Embedded Advertising on Television: Disclosure,Deception,and Free Speech Rights

Current Uses of Embedded Advertising on Television

According to PQ Media (2010), total U.S. spending on paid product placement in 2009 was $3.61 billion. This included product placement on television, in movies, in videogames, and on the Internet. Furthermore, the analysis projected 27.9% annual growth for paid product placements in 2010–2014 to $7.55 billion.

Russell (2002) concludes that branded products that were incongruent to the plotline of shows brought higher recall, but also a negative backlash on brand attitudes. Visual placements (as opposed to auditory) were only recalled when their placement was incongruous to the plotline (Russell 2002, p. 313). Regarding the impact of embedded advertisements on the media, prominent placements are perceived as more distracting, less realistic, and interfering with a show's plot. Furthermore, these adverse effects to the media escalate with repeated exposures (Homer 2009). Implicit in these findings is that some product placements are noticeable and memorable to consumers because they are not well woven into the show in which they appear. Under the current legal scheme, these embedded advertisements would be deemed “obvious.” As is explained subsequently, obvious sponsorship does not need to be disclosed.

What remains unclear and is not part of any published research is what consumers understand about the paid placement of products. Only paid sponsorship must be disclosed under the law. ² In other words, marketing research supports the principle that nonobvious embedded advertising is “better” advertising, at least for improving brand attitudes, but it tells regulators nothing about consumer understanding of the paid nature of product placement or integration.

The general industry practice is to disclose sponsorship during the closing credits of television programs (WGAW 2008a, p. 10). One complaint that the FCC is investigating is that these disclosures only appear on the screen for a few seconds (WGAW 2008a, p. 10). Furthermore, the print is often so small that it is illegible to viewers (Free Press 2008, p. 2). In some cases, the disclosure is shrunk to a portion of the screen while other content runs simultaneously in other “windows.”

A separate complaint is that the corporate sponsor's name does not create a clear connection with the product embedded in the program. For example, viewers of America's Next Top Model probably do not associate Cover Girl and Noxema products appearing in the show with the Noxell sponsor name shown in the credits (WGAW 2008a, p. 12). In addition, the same “time-shifting” technologies that enable viewers to skip the traditional 30-second commercials in a program (thus creating the need for alternative advertising strategies) cause viewers to miss the disclosures when they skip the credits at the end of a program.

Marketing literature explains several negative consequences that can emerge if current disclosure practices are inadequate to inform viewers when they are viewing paid embedded advertising. These issues are discussed next.

What is the Problem with Undisclosed Advertising?

Because any new government disclosure mandates can be challenged under advertisers’ free speech rights, government agencies such as the FCC or the Federal Trade Commission (FTC) must show sufficient public interests to justify these mandates. The major concern about undisclosed embedded advertising is deception, which is discussed in a separate section subsequently. Marketing research reveals several additional concerns about undisclosed advertising, including product placement and product integration in television shows.

Current Sponsorship Disclosure Law and Deception Regulation

When Rotfeld (2008) concluded that loss of skepticism was not a public policy concern, he focused on what was said about products, rather than the method of communication. This reflects a traditional deception analysis that focuses on the material assertions about advertised products. Most marketing literature on undisclosed advertising always comes back to this basic concern about consumer deception. Deception is at the heart of current and proposed FCC and FTC advertising regulations.

A long-standing premise in federal law is that the public is entitled to know when it is being targeted with advertising over public broadcast signals. Congress delegated the authority to enforce that policy to the FCC. The Communications Act (2006) requires broadcasters to use due diligence to obtain information from employees and others about paid promotions. In addition, station employees, program producers, and program suppliers are obligated to report any such exchanges to station personnel (Savare 2004, p. 360). The FTC Act (2010) empowers the FTC to prevent unfair or deceptive acts or practices. The act designates false advertising and the dissemination of such as unfair or deceptive practices. Accordingly, the FTC is empowered to regulate deceptive advertising, including television advertising.

The FCC regulations implementing the Communications Act sponsorship disclosure mandates provide one significant exception for obvious sponsorship. That is, the traditional 30-second television advertisement does not require sponsorship disclosure because it is obvious (at least to adult viewers) that the advertiser paid the broadcaster for that airtime. Conversely, the use of products as props in a scene on a television show must be disclosed if the use is done for a fee or other consideration. This disclosure is often in the form of an audio announcement or video stating that “promotional consideration was furnished by the following …” at the beginning or end of a program (Hoffman 2008). Disclosure is not required, however, when a product is used in a scene for realistic effect without compensation to the broadcaster. Accordingly, the current disclosure scheme is not concerned with the mere presence of trade-marked goods or services in broadcasts. The purpose of sponsorship regulation is to ensure that the public understands that some products appear in broadcasts because their sponsor paid for them to be there.

