Unmasking hidden commercials in broadcasting: origins of the sponsorship identification regulations, 1927-1963.

• Author: Kielbowicz, Richard

1. INTRODUCTION 330 II. THE UNCERTAIN PLACE OF SPONSOR IDENTIFICATION IN EARLY RADIO REGULATION 333 A. The Statutory Origins of the Sponsorship Identification Requirement 334 B. The Requirement's Initial Irrelevance for Regulators 336 III. SPONSORSHIP IDENTIFICATION AND PUBLIC AFFAIRS PROGRAMS, 1943-58 338 A. Sponsorship Disclosure in Disputes Between Labor and Business 339 B. NAM and TV Coverage of the Kohler Hearings 344 C. Adapting the Rules to 1950s' Technologies and Situations 346 IV. THE 1959-60 PAYOLA AND QUIZ SHOW SCANDALS 347 A. Discovering and Publicizing Sponsors' Hidden Influence 347 B. Covert Sponsorship Commonplace in 1950s' Radio and TV 349 1. Payola in Music Programming 349 2. Props and Hidden Commercials in TV 352 C. The FCC's Tardy Attention to the Problem 354 V. THE INTERPLAY OF CONGRESS, INDUSTRY, AND THE FCC IN REVISING THE RULES 355 A. No Disclosure for Routine Use of Props and Free Records 356 1. Consideration 360 2. Identification 361 B. Disclosure in the Chain of Production 362 C. Disclosure for Political and Public Affairs Programs 366 D. Latitude to Waive Disclosure Rules 369 VII. THE FAILED EFFORT TO UNMASK BROADCASTERS' PROMOTION OF THEIR OWN INTERESTS 369 VIII. CONCLUSION 374 I. INTRODUCTION

   Anyone watching American Idol on the Fox Network during the spring of 2003 would recognize it, and most television, as commercial programming supported by advertisements that periodically interrupted the show. But unbeknown to the audience and even the program's producers was the hidden commercial: the winning contestant had been paid by a clothing manufacturer to wear its jerseys on the air as he survived elimination from the talent contest week after week. (1) The contestant and his corporate sponsor were engaged in one of broadcasting's enduring practices--inserting covert promotions in programming. Similar incidents came to light during the quiz show and payola (2) scandals of 1959-60, which revived interest in a statutory provision enacted in 1927 requiring disclosure of commercial sponsors. In the wake of the scandals, Congress amended the statute, (3) and the Federal Communications Commission ("FCC") crafted regulations that still govern sponsorship identification today. (4)

   The sponsorship identification requirement remains the oldest--and for a long time was the sole--statutory provision dealing directly with broadcast advertising. (5) Although regulators could examine stations' advertising practices on a case-by-case basis as they applied the amorphous public interest standard in issuing and renewing licenses, for the most part policymakers trusted the marketplace. In this line of reasoning adopted by Congress and regulators, stations relying too heavily on advertising or ceding too much control to sponsors would drive their listeners to competing stations more attuned to the public interest. (6) Such regulation by the marketplace, however, worked best when the audience could distinguish a sponsored message from the surrounding programming or recognize programming itself as sponsored content. To this end, broadcast law has always mandated that stations identify content sponsors.

   The sponsorship identification rules have come into play in a wide range of programming situations, some not so obvious. The law expansively defines sponsorship to encompass any arrangement in which a station receives consideration, something of value in exchange for broadcasting particular content. When a station sells a block of time for an infomercial--sponsored content that the audience could mistakenly perceive as a show--the arrangement typically requires an announcement. The use of brand-name products on the set or in the plot of a television show requires a sponsorship credit, though the law grants major exemptions. Similarly, radio stations do not have to announce that they received a free CD from a recording company, but if they receive several copies of the same CD for free, different rules would apply. The sponsorship rules have special relevance for game or giveaway shows where contestants win prizes donated by interested parties. A not-so-obvious application of the regulation arises when a station incorporates a video news release furnished by a political candidate into a newscast. It has received content, which is something of value that may have to be disclosed. (7) How the rules apply to a myriad of broadcast situations today depends in large part on the circumstances that spawned them in 1963.

