Client Alert

The Federal Communications Commission has launched a proceeding to explore the extent to which current trends in embedded advertising comply with the policies behind its sponsorship identification rules, which are intended to protect the public's right to know who is paying to air broadcast matter. Although the problem has arisen primarily with commercial television, the FCC’s combined inquiry and rulemaking would apply as well to radio and cable.

The Commission’s Concerns – The Commission is concerned over product placement (the use of commercial products as props) and product integration (inserting a commercial product into plot or dialogue). The Commission notes that the trend is escalating, up 40% in the last year, and that the top-rated American Idol show had over 3,000 embedded product placements so far this year. It cites as further examples such instances as placing brand names in the titles of programs (WB's Pepsi Smash), CW's "cwikies" (five-second ad slots interspersed in regular programming), NBC’s announced policy of bringing in advertisers during program development, and Fox Sports’ claim that it "immers[es] products into programs … so that they really feel like it is part of the show."

The Communications Act and the FCC's rules, which apply to both broadcasting and origination cablecasting, require sponsorship identification announcements be made whenever consideration is received for a broadcast. Consideration consists of money, services or anything else of value. An exception is provided for services or property furnished for only nominal consideration and where its identification is reasonably related to its use on the broadcast. When the sponsorship identification rule was adopted in 1960, Congress intended that a distinction be drawn between use of commercial products reasonably related to the program (for which no announcement was required), and uses in which a product is shown to an extent disproportionate to the subject matter. Further exceptions were made for broadcasts of feature films and situations in which both the identity of the sponsor and the fact of sponsorship should be obvious to a typical viewer (as with actual commercial spots). The Commission cautions that the common practice of consolidating all disclosures into a rapid crawl during end credits might not suffice to achieve the rules' purpose.

The sponsorship identification rules place the burden on broadcasters and cable systems to exercise reasonable diligence to ascertain the necessary information and to air announcements whenever appropriate. Even so, the Commission also requires producers who receive compensation for inclusion of matter in a program to provide a report to the licensee, who then becomes responsible for ensuring adequate disclosure.

The Advocates' Positions – This proceeding was initiated, in part, by a 2003 petition filed by Commercial Alert, which had cited alleged abuses of the Commission's sponsorship identification policies and requested clarification of the rules to require that disclosures both be more conspicuous and be timed to appear concurrently with the product placement or integration. Opponents have argued that these techniques are longstanding fixtures of broadcast advertising and cause no harm, and that enhanced disclosure would be disruptive, compromise artistic integrity and violate the First Amendment. Yet several writers’ and artists’ groups support greater disclosure and have urged the Commission to adopt meaningful standards to guide the creative community.

The Proposals – In addition to seeking general information as to current trends in embedded advertising, the FCC will consider exploring the need to modify its current sponsorship identification rules. Of specific concern are whether embedded advertising is sufficiently obvious to fit within the present exceptions, whether concurrent disclosures are needed and, if so, their impact upon program continuity (noting, though, that crawls of unrelated material have become commonplace on many channels), whether any further requirements would infringe artistic integrity or Constitutionally-protected speech, and the extent to which the current exemption for broadcasts of feature films is still justified.

All of the foregoing are part of a general Notice of Inquiry. However, the Commission has coupled it with a Notice of Proposed Rulemaking, intended to consider specific standards for whatever sponsorship announcements may ultimately be required. Specifically, the Commission proposes to adopt rules comparable to those governing the size and duration of political and issue sponsorship identification announcements. These include announcements at both the beginning and end of all program segments more than five minutes long and using lettering of at least four percent of vertical picture height displayed for at least four seconds. The Commission also asks if increased special protections are needed for children’s programming, whether cablecasting should be treated comparably, and the extent to which host selling, endorsements or favorable commentary should require disclosure.

Comment dates will be announced. In the meantime, Chairman Martin and Commissioners Copps and Adelstein all released separate statements voicing strong support for this initiative. Both Commissioners expressed frustration that the intermediate step of a Notice of Inquiry could delay implementation of needed rules.

Clearly, this proceeding could have a major impact upon the relationship between broadcasting and its sponsors, who are increasingly sensitive to the need for flexibility in presenting their messages to a public attracted to other media and equipped to skip traditional commercials, trends that are likely to only accelerate over time.

If you have any questions regarding this client alert, please contact Peter Gutmann at (202) 857-4532 or email, or one of our other Womble Carlyle Telecommunications professionals.