Mangold Distributing Company

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In the Marrer or MANGOLD DISTRIBUTING COMPANY ET AL.

CONSENT ORDER, ETC., IN REGARD TO THE ALLEGED VIOLATION OF THE FEDERAL TRADE COMMISSION ACT Docket 7890. Complaint, Mfay 138, 1960—Decision, Aug. 380, 1960 Consent order requiring Baltimore distributors of phonograph records to cease giving concealed payola to disc jockeys broadcasting musical programs over radio or television stations, or to other station personnel, to induce frequent playing of their records to increase sales. 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 Mangold Distributing Company and Marshall Enterprises, Inc., corporations, and Emanuel Goldberg, individually and as an officer of said corpora- ‘Complaint 57 F.T.C.

tions, 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:

ParacrapH 1. Respondents Mangold Distributing Company and Marshall Enterprises, Inc. are corporations organized, existing and doing business under and by virtue of the laws of the State of Maryland, with their principal office and place of business located at 638 West Baltimore Street, in the city of Baltimore, State of Maryland.

Respondent Emanuel Goldberg is an officer of the corporate respondents. He formulates, directs and controls the acts and practices of the corporate respondents, including the acts and practices hereinafter set forth. His address is the same as that of the corporate respondents.

Par. 2, Respondents are now, and for some time last past have been, engaged in the distribution, offering for sale, and sale of phonograph records to various retail outlets. Par. 3. In the course and conduct of their business, respondents now cause, and for some time last past have caused, their 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 maintain, and at all times mentioned herein have 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 their business, and at all times mentioned herein, respondents have been in competition, in commerce, with corporations, firms and individuals in the sale of phonograph records.

Par. 5. After World War II when TV and radio stations shifted from “Jive” 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 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. MANGOLD DISTRIBUTING COMPANY ET AL. 521 519 . 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 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 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 conceal, withhold or camouflage such fact from the listening public.

The respondents by participating individually or in a joint effort 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 records by disk jockeys with the payment of money or other consideration to them, or to other personne] 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 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 hin- Decision 57 F.T.C.

der, restrain and suppress competition in the manufacture, sale or 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. 8. 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.

Mr. Arthur Wolter, Jr., for the Commission. Mr. Bernard M. Goldstein, of Baltimore, Md., for respondents. Inirtau Decision sy J. Earn Cox, Heartne Examiner The complaint charges respondents, who are engaged in the offering for sale, sale and distribution of phonograph records to various retail outlets, with violation of the Federal Trade Commission Act, in that respondents, alone or with certain unnamed record distributors, have negotiated for and disbursed “payola”, Le., 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.

After the issuance of the complaint, respondents, their counsel, and counsel supporting the complaint entered into an agreement. containing consent order to cease and desist, which was approved by the Director, Associate Director and Assistant Director of the Commission’s Bureau of Litigation, and thereafter transmitted to the hearing examiner for consideration.

The agreement states that respondents Mangold Distributing Company and Marshall Enterprises, Inc. are corporations existing and doing business under and by virtue of the laws of the State of Maryland, with their office and principal place of business located at 638 West Baltimore Street, Baltimore, Md.; that individual] respondent Emanuel Goldberg is an officer of the corporate respondents and formulates, directs and controls the acts and practices of the corporate respondents, his address being the same as that of the corporate respondents.

MANGOLD DISTRIBUTING COMPANY ET AL. 523 519 Order The agreement provides, among other things, that 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; that 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; that the agreement shall not become a part of the official 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 force and effect as if entered after a full hearing. Respondents 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 order agreed upon fully disposes of all the issues raised in the complaint, and adequately prohibits the acts and practices charged therein, as being in violation of the Federal Trade Commission Act. Accordingly, the hearing examiner finds this proceeding to be in the public interest, and accepts the agreement containing consent order to cease and desist as part of the record upon which this decision is based. Therefore, It is ordered, That respondents Mangold Distributing Company and Marshall Enterprises, Inc., corporations, and their officers, and Emanuel Goldberg, individually and as an officer of said corporations, 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 the broadcasting of, any such records in which respondents, or any of them, have a financial interest of any nature;

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(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 Pursuant to Section 3.21 of the Commission’s Rules of Practice, the initial decision of the hearing examiner shall, on the 30th day of August. 1960, become the decision of the Commission; and, accordingly :

It ts ordered, That respondents Mangold Distributing Company and Marshall Enterprises, Inc., corporations, and Emanuel Goldberg, individually and as an officer of said corporations, 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 to cease and desist.

In the MAatTrer oF