Eric Distributing Company

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In Tue Martrer or ERIC DISTRIBUTING COMPANY ET AL.

CONSENT ORDER, ETC., IN REGARD TO THE ALLEGED VIOLATION OF THE FEDERAL TRADE COMMISSION ACT Docket 7796. Complaint, Feb. 25, 1960—Decision, July 16, 1960 Consent order requiring San Francisco, Calif., distributors for several record manufacturers to retail outlets and jukebox operators, to cease paying concealed “payola” to television and radio disc jockeys to have their records broadcast day after day in order to increase sales. Complaint Pursuant to the provisions of the Federal Trade Commission Act, and by virtue of the authority vested in it by said Act, the Federal Trade Commission, having reason to believe that Eric Distributing Company, a corporation, and Irving Pinensky, individually, and as an officer of said corporation, hereinafter referred to as respondents, have violated the provisions of said Act, and it appearing to the Commission that.a proceeding by it in respect thereof would be in the public interest, hereby issues its complaint, stating its charges in that respect as follows:

Paracrary 1. Respondent Eric Distributing Company is a corporation organized, existing and doing business under and by virtue of the laws of the State of California, with its principal office and place of business located at 1251 Folsom Street, in the City of San Francisco, State of California.

Respondent Irving Pinensky is the president of the respondent corporation and formulates, directs and controls the acts and practices of the corporate respondent, including the acts and practices herein set out. The address of the individual respondent is the same as that of said corporate respondent. Par. 2. Respondents are now, and for some time last past have been, engaged in the offering for sale, sale and distribution of phonograph records as an independent distributor for several record manufacturers to retail outlets and jukebox operators in various States of the United States.

In the course and conduct of their business, respondents now cause, and for some time last past have caused, the records they distribute, when sold, to be shipped from their place of business in Complaint 57 F.T.C.

the State of California, to purchasers thereof located in various other States of the United States, and maintain, and at all times mentioned herein have maintained, a substantial course of trade in phonograph records in commerce, as “commerce” is defined in the Federal Trade Commission Act.

Par. 8. In the course and conduct of their business, at all times mentioned herein, respondents have been, and are now, in substantial competition, in commerce, with corporations, firms and individuals in the sale and distribution of phonograph records. Par. 4. After World War II, when television and radio stations shifted from “live” to recorded performances for much of their programming, the production, distribution and sale of phonograph records emerged as an important factor in the musical industry with a sales volume of approximately $400,000,000 in 1958. Record manufacturing companies and distributors ascertained that popular disk jockeys could, by “exposure” or the playing of a record day after day, sometimes as high as six to ten times a day, substantially increase the sales of those records so “exposed.” Some record manufacturers and distributors obtained and insured the “exposure” of certain records in which they were financially interested by disbursing “payola” to individuals authorized to select and “expose” records for both radio and television programs. “Payola”, among other things, is the payment of money or other valuable consideration to disk jockeys of musical programs on radio and television stations to induce, stimulate or motivate the disk jockeys to select, broadcast, “expose” and promote certain reccords in which the payer has a direct financial interest. Disk jockeys, in consideration of their receiving the payments heretofore described, either directly or by implication represent to their listening public that the records “exposed” on their broadcasts have been selected on their personal evaluation of each record’s merits or its general popularity with the public, whereas, in truth and in fact, one of the principal reasons or motivations guaranteeing the record’s “exposure” is the “payola” payoff. Par. 5. In the course and conduct of their business in commerce during the last several years, the respondents have engaged in unfair and deceptive acts and practices and unfair methods of competition in the following respects:

The respondents alone, or with certain unnamed record manufacturers, negotiated for and disbursed “payola” to disk jockeys broadcasting musical programs over radio or television stations broadcasting across State lines, or to other personnel who influenced the selection of the records “exposed” by the disk jockeys on such programs.

ERIC DISTRIBUTING COMPANY ET AL. 129 127 Decision Deception is inherent in “payola” inasmuch as it involves the payment of a consideration on the express or implied understanding that the disk jockey will conceal, withhold or camouflage such fact from the listening public.

The respondents, by participating individually or in a joint effort with certain collaborating record manufacturers, have aided and abetted the deception of the public by various disk jockeys by controlling or unduly influencing the “exposure” of records by disk jockeys with the payment of money or other consideration to them, or to other personnel which select or participate in the selection of the records used on such broadcasts.

