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24 July 2008
[Federal Register: July 24, 2008 (Volume 73, Number 143)]
[Proposed Rules]
[Page 43194-43200]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24jy08-33]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Parts 73 and 76
[MB Docket No. 08-90; FCC 08-155]
Sponsorship Identification Rules and Embedded Advertising
AGENCY: Federal Communications Commission.
ACTION: Proposed rule.
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SUMMARY: In this document, the Commission seeks comment on proposed
rule changes to make sponsorship identification disclosures more
obvious to consumers. The Commission specifically seeks comment on
current trends in embedded advertising and potential changes to the
current sponsorship identification regulations with regard to embedded
advertising.
DATES: Comments for this proceeding are due on or before September 22,
2008; reply comments are due on or before October 22, 2008.
ADDRESSES: You may submit comments, identified by MB Docket No. 08-90,
by any of the following methods:
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
Federal Communications Commission's Web Site: http://
www.fcc.gov/cgb/ecfs/. Follow the instructions for submitting comments.
People with Disabilities: Contact the FCC to request
reasonable accommodations (accessible format documents, sign language
interpreters, CART, etc.) by e-mail: FCC504@fcc.gov or phone: 202-418-
0530 or TTY: 202-418-0432.
For detailed instructions for submitting comments and additional
information on the rulemaking process, see the SUPPLEMENTARY
INFORMATION section of this document.
FOR FURTHER INFORMATION CONTACT: For additional information on this
proceeding, contact John Norton, John.Norton@fcc.gov, or Brendan
Murray, Brendan.Murray@fcc.gov, of the Media Bureau, Policy Division,
(202) 418-2120.
SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Notice
of Proposed Rulemaking (NPRM), FCC 08-155, adopted on June 13, 2008,
and released on June 26, 2008. The full text of this document is
available for public inspection and copying during regular business
hours in the FCC Reference Center, Federal Communications Commission,
445 12th Street, SW., CY-A257, Washington, DC 20554. These documents
will also be available via ECFS (http://www.fcc.gov/cgb/ecfs/).
(Documents will be available electronically in ASCII, Word 97, and/or
Adobe Acrobat.) The complete text may be purchased from the
Commission's copy contractor, 445 12th Street, SW., Room CY-B402,
Washington, DC 20554. To request this document in accessible formats
(computer diskettes, large print, audio recording, and Braille), send
an e-mail to fcc504@fcc.gov or call the
[[Page 43195]]
Commission's Consumer and Governmental Affairs Bureau at (202) 418-0530
(voice), (202) 418-0432 (TTY).
Summary of the Notice of Inquiry and Notice of Proposed Rulemaking
I. Introduction
1. We solicit comment on the relationship between the Commission's
sponsorship identification rules and increasing industry reliance on
embedded advertising techniques. Due, in part, to recent technological
changes that allow consumers to more readily bypass commercial content,
content providers may be turning to more subtle and sophisticated means
of incorporating commercial messages into traditional programming. As
these techniques become increasingly prevalent, it is important that
the sponsorship identification rules protect the public's right to know
who is paying to air commercials or other program matter on broadcast
television and radio and cable. Accordingly, we seek comment on current
trends in embedded advertising and potential changes to the current
sponsorship identification regulations with regard to embedded
advertising.
II. Notice of Inquiry
2. Product placement is the practice of inserting ``branded
products into programming in exchange for fees or other
consideration.'' The Writers Guild and others have made a distinction
between the mere use of products as props in television programming and
the integration of the product into the plot of the story. Product
placement is the placement of commercial products as props in
television programming, whereas product integration integrates the
product into the dialogue and/or plot of a program. The purpose of
embedded advertising, such as product placement and product
integration, is to draw on a program's credibility in order to promote
a commercial product by weaving the product into the program. The use
of embedded advertising is escalating as advertisers respond to a
changing industry. Digital recording devices (DVRs) allow consumers to
skip traditional commercials, giving rise to interest in other means of
promoting products and services. In addition, concerns have been raised
that the availability of more programming options may translate into
lower audience retention during commercial breaks. The industry appears
to be turning increasingly to embedded advertising techniques. PQ Media
estimates that between 1999 and 2004, the amount of money spent on
television product placement increased an average of 21.5 percent per
year. For 2005, PQ Media estimates that the net value of the overall
paid product placement market in the United States increased 48.7
percent to $1.50 billion. Product placements for primetime network
programming, according to Nielsen's Product Placement Services,
decreased in 2006, but the first quarter of 2007 shows an increase in
product placements in Nielsen's Top 10 shows.
