FTC: TV Need Not Disclose Product Placements

The advertising industry apparently dodged a bullet when the U.S. Federal Trade Commission Thursday declined to require that television stations disclose all instances of paid product placements to viewers.

"A one-size-fits-all rule or guide would not be the most effective approach to addressing any potential for deception in some forms of product placement," wrote Mary K. Engle, associate director for advertising practices at the FTC.

Commercial Alert, a Portland, Ore.-based consumer advocacy group founded by Ralph Nader, had asked the FTC to require that television networks reveal all paid placements--both at the beginning of shows and at the time the placements appear. Specifically, Commercial Alert wanted networks to place the word "advertisement" on the screen during the paid placement.

The FTC yesterday declined to order such a disclosure on the theory that simply showing or mentioning a product without also touting its merits doesn't necessarily mislead or deceive viewers. "In product placement, few objective claims appear to be made about the product's performance or attributes," wrote Engle.

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Gary Ruskin, executive director of Commercial Alert, criticized the rationale as stemming from a narrow view of advertising--one that apparently discounts the possibility that marketers can subtly influence consumers without direct testimonials. The FTC's position, Ruskin said, was "based on a totally antiquated notion that advertising persuades only through objective claims, and not imagery."

But advertising industry representatives praised the FTC decision. "If the industry was looking for a favorable ruling, they couldn't dream of one better than this," said Reed Smith lawyer Doug Wood, who represents the Association of National Advertisers. Arguably, said Wood, even a character plugging a product with a scripted line such as "I only drink Coke" wouldn't be considered advertising, because the character didn't explicitly state that Coke was objectively better than other drinks.

Had the FTC gone the other way, Wood said, product placement would have been much more difficult. "There would have been a chilling effect," he said.

Frank Zazza, CEO of iTVX, which valuates product placement in television shows and movies, said that Commercial Alert's proposal would have increased the "clutter" on the air. "It would have been the equivalent of spam," said Zazza.

One of the organizations opposing Commercial Alert's request was the Freedom to Advertise Coalition, made up of six groups: American Advertising Federation, American Association of Advertising Agencies, Association of National Advertisers, Direct Marketing Association, Magazine Publishers of America, and Point-of-Purchase Advertising International. The coalition argued in a Nov. 12, 2003 letter to the FTC that the proposals "seek to extinguish the free speech rights of those who wish to communicate via these means."

The FTC yesterday left open the possibility of requiring more disclosure of sponsorships in the future. "The decision not to take formal action in this matter should not be construed as a formal Commission determination" of whether product placement constitutes an unfair or deceptive trade practice, wrote Engle. The FTC also wrote that it intends to separately consider celebrity endorsements on news or entertainment programs.

Commercial Alert more successfully challenged product placement on the Internet two years ago, when it persuaded the FTC to recommend that search engines do a better job of distinguishing sponsored listings from organic results.

Ruskin said his group intends to continue to push for more disclosure of paid sponsorships on the air by lobbying for new federal legislation and pursuing a still-pending complaint with the Federal Communications Commission. "It's a bedrock part of American broadcast law that viewers have the right to know by whom they're being persuaded."

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