Sue Records, Inc.

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

IN THE :MATfER OF SUE RECORDS, INC., ET AL.

CONSENT ORDER, ETC., IN REGARD TO THE ALLEGED VIOLATION OF THE FEDERAL TRADE COl\f1\IISSION ACT Docket /89-4. Comp~aint, May 20, 1960-Decision, Sept. 1-4, 1960 Consent order requiring a New York City manufacturer of phonograph records to cease giving concealed payola to disc jockeys and other personnel of radio and television musical programs to induce frequent playing of its records in order to increase sales.

CO:l\fPLAINT 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 Sue Records, Inc. a corporation, and Henry :Murray, Jr., individually and as an officer 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:

PARAGRAPH 1. Respondent Sue Records, 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 725 Riverside Drive, in the city of New York, State of New York.

Respondent Henry Murray, Jr. is an officer of the corporate respondent. He formulates, directs, and controls the acts and practices of the corporate respondent, including the acts and practices hereinafter set forth. His address 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 manufacture and distribution, offering _for sale and sale, of phonograph records to distributors. PAR. 3. In the course and conduct of their business, respondents now cause, and for some time last past have caused, their said re.cords, when sold, to be shipped from one state of the United States to purchasers thereof locat~d in various other States to the United States, and maintain, and at all times mentioned herein have maintained, a 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 , Complaint 57 F.

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 "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 approximate.ly $400 000 000 in 1958. R.ecord manufacturing companies and distributors asce.rtained 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 the.y 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 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' 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 responde,nts 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 broad- Coasting mnsica.1 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 Deception is inherent in "payola" inasmuch as it involves theprograms. payment. of a consideration on the express or implied understanding that. the disk jockey will concea.l, 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 abet- , SUE RECORDS, INC. , ET AL. 625 623 Decision ted 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.

Thus payola" is used by the respondents to mislead the public into beli~ving that the records "exposed" were the independent and unbiased selection of the disk jockeys 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" 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 substantiany increase the sales of the "exposed" records. P.-H:. 7. 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 or distribution of phonograph records, and to divert trade unfairly to the respondents from their competitors and substantial injury has thereby been clone 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 all to t11e 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.

!lfr. Ha-Told Kennedy and !lI1? Arthu1? TVolter, Jr. supporting thecomplaint. 1111.. AI. Warren Troob of New York, N. , for respondents. I)/ITIAL DECISION BY LEO)/ R. GROSS, HEARING EXA1\IINEn The complaint in this proc.eeding was issued by the Federal Trade Commission on ~1ay 20, 1960, charging the respondents with engaging in unfair and deceptive acts and practices, and unfair methods of competition in violation of the Federal Trade Commission Act, by negotiating for and disbursing "payola" to disk jockeys broadcasting musical programs over radio and television stations across State lines, or to personnel who infh?~ace the selection of the records "exposed" by the disk jockeys on such programs, without. disclosing such facts; by participating individually or in a joint effort with certain collaborating record distributors so as to aid and 640968-63--41 Decision 57 F.T..C.

abet 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 01' other.r consideration to them, or to other personnel who select or participate in the selection of the records used on such broadcasts. A true and correct copy of the original complaint was duly served upon the respondents and each and all of them as required by law. Thereafter respondents appeared by counsel and entered into an agreement to dispose of this proceeding without a formal hearing. The agreement dated .Tuly 15 , 1960 contains, inter alia, a consent order to cease and desist, and it has been represented to the undersigned hearing examiner that the, agreement is dispositive of all of the issues raised by the original complaint.

The aforementioned agreement containing consent order to cease and desist dated July 15 , 1960, was received hy the hearing examiner on July 22, 1960. It has been signed by the respondents, and their counsel, and by counsel supporting the complaint. The agreement has also been approved by the Assistant. Director: the Associate Director, and the Director of the Bureau of Litigation of the Federal Trade Co:rnmission. The agreement has been submitted to the hearing examiner in accordance with Section 3.25 of the Commission s Rules of Practice for Adjudicative Proceedings. Respondents pursuant to the aforesaid agreement have admitted all the jurisdictional facts alleged in the complaint and have agreed that, the record may be taken as if findings of jurisdictional facts had been duly made in accordance with such allegations. The agreement. provides that it disposes of all of this proceeding as to all parties. In the agreement respondents ,,-aive: (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 that they may have to challenge or contest the validity of the order to cease and desist entered in accordance with this agreement. '\Vl1en entered such order ',ould have the same force and effect as if entered after a full hearing. The agreement provides that such order may be altered, modified, or set aside in the manner provided for other orde.rs; that the complaint may be used in construing the terms of the order; that the agreement shall not become part of the official record unless and until it becomes part of the decision of the Commission; that the record on which the Initial Decision and the decision of the Commission shall be based shall consist solely of the complaint and the agreement; and that the agreement is for settlement purposes only and does not constitute an admission by the respondents that they have violated the law as alleged in the complaint.

SUE RECORDS, INC. , ET AL. 627 623 Order This proceeding having now come on for final consideration on the aforesaid agreement of July 15 , 1960, containing consent order and it appearing that the order provided for in said agreement covers all of the allegatjons of the complaint, and provides for an theappropriate disposition of this proceeding as to all parties, agreeme.nt of July 15 , 1960, is hereby accepted and ordered filed at the same 6n1e this decision becomes the decision of the Federal Trade Commission pursuant to Sections 3.21 and 3.25 of the Commission s Rules of Practice for Adjudicative Proceedings. The undersigned hearing examiner having considered the agreement and proposed order and being of the opinion that the acceptance thereof will be in the public intere.st makes the following findings and issues the following order:

FINDINGS 1. The Federal Trade Commission has jurisdiction over the parties and the subject matter of this proceeding. 2. Respondent Sue Records, Inc., is a corporation organized, existjng and doing business under and by virtue of the laws of the State of New Yor1\:, with its principal office and place of business located at 725 Riverside Drive, in the city of New York, State of Ne\\~ York.

3. Respondent tlenry :Murray, Jr., is an officer of the corporate respondent. tie formulates, directs and controls the acts and practices of the corporate respondent. IIis address is the same as that of the corporate. responden t.

'1. R, respondents are engaged in commerce as "commerce" is defined in the Federa.1 Trade Commission Act. 5. The complaint herein states a cause of action against the respondents under the Federal Trade Commission Act, and this proceeding is in the public interest. Now, therefore It 1~8 ordered That respondents Sue R.ecords, Inc., a corporation and its officers, and IIenry ~1murray, .Jr., individual.lly and as an officer of said corporation, and respondents' agents, representatives and , inemployees, directly, or through any corporate or other device 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 forth"with cease and desist from: (1) Giving or offering to give., without requiring public disclo- , to anysure, any sum of money or other material consideration orperson, directly or indirectly, to induce that person to select, participate in the selection of, and the broadcasting of, any such Syllabus 57 F.

records in which respondents, or either 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 either 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 re~ord 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 COl\I1\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 14th day of September 1960 become the decision of the Commission; and accordingly:

I t is O1?dered That respondents herein 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.