The FCC yesterday released, and trumpeted, a Consent Decree reached with Cumulus Radio for a violation at one of its New Hampshire stations where full sponsorship identification announcements were not made on issue ads promoting an electric company’s construction project in New Hampshire. In the Consent Decree, Cumulus agreed to pay a $540,000 penalty to the FCC for the violations of the rules - plus it agreed to institute a company-wide compliance program to make sure that similar violations did not occur in the future. In connection with the fine, the FCC released a press release highlighting the fine and the importance of identifying the true sponsor of issue advertising. Travis LeBlanc, Chief of the FCC’s Enforcement Bureau stated “While failure to disclose these identities generally misleads the public, it is particularly concerning when consumers are duped into supporting controversial environmental projects.” This fine is yet another example of the enhanced enforcement of all FCC rules by the new Enforcement Bureau, enforcement that has been controversial both among those being regulated and even among the FCC Commissioners themselves. What was behind this extreme penalty, which probably dwarfs the profits that this radio station will make for the next several decades?
According to the FCC’s Consent Decree, the Cumulus station broadcast 178 announcements promoting the Northern Pass Project, a proposed hydro-electric project involving the construction of 180 miles of power lines in Canada and New Hampshire. While the actual texts of the announcements were not provided in the FCC decision, and apparently included several versions of the ad, all supported the approval of the Northern Pass project, but none included the language “paid for” or “sponsored by” Northern Pass Transmission LLC, the full name of the company that paid for the ads and was behind the project. Cumulus claimed that the station’s employees believed that references in the ads to the Northern Pass project were sufficient to inform the public of who was behind the ads, the FCC says that is not enough - the full name of the sponsor, making clear that it was the sponsor of the ad, is required. This is not the first time that the FCC has, in the context of the Consent Decree, imposed a big penalty for a lack of a full sponsorship identification on broadcast programming but, outside of the context of “payola” violations, this may well be the largest fine imposed on a radio station for this kind of violation.
We wrote about the FCC imposing a $115,000 fine on a TV station that had a mock news program that promoted a sale at a car dealership without explicitly disclosing that the dealership was the sponsor. In that article, we also mentioned another case where the FCC imposed a $180,000 penalty through a consent decree on an AM station that ran a daily feature on local businesses, disclosing that the program was sponsored, but not disclosing the specific businesses who sponsored each program on which the business was featured. Perhaps the fact that yesterday’s case involved a message involving a controversial issue of public importance, rather than simply the promotion of a commercial product, resulted in the higher penalty imposed in this case. The importance of the nature of the message can be surmised from the reference in the FCC’s press release to consumers being “duped into supporting controversial environmental projects.” Given the coming election year, where there will no doubt be many ads being broadcast on many radio and TV stations about controversial issues, both involving candidates and ballot issues, stations need to be sure that clear sponsorship is included in all issue advertising - and even in all commercial advertising where it not clear from the context of the ad as to the true sponsor.
Section 73.1212 of the FCC’s rules, which governs broadcasters’ sponsorship identification obligations, makes the distinction between advertising for “commercial products or services” and that involving “controversial issues of public importance.” Ads for commercial products and services do not need an explicit statement that the ad is “paid for” or “sponsored by” a particular company, if the company’s name, its trade name or the name of the product is contained in the ad and it is clear that the mention of the name identifies the sponsor of the ad.
In contrast, ads on “controversial issues of public importance” require enhanced disclosure. The ad must contain a statement that the ad was “paid for” or “sponsored by” the specific organization that paid for the ad. In addition, as we have written before, the station must also include in its public file the identity of the sponsor and a list of the sponsoring organization’s executive officers or directors.
In the sponsorship identification area, the only fines greater in amount than that imposed yesterday involve payola issues (see our articles here and here about penalties of more than a million dollars for payola issues). While this fine and the payola cases both involve failures to identify the sponsor of an ad, somehow payola seems to be different - as payola is hidden from consumers and usually is totally invisible to listeners who do not even know that they are being hit with sponsored programming. There does not seem to be any question that consumers know that the ads for the Northern Pass project were in fact ads, and that they were being targeted by these ads to try to convince them to support the project. The only question here was whether the apparently good-faith belief by station employees that the ads’ mention of the Northern Pass project was sufficient to identify the true sponsor. One can certainly question whether that good faith mistake merited a penalty of this magnitude.
There recently have been a number of questions raised by entities hit with big fines by the FCC as to whether these fines were justified by the circumstances. Certainly, questions were raised by the size of the $325,000 fine for the fleeting indecent image in a television news report (see our article here). And the manner in which the FCC’s Enforcement Bureau has been issuing fines to other non-broadcast companies have been questioned by Congress, and even by some FCC Commissioners (see, for instance this blog post by FCC Commissioner O’Rielly).
Two other aspects of yesterday’s decision bear mention. The penalties associated with the violation included not only the monetary penalty, but also the imposition on all Cumulus stations of a “compliance program,” requiring among other things that the company develop a compliance manual on the sponsorship identification rules for all of its employees, that the company have regular training sessions for employees on the issue, that there be a “hotline” for sponsorship identification questions, that violations of the rules by any station be reported to the FCC by the company, and that annual reports be made to the company and, for the next three years, to the FCC. Clearly, such a program will impose other costs on the company.
It is also worth noting that Cumulus has sold the station in question. Nevertheless, the FCC concluded that it still owed the penalty, as it was the licensee at the time of the violation. A sale of the station does not cut off liability.
This case is a clear warning to broadcasters - this is not your father’s FCC. Violations, even ones done in good faith, can bring huge penalties. So broadcasters beware - observe the rules very carefully.