Journal of Sponsorship Volume 2 Number 2

Legal and regulatory updates Branded entertainment: The old is new again and more complicated than ever

James L. Johnston Received: 21st August, 2008 Davis & Gilbert LLP, 1740 Broadway, New York, NY 10019, USA; Tel: ϩ1 (212) 468 4867; Fax: ϩ1 (212) 974 6949; E-mail: [email protected]

James L. Johnston is a partner with Davis INTRODUCTION & Gilbert LLP, representing numerous multi- Rather than a new development, the national, national and local media companies, current era of branded entertainment is television and motion picture producers, adver- one of evolution and, if one word could tising, promotions and media agencies, and characterise the evolution of branded advertisers in connection with all aspects of entertainment in the USA, it is diver- motion picture, television, entertainment, ad- sification. Branded entertainment in the vertising, promotions and marketing industries. USA generally falls into one of three His practice covers intellectual property issues; categories: sponsorships, placements and production, distribution and financing issues; integrations. Sponsorships generally con- talent and union issues; and regulatory issues, sist of title credits or presenting credits in with a particular focus on the crossover of the programming which otherwise has little advertising and entertainment worlds. to do with the advertiser, such as The Texaco Star Theater variety show and the Hallmark Hall of Fame and Johnson & ABSTRACT Johnson Spotlight Presentation series of Some in the media would have us believe that television movies. Product placements product placement is some new and perhaps generally consist of passive on-screen dangerous development in US television. Yet and/or verbal mentions of brands or the practice of brands securing product place- advertisers, with minimal connection to ments, sponsoring radio and television program- the storyline of the programming, such as ming, and integrating their brands and products the appearance of Coca-Cola products in into programming, is nearly as old as electronic American Idol. Brand integrations comprise media itself. From The Jell-O Program a wide array of brand exposure, which starring Jack Benny to The Johnson Wax often includes extensive integration into Program with Fibber McGee and Molly, the the storylines and/or traits of characters in very start of radio was dominated by sponsored the programming, such as the use of and programming and in-programme product exposure for Sears brand products in mentions. Extreme Makeover: Home Edition,inwhich the Sears products are a vital element of Keywords: product placement, televi- the home and life transformations which sion, brands, sponsored programming, take place on the programme, and the brand exposure storyline in the US version of the

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programme The Office,inwhichthe subject matter is broadcast. Additionally, character Dwight Schrute was fired from the FCC adopted what is known as the the fictional Dunder Mifflin Paper Com- sponsorship identification rule, which pany and took a job at the real world established the responsibilities of the competitor, Staples, with numerous scenes broadcaster in making the sponsorship set in a Staples store. Where historical identification.2 branded entertainment focused on spon- The second source of law governing sorships and placements, the current product placement is Section 507 of the branded entertainment landscape is filled Communications Act 1934 which re- with a diverse blend of sponsorships, quiresthatadisclosurebemadeinad- placements and storyline integrations, vance of a person providing or promising with the most explosive growth coming to provide money, services or other con- in the category of integrations. sideration to someone to include pro- Each of these categories of branded gramme material in a broadcast.3 Both the entertainment has been subject to increas- individual or entity providing the money, ing scrutiny and mounting pressure over services or other consideration as well the last several years, reaching a turning as the recipient are required to make point in the last six months with the this disclosure so that the station may decision by the Federal Communications broadcast the sponsorship identification Commission (FCC) to review its rule announcement required by Section 317 of making over this field. the Communications Act 1934. The FTC, while not as active in this area as the FCC, has traditionally viewed REGULATORY FRAMEWORK branded entertainment within the over- Branded entertainment in the USA is all jurisdiction of its consumer protec- within the regulatory jurisdiction of the tion regulatory authority in relation to FCC and the Federal Trade Commission deceptive advertising and unfair business (FTC). Each of these agencies examines practices. branded entertainment through a unique prism and with different aims and goals. In addition, this area is subject to the RECENT HISTORY self-regulatory guidelines of entities in the Not since the quiz show scandals of the USA, such as the National Advertising 1950s or the ‘payola’ scandals of the 1960s Review Council (NARC), the Children’s has governmental interest in branded enter- Advertising Review Unit (CARU), both tainment been as high as it is now. In units of the Better Business Bureau, as a prelude to the current debate over well as the US broadcast networks. branded entertainment in popular US The FCC asserts its jurisdiction over media, the Center for the Study of branded entertainment through two Commercialism (CSC) filed a complaint in sources of law. The first source is Section 1991 with the FTC requesting an inves- 317 of the Communications Act of 1934,1 tigation of and rule making for motion which requires broadcasters to disclose to picture product placement.4 The CSC’s their listeners or viewers if any content of complaint proposed that films directed to the broadcast has been made in exchange adults include a clear audio and visual for money, services or other valuable notice immediately before the start of the consideration. Under this law, the film informing the audiences of the paid disclosure must be made at the time the advertisements contained in the film. The

