Research report prepared for the australian communications and media authority

2.4US review of findings

In one sense, compared with other jurisdictions reviewed here, the US advertising and sponsorship rules will seem minimal. This is consistent with the US First Amendment bias against content regulation. However, it is significant that of the limited range of content-related public-interest obligations imposed upon licensees, the rules known as the ‘sponsorship identification’ rules are seen as a key element.

There is in the US a much greater tolerance of advertising and sponsorship and commercial influence generally on broadcasting. As reported, paid political advertising is also permitted, and indeed through the principles of ‘reasonable access’ and ‘equal opportunities’ access to airspace is encouraged and facilitated.

However, in the commercial context, the tolerance of advertising and sponsorship is qualified by a fundamental principle, which is the entitlement of audiences to know what is being broadcast and by whom. The essential obligation of the sponsorship-identification rule is that the identity of any person who has paid for matter to be broadcast must be aired at the same time.²²¹

The sponsorship-identification rule and related payment-disclosure rule (referred to generally as the payola rules) share a similar purpose to the rules considered elsewhere in this report which focus on the need for transparency of commercial content, but they are structured with some key differences:

• 
  Unlike other jurisdictions reviewed in this report, the rules draw no distinction between advertising and sponsorship. There are no definitions provided, and, in fact, section 317 and section 507 of the Comms Act (US) do not refer to ‘advertising’ or ‘sponsorship’. As such they have a broad reach which covers any situation where payment has been made for matter to be broadcast. This means that the rules can cover:
  
  • 
    Commercial references such as advertising and sponsorship (as they might be commonly understood), product placement and integration. However, the rules may not be well suited to practices such as product placement or integration. This is currently under review by the FCC (see section 2.5 below).
    
  • 
    Other paid-for content. In other words, the content does not need to be confined to commercial activity. It may cover content seeking to put forward viewpoints, opinions, beliefs, and so forth. This is consistent with a regulatory environment which does not prohibit political or issue-based advertising. In fact, even where there has been no consideration, disclosure must be given in the case of material which is political or involves the discussion of controversial material.
    
• 
  Under FCC rules, ordinary spot advertisements will comply with the sponsorship-identification rules, if, as will usually be the case, the advertisement itself makes clear the identity by mention of the corporate or trade name.
  

Whilst the rules emphasise the importance of identifying who has paid for the content, they operate in a way which is fundamentally different from the other jurisdictions reported on. Whilst the UK and Ireland (and Canada with respect to news and current affairs programming) regulate to preserve the editorial independence of programming content from commercial influence, the US rules take no stance on this. Thus, programming content may be influenced by a commercial interest. This will be permissible provided that the sources are identified. In other words, no guarantees of editorial independence are provided.

Another fundamental difference between the US rules and other jurisdictions is that the rules (section 507, Comms Act (US)) impose obligations on persons additional to the licensee. Under the sponsorship-identification rules, a licensee has an obligation to make disclosure of paid-for content. However, employees of the licensee, and third parties who are associated with the production or payment of program content, who receive consideration for the provision of content to be broadcast, must disclose that information to the licensee, so that the necessary announcements can be made. Further, the obligation is imposed on the person providing the consideration, and on any other person supplying program matter who may have information about such payments to make disclosure. Breach of this rule is a criminal offence.

2.5Completed or planned reviews

On 26^th June 2008, the FCC announced an Inquiry and Notice of Proposed Rule Making into the sponsorship-identification rules.²²² The main purpose of this inquiry is to investigate whether the current sponsorship-identification rules are adequate to deal with, what is perceived to be, the increasing practice of embedded advertising techniques. The increased use of these techniques is attributed to the development of technologies which enable audiences to bypass traditional forms of commercial communications.

The FCC identifies two main forms of embedded advertising: ‘product placement’ and ‘product integration’. ‘Product placement’ is understood to refer to the practice of inserting branded products into programming in exchange for consideration. In general, this will occur through the use of props in the programming.²²³ Whilst product placement is more obviously a visual technique, it is not precluded from being used in radio programming. ‘Product integration’ is understood to be the actual integration of the product into the dialogue or plot of the program.²²⁴ This practice lends itself more readily to radio, compared with product placement.

The Inquiry covers both radio and television, and it is not specifically related to news and current affairs programming. Although it refers to these practices mostly in relation to entertainment programming, it is nevertheless clear that the Inquiry and the consideration of the rules will encompass all types of programming. The Notice of Inquiry document is relatively brief, and the process leading up to a decision, if any, to revise these rules will be lengthy. Nevertheless, some indication of the FCC’s concerns and focus can be garnered from the document.

In part, the Inquiry will be an information gathering exercise to ascertain the extent and nature of embedded advertising practices, and the extent to which the public is being made aware of these practices. Also under consideration is whether the embedded advertising practices fall within the ‘obviousness’ exception, and so are exempted from having to make an identification announcement.²²⁵ The FCC is also concerned to investigate what changes might be necessary to the rules to ensure that audiences are aware of the presence of sponsored messages, integrated into programming. The FCC seeks comment on whether rules, which currently apply to political and issue-based advertising, regarding the size or duration of the identification announcement should be applied generally.

Radio is singled out in relation to one matter. The FCC raises for comment the personal, on-air endorsement by radio presenters of products and services which may have been supplied to them for little or no cost.²²⁶ Several issues are raised by the FCC for consideration here, although not elaborated upon:

• 
  Should there be a presumption that consideration has been received for these on-air mentions, thus triggering the announcement requirement?
  
• 
  Is the obviousness exception applicable to those types of mentions which are integrated into broadcast programming, that is “… made to sound like they are part of a radio host’s on-air banter rather than an advertisement”?²²⁷
  

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