Though adopted later and appearing in a different section of the FCC rules, a nearly identical sponsorship disclosure regime applies to “origination cablecasting” by cable operators. Original cable series such as Mad Men fall under this rule. Network broadcast programs brought into consumers’ homes by a cable provider, however, are not the obligation of cable operators when it comes to sponsorship identification.

Proponents of new disclosure regulations argue that current embedded advertising practices are inherently deceptive. In general, an act is deceptive if it includes a representation or omission that is likely to mislead reasonable consumers and the representation or omission is material (FTC 1984).

An FTC staff member characterized product placement as word-of-mouth advertising, with the sponsoring program acting as the speaker, or a sponsored consumer (Engle 2006). In 2005, Commercial Alert petitioned the FTC, alleging that product placement without full disclosure (which it called “buzz marketing” at that time) constituted an unfair and deceptive practice (Ruskin 2005). In examining the tactic, the FTC relied on its Endorsement Guidelines from 1980. These guidelines focused on the relationship between the endorser and the product seller and whether it was likely to have a material effect on the perceived weight and credibility consumers gave the endorsement. If a connection between the endorser and the product seller was not expected by the audience, the viewer would likely give the endorsement greater credibility than if he or she understood that the endorser was being paid to promote the product. Accordingly, in cases when the viewer would not clearly understand the paid relationship between the endorser and the seller, that sponsorship needed to be disclosed. In cases of celebrity endorsements, however, the FTC generally assumed that reasonable consumers would understand that a celebrity was being paid to appear in the advertisement.

Despite the similarities between product placement and undisclosed endorsements, the FTC informed Commercial Alert that its complaint “does not suggest that product placement results in consumers giving more credence to objective claims about the product's attributes” (Engle 2005, p. 3). Furthermore, the Commercial Alert complaint did not sufficiently show that product placement involves “false or misleading objective, material claims about the product's attributes” (Engle 2005, p. 3). The FTC promised continued case-by-case evaluation of specific claims of deception regarding product placement (Engle 2005, p. 5).

Recently, the FTC (2010) revised its Endorsement Guidelines. One revision requires disclosure of celebrity plugs of products that are integrated into interviews and talk shows. The guidelines state that an endorsement in this context is “likely to be deceptive” because a reasonable viewer would not understand this apparent casual mention is actually paid endorsements (FTC 2010, § 255.5, Example 3). This new rule is the closest the FTC has come to addressing product integration advertising on television (Shaw 2009). At the same time, however, the guidelines would not require a professional tennis player to disclose that she was paid to wear a sponsor's clothes on a talk show because no claims or representations were made about the clothes (FTC 2010, § 255.5, Example 3). This conclusion by the FTC harks back to its 2005 conclusion that product placements cannot be deceptive without any express claims about the products.

These two examples in the new FTC Endorsement Guidelines reflect uncertainty about whether embedded advertising on television is deemed deceptive by the FTC now. In 2008, Petty and Andrews (2008, p. 15) called on the FTC to clarify its position on embedded advertising because the practice “may be beyond the realm of objective claim verification in current deception policy.” The new Endorsement Guidelines address undisclosed embedded celebrity plugs but also continue to emphasize objective claims. The guidelines do not reflect a reversal of Engle's (2005) analysis of product placement deception. Accordingly, sponsorship disclosure regulations by the FCC are the likely route for any new governmental intervention regarding embedded advertising on television. The various recommendations from the FCC rulemaking comments are examined next.

Proposals for New Regulation

Commercial Alert (2008) proposes simultaneous pop-up notices of “advertisement” for most paid product placement or paid integrated products that appear on-screen. The “pop-up would only be required for a limited period (perhaps five seconds) in each scene or segment in which the placement occurs” (Commercial Alert 2008, pp. 12–13). Commercial Alert also proposes announcements at the beginning of programs to inform viewers of all the ways they are being advertised to in the course of a program. For example, in the case of product integration into a scene, Commercial Alert (2008, p. 13) would require an opening disclosure, such as “This program contains paid advertising for…. The script of a scene has been altered to include an in-program advertisement from this advertiser.” In the Mad Men example in which Heineken is discussed in multiple scenes, however, a different disclosure would be mandated: “This program contains paid advertising for Heineken. The story for this episode has been developed in conjunction with Heineken, and the program contains in-program advertisements from Heineken” (Commercial Alert 2008, p. 13). Finally, Commercial Alert (2008, p. 13) proposes a comparable disclosure for the beginning of unscripted reality programming, such as “This program contains paid advertising for…. The episode features contestants modeling clothing from this advertiser. The choice about what clothing contestants will model in this episode has been altered to include an in-program advertisement from this advertiser.”

