The Federal Communications Commission (FCC) issued $4,000 fines against two local news stations in Minneapolis (KMSP) and New Jersey (WMGM) for violating the Communications Act by airing segments that appeared to be news, but incorporated advertisements that were not identified as such.

The advertisements were considered video news releases (VNR). A VNR is a video segment created by public relations or marketing entities to promote a product. It is then provided to news stations. Often, VNRs appear within the context of a typical news segment, but a specific product is visible far more than—or to the exclusion of—any other product.

WMGM aired a segment on the common cold that discussed the health benefits of using zinc products and included several scenes that included shots of Zicam®, a physician recommending the product, and a survey performed by the producers of Zicam. Other zinc-containing products were not visible. KMSP was fined for a General Motors® segment that it aired, which centered on new convertibles made by General Motors. In that segment, the broadcaster discussed the limited number of convertibles available, named three General Motors vehicles that sold out, and discussed General Motors sales.

The stations’ primary response to the FCC action was that they received no payment for airing the segments; therefore, it was not necessary to provide sponsorship identification in connection with the videos. Section 317 of the Communications Act, under which the FCC actions were brought, only requires broadcasters to identify the sponsor of a segment where the segment was aired in return for “valuable consideration.” The section, however, has a proviso that includes materials provided free of charge in exchange for product identification, which is considered “valuable consideration.” Section 317 also includes examples, one of which relates to this very issue. It states that a sponsorship is required where a segment is received for free, but that segment identifies a commercial product in a manner that is “disproportionate to the subject matter of the broadcast.” To escape coverage, a product may only be shown “fleetingly.” In the WMGM and KMSP cases, the FCC found that the product identifications were shown “disproportionate to the subject matter of the broadcast.”

KMSP raised a second argument, based on the First Amendment, that the FCC action was “an impermissible intrusion into the journalistic and editorial discretion in the presentation of news and public information that is at the core of the First Amendment’s free press guarantees.” The FCC was not persuaded by this argument, finding that an identification of sponsorship does not impede free speech.

These actions demonstrate the FCC’s focus on veiled sponsorships. With the increasing use of devices such as cable DVR and TiVo®, consumers are less likely to watch television commercials because they can fast forward through them. Product placement and VNRs are becoming increasingly appealing options for advertisers. Companies that promote their services through VNRs, as well as those programs that broadcast them should be aware of these actions and Section 317 of the Communications Act.