Concord Distributing Company et al.

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

IN THE l\iatter OF CONCOHD DISTRIBUTING COj\lP ANY ET AL.

CONSENT nnDEn~ ETC., IN HEGMW TO THE -\ALLEGED nol..-\TION OF THE I~EDEHAL TRADE COl\Il\IISSION ACT Docket 8022. Complaint June )%O-Dccision ?I~O1). l"i, 1960 Consent order requiring a distributor in Cleyeland. Ohio, to cease giving conc:ea1ec1 payola to di~c JocJ;:eys of radio and telcyision mnsical programs to induce frequent playing of their phonognqlh reconls in order to increase sales.

COl\IPLA INT 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 Concord , ,, CONCORD DISTRIBUTING CO. ET AL. 1143 1142 Complaint Distributing Company, a corporation, and Arthur Freeman and Ben Herman, individually and as officers of said corporation, hereinafter refer ed to as re~pondents, 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: P AHA GRAPH 1. Respondent Concord Distributing Company is a corporation organized, existing and doing business under and by virtue of the !a"s of the State of Ohio, with its principal office and place of business located nt 620 Frankfort Avenue, in the City of Cleveland, State of Ohio.

Respon(lents Arthur Freemnn and Ben I-Ierman are officers of the corporate respondent. They formulate, direct and control the acts and practic.es of the corporate respondent, including the acts and practices hereinafter set forth. Their address is the same as that of the corporate respondent.

\R. 2. Respondents are now, and for some time last past have been, engaged in the distribution, offering for sale, and sale, or phonograph records to various retail outlets and jukebox operators. PAR. 3. In the course and conduct of their business, respondents now cause, and for some time last past have caused, their said records hen sold, to be shipped from Ohio to :Miehigan to purehasers thereof and maintain, and at all times mentioned herein have maintained, a course of trade in said phonograph rec.ords in commerce as "commerce" is defined in the Federal Trade Commission Act. PAR. 4. In the course and conduct of their business, and at all times mentioned herein, respondents have been in competition, in commerce~ with corporations, firms and individuals in the sale or phonograph records.

PAR. 5. After ,Vorld ,Val' II when TV and radio stations shifted from "live" to reeorded performances for much of their programming, the production, distribution and sale of phonograph records emerged as an important factor in the musical industry "oith a sales vol111118. of approximately $400 000 000 in 1958. I\ecord manufacturing companies and distributors ascertained that popular disk jocJ\"eys could, by "exposure" or the playing of a record da~' finer c1ny~ 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'~ oj' 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. Payola " among other things, is the payment of money or other valuable consideration to did\: jockeys of musical programs on radio , , 1144 FEDERAL TRADE COMMJ5STON DECISIONS Complaint 57 F.

and TV stations to induce, stimulate or motivate the disk jockey to select, broadeast expose" and promote certain records in which the payer "bas 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 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. 6. In the course and conduct of their business, in commerce during the last several years, the respondents have engaged in unmethods of competionfair and deceptivein theactsfollowingand practices and unfairrespects: The respondents 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 personnel 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 coneeal, withhold or camouflage such fact from the listening public.

The respondents by participating individually or in a joint efl'ort with certain collaborating record distributors have aided and abetted the deception of the public by various disk jockeys by controlling or unduly influencing the "exposure" of reeorc1s 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 selection of the disk joekeys based either on each record' merit or public popularity. This deception of the public has the capacity and tendency to cause the public to purchase the "exposed'~ reeorcls 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 substantia)))' increase the sales of the "exposed" records. PAH. 7. The aforesaid acts, practices and methods have the eapacify and tendeney to mislead and deceive the public and to hinder restrain and suppress competition in the manufacture, sale or distribution of phonograph records, and to divert trade unfairly to , CONCORD DISTRIBUTING CO. ET AL. 1145 1142 Decision the respondents from their competitors and injury has thereby been done and may continue to be done to competition in commerce. PAR. 8. The aforesaid acts and practices of respondents, as alleged herein, "'ere and are an to the prejudice and injury of the public and of respondents' competitors and constitute unfair and deceptive acts and practic.es and unfair methods of competition in commerce within the intent and meaning of the Federal Trade Commission Act.

l/fr. Harold A. liennedy and Air. Arthur vVolter, Jr. for the Commission.

Respondents, for themselves.

INITIAL DECISION BY J. EARL Cox, I-IEARING EXAMINER The complaint charges respondents, who are engaged in the distribution, oflering for sale, and sale of phonograph reeords to various retail outlets and jukebox operators, with violation of the Federal Trade Commission Act in that respondents, alone or with certain unnamed record distributors, have negotiated for and disbursed "payola :' i. , the payment of money or other valuable consideration to disk jockeys of musical programs on radio and television stations, to incluee, stimulate or motivate the disk jockeys to select, broadcast expose" and promote eertnin records, in which respondents are financially interested, on the express or implied understanding that the disk jockeys will conceal, withhold or camouflage the fact of such payment from the listening public. After the issuance of the complaint, respondents and counsel supporting the. complaint entered into an agreement containing consent order to cease and desist, which was approved by the Acting Direetor, Associate Director and Assistant Director of the Commission Bureau of Litigation, and thereafter transmitted to the Hearing Examiner for consi deration.

The agreement states that respondent Concord Distributing Company is a corporation organized, existing and doing business under and by virtue of the )n,yS of the State of Ohio, "ith its principal ofiice and place of business located at 620 Frankfort A venue, Cleveland, Ohio, and that respondents Arthur Freeman and Ben Herman are officers of the corporate respondent and formulate, direct and control the acts and practices of the corporate respondent, their address being the same as that of the corporate respondent. The agreement provjdes among other things, that respondents admit all the jurisdicLjonaJ facts alleged in the complaint, and agree that the record may be taken as if findings of jurisdictional facts had been duly made in nccorclanee with such allegations; that the record , Order 57 F.

on which the initial deeision and the deeision of the Commission shall be based shall consist solely of the complaint and this agreement; that the agreement shall not become a part of the ofIieial record unless and until it becomes a part of the decision of the Commission; that the complaint may be used in construing the terms of the order agreed upon, which may be altered, modified or set aside in the manner provided for other orders; that the 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; and that the order set forth in the agreement and hereinafter included in this decision shall have the same foree and effect as if entered after a full hearing.

Hespondents 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 the agreement.

The I-learing Examiner has determined that the aforesaid agreement containing the eonsent order to cease and desist provides for an appropriate disposition of this proceeding in the public interest and such agreement is hereby accepted. Therefore It is ordered That respondents Con eaid Distributing Company, a corporation, and its officers, and Arthur Freeman and Ben I-lerman individl1al1y, and as oflicers of said corporation, and respondents agents, representatives and employees, directly or through any eorporate 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, Feder~tl 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 se1eetion of, and the broadcasting of, any such records in which respondents, or any of them, have a financial interest of any nature;

(2) Giving or oflering 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 oi~ any such reeords in which respondents, or any of them, have a financial interest of any nature. PRESTIGE RECORDS , IKC. , ET AL. 1147 1142 Complaint 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 TI-IE CO2\f1\IISSION 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 17th day of November, 1960 become the decision of the Commission; and accordingly:

It is ordered That respondents Concord Distributing Company, a corporation, and Arthur Freeman and Ben fierman, individually, and as officers of said corporation, 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