Thus, “payola” is used by the respondents to mislead the public into believing that the records “exposed” were the independent and unbiased selections of the disk jockeys based either on each record’s merit or public popularity. This deception of the public has the capacity and tendency to cause the public to purchase the “exposed” records which they otherwise might not have purchased and, also, to enhance the popularity of the “exposed” records in various popularity polls, which in turn has the capacity and tendency to substantially increase the sales of the “exposed” records. Par. 6. The aforesaid acts, practices and methods have the capacity and tendency to mislead and deceive the public, and to hinder, restrain and suppress competition in the offering for sale, sale and distribution of phonograph records, and to divert trade unfairly to the respondents from their competitors, and substantial injury has thereby been done and may continue to be done to competition in commerce.

Par. 7. The aforesaid acts and practices of respondents, as alleged herein, were and are all to the prejudice and injury of the public and of respondents’ competitors and constitute unfair and deceptive acts and practices and unfair methods of competition in commerce within the intent and meaning of the Federal Trade Commission Act.

Mr. John T. Walker and Mr. James H. Kelley for the Commission. ;

Howard & Prim, by Mr. N. Richard Smith, of San Francisco, Calif., for respondents.

Intrrau Decision py Watrer R. Jounson, Heartne Examiner In the complaint dated February 25, 1960, the respondents are charged with violating the provisions of the Federal Trade Commission Act.

640968—63——10 Order 57 FTC.

On April 6, 1960, the respondents and their attorney entered into an agreement with counsel in support of the complaint for a consent order.

Under the foregoing agreement, the respondents admit the jurisdictional facts alleged in the complaint. The parties agree, among other things, that the cease and desist order there set forth may be entered without further notice and have the same force and effect as if entered after a full hearing and the document includes a waiver by the respondents of all rights to challenge or contest the validity of the order issuing in accordance therewith. The agreement further recites that it is for settlement purposes only and does not constitute an admission by the respondents that they have violated the law as alleged in the complaint. The hearing examiner finds that the content of the agreement meets all of the requirements of Section 3.25(b) of the Rules of the Commission.

The hearing examiner being of the opinion that the agreement and the proposed order provide an appropriate basis for disposition of this proceeding as to all of the parties, the agreement is hereby accepted and it is ordered that the agreement shall not become a part of the official record of the proceeding unless and until it becomes a part of the decision of the Commission. The following jurisdictional findings are made and the following order issued. 1. Respondent Eric Distributing Company is a corporation organized, existing and doing business under and by virtue of the laws of the State of California, with its principal office and place of business located at 1251 Folsom Street, in the City of San Francisco, State of California.

Respondent Irving Pinensky is the president of the respondent corporation and his address is the same as that of said corporate respondent.

2. The Federal Trade Commission has jurisdiction of the subject matter of this proceeding and of the respondents, and the proceeding is in the public interest.

ORDER It is ordered, That respondents Eric Distributing Company, a corporation, and its officers, and Irving Pinensky, individually, and as an officer of said corporation, and respondents’ agents, representatives and employees, directly or through any corporate or other device, in connection with phonograph records which have been distributed, in commerce, or which are used by radio or television stations in broadcasting programs in commerce, as “commerce” is de- J. D. BRUMBACH QUILTING MILL 131 127 Syllabus fined in the Federal Trade Commission Act, do forthwith cease and desist from:

(1) Giving or offering to give, without requiring public disclosure, any sum of money or other material consideration, to any person, directly or indirectly, to induce that person to select, or participate in the selection of, and the broadcasting of, any such records in which respondents, or either of them, have a financial interest of any nature. (2) Giving or offering to give, without requiring public disclosure, any sum or money, or other material consideration, to any person, directly or indirectly, as an inducement to influence any employee of a radio or television broadcasting station, or any other person, in any manner, to select, or participate in the selection of, and the broadcasting of, any such records in which respondents, or either of them, have a financial interest of any nature. There shall be “public disclosure” within the meaning of this order, by any employee of a radio or television broadcasting station, or any other person, who selects or participates in the selection and broadcasting of a record when he shall disclose, or cause to have disclosed, to the listening public at the time the record is played, that his selection and broadcasting of such record are in consideration for compensation of some nature, directly or indirectly, received by him or his employer.

DECISION OF THE COMMISSION AND ORDER TO FILE REPORT OF COMPLIANCE Pursuant to Section 3.21 of the Commission’s Rules of Practice, the initial decision of the hearing examiner shall, on the 16th day of July 1960, become the decision of the Commission and, accordingly:

It is ordered, That respondents herein shall, within sixty (60) days after service upon them of this order, file with the Commission a report in writing setting forth in detail the manner and form in which they have complied with the order to cease and desist.