3. These trends are also reflected in the new types of advertising
offered by certain networks and radio stations. The CW network, for
example, offers ``content wraps,'' serialized stories within a group of
commercials that include product integration, and ``cwikies,'' five
second advertising slots interspersed in regular programming. Fox
Sports Network claims a specialty in ``product immersion,'' the
practice of ``immersing products into programs * * * so that they
really feel like it is part of the show.'' NBC has instituted a policy
of bringing in advertisers during programming development. In 2004,
Universal Television Networks sold to OMD Worldwide the exclusive
rights to product placement position in a miniseries. The goal of many
of these new marketing techniques is to integrate products and services
seamlessly into traditional programming.
4. The Commission's sponsorship identification rules are based on
Sections 317 and 507 of the Communications Act of 1934, as amended
(``Communications Act''), and are designed to protect the public's
right to know the identity of the sponsor when consideration has been
provided in exchange for airing programming. Section 317 generally
requires broadcast licensees to make sponsorship identification
announcements in any programming for which consideration has been
received. Section 317(c) requires broadcasters to ``exercise reasonable
diligence'' in obtaining sponsorship information from any person with
whom the licensee ``deals directly.'' Section 507 of the Communications
Act establishes a reporting scheme designed to ensure that broadcast
licensees receive notice of consideration that may have been provided
or promised in exchange for the inclusion of matter in a program
regardless of where in the production chain the exchange takes place.
5. Sections 73.1212 and 76.1615 of the Commission's rules closely
track the language of Section 317 of the Communications Act. The rules
apply regardless of whether the program is primarily commercial or
noncommercial and regardless of the duration of the programming. The
rules do not require sponsorship identification, however, when both the
identity of the sponsor and the fact of sponsorship of a commercial
product or service is obvious. Thus, a sponsorship announcement would
not be required when there is a clear connection between an obviously
commercial product and sponsor. Furthermore, with the exception of
sponsored political advertising and certain issue advertising, the
Commission only requires that the announcement occur once during the
programming and remain on the screen long enough to be read or heard by
an average viewer. Other decisions are left to the ``reasonable, good
faith judgment'' of the licensee. The Commission has issued numerous
public notices over the years reminding industry participants of their
sponsorship identification obligations. In the past, the Commission has
specifically reminded the industry that such obligations extend to
``hidden'' commercials embedded in interview programs.
6. Providing ``special safeguards'' against the effects of
overcommercialization on children, the Children's Television Act
imposes time limitations on the amount of commercial matter in
children's programming. The Commission also has several longstanding
policies that are designed to protect children from confusion that may
result from the intermixture of program and commercial material in
children's television programming. The Commission requires broadcasters
to use separations or ``bumpers'' between programming and commercials
during children's programming to help children distinguish between
advertisements and program content. The Commission also considers any
children's programming associated with a product, in which commercials
for that product are aired, to be a ``program-length commercial.'' Such
program length commercials may exceed the Commission's time limits on
commercial matter in children's programming and expose the station to
enforcement action. The Commission has also stated that this program-
length commercial policy applies to ``programs in which a product or
service is advertised within the body of the program and not separated
from program content as children's commercials are required to be.''
7. In a petition for rulemaking filed with the Commission in 2003,
Commercial Alert argues that the Commission's sponsorship
[[Page 43196]]
identification rules are inadequate to address embedded advertising
techniques, and thus, these rules fail to fulfill the Commission's
mandate under Section 317 of the Communications Act. For example,
Commercial Alert asserts that ``[t]here was a statement at the end of a
segment featuring the product placement that [the television program]
`Big Brother 4 is sponsored by McDonald's.' But there was not a hint
that embedded plugs within the show were in fact paid ads.'' Commercial
Alert requests revision to these rules to require disclosure of product
placement and integration in entertainment programming at the
beginnings of programs in clear and conspicuous language. Commercial
Alert also requests that disclosure be made concurrently with any
product placement and/or integration, asserting that requiring
disclosure only at the beginning or the end of the program
disadvantages viewers who might miss the announcement.
