The Federal Communications Commission has begun the rulemaking process on one of the most controversial issues to hit its docket in a while. The commission has issued proposed new rules concerning sponsorship identification and embedded advertising, commonly known as product placement. In addition, the FCC is seeking public comment on whether it should draw up additional rules.

On June 13, the FCC released a Notice of Inquiry (NOI) and Notice of Proposed Rulemaking (NPRM) on the matter. The format of its action matters—because it effectively splits the baby between requests made by the advertising industry and the advocacy groups. A coalition of advocacy groups pressed the agency to move strait to an NPRM and issue new rules. Advertisers, on the other hand, asked the FCC to slow down and first issue an NOI—to seek comment as to whether a rule update was necessary in the first place.

In issuing both at the same time, the FCC drafted a few rules it proposes to revise immediately. In addition, the agency is seeking broader comment on a number of issues.

Shifting Viewing Habits

The proposal comes at a critical time for television advertisers—as viewers increasingly time-shift away from watching live programming through the use of digital video recorders, which often enables them to speed through ads. In response, TV programmers have offered advertisers a host of new opportunities for imbedded advertising, from increased product placements to packaged sponsorships of entire programs.

Various groups, however, have cried foul.

In 2003, the advocacy group Commercial Alert filed a petition for rulemaking, arguing that the FCC’s current sponsorship identification rules are inadequate to address embedded advertising techniques. Commercial Alert asked the FCC to revise its rules to require clear and conspicuous disclosure of product placement and integration at the beginning of programs, as well as concurrent disclosure when products appear on screen.

The Writer’s Guild of America and the Screen Actors Guild also submitted a set of recommendations to the FCC, including visual and aural disclosure of product integration at the beginning of programs, extension of product sponsorship rules to cable TV, and the creation of an industry code on embedded advertising.

In opposition to Commercial Alert’s petition, the Washington Legal Foundation (WLF) and Freedom to Advertise Coalition (FAC) argued that embedded advertising techniques are longstanding fixtures of broadcast advertising that do not harm consumers. They maintained the FCC’s current rules are adequate to protect consumers, and that requiring concurrent disclosure would violate the First Amendment.

“WLF argues that the proposed concurrent disclosure would so greatly interfere with programming that it would be paramount to a governmental ban on product placement,” noted the FCC.

The FCC’s current sponsorship rules, which are based upon the Communications Act of 1934, generally require broadcast licensees to make sponsorship identification announcements in any programming for which consideration is received. The rules do not require sponsorship ID when both the identity of the sponsor and the fact of sponsorship of a commercial product or service are obvious.

Battle Before the Battle

In December of last year, the 8-A's—the American Association of Advertising Agencies, the American Advertising Federation and the Association of National Advertisers—wrote a letter to the FCC asking the agency to initiate a Notice of Inquiry before beginning any formal rulemaking process.

“The issues implicated by this proceeding are varied and complex,” the groups noted. “Accordingly, we believe that the Commission’s consideration of these issues would benefit from having a fact gathering proceeding first to determine whether problems exist before fashioning possible regulatory solutions.”

“[I]nitiation of this proceeding by rulemaking rather than as an inquiry suggests a presumption by the Commission that regulatory action is necessary,” the groups said.

A coalition of 23 advocacy groups shot back, sending aletter to the FCC in June, urging the commission to move to an NPRM. Led by the Campaign for a Commercial-Free Childhood, the group cited a 2007 survey by the Kaiser Family Foundation that found that 69 percent of parents were concerned that their children were exposed to too many ads on TV.

“With product placement and product integration dramatically increasing, it is essential that the Commission adopt an NPRM, which would have the flexibility to address the concerns of parents, and not an NOI, which would merely document that a problem exists,” the letter stated.

Issues on the Table

In its NPRM, the FCC proposes to revise its rules “to make the current disclosure requirement more obvious to the consumer.” The agency suggests accomplishing this by requiring that sponsorship identification announcements “have lettering of a particular size” and “air for a particular amount of time.” The FCC seeks comment on the specifics of this requirement.

The agency asks for comments on whether it should make the prohibition against embedded advertising in children’s programming more explicit. Its current rules require a “bumper” between programming and advertising, so embedded ads already are deemed to violate this policy.

In addition, the agency asks those who comment to discuss whether it needs to more explicitly extend its sponsorship rules to cable operators, and whether new rules are needed to address situations in which radio hosts endorse products or services they’ve received at little or no cost.

In the Notice of Inquiry portion of its docket, the FCC has asked for comment on issues that include:

  • Current trends in embedded advertising
  • The efficacy of the FCC’s existing sponsorship ID rules
  • Whether modifications to the rules are warranted
  • First Amendment implications of proposed modification to the rules

The decision to split the docket was unanimous—but appeared to be a political compromise designed to keep the regulatory process moving. Two commissioners issued statements voicing their displeasure with the NOI procedure.

“I would have liked to have gone further in asking more questions in the NPRM, rather than shunting them off to a Notice of Inquiry,” stated Commissioner Jonathan S. Adelstein. “Embedded advertising is increasing at a staggering rate, and we must examine how to update the rules in a comprehensive fashion.”

“It is difficult to watch television and not be struck by the amount of product placement,” agreed Commissioner Michael J. Copps, stating that he also preferred the NPRM track.

“In the end, I supported the proposal to split the docket,” he said. “While this means more time than I would like to reach final rules in some areas, I believe it is important to initiate the public dialogue and begin developing a detailed record.”

Why This Matters: This FCC notice is important for several reasons: (1) The advertising industry asked for, and received, a Notice of Inquiry process. It now is incumbent upon industry members to feed the record with evidence that the Commission’s sponsorship ID rules are sufficient to address embedded advertising. (2) The FCC also has proposed through its NPRM docket to revise several rules, or examine whether to revise them. Interested parties should study these proposals carefully and consider commenting.

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