending a ruling in the Seattle case. Tv station auditors found encouragement in last week's national IRS ruling because it recognized after a long study of the film production problem, the "strikingly uneven flow of income" earned by groups of tv film programs within a producer's series. National Formula "IRS proceeded to draw up a formula having national application to tv film producers. This formula is based on IRS realization that the usefulness of a film series cannot be adequately measured by the passage of time alone, with depreciation necessarily following the flow of income. Currently the IRS west coast regional office is understood to be studying the national ruling affecting tv film producers before acting on the amortization appeal of the Seattle tv station, particularly the statement by the national office that film showings have different values at different times. The 1959 San Francisco ruling appealed by the Seattle tv station had held: "Where the contract (movie film lease to a tv station) provides for a limited number of telecasts during a limited period of time, amortization is to be computed by dividing the cost of the package by the number of telecasts permitted under the contract. The cost per telecast, multiplied by the number of telecasts during the taxable year, determines the amount of amortization allowable for that year. Where the contract provides for an unlimited number of telecasts during a limited period of time, amortization is to be computed ratably over the life of the lease." This ruling meant that if a tv station leased, for example, a group of 500 films from one distributor, with five showings of each film permitted, only 1/ 2500th of the total lease value could be amortized for each individual showing of a film. Expensive Concept ■ Such a concept promised to be costly to tv stations, forcing them to adopt accounting procedures not properly reflecting profit and loss. While only a regional rather than national ruling, it might be adopted nationally unless reversed on appeal inasmuch as IRS regional rulings are often circularized to all regional offices. The regional decision failed to recognize that some film lease contracts specify that if a lessor repossesses a film shown once, it is worth only 40% of the base price. NAB's legal department, headed by Douglas A. Anello, chief counsel, has been working with station attorneys in the cases. In the latest ruling covering tv film producers, the IRS national office noted that depreciation formulas of the revenue code (167a,b) are inadequate in most cases when applied to tv film producers because of the uneven flow of income earned by groups of programs within a series. This is due to contract restrictions, methods of distribution 70 BROADCASTING, December 12, 1960