8. In opposition, the Washington Legal Foundation (WLF) and Freedom
to Advertise Coalition (FAC) both argue that embedded advertising
techniques are a longstanding fixture of broadcast advertising that
cause no substantial harm to consumers, that the Commission's existing
sponsorship identification rules are adequate to regulate them, and
that a concurrent disclosure requirement 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. By interfering with both the
``commercial and dramatic reality of television production,'' asserts
WLF, a concurrent disclosure requirement would be unconstitutionally
overbroad. Similarly, FAC argues that a concurrent disclosure
requirement would so greatly interfere with the ``artistic integrity''
of a program that it would ``censor or ban this long standing means of
commercial speech.'' FAC also asserts that a concurrent disclosure
requirement lacks a ``strong enough governmental interest'' to justify
the infringement on commercial speech. Accordingly, applying the four-
part test developed by the U.S. Supreme Court in Central Hudson Gas and
Electric Corp. v. Public Service Commission, 447 U.S. 557, (1980), FAC
asserts that any concurrent disclosure requirement would fail to meet
the intermediate standard of review developed for lawful, non-deceptive
commercial speech.
9. Two years after the filing of the Commercial Alert Petition, the
Writer's Guild of America, West; the Writer's Guild of America, East;
the Screen Actors Guild; and the associate dean of the U.S.C. Annenberg
School for Communication formulated another set of recommendations,
including: (1) Visual and aural disclosure of product integration at
the beginning of each program; (2) strict limits on product integration
in children's programming; (3) input by storytellers, actors, and
directors, arrived at through collective bargaining, about how a
product or brand is to be integrated into content; and (4) extension of
all regulation of product integration to cable television.
Alternatively, these groups requested the creation of an industry code
on embedded advertising. More recently, in 2007, Philip Rosenthal
testified on behalf of the Writers Guild of America, West and the
Screen Actors Guild before the Subcommittee on Telecommunications and
the Internet of the House Committee on Energy and Commerce regarding
the need for greater disclosure requirements because of product
placement and product integration. In addition, in 2007, Patric Verrone
testified on behalf of the Writers Guild of America, West, during the
Federal Communications Commission's Public Hearing on Media Ownership
in Chicago, Illinois regarding the need for greater disclosure
requirements for product integration.
III. Discussion
10. We undertake this proceeding in order to consider the complex
questions involved with the practice of embedded advertising, and to
examine ways the Commission can advance the statutory goal entrusted to
us of ensuring that that the public is informed of the sources of
program sponsorship while concurrently balancing the First Amendment
and artistic rights of programmers. We seek comment on current trends
in embedded advertising and the efficacy of the Commission's existing
sponsorship identification rules in protecting the public's right to be
informed in light of these trends. More specifically, we seek comment
on whether and how Sections 73.1212 and 76.1615 of the Commission's
rules should be amended in order to fulfill the purposes of Sections
317 and 507 of the Communications Act.
11. We seek comment on the application of the sponsorship
identification regulations to various embedded advertising techniques.
As noted above, the Commission in 1960 issued a public notice stating
that sponsorship identification requirements applied to ``hidden''
commercials embedded in interview programs.\1\ How often are these
embedded advertising practices occurring and in what form? Are the
existing rules effective in ensuring that the public is made aware of
product placement and product integration in entertainment programming?
Are persons involved in the production or preparation of program matter
intended for broadcast fulfilling their obligations under Section 507?
Are broadcasters and cable operators fulfilling their reasonable
diligence obligations under Section 317(c) and the Commission's rules?
Does embedded advertising fit within the exception to disclosure
requirements that applies where the commercial nature and identity of
the sponsor is obvious? \2\
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\1\ See Inquiry Into Hidden Commercials In Recorded
``Interview'' Programs, Public Notice, 40 F.C.C. 81 (1960). In its
petition, Commercial Alert stresses that more recently, several
pharmaceutical companies have used paid spokespersons to promote
certain drugs, ``often without disclosing that they were paid by
pharmaceutical companies, or had other financial ties to them.'' See
Commercial Alert Petition at 5.
\2\ See 47 CFR 73.1212(f).
---------------------------------------------------------------------------
12. We also seek comment on whether modifications to the
sponsorship identification rules are warranted to address new
developments in the use of embedded advertising techniques. Are the
concurrent disclosures requested by Commercial Alert necessary to
ensure that the public is aware of sponsored messages that are
integrated into entertainment programming? \3\ Would concurrent
disclosures be more or less disruptive to radio programming? Are other
rule modifications warranted? Should we require disclosures before or
after, or before and after, a program containing integrated sponsored
material? \4\ Should we require disclosure during a program when
sponsored products and/or services are being displayed? Should we
require both visual and aural disclosure for televised announcements?
