Rank Records of America, Inc.

Text (OCR of the scan at left; may contain errors)

In rue Matrer or RANK RECORDS OF AMERICA, INC.

CONSENT ORDER, ETC., IN REGARD TO THE ALLEGED VIOLATION OF THE FEDERAL TRADE COMMISSION ACT Docket 7898. Complaint, May 20, 1960—Decision, Sept. 21, 1960 Consent order requiring a distributor of phonograph records in New York City to cease giving concealed payola to disc jockeys or other personnel of radio or televisions programs to induce playing of their records in order to increase sales.

Complaint 57 FVT.C.

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 Rank Records of America, Inc., a corporation, hereinafter referred to as respondent, has 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:

ParacraPH 1. Respondent Rank Records of America, Inc. is a corporation organized, existing and doing business under and by virtue of the laws of the State of Delaware, with its principal office and place of business located at. 24 West 57th Street, in the City of New York, State of New York.

Par. 2. Respondent is now, and for some time last past. has been, engaged in the offering for sale, sale and distribution, of phonograph records to independent distributors and others throughout the United States.

Par. 3. In the course and conduct of its business, respondent now causes, and for some time last past has caused, said records, when sold, to be shipped from one State of the United States to purchasers thereof located in various other States of the United States and in the District of Columbia, and maintains, and at. all times mentioned herein has maintained, a substantial course of trade in said phonograph records in commerce, as “commerce” is defined in the Federal Trade Commission Act.

Par. 4. In the course and conduct. of its business, and at al] times mentioned herein, respondent. has been in competition, in commerce, with corporations, firms and individuals in the sale of phonograph records.

Pan. 5. After World War II when TV and radio stations shifted from “live” to recorded performances for much of their programming, the production, distribtuion 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 6 to 10 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 TV programs.

RANK RECORDS OF AMERICA, INC. 649 GIT Complaint “Payola”, among other things, is the payment of money or other valuable consideration to disk jockeys of musical programs on radio and TV stations to induce, stimulate or motivate the disk jockey to. . select, broadcast, “expose” and promote certain records in which the payer has a 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. 6. In the course and conduct of its business, in commerce, during the last several years, the respondent has engaged in unfair and deceptive acts and practices and unfair methods of competition in the following respects:

The respondent alone or with certain unnamed record distributors negotiated for and disbursed “payola” to disk jockeys broadcasting musical programs over radio or television stations broadcasting across state lines, or to other personne] who influence the selection of the records “exposed” by the disk jockeys on such programs. 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 respondent by participating individually or in a joint effort with certain collaborating record distributors has 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 respondent to mislead the public into believing that the records “exposed” were the independent and unbiased selection 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 might otherwise 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. 7. 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 or distri- Decision 57 FTC.

bution of phonograph records, and to divert trade unfairly to the respondent from its competitors and substantial injury has thereby been done and may continue to be done to competition in commerce. Par. 8. The aforesaid acts and practices of respondent, as alleged herein, were and are all to the prejudice and injury of the public and of respondent’s 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. Harold A. Kennedy and Mr. Arthur Wolter, Jr., for the Commission.

Mr. Paul G. Marshall, of New York, N.Y., for respondent. Inir1au Decision py Wittiam L. Pacs, Heartne Examiner The complaint in this matter charges the respondent with violation of the Federal Trade Commission Act in the sale and distribution of phonograph records 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. An agreement has now been entered into by respondent and counsel supporting the complaint which provides, among other things, that respondent admits all of the jurisdictional allegations in the complaint; that the record on which the initial decision and the decision of the Commission shall be based consist solely of the complaint and agreement; that the inclusion of findings of fact and conclusions of law in the decision disposing of this matter is waived, together with any further procedural steps before the hearing examiner and the Commission; that the order hereinafter set forth may be entered in disposition of the proceeding, such order to have the same force and effect as if entered after a full hearing, respondent specifically waiving any and all rights to challenge or contest the validity of such order; that the order may be altered, modified, or set aside in the manner provided for other orders of the Commission ; that the complaint may be used in construing the terms of the order; and that the agreement is for settlement purposes only and does not. constitute an admission by respondent that it has violated the law as alleged in the complaint.

The hearing examiner having considered the agreement and proposed order and being of the opinion that they provide an adequate basis for appropriate disposition of the proceeding, the agreement is hereby accepted, the following jurisdictional findings made, and the following order issued:

BANK RECORDS OF AMERICA, INC. 651 GAT Decision 1. Respondent. Rank Records of America, Inc., is a Delaware corporation with its office and principal place of business located at 24 West 57th Street, New York, N.Y.

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

ORDER [t ts ordered, That respondent Rank Records of America, Inc., a corporation, and its officers, and respondent’s 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 defined 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 respondent has a financial interest of any nature. (2) Giving or offering to give, without 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 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 respondent. has 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 2ist day of September 1960, become the decision of the Commission; and, accordingly:

It 7s ordered, That respondent herein shall, within sixty (60) days after service upon it of this order, file with the Commission a report in writing setting forth in detai] the manner and form in which it has complied with the order to cease and desist. Complaint 57 FVE.C.