Last week, FCC Commissioner Michael O’Rielly was in the news for sending a letter to the major record labels asking for information about their practices in paying broadcast stations for airing the label’s music.  The letter follows correspondence last year between the Commissioner and the RIAA (the Recording Industry’s trade group) asking for similar information, which the RIAA claimed that it did not have.  This process began after a Rolling Stone magazine article suggested that “payola” was still a common practice in the broadcast industry.  These actions, and the press reports that followed, raise a couple of interesting questions including what the FCC rules are on payola, and how broadcast practices compare to those of online companies.

The Communications Act prohibits the practice of “payola” by requiring, in Section 317, that when any content is aired on a station in exchange for anything of value, the station must disclose that “consideration” has been paid by the person or entity that pays for the consideration.  Thus, “payola” arises when a broadcast station employee or contractor receives or is promised anything of value in return for putting any content on the air, and that payment is not disclosed to the public.  Payola usually occurs when someone makes a gift or payment to a person involved in station programming (i.e., station employees, program producers, program suppliers) in exchange for favorable on-air exposure of a product or service.  While the term “payola” is most often associated with the receipt by a station announcer or music director of money, trips or other value for playing songs on the station, the same prohibition applies whenever any station programming personnel receive anything of value in exchange for airing any content where a sponsorship identification is not broadcast.  For examples of fines for airing programming for which consideration was received without acknowledging the receipt of valuable consideration, outside the context of music, see our articles here, here and here

Section 317 requires that stations take actions to ensure that their employees and program suppliers disclose consideration received for airing program content.  Most radio stations do this through routine distribution to their employees of payola policies, and in many cases getting affidavits from employees acknowledging that they have received information about the FCC requirements and understand the obligations.

Note that payola only exists where there is no disclosure of the receipt of something of value for the on-air content.  Payola is not an issue when full disclosure is made.  It is the lack of sponsorship disclosure that makes the transaction illegal.  Thus, a station is not in violation of the rules, even if it is paid to air songs or program segments, if on-air disclosure of the payment or other consideration is made.  The disclosure is supposed to be made at the time that the sponsored material is aired.

While payola (playing music for consideration without disclosing the consideration) may be illegal for broadcasters, the Commissioner notes in his letter that some have requested that this prohibition be reexamined in light of the current state of the marketplace, where broadcasters are competing against other distributors of programming who may not be subject to such rules.  While there are general obligations to disclose consideration for material transmitted for consideration via Internet platforms, those obligations are far less stringent than those of broadcasters (obligations for online platforms include general sponsorship disclosure obligations imposed by the FTC, see our article here, and state laws may apply to online platforms, see our article here).  Those disclosure obligations are often met in disclosures that are less obvious than those that are required of broadcasters.  If one looks, for instance, at the terms of service for online music platforms, there are statements that acknowledge that some may be receiving consideration for their music selections, but these are often very general statements buried in the site’s terms of use.  There is, for instance, this disclosure on one music service’s site:

In any part of the [NAME OF SERVICE] Service, the Content you access, including its selection and placement, may be influenced by commercial considerations, including [SERVICE’S] agreements with third parties.

While the standards may be different from those that apply to their online competition, right now, for broadcasters, they are still strict.  Broadcasters should ensure that they are educating their staffs about the obligations to identify when on-air content has been sponsored so that the proper disclosures can be made.  As violations of these requirements can result not only in FCC fines but also in criminal actions (see 47 U.S.C. Section 507), knowing the rules is very important.  This article provides just a snapshot of those rules – study them in detail and talk with your counsel about the obligations they impose to avoid the potentially serious consequences that can result if they are not followed.