\5\ Should these disclosures contain language specifying that the
content paid for is an ``advertisement'' or other specific
[[Page 43197]]
terms? \6\ Should we require that radio disclosures be of a certain
duration or of a certain volume?
---------------------------------------------------------------------------
\3\ See Commercial Alert Petition at 4.
\4\ Id.
\5\ See Writers Guild White Paper at 8. We note that in a 1991
Report and Order, the Commission adopted a rule requiring both audio
and video sponsorship identification for television political
advertisements. In the matter of Codification of the Commission's
Political Programming Policies, 7 FCC Rcd 678 (1991). However, as
part of the same proceeding, in response to petitions for
reconsideration addressing these requirements, the Commission
subsequently eliminated the audio identification (agreeing with
petitioners that this requirement was unduly burdensome to
candidates, particularly for short spot announcements) and set forth
the specific standards for video sponsorship identification
currently in effect. 7 FCC Rcd 1616 (1992).
\6\ See Commercial Alert Petition at 4.
---------------------------------------------------------------------------
13. We further seek comment on the First Amendment implications of
possible modifications to the sponsorship identification rules to
address more effectively embedded advertising techniques. In
particular, we invite comment on the arguments raised by WLF and FAC in
response to Commercial Alert's petition. Would the imposition of
concurrent disclosure requirements or other regulations infringe on the
artistic integrity of entertainment programming, as WLF argues? Would
such a regulation be paramount to a ban on embedded advertising, as
asserted by WLF and FAC? Does the apparently common existing practice
of superimposing unrelated promotional material at the bottom of the
screen during a running program belie WLF's and FAC's contention that
concurrent identification would effectively preclude product
integration as a form of commercial speech because it would ``infringe
on artistic integrity''? Are the government interests at stake here
substantial enough to justify any such requirements? How can the
Commission ensure that any modified regulations are no more extensive
than necessary to serve these interests?
14. We also seek comment on whether Section 317 disclosure
requirements should apply to feature films containing embedded
advertising when re-broadcast by a licensee or provided by a cable
operator. We note that in its prior Order, the Commission granted a
Section 317 waiver for feature films.\7\ We found that there was a lack
of evidence of sponsorship within films and observed that there was a
lag time between production of feature films and their exhibition on
television. In the 1963 Order, the Commission found no public interest
considerations which would dictate immediate application of Section 317
to feature films re-broadcast on television. At present, the
Commission's rules continue to waive the sponsorship identification
requirements for feature films ``produced initially and primarily for
theatre exhibition.'' \8\ We seek comment on the use of embedded
advertising in feature films today, and whether the Commission should
revisit the decision to waive Section 317 disclosure requirements.
---------------------------------------------------------------------------
\7\ In the Matter of Amendment of Sections 3.119, 3.289, 3.654
and 3.789 of the Commission's Rules, Report and Order, 34 F.C.C.
829, 841 (1963).
\8\ See 47 CFR 73.1212(h).
---------------------------------------------------------------------------
IV. Notice of Proposed Rulemaking
15. With the exception of sponsored political advertising and
certain issue advertising, the Commission only requires that the
announcement occur once during the programming and remain on the screen
long enough to be read or heard by an average viewer. The sponsorship
identification announcement must state ``paid for,'' ``sponsored by,''
or ``furnished by'' and by whom the consideration was supplied. In this
Notice of Proposed Rulemaking, we seek comment on a proposed rule
change to make the current disclosure requirement more obvious to the
consumer by requiring that sponsorship identification announcements (1)
have lettering of a particular size and (2) air for a particular amount
of time. Currently, the sponsoring announcement for any television
political advertising concerning candidates for public office must have
lettering equal to or greater than four percent of the vertical picture
height and air for not less than four seconds. Also, any political
broadcast matter or broadcast matter involving the discussion of a
controversial issue of public importance longer than five minutes ``for
which any film, record, transcription, talent, script, or other
material or service of any kind is furnished * * * to a station as
inducement for the broadcasting of such matter'' requires a sponsorship
identification announcement both at the beginning and the conclusion of
the broadcast programming containing the announcement. We seek comment
on whether the Commission should apply similar standards to all
sponsorship identification announcements and, if so, we seek comment on
the size of lettering for these announcements and the amount of time
they should air. We seek suggestions on any other requirements for
these announcements.
