**Remarks of**

**Jonathan S. Adelstein**

**Commissioner, Federal Communications Commission**

*"Fresh is Not as Fresh as Frozen:"*

*A Response to the Commercialization of American Media*

**Before The Media Institute**

**Washington, DC**

**May 25, 2005**

\[As prepared for delivery\]

This weekend, I was following my Sunday ritual of trying to get through
the *New York Times* while my son and daughter are crawling all over me.
The reason I even try is I still believe what I read in the paper. That
makes me part of an increasingly smaller number of Americans, if we
believe a story in last Sunday's *Times*.

Here is what it reported. Headline: "The Media's Credibility Headache
Gets Worse," in the wake of Newsweek's retracted Koran story. The piece
explains how "opinion polls for at least two decades have shown
declining faith in print and television news."[^1] Occasional errant
stories are not the only reason. According to Tom Rosenstiel, Director
of the Project for Excellence in Journalism, one of the main reasons is
that "More people think media companies are motivated by profit."[^2]

Bit by bit, confidence in the press is eroding. Here is a little example
of why.

As reported in the *Wall Street Journal*, one celebrity TV gourmet
recently waxed eloquently about his favorite shrimp: the frozen kind.
Here is how he put it: "Fresh is not as fresh as frozen, I think."[^3]

What could possibly motivate someone to say such a thing? You guessed
it, and I sure hope his unsuspecting viewers did, too. Money. Lots of
it. Five hundred and fifty thousand dollars a year, to be exact, from,
you guessed it again, a frozen shrimp company.

The *Wall Street Journal* detailed an increasing trend by TV chefs that
undercuts their impartiality and will undercut public trust in their
media shows.

The article also mentions how Julia Child refused scores of companies
seeking her paid endorsement. Sadly, that era of integrity seems like a
quaint throwback.

What explains the change? From the outset, American broadcasting has
been based on a commercial model, unlike some of its European
counterparts. That model has fueled the unprecedented success of the
American media---the most dynamic and creative in the world.

But careful regulations to ensure that American broadcasters also serve
the public interest have been wiped off the books over the last couple
of decades. And media consolidation has worsened the problem.

Fortunately, one aspect of federal regulation designed to counter the
excesses of commercialism still remains in place. Since 1927, before the
FCC was even created, Congress has maintained an unwavering requirement
that broadcasters must announce who gave them valuable consideration to
air anything.[^4]

The FCC has, perhaps, become lax in enforcing those rules. But last
month, we issued a bipartisan, unanimous Public Notice on video news
releases signaling that we are planning to enforce the rules
vigorously.[^5] And I am here to reinforce that point directly to you,
as representatives of the media industry.

The last time I spoke with you here at the Media Institute was two years
ago almost to the day, on May 20^th^, 2003---just two weeks before the
June 2^nd^ meeting where a divided Commission voted to approve the now
discredited media ownership rules.[^6] In front of many of you here
today, I predicted a huge public outcry that would produce a backlash
against loosening the rules. I said that the FCC had in our "hands a lit
match, and we were moving closer to a powder keg of public anger that
may be about to explode."[^7]

I remember hearing a murmur that I was an "alarmist." Now, after the FCC
received protests from more than 3 million Americans from the left to
the right and everybody in between, nobody is saying that anymore. And
we saw the backlash both in Congress, which voted to repeal all or part
of our rules,[^8] and in the federal courts, which overturned almost the
entire decision.[^9]

Today, my focus is not on media consolidation, but on one of its most
pernicious symptoms \-- the increasing commercialization of American
media. We see reports of video news releases masquerading as
independent, legitimate news; PR agents pushing political and commercial
agendas that squeeze out real news coverage and local community
concerns; product placements turning news and entertainment shows alike
into undisclosed commercials; and well-trained marketers preying on the
unsuspecting minds of our young children.

I am here with a warning once again. People out there are frustrated by
what they see as fake news and relentless marketing. They are angry when
they do not get real news and accurate information that empowers them to
make informed decisions. It is no wonder trust in the media is at an
all-time low -- something needs to be done.

And, like media concentration, lack of disclosure alarms Republicans and
Democrats alike. That is why Congress just approved an appropriations
bill that requires disclosure by the government when it is the source of
VNRs.[^10] When I testified before the Senate Commerce Committee on this
issue earlier this month, there was a bipartisan commitment to make that
requirement permanent.

