Apex Producing Corporation

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IN THE MATTER OF APEX PRODUCING CORPORATION ET AL.

CONSENT ORDER , ETC. , IN REGARD TO THE ALLEGED VIOLATION OF THE FEDERAL TRADE C01\BIISSION ACT Docket 7902. Complaint, Ma,y 20, 1960-Decision, Apr. 1961 Consent order requiring Chicago distributors of phonograph records to cease giving concealed "payola" to disc jockeys and other personnel of television and raelio programs to induce frequent playing of their recordings in order to increase sales.

CO::ll'LAINT 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 C01T1nission, having reason to believe that Apex Producing Corporation, a corporation, and Dempsey Nelson, Jr., individually and as an offcer of said corporation, hereinafter referred to as responc1Emts, have violated the provisions of said Act, and it appearing to the Commission that a proceeding by it in respect thereat would be in the public interest, hereby issues its complaint, stating its charges in that respect as follows:

PARAGRAPH 1. Respondent Apex Producing Corporation is a corporation organized and existing under and by virtue of the laws of the State of Delaware, with its principal offce and place of business located at 951 East 47th Street, Chicago 15, Illinois. Respondent Dempscy N reason, Jr. is president and treasurer of said corporatc respondent and formulates, directs and controls the acts and practices of said corporate respondent including the acts and practices hcrcin sct out. The address of the individual respondent is the same as that of said corporate respondent. PAR. 2. Respondents arc now, and for some time last past have been engaged in the offering for sale, sale and distribution of phonograph records 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 distribute when sold, to be shipped from their place of business in the State of Ilinois, to purchasers therof Jocatcd in various other states of , 566 FEDERAL TRADE COMMISSIQ:: DECISIONS Complaint 58 F:r.

the, United States, and maintain, and at all times mentioned herein have ma.intained, a substantial course of trade in phonograph records in commerce, as "'commerce" is defined in the Federal Traue C0111mission Act.

PAIL 3. In the course and conduct of their business, at all times mentioned herein, respondents have been, and are now, in substantial competition, in COlIlmcrce, wit.h corporations, firms and individuals in the sale and distribution of phonograph records. PAn. h. After IV orld IVar II, when television a.nd radio stations shifted from "live J to recorded pel'fOl'mU,llCes for 11111Ch of their programming, the production, dist.ribution and sale of phonograph records emerged as an important factor in the musical industry, with a sales volume of approximately $400 000 000 ill 1058. Record manufacturing companies and distributors ascertained that popular disc jockeys could, by "exposure" or the playing of a record day ftfter clay, sometimes as high as G to 10 times a day, substantially increase the sales of those records so " xposecl." 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 television programs. Payola", among other things, is the payment of 1l10ney or other valuable considcl'a60n to disc jockeys of n1usica.l programs on radio and tele.vision stations to induce" stimulate 01' mot.ivate the disc jockey to select., broadcast expose" and promote certain records in "vhioh they payor has a di.rcct financial interest. Disc jockeys, in consideration of their recei.vjng the paYlnents heretofore described, eit-he.r direct.ly or by implication represent to t.their listening public that the records "exposed" on their broadcasts have been selected on their personal evaluation of each record' s m.crits or its general popularity with the public, whereas in truth and in fact, one of the principal reil-Sons or motivations gua.ra,nteeing the record' s "exposure" is the "payoln." payoff. PAR. 5. 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 n1ethods of competition in t,he following respects:

The respondents have negotiated for and disbursed "payola" to disc jockeys broadca.sting 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 disc 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 , ;;, APEX PRODLCING CORPORATION ET AL. 567 565 Decision the disc jockey will conceal, withhold or camouflage such fact from the liscnine: public.

The resp ;lents have aided and abetted the deception of the public by various disc jockeys by controlling or unduly influencing the exposure" of records by disc 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 believing that the records "exposed" were the independent and unbiased selections of the disc 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 otherwise might not have purchased and, also to enhance t.he popularity of the "exposed" records in various popularity polJs, which in tmJl has the capacity and tendency to substnnt.ially increase the sales of the "exposed" records. PAR. 6. The aforesaid acts, practices and methods have the capacity and tcndeney to mislead and decei,' e the public and to hinder restrain and suppress competition in the offering for sale, sale and distribution of phonograph records, and to divert trade unfairly to the respondents from their competit.ors and substantial injury has thereby been clone and may continue to be clone 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. llfr. John T. Walker for the Commission. Respondents pro 8e.

INITIAL DECISIO BY EDWAIID CREEL, HEARING EXAl\IIXER The Federal Trade C01ll1ission issued its complaint against the above-named respondents on May 20, 1960, charging them with having violated the provisions of the Federal Trade Commission Act by unfairly paying money or other valuable consideration to induce the playing of phonograph records oyer radio and television st.ations in order to enhance the popularity of such records. On February 24, 1961 , tho"e was submitted to the undersigned hearing examiner an agreement between the above-named respondents and counsel supporting the complaint providing for the entry or a consent order.

Order 58 F.

Under thc terms of the agreement, the respondents admit the jurisdictional facts alleged in the complaint. Thc partics agree, among other things, that the cease and desist order there set forth may be entered without fllrther notice and have the same force and effect as if entered after a full hearing and the document includes a waiver by the respondents of all rights to challenge or contest the validity of the order issuing in accordance therewith. The agreement further recites that it is for settlement purposes only and does not constitute an admission by the respondents that they have violated the law as alleged in he complaint.

The hearing examiner finds that the content of the agreement meets al1 of the requirements of Section 3.25 (b) of the Rules of the Commission.

The hearing examiner having considered the agreement and proposed ordcr, and being of the opinion that they provide an appropriate basis for settlement and disposition of this proceeding, the agrecment is hereby accepted, and it is ordered that said agreement shall not become a part of the offcial record unless and until it becomes a part of the decision of the Commission. The following jurisdictional findings are made and the following order issued: 1. Respondent Apex Producing Corporation is a Delaware corporation with its offce and principal place of business located at 951 East 47th Street, Chicago, Ilinois. Individual respondent Dempsey Nelson, Jr., is president and treasurer of said corporate respondent and his address is the same as that of the corporate respondent. 2. The Federal Trade Commission has jurisdiction of the subject matter of this proceeding and of the respondents, and the proceeding is in the public interest.

ORDER It ordered That respondents Apex Producing Corporation, a corporation, and its offcers, and Dempsey Kelson, Jr., individually and as an offcer 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 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 RUGBY RUG MILLS , INC. , ET AL. 569 565 Complaint respondents, or either of t,hem, having a financial interest of any nature.

(2) Giving or offering to give, without requiring public disclosurc any sum of n10ney, or other material consideration, an 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 tinancial interest of any nature.

There shall bc "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 'lhe COl\DfISSION A D ORDER TO Fn.E 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 lt1h day of A pri11961 , become the decision of the Commission; and, accordingly: It is ordered 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 lnanner and form in