16. We also invite comment on whether the Commission's existing
rules and policies governing commercials in children's programming
adequately vindicate the policy goals underlying the Children's
Television Act and Sections 317 and 507 with respect to embedded
advertising in children's programming. If commenters believe that these
rules and policies do not do so, we invite comment on what additional
steps the Commission should take to regulate embedded advertising in
programming directed to children. For example, we note that embedded
advertising in children's programming would run afoul of our separation
policy because there would be no bumper between programming content and
advertising. Should that prohibition be made explicit in our rules?
17. The Writers Guild of America asks that we extend regulation of
product integration to cable television. Section 76.1615 of the
Commission's rules applies to origination cablecasting by a cable
operator, which is defined as ``programming (exclusive of broadcast
signals) carried on a cable television system over one or more channels
and subject to the exclusive control of the cable operator.'' Should
the Commission take additional steps with respect to sponsorship
identification announcements required of cable programmers?
18. We also invite comment on issues raised by radio hosts'
personal, on-air endorsements of products or services that they may
have been provided at little or no cost to them. In such circumstances,
should we presume that an ``exchange'' of consideration for on-air
mentions of the product or service has occurred, thus triggering the
obligation to provide a sponsorship announcement? Should we do so in
all such circumstances or should we limit this presumption to
situations where other factors enhance the likelihood that an exchange
of consideration for air time has taken place. In addition, we invite
comment on the scope of the ``obviousness'' exception to the
sponsorship announcement requirement. Does that exception apply to
endorsements or favorable commentary by a radio host that are
integrated into broadcast programming, i.e., made to sound like they
are part of a radio host's on-air banter rather than an advertisement?
V. Administrative Matters
19. Initial Regulatory Flexibility Analysis. As required by the
Regulatory Flexibility Act, the Commission has prepared an Initial
Regulatory Flexibility Analysis (IRFA) of the possible significant
economic impact on a substantial number of small entities of the
proposals addressed in this Notice of Inquiry and Notice of Proposed
Rulemaking. Written public comments are requested on the IRFA. These
comments must be filed in accordance with the same filing deadlines for
comments on the Notice Inquiry and Notice of Proposed Rulemaking, and
they should have a separate and distinct heading designating them as
responses to the IRFA.
20. Paperwork Reduction Act Analysis. This Notice Inquiry and
Notice of Proposed Rulemaking contains potential revised information
collection
[[Page 43198]]
requirements. If the Commission adopts any revised information
collection requirements, the Commission will publish a notice in the
Federal Register inviting the public to comment on the requirements, as
required by the Paperwork Reduction Act of 1995, Public Law 104-13 (44
U.S.C. 3501-3520). In addition, pursuant to the Small Business
Paperwork Relief Act of 2002, Public Law 107-198, see 44 U.S.C.
3506(c)(4), the Commission seeks specific comment on how it might
``further reduce the information collection burden for small business
concerns with fewer than 25 employees.''
21. Ex Parte Rules. This proceeding will be treated as a ``permit-
but-disclose'' proceeding subject to the ``permit-but-disclose''
requirements under section 1.1206(b) of the Commission's rules. Ex
parte presentations are permissible if disclosed in accordance with
Commission rules, except during the Sunshine Agenda period when
presentations, ex parte or otherwise, are generally prohibited. Persons
making oral ex parte presentations are reminded that a memorandum
summarizing a presentation must contain a summary of the substance of
the presentation and not merely a listing of the subjects discussed.
More than a one-or two-sentence description of the views and arguments
presented is generally required. Additional rules pertaining to oral
and written presentations are set forth in section 1.1206(b).
22. Comment Information. Pursuant to sections 1.415 and 1.419 of
the Commission's rules, 47 CFR 1.415, 1.419, interested parties may
file comments September 22, 2008; reply comments are due on or before
October 22, 2008. Comments may be filed using: (1) The Commission's
Electronic Comment Filing System (ECFS), (2) the Federal Government's
eRulemaking Portal, or (3) by filing paper copies. See Electronic
Filing of Documents in Rulemaking Proceedings, 63 FR 24121 (1998).
Electronic Filers: Comments may be filed electronically
using the Internet by accessing the ECFS: http://www.fcc.gov/cgb/ecfs/
or the Federal eRulemaking Portal: http://www.regulations.gov. Filers
should follow the instructions provided on the Web site for submitting
comments.