But the problem goes far beyond the issue of government VNRs. The use of
covert commercial pitches is penetrating deeper and deeper into our
media.

Earlier this month, I spoke before 2,500 engaged citizens at the
National Conference on Media Reform. I asked them to hit their record
button when they saw what appeared to be an undisclosed product
placement, a video news release or a news segment that looks like an
advertisement. I promised to insist on an investigation of any serious
problems they raised. I will continue to call on all viewers and
listeners in this country to act as watchdogs for the FCC.

My preferred outcome is that this scrutiny results in compliance with
the rules, not in us catching violations. That is why I am here today to
sound the alarm to you, as well.

Together, we can shut down any deceptive or evasive practices being
perpetrated on the American people. We can all agree that the failure to
disclose who is behind sponsored programming violates the law and FCC
rules, and must stop immediately. As a unanimous FCC reaffirmed in its
April 13^th^ Public Notice, "listeners and viewers are entitled to know
who seeks to persuade them with the programming over broadcast stations
and cable systems."[^11]

My interest in this issue dates back to when I first joined the
Commission and heard concerns about how underground payola in radio was
corrupting the music industry. Local artists complained they could not
be heard unless they had a major label backing them with a willingness
to pay, directly or indirectly, for radio airplay. Our culture suffers
when new, vibrant artists cannot break through not because they lack
talent, but because they lack big money backing them. This so concerned
me that I focused on the payola issue in a major speech over a year and
a half ago.[^12]

Since then, I have looked further into the issue, and I have discovered
a bottomless pit of commercialism in today's media into which even icons
we hold sacred are sinking and becoming sullied.

Not only are celebrity chefs and celebrity fashion up for sale but, most
ominously, news shows are increasingly up for bid.[^13]

Some will tell you that if broadcasters and cable companies insist on
further commercializing news and other shows alike, that is their
business. But if they do so without disclosing it to the viewing public,
that is payola, and that is the FCC's business.

The FCC's Public Notice was intended to serve as a reminder to the media
and communications industries. Broadcast licensees, cable operators, and
any entity or individual involved in the production and provision of
VNRs have disclosure responsibilities under the Commission's sponsorship
ID rules. The same requirements apply to any paid programming and
promotions, including product placements.

Section 317 of the Communications Act requires broadcast stations to
make an announcement whenever they air material for which they have
received payment or other consideration.[^14] The only exception is when
the consideration involves a product or service the station received
free or at a nominal charge, like a record -- so long as the product or
service was not provided for identification in the broadcast.[^15]

Significantly, the disclosure requirement also applies, whether or not
something of value has changed hands, when a broadcaster airs
controversial issue or political programming that has been furnished to
them by an outsider. In those cases, they also must identify the
sponsor.[^16]

The FCC extended all of these requirements to cable operators when they
air programming that is within their exclusive control.[^17]

Section 507 of the Act also imposes disclosure obligations on those
involved in producing, preparing, or supplying material intended for
broadcast. If any such person receives or provides consideration for the
inclusion of program matter, the law requires disclosure up the chain of
production and distribution.[^18] That includes the originating
government agency or private business, media consultants, reporters,
satellite services, network news feed operators, local news producers,
and broadcast licensees where the exchange of valuable consideration is
involved.

A broadcast licensee that receives such a disclosure must announce the
sponsor even if the licensee itself did not receive payment.[^19]

Violations of these laws and rules can bring a number of different
penalties. A station\'s or operator's failure to make a sponsorship
disclosure required by section 317 subjects it to fines - and perhaps
license revocation.[^20] An individual\'s failure to disclose as
required by section 507 is a crime, and carries a penalty of a fine of
up to \$10,000, and as much as one year imprisonment.[^21]

I understand governmental entities, private corporations and the PR
agents they hire have a right to try to turn their policies, messages
and products into items that purport to be newsworthy. But a simple
disclosure of the source or sponsor of the information does not amount
to government-compelled speech, nor does it infringe First Amendment
rights of broadcasters. To the contrary, the law protects the rights of
the American people to know the source of what is presented to them.

The problem with many video news releases is that they lead viewers to
believe they are watching an investigative news report when they could
be getting a subtle dose of government or corporate propaganda.[^22] The
issue with VNRs is not the content. My fellow Commissioners and I are
not interested in content regulation. The concern arises when deception
replaces disclosure---and when there is a failure to identify the source
of the broadcast material. That is a betrayal of the public trust.