   Moreover, the sponsorship identification rules express a basic goal of American communication law and policy: to foster a healthy marketplace of ideas with minimal government intervention. The rules advance this goal by giving audiences contextual information, such as labels or disclosure announcements, to evaluate the messages they consume, while only mildly constraining broadcasters' programming discretion. Nothing is prohibited; the rules simply require public disclosure. The same principle undergirds laws affecting other forms of communication: periodicals delivered by mail have to label as "advertisement" any paid matter that might be mistaken for editorial content, (8) some financial publications have to note their investments in firms touted on their pages, (9) anti-spam laws often require that e-mail messages be identified on the subject line as advertisements, (10) and public communications produced with funds from foreign governments have to disclose this arrangement. (11) These laws all stem from the principle that the public is entitled to know when and by whom it is being persuaded.

   This Article analyzes the fitful development and administration of the sponsorship identification rules from their creation in 1927 to their amplification in the wake of broadcasting's quiz show and payola scandals. The following Part shows how Congress, in crafting the original rules, anticipated advertising practices that did not materialize in the 1930s and 1940s because of the nature of early broadcast sponsorship. However, as discussed in Part III, the rules proved unexpectedly useful in dealing with a controversy in the 1940s over covert political promotions. Part IV reveals that the FCC failed to apply the rules to broadcast practices that had become commonplace in the 1950s, as the public learned from several 1959-60 investigations of quiz show rigging and payola and plugola--popular names for covert promotions. Part V, the heart of this study, looks at each major change affecting sponsorship identification wrought by the 1960 amendments to the Communications Act and examines the FCC's efforts to prescribe corresponding regulations, which culminated in rules that have changed little since 1963. When, however, the FCC at the same time proposed extending the rules into a domain not covered by the legislation--broadcasters' financial interests--the industry successfully quashed the idea, as discussed in Part VI. The conclusion analyzes the dynamics that produced the 1963 regulations.

2. THE UNCERTAIN PLACE OF SPONSOR IDENTIFICATION IN EARLY RADIO REGULATION

   Congress passed the Radio Act of 1927 (the "Radio Act") (12) to end signal interference that had created chaos on the airwaves. (13) The statute, which dealt extensively with technical matters involved in erecting a regulatory structure, provided little guidance about broadcast content. While prohibiting the newly created Federal Radio Commission ("FRC") from censoring radio communications, (14) the Radio Act obligated stations to "afford equal opportunities" to candidates for public office (15) and required that broadcasters disclose the role of sponsors in programming. (16) But the FRC, and its successor, the FCC, found the sponsorship identification rule largely irrelevant in their supervision of radio for nearly twenty years. Congress had crafted the requirement before either the industry or lawmakers understood how radio advertising would develop. The rule, which aimed at disclosing covert sponsorship, seemed incongruous for an industry in which sponsors almost always craved public recognition.

   1. The Statutory Origins of the Sponsorship Identification Requirement

      Of all the provisions that constituted the Radio Act, only Section 19, mandating sponsorship identification, imposed conditions on advertising:

      All matter broadcast by any radio station for which service, money, or any other valuable consideration is directly or indirectly paid, or promised to or charged or accepted by, the station so broadcasting, from any person, firm, company, or corporation, shall, at the time the same is so broadcast, be announced as paid for or furnished, as the case may be, by such person, firm, company, or corporation. (17) Representative Emanuel Cellar explained that Congress intended the section to prohibit stations from disguising advertising as program content. (18) Cellar argued that the provision did not go far enough. He unsuccessfully pressed for an amendment that would require stations to label such broadcast content as "advertising," not simply as "paid for" or "furnished by" an interested party. (19)

      Congress modeled the sponsor identification provision on an established feature of postal law. Practicing a kind of lesson-drawing, (20) lawmakers anticipated that broadcasters might abuse their privilege of distributing messages over the airwaves in much the same fashion that publishers had long abused their privilege of distributing publications through the mails. In the late 1800s, Congress had encouraged the circulation of magazines by offering highly subsidized postage. (21) The public benefited from access to more information, but by the early 1900s policymakers increasingly complained that the subsidized rates also enriched publishers by underwriting the cost of circulating profit-making advertisements in their magazines. To balance the private and public benefits produced by this policy, Congress adopted the Newspaper Publicity Act of...