Sponsorship ID & Payola/Plugola Category

FCC Enforcement Monitor

Scott R. Flick Christine A. Reilly

Posted February 29, 2012

By Scott R. Flick and Christine A. Reilly

Pillsbury's communications lawyers have published FCC Enforcement Monitor monthly since 1999 to inform our clients of notable FCC enforcement actions against FCC license holders and others. This month's issue includes:

  • Inadequate Sponsorship ID Ends with $44,000 Fine
  • Unattended Main Studio Fine Warrants Upward Adjustment
  • $16,000 Consent Decree Seems Like a Deal

Licensee Fined $44,000 for Failure to Properly Disclose Sponsorship ID
For years, the FCC has been tough on licensees that are paid to air content but do not acknowledge such sponsorship, and an Illinois licensee was painfully reminded that failing to identify sponsors of broadcast content has a high cost. In a recent Notice of Apparent Liability ("NAL"), the FCC fined the licensee $44,000 for violating its rule requiring licensees to provide sponsorship information when they broadcast content in return for money or other "valuable consideration."

Section 317 of the Communications Act and Section 73.1212 of the FCC's Rules require all broadcast stations to disclose at the time the content is aired whether any broadcast content is made in exchange for valuable consideration or the promise of valuable consideration. Specifically, the disclosure must include (1) an announcement that part or all of the content has been sponsored or paid for, and (2) information regarding the person or organization that sponsored or paid for the content.

In 2009, the FCC received a complaint alleging a program was aired without adequate disclosures. Specifically, the complaint alleged that the program did not disclose that it was an advertisement rather than a news story. Two years after the complaint, the FCC issued a Letter of Inquiry ("LOI") to the licensee. In its response to the LOI, the licensee maintained that its programming satisfied the FCC's requirements and explained that all of the airings of the content at issue contained sponsorship identification information, with the exception of eleven 90-second spots. In these eleven spots, the name of the sponsoring organization was identified, but the segment did not explicitly state that the content was paid for by that organization.

Though the licensee defended its program content and the disclosure of the sponsor's name as sufficient to meet the FCC's requirements, the FCC was clearly not persuaded. The FCC expressed particular concern over preventing viewer deception, especially when the content of the programming is not readily distinguishable from other non-sponsored news programming, as was the case here.

The base forfeiture for sponsorship identification violations is $4,000. The FCC fined the licensee $44,000, which represents $4,000 for each of the eleven segments that aired without adequate disclosure of sponsorship information.

Absence of Main Studio Staffing Lands AM Broadcaster a $10,000 Penalty
In another recently released NAL, the FCC reminds broadcasters that a station's main studio must be attended by at least one of its two mandatory full-time employees during regular business hours as required by Section 73.1125 of the FCC's Rules. Section 73.1125 states that broadcast stations must maintain a main studio within or near their community of license. The FCC's policies require that the main studio must maintain at least two full-time employees (one management level and the other staff level). The FCC has repeatedly indicated in other NALs that the management level employee, although not "chained to their desk", must report to the main studio on a daily basis. The FCC defines normal business hours as any eight hour period between 8am and 6pm. The base forfeiture for violations of Section 73.1125 is $7,000.

According to the NAL, agents from the Detroit Field Office ("DFO") attempted to inspect the main studio of an Ohio AM broadcaster at 2:20pm on March 30, 2010. Upon arrival, the agents determined that the main studio building was unattended and the doors were locked. Prior to leaving the main studio, an individual arrived at the location, explained that the agents must call another individual, later identified as the licensee's Chief Executive Officer ("CEO"), in order to gain access to the studio, and provided the CEO's contact number. The agents attempted to call the CEO without success prior to leaving the main studio.

Approximately two months later, the DFO issued an LOI. In the AM broadcaster's LOI response, the CEO indicated that the "station personnel did not have specific days and times that they work, but rather are 'scheduled as needed.'" Additionally, the LOI response indicated that the DFO agents could have entered the station on their initial visit if they had "push[ed] the entry buzzer."

In August 2010, the DFO agents made a second visit to the AM station's main studio. Again the agents found the main studio unattended and the doors locked. The agents looked for, but did not find, the "entry buzzer" described in the LOI response.

The NAL stated that the AM broadcaster's "deliberate disregard" for the FCC's rules, as evidenced by its continued noncompliance after the DFO's warning, warranted an upward adjustment of $3,000, resulting in a total fine of $10,000. The FCC also mandated that the licensee submit a statement to the FCC within 30 days certifying that its main studio has been made rule-compliant.