There has been a lot of attention given to VNRs. I am here today to tell
you the same concerns apply to any undisclosed promotions.

Recent articles in the *Wall Street Journal* and *Washington Post*
explained how product promos parade as independent and unbiased reviews
by experts on everything from the latest electronics gadgets to
children's toys.[^23] It works like this: consumer product experts pitch
themselves to manufacturers to mention their products on television --
for a fee of course -- and then they pitch themselves to local TV
stations for interviews. The media appearances often coincide with
holidays or trade shows. The experts may conduct dozens of interviews
with different stations over the course of a day in what is called a
"satellite tour." Reports say that a mention on a local news show ranges
in value from a few hundred to a few thousand dollars -- and if a
mention makes it on to network shows like *Good Morning America* or the
*Today Show*, the publicity value skyrockets to a quarter of a million
dollars.

These so-called experts do not always disclose their financial interest
in the products they promote -- and as a result stations do not always
disclose that to viewers. What is surprising about these press reports
was a shocking lack of awareness about our rules by broadcasters and
on-air personalities alike. Both are required to disclose. Undisclosed
promotions are not just wrong -- they are payola, and they are illegal.
That applies to product placements, paid VNRs, or anything for which
payment is made but not disclosed. It is high time to employ some
lessons about the law so this does not continue happening.

Another source of great annoyance to many listeners, potentially in
violation of the law, is when radio disc jockeys casually mention their
enthusiasm for some product or another in the course of their banter.
Listeners are left wondering if the on-air personalities really liked
the product, or whether the station was paid to promote it. If there was
payment of any kind, they better disclose it or they should face the
scrutiny of the FCC.

Our recent Public Notice was a good first step toward cleaning up these
problems, but the Commission must do more. In fall 2003, a group called
Commercial Alert asked us to take a number of different actions
regarding product placement,[^24] and its filing, and the recent press
reports I mentioned, clearly indicate that the time has come for us to
step up our enforcement in this area.

For the record, I have not determined anyone, as the *Washington Post*
story this morning suggests, has violated the law.[^25] But we have
ample grounds to investigate and find out.

On the surface, these reports raise serious question as to whether they
reflect behavior that appears at odds with our rules. We should
immediately open investigations into these possible violations of our
rules and prosecute them to the full extent of the law. We need to see
the contracts, find out what the broadcasters were told, and determine
what questions were asked. If we uncover evidence of potential criminal
violations, we should refer them to the Justice Department. And we
should undertake an investigation regardless of whether we receive
outside complaints. The simple fact of nondisclosure means that
listeners and viewers are not always aware that companies are
impermissibly blurring the line between advertising and content.

On-air "experts" and PR agents sometimes say it is the broadcasters'
responsibility to disclose. Broadcasters sometimes say they are not
aware of money changing hands. But the law does not allow this blame
game. On-air "experts" must disclose to stations that they have been
paid for promoting a product on the air, and broadcasters must then
disclose to their audience that someone was paid for it.

And if the journalist or on-air personality fails to disclose,
broadcasters cannot simply turn a blind eye. Broadcasters have an
[affirmative]{.underline} legal duty to engage in "reasonable diligence"
to find out whether anything of value has changed hands. [^26] As every
first-year law student learns, "ignorance of the law is no defense." And
given the "reasonable diligence" requirement, ignorance may actually
reflect a violation of the law in itself. We will need to investigate
what "reasonable diligence" was undertaken by those accused of breaking
our rules.

Outside of newscasts, product placement is even more rampant. Again,
everything from Coke to soap is subliminally hawked in TV programs. In
today's media environment, product placement has moved beyond Coke
tumblers prominently displayed at the judges' table of *American Idol.*
Now, products have even seeped into plot lines: soap operas have woven
cosmetic lines into their tales of who-did-what-with-who, while the
Apprentice sounds more and more like an hour long infomercial for the
latest corporate sponsors. And all of this is on the rise: in 2003, an
executive of one network reported that the network had used product
placements in 10 shows, and predicted that it would use them in more
than 20 in 2004.[^27] In 2005, advertisers are expected to spend over
\$2.4 billion on product placements on TV alone.[^28]

I understand that it is difficult for advertisers to capture and keep
consumers' attention these days. Viewers can flip between hundreds of
channels and skip commercials entirely. There is nothing inherently
wrong with product placement -- so long as it is disclosed as required
by law.