In all these examples, Commercial Alert proposes an additional disclosure at the beginning of each scene in which a product placement occurs. Presumably the “additional” disclosure would be the same as the ones provided at the beginning of the show, though the comments do not explain whether this is so. Commercial Alert asserts that its proposed system of announcements and pop-up disclosures is necessary to satisfy the statutory requirement that all placements for which payment has been received must be disclosed at the time of the broadcast.

Commercial Alert distinguishes a few situations when the commercial sponsorship is obvious and needs no further disclosure. These include a brand name appearance in a traditional advertising setting on a show, such as the appearance of a billboard in a street scene; incorporation of a brand name into the name of the show or a segment; and endorsement of a product by a celebrity or other person with which he or she is clearly commercially tied (Commercial Alert 2008, pp. 12–14).

The WGAW proposes simultaneous disclosure, using a “crawl” along the bottom of the screen, any time a product is mentioned, referenced, or exhibited during a television program, for a fee or other consideration, including when feature films are rebroadcast on television. The WGAW (2008a, p. 2) proposal elaborates the following:

One justification posed by the supporters of simultaneous disclosure is the networks’ current use of the lower portion of the television screen to promote upcoming episodes of other programs. The WGAW (2008a, pp. 13–19) provides several examples of this practice in its comments. Furthermore, it explains a move is afoot by networks to begin “renting” the bottom one-third of the television screen to advertisers. Accordingly, the WGAW argues that broadcasters’ cries ring hollow regarding the negative effect of simultaneous disclosures on the artistic integrity of a program.

Although viewers might not distinguish between one such exploitation of the lower portion of their screen and another, legally the distinction could be significant. The WGAW ignores the fundamental difference between a broadcaster's opting to occupy screen space and being ordered to broadcast a government-mandated disclosure. Regardless of the artistic merit or demerit, a mandated disclosure deprives the broadcaster of that time and space to broadcast messages of its choosing.

The Screen Actors Guild offers another proposal for new disclosures. Unlike the disclosure schemes of Commercial Alert and the WGAW, the Screen Actors Guild does not propose simultaneous disclosure whenever a paid product appears on screen or in the dialogue. Rather, the Screen Actors Guild (2008b, pp. 1–2) “proposes that the Commission require clear and distinct visual and audio disclosure before and after a program which contains product placement and integrated products.” It also maintains that the disclosure should appear in readable text on the full screen for not less than five seconds. The announcements should contain specific language explaining that the program contains embedded content that has been included in exchange for a fee or other consideration and that its inclusion is a paid advertisement. Unique to this proposal is a request that this disclosure specifically states that no particular product placement should be considered an endorsement by the producers, writers, or actors.

These three advocates illustrate the reform positions proposed to the FCC (that do not specifically involve children's programming). Networks and other media providers oppose these reforms and generally contend that existing sponsorship laws and practices suffice. Eighteen parties representing advertisers and broadcasters filed a single comment in the FCC rulemaking. They include CBS, NBC, FOX, Disney, Discovery, Viacom, and the Motion Picture Association of America (National Media Providers 2008). In particular, these parties contend that any expansion of sponsorship disclosure mandates would violate their free speech rights. The free speech issues inherent in this regulatory proceeding are discussed next.

First Amendment Issues

Mandatory disclosure of paid sponsorship has a long history, notwithstanding advertisers’ commercial speech rights, presumably to help preserve the skepticism defense mechanism that is lost when advertising is undisclosed. Otherwise, most entertainment “regulation” has been self-imposed by industry to keep government regulators at bay (Savare 2004).

Proponents of increased regulation first allege that embedded advertising is inherently deceptive and misleading. As such, the argument goes, product placement and product integration are not protected under the First Amendment, which only shields advertising that is not misleading (Central Hudson Gas & Electric Corp. v. Public Service Commission 1980, p. 566). Yet none of the complaints about the marketing practices assert actual consumer deception or misunderstanding. Rather, most of the complaints filed in the FCC rulemaking (other than addressing children's television) focus on the increased prevalence of embedded advertising or the fast-scrolling tiny print of current disclosures.

The Supreme Court has never applied the deception standard to undisclosed product placement or product integration to determine whether it is inherently deceptive. As noted previously, in 2005 the FTC concluded that product placement advertising was not inherently deceptive. In its new Endorsement Guidelines, however, the FTC cites numerous examples when undisclosed paid endorsements are deceptive. In these cases, the only deception alleged was the undisclosed sponsorship of the endorser, not any misstatement about the products (FTC 2010). In those same guidelines, however, the FTC concluded that nondisclosure by a tennis player that she was paid to wear the sponsor's clothes on a talk show was not deceptive. This conclusion was based on the fact that the tennis player just wore the clothes on the show but made no affirmative representations about them (FTC 2010, § 255.5, Example 3). Thus, the law is clearly unsettled regarding undisclosed advertising and whether it is inherently deceptive or entitled to free speech protection under the First Amendment.

