Wednesday, July 09, 2008

FCC notice of inquiry/proposed rulemaking on product placement

Full text here.

The main event is a proposed rule change "to make the current disclosure requirement more obvious to the consumer by requiring that sponsorship identification announcements 1) have lettering of a particular size and 2) air for a particular amount of time," with a related request for any other proposals along those lines. From Commissioner Adelstein's statement:

Many current practices make a mockery of our regulatory requirement that consumers have a right to “full and fair” disclosure. If it takes a magnifying glass to see a tiny acknowledgement whizzing by the screen at the end of a show, that is evading the spirit of the law. More clarification is clearly needed. The main accomplishment of this Notice is that it seeks to establish specific guidelines addressing the nature of the disclosure, including font size of the sponsorship credits and the amount of time they are aired.

The Commission also seeks comment on whether any change in children's programming-specific rules or cable-specific rules are required. And it invites "comment on issues raised by radio hosts’ personal, on-air endorsements of products or services that they may have been provided at little or no cost to them: should we presume that an 'exchange' of consideration for on-air mentions of the product or service has occurred, thus triggering the obligation to provide a sponsorship announcement; and does the 'obviousness' exception to the sponsorship announcement requirement apply to endorsements or favorable commentary by a radio host that are integrated into broadcast programming, i.e., made to sound like they are part of a radio host’s onair banter rather than an advertisement."

The FCC also noted possible First Amendment issues:

[W]e invite comment on the arguments raised by WLF [Washington Legal Foundation] and FAC [Freedom to Advertise Coalition] in response to Commercial Alert’s petition. Would the imposition of concurrent disclosure requirements or other regulations infringe on the artistic integrity of entertainment programming, as WLF argues? Would such a regulation be paramount to a ban on embedded advertising, as asserted by WLF and FAC? Does the apparently common existing practice of superimposing unrelated promotional material at the bottom of the screen during a running program belie WLF’s and FAC’s contention that concurrent identification would effectively preclude product integration as a form of commercial speech because it would “infringe on artistic integrity”? [Comment: a beautifully snarky leading question! Congrats to the drafters.] Are the government interests at stake here substantial enough to justify any such requirements? How can the Commission ensure that any modified regulations are no more extensive than necessary to serve these interests?

A couple of comments: of course, the WLF and FAC positions imply that the current sponsorship disclosure requirements are also unconstitutional, since it's not the font size or the noticeability that's the (alleged) problem. And the WLF and FAC positions also presuppose that failure to disclose commercial sponsorship does not make the sponsored programs into false or misleading commercial speech, since false or misleading commercial speech receives no First Amendment protection whatsoever.

There are two subissues here: (1) is it false or misleading to fail to disclose commercial sponsorship, and (2) does commercial sponsorship make a program commercial speech, at least for the limited purpose of requiring disclosure of such sponsorship? I think the FTC can reasonably answer (1) "yes," while (2) is a more complex question. Justice Stevens has, in recent years, sought to convert Central Hudson into an inquiry about the preservation of a fair bargaining process; commercial speech can, in his opinion, be regulated differently than other speech to the extent, and only to the extent, that it is bound up in commercial transactions.

Read that way, I think the answer to (2) is "yes." A movie full of product placement by BMW can be regulated as commercial speech to the extent that it is attempting to sell BMWs. The government can't regulate violence or sexuality or political content in that same movie without anything less than the full justification required for regulating purely noncommercial speech, because none of those things is tied to the advertising component. One virtue of this approach is that a reviewing court focuses on what behavior the regulation targets. If the regulation aims to ensure fairness in soliciting transactions, then it is allowed. We'll have a lot of debates about what counts as "fairness" and "soliciting transactions," but many of the crazy-making puzzles of defining commercial speech would be avoided. (And perhaps the legislature has greater leeway to define "fairness" and even "soliciting transactions" than it has to define "commercial speech.")


  1. [I]s it false or misleading to fail to disclose commercial sponsorship...? I think the FTC can reasonably answer (1) "yes,..."

    Not so fast. I think the answer must depend at least in part on consumer expectation. My 'grandma research' suggests that many movie-goers know perfectly well that the character reaches for a Bud because Bud paid for it to be there.

    Before any disclosure is mandated, I'd like to see some research as to actual deception...

  2. One problem with this is that it isn't always true that a product's presence is sponsored; undisclosed (or unnoticed disclosure of) sponsorship leads to pervasive uncertainty about who's sponsoring what. Ellen Goodman has a good article on the harms this does to free speech and citizenship, available at

    Moreover, "Bud paid for it" doesn't always describe the transaction. As is increasingly common, Bud may have paid for final story approval, and/or for the inclusion of a whole bar scene in which drinking is portrayed as fun. The answer you get when you ask a grandma depends on the question you ask: does she think that the writers did what they wanted, and then the company just paid to be the brand of beer that was already positively portrayed in their story? Maybe she never would have thought of that without the question, though, so even that question is troublesome.

    More generally, I am convinced by the general psychological evidence that consumers--people--are pretty bad at reporting what actually serves to convince them, and what they think in the absence of being asked to examine their beliefs. Inference about specific effects, like the effects of undisclosed sponsorship, can be more reliable than the results of direct questioning.

    In other words, I don't think that consumer research directed to specific questions like this is necessarily objective or reliable. (This is part of why so many products and ads that "test well" fail--testing distorts results.) Therefore, I don't think that survey evidence is the only kind of evidence on which the FTC ought to be able to rely. One can certainly take the position that only the courts ought to be able to declare something misleading--I think that's wrong, but even if I lost that argument, I'd want the courts to be able to rely on broader evidence than even a survey of 500 grandmas.