Disclosures should also be meaningful. A disclosure that appears on
screen for a split second during the credits in small type that no one
could possibly read without pausing their DVR\-- and pulling out a
magnifying glass---could not possibly qualify. Except in the case of
political or controversial material, though, our rules do not clearly
spell out the prominence of the disclosure required[^29] -- but I
believe they should. The FCC would do well to borrow from the work of
its sister agency, the FTC, in requiring "clear and prominent"
disclosures where needed, and defining what is meant by those terms.

Basic disclosure is generally all that the law requires -- then the
listening and viewing public understands the nature and source of the
material they are hearing and seeing and can place it in its proper
context. But where disclosure itself is not adequate for the audience to
form such an understanding, stricter measures are needed. Studies have
shown that very young children do not distinguish between programming
and advertising, and even older children do not necessarily understand
the purpose behind ads and accept claims as true and unbiased.[^30] That
is why the FCC has taken steps to draw [especially]{.underline} bright
lines between advertising and programming in children's shows. Last
fall, we held that broadcasters could not display website addresses
during children's programming unless certain requirements, designed to
draw clear distinctions between commercial and other content, were
satisfied.[^31]

But I believe we need to do more. We need to move forward with an
outright ban on interactive advertising to children through TV. Already,
there is "t-commerce" abroad, where digital cable and satellite
subscribers can buy products they see on television through a simple
click of their remote control. Given that children do not always
understand a division between advertising and programming -- let alone
product placement that seamlessly weaves the two together -- I believe
that now is the time to stop the development of "t-commerce" directed to
children dead in its tracks. Digital TV -- and new interactive
technologies -- can provide a wealth of opportunities to children and
their parents -- but should not provide wealth to
[advertisers]{.underline} at the [expense]{.underline} of children and
their parents.

There is a lot at stake here.

It is a cardinal right of every American to assume that radio and TV
programs that appear to be based on authentic editorial judgments of the
stations are in fact just that, unless the public is told otherwise.
After all, the most fundamental responsibility of broadcast stations is
to serve the public interest, and broadcasters are accountable to their
communities. We have a right to know that people who present themselves
to be independent, unbiased experts and reporters are not shills hired
to promote a corporate - or governmental - agenda.

And, it is a cardinal right for Americans to have the commercial
elements of radio and TV broadcasting clearly marked and made explicit
to even undiscerning viewers and listeners.\
\
But there is a larger context for concern that is shared by Americans
across the political spectrum. We are in the midst of a tremendous wave
of commercialism in our media and in our culture. The scholarly analysis
of this phenomenon, especially for how it is affecting our children, is
deeply troubling. At a minimum, basic disclosures will give the public a
better chance to sort this out for themselves. Nobody suggests anything
good comes from marinating children\'s brains in advertising.

This is about protecting a bedrock principle of American media law. That
is why I am going to make it my priority to wipe out these unlawful
practices. Unless we act now, the problem will only grow worse. We must
get control of it now.

Thank you for your willingness to hear me out, and for working together
with me to help resolve these issues.

[^1]: Patrick D. Healy, *Believe It: The Media\'s Credibility Headache
    Gets Worse*, [N.Y. Times]{.smallcaps}, May 22, 2005 (Week in
    Review), at C 4.

[^2]: *Id.*

[^3]: Kelly Crow, *The Sponsored Chef*, [Wall St. J.]{.smallcaps}, Apr.
    22, 2005, at W1.

[^4]: Radio Act of 1927, Pub. L. No. 69-632, 44 Stat. 1162, *repealed*
    *and* *amended* *by* the Communications Act of 1934, 47 U.S.C. §
    317.

[^5]: *Commission Reminds Broadcast Licensees, Cable Operators and Other
    of Requirements Applicable to Video News Releases and Seeks Comment
    on the Use of Video News Releases by Broadcast Licensees and Cable
    Operators*, FCC 05-84, MB Docket No. 05-171, Public Notice, Apr. 13,
    2005 \[hereinafter FCC Public Notice 05-84\].

[^6]: *In re 2002 Biennial Regulatory Review \-- Review of the
    Commission\'s Broadcast Ownership Rules and Other Rules Adopted
    Pursuant to Section 202 of the Telecommunications Act of 1996;
    Cross-Ownership of Broadcast Stations and Newspapers; Rules and
    Policies Concerning Multiple Ownership of Radio Broadcast Stations
    in Local Markets; Definition of Radio Markets; Definition of Radio
    Markets for Areas Not Located in an Arbitron Survey Area*, Report
    and Order and Notice of Proposed Rulemaking, 18 F.C.C.R. 13,620
    (2003).

