Hugo & Luigi Productions, Inc.

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In rye MATTER OF HUGO & LUIGI PRODUCTIONS, INC., ET AL.

CONSENT ORDER, ETC., IN REGARD TO THE ALLEGED VIOLATION OF THE FEDERAL TRADE COMMISSION ACT Docket 7888. Complaint, Alay 11, 1960—Decision, Aug. 18, 1960 Consent order requiring a New York City producer of master recordings for record manufacturers to reproduce on phonograph records, to cease giving concealed payola to radio and television disc jockeys or other personnel of broadcasting stations to induce frequent broadcast of their records in order to increase sales.

Complain?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 Hugo & Luigi Productions, Inc., a corporation, and Hugo Peretti and Luigi Creatore, 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: Paracrarnu 1. Respondent Hugo & Luigi Productions, Inc., is a corporation organized, existing and doing business under and by virtue of the laws of the State of New York with its principal office and place of business located at 155 East 24th Street, New York, N.Y. Complaint d7 F.T.C.

Respondents Hugo Peretti and Luigi Creatore are, respectively, president-secretary and vice president-treasurer of the corporate respondent, and 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 the corporate respondent.

Par. 2. Respondents are now, and for some time last past have been, engaged in the production and sale of master recordings which are purchased by record manufacturers and reproduced on phonograph records which are sold and distributed in the various states of the United States.

Said respondents are responsible for the selection, production and promotion of such records which are sold. and distributed in commerce and the individual respondents have traveled extensively in several states of the United States for the purpose of promoting the sales of certain records which they have produced. The respondents maintain and have maintained at all times pertinent herein a substantial course of trade in master and phonograph records in commerce, as “commerce” is defined in the Federal Trade Commission Act.

Par. 8. 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 individuais 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 disbursing “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 financial interest. Disk jockeys, in consideration of their receiving the payments heretofore described, either directly or by implication, represent to HUGO & LUIGI PRODUCTIONS, INC., ET AL. 471 469 Complaint 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. 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 im the following respects:

The respondents have negotiated for and disbursed “payola” to disk jockeys broadcasting musical programs over radio or television stations broadcasting across state lines. 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 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.

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 manufacture, sale and distribtuion 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.

Decision 57 F-T.C.

Mr. John T. Walker and Mr. James H. Kelley for the Commission. Reinheimer & Cohen, by Mr. Irving Cohen, of New York, N.Y., for respondents.

Initial Deciston By Loren H. Lavcuuin, Hearine Examiner The Federal Trade Commission (sometimes also hereinafter referred to as the Commission) on May 11, 1960, issued its complaint herein, charging the above-named respondents, who are engaged in the production and sale of master recordings which are purchased by record manufacturers and reproduced on phonograph records which are sold and distributed in the various States of the United States, with violation of the Federal Trade Commission Act, in that. respondents, alone or with certain unnamed record manufacturers, have negotiated for and disbursed “payola,” i.e., 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 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. Respondents were duly served with process. On July 18, 1960, there was submitted to the undersigned hearing examiner of the Commission for his consideration and approval an “Agreement Containing Consent Order To Cease and Desist,” which had been entered into by respondents, their counsel, and counsel supporting the complaint, under date of July 11, 1960, subject. to the approval of the Bureau of Litigation of the Commission, which had subsequently duly approved the same. On due consideration of such agreement, the hearing examiner finds that. said agreement, both in form and in content is in accord with § 8.25 of the Commission’s Rules of Practice for Adjudicative Proceedings, and that by said agreement the parties have specifically agreed to the following matters:

1. Respondent Hugo & Luigi Productions, Inc., is a corporation organized, existing and doing business under and by virtue of the laws of the State of New York, with its principal place of business located at 155 East 24th Street, New York, N.Y. Respondents Hugo Peretti and Luigi Creatore are, respectively, president-secretary and vice president-treasurer of the corporate respondent, and formulate, direct and control the acts and practices of said corporate respondent. The address of the individual respondents is the same as that of the corporate respondent. HUGO & LUIGI PRODUCTIONS, INC., ET AL. 473 469 Order 2, Respondents admit all the jurisdictional facts alleged in the complaint and agree that the record may be taken as if findings of . jurisdictional facts had been duly made in accordance with such allegations.

3. This agreement disposes of all of this proceeding as to all parties.

4. Respondents waive:

(a) Any further procedural steps before the hearing examiner and the Commission;

(b) The making of findings of fact or conclusions of law; and (c) All of the rights they may have to challenge or contest the validity of the order to cease and desist entered in accordance with this agreement.

5. The record on which the initial decision and the decision of the Commission shall be based shall consist solely of the complaint and this agreement.

6. This agreement shall not become a part of the official record unless and until it becomes a part of the decision of the Commission. 7. This 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.

8. The following order to cease and desist may be entered in this proceeding by the Commission without further notice to respondents. When so entered it shall have the same force and effect as if entered after a full hearing. It may be altered, modified or set aside in the manner provided for other orders. The complaint may be used in construing the terms of the order. Upon due consideration of the complaint filed herein and the said “Agreement Containing Consent Order To Cease And Desist,” the latter is hereby approved, accepted and ordered filed. The hearing examiner finds from the complaint and the said “Agreement Containing Consent Order To Cease And Desist” that. the Commission has jurisdiction of the subject matter of this proceeding and of the respondents herein; that the complaint states a legal cause for complaint under the Federal Trade Commission Act against the respondents, both generally and in each of the particulars alleged therein; that this proceeding is in the interest of the public; that the following order as proposed in said agreement is appropriate for the just. disposition of all of the issues in this proceeding as to all of the parties hereto; and that said order therefore should be, - and hereby is, entered as follows:

It ts ordered, That respondents Hugo & Luigi Productions, Inc., a corporation, and its officers, and Hugo Peretti and Luigi Creatore, Decision 57 F.T.C.

individually and as officers of said corporation, and respondents’ 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 broadcasting of, any such records in which respondents, or any of them, have 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 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 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 The Commission having considered the hearing examiner’s initial decision, filed July 19, 1960, accepting an agreement containing a consent order theretofore executed by the respondents and counsel in support of the complaint; and It appearing that said initial decision is appropriate to dispose of this proceeding, except that the statement therein that the respondents were charged with having engaged in certain practices with certain unnamed record manufacturers is in error; and The Commission being of the opinion that this error should be corrected :

Lt 2s ordered, That the initial decision be, and it hereby is, amended by striking from lines eight and nine of the first paragraph thereof the words “,alone or with certain unnamed record manufacturers.” WATERMAN PHARMACY, ETC. 475 469 Order as they appear immediately following the word “respondents” in line eight. , It is further ordered, That the initial decision, as so amended, did, on the 18th day of August 1960, become the decision of: the Commission.

It is further ordered, That the respondents 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 which they have complied with the order contained in the aforesaid initial decision, as amended.