Payola and Sponsorship Identification

The FCC today announced a $1,000,000 Consent Decree with Univision Radio to settle payola investigations underway at both the FCC and the Department of Justice.  Payola, or "pay for play" as it is called in the FCC Press Release issued today, is a violation of FCC rules and Federal criminal law, which both prohibit

In the last few weeks, I’ve been asked several times by broadcasters whether an ad should be considered an "issue ad."   Usually, the ad in question deals with some sort of faintly controversial issue, and the broadcaster seems torn about how to classify the ad.   In many ways, the answer is almost irrelevant as, other than some public file obligations, whether or not an ad is an issue ad has little practical significance.  Issue ads are not entitled to special rates – lowest unit rates are reserved for candidate ads.  They are not entitled to special placement in broadcast schedules.  As there is no Fairness Doctrine, there isn’t even a requirement that you treat both sides of an issue in the same fashion (except perhaps, where a Fairness obligation may still arise if the issue being discussed is a candidate in an election, when the last remnant of Fairness, the Zapple Doctrine, has not officially been declared dead).  So why worry about whether or not something is an issue ad?

The principal reason is the public file. Commission rules require that the sponsor of an issue ad be identified in a broadcaster’s public file, along with the sponsor’s principal officers or directors.  This is required for any ad dealing with a controversial issue of public importance.  The ad does not need to deal with a political issue, or one to be considered by a government body.  Any controversial issue of public importance merits the public file treatment.  For ads dealing with a "federal issue", one to be considered by the US Congress, any Federal administrative agency or any other branch of the United States government, additional disclosures need to be made in the file (which we have listed before), setting out all the information that you would need to provide with respect to a candidate ad – including the price paid for the ad and the schedule on which the ad will run. 

Continue Reading So Just What is an “Issue Ad” and Why Should I Care?

Another year is upon us, and it’s time for predictions as to what Washington may have in store for broadcasters in 2010.  Each year, when we look at what might be coming, we are amazed at the number of issues that could affect the industry – often issues that are the same year to year as final decisions are often hard to come by in Washington with the interplay between the FCC and other government agencies, the courts and Congress. This year, as usual, we see a whole list of issues, many of which remain from prior years. But this year is different, as we have had a list topped by issues such as the suggestion that television spectrum be reallotted for wireless uses and the radio performance royalty, that could fundamentally affect the broadcast business.  The new administration at the FCC is only beginning to get down to business, having filling most of the decision-making positions at the Commission.  Thus far, its attention has been focused on broadband, working diligently to complete a report to Congress on plans for implementation of a national broadband plan, a report that is required to be issued in February.  But, from what little we have seen from the new Commission and its employees, there seems to be a willingness to reexamine many of the fundamental tenants of broadcasting.  And Congress is not shy about offering its own opinions on how to make broadcasting "better."  This willingness to reexamine some of the most fundamental tenets of broadcasting should make this a most interesting, and potentially frightening, year. Some of the issues to likely be facing television, radio and the broadcasting industry generally are set out below.

Television Issues.

In the television world, at this time last year, we were discussing the end of the digital television transition, and expressing the concern of broadcasters about the FCC’s White Spaces decision allowing unlicensed wireless devices into the television spectrum. While the White Spaces process still has not been finalized, that concern over the encroachment on the TV spectrum has taken a back seat to a far more fundamental issue of whether to repurpose large chunks of the television spectrum (if not the entire spectrum) for wireless users, while compressing television into an even smaller part of what’s left of the television band – if not migrating it altogether to multichannel providers like cable or satellite, with subscription fees for the poorest citizens being paid for from spectrum auction receipts. This proposal, while floated for years in academic circles, has in the last three months become one that is being legitimately debated in Washington, and one that television broadcasters have to take seriously, no matter how absurd it may seem at first glance. Who would have thought that just six month after the completion of the digital transition, when so much time and effort was expended to make sure that homes that receive free over-the-air television would not be adversely impacted by the digital transition, we could now be talking about abolishing free over-the-air television entirely? This cannot happen overnight, and it is a process sure to be resisted as broadcasters seek to protect their ability to roll out new digital multicast channels and their mobile platforms. But it is a real proposal which, if implemented, could fundamentally change the face of the television industry.  Watch for this debate to continue this year.

Continue Reading Looking Into the Crystal Ball – What Can Broadcasters Expect from Washington in 2010?