Continue reading "FCC Enforcement Monitor"


FCC Enforcement Monitor

Scott R. Flick Christine A. Reilly

Posted April 28, 2011

By Scott R. Flick and Christine A. Reilly

Headlines:

  • FCC Begins to Move on Pending Video News Release Complaints
  • Failure to Monitor Tower Lighting Results in $12,000 Penalty

Video News Releases Garner $4,000 Fines for Two Television Broadcasters

After a flurry of complaints from advocacy groups a few years ago raised the issue at the FCC, the Commission has been pondering how to treat Video News Releases (VNRs) with respect to its sponsorship identification rule. The result has been a growing backlog of enforcement investigations involving VNRs. However, the release of two decisions proposing fines for stations that aired all or part of a VNR without identifying the material on-air as being sponsored appears to indicate that the dam is about to break. In its first VNR enforcement actions in years, the FCC fined two unrelated television stations $4,000 each for violating the sponsorship identification requirements found in Section 317 of the Communications Act and Section 73.1212 of the FCC's Rules.

Continue reading "FCC Enforcement Monitor"


Product Placement and the FCC

Posted September 2, 2010

By Paul A. Cicelski

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.


Performance Tax Anxiety

Posted August 18, 2010

By Scott R. Flick

Having spent a good portion of last week on the road and on conference calls talking about the latest Performance Tax developments, I heard a lot from broadcasters on the subject. For those blissfully unaware of this legislative battle, the recording industry has been seeking a financial parachute from broadcasters to help slow the rate of its descent into an economic abyss. The irony of course is that if illegal music downloads on the Internet are what has caused the recording industry's plunge, reaching out to drag broadcasters into the abyss with them merely weakens an ally in the battle to protect content from illegal distribution over the Internet.

Famously dubbed a performance "tax" by broadcasters, the legislation sought by the recording industry would require broadcasters to pay royalties to the recording industry for playing music on-air. Beyond the obvious short term benefit of royalty checks from broadcasters that choose to retain a music-based format, the recording industry hopes the passage of a U.S. law requiring such royalties for broadcasts in the U.S. will cause foreign countries to release royalties already being collected for airplay of U.S. artists in those countries. Unfortunately, because most of the record companies are now foreign-owned, much of that money, along with royalties paid by U.S. broadcasters, would wind up in foreign hands, undercutting any argument for this "found money" being an economic benefit in the U.S. All of the royalty funds would come from the U.S., but only a portion of those funds would stay in the U.S. However, one would hope that at least some of those royalties, if they do come to pass, would actually reach the U.S. artists responsible for creating the music that the recording industry has been selling and reselling to us over the years.

Broadcasters have been successful in blocking Performance Tax legislation because of good grass roots efforts to remind Congress that radio promotes the sale of music at no charge to the record labels or to the artists that have ridden radio airplay to fame (and whose records and concert tickets continue to sell because of radio airplay). The long, sordid history of payola -- the record labels' efforts to curry airplay via cash and other payments to radio station programmers -- supports broadcasters' proposition that the "value" of radio airplay exceeds any "costs" it imposes on the recording industry.

It was therefore with great surprise that many radio broadcasters heard last week that negotiating teams for the two industries were floating a multi-part proposal to resolve the legislative impasse -- a compromise that would require, for the first time, that artist (as opposed to songwriter) royalties be collected on broadcast airplay of music. While the proposal has some attractive features for broadcasters (most importantly the inclusion of FM receiving chips in cellphones), I got an earful from broadcasters absolutely incensed at the notion of promoting music and concert sales, and then being charged for doing it.

If any member of Congress thinks that "radio promotes music sales" is just a broadcaster talking point for meetings, encountering a broadcaster last week would have decisively corrected that impression. Some broadcasters I talked to had such a visceral reaction to the very concept of such payments that it didn't matter to them what the beneficial points of the proposal were. For them, it was as if someone had told them to "pay the ransom to the kidnappers and hope for the best." Some appreciated that it could be the pragmatic thing to do to put the issue behind them, but still found the very concept reprehensible. To be sure, there is money involved and that can sway a person's thinking. However, a number of the broadcasters I spoke with were so fundamentally opposed to the concept that they would reject the idea even if other parts of the proposal actually resulted in more money coming in from the proposal than going out.

I understand that perspective, but lawyers are trained to assess the options, and to assist their clients in choosing the best option for that client. Often, but not always, the "best" option is the one most economically beneficial to the client. Here, some broadcasters are not interested in the economics, but in the unfairness of being forced to pay a performance royalty as any part of the package. Despite that, all broadcasters should give the compromise proposal a careful look, if only to sharpen their understanding of the numerous issues in play and how they might affect the future of radio broadcasting. There are any number of reasons why the proposal might not gain momentum, or even be possible given the dynamics of Washington, and I hope to address those in a future post. For now, radio broadcasters should suppress the instinct to reflexively ignore it, and instead talk to their colleagues and counsel about the issues this proposal raises for their future, and for the future of their industry.