At the opposite end of the spectrum from the position that embedded advertising is inherently deceptive is the possibility that integration of sponsored content into creative content could entitle the entire broadcast “strict scrutiny,” the highest protection under the First Amendment. In general, advocates of new, increased disclosures do not consider the possibility of heightened constitutional scrutiny.

Is it Commercial Speech?

In the eyes of the law, the purpose of a television program is to convey a message. In some programs, the message may be purely entertainment. In many dramas and comedies, however, the messages may be social commentary or political and social satire. Accordingly, entertainment speech is given broad First Amendment protection, and any regulation of the medium is subject to strict scrutiny (Savare 2004). The proponents of increased disclosure do not assert whether shows with embedded advertising are merely program-length commercials for the sponsoring products, with no continuing value as entertainment speech.

For most advertising, the purpose of the expression (to promote goods and services) is legitimately subject to regulation. Conversely, the mechanism of expression (the speech, whether it is expressed in words, logos, or a combination) is protected under the First Amendment (Anonymous 2005). This merger of regulatable purpose and constitutionally protected mechanism generated an intermediate level of First Amendment scrutiny applicable to advertising, the commercial speech doctrine. The commercial speech doctrine allows legitimate regulation of the commercial purpose of advertising while still providing significant free speech protection for the mechanism (Bhagwat 2007). Thus, the question raised by embedded advertising is whether the commercial purpose of the advertisements outweighs the constitutionally protected message of the program. If so, the entire program could be regulated pursuant to the reduced commercial speech scrutiny. This is what advocates of increased disclosure assume. Alternatively, the speech—both commercial and noncommercial components—is entitled to full constitutional protection and any regulation subject to strict scrutiny, a test that is difficult for regulators to satisfy.

Opponents of new sponsorship regulation in the FCC rulemaking relied heavily on Bolger v. Youngs Drugs Products Corp. (1983) to urge that programs embedded with advertising deserve full free speech protection. They cite Bolger (1983, p. 66) for the proposition that commercial speech does “no more than promote a commercial transaction.” They contend that embedded advertising does not promote a commercial transaction at all. Furthermore, the program in which a product is embedded does much more than promote the product.

The Court in Bolger (1983, p. 63) noted three factors in classifying speech as commercial or not. First, are the messages in question conceded to be advertisements? Second, do the messages reference a specific product? Third, does the speaker have an economic motivation? The Court stated that no single factor would yield a conclusion.

When applying the Bolger three-part test to embedded advertising, two of the three factors point to a conclusion that embedded advertising can be regulated as commercial speech. Although the broadcasters do not “concede” the first Bolger point—that product placement and product integration is advertising—their position is unsupportable by any reasonable interpretation of the marketing activity. Product placement is similar to a branded product appearing on a billboard. Product integration goes further and brings out qualities of the product in the context of the fictionalized scene. Creating both brand exposure and favorable impressions of the brand is a classic attribute of advertising (Lewis and Nelson 1999), and both are accomplished with embedded advertising. The argument that product placement and integration do not constitute advertising is untenable, whether the sponsors “concede” it or not.

In addition, product placement and product integration refer to specific products, with clearly displayed logos or express mentions in dialogue. Thus, embedded advertising satisfies the second Bolger criteria for commercial speech.

Finally, the third Bolger factor reveals the difficulty of applying traditional commercial speech analysis to embedded advertising on television. When Bolger asked about the “economic motivation” of the speaker, it was addressing only a single condom manufacturer that produced pamphlets about sexually transmitted disease to promote condom sales. The same analysis regarding speaker motivation in a television production may not be as simple.

When it addressed product placement, the FTC identified the sponsoring program as the “speaker.” That approach, however, ignores numerous speakers involved in a television production, such as the show's producers, directors, actors (and their union), screenwriters (and their union), and the product sponsor that advertises in the show. The motives of these interested parties to a television show include a mix of economic and artistic factors. The artistic motives may include political or social commentary.

For example, a show's producer has an economic interest in selling advertising to allay the costs of production. Presumably, however, the producer also cares about the show's quality relative to others in its genre (which is what wins Emmys). Producers also care about the show's popularity with viewers because good ratings protect the show. Similarly, the artists involved in a show care about its commercial viability, for their personal economic interests. They also care about artistic merit and their own professional repu tations. Ad sponsors certainly care about the popularity of a show because the number of viewers maximizes the value of the advertising investment.

