Daily Coupons And Plugola

Announced simultaneously with Cumulus' closing on Citadel, broadcasters learned that Cumulus has planned a major deployment of "SweetJack," the daily deal product Cumulus has been testing in Atlanta. This announcement signals Cumulus CEO Lew Dickey's belief that he now has the muscle to challenge innovative leaders in other segments of the industry and to win with additional digital business models. Broadly billed as a challenge to Groupon, Yelp and other websites offering discounts and reviews of local businesses, Dickie clearly believes that SweetJack can harness the power of his new broad reach and local sales force to make a big entry into this market.

According to one source, Cumulus will use their jocks to plug the daily offers -- a clear example of the leverage broadcasters can deliver to new digital business in ways other media cannot match. I have long advocated that broadcasters should engage their viewers and listeners with multi-platform models, using the broadcast signal to drive listeners to their other new media offerings and to promote digital new media and vice versa, enhancing the value and reach of the message with multiple, complementary contacts.

However, there is a legal red flag. When a broadcast message is financially beneficial to another business of broadcaster or a station employee, a special obligation exists to reveal that relationship.

Every broadcaster is familiar with the payola rules that resulted from the payola scandals in the 1950s. The rule requires that the public be informed whenever someone pays for having their message broadcast. The principle is that the public has a right to know who has paid for delivering the message directed to them. The corollary to payola, which applies to the broadcasters themselves, is the "plugola" rule. Plugola is the on-air promotion of non-broadcast activities of the station licensee or a station employee. It occurs when the financial interests benefiting from the announcement include those of persons "responsible for including promotional material in a broadcast."

Plugola involves a benefit to the person responsible for selecting the material that is broadcast. Like payola, it is permissible so long as the interest is disclosed to the listening public. The rule reflects the policy that the public is entitled to know if there is private financial interest that may influence the on-air promotion of the product or service, including interests of the licensee.

So, if a broadcaster uses a broadcast to promote its daily deal business with on-air announcements and "plugs" its listeners to patronize its affiliated daily coupon business, including having its jocks plug the daily deal, it must make the public aware that the coupon service the station's personalities are endorsing and sending the listener to is an affiliated business that provides financial benefit to the licensee. If that message is included, the business model looks like it could be a real winner and a serious challenge to competitors unaffiliated with broadcasting.

This column is provided for general information purposes only and should not be relied upon as legal advice pertaining to any specific factual situation. Legal decisions should be made only after proper consultation with a legal professional of your choosing.