Federal regulators are beginning an effort to crack down on stealth advertising in television shows, a move aimed at letting consumers know when companies have paid to use their products as props.
This week the Federal Communications Commission is expected to open a formal proceeding about new rules requiring more disclosure of product placement, a technique that has become a critical tool for Madison Avenue.
Some of the best-known deals include Coca-Cola Co.'s placement on Fox's "American Idol," where TV viewers frequently see Coke cups on the judges' table and hear frequent mentions of the brand.
Fox is a division of News Corp., which owns Dow Jones & Co., publisher of The Wall Street Journal.
Regulators say they've become more concerned about the issue as TV executives seem to be using more product placements to reach viewers, who are using digital video recorders to skip commercials.
The rules wouldn't bar the practice of product placements or other in-show advertising designed to reach consumers who skip commercials. Regulators are mostly interested in improving the amount of disclosure advertisers and producers will have to provide for consumers during the TV programs.
"You shouldn't need a magnifying glass to know who's pitching you," said FCC Commissioner Jonathan Adelstein, a Democrat who pressed the agency to act on the issue. "A crawl at the end of the show shrunk down so small the human eye can't read it isn't really in the spirit of the law." Current rules require disclosure but allow it at the end of the show.
The FCC will look at whether it should require TV shows to include notices similar to what political candidates must say before or after campaign ads.
It also will examine whether embedded advertisements violate FCC rules on children's programming, which require a few-second break in between the show and an ad. Commissioners will look at whether any new product-placement rules need to be extended to cover cable programmers, which are currently exempt.
For several years now, network and cable television shows have relied on elaborate brand-integration deals as a way to appease advertisers increasingly worried about ad-zapping technology.
Placing brands within entertainment content is showing no signs of a slowdown. During the recent upfront -- the annual event at which network executives sell the lion's share of their ad time for the new fall season -- networks such as General Electric Co.'s NBC were aggressive about welcoming advertisers into their shows.
Product placements on broadcast TV shows rose almost 40% in the first quarter from the year-earlier period, according to Nielsen Co., which found that reality television shows, including "American Idol" and NBC's "The Biggest Loser," had the highest number of paid placements.
U.S. paid product-placement spending increased 33.7% to $2.90 billion in 2007 from a year earlier, according to PQ Media, a market-research firm in Stamford, Conn. The U.S. accounts for most of the global spending on product placement.
The U.K. recently indicated it will reject a European Union proposal that would allow product placements in TV shows there. Each EU member country can decide whether to allow the practice, but U.K. officials have expressed concern that it might lead to consumer distrust of programming.
The FCC was expected to take up the matter in December, but that effort was delayed after the advertising industry and networks complained. They asked commissioners to only open a formal inquiry into the matter, which wouldn't necessarily result in new rules.
"The FCC has already taken some significant actions in this area. If you pay for placement of a product in a program, you have to clearly and conspicuously make that evident," said Dan Jaffe, executive vice president of government relations at the Association of National Advertisers, one of three industry groups opposing the effort.
With the FCC split on the issue, the commissioners compromised, cordoning off proposals most offensive to advertisers -- such as contemporaneous notices when a product is shown -- into a separate inquiry that wouldn't result in new rules.
Last week, the FCC's five commissioners unanimously approved that inquiry as well as a separate rule-making vote about what sort of disclosures might be appropriate. The vote hasn't yet been made public but is expected to be announced this week.
It's been almost five years since Commercial Alert, a consumer group co-founded by Ralph Nader, asked the FCC to examine the issue of product placement and to write new rules that "product placements should be identified when they occur."
Just last week, 23 consumer groups sent a letter to the FCC asking the agency to act soon to prevent what they called "Trojan horse" advertising.
Hollywood writers have also complained, saying they worry about being asked to write product pitches into scripts.
Amy Schatz and Suzanne Vranica, The Wall Street Journal. June 23, 2008
Copyright © 2008 The Dow Jones Company. All rights reserved.