The convergence and divergence of these parties’ interests were reflected in their comments to the FCC rulemaking. The content producers opposed any additional disclosure because, they allege, it would interfere with the viewing experience to the point that they would need to discontinue embedding advertisements (and lose that revenue). Similarly, the Screen Actors Guild opposed simultaneous disclosure because of its interference with creative content. Nevertheless, the actors have their own economic interest in some increased disclosure. They sought disclosure that would ensure that individual actors are not personally linked as endorsers of an embedded product because those “endorsements” might interfere with their own, competing exclusive endorsement deals (Screen Actors Guild 2008a, p. 9).

Writers would seem to have a strong interest in protecting creative content and opposing simultaneous disclosure if it interferes with that content. So why did writers favor pop-up simultaneous notices about embedded advertising, as well as opening and closing announcements that would cut into program time? The WGAW has an axe to grind with reality programming, which is a major user of embedded advertising. Reality shows do not treat their “segment producers” as writers who can be represented by the WGAW (2010).

Accordingly, all these “speakers” on a television show have multifarious economic and artistic interests in the production. This makes it difficult to cleanly apply the Bolger “economic motivation” standard to understand whether embedded advertising in a commercial television show will be scrutinized as commercial speech.

Ultimately, all the foregoing television participants have an interest in their show's ability to generate advertising revenues. Ad revenues affect everyone's job security on a show. Nevertheless, that may not be enough to determine whether embedded advertising will be regulated as commercial speech. The need to sell commercials to produce television content has never reduced the First Amendment strict scrutiny a television show enjoys. Bolger does not produce a clear-cut conclusion that embedding commercial messages changes a production's right to the same highest level of free speech protection.

According to Goodman (2006), disclosure law actually promotes free speech objectives rather than thwarting them. Disclosure promotes public discourse, debate, and expression of ideas, all First Amendment values. Thus, disclosure of embedded promotion satisfies the free speech objective of better information flow, one of the “public rights” regarding free speech (Goodman 2006, pp. 130–33). As noted previously with regard to Goodman's perspective on skepticism, her public discourse analysis is not limited to commercial advertising of goods and services. It also discusses, without differentiation, the law of political advertising, sponsored news, and public service messages. Her “public rights” analysis may be justified when disclosure is about political advertising or news sponsorship. In these cases, if the public understood the source of the news or the political funding, it might alter its interpretation of that news or political message.

Goodman's (2006) analysis fails to distinguish the nature of the discourse that heightened disclosure of embedded advertising might prompt. Simultaneous disclosure of embedded sponsorship might well prompt more public discussion about the sponsorship. Such a discussion, however, could detract from the creative message reflected in the program itself. If simultaneous disclosure promotes public discourse about the advertising tactic, discourse about the programming content could get lost. Government-mandated disclosures might force producers to choose between the embedded advertising message and their creative message.

Conversely, much of this potential public discourse is likely to be about how embedded advertising detracts from (or adds to) the artistic merits of the show. In other words, the discourse about the advertising is a discourse about the show's artistic choices, all of which are in the producers’ control. For example, embedding Heineken in Mad Men evoked the Miller “champagne of beers” ad campaign of the 1960s. This embedding contributed to the show's reputation for authenticity to the culture of the time (Curtis 2009; Schwartz 2007). Thus, not all discourse about embedded advertising is negative. Even if it is, that may be justified criticism on the way the advertisements are embedded, not on the practice itself. Such discourse is fully consistent with Goodman's (2006) position about the First Amendment value that disclosure is supposed to encourage.

These competing free speech perspectives on the impact of increased, mandatory disclosure suggest that a court decision specifically addressing embedded advertising will be necessary to determine whether embedded advertising can be regulated as commercial speech. Even if the lower scrutiny of the commercial speech analysis applies, it is unclear whether new regulation is justified. The commercial speech analysis is applied next to the disclosure reform proposals.

Commercial Speech Analysis Applied to Proposed Sponsorship Regulation

Central Hudson asks whether the government has articulated a substantial public interest for the commercial speech regulation in question to stand. The government's interest in regulating sponsorship disclosure has been accepted for decades: to reveal when particular content is broadcast because of consideration received by the licensee. The Supreme Court has never balanced this government interest against the free speech rights of broadcasters.

As explained previously, disclosure addresses the need for consumer skepticism that normally is present when processing advertising. Skepticism helps prevent misperceptions and deception but can be lacking when consumers do not understand that the messages they are viewing are sponsored advertising. Thus, the government's interest in mandating disclosure is to protect the skepticism defense, which in turn prevents misunderstanding and deception.

