Specialty Records, Inc.

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IN THE ~1:A TTER OF SPECIALTY RECORDS, INC., ET AL.

CONSENT ORDER, ETC., IN REGARD TO THE ALLEGED VIOLATION OF THE FEDERAL TRADE COM~nSSION ACT Docket 7885. Complaint, May 1960-Decision, J1lly 1960 Consent order requiring manufacturers of phonograph records in Hollywood, Calif., to cease giving concealed "payola -money or other material consideration-to disc jockeys of television and radio programs or others to induce broadcasting of their records.

COUPLAI~T 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 Specialty Records Inc. , a corporation, Specialty Beeord Sales Co. a limited partnerofficer of saiel cor-ship, and Arthur N. Rupe, individually, as an poration and as a general partner in saidlimitecl partnership, here~ inafter referred to as respondents, have violated the provi~ions of said Act, and it. appearing to the Co11n11is8ion that. a proceeding by it. in respe~t thereof would be in the public interest, hereby:,: issues its complaint, stating its charges in that. respect as follows: PARAGRAPH 1. Respondent Specialty Records, Inc. is a corporation organized, existing and doing business under and by virtue the laws of the State of California, 1\-ith its principal office and place of business located at. 8508 Sunset Boulevard, Hollywood 46 Calif.

Respondent. Arthur N. Bupe is president of the respondent eorporation and formulates, directs and controls the acts and practices of said corporate respondent.

Respondent )uthur N. Rupe is also a general partner in Speeialty Record Sales Co., a limited partnership, and said respondent formupractices of said limitedlates, directs and controls the acts and is thepartnership. The address of the said individual respondent same as that. of the corporate respondent. Pall 2. Respondents are now, and for some time last past have been, engaged in the manufacture, distribution and sale anel/or the offering for sale, sale and distribution of phonograph records to retail outlets and jukebox operators in the various States of t1w United States.

eonc1uct of their 1m~iness. respondpnts now In the course and , the records they cause, and for some time last past. have caused manufacture, sell and distribute, when sold, to be shipped from their , , SPECIALTY RECORDS, INC., ET AL. 335 334 Complaint place of business in the State of California, to purchasers thereof located in various other States of the United States, and maintain a substantialand at all times mentioned herein have maintained, course of trade in phonograph records in commerce, as "commerce is defined in the Federal Trade Commission Act. PAR. 3. In the course and conduct of their business, at all times mentioned herein, the respondents have been, anel are now, in substantial competition, in commerce, with c.orporations, firms and individuals in the manufacture, sale and distribution of phonograph records.

PAR. 4. After 'Vorlc1 "Var 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 faetor in the. musical industry, with a sa.1es 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 re,cord manufacturers and distributors obtained and insured the exposure" of certain records in which they were financially interesteel by disbursing "payola" to individuals authorized to select and expose" reeords 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 joekeys to select, broadcast expose" and promote certain records 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 reeords "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 a.lone, or with certain unnamed record distributors, neogtiateel for and disbursed "payola" to disk jockeys broadcasting musical programs over radio or television stations broadeasting Rcross state lines, or to other personnel who influence the , Decision 57 F.

selection of the records "exposed" by the disk jockeys on such programs, or to the radio station.

Deception is inherent in "payola" inasmuch as it involves the payment of a consideration on the express or implied understanding that the disk joekey 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 distributors, have aided and abetted the deception of the public by various disk jockeys by controlling or unduly influeneing 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, or to the radio station. Thus payola" is used by the respondents to mislead the public into believing that the reeords "exposed" were the independent and unbiased selections of the disk joekeys based either on each recorcFs merit or public popularity. This deception of the public has the capaeity 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 pons, 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 manufacture, sale and distribution, and/or the offering for sale, sale and distribution of phonograph reeords, 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' eompetitors and constitute unfair and deceptive acts and practices and unfair methods of competition in conllnerce within the intent and meaning of the Federal Trade Com-mission Act. lllr. John T. That1~e7' and Jh' . James If. I(elley supporting the complaint.

Respondents pro Be.