On December 1, 2009,  FTC revised Guidelines went into effect updating policies dealing with advertising using testimonials and endorsements, specifically affecting celebrity endorsements and sponsorship disclosure.  These revised guidelines directly impact the established practices of broadcasters and new media companies.  These revised endorsement and testimonial guidelines effectively ban the old standard “results not typical” disclaimer so commonly in use in connection with a great deal of testimonial advertising, confirm independent liability for the “endorser” (including celebrities) for false product or service claims, and expand and clarify the need for disclosure of “material connections”, that is consideration (money and other “freebies”) received by new media companies in connection with reviews or other online coverage of products or services.  It is vital that media companies, in particular new media, understand the key provisions of these guidelines to make sure that they don’t become a target of any FTC enforcement action.  The FTC has indicated that for now at least, its focus will be on enforcement in the new media world (bloggers, social media, viral campaigns) and other “non-traditional” advertising (celebrity guests on news and entertainment shows, endorsements by media personnel such as on-air DJ’s).

Like all FTC Guidance concerning advertising, the revised guidelines are specific regulations, but instead they set out standards (in essence a safe harbor) that outline how the FTC will review advertising to determine if it is “false and deceptive” or otherwise misleading to the consumer in violation of Section 5 of the FTC Act.  The revised guidelines provide specific examples as to how they will apply to insure sufficient disclosure so that the listener has all the background necessary to be able to evaluate the strength of the endorsement for him or herself.  For broadcast advertising, the new guidelines make clear that endorsers can themselves be liable for misleading statements made during a product pitch.  So a radio announcer paid to try a diet plan or some other product and to report about its results on the air needs to be sure not only that his statements are truthful, but that the “results” claimed are in line with what the advertiser can actually prove for the product through clinical study and research.  The radio pitchman cannot turn a blind eye to claims that are inherently incredible.  In the past, a simple disclosure that "your results may vary" or "these results are not necessarily typical" was sufficient.  Today, that disclaimer is no longer enough.  Instead, the new guidelines state that any testimonial about the results of using a product be accompanied with a disclosure of the results that a typical user can expect to get from the product.  So the announcer must be informed as to what results can be expected by the typical user, and that these results are objectively verifiable, so that the proper disclosure can be made.  As the announcer (or the station) can now be liable for statements made in such testimonials, stations should take care to be prepared to make the required disclosures. 

Continue Reading New FTC Guidelines on Endorsements and Sponsorship Disclosure – Broadcasters and New Media Companies Beware

A story in today’s Wall Street Journal discusses the significant amount of money being spent on television advertising for and against pending proposals for health care reform.  As we have written before, broadcasters are required to keep in their public file information about advertising dealing with Federal issues – records as detailed as those kept for political candidates.  Information in the file should include not only the sponsor of the ad, but also when the spots are scheduled to run (and, after the fact, when they did in fact run), the class of time purchased, and the price paid for the advertising.  Clearly, the health care issue is a Federal issue, as it is being considered by the US Congress in Washington.  So remember to keep your public file up to date with this required information. 

Section 315 of the Communications Act deals with these issues, stating that these records must be kept for any request to purchase time on a "political matter of national importance", which is defined as any matter relating to a candidate or Federal election or "a national legislative issue of public importance."  Clearly, health care would fit in that definition.  The specific information to be kept in the file includes:

  • If the request to purchase time is accepted or rejected
  • Dates on which the ad is run
  • The rates charged by the station
  • Class of time purchased
  • The issue to which the ad refers
  • The name of the purchaser of the advertising time including:
    • The name, address and phone number of a contact person
    • A list of the chief executive officers or members of the executive committee or board of directors of the sponsoring organization.


Continue Reading Health Policy Ads on Broadcast Stations – Remember Your Public File Obligations

The MusicFirst coalition last week asked that the FCC investigate broadcast stations that allegedly cut back on playing the music of artists who back a broadcast performance royalty, and also those stations who have run spots on the air opposing the performance royalty without giving the supporters of the royalty an opportunity to respond.  While the NAB and many other observers have suggested that the filing is simply wrong on its facts, pointing for instance to the current chart-topping position of the Black Eyed Peas whose lead singer has been a vocal supporter of the royalty, it seems to me that there is an even more fundamental issue at stake here – the First Amendment rights of broadcasters.  What the petition is really saying is that the government should impose a requirement on broadcasters that they not speak out on an issue of fundamental importance to their industry.  The petition seems to argue that the rights of performers (and record labels) to seek money from broadcasters is of such importance that the First Amendment rights of broadcasters to speak out against that royalty should be abridged.

While the MusicFirst petition claims that it neither seeks to abridge the First Amendment rights of broadcasters nor to bring back the Fairness Doctrine, it is hard credit that claim.  After all, the petition goes directly to the heart of the broadcasters ability to speak out on the topic, and seems to want to mandate that broadcasters present the opposing side of the issue, the very purpose of the Fairness Doctrine.  As we’ve written, the Fairness Doctrine was abolished as an unconstitutional abridgment on the broadcaster’s First Amendment rights 20 years ago.  As an outgrowth of this decision, FCC and Court decisions concluded that broadcasters have the right to editorialize on controversial issues, free of any obligation to present opposing viewpoints.  What is it that makes this case different?