Several comments raise questions about the exact understanding of consumers regarding paid sponsorship of embedded advertising. For example, Commercial Alert (2008, pp. 5, 12) asserts that a brand-identified product that appears in a program in a “traditional advertising setting” would be obvious to viewers as a paid promotion and would not need to be disclosed. A billboard in a scene at a sports stadium is the example provided. In contrast, when a brand-indentified product is “used as a prop” or “a character uses or interacts with the product,” simultaneous disclosure would be required “at the moment viewers are advertised to” (Commercial Alert 2008, p. 15). Allegedly, the advertising use of a prop is “hidden,” while the billboard is presumed obvious.

Commercial Alert (2008) cites no research or other factual basis for its assertions about when embedded advertising is obvious to viewers versus hidden. Consumers might believe the billboard appears in the scene to provide realism or just by happenstance in a location where the director decided to shoot. It is unclear what consumers think about the paid nature of a brand-indentified product in a scene used as a prop or by a character. As noted previously, marketing research addresses the effects of product placement on consumers. It does not address viewers’ understanding about payment for embedding that advertising.

The WGAW (2008b, pp. 6, 8–9, 11, 12) repeatedly cites the increased prevalence of embedded advertising as justification for expanded disclosure. Again, this advocate provides no factual basis linking the prevalence of embedded advertising to consumers’ understanding, or lack thereof, about payment for embedded advertising. On the contrary, Bhatnagar, Aksoy, and Malkoc (2004) explain that consumers become more aware of the persuasive intent of product placements as placements become more common. They suggest that U.S. consumers are becoming increasingly aware of commercial content in entertainment media. If consumers are becoming more sophisticated in their understanding about its paid nature, embedded advertising would not require any sponsorship disclosure, just like the 30-second commercial.

Without clarity regarding what the public does or does not understand about the paid sponsorship of product placement and product integration, the Central Hudson commercial speech analysis stalls. If there is no public misunderstanding of the paid nature of these product appearances, the “substantial government interest” in regulating sponsorship disclosure vanishes. The constitutional analysis would end, and increased regulation would fail.

If there is no public need for increased disclosure, the “when” and “how” of such disclosures would be irrelevant. Nevertheless, for the sake of argument, this article assumes that the FCC can show that consumers do not understand that paid sponsorship underlies product placement and product integration. Accordingly, proposals for expanded disclosure would need to satisfy the remainder of the Central Hudson criteria.

Central Hudson next requires that any government restrictions on commercial speech be carefully designed to directly advance the public interest at stake. A regulation cannot stand if it only provides remote or ineffective protection (City of Cincinnati v. Discovery Network 1993). Assuming that the public needs disclosure to understand the paid nature of embedded advertising, proponents’ calls for new and additional disclosures would meet this requirement. The WGAW comments showed multiple examples of current disclosure practices that include tiny print scrolled on a screen momentarily. No marketing research is necessary to conclude that average viewers do not get any meaningful information about sponsors when that information scrolls by so quickly and is too tiny to be read. The current disclosure rules, as implemented, are providing completely ineffective sponsorship notice. Accordingly, some new enforcement regulations would be defensible under this prong of the Central Hudson test.

Just how much additional disclosure will withstand constitutional scrutiny is addressed by the final Central Hudson factor. A regulation is unconstitutional if a more limited restriction on commercial speech could serve the governmental interest as well (Central Hudson 1980, p. 570). Here is where Commercial Alert, the WGAW, and their supporters overstep. They insist that the public can only meaningfully understand product placement and integration with simultaneous pop-up or crawling detail about paid sponsorship. Television viewers can imagine the intrusiveness of such notices by watching severe weather alerts or Amber alerts on their screens and then envisioning similar notices appearing steadily during every night of programming.

Commercial Alert also proposes audio/video announcements about the different caliber of participation by sponsors, from paying to place a product in a scene to participating in the screen-writing process. In the case of a program with several different sponsors participating in different degrees, such announcements could take up to a minute or more of content time, potentially.

Commercial Alert and WGAW seem to have set up a false dichotomy regarding disclosure options. On the one hand is the current situation with unreadable, fast-scrolling, and tiny-print disclosures. On the other hand is their system of lengthy opening or closing audio announcements, plus their proposed pop-up or crawling notices in the midst of a scene.

Broadcasters have asserted a similar all-or-nothing approach in which anything but the status quo of disclosures is unconstitutional. This article recommends an alternative, intermediate approach, which is discussed next.

Recommendations and Further Research

New consumer research needs to test the most basic question about how adult audiences understand paid product placements and integration in television programs. Until now, marketing research on product placement has had different objectives. For example, marketers have examined the effect of particular placements on brand recall, attitudes toward products, and consumer behavior (Russell and Stern 2006). They have not investigated the basic understanding that lies at the heart of sponsorship disclosure law: Does a reasonable adult viewer know that a brand appears in a scene as a result of paid consideration? If the answer is yes, the government interest in mandating disclosure would be missing. Any proposals for expanded disclosure in the FCC rulemaking would be unjustified and unconstitutional.

