Fame Records, Inc.

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

In THE Matrer or FAME RECORDS, INC., ET AL.

CONSENT ORDER, ELC., IN REGARD TO THE ALLEGED VIOLATION OF THE FEDERAL TRADE COMMISSION ACT Docket 7764. Complaint, Jan. 27, 1960—Decision, Oct. 27, 1960 (Consent order requiring a manufacturer of phonograph records in New York City to cease giving concealed payola to disc jockeys and other personnel of television and radio stations to induce frequent playing of its 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] Trace Commission, having reason to believe that Fame Records, Inc., @ corporation, and Lee A. C. Gallo, Jr., individually, and as an ofiicer 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:

Paracrapy 1. Fame 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 782 Eighth Avenue, New York, NY. Complaint oT F.T.C.

Respondent. Lee A. C. Gallo, Jr. is president of the corporate respondent, and formulates, directs and controls the acts and practices of said corporate respondent, including the acts and practices herein set out. The address of the individual respondent is the same as that of said corporate respondent.

Par. 2. Respondents are now, and for some time last past have been, engaged-in the manufacture distribution and sale of phonograph records to independent distributors for resale to retail outlets and jukebox operators in various states of the United States. In the course and conduct of their business, respondents now cause, and for some time last past have caused, the records they manufacture, sell and distribute to be shipped from their place of business in the State of New York, to purchasers thereof located in various other states of the United States, and maintain, and at all times mentioned herein have maintained, a substantial course of trade in 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 individuals in the manufacture, 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 fmancially 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 direct. 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 FAME RECORDS, INC., ET AL. 983 981 Complaint 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 Jast 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.

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 said 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 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. 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.

Mr. John T. Walker and Mr. James H. Kelley for the Commission. Respondent, for itself.

Decision 57 F.T.C.

Inirtau Decision py J. Eart Cox, Hearing Examiner The complaint charges respondents, who are engaged in the manufacture, distribution and sale of phonograph records to independent distributors for resale to retail outlets and jukebox operators in various states of the United States, 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.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. After the issuance of the complaint, respondent Fame Records, Inc., 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 respondent Fame 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. 782 Eighth Avenue, New York, N.Y., and recommends that the complaint herein, which also names respondent Lee A. C. Gallo, Jr., in his individual capacity and as an officer of said corporation, be dismissed as to him, due to his recent death as evidenced by copy of death certificate attached to the agreement and made a part thereof.

The agreement provides, among other things, that respondent Fame Records, Inc. admits all the jurisdictional facts alleged in the complaint, and agrees 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 shal] 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 respondent that it has violated the FAME RECORDS, INC., ET AL. 985 981 Order 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. Respondent waives 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 it 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 agreement is hereby accepted. Therefore, It is ordered, That respondent Fame Records, Inc., a corporation, and its officers, and respondent’s 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 respondent has 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 respondent has 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.

It ts further ordered, That the complaint be, and hereby is, dismissed as to Lee A. C. Gallo, Jr., individually, and as an officer of said corporate respondent.

Complaint 57 F.T.C.

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 did, on the 27th day of October, 1960, become the decision of the Commission; and, accordingly :

It ts ordered, That respondent Fame Records, Inc., a corporation, shall, within sixty (60) days after service upon it of this order, file with the Commission a report. in writing, setting forth in detail the manner and form in which it has complied with the order to cease and desist.