Mutual Distributors, Inc.

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In THE MatTrer oF MUTUAL DISTRIBUTORS, INC., ET AL.

ORDER, ETC., IN REGARD TO THE ALLEGED VIOLATION OF THE FEDERAL TRADE COMMISSION ACT Docket 7803. Complaint, Mar. 2, 1960—Decision, Aug. 23, 1961 Order—following enactment of specific statutes which afford adequate protection to the public against the challenged practices—dismissing complaint charging distributors of phonograph records with giving illegal “payola”’ to radio and television disc jockeys.

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 Mutual Distributors, Inc., a corporation, and George D. Hartstone, Leon C. Hartstone, and Robert S. Hartstone, individually and as officers 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:

Paracrapy 1. Mutual Distributors, Inc., is a corporation organized, existing and doing business under and by virtue of the laws of the State of Massachusetts, with its principal office and place of business located at 1241 Columbus Avenue, Boston, Massachusetts. Respondents George D. Hartstone, Leon C. Hartstone and Robert S. Hartstone are, respectively, president, treasurer and clerk of the corporate respondent. Said individual respondents formulate, direct and control the acts and practices of said corporate respondent, including the acts and practices herein set out. The address of the individual respondents is the same as that of said corporate respondent.

MUTUAL DISTRIBUTORS, INC., ET AL. 303.

302 Complaint 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 the State of Massachusetts, 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. 38. 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 disturbing “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 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 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. Complaint 59 F.T.C.

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 influence the selection of the records “exposed” by the disk jockeys on such programs, or to the radio station itself.

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, or to the radio station itself. 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.

NATIONAL MAIL MERCHANDISERS 305 302 Complaint Mr. Arthur Wolter, Jr., for the Commission. Peabody, Koufman & Brewer, by Mr. Joseph M. Koufman, of Boston, Mass., for respondents.

Initia, Decision py Ropert L. Pirrr, Hearinc Examiner On March 2, 1960, the Federal Trade Commission issued its complaint against the above-named respondents charging them with the disbursement of “payola.” Counsel supporting the complaint now moves to dismiss the complaint withcut prejudice, which motion is unopposed, for the following stated reason: Since the disclosure requirements with respect to furnishing consideration to persons connected with broadcast licensees and the receipt thereof by the latter have been modified as a result of specific Congressional action, counsel supporting the complaint considers the continued prosecution of this matter as unnecessary expenditure of time, effort and funds in determining the legality of the alleged practice since the protection of the public interest is now fully assured by specific statute.

Now, therefore, upon said motion:

It ts ordered, That the complaint be and hereby is dismissed without prejudice.

DECISION OF THE COMMISSION Pursuant to Section 3.21 of the Commission's Rules of Practice, the initial decision of the hearing examiner shall, on the 23d day of August 1961, become the decision of the Commission.