Product Placement and the FCC

You may have noticed that more and more television shows these days seem to be including “product placement,” a form of advertising in which a product, corporate logo, or brand name is positioned as a “prop” in a program or is used as an integral part of the story line. We have all seen the prominently displayed Coca-Cola cups placed on the judges table in front of Simon, Randy and Paula during American Idol. And although Apple stated that it made no payment for what seemed like an entire episode of Emmy Award winning Modern Family devoted to the iPad, many in the media and the public wondered if what amounted to a half-hour advertisement for the iPad was legal.

Does the FCC have rules regarding product placement? Are program producers and broadcasters required to disclose placement deals to viewers?

The simple answer is yes. The FCC considers product placement to be “embedded advertising” that is subject to the FCC’s “sponsorship identification” rule. The rule says that if a program producer, broadcast station, or a station employee receives anything of value, directly or indirectly, in exchange for causing material to be broadcast, the sponsorship and the identity of the sponsor must be disclosed on-air.

Congress decided long ago that members of the public have a right to know when someone has paid to have material aired by a TV or radio station. As a result, if a station or network enters into a placement deal, the deal must be disclosed on the air. Undisclosed product placement can amount to illegal payola.

The FCC’s rules and the Communications Act aren’t limited to just requiring that broadcasters make the necessary disclosures. They also require program producers to notify the broadcaster if they have a deal to include any sort of product placement in a program. This allows the broadcaster to then make the necessary on-air disclosures.

More than two years ago, the FCC began considering whether it should adopt more stringent rules on how television programmers and broadcasters let viewers know when “props” in television shows are actually paid pitches made by an advertiser. However, the FCC has not yet resolved the question. The FCC’s proceeding was fashioned as a “Notice of Inquiry,” which means that the FCC will subsequently need to issue a Notice of Proposed Rulemaking before any new rule can be adopted. Because of this, we are not likely to see the matter resolved soon.

While the FCC’s product placement/embedded advertising proceeding is currently in limbo, broadcasters, networks, and program producers need to keep in mind that product placement deals — when not disclosed on-air — violate the FCC’s sponsorship identification rule. The use of product placement in advertising is only going to increase as advertisers respond to a changing industry, including the use of DVRs, online availability of content, and other tools that let viewers skip traditional commercials. When entering into product placement deals, program producers, networks and broadcasters need to remember that the FCC, and not just the public, may be watching.