For ECFS filers, if multiple docket or rulemaking numbers
appear in the caption of this proceeding, filers must transmit one
electronic copy of the comments for each docket or rulemaking number
referenced in the caption. In completing the transmittal screen, filers
should include their full name, U.S. Postal Service mailing address,
and the applicable docket or rulemaking number. Parties may also submit
an electronic comment by Internet e-mail. To get filing instructions,
filers should send an e-mail to ecfs@fcc.gov, and include the following
words in the body of the message, ``get form.'' A sample form and
directions will be sent in response.
Paper Filers: Parties who choose to file by paper must
file an original and four copies of each filing. If more than one
docket or rulemaking number appears in the caption of this proceeding,
filers must submit two additional copies for each additional docket or
rulemaking number.
Filings can be sent by hand or messenger delivery, by commercial
overnight courier, or by first-class or overnight U.S. Postal Service
mail (although we continue to experience delays in receiving U.S.
Postal Service mail). All filings must be addressed to the Commission's
Secretary, Office of the Secretary, Federal Communications Commission.
The Commission's contractor will receive hand-delivered or
messenger-delivered paper filings for the Commission's Secretary at 236
Massachusetts Avenue, NE., Suite 110, Washington, DC 20002. The filing
hours at this location are 8 a.m. to 7 p.m. All hand deliveries must be
held together with rubber bands or fasteners. Any envelopes must be
disposed of before entering the building.
Commercial overnight mail (other than U.S. Postal Service
Express Mail and Priority Mail) must be sent to 9300 East Hampton
Drive, Capitol Heights, MD 20743.
U.S. Postal Service first-class, Express, and Priority
mail should be addressed to 445 12th Street, SW., Washington, DC 20554.
People with Disabilities: To request materials in accessible
formats for people with disabilities (braille, large print, electronic
files, audio format), send an e-mail or call the Consumer &
Governmental Affairs Bureau at 202-418-0530 (voice), 202-418-0432
(tty).
Comments, reply comments, and ex parte submissions will be
available for public inspection during regular business hours in the
FCC Reference Center, Federal Communications Commission, 445 12th
Street, SW., CY-A257, Washington, DC 20554. These documents will also
be available via ECFS. Documents will be available electronically in
ASCII, Word 97, and/or Adobe Acrobat.
23. Additional Information. For additional information on this
proceeding, contact John Norton, John.Norton@fcc.gov, or Brendan
Murray, Brendan.Murray@fcc.gov, of the Media Bureau, Policy Division,
(202) 418-2120.
Initial Regulatory Flexibility Analysis
24. As required by the Regulatory Flexibility Act of 1980, as
amended (the ``RFA''), the Commission has prepared this Initial
Regulatory Flexibility Analysis (``IRFA'') of the possible significant
economic impact of the policies and rules proposed in the Notice
Inquiry and Notice of Proposed Rulemaking on a substantial number of
small entities. Written public comments are requested on this IRFA.
Comments must be identified as responses to the IRFA and must be filed
by the deadlines for comments on the Notice Inquiry and Notice of
Proposed Rulemaking. The Commission will send a copy of the Notice
Inquiry and Notice of Proposed Rulemaking, including this IRFA, to the
Chief Counsel for Advocacy of the Small Business Administration
(``SBA''). In addition, the Notice Inquiry and Notice of Proposed
Rulemaking and IRFA (or summaries thereof) will be published in the
Federal Register.
25. Need for, and Objectives of, the Proposed Rules. Our goal in
commencing this proceeding is to seek comment on current trends in
embedded advertising and potential changes to the current sponsorship
identification regulations with regard to embedded advertising. Given
the increased prevalence of embedded advertising techniques, it is
important that sponsorship identification rules protect the public's
right to know who is paying to air commercials or other program matter
on broadcast television and radio and cable.
26. In this Notice Inquiry and Notice of Proposed Rulemaking, we
seek comment on a proposed rule change to make the current disclosure
requirement more obvious to the consumer by requiring that sponsorship
identification announcements (1) have lettering of a particular size
and (2) air for a particular amount of time, and seek suggestions for
any other requirements for these announcements. We also invite comment
on whether the Commission's existing rules and policies governing
commercials in children's programming adequately vindicate the policy
goals underlying the Children's Television Act and Sections 317 and 507
with respect to embedded advertising in children's programming. We also
ask whether we should take additional steps with respect to sponsorship
identification announcements required of cable programmers. In
addition, we
[[Page 43199]]
invite comment on issues raised by radio hosts' personal, on-air
endorsements of products or services that they may have been provided
at little or no cost to them: should we presume that an ``exchange'' of
consideration for on-air mentions of the product or service has
occurred, thus triggering the obligation to provide a sponsorship
announcement; and does the ``obviousness'' exception to the sponsorship
announcement requirement apply to endorsements or favorable commentary
by a radio host that are integrated into broadcast programming, i.e.,
made to sound like they are part of a radio host's on-air banter rather
than an advertisement?
