Product Placement: The New Advertising

Problem: Your audience is tuning out during commercials. Sales reports your best advertiser, Mudville Motors, says listeners don't listen during the stopsets and go to their iPods. If we don't do something about it, the radio advertising budget will be repositioned to the Internet.

Solution: Forget traditional commercials. Have the popular morning team talk about Mudville Motors and the new car models in the morning banter. In fact, Mudville Motors will give them a dealer car for a few months and they can talk about their new car, how cool it is and why they think everyone ought to buy one. Mudville Motors gives us the same budget and they get all that mention on the air.

Reaction: Everyone loved it. The talent gets to drive new cars. Sales made its budget. There's more "local" chit-chat in the mornings.

The Future: Hey, if this works, think of the possibilities. An auto repair talk show that that talks about local auto shops and auto parts by brand name; a cooking show that talks about where to get the best meat and produce ... NO COMMERCIALS ... we could even get taped shows from sponsors that run as programming, but talk up their products.

THIS IS GREAT:

Or is it? Has anyone called legal? CALL LEGAL!

Here's the issue and it's getting a lot more attention: "Product placement" and "product immersion" have become increasingly prevalent in broadcast programming content over recent years. This is particularly true in television and in film, but the same principles apply to radio -- and the FCC has made that point. Positing that the purpose of Embedded Advertising is to draw on a program's credibility to promote a commercial product by weaving the product into the program, the FCC recently issued a Notice of Inquiry and Proposed Rulemaking to address the issue.

The Commission uses "Embedded Advertising" to describe situations where sponsored brands are included in entertainment programming and include both product integration and product placement. "Product placement" is the practice of inserting branded products into programming in exchange for fees or other consideration. It involves placement of commercial products as props in programming, whereas product integration integrates the product into the dialogue or plot of a program.

Concern over DVR and other technology that allows "time shifting" and fast-forwarding or skipping commercials, has, by some accounts, led advertisers to seek out these methods, also called by some as "stealth advertising." This has led to meteoric increases in money spent on product placement. In its recent Notice of Inquiry and Proposed Rulemaking on the topic, the FCC reports industry estimates that between 1999 and 2004, the amount of money spent on TV product placement increased an average of 21.5% per year, and in 2005 enjoyed a 48.7% increase. While recent focus has been on reality television shows, ("American Idol" and NBC's "The Biggest Loser" are reported to have the highest number of paid placements), radio has also drawn some attention and concern at the FCC.

The Commission's Concern centers on the Communications Act axiom of Sponsor ID. The Communications Act and FCC rules require a licensee to notify the public whenever there has been payment for any material broadcast. These rules are based in statute and are meant to protect the public's right to know the identity of the sponsor when consideration has been provided in exchange for airing programming material. The rules even require broadcasters to "exercise reasonable diligence" to obtain sponsorship information from any person with whom the licensee "deals directly," including when consideration may have been provided or promised for the inclusion of matter in a program, regardless of where in the production chain the exchange takes place.

Sponsor ID requirements regarding products placed in programs or for which consideration takes the form of making use of the product in the program, is generally considered satisfied with an announcement in the credits at the beginning or end of a program such as "promotional consideration provided by." An organization known as Commercial Alert considered this to be inadequate and several FCC Commissioners have made speeches to indicate their concern and sympathy with that view.

In September, 2003, Commercial Alert filed complaints and requests for rulemaking with the Federal Trade Commission and the Federal Communications Commission, seeking to halt the practice in television TV of placing products and product messages in the body of programs for compensation, claiming that broadcasters fail to identify their sponsors or to identify the ads themselves. The Commercial Alert petition to the FCC quotes a Wall Street Journal article indicating that company heads themselves view the product placement practice as infomercials.

Some TV programs are so packed with product placements that they approach the appearance of infomercials. The head of a company that obtained repeated product placements actually called one such program "a great infomercial."

The Inquiry responds to Commercial Alert and other critics. It casts a wide net, inquiring into television and radio, into "hidden commercials" embedded in interview programs and how best to deal with programming created by others that later appears in broadcast. Examples include theatrical film and the use of industrial programs not originally intended for broadcast. It asks whether a radio host on-air endorsement of products or services that may have been provided at little or no cost raise a sponsorship ID issue.

The Commission reviewed the political broadcasting rules and asked whether it should impose a rule similar to that required of candidates, that their sponsorship notice be of a specified minimum length or, for TV, screen height, or whether it should require a crawl or oral announcement at the time the product appears in the program. Should it review the "obviousness exception" where sponsorship identification is not currently required when both the identity of the sponsor and the fact of sponsorship of a commercial product or service is obvious.

While there does not appear to be a current legal prohibition against product placements as currently practiced, prudent broadcasters will treat this area with extreme caution. FCC rules requires only a promotional consideration announcement at the beginning or end of a program, but the topic is receiving massive attention and the new FCC proceeding is likely to bring changes.

Careful scrutiny of the manner in which broadcasters reveal commercial relationships may demonstrate that some current practices violate the letter or the spirit of the FCC sponsorship identification rule -- and fines might issue. It would be advisable to make sure that these relationships are properly revealed.

For example: There are real implications here for practices that are commonplace at some radio stations. Station personalities are sometimes given products to try out by advertisers. I've heard of one situation where the local Porsche dealer just couldn't go on without the satisfaction of knowing that the local morning personality had the comfortable experience of driving to work each morning in a new Porsche for about six months. Banter about any advertiser's product, or live reads that are embellished into what may be tantamount to program-length commercials could cause real trouble for stations, under the revised rules contemplated in this proceeding, and in connection with the payola rule as well -- if they're not disclosed.

Finally, broadcasters should note that many states have their own fair trade laws that are not preempted by federal regulations. State attorneys general have the jurisdiction to pursue activities they consider to violate principles of their state fair trade and deceptive practices laws. An analysis of state action in this area is warranted by all broadcasters.

Comments in the FCC inquiry are due 60 days after the Notice appears in the Federal Register. Broadcasters should consider making their voice heard in this one; and radio should not consider this to be a TV issue that has little bearing on them.

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.