If marketing research confirms a lack of understanding about sponsored embedded advertising, the FCC needs to bifurcate the sponsorship disclosure rulemaking docket into one for children's programming and one for other programming. Within the docket for nonchildren's programming, the FCC also needs to handle radio and television sponsorship separately. The two media are completely different, in the way advertising is embedded and in the form of disclosure. It does not make sense to try to shoehorn rules for one into the other.

Furthermore, if marketing research confirms a lack of understanding about sponsored embedded advertising alleged by Commercial Alert and others, a completely new disclosure approach will be necessary. As discussed, any misunderstanding by consumers of embedded advertising cannot justify the proposed simultaneous notices and lengthy sponsor-by-sponsor audio/video disclosures that Commercial Alert, WGAW, and others advocate. The free speech constraints posed by those mandates would outweigh even real, proven consumer misunderstanding about the paid nature of embedded promotions. Current disclosure practices do not provide meaningful notice however.

A meaningful middle ground is available by linking sponsorship disclosure to the TV Parental Guidelines system of notices. In the Telecommunications Act of 1996, Congress provided that distributors of video programming should have the opportunity to develop a ratings system to address the violence, explicit language, and adult situations in programs. In response, the National Association of Broadcasters, the National Cable Television Association (now the National Cable and Telecommunications Association), and the Motion Picture Association of America jointly submitted a system of voluntary parental guidelines to the FCC. The TV Parental Guidelines, an age-based rating system, was adopted and implemented not only by television broadcasters, networks, and program producers but also by cable networks and systems. On March 12, 1998, the FCC found the industry rating system acceptable and in compliance with the law (FCC 1998).

At the beginning of programs, a brief audio/video statement tells the audience “This program is rated TV MA LSV. It contains strong language, violence, and sexual situations for mature audiences. Viewer discretion is advised.” For a brief moment after each commercial break, the TV MA LSV emblem appears in a small box in a corner of the screen.

Research on parents’ understanding about the meaning of the various ratings in the TV Parental Guidelines has produced mixed conclusions. For example, more than 50% of parents surveyed state that they rely on the guidelines, and 58% prefer content guidelines to age restrictions. At the same time, most do not know what all the different content designations mean, and awareness of the guidelines has decreased since they were first introduced (Bushman and Cantor 2003). Despite these mixed results, the existing system provides a useful vehicle for new disclosure about embedded advertising. If a majority of parents were aware of the guidelines in 2003, the guidelines are sufficiently in the public consciousness to be the basis for new sponsorship disclosure that is accompanied by a public education campaign.

At this time, the same parties that voluntarily created the TV Parental Guidelines should adopt a new rating to incorporate into the existing system. A new designation, IPP (for integrated paid promotions), should be added to the current announcements. Consequently, Mad Men would begin with the announcement “The following is rated TV MA LS IPP. It contains strong language, sexual situations, and integrated paid promotions. Viewer discretion is advised.”

For this new IPP disclosure to be meaningful, it would need to be accompanied by a public education program comparable to that when the TV Parental Guidelines were originally adopted. Such an education campaign would help consumers understand what is meant by integrated paid promotions. The FCC and FTC could establish websites on which consumers could find the degrees of paid promotions that are implemented in the market, akin to Commercial Alert's system of proposed disclosures. A similar public education program was successfully undertaken in 2008–2009 regarding the switch to digital television, which, arguably, was a much more significant and time-sensitive matter to consumers.

This new education program would have the added benefit of creating new public awareness of the guideline system that has waned since it was first implemented. New explanations of the IPP designation would also provide an opportunity to improve understanding of the existing content designations.

The Screen Actors Guild (2008b, p. 8) proposed using a notice similar to the TV Parental Guidelines to disclose embedded advertising. Its proposal overstepped when it called for sponsor-by-sponsor notices of all products advertised for a minimum amount of screen time for each credit. This approach could be lengthy and not meaningful if consumers do not tune in for the credits anyway, as so many studies allege.

In contrast with the Screen Actors Guild proposal, the IPP notice recommended here should be accompanied by a website for each broadcaster on which product-by-product sponsorship is disclosed. Many shows maintain websites for interested viewers already, so additional disclosure in that location would only require a link to a new page that is updated with each episode's paid promotions. For broadcasters interested in driving traffic to their websites, this approach would give them ancillary promotional opportunities to offer to sponsors that embed advertising in the programs (Caldwell 2002).

For shows that do not have a dedicated website, the disclosure could appear on a network site, the FCC's site, or an independent third-party site, such as that maintained for the TV Parental Guidelines. A copy of disclosure information could be made available at cable companies, television stations, libraries, federal government office buildings, or other public places for consumers without computers who want the information. Individual hard copies could only be made available at consumers’ expense to prevent any additional costs and burdens of government-mandated disclosure.