27. Legal Basis. The authority for the action proposed in this
rulemaking is contained in Sections 4(i) & (j), 303(r), 317, 403, and
507 of the Communications Act of 1934 as amended, 47 U.S.C. 154(i) &
(j), 303(r), 303a, 317, 403, and 508.
28. Description and Estimate of the Number of Small Entities to
Which the Proposed Rules Will Apply. The RFA directs agencies to
provide a description of, and where feasible, an estimate of the number
of small entities that may be affected by the proposed rules, if
adopted. The RFA generally defines the term ``small entity'' as having
the same meaning as the terms ``small business,'' ``small
organization,'' and ``small governmental jurisdiction.'' In addition,
the term ``small business'' has the same meaning as the term ``small
business concern'' under the Small Business Act. A ``small business
concern'' is one which: (1) Is independently owned and operated; (2) is
not dominant in its field of operation; and (3) satisfies any
additional criteria established by the Small Business Administration
(``SBA'').
29. Television Broadcasting. The Census Bureau defines this
category as follows: ``This industry comprises establishments primarily
engaged in broadcasting images together with sound. These
establishments operate television broadcasting studios and facilities
for the programming and transmission of programs to the public.'' The
SBA has created a small business size standard for Television
Broadcasting entities, which is: such firms having $13 million or less
in annual receipts. The Commission has estimated the number of licensed
commercial television stations to be 1,379. In addition, according to
Commission staff review of the BIA Publications, Inc., Master Access
Television Analyzer Database (BIA) on March 30, 2007, about 986 of an
estimated 1,374 commercial television stations (or approximately 72
percent) had revenues of $13 million or less. We therefore estimate
that the majority of commercial television broadcasters are small
entities.
30. We note, however, that in assessing whether a business concern
qualifies as small under the above definition, business (control)
affiliations must be included. Our estimate, therefore, likely
overstates the number of small entities that might be affected by our
action, because the revenue figure on which it is based does not
include or aggregate revenues from affiliated companies. In addition,
an element of the definition of ``small business'' is that the entity
not be dominant in its field of operation. We are unable at this time
to define or quantify the criteria that would establish whether a
specific television station is dominant in its field of operation.
Accordingly, the estimate of small businesses to which rules may apply
does not exclude any television station from the definition of a small
business on this basis and is therefore possibly over-inclusive to that
extent.
31. In addition, the Commission has estimated that number of
licensed noncommercial educational (NCE) television stations to be 380.
These stations are non-profit, and therefore considered small entities.
In addition, there are also 2,295 low power television stations (LPTV).
Given the nature of this service, we will presume that all LPTV
licensees qualify as small entities under the above SBA small business
size standard.
32. Cable Television Distribution Services. Since 2007, these
services have been newly defined within the broad economic census
category of Wired Telecommunications Carriers; that category is defined
as follows: ``This industry comprises establishments primarily engaged
in operating and/or providing access to transmission facilities and
infrastructure that they own and/or lease for the transmission of
voice, data, text, sound, and video using wired telecommunications
networks. Transmission facilities may be based on a single technology
or a combination of technologies.'' The SBA has developed an associated
small business size standard for this category, and that is: all such
firms having 1,500 or fewer employees. To gauge small business
prevalence for these cable services we must, however, use current
census data that are based on the previous category of Cable and Other
Program Distribution and its associated size standard; that size
standard was: all such firms having $13.5 million or less in annual
receipts. According to Census Bureau data for 2002, there were a total
of 1,191 firms in this category that operated for the entire year. Of
this total, 1,087 firms had annual receipts of under $10 million, and
43 firms had receipts of $10 million or more but less than $25 million.
Thus, the majority of these cable firms can be considered to be small.