INITIAL DECISION OF J OHX LEWIS. I-IE.\m~G EXAl\IINER The Federal Trade Col11misc;ion i:;:~lied its complaint against. the above-named respondents on l\.Iay 12 , 1060, charging them with the use of unfair and dece.ptiye acts and practices and unfair methods SPECIALTY RECORDS , INC. , ET AL. 337 334 Decision of competition, in commerce, in violation of the Federal Trade Commission Act, by negotiating for and disbursing "payola" (money and other valuable consideration) to disk jockeys broadcasting musical programs, and causing such fact to be withheld from the public. After being served with said complaint respondents appeared and entered into an agreement, dated June 21, 1960, containing a consent order to cease and desist purporting to dispose of all of this proceeding as to all parties. Said agreement, which has been signed by all respondents, and by counsel supporting the complaint, and approved by the Director, Associate Director, and Assistant Director of the Commission s Bureau of Litigation, has been submitted to the above-named hearing examiner for his consideration, in accordance with Section 3.25 of the Commission s Rules of Practice for Adjudicative proceedings.

Respondents, pursuant to the aforesaid agreement, have admitted all the jurisdictional facts alleged in the complaint and agreed that the record may be taken as if findings of jurisdictional facts had been duly made in aecordanee with such allegations. Said agreement further provides that respondents waive any further procedural steps before the hearing examiner and the Commission, the making of findings of fact or conclusions of law, and all of the rights they may have to challenge or contest the validity of the order to cease and desist entered in accordance with such agreement. It has been agreed that the order to cease and desist issued in accordance with said agreement shall have the same force and effect as if entered after a full hearing, and that the complaint may be used in construing the terms of said order. It has also been agreed that the record herein shall consist solely of the complaint and said agreement, and that said agreement is for settlement purposes only and does not constitute an admission by respondents that they have violated the law as alleged in the complaint.

This proceeding having now come on for final c.consideration on the complaint and the aforesaid agreement containing consent order and it appearing that the order provided for in said agreement covers all the allegations of the complaint and provides for an appropriate disposition of this proceeding as to all parties, said agreement is hereby accepted and is ordered filed upon this decision s becoming the decision of the Commission pursuant to Sections 3.21 and 3. of the Commission s Rules of Practice for Adjudicative Proceedings, and the hearing examiner, ac.cordingly, makes the following jurisdictional findings and order:

1. Respondent Specialty Records, Inc. is a corporation organized existing and doing business under and by virtue of the laws of the 640968-63- Order 57 F.

State of California, with its principal office and place of business located at 8508 Sunset Boulevard, Hollywood 46, Calif. respondent Arthur N. Rupe is president of the respondent corporation and formulates, directs and controls the acts and practices of said corporate respondent.

Respondent Arthur N. Rupe is also a general partner in Specialty Record Sales Co.: a limited partnership~ and said respondent formulates: directs and controls the acts and practices of said limited partnership. The address of the said individual respondent is the same as 'that of the corporate respondent.

2. The Federal Trade Commission has jurisdiction of the subject matter of this proceeding and of the respondents hereinabove named. The complaint states a cause of action against said respondents under the Federal Trade Commission Act, and this proceeding is in the interest of the public.

ORDER 1 t is onlend That respondents Specialty Records, Inc., a corporation, and its officers, and Arthur N. Rupe, individually and as an oflicer of said corporation, and Arthur N. Rupe, as a general partner trading as Specialty Hecord Sales Co. , a limited partnership, and respondents' agents: representatives and employees, directly or through any (;Ol'pOrH te 01' other device, in connection with phonograph records ,,-hieh have been distributed, in commerce, or which are used by radio or television stations in broadcasting programs in commerce, as "commerce~: is defined in the Federal Trade. Commission Act, do Iortlnrith cease and desist from: (1) Giving or ofi'erjng 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 any of them, have a financial interest of any nature.

(:?) Giving or offering to give, ,vithout requiring public disclosure any sum of money, or other material consideration, to any person directly or indirectly, as an inducement to influence any employee of R 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 any 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 broadeasting 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 THORNDIKE MILLS, INC. , ET AL. 339 334 Complaint disclosed, to the listening pu blie 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 COJ\:BIISSION 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 28th day of uly 1960, become the decision of the Commission; and, accordingly: 1 t .i8 orde'J'ed That the respondents herein shall within sixty (60) days after serviee upon them of this order, file with the Commission a report in writing setting forth in detail the manner and form in which they hate complied with the order to cease and desist.