Continue Reading MusicFirst’s Complaint to the FCC: The First Amendment and the Performance Royalty

A recent stir was created when a Midwestern television company was reported to have signed a contract with a state government agency, promising to market the agency and its programs throughout the state.  This promotion was to include a segment in the company’s televised news promoting the effects of the work of the agency.  Questions were immediately raised about whether this was prohibited by FCC rules.  But, when the news pieces ran, the company was very careful to state after these segments that they were sponsored by the station and the state agency.  As the FCC has no rules about what can be included in the "news" (and probably could not consistent with the First Amendment), the only real issue was one of sponsorship identification.  As the licensee did here, if the sponsor of the story is identified, making clear to the public who was attempting to persuade them on the issue addressed, there should be no FCC issues.

This is different from the issues that have arisen previously at the FCC, where there have been fines levied against television stations and cable systems for airing programming that was sponsored, but for which no sponsorship identification was provided (see our posts here and here).  This includes the video news release or VNR issues, where the FCC has fined stations for using news actualities provided by groups with a financial interest in the issue that was being addressed, but without identifying the fact that the material was provided by the interested parties.  Where a program addresses a controversial issue of public importance, the disclosure rules are more strict, requiring that the station not only disclose that it received money to air a story – but to also disclose anything that it got from the interested party – including tapes or scripts.

Continue Reading Selling Stories In a Broadcast Station’s News Programs – Remember the Sponsorship Identification

Come the New Year, we all engage in speculation about what’s ahead in our chosen fields, so it’s time for us to look into our crystal ball to try to discern what Washington may have in store for broadcasters in 2009. With each new year, a new set of regulatory issues face the broadcaster from the powers-that-be in Washington. But this year, with a new Presidential administration, new chairs of the Congressional committees that regulate broadcasters, and with a new FCC on the way, the potential regulatory challenges may cause the broadcaster to look at the new year with more trepidation than usual. In a year when the digital television transition finally becomes a reality, and with a troubled economy and no election or Olympic dollars to ease the downturn, who wants to deal with new regulatory obstacles? Yet, there are potential changes that could affect virtually all phases of the broadcast operations for both radio and television stations – technical, programming, sales, and even the use of music – all of which may have a direct impact on a station’s bottom line that can’t be ignored. 

With the digital conversion, one would think that television broadcasters have all the technical issues that they need for 2009. But the FCC’s recent adoption of its “White Spaces” order, authorizing the operation of unlicensed wireless devices on the TV channels, insures that there will be other issues to watch. The White Spaces decision will likely be appealed. While the appeal is going on, the FCC will have to work on the details of the order’s implementation, including approving operators of the database that is supposed to list all the stations that the new wireless devices will have to protect, as well as “type accepting” the devices themselves, essentially certifying that the devices can do what their backers claim – knowing where they are through the use of geolocation technology, “sniffing” out signals to protect, and communicating with the database to avoid interference with local television, land mobile radio, and wireless microphone signals.

Continue Reading Gazing Into the Crystal Ball – The Outlook for Broadcast Regulation in 2009

According to numerous press articles, including this one in Multichannel News, the FCC has begun an investigation into several commentators on TV news programs to see if they were receiving payments or other consideration for presenting a particular viewpoint on military issues on which they were interviewed.  According to press reports, the FCC has

In a recent article in Silicon Valley Insider, TargetSpot’s CEO, Doug Perlson, suggests that the financial savior of Internet Radio might be payola – taking money from record companies or artists to play their songs.  Putting aside any issues of the financial benefits of such a plan, and the creative and aesthetic issues that pay for play may raise, and since this is a blog written by lawyers, we’ll deal with the legal implications.  And as lawyers, we’re forced to play the spoilsport.  As set forth below, such a scheme can be done legally (just as it could be on terrestrial radio with the proper disclosures).  But, while there has been no legal enforcement of such activities, careful Internet radio operators would best be advised to be careful about just taking the money and playing songs, but instead should make some disclosure of the nature of the service that they are providing.

The payola statute, 47 USC Section 508, applies to radio stations and their employees, so by its terms it does not apply to Internet radio (at least to the extent that Internet Radio is not transmitted by radio waves – we’ll ignore questions of whether Internet radio transmitted by wi-fi, WiMax or cellular technology might be considered a "radio" service for purposes of this statute).  But that does not end the inquiry.  Note that neither the prosecutions brought by Eliot Spitzer in New York state a few years ago nor the prosecution of legendary disc jockey Alan Fried in the 1950s were brought under the payola statute.  Instead, both were based on state law commercial bribery statutes on the theory that improper payments were being received for a commercial advantage.  Such statutes are in no way limited to radio, but can apply to any business.  Thus, Internet radio stations would need to be concerned.

Continue Reading Payola on Internet Radio – Legal?