33. Cable Companies and Systems. The Commission has also developed
its own small business size standards, for the purpose of cable rate
regulation. Under the Commission's rules, a ``small cable company'' is
one serving 400,000 or fewer subscribers, nationwide. Industry data
indicate that, of 1,076 cable operators nationwide, all but eleven are
small under this size standard. In addition, under the Commission's
rules, a ``small system'' is a cable system serving 15,000 or fewer
subscribers. Industry data indicate that, of 7,208 systems nationwide,
6,139 systems have under 10,000 subscribers, and an additional 379
systems have 10,000-19,999 subscribers. Thus, under this second size
standard, most cable systems are small.
34. Cable System Operators. The Communications Act of 1934, as
amended, also contains a size standard for small cable system
operators, which is ``a cable operator that, directly or through an
affiliate, serves in the aggregate fewer than 1 percent of all
subscribers in the United States and is not affiliated with any entity
or entities whose gross annual revenues in the aggregate exceed
$250,000,000.'' The Commission has determined that an operator serving
fewer than 677,000 subscribers shall be deemed a small operator, if its
annual revenues, when combined with the total annual revenues of all
its affiliates, do not exceed $250 million in the aggregate. Industry
data indicate that, of 1,076 cable operators nationwide, all but ten
are small under this size standard. We note that the Commission neither
requests nor collects information on whether cable system operators are
affiliated with entities whose gross annual revenues exceed $250
million, and therefore we are unable to estimate more accurately the
number of cable system operators that would qualify as small under this
size standard.
35. Radio Stations. The proposed rules and policies potentially
will apply to all AM and commercial FM radio broadcasting licensees and
potential licensees. The SBA defines a radio broadcasting station that
has $6.5 million or less in annual receipts as a small business. A
radio broadcasting station is an establishment primarily engaged in
broadcasting aural programs
[[Page 43200]]
by radio to the public. Included in this industry are commercial,
religious, educational, and other radio stations. Radio broadcasting
stations which primarily are engaged in radio broadcasting and which
produce radio program materials are similarly included. However, radio
stations that are separate establishments and are primarily engaged in
producing radio program material are classified under another NAICS
number. According to Commission staff review of BIA Publications, Inc.
Master Access Radio Analyzer Database on March 31, 2005, about 10,840
(95%) of 11,410 commercial radio stations have revenue of $6.5 million
or less. We note, however, that many radio stations are affiliated with
much larger corporations having much higher revenue. Our estimate,
therefore, likely overstates the number of small entities that might be
affected by our action.
36. Description of Projected Reporting, Recordkeeping and Other
Compliance Requirements. The Notice Inquiry and Notice of Proposed
Rulemaking does not propose any additional recordkeeping requirements
but these types of requirements may be suggested by commenters. Some of
the proposed rules do require additional on-air reporting to the public
of sponsorship identification, which could result in more sponsorship
identification announcement requirements for stations/cable systems to
monitor and for producers to insert into their programming.
37. Steps Taken to Minimize Significant Economic Impact on Small
Entities and Significant Alternatives Considered. The RFA requires an
agency to describe any significant alternatives, specifically small
business alternatives, that it has considered in reaching its proposed
approach, which may include the following four alternatives (among
others): ``(1) The establishment of differing compliance or reporting
requirements or timetables that take into account the resources
available to small entities; (2) the clarification, consolidation, or
simplification of compliance and reporting requirements under the rule
for such small entities; (3) the use of performance rather than design
standards; and (4) an exemption from coverage of the rule, or any part
thereof, for such small entities.''
38. The proposals in the Notice Inquiry and Notice of Proposed
Rulemaking would apply equally to large and small entities and we have
no evidence that the burden of any of our proposals is significantly
greater for small entities. As noted, some of the proposed rules do
require additional on-air reporting to the public of sponsorship
identification, which could result in more sponsorship identification
announcement requirements for stations/cable systems to monitor and for
producers to insert into their programming. We anticipate that some
portion of the cost of compliance with the proposals will fall on
producers of programming, which are indirectly affected. However, we
acknowledge that some portion of the cost may fall on stations
themselves. Accordingly, we welcome comment on modifications of the
proposals if such modifications might assist small entities and
especially if such comments are based on evidence of potential economic
differential impact of the regulations on small entities that might
have to absorb some of the cost of compliance.
39. Federal Rules that May Duplicate, overlap, or Conflict with the
Commission's Proposals. None.
Federal Communications Commission.
Marlene H. Dortch,
Secretary.
[FR Doc. E8-16998 Filed 7-23-08; 8:45 am]
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