Last week, the FCC commenced its long anticipated proceeding to reexamine its sponsorship identification rules. This proceeding has been rumored for over six months, having appeared on an agenda for a Commission open meeting in December, only to be pulled from the agenda days before it was to have been voted on. The Commission has initiated this proceeding, to a great degree, at the urging of Commissioner Adelstein who has been vocal in his concerns that the broadcast and advertising industries, in adopting advertising techniques to respond to technological and marketplace changes, has been exposing the public to commercial messages without their knowledge.  One of the principal practices of concern to the Commission, though not the only one, is embedded advertising (as the Commission refers to product placement and product integration into the dialog and/or plot of a program). While many of the trade press reports have focused on embedded advertising, this proceeding is wide-ranging and important to the broadcast, cable and advertising industries. Comments on the proceeding will be due 60 days after its publication in the Federal Register, with replies 30 days later.   We have prepared an Advisory, summarizing the issues raised by the Commission in this proceeding, which can be found here.

According to trade press reports, this proceeding was initially planned as a Notice of Proposed Rulemaking (NPRM), which would have proposed rules which, after public comment, could have been immediately adopted. After significant lobbying from the advertising community, the Notice was released in two parts. First, there is a Notice of Inquiry (NOI), asking a series of questions about the current state of advertising on broadcast and cable outlets, and asking how the Commission should amend its rules to deal with new advertising techniques. Second, the Commission’s announcement contains an NPRM with respect to certain specific items, including proposing to clarify the type of sponsorship identification necessary in television advertising, the extension of the sponsorship identification rules beyond local origination cablecasting to cable network programming, and clarification of the rules with respect to live-read radio commercials. The specifics of the NOI and the NPRM are set forth in our Advisory. 

Also of interest was the Commission's discussion of the background of the sponsorship identification rules.  In its discussion, the Commission raised a number of issues with common broadcast techniques and whether or not these were consistent with existing precedent - some of that precedent dating back 40 years.  For instance, the FCC cited a policy statement from the 1960s that stated that "teaser" announcements of a few seconds duration were impermissible if the sponsor was not clear from the teaser itself, even if the sponsor became clear in a later announcement in the same program.  The use of "cwickies" by the CW Network was identified as a potential area of concern by the FCC.

The Commission also questioned whether there was a need for sponsorship identifications in interview programs where there was consideration given to the program for the inclusion of broadcast material.  The FCC worried about "hidden commercials."  That discussion was most likely triggered by the concerns over Video News Releases ("VNRs") and by payments to spokesmen to plug government programs without disclosing that they had been paid (as in the Armstrong Williams program which was the subject of a fine about which we wrote here, and the recent controversy about ex-military officers who offered on-air opinions on the War on Terror without disclosing their financial connections to the Defense Department).  However, it would seemingly have a far greater impact.  In watching television programs in the last few days, I've been wondering how far the FCC's concern could go.  On virtually every talk program, from the late night programs like the Daily Show or the Leno or Letterman, to daytime TV programs like Oprah or the Today Show, one staple is the author who is plugging his or her book or the actor plugging his or her movie.  Could the provision of the guest on these programs for no payment by the TV show be construed as the receipt of valuable consideration by the book publishers or movie companies who are paying the costs of the promotional tour by the author or actor?  Watching another cable television talk program, I noted the presence of numerous coffee cups with a recognizable logo on the desk of the hosts.  Was that coffee paid for by the hosts, or was it provided by the coffee company just for the promotional value of having its cups appear on screen?  While FCC policy currently allows the provision of material used in a program at no charge if the material is not unnecessarily highlighted in the program (so the piano may be provided by Steinway and its logo may be seen when the focus is on the player's fingers, there is no tight focus on the logo nor is there a plug at the end of the concerto remarking on how amazing the piano was).  But would even the existing indirect plugs be permitted (without a sponsorship identification) if rules were adopted to address some of the concerns expressed by the FCC. 

The way that the advertising and broadcasting businesses work together could be profoundly affected by this proceeding.  Read our Advisory, read the FCC's Notice, and watch for the comment date.  Think about the concerns that should be addressed by the Commission before enacting any new rules in this area, and let them know of these concerns before any new rules are adopted. 

As we become more attuned to analyzing PPM numbers, it's looking more and more that well-branded and well-positioned Classic Rock stations should do very well in a metered world.  Of course, many operators of Classic Rock stations have experienced two decades of pretty consistent success, playing the best rock from the '60s, '70s, and '80s.

But there are some stations that do an especially good job of repackaging the music to create memorable special programming.  I call this "shuffling the deck" because it involves playing many of the same songs but in a different format.  The now-famous "Classic Rock A-to-Z" is a good example, as is the ubiquitous "Top 500 Countdown," typically scheduled over Memorial Day Weekends.

One station that always seems to come up with clever specials is Entercom's Eagle in Sacramento.  Curtiss Johnson, Brian Lopez, and their veteran staff have become experts at melding Classic Rock with a little old school theater of the mind.  This week, they're taking another "Classic Rock Road Trip," cruising across the country (forget those high gas prices) to feature music from many different cities and towns.

Maybe this all sounds simple, but the reality of putting together something like this (and doing it well) is that it takes several staff meetings and brainstorms, storyboards, show/prep scripts for each state and city on the tour, and a great bit of writing and production that makes "Classic Rock Road Trip" come alive.  The feature generates a huge audience reaction, fueled by the fact that many Eagle listeners moved to Sacramento from somewhere else.

My favorite Eagle stunt, however, is "Woodsquawk," a virtual/fantasy music festival that is always entertaining, colorful, and enhanced by great personalities like Bob Keller, Tom Nakashima, Charlie Thomas, Kat Maudru, and even syndicated hosts, Mark & Brian.

If you ever wonder about the value of having knowledgeable, respected local jocks, look no further than Entercom Sacramento.

In two recent FCC decisions, one dealing with a commercial operator and that other with a noncommercial licensee, the Commission's staff addressed the issue of how large an FCC fine could be imposed on a broadcaster without that fine being subject to reduction because of the licensee's inability to pay.  In the first case, a commercial station was fined for violations of the EAS rules.  As we've written before, EAS seems to be the most common violation found at broadcast stations by FCC inspectors.  However, what is most notable about this decision is not the violation, but the Commission's discussion of the penalty for that violation.  As in many cases, the licensee argued that, as it had experienced several years of financial losses, the amount of its fine should be reduced as the payment of that fine would impose a financial burden on it.  The FCC rejected the argument, finding that as the fine was less than 2% of the licensee's gross revenues, it was not excessive.  The Commission stated that, while profits and losses may be important in determining whether a licensee can pay a fine, in most cases, if the fine is less than 2% of gross revenues, it will not be considered excessive even if the licensee has not been making a profit as it it not a significant overall expense.  Therefore, the Commission refused to reduce the fine because of financial hardship argument.

In the noncommercial case, the applicant claimed that a fine that it was issued for not having any quarterly programs issues lists in it public file should have been reduced because that fine would significantly deplete the station's budget that had been allocated to it by the School District with which it was associated.  However, the licensee only provided the FCC with information concerning the budget allotted to the radio station, and it did not provide any financial information about finances of the licensee school district.  Without that information, the Commission stated that it could not determine that the fine was excessive, so it did not reduce the fine on the basis of financial hardship.  Clearly, the Commission is not anxious to reduce a fine based on the licensees financial inability to pay, so a licensee looking for such a reduction must carefully document its request showing that the fine would impose a financial hardship.