ARC Distributing Company

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IN THE :MATTER OF ARC DISTRIBUTING CO:MP ANY, ET AL.

CONSENT ORDER, ETC., IN REGARD TO THE ALLEGED VIOLATION OF THE FEDERAL TRADE COMMISSION ACT Docket 7959. Complaint, June 1960-Decision, Sept. 1960 Consent order requiring distributors of phonograph records in Detroit, Mich" to cease giving concealed p.ayola to disc jockeys or other personnel of radio and television programs to induce frequent playing of their records in order 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 ARC Distributing Company, a corporation, and Henry Droz and Ralph Jewell, individually and as officers of said corporation, hereinafter referred to 762 FEDERAL TRADE CO:MMISSION DECISIONS Complaint 57 F.

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 ARC Distributing Company is a corporation organized, existing and doing business under and by virtue of the laws of the State of :Michigan, with its principal office and place of business located at 40 Selden A venue, in the City of Detroit State of :Michigan.

Respondents I-Ienry Droz and Ralph Jewell are officers of the corporate respondent. They formulate, direct and control the acts and practices of the corporate respondent, including the acts and practices hereinafter set forth. Their address is the same as that of the corporate respondent.

PAR. 2. R,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. PAP... 3. In the course and conduct of their business, respondents now cause, and for some time lnst past have caused, their said records, whe,n sold, to be shipped from :Michigan to northwestern Ohio to purchasers thereof, 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.

PAn. 4. In the course and conduct of their business, and at all times mentioned herein, respondents have been in competition commerce, with corporations, firms and individuals in the sale of phonograph records.

PAn. 5. After vVorld "\Var II when TV and radio stations shifted from "liye" to recorded performances for 11111C11 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 01' the playing of fl 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. Payola, among other things, is the payment of money or other valuable consideration to disk jockeys of musical programs on radio , , ARC DISTRIBUTING Camp A),TY, ET AL. 763 761 .complaint 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 respondents have engaged in unfair and deceptive acts and practices and unfair methods of competition in the follo-wing respects:

The respondents alone or with certain unnamed record distributors negotiated for and disbursed "payola" to disk jockeys broadcasting musicnl programs over radio or television station broadcasting across state lines, or to other personnel who influence the, selection of the records "exposed" by the. disk jockeys on such progl'ft111S.

Deception is inherent in "payola" inasmuch as it involves the payment of a consideration on the express or imp1ie,c1 understanding 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 a.betted the deception of the public by various disk jockeys by controlling or unduly influencing the "exposure" of records by disk jocke.ys 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 believing 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 substa.ntially increase the sales of the "exposed" records. PAn. 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., sa.le or , Decision 57 F.

distribution of phonograph records, and to divert trade unfairly to the respondents from their competitors and 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 Fe.deral Trade Commission Act.

Mr. Harold A. Iiennedy and lllr. Arthu'/' TVolteT, Jr. for the Commission.

respondents, for themselves.

INITIAL DECISION BY J. EARL Cox, HEAIUNG EXAMINER The complaint charges respondents, who are engaged in the distribution, offering for sale, and sale 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, i. , the payment of money.y 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 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 Acting Assistant Director of the Commission Bureau of Litigation, and thereafter transmitted to the hearing examiner for consideration.

ARC Distributing Com- The agreement states that respondent pany is a corporation organized, existing and doing business under and by virtue of the laws of the State of :Michigan, with its principal office and place of business located at 40 Selden A venue Detroit, :Mich., and that respondents llenry Droz and Ralph Jewell are officers of the corporate respondent and formulate, direct and control the acts and practices of the corporate respondent, their address being the same as that of the corporate respondent. 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 ARC DISTRIBUTING COMPANY, ET AL. 765 761 Decision had been duly made in areordance 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 offieial record unless and until it becnmes a part of the deeision of the Commission; that the complaint may be used in construing the terms of the orc1e.r agreed upon, which may be altered, moLlified or set aside in the manner provided tor 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 hereina.after included in this deej~ion :shall have the same force and effect. as if e.entered after a full !~I-'aring. Respondents ,,'aive any furtlwj' procedural sieps before the hearing examiner and the Commission, the making of findings of fact or conclusions of Jaw, 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 hearing examiner has determined that the aforesaid agreement containing the consent order to cease and desist provides for an appropriate disposition of this proceeding in the public interest and such agreeme.nt is hereby accepted. Therefore It is ordered That respondents ARC Distributing Company, a corporation, and its officers, and I-Ienry Droz and R.alph Je.well individually and as officers of said c.orporation, 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 broadeasting programs in commerce, as "commerce" is defined in the Federal Trade Commission Act, do forthwith cease and desist from:

(1) Giving or ofiering to give, without requiring public disclosure, any sum of money or other material consideration, to any person, cljre.ctly or indirectly, to induce that person to select, or participate in the selecUon of, and the 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. :Complaint 57 F., 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 TI-IE CO:\Il\IISSION AND ORDER TO FILE REI' ORT OF CO~IPLIANCE Pursuant to Section 3.21 of the Commission s Rules of Practice the initial decision of the hearing examiner shall, on the 28th day of September 1960 become the decision of the Commission; and accordingly:

1 t is ordered That respondents AR.C Distributing Company, a corporation, and lIenr)' Dl'oZ and Ralph J eyrell, individually and as oflicers of said corporation, 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 ",ith the order to cease and desist.