FTC AND FCC NEARING PRODUCT-PLACEMENT DECISIONS

Result Could Impose Regulations on the Practice

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NEW YORK (AdAge.com) -- The Federal Trade Commission is wrapping up its review of the marketing practice of product placement in the next few weeks, the FTC's associate director for advertising practices, Mary Engle, said. Ms. Engle said she expected the year-long inquiry to conclude "before winter."

The Federal Communications Commission, meanwhile, has also told executives familiar with the FCC's inquiry into the same matter that the issue is currently at the top of the pile and that it will also report soon. The FCC did not immediately return calls for comment.

Could alter practice
Both government agencies have the potential to radically alter the mushrooming product placement business. The industry has grown to a point where production companies can demand multimillion-dollar fees to incorporate brands into prime-time shows. NBC's The Apprentice is one such example, though every network has a major product-placement sponsors attached to one of its shows. Case in point: CBS' Survivor, Fox's American Idol, and ABC's Extreme Makeover: Home Edition.

TV networks could be forced to disclose that they or their producers have been paid to integrate commercial interests into programming. The FTC has already showed some muscle in its enforcement of advertising disclosure rules. In 2002, the FTC forced search engines to distinguish between advertising and content results. The FTC has also enforced the labeling of infomercials and advertorials in magazines.

The issue first arose in October 2003, when consumer protection group Commercial Alert lodged a complaint about product placement, demanding that TV networks identify paid placements in their programming with onscreen disclaimers. At the time both the FTC and FCC said they would look into the matter.

Forced disclosure
The FTC has many options at its disposal in addition to enforcing disclosure. It could hold hearings to work out industry standards and issue best-practice guidelines. The FCC, meanwhile, could opt to ban the practice, though that would appear unlikely.

Gary Ruskin, executive director of Commercial Alert, which was established to prevent an overly aggressive commercial culture, said: "We hope and expect the FTC and the FCC to regulate the disclosure of product placement on TV. It is inherently deceptive if people don't realize that ads are ads. We expect to prevail."

The group has also put together a "Parents Bill of Rights" and is also campaigning to have product placement labeled or removed from other forms of media, including videos, DVDs, movies, books and electronic games.

The FTC has also heard from those representing the views of the product placement industry. The Washington Legal Foundation submitted comments in March. The public interest law and policy center argues that disclosure of product placement is "unjustifiable and would infringe on free speech principles." The center also argues that the practice is a long-standing and legitimate form of commercial speech and a ban on product placement would also affect viewers, since advertisers provide funding for many shows.

Practicality questions
Mark Workman, president of product-placement specialist First Fireworks Group, Los Angeles, wondered how workable disclosure notification could be when thousands of brands are shown or mentioned in programs every month. He added that in many cases brands appear as a result of a writer putting them there in order to reflect reality.

However, Mr. Workman felt that there are "certain people who, left to their own devices, could harm the system." Though he declined to name names, he said that when products are stuffed into shows without regard to entertainment value it was clearly a matter of product placement overkill. "When it's too much ... I think that should be a matter of tact and taste and not regulation," he said.

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Ira Teinowitz contributed to this report.

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