With sponsorship disclosure detailed in these publicly accessible locations, only a single, simple announcement would be needed at the beginning or end of programs: “For detailed information about paid promotional consideration go to www. …, contact the FCC at …, or visit your local library.” This information would need to stay on the screen long enough and be large enough for someone to write it down. ³

This recommended notice scheme is a nominal requirement that should satisfy constitutional protections for both commercial and noncommercial disclosures. Under the Central Hudson test, this form of disclosure directly addresses the government interest of providing the public with complete information when product placement or integration is the result of paid sponsorship. Most important, for constitutional purposes, it is far less restrictive on speech than any of the proposals before the FCC now because it does not take away any of the limited seconds or screen space that broadcasters now have to deliver content and advertising.

Finally, as noted previously, the FTC revised its Endorsement Guidelines in 2009. The new guidelines significantly expanded the mandates for sponsorship disclosure on the theory that undisclosed material connections between product sponsors and endorsers are deceptive, even without any other product claims (FTC 2010). These new guides suggest that the FTC is poised to reinsert itself into the arena of regulating product placement as deceptive, because it previously had equated product placement with undisclosed endorsements (under the 1980 Endorsement Guides).

At the same time, however, at least one example in the new Endorsement Guides continues to emphasize product claims and the lack of deception when no product claims are made. In light of the overall approach to deception in the new Endorsement Guides, the FTC needs to reexamine its conclusion (Engle 2005) that product placement is not deceptive, regardless of any accompanying product claims. It needs to revisit the issue, taking into account the advent of product integration, which was not covered in its original product placement decision. The FTC also needs to reconcile its earlier “not deceptive” conclusion about product placement with the examples in the new Endorsement Guides that find deception solely based on undisclosed sponsorship, without any product claims.

Conclusion

In the Mad Men episode discussed at the beginning of this article, the wife who was targeted by her husband's ad campaign in her own grocery store was not pleased to discover she had been the subject of his marketing test. She resented that she was the only one at the dinner party not “in on it.” Regulators and others are similarly concerned that consumers are kept in the dark about the sponsorship of story lines in television shows.

With regard to disclosure of embedded advertising sponsorship, broadcasters have not taken the industrywide self-regulatory approach they have undertaken for other issues over the years. If they had adopted better disclosure on their own, they would not be fighting more expansive regulatory proposals now.

The FCC has yet to act on any of the sponsorship disclosure proposals. Nevertheless, in two separate statements in 2009 regarding embedded advertising in children's television, the FCC (2009a, p. 13184; 2009b, p. 11429) cited the sponsorship disclosure rulemaking as the vehicle for taking any proposed action. One of these statements was a report to Congress following up on the V-chip implementation. In this report, the FCC referred to its sponsorship disclosure rulemaking as the vehicle for implementing any parental guidelines regarding embedded advertising, similar to the recommendation here.

Furthermore, PQ Media (2010) concludes that a shift from unpaid to paid placements will continue through 2014, especially as digital recording device penetration drives up the value of branded entertainment marketing. Television viewers have no way to distinguish paid from unpaid product placement and product integration. Thus, the FCC's existing authority to regulate paid sponsorship disclosure would seem to be the vehicle for addressing this increase in the practice.

When it acts on the issue, the FCC must view quite critically the positions of many of the proponents of pervasive new disclosures. Commercial Alert (2010a) has among its stated goals: “To stop the subversion of our culture by corporate huckstering and commercial values, and to strengthen noncommercial culture.” Although this is a perfectly legitimate objective for a private nonprofit organization, it would indicate obvious censorship if adopted by a federal agency as the basis for commercial speech regulation. Similarly, the Screen Actors Guild (2008b, p. 3) and the WGAW (2008a, p. 3) have urged a need to protect artistic integrity to the FCC. The WGAW (2008a, p. 17) has expressed its dismay at being forced to cooperate in the commercial expression embedded advertising reflects. Normally, government leaves artistic integrity to artists and their sponsors.

Foreign jurisdictions ban or tightly regulate product placement and sponsorship disclosure (Hitchens 2009; Lee 2008; Woods 2008). Lawmakers in other countries, however, are not operating under a constitutional free speech mandate that extends to advertising, as regulators in the United States are. The FCC is only empowered by law to protect consumers’ needs for sponsorship disclosure. Similarly, the FTC is delegated the authority to regulate deceptive advertising. Neither agency is authorized to address other social needs regarding commercialism in the arts or the labor/management relationship among producers, actors, and writers. The recommendations stated herein for new and limited notices and disclosure of paid sponsorship avoid those other issues and accomplish the stated goal of the regulators’ enabling legislation.