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complaint also argued that films directed to programme and prove annoying to children should be prohibited from includ- viewers. ing any product placements. The following The FAC’s opposition to Commercial year, the FTC rejected the CSC’s proposal Alert’s complaints was joined by The and elected not to take action at that time. Washington Legal Foundation (WLF) This would be a decision the FTC would which, in March 2004, also filed com- repeat in the future. ments with the FTC in response to More recently, in September 2003, the Commercial Alert’s petition.8 In its com- consumer watchdog group Commercial ments, the WLA asserted, among other Alert filed a complaint with the FTC things, that Commercial Alert failed to urging it to investigate product placement demonstrate the harm necessary for a practices on television.5 Concerned that finding of unfairness under Section 5 of the line between programming and com- the FTC Act, which prohibits unfair or mercials had become increasingly blurred, deceptive practices. thereby making it difficult for consumers TheFCCjoinedthedebate,aftermuch to know when they are being advertised anticipation, when in May 2004 FCC to, Commercial Alert called for added Commissioner Jonathan Adelstein, in a disclosures in product placement advertis- speech before the Media Institute, stated ing so that consumers would know that that ‘it is a cardinal right for Americans to the advertiser had paid for the placement. have the commercial elements of radio Commercial Alert simultaneously filed a and TV broadcasting clearly marked similar complaint with the FCC.6 In its and made explicit to even undiscerning complaint to the FCC, Commercial Alert viewers and listeners’.9 contended that the television networks The FTC’sofficial response to the failed to comply with the FCC’s spon- Commercial Alert complaint came on sorship identification requirements with 10th February, 2005, when the Commis- respect to paid product placements. sion concluded that paid product place- The Commercial Alert complaints ment alone does not violate Section 5 of were met with resistance by several the FTC Act. The FTC rejected Com- advertising trade associations. In Novem- mercial Alert’s request to require pop-up ber of the same year, the Freedom advertisement disclosures to appear during to Advertise Coalition (FAC) filed television programming each time there is two oppositions to Commercial Alert’s a paid product placement. The FTC did complaints.7 The FAC argued that agree to monitor future uses of product product placement is advertising which placement and reserved its right to step in, is protected by the commercial speech should false or misleading claims about a doctrine. The FAC also argued that product’s attributes be made. Commercial Alert did not ‘identify a Just three months later, Commissioner strong enough governmental interest’ to Adelstein stated publicly that the FCC warrant action or show ‘that product should toughen its product placement placement is unlawful or misleading’. disclosure requirements and expand its The FAC further argued that pop-up investigation into the practice of product disclosures identifying product place- placement. Adelstein testified before the ments, which were suggested as an US Senate Committee on Commerce, appropriate means of disclosure in Science, & Transportation stating ‘concern Commercial Alert’s complaints, would ... that there seems to be a lack of destroy the artistic integrity of the awareness of the need for disclosure