[^7]: Jonathan S. Adelstein, Remarks before the Media Institute, *Big
    Macs and Big Media: the Decision to Supersize* (May 20, 2003),
    \<http://www.fcc.gov/commissioners/adelstein/speeches2003.html\>.

[^8]: *See e.g.*, Consolidated Appropriations Act of 2004, Pub L. No.
    108-199 § 629, 118 Stat. 3, 99 (2004) (reversing the FCC's decision
    to increase the national television ownership rule's audience reach
    cap to 45 percent).

[^9]: *Prometheus Radio Project v. FCC*, 373 F.3d 372 (3^rd^ Cir. 2004).

[^10]: Emergency Supplemental Appropriations Act for Defense, the Global
    War on Terror, and Tsunami Relief Act of 2005, Pub. L. No. 109-13
    (2005).

[^11]: FCC Public Notice 05-84, *supra* note 5.

[^12]: Jonathan S. Adelstein, Statement before the Federal
    Communications Bar Association (Nov. 5, 2003),
    \<http://www.fcc.gov/commissioners/adelstein/speeches2003.html\>.

[^13]: James Bandler, *Advice for Sale: Believe It: How Companies Pay
    Experts for On-Air Product Mentions*, [WALL ST. J.,]{.smallcaps}
    Apr. 29, 2005, at A1.

[^14]: Communications Act of 1934, 47 U.S.C. § 317(a)(1); 47 C.F.R. §
    73.1212(a).

[^15]: C.F.R. § 73.1212(a)(2).

[^16]: 47 U.S.C. 317(a)(2); 47 C.F.R. § 73.1212(d).

[^17]: 47 C.F.R. § 76.1615(c).

[^18]: 47 U.S.C. § 507.

[^19]: *Id.* at § 317(b); 47 C.F.R. § 73.1212(c).

[^20]: 47 U.S.C. § 501.

[^21]: *Id.*

[^22]: *The Fake News Cycle*, [PR Watch,]{.smallcaps} Vol. 12 No. 2,
    Second Qtr., 2005, at 2.

[^23]: James Bandler, *Advice for Sale: How Companies Pay TV Experts For
    On-Air Product Mentions*, [Wall St. J.]{.smallcaps}, Apr. 19, 2005,
    at A1; Howard Kurtz, *Firms Paid TV's Tech Gurus To Promote Their
    Products*, [Wash. Post]{.smallcaps}, Apr. 20, 2005, at C1.

[^24]: Letter from Gary Rushkin, Executive Director, Commercial Alert,
    to Marlene H. Dortch, Secretary, FCC (Sept. 30, 2003) \[hereinafter
    Commercial Alert Letter\].

[^25]: Howard Kurtz, *FCC Panelist Wants Probe of Product 'Payola,'*
    [Wash. Post]{.smallcaps}, May 25, 2005, at C4.

[^26]: 47 U.S.C. § 317(c); 47 C.F.R. §§ 73.1212(b), 76.1615(b).

[^27]: Commercial Alert Letter, *supra* note 24, at 9.

[^28]: Marc Grasser, *Product-Placement Spending Poised to Hit \$4.25
    Billion in '05*, [Advertising Age]{.smallcaps},

    Apr. 4, 2005, at 16. Product placement on TV accounts for 57.5% of
    the total figure; film accounts for 33.4%; other media accounts for
    9.1%.

[^29]: *See, e.g.,* 47 C.F.R. § 73.1212(a)(2)(ii). ("In the case of any
    television political advertisement concerning candidates for public
    office, the sponsor shall be identified with letters equal to or
    greater than four percent of the vertical picture height that air
    for not less than four seconds.")

[^30]: *See, e.g.,* Dale Kunkel, *Children and Television Advertising*,
    *in* [Handbook of Children and the Media]{.smallcaps} (Dorothy G.
    Singer & Jerome L. Singer eds., 2001); [Dale Kunkel et al, Am.
    Psychol. ass'n., Report of the APA Task Force on Advertising and
    Children]{.smallcaps} (2004)
    \<http://www.apa.org/releases/childrenads.pdf \>.

[^31]: *See Children's Television Obligations of Digital Television
    Broadcasters*, 19 FCC Rcd 22943 (2004).