FCC Enforcement Monitor

Posted January 4, 2010

By Scott R. Flick and Christine A. Reilly

Topics include:

  • FCC Imposes a Reduced $17,500 Fine on Wyoming Commercial AM/FM Station Combo for Multiple Violations
  • Pennsylvania TV Station Fined $32,000 for Violating FCC's Sponsorship ID Rule
  • Licensee Fined $13,000 for Antenna Structure Violations
  • FCC Fines California Noncommercial FM Station $9,000 for Failure to Properly Maintain a Public Inspection File

FCC Imposes a Reduced $17,500 Fine on Wyoming Commercial AM/FM Station Combo for Multiple Violations
The FCC has released a Forfeiture Order asserting that the licensee of a Wyoming AM/FM station combi¬nation failed to maintain an operational EAS system, failed to consistently prepare and include programs/issues lists in its public inspection file, and failed to operate a wireless radio service station from its authorized location. Specifically, the FCC's Order cited Sections 11.35, 11.52(d), 11.61(a), 73.3526(e)(12), 1.903(a), 1.929 and 74.532(e) of the FCC's Rules, which require broadcasters to use common EAS proto¬cols, ensure operability of EAS equipment, conduct regular tests of a station's EAS system to ensure such operability, prepare and include quarterly programs/issues reports in the public inspection file, and operate wireless radio service facilities as specified in their current authorizations.

Continue reading "FCC Enforcement Monitor"


Paying the Piper: Avoiding Payola/Plugola Violations and Minimizing Liability

Posted August 25, 2009

By Scott R. Flick

August 2009
The volatile combination of broadcast employees concerned about their income and job security, and cash-strapped businesses looking for cheap and effective ways to promote themselves in difficult economic times, creates an unusually fertile ground for payola and plugola violations. Complicating matters are state efforts to prohibit "payola" activities that are legal under federal payola law. Even being accused of payola can be devastating to a broadcaster, and stations must be extremely diligent in uncovering and preventing payola and plugola violations.

Payola is the undisclosed acceptance of, or agreement to accept, anything of value in return for on-air promotion of a product or service. It is forbidden by Sections 317 and 507 of the Communications Act of 1934, and by Sections 73.1212 (broadcast) and 76.1615 (cable) of the FCC's Rules. Its sibling, Plugola, occurs when someone responsible for program selection promotes on-air a venture in which he or she has a financial interest without disclosing that interest to the station licensee and to the public. A payola or plugola violation by an employee usually results in the employer violating the FCC's sponsorship identification rule as well.

Continue reading "Paying the Piper: Avoiding Payola/Plugola Violations and Minimizing Liability"


Drawing the Line: A Guide to Avoiding Illegal Content for the On-Air Performer

Posted July 16, 2009

By Scott R. Flick

7/16/2009
As the sources of content available to the public proliferate, attracting and retaining an audience grows more challenging. A common strategy is to use provocative or "attention-getting" on-air elements to increase station awareness among media-saturated listeners and viewers. However, stations must be mindful of the numerous legal restrictions on content, particularly given that illegal on-air content can garner fines as high as $325,000 per violation. In addition, certain types of illegal on-air content can subject a broadcaster to civil and criminal liability, as well as loss of its license.

Introduction
Familiarity with the FCC's rules regarding on-air content is not optional for on-air talent, station programmers or station management. In most cases, editorial judgments made in advance, especially in the case of syndicated or pre-recorded programming, can prevent illegal content from reaching the air. It is therefore important that those involved in airing broadcast programming be up-to-date on the boundary lines that the FCC and the courts have drawn to distinguish legal from illegal on-air content.

Continue reading "Drawing the Line: A Guide to Avoiding Illegal Content for the On-Air Performer"


Broadcasters Pay $12.5 Million to Settle Payola Allegations

Posted April 13, 2007

By Richard R. Zaragoza , Clifford M. Harrington, and Veronica M. Tippett

4/13/2007
The FCC today released four Orders adopting Consent Decrees with CBS Radio, Citadel Broadcasting Corporation ("Citadel"), Clear Channel Communications, Inc. ("Clear Channel"), and Entercom Communications Corp. ("Entercom"). Pursuant to the Consent Decrees, the broadcasters agreed to pay a combined $12.5 million to close investigations into possible violations of the FCC's sponsorship identification rules. Specifically, the Consent Decrees resolved allegations that the broadcasters may have accepted cash or other consideration from record labels in exchange for airplay of artists from those labels without disclosing those arrangements, a practice commonly referred to as "payola."

Continue reading "Broadcasters Pay $12.5 Million to Settle Payola Allegations"


FCC Commissioner Jonathan Adelstein Continues to Make "News" Regarding Video News Releases

Posted November 20, 2006

By Richard R. Zaragoza and Emily J. Helser

November 2006
On November 14, 2006, FCC Commissioner Adelstein issued a statement commending The Center for Media Democracy and Free Press for its continued study regarding video news releases (VNRs). The Commission has described VNRs as "essentially prepackaged news stories, that may use actors to play reporters and include suggested scripts to introduce the stories." This advisory briefly outlines the current law regarding the broadcast of VNRs and alerts broadcasters to the need for caution in this area.

Continue reading "FCC Commissioner Jonathan Adelstein Continues to Make "News" Regarding Video News Releases"