General Distributing Company, Inc.

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

IN THE ~1.-\ TTER OF GENERAL DISTRIBUTING CO:MPANY, INC., ET AL. CONSENT ORDER, ETC., IN REGARD TO TI-IE ALLEGED VIOLATION OF THE FEDERAL TRADE CO~IMISSION ACT Docket "/9.r,J. Compla.int, J'une 11" 19GO-Dccision, No' 1960 Consent order requiring BaHimore distributors of phonograph records to cease giving concealed "payola " to disc jockeys and other personnel of radio and television programs to induce frequent playing of their 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 General Distributing Company, Inc. , a corporation, and J--Ienry Nathanson, 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 General Distributing Company, Inc. is a corporation organized, existing and doing business under and by virtue of the laws of the State of :Maryland, with its principal office and place of business located at 2329 Pennsylvania. A venue, in the City of Baltimore, State of ~Iaryland. Respondent llenry Nathanson is an ofiieer of the corporate respondent. lie j'ormnlntes, directs and controls the acts and practices of tbe corporate respondent, including the a(:ts and practices hereinafter set forth. lIis address is the snme as that of the corporate respondent.

PAIL 2. Respondents are nm\', and for some time last pnst have been, engaged in the djstribntion, offering for sale, and sale, of phonograph records to various retail outlets. , Complaint 57 P.

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 the State of :Maryland to purchasers thereof located in the District of Columbia, and maintain and at all times mentioned herein have maintained, a course of trade in said phonograph records in commerce, as "commerce defined in the Federal Trade Commission Act. PAR. 4. In the course and conduct of their business, and at times mentioned herein, respondents have been in competition, in commerce, with corporations, firms and individuals in the sale of phonograph records.

PAR. 5. After "\Vorld "\Var 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 approximately $400 000 000 in 1958. Hecord manufacturing companies and cbstributors ascertained that. popular disk jockeys could, by "exposure" or the playing of a record day after day, sometimes as high as 6 to 10 time,s a day, substantially increase the sales of those records so "exposed". Some record manufacturers and distributors obtained and insured the "e:xposnre of certain records in ,which they were fina.11cially 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 other valuable consideration to disk jockeys of music::tJ programs on radio and TV stations to induce, stimulate or motivate. the disk joekey to select, broadcast expose~' and promote certain records in which the payer has a financial interest. Disk joekeys, 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 broadeasts have been selected on tht'ir personal evaluation of each record' s metits 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, jn commerce during the last. several years, the respondents have engaged in unfair and deceptive acts and practices and unfair methods of competition in the follmying respec.ts:

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 , GENERAL DISTRIBUTING CO., INC. , ET AL. 1101 1099 Decision selection of the records "exposed" by the disk jockeys on such programs.

Dec.eption is inherent in "payola" inasmuch as it involves the payment of a consideration on the express or implied understanding that the disk jockey win eonc.eal, withhold or c.amouflage such fact from the listening public.

The respondents by participating individual11y 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 personnel yrhich select or participate in the selection of the reeorcls used on such broadcasts.

Thus payola" is used by the respondents to mislead the public into believing that the records "expose.cF were the independent and unbiased seleetion 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 pure-based 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" reeords. PAR. 7. The aforesaid acts, practices and methods have the capaeity and tendeney 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 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, "'ere 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.

Afr. Harold A. Ilen1wdy and llfr. Arthur Wolter, Jr. for the Commission.

Mr. Paul G. Marshall of New York, N. , for respondents. INITIAL DECISION BY J. EARL Cox, I-learing EXAMINER The complaint charges respondents, who are engaged in the distribution offering for sale~ and sale of phonograph records to vrn'jous retail outlets, ,with ,-violation of the Federal Trade Commissioll Act, in that respondents, alone or with certain unnamed record , Decision 57 F.

distributors, have negotiated for and disbursed "payola, i. , the payment of money or other valuable consideration to disk jockeys of musieal programs on radio and television stations, to induce stimulate or motivate the disk jockeys to select, broadcast expose and promote certain reeords, in which respondents are financially interested, on the express or implied understanding that the disk jockeys will eonceal, 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 eon sent order to cease and desist, which was approved by the Director, Associate Director and Assistant Direetor of the Commission s Bureau of Litigation, and thereafter transmitted to the Hearing Examiner for consideration.

The agreement states that respondent General Distributing Company, Inc., is a corpora bon existing and doing: business under and by virtue of the laws of the State of 11ary land, with its office and principal place of business located at 2329 Pennsylvania A venue Baltimore, :Maryland, and that respondent Henry Nathanson is an ofli.ce.r of the corporate respondent, his address being the same as that of the corporate respondent.

The agreement provides among other things, that respondents admit. all the jurisdictional facts aHeged 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 eonstruing the terms of the order agreed upon, ",hieh 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 deeision shall have the same force and eflect as if en te.red after a full hearing. Hespondents waive any further procedural steps before the 1-1e.:1ring Examiner and the Commission, the. making of findings oJ fact or conclusions of law, and an of the rights they may have to challenge or contest the va.1idity of the order to cease and desist. entered in accordance \with the agreement.

The Hearing Examiner has determined that the aforesaid agreement c.containing the consent order to cease and desist provides for GENERAL DISTRIBUTING CO. , INC. , ET AL. 1103 1099 Decision an appropriate disposition of this proceeding in the public interest and such agreement is hereby accepted. Therefore Company, It ,is ordered That respondents General Distributing Inc., a corporation, and its officers, and :Henry Nathanson, individually and as an officer 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 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 records in which respondents, or either of them, have a financial interest of any nature;

(2) Giving or o:ffering to give, without requiring public disclo- , to anysure, any sum of money, or other material consideration person, directly or indirect)y, as an inducement to influence any employee of a radio or television broadcasting station, or any other selection ofperson, in any manner, to select, or participate in the 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 seleets or participates in the selection and broadcasting of a record when he shall cbsclose, or cause to have disclosed, to the listening public at the time the record 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 CO)Il\IISSION AND ORDER TO FILE REPORT OF COMPLIANCE s Hules of Practice Pursuant to Section 3.21 of the Commission the initial decision of the I-Iearing Examiner shall, on the Dth day of November ID60 become the decision of the Commission; and accordingly:

It iB orde'fied That respondents General Distributing Company, as an Inc. , a corporation, and J-Ienry Nathanson, individnany and ofllcer of said corporation, shan, within sixty (60) days after serv- Commission a report ice upon them of this order, file with the writing, setting forth in detail the manner and :form in which they have complied with the order to cease and desist. , Complaint 57 F.