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under [FCC] rules’ regarding undisclosed far, the WGA’s actions have been viewed product placements.10 Additionally, Com- by many as self-serving, in that while many missioner Adelstein has called for in- of their stated concerns involve protect- creased public involvement by asking ing consumers from harm, many of their people to record suspected violations and resolutions involve paying writers more send formal complaints to the FCC. for product placements and integrations There is no indication, however, that this and/or giving greater control to writers call to action was met with a rush to the over how and whether product placements VCRs and DVRs of America. and integrations will be executed. The self-regulatory group, The National Particular attention has been paid to Advertising Review Council (NARC), product placement advertising aimed at announced in September 2005 that it children. In November 2006, CARU would be expanding its panel of academic revised its Self-Regulatory Guidelines for experts to help set standards for reviewing Children’s Advertising. In connection with advertisements, and that it had asked the Guides, the Council of Better Business the Children’s Advertising Review Unit Bureaus established the Children’s Food (CARU) to take a closer look into product and Beverage Initiative with ten of the placements. NARC president-CEO, James largest food and beverage companies as R. Guthrie, stated that these efforts were a participants. The participants agreed to, response to some of the concerns raised at among other things, refrain from engaging a then recent joint FTC and Department of in food and beverage product placement in Health and Human Services workshop programme content. which looked into the role of marketing in the childhood obesity crisis. Among the proposals discussed at the workshop was a CURRENT STATE OF AFFAIRS complete ban on paid product placement in All of this leads to the current FCC children’s programming. consideration of this issue. In September Additional criticism of product place- 2007, House Telecom Subcommittee ment practices came on 11th November, Chairman Ed Markey (D-Mass.) and 2005, when The Writers Guild of America Henry Waxman (D-Calif.) wrote a letter (WGA) issued a white paper entitled, ‘Are to FCC Chairman Kevin Martin, urging you selling to me? Stealth advertising in the FCC to police product placement on the entertainment industry’.11 The paper broadcast and cable television. Chairman criticised the expanding practice of product Martin publicly announced at the time placement and pushed for the disclosure of that he was circulating a notice of product placement deals in the beginning proposed rule making among his col- of each programme. The WGA called for leagues enquiring internally whether the a portion of product placement revenues, in FCC should take action in this area. addition to a code of conduct for the The meeting of the FCC commis- advertising. In May 2007, Phil Rosen- sioners on 18th December was scheduled thal, executive producer of Everybody Loves to address the current state of product Raymond,onbehalfoftheWGA,testified placement in broadcast media, the in front of the House of Representatives at adequacy of existing regulations and the the hearing of the Telecommunications and proposal for additional disclosures. How- the Internet Subcommittee of the House ever, these issues were never discussed at Energy and Commerce Committee about the December meeting, as the matter was the problems of product integration.12 Thus removed from the FCC’s meeting agenda,

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perhaps due, in part, to letters sent to the WHAT DOES IT MEAN TO FCC by the three main advertising trade SPONSORS? associations, the American Association of First and foremost, the current debate Advertising Agencies, the American within the FCC means that there is and, Advertising Federation and the Associa- for the near future, will continue to tion of National Advertisers, urging the be considerable uncertainty surrounding FCC to reconsider issuing the notice of branded entertainment. Yet, with the proposed rule making on product fragmentation of viewing and listening placement. These trade associations asked audiences, advertisers, producers, broad- the FCC instead for a notice of inquiry as casters, cable networks, and movie studios a means of gathering information about understand that it is imperative that the issue before addressing any policy branded entertainment continue to be a considerations. viable and effective business. Even the While the FCC did issue a notice of FCC, in its notice of proposed rule inquiry, it did not stop there. In June making, acknowledges the substantial 2008, the FCC adopted and released a concerns regarding the viability of free notice of inquiry and notice of proposed television and radio if branded entertain- rule making regarding the practice it ment were to be regulated in such a way refers to as ‘embedded advertising’.In as to make it wholly unattractive to particular, the FCC sought comment on audiences and to sponsors. proposals to require specificsizesand/or Moreover, the field of branded enter- specific durations of disclosures of em- tainment is evolving faster than the FCC bedded advertising. In addition, the FCC regulators can keep up with it. Practices sought comment on the extension of the such as ‘content wraps’ and ‘cwickies’ on disclosure requirements to cable pro- the CW network that the FCC identified grammers and whether additional require- as cutting-edge are in many ways passe´ ments and/or restrictions should be placed already. Starting from stand-up com- on children’s programming. edy segments featuring brands in the Initial comments were filed in the punchline on the TBS cable network, autumn by nearly 200 interested parties, new forms and formats of branded ranging from individuals to public interest entertainment are being introduced each organisations to broadcast networks and week. production studios to media agencies. As It will be imperative that sponsors this paper goes to press the deadline for monitor these developments closely and filing reply comments remains open. Given manage their branded entertainment that the intervening presidential election programmes with these developments in could dramatically alter the make-up of the mind. While the fundamental respon- FCC commissioners (with the election of sibility for implementing any new FCC Barack Obama as US President, Kevin requirements will largely lie with Martin has resigned his position as FCC producers and broadcasters, these changes Chair13), it now seems increasingly unlikely could significantly affect the value of a that the FCC will take any action before the branded entertainment programme. Spon- second half of 2009, if it elects to take any sors will need to engage proactively with action at all. Moreover, the upcoming producers and broadcasters to remain transition to digital television transmission ahead of the proposed rule making and in the USA has pushed many FCC agenda prepared for the results. Otherwise, a items into 2009. sponsor could be left with a programme

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that it has invested heavily in, only to find petition for rule making related to that the programme itself is unworkable disclosure of product placement on from a regulatory standpoint or that, due television’, 12th November, available at: to more significant and intrusive www.ana.net (accessed 23 December disclosure requirements, viewers will not 2008). (8) See Letter from Daniel J. Popeo and watchorlistentoit. David Proce, Washington Legal Foundation, to Mr Donald S. Clark, REFERENCES Secretary, US Federal Trade (1) 47 USC § 317. Commission (2004) ‘Comments of the (2) 47 CFR § 73.1212. Washington Legal Foundation to the (3) 47 USC § 508. Federal Trade Commission concerning (4) See Center for the Study of television product placement’,6th Commercialism, Complaint and March, available at: http://www.wlf.org Request for Investigation and Rule (accessed 23 December 2008). Making, 30th May, 1991, 1991 FTC (9) Jonathan S. Adelstein, Commissioner, LEXIS 577. Federal Communications Commission (5) See Letter from Gary Ruskin, (2004) ‘’Fresh is not as fresh as frozen’: Executive Director, Commercial Alert, A response to the commercialization of to Marlene H. Dortch, Secretary, American media’, address before the Federal Communications Commission, Media Institute, 25th May, 2004 FCC 30th September, 2003, available at: LEXIS 7458, at 20. http://www.commercialalert.org/fcc.pdf (10) Pre-packages News Stories, Hearing on (accessed 23 December 2008). S.967 before the S. Committee on (6) See Letter from Gary Ruskin, Commerce, Science & Transport, 109th Executive Director, Commercial Alert, Congress (2005) (statement of Jonathan to Donald Clark, Secretary, Federal Adelstein), 2005 FCC LEXIS 3084, at Trade Commission, 30th September, 2–3. 2003, available at: (11) See Writers Guild of America (2005) http://www.commercialalert.org/ftc.pdf. ‘Are you selling to me? Stealth (7) See Letter from Darryl Nirenberg, advertising in the entertainment Counsel, Freedom to Advertise industry’, 14th November, available at: Coalition, and Penelope Farthing, http://www.wga.org/uploadedFiles/ Counsel, Freedom to Advertise news_and_events/press_release/2005/ Coalition, to Donald Clark, Secretary, white_paper.pdf (accessed 23 December Federal Trade Commission (2003) 2008). ‘Opposition to request for investigation (12) Hearing on the Telecommunications of product placement on television and and the Internet Subcommittee of the guidelines to require adequate House of Energy and Commerce disclosure of TV product placement’, Committee (2007) ‘Digital future of the 12th November, available at: United States: Part V, The future of www.ana.net (accessed 23 December video’, 10th May, available at: 2008); Letter from Darryl Nirenberg, http://www.wga.org/uploadedfiles/ Counsel, Freedom to Advertise news_and_events/press_release/product Coalition, and Penelope Farthing, _integration/Rosenthal.pdf (accessed 23 Counsel, Freedom to Advertise December 2008). Coalition, to Marlene H. Dortch, (13) Bachman, K., FCC’s Chairman Kevin Secretary, Federal Communications Martin Resigns, Mediaweek, 15th Commission (2003) ‘Opposition to January, 2009).

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